China resource

I was reading the Huff Post when I came across a Eric Anderson. I highly recommend his posts as they're quite good. Moreover, he's what one could consider an expert on Sino-U.S. relations.

Balancing act

As a result of U.S. arms sales to China, the PRC government announced that it would sanction those American companies that participated. Like many others, I was curious to see how this would play out.

Turns out that two weeks ago (when I was sick), China announced that it was going to buy 20 passenger planes from Airbus, the major European aircraft manufacturer. Now on the surface this may seem like a snub to Boeing, but in all actuality it doesn't mean much.

According to Boeing, increase air travel in China will require Chinese airlines to take delivery of 3,800 additional passenger planes by 2028. Airbus is estimating that China will require 3,200 additional aircraft to meet the demand. (The difference between the two is that Boeing assumes Chinese airlines will use smaller aircraft like the 737, while Airbus is betting on larger aircraft equivalent to the 767.) Either way, Chinese airlines will need a lot of planes in the next 18 years.

Precisely because of this huge demand for aircraft, the Chinese airlines nor the Chinese government can play favorites. If the Chinese government were to completely expel Boeing from the Chinese market for passenger aircraft, it would have no choice but to deal with Airbus (which could raise its prices as a result of its major competitor being locked out). That would not be good for Chinese airlines. Not to mention that by hurting Boeing, it hurts the Chinese manufacturers Boeing subcontracts to for the production of aircraft parts.

So far it looks like the sanctions the Chinese government was talking about amount to very little. This could change in the future as Chinese aircraft manufacturers increase in capability and quality, but I expect that not to happen for at least another ten years. While on the surface it looks like China has a lot of weight, this is an example of how little it can do despite its rhetoric.

More on China's climate change position

Here's a link to an article from The Economist that covered the fallout from Copenhagen. I don't think it would be a stretch to say that the Chinese government doesn't want to be pinned because their top priority is job creation through economic growth and development. Focusing on preventing climate change would place additional costs on Chinese businesses through regulations, which would result in businesses having less cash to expand their operations (including hiring more people).

The PRC's perspective isn't without merit. The Bush administration during its 8 years in office constantly put economic growth ahead of the environment, citing it as a reason not to sign the Kyoto Protocol. Furthermore, it seems a little hypocritical of the developed countries telling a developing country that it has be more concerned about climate change when those same nations have been adding to the rising CO2 emissions since the early 20th century.

China's take on climate change

President Hu Jintao recently called for a 40-45% reduction in CO2 emissions by 2020 compared to 2005 levels. Although this is voluntary, it's a good thing for combating climate change, even if it falls short of what some in the international community would like.

There's good reason for China wanting to lower its CO2 emissions and pollution in general. According to a World Bank report, air pollution in the PRC carries a cost of 1.2% of GDP, and if you include water pollution the total cost jumps to 3.8% of GDP. This is a large sum of money and would only increase if measures aren't enacted to decrease pollution.

I recall reading some years ago that part of the problem in China's environmental management is that its version of the Environmental Protection Agency holds the same rank as provincial governments. If this is still the case (still looking into it), then China's state agency responsible for enforcing environmental regulations cannot force provinces to comply given their equal status. Moreover, provincial leaders have little incentive to reduce pollution when there is no guarantee that their colleagues in other areas will do the same, presenting a classic free-rider problem.

It should be interesting to see if Hu's call for voluntary action is successful. I highly doubt that it will be without government incentives, as businesses are loathe to do anything that would increase costs in business operations. The free market as it is practiced in China provides little incentive to consider long-term economic sustainability. But then again, which economy does?

More sales in the pipeline?

As recently reported, the United States sold arms worth $6.3 billion to Taiwan, the first since the early 1990s when Bush Sr. was in office. However, it seems that there could be another sale in the works if Congress has its way.

Defense News is reporting that Congress may be positioning itself to sell Taiwan additional weapons, specifically F-16 C/Ds that were left out of the recent sale. It's no secret that the bulk of the ROC air force is old and requires spare parts. While I wouldn't be surprised if the "defense industry analyst" was a Lockheed Martin employee (who makes the F-16 aircraft), they raise a fair point that the production line can only be maintained for so long. If it were to close without F-16 C/Ds sold to Taiwan, and if the U.S. wanted to replace ROC aircraft at some point in the future, then it would only be able to sell Taiwan the F-18 manufactured by Boeing.

While Beijing would protest the sale of fighter aircraft to Taiwan regardless of the model, the Chinese leadership would no doubt prefer F-16 C/Ds be sold as opposed to the more advanced F-18. The question is how many aircraft would be sold? Taiwan has requested 66 F-16 C/Ds since 2006, so if Congress gets it way, that amount could be sold. However, does the Obama administration want to take the risk of selling additional weapons to Taiwan at expense of Sino-U.S. relations? That I am not sure about. It could go either way, as Obama may want to stand up to China or use it as a chance to cultivate trust with the PRC. What do you think?

Cloudy with a chance of thunderstorms

No, I haven't sacrificed my studies at Fletcher for a career in meteorology, nor am I trying to predict any weather. The title instead is my expectation of Sino-U.S. relations for the next few years.

The New York Times is running a story about the differences in priorities between China and the United States. I think they hit the nail on the head about why the United States and China can't seem to agree on anything, and made a plausible argument for why China will come around and do things the American way (China doesn't want to be seen as the bad guy in the global community).

However, the piece itself is short on why the Chinese government maintains its current position on the variety of topics raised (Renminbi valuation, Iran, and American job creation). As I see it, China can't change its policies on these issues because of domestic concerns. If China were to allow its currency to appreciate (read increase) in value, then its exports would become more expensive, something that companies and consumers don't like. On Iran, China enjoys a strong position serving as the only major economic power investing in the country. As a result of the sanctions and growing Russian dissatisfaction, Iran increasingly relies on China for investment. Moreover, China benefits from the natural and energy resources it is able to extract from the country. China would love to see job creation in the States to increase demands for its exports, but it won't sacrifice Chinese jobs to make it happen.

The article mentions China's sovereignty concerns for not cooperating, but I think this misses the point. The Chinese government may very well use the sovereignty excuse for not cooperating, but really it's because the changes required of it would harm the Chinese economy and by extension domestic society. Going forward I think we can expect to see more of these instances, where deriving mutual benefit will be more difficult. However, just because something is difficult does not mean it isn't worth pursuing. After all, you don't let cloudy skies prevent you from getting things done. Neither should the American or Chinese governments.

Bad timing

Today President Obama met with the Dalai Lama which will no doubt provoke a response from the Chinese government tomorrow. It was interesting reading about the meeting in the news, especially this article. What really struck me was how far Obama is distancing his administration from Tibetan independence and human rights. A little off topic for the blog, but it certainly seems that the president has toned down his optimism after a year in office.

I've discussed Tibet and how it relates to the PRC's concerns about sovereignty and legitimacy to rule, so I won't go there. Instead, I think there are a few points to be made about the recent (read 20th century) events concerning Tibet.

• A Chinese government never governed Tibet until 1950 when PLA forces entered the territory.
• Tibet during the early 20th century requested assistance from Britain, India, and the U.S. to maintain its independence in the 1940s, but got nothing.
• When PLA forces entered Tibet, no nation came to Tibet's defense, even when there was a large uprising in 1958.

With those points taken into consideration, it makes sense that Obama would distance himself from Tibetan independence and make it clear that Tibet is part of the PRC. If the U.S. was really concerned about Tibet, it would have done something about the issue long ago.

I also can't help but feel a little sorry for the PRC. Yes, PLA forces seized control of the territory by force, but let us not forget that the U.S. did the same thing when expanding from 13 states on the east coast to the west by almost exterminating the Native Americans. Unfortunately for the PRC, no previous Chinese government sent in troops to lay claim in the 18th or 19th centuries. If they had, Tibet wouldn't be an issue today. Apparently timing is key not only for jokes and investments, but also seizing territory.