Posted: July 19th, 2023
China and Globalization
THREE RESEARCH QUESTIONS ON FACTORS INFLUENCING CHINA’S RISE TO SUPERPOWER STATUS
In evaluating China’s prospects for achieving superpower status, especially during this economic crisis, the first research question would take into consideration whether and to what degree the United States is in decline as a superpower, and if it is, then whether China is simply going to achieve superpower status by default. This is what happened to the British Empire after decades of economic decline and then bankruptcy as a result of the Second World War: the U.S. took its place as the leading world power. Certainly the U.S. position seems far shakier today than it did in the 1950s and 1960s or in the 1990s after the collapse of the Soviet Union. Even the predominant economic model that it has been propounding worldwide since the 1980s, that of free trade and free markets is no longer sweeping all before it as it did after the Cold War.
A second research question should consider some of the factors that are holding back or limiting China’s potential as an emerging superpower, particularly corruption, nepotism, and an unresponsive, authoritarian political system. To be sure, during any period of rapid economic growth, a certain degree of corruption, bribery and fraud is inevitable, and the Chinese government has taken harsh measures against it — up to and including the death penalty. Even so, its lack of modern and efficient institutions of law and government are not enhancing its prospects for replacing the U.S. As the world’s leading power.
Finally, the third research question would consider the pros and cons in Chinese-Confucian culture in advancing or retarding its prospects in becoming a superpower. On the one hand, China is a very ancient civilization with customs and traditions that are widely shared in the Asian nations, and by overseas Chinese communities. By the same token, this culture is also collectivist, paternalistic and authoritarian, rather than individualistic and innovative like many of the Western nations, which may also become a factor inhabiting its rise.
THE QUESTION OF AMERICAN DECLINE
In 1989-91, with the fall of the Berlin Wall and the United States and its free trade, free market model of capitalism appeared to be triumphant worldwide, but this is not the case today. Because of the massive economic collapse of the past few years and trillions of dollars in government bailouts, resulting in the worst economic crisis since the 1930s, the U.S. no longer appears to be such a confident superpower compared to China and other authoritarian nations (Trompenaars and Hamden-Turner, 2010, p. 6). During the current recession, in fact, the fiscal and monetary policies of John Maynard Keynes have been revived after being largely discredited and ignored for the past thirty years.
This is also true in China, which has been using government spending to stimulate the economy and employment, increased social welfare spending and started formulating policies based more on internal development than overreliance on trade. This type of Keynesianism was also the dominant economic policy in the Western world from the 1945 to the 1970s, and no major depression or financial crash occurred in the period from 1945-73. Even though Keynesianism did not abolish the business cycle, it bottom phases were not so low and its recessions not as long as in the 1930s, the 1980s or the present (Minsky, 2008, p. 160). Governments had to ensure full employment to maintain maximum aggregate demand, while on the supply side taking action to ensure that monopolies and oligopolies did not keep prices artificially high. From 1945-70 “full employment was maintained, real wages rose constantly, economies were relatively stable, and wealth and income inequalities were reduced,” which was definitely not the case in the 1920s and 1930s or in the last thirty years (Skidelsky, 2010, p. 164).
In the present recession, the parallels with the situation in the 1930s are all too obvious, and had Keynesian measures of deficit spending, stabilization and fiscal stimulus not been undertaken promptly the entire economic system would have collapsed. These included a Troubled Assets Relief Program (TARP) designed to aid banks and other corporations facing bankruptcy, an $800 billion stimulus passed in 2009, extensions of unemployment and health care benefits, and new regulations on bank holding companies through the Federal Reserve. If they are withdrawn too quickly, a collapse may still occur, along with radical deflation, mass unemployment and extreme political unrest. Given the present weakness and dysfunction of the global capitalist economy, the stakes could not be higher, but the American model of the last thirty years has been widely discredited, even in the U.S. itself and almost certainly in the developing world.
China continues to manipulate the value of its currency to stimulate exports, and therefore does not have a true floating exchange rate. No gold standard has existed in the world since 1971, and the policy of the Federal Open Market Committee (FOMC) under Alan Greenspan and Paul Volcker was to achieve a stable currency anchor and “an expectation of a low, stable trend inflation unaffected by macroeconomic shocks” (Hetzel, 2008, p. 2). Given the huge shock of 2008-09, however, this was no longer possible and under Ben Bernanke, the Federal Reserve has been using its emergency powers to carry out FOMC policies not seen since the crisis years of the Great Depression and Second World War. Its policies have been expansionary and inflationary, lowering the value of the dollar to stimulate the economy, setting interest rates as zero, direct loans and subsidies to corporations, two rounds of Quantitative Easing, and direct purchase of two trillion dollars in U.S. Treasury notes. As with the fiscal stimulus, this Keynesian policy was designed to prevent radical deflation and a general collapse like the 1930s. Under these circumstances, China is running not only a trade surplus with the U.S. bit also become one of its most important creditors, and both of these facts are yet more evidence that America is in relative decline while China is a rising superpower.
Companies like Wal-Mart have become world leaders by taking advantage of low wages in China, and the free trade agreement that allows almost unlimited cheap exports into the United States. Wal-Mart policy of underselling their smaller competitors and driving them out of business and “blitzing out the competition by setting up chain-store ‘clusters'” (Klein, 2009, p. 132). By 1998, Wal-Mart had become the biggest retailer in the world by following these policies, with over $137 billion in sales. It always builds stores two or three times larger than its competitors and they buys its products in bulk from low-wage countries like China, reselling at prices with rich smaller retailers cannot match. Suburban malls and discount centers have now drained “community life and small businesses out of the town centers,” and smaller retailers cannot even buy their products wholesale for the same price that Wal-Mart sells them retail (Klein, p.134). Sam Walton’s style of retailing has also created depersonalized, dehumanized suburban sprawl, with stores that can only be accessed by car, lacking any distinctive design features or individual identities. While all this has been highly beneficial for China and for the Walton family — which is one of the richest in the world today — it has also had a very damaging effect on American manufacturing and retailing.
At the same time, China is also expanding its economic influence greatly in Asia, Latin America and Africa in competition with the U.S. And other Western powers. Latin America is also becoming a major source of raw materials and agricultural commodities for China, and also a market its manufactured goods. In the past, the U.S. was the dominant economic power in this region, although today the Latin American countries have more options for trade and investment. China in particular has been on a buying spree all over Latin America during the recent recession, buying up access to the natural resources it needs for its rapidly growing economy. Of course, Latin America still has a great deal of poverty and underdevelopment and does not have large numbers of middle class consumers. Wages are low there, wealth and incomes highly unequal, and this is not likely to change because of foreign trade and investment. In Thailand, Indonesia, Malaysia, Vietnam and the Philippines, the Chinese already have large ethnic minority communities that control much of the trade, commerce and investment in those countries. They are not always a popular minority because of this, and ethnic tensions have always been common in the countries between the Chinese minorities and the majority, and sometimes flare up into violence in Malaysia and Indonesia. Even in Vietnam after the end of the war in 1975, the majority of those expelled as ‘boat people’ were ethnic Chinese, while the Malays have a type of affirmative action and positive discrimination policy to benefit their own people over the Chinese.
CORRUPTION AS A LIMITING FACTOR FOR CHINA
According to the U.S. Foreign Corrupt Practices Act of 1977, companies are not allowed to pay government officials to obtain or retain business or to secure any unfair or improper advantage. All of these activities come under the classification of bribery for purposes of lubrication. Extortion is the demand for bribes from government officials as a cost of establishing or continuing a business, and both of these are illegal under U.S. law (FCPA 1977). In Chinese culture, the art of building connections or relationships (guanxi) may not necessarily follow the same ethical and legal standards as the West. Obtaining favoritism through lubrication means making payments or giving gifts requesting that “a person perform a task faster or more efficiently, whereas subornation is an act of asking officials to neglect their duties or do something illegal,” which is a crime in China (Wang and Leung, 2001, p. 105). Of course, making payments of giving gifts in return for benefits is also illegal in China, as is bribing officials to move faster or ignore violations of the law. The Chinese Communist Party has Ten Taboos against lobbying those of higher rank, taking and offering bribes, intimidation, deception, arranging jobs for others, giving gifts and banquets, and covering up illegal activities (Case 2-5). Extortion of businesspeople is also a very common practice among organized crime groups or corrupt state officials. One recent example was the case of the Australian businessman Michael Ng who was extorted to hand over shares in a business he had purchased to government officials in Guangzhou or be prosecuted and sent to prison for twenty-three years — and in China 90% of those prosecuted are always found guilty (State-Sponsored Extortion 2011).
In China, the majority of foreign firms reported that they had to make payments to officials, such as bribing customs officers to allow their products into the country. This is a clearly illegal act and would come under the category of subornation, since those selling these goods have a legal right to do so and should not be forced to make such extra payments. It should also be considered extortion on the part of the government officials concerned since they are clearly denying legitimate companies their lawful right to do business unless they pay bribes. The Commodity Inspection Board, which began examining imports in 1987, often engages in this type of extortion against importers. Another clear case of extortion would be the government official who threatened that a company would not be allowed to do business in China unless he received a 3% kickback. According to the Hong Kong Independent Commission against Corruption, such bribes and gifts extorted from foreign companies amounted to 3-5% of total operating costs in China or $3-5 billion annually (Case 2-5). This type of corruption is not simply small gifts and favors to petty officials but rises to the level of organized crime and racketeering. An example of lubrication would be the foreign traders who have to pay off officials to facilitate sales in China, often through offering trips abroad with the pretense that these are inspection tours or designed to obtain technical advice and information. Banks that refuse to issue letters of credit unless their officials are invited on one of these overseas trips are also demanding bribes for lubrication purposes, as are officials who do not provide import and export permits unless their children receive sponsorships for education at foreign universities (Case 2-5). Of course, in all these instances the line between ‘mere’ lubrication vs. extortion and subornation of illegal acts is often a very thin one.
CHINESE-CONFUCIAN CULTURE AS A BENEFICIAL OR RETARDING FACTOR
According to leading cultural theorists like Gert Hofstede and Fons Tompenaars, China could be described a particularistic society, other-directed, diffuse rather than specific in public and private life, traditionalist and authoritarian, and oriented toward the past rather than the present or the future. Like all Asian countries, it is collectivist instead of individualistic, where ascribed status, age and seniority are far more important than achieved status. Particularistic countries place more emphasis on relationships than rules, and these cultures believe that circumstances dictate how ideas and practices are applied. Therefore, ideas and practices cannot be applied the same everywhere (Workman 2008). Like all East Asians, Chinese strive to maintain face and avoid shame both in public and private. Face is a personal concept that embraces qualities such as a good name, good character, and being held in esteem by one’s peers. This also extends to the family, school, company, and even the nation itself. Conversely, face can be saved by remaining calm and courteous; discussing errors or transgressions in private; speaking about problems without blaming anyone; using non-verbal communication to say “no”; and allowing the other person to get out of the situation with their pride intact. Use of titles and formal manners and proper displays of respect for seniors and those in authority are absolutely vital in a culture like this. China has a communitarianism is that places the community before the individual. Success is achieved in groups, decisions are referred to committees and groups jointly assume responsibilities (Workman 2008). Tradition and ascribed status are important in France, but it still remains a Western achievement-oriented culture, inner-directed, specific rather than diffuse, although it is also more particularistic in language and culture than the United States or the Netherlands. Loyalty to the family comes before other social relationships, even business, while nepotism is viewed positively, since it guarantees hiring people who can be trusted. This is crucial in a country where working with people one knows and trusts is of primary importance. China is a hierarchical society, where people are respected because of their age and position, and older people are viewed as wise and are granted respect.
Chinese prefer to work with people they know and trust and will spend a great deal of time on the getting-to-know-you part of relationship building, and generally indirect communicators.. Direct statements are made only to those with whom they have a long-standing personal relationship, and they prefer to do business in person. Like other Asian societies, they want to look someone in the eye when they are doing business, to ensure their honesty and sincerity. Modern, Western democratic societies are far less traditional, authoritarian and hierarchical cultures. In the West, the individual is more important than the group, and that may well be the most important difference of all, and every human being has the same rights. This was simply not the case in most times and places in history, and is still not true today in many parts of the world. In addition, the West is more inner-directed than other-directed compared to Asian societies like China, places more value on earned achievements rather than age, seniority and ascribed status. Confucian societies have high uncertainty avoidance maintain rigid codes of belief and behavior and are intolerant of unorthodox behavior and ideas. Their levels of power distance are also high compared to the U.S. And most Western nations, with highly unequal ideas about hierarchy, authority and status (Trompenaars and Hamden-Turner 2010). Being dependent on hierarchy means a system of unequal rights between power holders and non-power holders, and also that superiors are inaccessible, and that leaders are directive, management controls and delegates. Power is centralized and managers count on the obedience of their team members.
In economics, the U.S. free market and free trade model of capitalism has become highly tarnished and discredited due to the economic crisis over the past three years, in both the U.S. And the developing world. If the U.S. Congress and Federal Reserve had not intervened directly in the economy with trillions of dollars in bailouts and subsidies, the world really would be in a 1930s-style depression today. Indeed, it may still happen yet, given the very wobbly state of the European economy. So statist, mercantilist and Keynesian policies have all made a comeback in the past few years, and in fact these have always been more compatible with Chinese-Confucian culture than ideas about individualism, free markets and laissez faire capitalism. If social and economic policy is going to move in a more statist and authoritarian direction in the years ahead, then China’s traditional culture will actually turn out to be an advantage rather than a hindrance to its growth and prospects as a superpower. Of course, one problem with this has always been that its culture, education system and political system also limit innovation, creativity and independent thought, which might actually weaken economic growth in the future, especially in high technology areas. Another limiting factor will be high levels of corruption and lack of transparency in government, banking and the legal system, that will discourage investment in China. Overall, though, the decline of the U.S. economy, particularly its manufacturing base over the last thirty years, is a very clear trend, as is the relocation of older industries to China and other Asian nations. In many respects, the U.S. has only itself to blame for following such free trade policies, especially because China is not playing by the same rules.
Case 2-5: Coping with Corruption in Trading with China (2011). “Case of State-Sponsored Extortion Harms China’s Progress.” Theage.com.au, August 14, 2011.
Foreign Corrupt Practices Act (FCPA) of 1977. U.S. Department of Justice. http://www.justice.gov/criminal/fraud/fcpa/
Hetzel, R.L. (2008). The Monetary Policy of the Federal Reserve: A History. Cambridge University Press.
Klein, N. (1999, 2009). No Logo. Vintage Canada.
Minsky, H.P. (2008). John Maynard Keynes: Hyman P. Minsky’s Influential Re-Interpretation of the Keynesian Revolution. McGraw-Hill.
Skidelsky, R. (2010). Keynes: The Return of the Master. Perseus Books Group.
Trompenaars, F. And C. Hamden-Turner (2010). Riding the Waves of Innovation: Harnessing the Power of Global Culture to Drive Creativity and Growth. McGraw-Hill.
Wang, Y.H. And T.K. Leung (2001). Guanxi: Relationship Marketing in a Chinese Context. The Haworth Press.
Workman, D. (2008). Trade Culture Dimensions: Distinct Cultural Values, Attitudes and Trade Behavior.
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