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China and the New Administration

01 Jun 2017 10:53 AM | Aimée Brandt (Administrator)
By Daniel Zuchegno


Speaker: Robert Daly

Robert Daly was named as the second director of the Kissinger Institute on China and the United States at the Woodrow Wilson Center in August, 2013. He came to the Wilson Center from the Maryland China Initiative at the University of Maryland. Prior to that, he was American Director of the Johns Hopkins University-Nanjing University Center for Chinese and American Studies in Nanjing. Robert Daly began work in U.S.-China relations as a diplomat, serving as Cultural Exchanges Officer at the U.S. Embassy in Beijing in the late 80's and early 90's. After leaving the Foreign Service, he taught Chinese at Cornell University, worked on television and theater projects in China as a host, actor, and writer, and helped produce Chinese-language versions of Sesame Street and other Children’s Television Workshop programs. During the same period, he directed the Syracuse University China Seminar and served as a commentator on Chinese affairs for CNN, the Voice of America, and Chinese television and radio stations. From 2000 to 2001 he was American Director of the U.S.-China Housing Initiative at the Department of Housing and Urban Development. Mr. Daly has testified before Congress on U.S.-China relations and has lectured at scores of Chinese and American institutions, including the Smithsonian Institution, the East-West Center, the Asia Society, and the National Committee on U.S.-China Relations. He has lived in China for 11 years and has interpreted for Chinese leaders, including Jiang Zemin and Li Yuanchao, and American leaders, including Jimmy Carter and Henry Kissinger.


Mr. Daly began his discussion describing the rise of China and mentioning that China’s rise is legitimate and that the United States has never dealt with a country like China.  China combines physical size, military strength, and an economic presence that has never been seen by the West.  China has a population of 1.4 billion people; its annual population growth rate currently stands at only 0.44 percent (largely due to its three-decade-old one-child policy).  This growth rate ranks China 159th among the world’s fastest growing countries, and it is expected that India will overtake China as the most populous country in a little over a decade.  China’s GDP in terms of purchasing power parity is the largest of any nation in the world. China is the world’s largest exporter with more than $2.5trillion of exports and approximately $1.3trillion of imports, resulting in a positive trade balance of more than $1trillion.  China’s top exports include computers, broadcasting equipment, telephones, integrated circuits, and office machine parts. Its top imports are crude petroleum, integrated circuits, gold, iron ore, and automobiles.


China’s annual GDP growth rate is slowing but is still 7.4 percent, ranking it as the 14th fastest growing country in the world.  China’s gross national saving is 49.5 percent of its GDP, making China fifth among countries with the highest saving rate. China’s per capita GDP is $12,900 per person. 

The immense volume of Chinese exports stems from three basic sources: rising labor productivity, relatively low wages, and a favorable exchange rate for Chinese currency.  For a variety of reasons, labor productivity growth in China, especially in manufacturing, has been relatively high and increasing over the last several decades. With a large supply of rural labor ready to take factory jobs, wages have been quite low relative to productivity.  As the available supply of rural labor diminishes, manufacturing hourly wages have tripled to $3.60 between 2005 and 2016, making Chinese labor more expensive than that of other middle-income economies such as Brazil, Argentina, and Mexico.  Manufacturing wage increases accompanied rises in the overall average wage in China, which more than doubled to $3.30 per hour during the same period. As wages in China begin to rise to the levels of labor productivity, they are approaching the hourly rates of higher income countries like Greece and Portugal. Studies by the International Monetary Fund propose that the combination of these changes will result in China moving from having a vast supply of low-cost workers to being a labor-shortage economy between 2020 and 2025. 


The above numbers describe an economy that is transitioning into a more consumer oriented economy versus a pure export driven one. It is expected that China will be producing a very different set of goods in the near future from what it has produced until now.  With rising wages, China is home to the largest number of middle-class families of any nation in the world resulting   in an increase in demands for consumer oriented goods. The rise in wages also creates opportunities for new lower wage countries to emerge elsewhere, allowing these lower-income countries an opportunity to pursue a China-style growth miracle. 


Additionally, a more affluent China would have a stimulating effect on the overall global economy. The size of its economy could mean considerable increases in exports to China from other countries including the US. Mr. Daly pointed out that this rise in consumerism can be seen today in the US movie industry as movie producers cater to the second largest number of movie goers in the world in China. China also has the largest number of college students, the world’s largest bullet train network, the largest number of internet users, and the largest digital network in the world.


Given this economy, how does the United State deal with China?  China relies heavily on sea lines of communication and has a very distinct desire to build its military to protect and maintain its sea presence in South East Asia. China’s economic power and desire to develop its military presence presents a unique challenge to the US. China is a comprehensive power representing a potential threat to US pre-eminence.  Mr. Daly pointed out that President Trump’s approach to China is very transactional.  President Trump ties policy agenda items together preferring to negotiate a transaction, policy X for policy Y. For assistance with North Korea, President Trump seems to have eased on criticism of Chinese exchange rate management policy and international trade in return for Chinese assistance with North Korea. The tying of issues and not addressing other topics seems to have empowered China to believe other issues are off the table and not up for negotiation. Issues such as human rights, Taiwan, China’s military presence in the South China Sea, and environmental issues, are in essence off the table as they are not part of the current negotiation. 

  

Prior US administrations pushed a series of agenda items independently, striving to attain agreements on each item and maintain a consistent perspective on a spectrum of issues, unwilling to negotiate or give in on US policy.  Mr. Daly pointed out that the piecemeal transactional approach being conducted by President Trump forestalls discussion on many strategic issues and sends a signal that everything is up for negotiation. From all appearances, China desperately wants a sphere of influence regionally and globally. The more China obtains a dominate role in areas around the world, the more difficult it becomes for the US to be a reliable ally not only in the Pacific Rim,  but also in other parts of  Asia and Africa.


Historically, the US has voluntarily reduced its presence in parts of the world due in part to a moral and political imperative in support of social justice. China is somewhat amoral in its dealings around the world, using its rise to economic dominance as a tool to promote China’s influence outside of China and to some degree replace US hegemony. This form of gradual aggression must result in the development of an institutional strategic attitude toward China and a reevaluation of the US role in global affairs.
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