Opinion
The Soapbox: Debunking the myth about the rise of China
By Bowin Lee ’17
February 27, 2015
Americans seem to be fond of panicking over losing their global dominance. In previous years, the rival has been the United Kingdom, then Germany and then the Soviet Union. Currently, the newest challenger is China. However, in the immediate future, there is no possible way for China to overtake the U.S. as a new global superpower. This is due to two inherent economic paradoxes, compounded by overwhelming U.S. soft and hard power and the prevailing U.S. geopolitical supremacy.
The first paradox that explains why China cannot dominate the global economy is that Chinese leaders foster a consumer culture, while relying on illiberal social controls and exploitive practices. China has learned from the global crisis that dependence on foreign exports carries large risks. For greater economic stability, it needs to build a stronger domestic market. China’s export-oriented model has hindered domestic consumption, and China’s export competitiveness has been based on wage stagnation, largely as a result of an agrarian crisis. Instead of increasing living standards by giving a greater amount of profits to employees, the extra profit was turned into enterprise savings. Declining wages caused a fall in private consumption, making it very difficult for domestically-oriented firms to establish a reliable Chinese consumer market.
The second paradox is that Beijing presides over a mercantilist system fuelled by global interdependence. Assuming China was in a position where it could assume global hegemony, it would first have to float its currency. However, China’s whole economic strategy is dependent on low-priced exports, and artificially pegging the Renminbi, its currency. Allowing its currency to float would have drastic economic consequences. Additionally, China would need to make the Renminbi more widely available to the world. There are few realistic mechanisms for current companies to acquire the Renminbi; China would need a further foreign investment surge to spread the world reach of the its currency, but it is trying at the same time to reduce its unhealthy dependence on foreign direct investment. Alternately, it would need to totally open its domestic markets to foreigners, or run a large current account deficit. Of these two options, neither is particularly appealing.
In terms of soft power, the US has very little to fear from China on the economic scale. On the corporate scale, China is barely even a blip on the radar. An overwhelming amount of the largest and most profitable global corporations operating in China are American-owned. Western firms dominate the profit margins of many sectors of the Chinese economy, with Americans hauling away 72 percent of the profit in the PC market, while Chinese profitability comes in at 2 percent. This trend continues across many sectors such as electronics and automobile manufacture, with the percent hovering around 70 percent for foreign and American profitability, and around 2 to 5 percent for Chinese profitability. To further drive the point home, 90 percent of high-tech exports in China are actually produced by foreign-owned companies.
The dollar’s strength is also a valuable asset to the existing American hegemony. The French criticized the dollar as an “exorbitant privilege.” As a US official formerly put it, “our dollar, your problem.” The dollar as an international currency is a powerful political symbol, representing the strength of American hegemony. It is arguably also the most stable currency in the world. American politics are not prone to military coups or significant instability, and as an economic institution, America has outlasted some very strong competitors like Japan and the U.K. Even with the advent of the 2008 global financial crisis, the dollar has remained strong, especially when you compare it to its main competitors: the Pound and the Euro. As long as the majority of nations hold the dollar as a reserve currency—which most all of them do—the dollar will remain a pillar of strength for the United States, and American hegemony will be hard unseat for a surging China.
Bowin is a Government major interested in geopolitical relations. He is part of the Philanthropy Committee and enjoys reading in his spare time.