Tibetan economics

No, it isn't a new form of economics. Instead it's the subject of a story on The Economist about economic development in Tibet. I think it's definitely worth a read so you can appreciate why the Chinese government wants to develop the region.

The soft side of China

In 1990 a well-known political scientist, Joseph Nye, coined the term "soft power." For those of you unfamiliar with the term, soft power is when other countries want what another country wants. In regards to China, soft power would be reflected when other countries want the same thing China wants. No need to threaten or persuade. It's similar to a person having Golden Retriever (without a wagging tail), where a Golden is up to doing anything its owner wants to do (especially playing fetch or eating).

This "soft power" is different from military or economic power (otherwise known as "hard power") in that its sources are cultural attractiveness, political ideology, and activity abroad. Put simply, if other countries like the culture and have good feelings about China, then China will have a lot of soft power. The problem is that measuring soft power is really hard. How does one quantify or qualify cultural attractiveness? The number of movies, pop songs, or Nobel prize awards? Using any of those doesn't quite do the trick, as we don't know how one more movie, pop song, or Nobel prize enhances a country's soft power.

That all said, people are making a big deal about China's "soft power." I'm really skeptical on the subject, especially when everyone agrees that the source of soft power is the attractiveness of culture to foreign audiences; it isn't something that a state can really promote. After all, when you know that a government is trying to shape your opinion, you're more likely to believe the exact opposite of what it is saying. So when I see something like CFR's article on China's soft power, I cringe. It details China's commercial diplomacy more than anything else. Sure, people in Southeast Asia and Pakistan have favorable views of China now, but Southeast Asia definitely has concerns about China in the future. Soft power, like any other type of power, comes and goes. Moreover, because soft power's primary source is culture, it takes a while (say more than a generation) to actually see any payoff. China just really started to focus on soft power in 2006. Little too early to talk about its soft power from my perspective.

In the Western world (including South Korea and Japan), there is still a lot of anxiety surrounding China's intentions. Throw Tiananmen Square and Tibet on top of China's increasing military capabilities and you have a recipe for almost continual suspicion of China. For all the talk about China's "soft power" there really isn't much to it.

The U.S. is still the top dog

Foreign Policy is running an article that I think illustrates American preeminence in the international community. Looking at the list of the 40+ countries and what they want from the United States, it is hard to believe speculation that United States has suffered from a loss of stature within the international community.

My logic (and it may be flawed), is that if the United States was viewed by other states as weaker and not a useful partner (or means) in pursuit of their goals, then fewer countries would be in attendance. Moreover, one wouldn't see the diversity of "wants" when the foreign dignitaries get their time with American officials. Compare this to when foreign officials go to China, economics tends to be the overriding topic of discussion.

However, my logic applies as long as the current international system remains in place. Now how long that will be is a topic of frequent debate within political science, meaning that there is no firm answer. The problem in defining a specific period of time in which another state (read China) could be the dominant power within an international system is that what we know today is more defined than ever before in history. In no time prior to post-WWII has the international community had the breadth and depth of cooperation it has today. One only needs to look at the United Nations, World Bank, IMF, and the G20 to gain a sense of the interdependency. The United States lies at the heart of each of those bodies (the G20 less so than the other 3). For China to edge the United States out of its supremacy would be no small feat and would require lots of time (50+ years). It could be even longer if the international community does not share the same values of China.

So for those of you who doubt American influence, sorry to pop your bubble of depression (or joy depending on your feelings of American supremacy). The world still revolves around the U.S.

Update on China-Taiwan FTA

Looks like Taiwan and China will be signing an FTA this June according to The Washington Post. I look forward to reading the document, as whatever wording is used to address Beijing and Taipei could possibly be used in a future peace treaty between the two parties.

Besides a warming of relations with Beijing, the FTA will also open doors to similar agreements with other countries, notably Asean members. The United States will want to ink one as well, knowing that Beijing won't protest since it signed one with Taipei first. If I was an American government official, I'd certainly want to get it done within a couple of years to maintain (if not increase) trade and hence American influence in Taiwan. Why do you ask?

Quite simply the China-Taiwan FTA will either maintain or increase Taiwan's dependency on Chinese trade, potentially providing Beijing with additional leverage over the island. The United States may not yet be ready for Taiwan to assume a closer orbit around the mainland, therefore having an FTA with Taipei would at the very least maintain the status quo.

Is that a good policy? Depends on who you ask. However the U.S. government will find it increasingly difficult over time to maintain the status quo, especially considering China's military modernization. The U.S. would be hard pressed to sell F-18s or nuclear submarines to the island, which are fast becoming the most basic armaments in the U.S. military. Economically, China is likely to maintain annual GDP growth over 8% for the next several years and could easily show favoritism to Taiwanese companies in an effort to limit America's options.

I understand that kicking the can is always the preferable policy decision when confronting lose-lose scenarios. However I can't help but wonder if U.S. Taiwan policy will soon face a rather large wall.

Singing in the Strait

While this kid can sing well, I highly doubt that the song will become Taiwan's policy towards China any time soon.

Hu goes to Washington

Chinese President Hu Jintao will be in Washington shortly to discuss a wide range of issues with Obama. Politico has a good piece on the occasion, so I refer you all to it here as opposed to detailing it myself.

I'm looking forward to the statements issued during the time that Hu is in the U.S., as they'll provide some idea of where the PRC stands on things. What will be most interesting in my opinion is the disarmament discussions, as the PRC is rapidly increasing its nuclear arsenal (may have 700 nuclear missiles by 2020, compared to the 1,700 held by the U.S.). Moreover, Hu's comments on the issue will solidify the Chinese position on Iran's nuclear program.

Break out your Chinese green tea and stay tuned!

Bought in China

The Economist in this week's issue discusses what it sees as a transformation in American buying habits. If its predictions are correct, that Americans will consume less and produce more for global markets, Chinese companies will no doubt experience some ripple effects. The Economist points out that currently strong American exporters are more likely to benefit from a lower dollar and increased consumption. So what changes can one predict in regards to Sino-US trade?

Data from the U.S. Census Bureau illustrates the decline in bilateral trade that has taken place up to this point in time. The trade imbalance for 2009 was similar to that in 2006, dropping from a high of $268 billion in 2008 to $226 billion. If the U.S. buys less and the Chinese buy more (assuming the Chinese central bank allows the Yuan to appreciate in value), then the gap could shrink even more.

This partly why some American politicians are calling on the Chinese government to allow their currency to gain in value. If the Yuan grows stronger against the dollar, Chinese exports are more expensive in the U.S., while American goods in China are cheaper. However, if the Yuan's value stagnates, then the American deficit with China will only decrease as a result of lower American consumption of Chinese goods.

There are some academics who think that China will relax its hold on the RMB and allow it to gain in value. While such predictions may pan out, I'm fairly certain that the Chinese will not allow their currency to appreciate as much as American politicians and others in the international community would like. The general consensus is that the RMB is undervalued by 25%. I'll venture to say that the Chinese central bank will allow 5%-10% over the course of the next year. Again, no where near where people would like, but it's a start.