INTERNATIONAL
Europe can help ensure China’s rise is peaceful
Summer 2007
No country in history has ever risen to world power status peacefully, warns Jean-Pierre Lehmann, so if China were to do so that would be a first. He offers some pointers on helping Beijing to do just that
Commentary:
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There was perhaps no more striking manifestation of Pax Britannica in the early 19th century than the Opium War waged by Britain against China, which culminated in China’s humiliating defeat – the first of many that it would have to endure at the hands of the West for over a century – and the 1842 Treaty of Nanking that established Hong Kong as a British colony.
Much to Britain’s frustration, as British commerce expanded to the four corners of the earth in the wake of its industrial revolution, the Chinese market which European merchants had drooled ever since the publication of the Travels of Marco Polo, remained hermetically sealed. In a blatant act of imperialistic hubris and hypocrisy, Britain engaged in war with China in the name of “free trade”, on the grounds that the Chinese government had “illegally” seized opium cargoes on British merchant ships. The rest is history. In 1820, less than two decades before the outbreak of the Opium War, China’s economy was estimated at over 30% of global GDP. By 1950, the year after China’s communist “liberation”, it had collapsed to 5%. If China was for Marco Polo a synonym of wealth, by the early 20th century it had become synonymous with poverty and destitution. And when Mao Zedong took power, it was not surprising that policies were rapidly put in place to isolate the country from international capitalism in the form of both trade and investment.
The re-emergence of China as a global economic and trading power is without doubt the most important story of our times, and will in all likelihood remain so for the coming decades. The striking feature of China’s impact on the global economy is the combination of speed and scale. China’s contribution to the world economy over the last decade has above all been that of high growth and low inflation. Inevitably, however, it has also been accompanied by considerable dislocations, both economic and psychological, and in many quarters a sense of apprehension and policy confusion. The rise of economic nationalism – notably in the US when, for example, Congress opposed the acquisition of Unocal by the Chinese National Offshore Oil Company (CNOOC) – has been a reactive force. China’s leading reformist intellectual, Zheng Bijian, has sought to mollify these apprehensions through the publication in 2005 of a seminal article in Foreign Affairs, entitled “China’s Peaceful Rise to Great Power Status”. Note should be taken that if China’s rise occurs peacefully, it will be a first. The rise of new powers has in the past – the Ottoman Empire, Spain, Portugal, the Netherlands, Britain, France, Russia, the US, Germany and Japan – always been accompanied by renewed imperialism and war. That means that with China’s ascendancy there is a lot at stake for everyone!
In the course of China’s decades of self-imposed isolation, the western nations had collectively built some quite impressive institutions, and western Europe had embarked on a totally unprecedented course of peace and prosperity. This was so successful that eastern Europe was in the end conquered by the West’s economic and political weapons of mass seduction, and, having failed to beat the West, begged to join it with some seeking accession to the EU and virtually all seeking accession to the WTO, the club of global market economies that had been directly responsible for generating much of the peace and prosperity. And China, facing the threat of economic crisis in the convulsions that followed Mao’s death, succumbed, too, to the ways and wiles of the market economy. As Zheng has written: “The most significant strategic choice the Chinese made [in the late 1970s] was to embrace economic globalisation rather than detach themselves from it.”
That was very good news. The not so good news was that the European economies had become over-regulated and undynamic, with many in-built rigidities and a proclivity to protect uncompetitive sectors while also failing to provide the stimulus or the environment for creative destruction and innovation. Some, notably the Scandinavian countries, the Netherlands, Britain, Ireland and Latvia, have reformed, restructured and regenerated, while others, especially the large continental economies like Germany, France, Italy, Spain and Poland, have tended to languish in industrial torpor.
One of the anomalies, indeed inequities, of the international trading system is that textiles and garments had been placed by the Europeans outside (and indeed in flagrant violation of) the GATT rules, in what was known as the MFA – the multi-fibre agreement. This was a defence measure initially taken in response to the rise in the 1970s of Asia’s newly industrialised economies of Taiwan, South Korean, Hong Kong and Singapore. In recognition of this anomaly, the EU’s member states agreed in 1995 to phase out the MFA over a ten year period. When the MFA was abolished at the end of 2004, it was left to the national economies, and especially their textile and garment producers, to ensure their own post MFA-survival through restructuring and innovation. This is what the more dynamic European economies and their textiles sectors did, and what the more stagnant European economies and firms failed to do.
In the early post-MFA months of 2005, European markets saw an immense surge of imports of Chinese garments and textiles. An important aside is that this surge primarily occurred through the Chinese manufacturing subsidiaries of foreign investing firms, and through the import and distribution of such major European retailers as H&M, Carrefour and Marks and Spencer, thereby passing on substantial benefits to European consumers.
Uncompetitive European textile and garment producers who had failed to restructure during the 10-year grace period, wailed and then launched a massive campaign to complain that unfair Chinese textile imports were destroying Europe’s industrial fabric. EU Trade Commissioner Peter Mandelson charged off to China with the goal of ensuring measures of “voluntary” (nudge-nudge) export restraints and quotas. Since one of the main items concerned was brassières, the media dubbed the conflict “the bra war”. Although Europe lost the bra war – in large part because of opposition from Europe’s more successful economies and textile businesses – this did not deter it from engaging a year later in a shoe war against both China and Vietnam.
To introduce a personal note, at the time of the bra war I wrote to Trade Commissioner Peter Mandelson to try and deter him from engaging in this undignified and ultimately doomed charge of the light brigade. I urged that before embarking on defensive/offensive trade policies, the EU needed to answer four questions in the affirmative: Will we win? Is it legal? Is it ethical? Is it in conformity with the Lisbon Agenda?
So far as the bra war was concerned, it was clear that the answer to the first question was that Europe would lose, partly because the strategy was half-baked, but also because of divisions within Europe’s own ranks. The reply to the second question was that it was in all likelihood illegal and against trade rules that almost invariably forbid quotas, especially when they contain discriminatory policies aimed at a WTO member state, which China had become in 2001. The third answer is that by virtue of being illegal it was unethical, but all the more so in that it was both a manifestation of gross hypocrisy and an attack on the principles of free and equitable trade, which are in fact in strong need of being visibly adhered to and strengthened. The last Question is about the Lisbon Agenda agreed in 2000 by EU leaders as their “vision” of how to make Europe "the most competitive and dynamic knowledge-driven economy by 2010". Seeking to protect uncompetitive European textiles and garments manufacturers cannot be a pillar of this exercise because it is in opposition to it.
China failed to meet Europe’s challenge in the 19th century, in large part because of its own unwillingness to reform. For Europe to meet the Chinese challenge in the early 21st century, it must engage in profound social and economic reform, notably in upgrading and developing its human capital. Low-skilled jobs, such as those in textiles, must be eliminated and replaced by jobs requiring advanced skills that can be gained through Europe’s much higher quality of education. Most important of all, however, as the world enters a period of profound transformation and uncertainty, Europe’s greatest contribution will lie in strictly adhering to, strengthening and promoting the universal values and contemporary institutions derived from the Age of Enlightenment, in the 18th Century, of which the rules-based multilateral trading system founded on the principle of non-discrimination is among the most enlightened.
Europe began its modern trading relationship with China through war. It is now incumbent upon Europe, out of its own enlightened self-interest, to contribute so far as possible to China’s successful and peaceful rise.