China as the Next Superpower

Dr. Harry Harding

September 16, 1997

As a political scientist, Dr. Harding is frequently asked about China as a superpower. The answer is complicated by the changing concept of what superpower status means. Traditionally a geo-political concept, as we move into the 21at century it is becoming more of a geo-economic one. The two concepts differ on one key point. The geo-political world is one of poles, with power the ability to repel or coerce. By contrast, the geo-economic world is one of nodes, with power the ability to attract, to network. Either perspective, however, yields a similar result: China is a big and important country, but not one that will be in the top tier of superpower status any time soon.

Geo-political concept. The attributes of traditional geo-political power are (1) economic size and material power, (2) ability to project large military force against opposition anywhere in the world, (3) desire to lead, and (4) "soft power" (the power of ideas and values). With the world's largest population (though India may pass it), and an economy growing at 9-10% per year that may become the world's largest during the next 50 years, China clearly has a measure of economic power. Yet, on the international stage this power is limited by relatively low per capita income and by close proximity to countries such as Russia, India, and Japan whose economies are too large for China to dominate. Furthermore, China's economy faces many obstacles. Loans to unprofitable state owned enterprises threaten the banking system's solvency, and other problems concerning arable land, potable water, infrastructure, energy shortages, the environment, and an aging population could all restrict future growth.

In other areas, China's ability to project military force is probably 20 years behind where the U.S. is today. In seeking a minimal nuclear deterrent and a navy just large enough to be used in the vicinity of China, China seems to be looking only for regional rather than global status. Past revolutionary ambitions have also evaporated, and the country is now seeking a responsible, passive role in institutions like the World Bank to see what they can do for China. Although nationalistic, China has neither a strong ideology nor a strong popular culture other than that which comes largely from Hong Kong; the only widely shared idea in China is that it is a major civilization with a long history.

Geo-economic concept. Several of the attributes of power in the economic sphere are similar to those in the political sphere, but with a different emphasis. Thus, market size takes on greater importance than military power. Although the Chinese economy is large and growing rapidly, several barriers limit China's ability to attract economic activity. These barriers include (1) high transaction costs (high cost of living for expatriates, information that is scarce and hard to understand, and corruption that rivals Indonesia's); (2) poor quality of life factors (polluted air, limited cultural infrastructure, and bad traffic); and (3) an insolvent financial system with little transparency.

China is trying to increase its commercial interaction with other nations by reducing political tensions and by liberalizing foreign economic policies. China is more open to interaction with the rest of the world than were Korea and Taiwan at comparable stages of development. Yet in a changing world, what is more relevant is how China compares to Korea, Taiwan, or Japan today. By this standard, China is becoming a great economic power, but not at the level of most the most advanced or influential nations.

Attractiveness can be considered as much in terms of cities as of nations. Compared to New York, London, and Tokyo, China has only one world class node--Hong Kong--which it just acquired. China's other major nodes, Shanghai and perhaps the Beijing corridor, have a promising outlook but as yet are far from first tier status.

In response to questions, Dr. Harding made a number of additional points.

(1) Regarding the army's role, the army's budget relative to the economy fell during most of the 1980's but has since increased and the emphasis is now on increasing efficiency by cutting manpower and obtaining more advanced weaponry. A growing differentiation between military and civilian elites is now occurring, as some civilian leaders have never served in the army. Civilian control is not likely to be an issue unless a big crisis occurs in which the army may be required to fire on its on own people. With respect to policies toward the United States, the army would not like to take on the U.S., may not be as anti-U.S. as would seem from the popular press, and would be interested n some kind of partnership.

(2) China's legal system cannot yet adequately protect private property, especially for large shareholder corporations. But reform of state owned enterprises is on the horizon, with a sea of non-state enterprises (an amalgam of private, village, and foreign enterprises) growing up around a core of large scale state-owned ones. Many smaller and medium size enterprises have already been cast off in various ways: sold to workers, leased to managers, merged with foreign firms. The big question is what becomes of the 1000 largest firms. These firms produce half of the nation's industrial output and employ 70% of the industrial workforce, and according to communist ideology controlling such enterprises is what communism does. Presently, China seems to be talking about a "stockification" system, not privatization. But 3 big issues have yet to be decided: To whom will shares be distributed (and will state have controlling share)? Who will pay for shares (free distribution, which means writing off losses, or sale)? Will there be hard budget constraints for the large companies? Even in the United States we don't have totally hard budget constraints as large companies have been rescued, but there must be change here and as yet China is moving glacially to bankrupt losing enterprises.

(3) The development of the nation's resources raises issues regarding acceptable levels of foreign investment and the extent to which China seeks to maintain self sufficiency. Transportation can't be imported, but energy, food, and materials can, which raises the classic debate about how much you are willing to pay for self-sufficiency. China's leaders are showing more willingness to import, but are uncomfortable with complete dependence on foreign markets. As to sources of finance, they have also shown a willingness to turn to foreign sources, but with forbidden zones. Investment has been allowed in ports, airports, and off-shore oil, but not core telecommunications, trunk lines, or on-shore oil. Once again resolving these development issues raises ideological questions.

(4) The difficulties some foreign automobile firms encountered in China raises some interesting points. Those favoring economic liberalization say they want national treatment, but China sometimes treats foreign ventures better than local firms. It is not easy doing business in China. You have to be wary of numbers; you want to earn a profit, but not too much because the nail that sticks up gets pounded in.

(5) While communism with a mass appeal is basically dead, nationalism is thriving. The question is whether this enormous pride takes an anti-foreign stance. If the U.S. gives the impression that we want them to fail, we can anticipate how they will react.

Rapporteur: Stephen Swaim

December 21, 1997

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