By Andre Gunder Frank
CHINA'S GLOBAL REACH: MARKETS, MULTINATIONALS, GLOBALIZATION, LESSONS, & TRENDS
By Zhinbin Gu
Haworth Press, Fall 2005
Dr. Gu honors me by his invitation to write a foreword to his marvelously real life brass
tacks and nitty-gritty examination of China's participation in the world economy today and
probably tomorrow. The honor is all the greater, as I am neither Chinese nor a Western
"old China hand," nor even a new one. I am especially not so at the
micro-economic enterprise and institutional levels on which he reports, drawing usefully
also on his own wide business experience. Therefore, my foreword must concentrate more on
how Dr. Gu's more micro account fits into China's macro-political economic participation
in the world economy and on its historical background and future prospects.
My own book ReORIENT [1400-1800] and its sequel under preparation ReORIENT THE 19TH
CENTURY as well as other recent research on China establishes that it was predominant in
the world economy until at least 1800. Indeed, my most recent research suggests that China
did not really ''decline'' until after the Taiping Rebellion (1851-64) and not the First
but the Second Opium War in 1860. And then a major factor in its decline was the weakness
of the state. But that means that Western dominance is much more recent and short, only
about a century in the world and less in China, and not the millennium, or even half of
one alleged by Eurocentric historiography or rather mythology. And China now gives plenty
indication, much of it reviewed in this book, that it is likely soon to regain its long
accustomed place in the world as the so-called ''Middle Kingdom.''
In the 20th century, East Asian economic growth and development Re-started from a level
both absolutely and even more relatively much lower than it had been a century before.
However, over the 20th century as a whole the East Asian growth rate has been faster than
that in the West, and in the last half century, since the liberation of China and the end
of colonialism, the rate of economic growth in East Asia has been DOUBLE that of the West.
It was led first by Japan, then in the flying geese pattern by the First Four Tigers or
little Dragons, and then by the next four, and for two decades now already by the Big
Fiery Dragon of China with a nearly 10 percent annual growth rate. That is enough to
double income every six years and quadrupled national income in two decades, which is more
even than the Japanese miracle. Moreover, China has become a major player in the world
economy and promises to become even more so in the foreseeable future. China's $ 850
billion foreign trade in 2003 has already put China in fourth place in the world with 5
percent of world exports that are swamping markets all over and especially in the US and 4
percent of world imports, which has converted China into a major player in the world
economy and an increasingly important world market place. China also receives by far the
most investment among developing countries, and most of it from 'Overseas Chinese' who
have made their fortunes abroad, especially in Southeast Asia.
At the same time, the outside world, especially the US, has benefited by this new
development of China/Asia. Take the US for example: it is enormously dependent on East
Asian but especially Chinese largesse. The lowly paid Chinese support the Americans in a
half dozen different, though related ways. Combined indeed, they make Americans much
richer than they would otherwise be, thanks in part to the US since 1986 having the the
world's greatest and ever growing foreign debt. 1] Over $300 billion, out of the $ 700 B
of US Treasury bonds, are held by the Central Bank of China, which has therefore already
extended that MUCH credit to the US. Its trade deficit is now $550 B dollars a year and
still growing. 2] Every year China supplies about $ 100 B capital to help the US. About
$100 B more is supplied by Europeans, and this year already over $120 B by Japanese
savings. The rest is supplied by others, especially Taiwan and other East Asians. But the
Chinese connection and foreign aid to the US goes way beyond that. First, as Dr. Gu shows,
lowly paid Chinese produce real goods as already the leading world producers of 100
manufactures and export - really GIVE many for US$ 450 B a year to rich American
consumers, who buy them with printed paper dollars.3] So therefore Americans get the $100
B Chinese goods for FREE, only the cost of printing the paper.
4] But that's only the half of it, because the Chinese then turn around and use these
excess paper dollars to purchase those other paper dollar freely printed treasury
certificates, except that on those they get a 4-5% yearly interest. Still, what a bargain!
5] For an item that costs the Chinese $2 to manufacture, though the workers of course get
less and the charge for then is about $3. That sounds like a pretty good profit. But it is
not. For in the US the final consumer then pays $10 for that same item, so that $7 goes to
increase the US GNP and taxes, many times more than in China! If the same goods were
instead sold in China itself, Chinese income would more than double; and of course,
American income would be much lower. 6] Not only American consumer and producer income,
but US government income is also raised thereby, permitting the Americans to pay for
sophisticated weapons for the Pentagon - while they need not make many consumer goods that
they get for free. And then the US encircles China militarily and threatens it and others
politically with these same Pentagon arms that China and others themselves paid for!
Interestingly at the same time, some developing nations and especially China, do have
aother alternatives. Although China has lately begun to use some of its dollars also to
purchase imports from elsewhere in Asia, we may ask why many foreign nations keep
providing this financing to the US. The main reason the Chinese give is to keep the dollar
up/ the Rmb - and other dollar linked currencies - down in order to be able to sell to the
US market. But they are not really selling, they are giving. So they give more in order to
be able to give still more.
I suspect that there is another unstated reason for this apparent madness. It has to do
with the inequality in the distribution of income globally and nationally. Those with the
power to do so are RECYCLING domestic income from poor to rich in China itself in a
roundabout way via exports to and earnings from the US. And something of the same happens
in the US itself, especially through the financial sector that the Chinese and Japanese
support in the US and elsewhere. Policies that would seem to be crazily against the
general interest globally and nationally around the world are steadfastly pursued by those
in power because they vastly increase their own minority income at the expense of the vast
majority, nationally and globally. For that way the absolute and relative income of the
latter is being pushed down, or to put it in now outdated terminology, the working masses
are thereby obliged to work for the luxury of the ruling classes. In China at least the
''middle class'' is growing and in India also [I never understand what is ''middle'' about
them, between whom and whom?] , so that this can rally political support for these
policies. But Mao's poorer but relatively egalitarian China has already become a country
with one of the most unequal distributions of income in the world. Globally, the
inequality in the distribution of income has been accelerating so much as to move by one
measure from 40/1 in 1960 to 80/1 now. The very structure of the world economy and finance
polarizes income, as Samir Amin keeps pointing out. So where is the political policy
support coming from to keep this crazy system going in China and the world by pumping ever
more savings and goods into the US and keeping the dollar up - for nothing in return?
For China, there is certainly one bright alternative. This is pointed out by Henry C. K.
China has the power to make the yuan an alternative reserve currency in world trade by
simply denominating all Cinese export in yuan. This sovereign action can be taken
unilaterally at any time of China's choosing. This will set off a frantic scramble by
importers of Chinese goods around the world to buy yuan [who] no longer need to exchange
yuan into dollars, as the yuan, backed by the value of Chinese exports, becomes
universally accepted in trade. Members of the Organization of Petroleum Exporting
Countries (OPEC), which import sizable amount of Chinese goods, would accept yuan for
payment for their oil. ''China vs. the almighty dollar''
Moreover, there is also a "Greater China," including Hong Kong, Taiwan and the
now tremendously important Overseas Chinese, who are key investors on the mainland itself.
Additionally, there is the Southeast Asian ASEAN community, and the ASEAN + 3, including
Japan, South Korea and China, in which the latter has now begun to organize economic
relations that might be interpreted as a sort of resurrection of the centuries old ''East
Asian Trade-Tribute System'' that was centered on China and lasted into the nineteenth
century. Additionally, again referring to Henry C.K.Liu
[http://www.atimes.com/atimes/asian_economy/DG12Dk01.h tml], but also to my own Foreword
to the Chinese edition of my book, its is now possible and likely that East Asians with
Chinese participation will build up an East Asian Financial Fund, among other things. That
is in part because of the sad experience of having been MISmanaged by IMF in the 1997/98
East Asian financial crisis. Indeed for the first time in history, it is the world's
greatest debtor who is throwing its weight around. Throughout history, it is creditors who
have exercised their power over debtors, and China is now the greatest creditor, and
Greater China is even more so.
So, in view of theincreasing outside world impact of Chinese international trade and
investment, the sharp rise of the private sector and related institutional reforms of the
state sector and banking, which Dr. Gu escribes in great detail, its macro-political
economic and financial impact may soon be huge as well.
However, neither Dr. Gu's book nor this foreword is meant to suggest that all will be
smooth sailing. On the contrary, China's problems are as huge as its 1.3 billion
population, and both are still growing, each increasing the other. Increased population,
production, and income will further increase pressure on already scarce resources. Land
will become even scarcer and more degraded. Water is either too plentiful and floods in
parts or mostly ever scarcer, further degrading the land. Food will have to be imported,
and oil, timber, iron ore, copper, etc. as well. Energy is ever scarcer and China's
reliance on domestic high sulphur coal will further pollute the air, which is already
almost unbearable in big cities that are growing even more and increasing their cars and
trucks. Indeed, they will increase global warming, which will exacerbate many of the above
problems in China itself. Elsewhere and for China itself, its demand for coal and oil
imports has recently increased the world prices of both. The already gaping and growing
rural/urban and seabord/interior income inequalities could stretch to breaking points.
Beijing has historically been hard put to exercise control over its richer eastern and
especially southern provinces and is so again today, beginning with Hong Kong and
Guangdong. Some regions have gone their own way in the past and could do so again. China's
neighbors can become wary of the Big Dragon; and the US, who already fears its challenge,
is already again encircling China with military bases.
Nonetheless returning again to a longer historical perspective, it is noteworthy that the
economically most dynamic regions of East Asia today are also still or again exactly the
same ones as the four China centered ones before 1800 and which survived into the
nineteenth century. (1) In the South, Lingnan centered on the Hong Kong - Guangzhou
corridor, (2) Fujian, still centered on Amoy/Xiamen and focusing on the Taiwan straits and
Taiwan as well as parts of Southeast Asia in the South China Sea; (3) The Yangtze Valley,
centered on Shanghai and trade with Japan that is already taking the lead again, and (4)
Northeast Asia, including Northeast China, Manchuria, Mongolia, Siberia/Russian Far East,
[northern?] Japan, and Korea. Its base of ample metallurgical, forestry, agricultural and
even petroleum resources and ample Chinese and North Korean labor can permit regional
capital again to develop a very important regional growth pole in itself and a highly
competitive region on the world market.
Dr. Gu's important book tells HOW these developments are taking place on the ground level
in China. The 21st Century will be Asian.
Andre Gunder Frank
Author of ReORIENT: GLOBAL ECONOMY IN THE ASIAN AGE