Modern China: Handle With Care

James Fallows

Obama and Beijing need a relationship that works or the world is in big trouble, says James Fallows, the new Chair in US media at the University of Sydney.

He spoke to Anthony Anderton in Beijing.

Getting China right has never been more important for Australia. We are now acutely aware of China’s critical role in our economic prosperity. Yet there is considerable uncertainty about the rise of China and what this means for Australia and our region.

How, for example, should we interpret and respond to China’s growing military and strategic influence in our region? What about Chinese ownership of our resource assets?

In debating these issues, China is often depicted in one-dimensional caricatures: China the boundless economic opportunity, China the brutal dictatorship, China the strategic threat, even China the saviour of the global financial crisis. Such images make headlines and fuel a lively public debate, but they also mask China’s diversity, complexity and contradictions.

One the most insightful commentators on contemporary China, The Atlantic’s James Fallows, suggests we need to accept the complexity and the contradictions inherent in the modern Chinese condition.

Fallows observes the tendency for simplistic explanations among Western observers. “People have to fit [China] into a very simple plot line. Either China is good and is helping us become rich, or China is bad and is destroying the world and an argument which says yes, both those things are true plus a thousand other things–that is a hard thing for people to want to take the time to absorb.”

For the past three years, as The Atlantic’s national correspondent based in Shanghai and more recently Beijing, Fallows has been reporting on the complexities and contradictions of China. Although neither writer nor magazine is a household name in Australia, his reports and recent book, Postcards From Tomorrow Square, should be a staple of every China watcher’s information diet.

At 156 years, The Atlantic is the oldest and arguably most distinguished magazine in the US. Along with Christopher Hitchens, Andrew Sullivan, Robert D. Kaplan and Mark Bowden, Fallows is one of its star writers. In his 25 years with the magazine, he has garnered a glittering list of accolades and published numerous books on international and US affairs. A graduate of Harvard and Oxford and with postings to Tokyo and Kuala Lumpur, Fallows brings to his subject many years of experience as a careful observer of North Asia (notably Japan and China) and its relations with the US.

Later this year, Fallows will divide his time between Washington and Sydney, where he will take up the position of chair in US media at the University of Sydney. While Australia is not the US, our public debate on the rise of China shows similar traits of “dumbing down”. Fallows’ commentary on China, its role in the world and how we should respond suggests our thinking needs constant updating, if not thorough repair.

Starting with the question of what role a powerful and influential China will play in shaping world affairs, Fallows says we should not be concerned so much by the idea of China having a major role, but the mindset and confidence China will bring to acting out that role.

“From a global and strategic level, it would actually be better for everybody involved if China felt more entitled to take a global leadership role than it does,” he says. “I think it would be better if China had more of the consciousness of a leading power. It still has the consciousness of a dependant power.”

Fallows likens China’s present situation to the US’s own historical experience. “It is a problem for China that in a way resembles the United States in the late 19th century,” he says, “Its actual global influence exceeds its consciousness of that influence, so therefore it is acting in a way that [shows] it hasn’t taken responsibility for the role it has.”

This can be illustrated, Fallows contends, in the statement by the Governor of the Bank of China that China might switch from the US dollar to a different reserve currency. “If China had put some muscle behind that, I think that would be better for everybody, including the United States,” argues Fallows. “The US economy has been distorted for quite a long time by the twin role of the dollar as the local currency and as the reserve currency, which makes it much harder for the US to do things that are in its interest.”

Nor should we fear a confident China. The undesirable alternative, warns Fallows, is a “resentful, or slighted, or defensive” country. China operating in this negative mindset would, he says, be much more of a problem for the world. “There have been rising powers through history which people didn’t want to get too confident because that would create a problem. Germany and Japan are the two that come to mind. China to me is not in that category. I think under-confidence is more of a threat than over confidence.”

Fallows points to China’s sophistication and skill in navigating the international financial system, including its responses to the global economic crash, as an example of this growing confidence. “Starting during the great international market crash of 2008, China had enormous losses from their holdings in firms like Blackstone Group, and on the stock markets. Despite this, have behaved maturely, saying, OK, we’re in this for the long run, we recognise it’s a world problem.”

Since 2008, China has implemented its own domestic stimulus package, designed to keep the economy growing. Its leaders have made bold predictions
of attaining 8 per cent gross domestic product increase this year. But is this likely in the current economic conditions? To what extent is the Chinese recovery dependent on what happens in the US and the rest of the world?

“It would easier for China if the rest of the world recovered and the US started buying again. But that’s probably not going to occur–and it’s not going to occur quickly,” argues Fallows. “In the long run China cannot really sustain that model because the rest of the world cannot sustain its huge deficits with China.”

As a result, Fallows predicts major problems on the jobs front. “Unemployment in
China is going to be the worst in the world by far.” This is not simply due to the sheer scale of China, but also because, for the past decade, China has enjoyed a disproportionate share of the global trade surplus. As world trade contracts in 2009, the effect will be most keenly felt in China. Fallows likens China’s predicament to that seen in the US in the 1920s and ’30s. Because the US had a disproportionate share of global manufacturing in the 1920s, it experienced the world’s worst unemployment during the Great Depression.

Nevertheless, despite the serious downturn in the Chinese economy, Fallows sees no evidence of a collapse in morale. “The mood in China seems less downcast than in the US in the first part of 2009. Every place you look there are signs of ways to look beyond, and to rebound from, the real economic disaster of the moment.”

Despite the grim outlook for unemployment, the economic downturn won’t “unseat” the communists. He says the Chinese Government is increasingly adept at knowing when domestic pressure is mounting–and how to respond effectively. The swift policy responses to the economic downturn illustrate this, including extending health insurance coverage, relaxing residence permits rules, offering temporary unemployment benefits, and starting big construction projects to create new employment. In other words, there won’t be a replay of Tiananmen Square 20 years ago.

While the effects of China’s military expansion still lie in the future, the growing queue of Chinese buyers for Australian resource and mineral assets does not. The debate over the commercial merits of recent investments –and whether they are in the national interest–is a hot issue for Australia. It’s a debate that Fallows believes is not only to be expected but also understandable, from rational and emotional standpoints.

“It is not surprising there would be this kind of backlash–and China shouldn’t be surprised by it,“ he says, arguing that it is valid for Australia to draw a distinction between investments made by the US, Japan, Europe and those proposed by China. “Those are all democratic countries, they are all much more transparent countries than China is now, where you assume the Government plays a smaller role in the ownership of entities than is the case for these big Chinese firms. The big firms in China are basically state-owned or state-controlled.”

The responsibility of the receiving country, he argues, is to be “sane” and to “avoid racist stereotypes”. “They [the Chinese Government] have a very poor sense of how the outside world thinks and reacts, so they are likely to do things in quite clumsy ways that are likely to get people’s backs up.”
Fallows identifies another apparent contradiction, between China’s relatively successful management of its global financial and economic affairs and its efforts in international politics.

“China has been generally been more deft in its financial dealings with the outside world than in its diplomatic dealings. People in the financial world have experienced the outside world–people in the Tibet-handling world do not have experience of the outside world,” he says.

On the subject of US-China relations, however, Fallows exudes optimism.
“It has to be an improvement under Obama…because the previous eight years were so abysmal,” he says.

While Fallows admits the new president is a greenhorn on China–his comments so far have been on “poisoned dog food, poisoned toy soldiers, currency manipulation”–he insists Obama recognises China as an “obvious and indispensable player” on environmental and climate change issues. This is perhaps the most important dimension of the US-China relationship, he says. “Because if the United States and China cannot deal on this point, then there’s really no hope for anybody.”