May 22, 2002

Globalization and China’s Reforms: An IPE Approach

Fudan University, Chaired by Ni Zhixiong, Dean, School of International Relations and Public Affairs.

GLOBALIZATION AND CHINA’S REFORMs:
An International Political Economy Approach
INTRODUCTION
· I’M HONOURED TO BE INVITED TO PROVIDE THE KEY NOTE
ADDRESS TO THIS DISTINGUISHED GROUP OF SCHOLARS. I
WISH TO COMMEND DAVID ZWEIG, QUEENS UNIVERSITY AND
FUDAN UNIVERSITY FOR OFFERING A VENUE TO FIELD TEST A
RELATIVELY NEW AMBASSADOR TO CHINA.
· I SPENT 15 YEARS IN JAPAN, AS A DIPLOMAT AND IN THE
PRIVATE SECTOR. I HAVE ALSO, FOR MOST OF MY ADULT
LIFE, BEEN KEENLY INTERESTED IN CHINA AND ITS
STRUGGLE TO TRANSFORM ITSELF INTO A MODERN STATE. I
ASPIRE TO BUT WILL NOT CLAIM FOR MANY YEARS TO COME
THE HALLOWED TITLE OF “CHINA HAND”. MAYBE ONE DAY,
BUT NOT YET.
· KEN GALBRAITH ONCE WROTE THAT MODESTY IS AN
OVERRATED VIRTUE. STILL, I THINK IT WISE TO ADMIT UP
FRONT THE PAUCITY OF MY SCHOLARLY CREDENTIALS. IF
NOTHING ELSE, THIS WILL SITUATE EXPECTATIONS AT A
LEVEL I MAY BE BETTER ABLE TO ATTAIN.
· HAVING SAID THAT, I CONSIDER THAT PRACTITIONERS OF
DIPLOMACY AND INTERNATIONAL RELATIONS DO ENJOY
CERTAIN ADVANTAGES. WE ARE, AFTER ALL, INSIDE THE
ROOM WHEN IMPORTANT DECISIONS ARE DEBATED AND
MADE AND MORE OFTEN THAN NOT, WE HAVE FASHIONED
THESE DECISIONS BEFORE HAND.
· THERE IS A JOKE THAT SAYS THAT DIPLOMATS ARE LIKE
HEAD WAITERS WHO HAVE BEEN INVITED TO SIT AT THE
TABLE. TRUE, AND WE ARE ALSO IN THE KITCHEN,
ASSEMBLING THE FEAST.
· I CONSIDER THAT DAY TO DAY EXPERIENCE IN THE WORLD
OF INTERNATIONAL RELATIONS DOES PROVIDE
IRREPLACEABLE PERSPECTIVES AND, FOR THOSE OF US
WHO ARE INCLINED TO PONDER THESE THINGS, INVALUABLE
INSIGHTS INTO THE HUMAN CONDITION AND RELATIONS
AMONG STATES.
· EVEN AT THEIR BEST HOWEVER, THESE FROM-THE-
GROUND-UP PERSPECTIVES ARE NOT OF ANY GREATER OR
LESSOR RELEVANCE THAN THE REFLECTIONS OF PEOPLE
SUCH AS YOURSELVES WHO HAVE, IN MY LIGHTS, GREATER
SCOPE AND OPPORTUNITY TO STUDY AND THINK AND VIEW
AND WRITE ABOUT, FROM A HEALTHY DISTANCE, SUBJECTS
SUCH AS INTERNATIONAL POLITICAL ECONOMY AND THE
LIKE. I KNOW THAT YOU HAVE THOUGHT ABOUT THESE
MATTERS MORE THAN I HAVE BEEN ABLE TO DO IN MY BUSY
YEARS IN ASIA AND AT HEADQUARTERS IN OTTAWA.
· HAVING SITUATED OURSELVES MORE OR LESS ON AN
EVEN PLAYING FIELD, LET ME PUT FORWARD A PERSONAL
PERSPECTIVE ON CHINA AND THE INTERNATIONAL POLITICAL
ECONOMY. THESE COMMENTS ARE INTENDED AS A
CONTRIBUTION TO DEBATE, OVER THE NEXT COUPLE OF
DAYS.
THE ARGUMENTS
· IN GOOD ACADEMIC FASHION, LET ME LAY OUT MY
ARGUMENT AT THE OUTSET.
· I THINK THAT THE SUCCESS OF THE WESTERN, CAPITALIST
DEVELOPMENT MODEL, CONFIRMED BY THE COLLAPSE OF
THE SOVIET UNION AND ITS EASTERN EUROPEAN ALLIES
AROUND THE BEGINNING OF THE LAST DECADE, FIRMLY
PLACED ECONOMIC DIPLOMACY ON A FOOTING EQUAL TO
THAT OF TRADITIONAL POLITICAL AND SECURITY DIPLOMACY
AS A PUBLIC GOOD AND KEY OBJECTIVE OF INTERNATIONAL
RELATIONS. IPE, THE CONSTRUCT OF ECONOMIC DIPLOMACY
PLAYED OUT BY COUNTRIES AND INTERNATIONAL ECONOMIC
INSTITUTIONS, IS NOW A CENTRAL SUBSET OF
GEOPOLITICS.
· IT IS FOR THIS REASON, AMONG OTHERS, THAT WE
RECOGNIZE TODAY SUCH A VARIETY OF “THREATS” TO THE
INTERNATIONAL ORDER: NOT JUST MILITARY IN NATURE, BUT
THOSE THAT CAN SERIOUSLY DISRUPT A STATE’S ECONOMIC
WELL-BEING, SUCH AS CURRENCY CRISES, CYBER-
TERRORISM, UNCONTROLLED MOVEMENT OF POPULATIONS,
THE SPREAD ACROSS BORDERS OF INFECTIOUS DISEASES
AND SO FORTH.
· BUT WE ALSO RECOGNIZE THAT THERE ARE BENEFICENT
INFLUENCES ON A COUNTRY’S ECONOMIC SECURITY BY
POSITIVE DEVELOPMENTS IN OTHER COUNTRIES AND
INTERNATIONAL ECONOMIC INSTITUTIONS: THAT, AFTER ALL,
IS THE PROMISE OF GLOBALIZATION.
· WHAT IS AT THE HEART OF DISCUSSIONS TODAY AND
TOMORROW WILL BE THOSE EFFECTS – FELICITOUS AND
DISRUPTIVE – OF CHINA’S ECONOMIC DEVELOPMENT, BE IT
GROWTH, STASIS OR A REVERSAL OF CHINA’S EXPANSION.
· WITH THAT IN MIND, LET ME MAKE THE FOLLOWING CASE.
· THE GROWTH AGENDA OF THE CHINESE COMMUNIST PARTY
AND THE CHINESE GOVERNMENT, AND THE MANAGEMENT OF
ATTENDANT DIRECT AND COLLATERAL INTERNATIONAL
DIMENSIONS OF THIS PLANNED GROWTH, WILL REMAIN AT
THE ABSOLUTE CENTRE OF CHINA’S POLICY AGENDA FOR
ANOTHER DECADE AND PROBABLY A LOT LONGER THAN
THAT.
· THE 90s WERE A GEOPOLITICAL FREE RIDE FOR CHINA, AS
THE DECADE PROVIDED A POLITICAL AND ECONOMIC
ENVIRONMENT THAT ALLOWED CHINA’S LEADERS TO FOCUS
ON GROWTH, PARTICULARLY FROM 1992 TO 1997, BUT ALSO
BEYOND. I REALIZE THIS VIEW WILL NOT BE SHARED BY
EVERYONE IN THE AUDIENCE.
· THIS NEW DECADE HOWEVER IS GOING TO BE A LOT
TOUGHER FOR THE CHINESE, FOR A LOT OF REASONS.
· FIRSTLY, SEPTEMBER 11 FOCUSSED USA ATTENTION ON
AMERICAN STRENGTHS AND WEAKNESSES
INTERNATIONALLY, AND TRIGGERED FORMS OF
ENGAGEMENT WHOSE LONG-TERM OUTCOME REMAINS
UNPREDICTABLE. THIS US RECALIBRATION OF ITS
INTERNATIONAL INTERESTS AND ROLE HAS CREATED A NEW
INTERNATIONAL PROBLÉMATIQUE WHICH WILL STABILIZE IN
STILL UNPREDICTABLE WAYS. TO USE MY FRIEND KISHORE
MAHBUBANI’S PHRASE, RARELY HAS THE INTERNATIONAL
SITUATION BEEN SO PLASTIC.
· THIS WILL REQUIRE A CHINESE RESPONSE WHOSE
DIMENSIONS AND COSTS ARE STILL LARGELY UNKNOWN.
· SECONDLY, THE NEXT DECADE OF CHINESE ECONOMIC
DEVELOPMENT WILL BE ONE DURING WHICH IT WILL BE MUCH
MORE DIFFICULT TO ASSURE HIGH LEVELS OF GROWTH THAN
WAS THE CASE IN THE FIRST 20 YEARS. IF CHINA IS TO
ACHIEVE THE FULL BENEFITS OF A MARKET ECONOMY, AND
HAVE THE WHEREWITHAL TO ADDRESS IT’S IMMENSE SOCIAL
PROBLEMS AND THE CHALLENGES TO THE CCP, IT MUST NOW
AND QUICKLY MODERNIZE AND ADAPT AN IMMENSE RANGE
OF MARKET AND GOVERNANCE INSTITUTIONS, TO ALLOW
MARKETS TO BE TRANSPARENT, TO BE EFFECTIVELY
REGULATED AND TO BE SUBJECT TO THE RULE OF LAW AND
A TRULY INDEPENDENT JUDICIARY.
· THIS MEANS, IN PRACTICE, TO SUBSTITUTE POWER AND
PERSONAL RELATIONSHIPS WITH COMMITMENT BY THE
POLITICAL ELITE AND TENS OF THOUSANDS OF GOVERNMENT
OFFICIALS, AT ALL LEVELS OF GOVERNANCE, TO HIGHLY
ABSTRACT NOTIONS OF PUBLIC GOOD.
· CHINA’S ASPIRATIONS CANNOT BE ACHIEVED WITHOUT
SIGNIFICANT ADJUSTMENT OF ITS GOVERNANCE, POLITICAL
AS WELL AS ECONOMIC. THIS DOESN’T MEAN THAT CHINA
HAS NO CHOICE BUT TO COPY CANADIAN DEMOCRATIC
NORMS.
· IT DOES MEAN THAT WITHOUT INTRODUCING COMPETITIVE
PRINCIPLES AND PRACTICES IN POLITICAL GOVERNANCE,
CHINA’S LEADERS WILL NOT GET THE MASSIVE AND
CONTINUOUS FLOW OF POLITICAL SIGNALS THAT ARE
ESSENTIAL TO MANAGING A MODERN ECONOMY. MORE
SIGNIFICANTLY, NOR WILL AN INCREASINGLY AFFLUENT,
EDUCATED AND GLOBALIZED MIDDLE CLASS NEED LESSONS
FROM INSTITUTIONS LIKE THE CCP TO TELL THEM WHAT TO
THINK AND WHAT TO DO. AND THIS IS THE CLASS – MAYBE
OVER 100 MILLION TODAY – WHO ARE THE REAL FORCE OF
TRANSFORMATION.
· NOR WILL CURRENT GOVERNANCE PRACTICES PROVIDE TO
THE HUNDREDS OF MILLIONS OF POOR AND LOW INCOME
EARNERS A SENSE THAT THEY TOO ARE BUILDING THE NEW
CHINA, AND WILL BENEFIT FROM ITS GROWTH.
· IF WE WERE STILL IN THE 60s AND 70s, JAPAN, TAIWAN AND
SOME OF THE SOUTH EAST ASIAN TIGERS MIGHT HAVE
PROVIDED USEFUL LESSONS TO CHINA, IN PURSUING THE
NEXT STAGE OF DEVELOPMENT. BUT FOR REASONS THAT
WILL NO DOUBT BE DISCUSSED IN THE COMING DAYS, TODAY
PERHAPS ONLY THE ROK CAN PROVIDE CLUES TO CHINA’S
FUTURE GOVERNANCE, PARTICULARLY WITH REGARD TO
ECONOMIC RESTRUCTURING. AND PERHAPS TAIWAN OR
SINGAPORE FOR POLITICAL REFORM.
· AS YOU CAN SEE, I AM MORE INCLINED TO BET ON A POSITIVE
SCENARIO FOR CHINA, THAN A PESSIMISTIC ONE.
· AND AS THE REPRESENTATIVE OF A COUNTRY THAT IS
ALREADY BEING INFLUENCED BY DEVELOPMENTS IN CHINA,
IT IS INCUMBENT ON CANADIANS AND CANADIAN
INSTITUTIONS TO PREPARE FOR A CHINA WHOSE INFLUENCE
WILL ONLY INCREASE, AND PERHAPS DRAMATICALLY,
RATHER THAN PLAN FOR DECLINE. IT IS EASIER TO RESPOND
TO THE LATTER, BUT PREPARING FOR THE FORMER –
PREPARING FOR CHINESE GROWTH AND INFLUENCE – IS A
LOT WISER.
· LET ME NOW ELABORATE ON SOME OF THESE POINTS.
THE FREE RIDE
· THAT THE ECONOMIC POLICY REVOLUTION LAUNCHED IN THE
LATE SEVENTIES – SOME OF IT ANTICIPATED AS EARLY AS
THE MID-50s – HAS TRANSFORMED CHINA FUNDAMENTALLY IS
INDISPUTABLE. THAT IT WAS INSPIRED IN PART BY THE
REALIZATION THAT CHINA COULD NOT ACHIEVE ITS
SOCIALIST LET ALONE POWER OBJECTIVES WITHOUT RAPID,
CONTINUOUS AND BROAD BASED ECONOMIC GROWTH IS
ALSO SELF-EVIDENT.
· WHAT IS RELEVANT TO TODAY’S DISCUSSION IS THE
EQUALLY IMPORTANT CONTRIBUTION THAT A WELCOMING
INTERNATIONAL ENVIRONMENT PROVIDED TO EASE AND
INDEED ACCELERATE THIS PROCESS.
· YOU CAN SAY WHAT YOU LIKE ABOUT THE COLD WAR BUT
WHAT IS INDISPUTABLE IS THAT IT’S OUTCOME PUT PAID TO
THE NOTION THAT CENTRALIZED SOCIALIST SYSTEMS CAN
WORK. THE WEST MAY NOT HAVE WON THE GEOPOLITICAL
NEW WORLD ORDER THAT IT ANTICIPATED, BUT ITS VICTORY
DID PROVIDE THE FOUNDATIONS FOR THE FULL-BLOWN
GLOBALIZATION THAT HAS DEFINED THE ERA IN WHICH NOW
WE LIVE.
· MANY FACTORS CONTRIBUTED TO THIS: TECHNOLOGICAL
DEVELOPMENTS AND THEIR PROLIFERATION AMONG THE
MIDDLE CLASSES AND EVEN LOWER INCOME POPULATIONS
ARE ON TOP OF EVERYBODY’S LIST.
· I WOULD ARGUE AS WELL HOWEVER THAT CHINA’S ENTRY
INTO THIS GLOBALIZING WORLD BENEFITED FROM THE
DEMONSTRATED SUCCESS OF ASIAN MODELS OF GROWTH,
AS WELL AS THE SUBSEQUENT LEGITIMATION OF ECONOMIC
SECURITY, AND THE TRADE AND INVESTMENT OBJECTIVES
ALONG CAPITALIST AND FREE-MARKET PRINCIPLES THAT THE
POST-COLD WAR WORLD CELEBRATED.
· JAPAN FROM THE 60s TO THE EARLY 90s, KOREA, TAIWAN
AND THE TIGERS FROM THE 70s TO THE LATE 90s WERE
DEMONSTRATIONS OF WHAT WELL-LEAD ASIAN ECONOMIES
COULD ACHIEVE.
· CHINA IN THE 80s LAUNCHED ITSELF ON A PARALLEL PATH,
WITH SIGNIFICANT SUCCESS. BUT THIS SUCCESS WAS BASED
LARGELY ON DOMESTIC REFORM, AND ONLY PARTIALLY AND
IN RESTRICTED FASHION, ON INTERNATIONALIZATION
THROUGH THE SEZs AND IMPORTED TECHNOLOGIES.
· IT IS REALLY POST-1992, WHEN DENG XIAOPING’S “JOURNEY
OF INSPECTION” TO THE SOUTH, AND THE 14TH PARTY
CONGRESS, WHICH LEGITIMIZED AND PROMOTED THE
ECONOMIC MODELS OF THE SEZs, THAT DECISIONS WERE
MADE TO IMPLEMENT THESE NATIONALLY, AND THAT
EXPANSION COULD BE ACCELERATED.
· THE POINT I WANT TO MAKE IS THAT CHINA BENEFITED FROM
A FORTUITOUS COINCIDENCE OF CIRCUMSTANCES THAT ARE
NOT LIKELY TO BE REPEATED, AND ON WHICH IT CANNOT
DEPEND IN THE FUTURE.
· AT LEAST UNTIL 1997, CONFIDENCE IN THE POTENTIAL FOR
GROWTH IN ASIA WAS WIDESPREAD, SO THAT INVESTORS
WERE WAITING IN LINE AS CHINA PROGRESSIVELY OPENED
SECTOR AFTER SECTOR OF ITS ECONOMY TO FOREIGN
PARTICIPATION. AMONG MANY INVESTORS, LITTLE
ATTENTION WAS PAID TO R.O.I. AS THE COSTS OF INEVITABLE
CYCLICAL DOWNTURNS WOULD BE OBVIATED BY LONG-TERM
PROSPECTS THAT COME FROM INVOLVEMENT IN A MARKET
OF SUCH GREAT POTENTIAL.
· ACCORDINGLY, FDI POURED INTO CHINA. FROM 1992 TO 2001,
FDI GREW FROM A LOW OF USD $11 BILLION, TO A HIGH OF
$47 BILLION IN 2001, FOR A TOTAL OF $369 BILLION,
INVOLVING PERHAPS OVER 100 000 PROJECTS IN ALL. THE
MAJORITY OF THESE PROJECTS EITHER FAILED OR DID NOT
MAKE MONEY FOR THE FOREIGN INVESTORS. NO MATTER,
THE RESULT WAS ECONOMIC GROWTH OF 9.9% PER YEAR,
ON AVERAGE, RAISING GDP TO 1 TRILLION USD BY THE TURN
OF THE CENTURY.
· FOREIGN DIRECT INVESTMENT REGULARLY CONTRIBUTES
OVER 10% OF CHINA’S GROSS FIXED CAPITAL FORMATION —
WITH SIGNIFICANT SPIN-OFF BENEFITS, INCLUDING
PRODUCTIVITY GAINS.
· SECONDLY, DESPITE THE ABSENCE OF WTO DISCIPLINES AND
FRAMEWORK ON CHINA, THE WORLD ECONOMY WELCOMED
CHINA TO THE TRADING FAMILY, AND NOT ONLY THROUGH
FDI. CHINESE EXPORTS ROSE FROM $84 BILLION IN 1992 TO
$266 BILLION LAST YEAR. THE US, CHINA’S BIGGEST MARKET,
IMPORTED $610 BILLION, AND SUSTAINED A TOTAL TRADE
DEFICIT OF $486 BILLION IN THE PERIOD.
· CANADA’S NUMBERS ARE NOT SO DRAMATIC, BUT
NEVERTHELESS, OUR CUMULATIVE TRADE DEFICIT FOR THE
DECADE IS CAD $ 38 BILLION.
· CHINA’S TOTAL TRADE SURPLUS DURING THIS PERIOD
AMOUNTED TO $186 BILLION.
· WITHOUT GETTING INTO A DEBATE ABOUT THE MERITS OR
DEMERITS OF TRADE DEFICITS AND SURPLUSES, THE FACT
REMAINS THAT CANADA, THE USA AND OTHERS OPENED
THEIR ECONOMIES AND ALLOWED MASSIVE INVESTMENT
FLOWS TO WHAT WAS THEN STILL LARGELY A CLOSED
ECONOMY. THERE WERE MANY REASONS FOR THIS, BUT
THEY INCLUDED THE GEOPOLITICAL BENEFITS OF ENGAGING
CHINA AND DRAWING IT FURTHER INTO THE GLOBAL
COMMUNITY.
· A SIMILAR OPENNESS CAN BE DISCERNED IN THE FLOW OF
SCIENCE AND TECHNOLOGY AND COPYRIGHTED
KNOWLEDGE SUCH AS COMPUTER SOFTWARE. IT IS HARD
TO IMAGINE CHINA TODAY WITHOUT CHINESE LANGUAGE
WINDOWS APPLICATIONS, HOWEVER THEY WERE OBTAINED –
AND WE KNOW THAT MOST WERE OBTAINED WITHOUT
AUTHORIZATION OR COMPENSATION.
· THEREFORE, MUCH, PERHAPS THE BETTER PART OF CHINA’S
GROWTH AROSE THANKS TO SIGNIFICANT RESOURCE
REALLOCATION AND IMPORTANT EFFICIENCY GAINS THAT
WERE DRIVEN NOT ONLY BY DOMESTIC REFORM, BUT BY
CHINA’S FOREIGN TRADE SECTOR. ECONOMISTS ESTIMATE
THAT TRADE-RELATED EFFECTS ADD OVER 1.5% TO ANNUAL
GDP GROWTH RATES.
· FURTHERMORE, FOREIGN INVESTED ENTERPRISES PLAYED
THE KEY ROLE IN THIS ACHIEVEMENT. OVER HALF OF TOTAL
TRADE – IMPORTS AND EXPORTS – IS CONDUCTED BY THESE
FIRMS.
· FINALLY, EXPANSIONARY ECONOMIES IN ASIA – UNTIL 1997 –
AND EUROPE AND AMERICA – UNTIL 2001 – PROVIDED THE
GROWING MARKETS AND INVESTMENT CAPITAL THAT COULD
MEET CHINA’S NEEDS.
· THE INTERNATIONAL POLITICAL ENVIRONMENT – WITH
VIRTUALLY ALL CONFLICT BEHIND BORDERS AND ON THE
PERIPHERY OF THE DEVELOPED WORLD – PROVIDED CHINA
WITH AN ESSENTIAL BREATHING SPACE SO THAT IT’S
CONCENTRATION ON ECONOMIC DEVELOPMENT COULD BE
UNBROKEN.
· ALL OF THESE FACTORS, AND MANY OTHERS, FAVOURED
CHINA’S GROWTH AND RAPID INTEGRATION INTO THE
INTERNATIONAL ECONOMY.
WHAT’S THE DIFFERENCE?
· THE SITUATION IN THE NEW CENTURY IS REMARKABLY
DIFFERENT, AND THUS WILL NOT LIKELY PROVIDE THE SAME
BENEFICENT ENVIRONMENT AS THE LAST. LET ME JUST LIST
A FEW IMPORTANT CHANGES.
· THE BENEFITS OF WTO ACCESSION ARE REAL BUT MANY OF
THEM ARE BACKLOADED. THIS IS HARDLY SURPRISING AS
ACCESSION NEGOTIATIONS DEALT WITH MARKET OPENING
AND STRUCTURAL AND REGULATORY REFORM OBLIGATIONS
FOR CHINA, NOT FOR ANYONE ELSE. VIRTUALLY EVERYONE
IN THIS ROOM CAN LIST THE CHALLENGES THAT CHINESE
INDUSTRY AND SERVICES WILL FACE IN THE COMING YEARS,
THANKS TO LOWER AVERAGE TARIFFS AND OTHER MARKET
OPENING MEASURES. THERE IS MUCH LESS OF A FREE RIDE.
· CHINESE SECTORS SUCH AS AGRICULTURE, AUTOMOTIVE,
BANKING, INSURANCE, TELECOMS AND OTHERS, ALL OF
WHICH GREW REMARKABLY IN THE 90s, WILL FACE SERIOUS
CHALLENGES. RESPONSE TO INTERNATIONAL COMPETITION
WILL REQUIRE THE TYPE OF SOPHISTICATED RE-
ENGINEERING OF CHINESE INDUSTRY AT THE NEXUS WHERE
CORPORATE MANAGEMENT, RISK SENSITIVE FINANCIAL
INSTITUTIONS, REGULATORY AUTHORITY AND GOVERNMENT
SUPPORT MEET. IT IS NOT CLEAR THAT THIS ESSENTIAL
ALIGNMENT OF COMPETENCIES WILL DEVELOP SMOOTHLY
OR RAPIDLY.
· I DON’T PRETEND TO HAVE ANY OF THE SKILLS NECESSARY
TO PREDICT WHAT THE GROWTH IN FOREIGN DEMAND FOR
CHINESE GOODS AND SERVICES WILL BE IN THE COMING
DECADE, BUT IT IS NOT LIKELY TO BE AS ROBUST AS IT WAS
IN THE 90s. JAPAN’S CONTINUING ANAEMIA, THE DIFFICULTY
OF RELAUNCHING GROWTH IN SOUTH EAST ASIA, THE
ECONOMIC INVISIBILITY OF CHINA’S TWO GIANT
NEIGHBOURS, INDIA AND RUSSIA, AND UNCERTAINTIES
ABOUT THE SIZE AND DURABILITY OF EXPANSION IN THE
MARKET THAT MATTERS THE MOST, THE UNITED STATES,
PROBABLY URGE CAUTION. 50% OF CHINA’S SALES TO THE
US ARE CONSUMER PRODUCTS, A SECTOR WHICH IS
SENSITIVE TO SWINGS IN THE MICRO AS WELL AS MACRO
ECONOMY.
· FOR WHAT IT’S WORTH, MY BET IS FOR SEVERAL YEARS OF
SLOWER ECONOMIC GROWTH, A SITUATION THAT CAN ONLY
BE OVERCOME BY CHINA’S EXPORTERS BY A RISE IN
PRODUCTIVITY, COMPETITIVENESS AND THE QUALITY OF ITS
PRODUCTS.
· AND HERE, I SEE IMMENSE DIFFICULTIES. FOR THIS IS WHERE
THE DOMESTIC POLITICAL ECONOMY MEETS THE
INTERNATIONAL POLITICAL ECONOMY.
· BECAUSE CHINA MUST CHANGE THE DIRECTION OF ITS
REFORM PROGRAM. THE OECD HAS BEEN MOST ARTICULATE
ON THIS. IT SAYS THAT THE SCOPE FOR SECTOR BY SECTOR
REFORM IS DECLINING.
· THE INTER-RELATIONSHIPS AMONG THE VARIOUS PARTS OF
THE ECONOMY REQUIRE MORE COHERENT AND ECONOMY-
WIDE RESTRUCTURING, SO THAT THE ALLOCATION OF
CAPITAL, LABOUR, S&T AND OTHER KEY FACTORS CAN BE
MORE EFFICIENT. THERE IS A SERIOUS NEED FOR
SIGNIFICANT MERGERS AND ACQUISITIONS LEGISLATION AND
REGULATIONS, SO THAT MORE CONCENTRATION CAN LEAD
TO GREATER EFFICIENCIES. THE FINANCIAL SECTOR IS NOT
NOW UP TO THE TASK OF ALLOCATING RESOURCES, AND
NOT ONLY BECAUSE OF THE NPL PROBLEM. FINANCIAL
INTERMEDIATION IS WEAK THROUGHOUT THE ECONOMY.
· SECONDLY, REGULATORY AGENCIES NEED TO HAVE NOT
ONLY THE INDEPENDENCE AND FREEDOM TO DO THEIR JOBS.
THEY MUST HAVE THE SOPHISTICATION TO DEVELOP A
CAPACITY WITHIN THE INDUSTRIES THAT THEY OVERSEE TO
PROMOTE SELF-REGULATION AND DISCIPLINE. CHINA IS TOO
VAST, INSTITUTIONS ARE TOO NUMEROUS, AND THE
DEMANDS OF GROWTH ECONOMIES TOO DIVERSE TO THINK
THAT BEIJING RULES CAN ADDRESS ALL PROBLEMS.
· THIRDLY, CHINA NEEDS AN OPEN AND FREE DOMESTIC
MARKET. WE ALL KNOW ABOUT EXTERNAL BARRIERS, BUT
INTERNAL BARRIERS ARE JUST AS NUMEROUS, AND IN FACT
MORE INTRACTABLE. I WAS TOLD RECENTLY OF THE
PRACTICE OF GUANGDONG COMPANIES OF SHIPPING THEIR
GOODS TO HONG KONG, FOR ONWARD SHIPMENT TO
SHANGHAI BUT BACK BY LAND THROUGH GUANGDONG, AS
HONG KONG PROCESSING WAS SIMPLER AND SHANGHAI WAS
MORE WILLING TO DEAL WITH HK GUARANTEES.
· AND SO FORTH.
· ALL THIS TO SAY THAT ANY ASSESSMENT OF THE STRATEGIC
IMPACT OF CHINA ON THE REGION CANNOT BE UNDERSTOOD
IN THE ABSENCE OF AN APPRECIATION THAT THE
CHALLENGES OF EXPANDING CHINA’S ECONOMY START WITH
THE DOMESTIC ENGINES AND SYSTEMS. THESE ARE WHAT
WILL DETERMINE, IN THE END, THE SIZE AND EXTENT OF
CHINA’S ENGAGEMENT BEYOND ITS BORDERS. AGAIN, IT IS
ESSENTIAL TO UNDERSTAND THE DPE, IF ONE IS TO
PROJECT THE IPE.
CONSEQUENCES FOR THE IPE: THE CANADA CASE
· HAVING SAID ALL OF THAT, AND STICKING TO MY
EXPECTATION THAT CHINA WILL IN FACT ACHIEVE AT LEAST
MODERATE EXPANSION, WHAT WILL BE THE IMPACT ON THE
REGION AND THE WORLD?
· I DON’T, IN FACT, PROPOSE TO ANSWER THAT QUESTION. IT
WILL BE BETTER ADDRESSED BY THE PRESENTERS THAT
FOLLOW MY REMARKS.
· LET ME JUST OUTLINE WHAT I THINK THESE WILL BE ON
CANADA.
· I THINK THE DETERMINANTS OF CHINA’S IMPACT WILL
INCLUDE GEOGRAPHY, THE NATURE OF CANADIAN SOCIETY,
OUR ECONOMIC STRUCTURE AND THAT MOST ELUSIVE OF
FACTORS, NATIONAL WILL.
· GEOGRAPHY, AS WE ALL KNOW, IS FATE. THE PACIFIC IS
WIDE, BUT SINCE THE 17TH CENTURY, IT HASN’T BEEN THE
BARRIER TO CONTACT THAT IT HAD BEEN IN THE PREVIOUS
MILLENNIA. BY THE TIME CANADIANS BEGAN TO DEVELOP
THE WEST COAST OF CANADA, LARGE NUMBERS OF PEOPLE
COULD CROSS OCEANS QUITE FREELY. ADDED TO THIS NEW
REALITY WAS THE FACT THAT THE INADEQUACIES OF OUR
INTERNAL LABOUR MARKET WERE SUCH THAT THE
IMPORTATION OF PEOPLE WAS A NATIONAL IMPERATIVE. IN
FACT, IT STILL IS.
· DEMAND WAS PARTLY MET BY ADJUSTMENTS TO THE FLOW
OF SURPLUS LABOUR IN CHINA WHICH HAD FOR CENTURIES
HEADED SOUTH, TO INDOCHINA AND THE ARCHIPELAGOES
OF WHAT ARE NOW THE PHILIPPINES, INDONESIA AND
MALAYSIA, AMONG OTHER DESTINATIONS. THESE
LABOURERS FROM CHINA, AS WELL AS OTHER ASIAN
COUNTRIES, PLAYED KEY ROLES IN THE DEVELOPMENT OF
OUR TRANSPORTATION INFRASTRUCTURE, OUR MINING AND
AGRICULTURAL SECTORS, OUR FISHING INDUSTRY AND
OTHERS. THE DESCENDANTS OF THESE EARLY PIONEERS
AND THEIR MODERN COUNTERPARTS NOW NUMBER OVER
ONE MILLION CANADIAN CITIZENS.
· AND THESE FLOWS ARE CONTINUING. OVER 16% OF
IMMIGRANTS TO CANADA ARE OF CHINESE ANCESTRY.
CANADA DEVOTES CONSIDERABLE RESOURCES TO
MAINTAINING THESE FLOWS, FOR IMMIGRANTS – PEOPLE
WHO MOVE PERMANENTLY – AS WELL AS FOR TEMPORARY
VISITORS, INCLUDING TOURISTS, BUSINESS PEOPLE AND
STUDENTS. INDEED, THE CANADIAN GOVERNMENT HAS OVER
150 STAFF IN CHINA AND HONG KONG TO FACILITATE THEIR
MOVEMENT.
· THIS IS NOT HAPPENSTANCE. THIS IS POLICY RESPONSE BY A
GOVERNMENT DETERMINED TO CEMENT LINKS WITH AN
EMERGING POWER; BY A SOCIETY OF IMMIGRANTS THAT
PLACES A HIGH POLITICAL AND SOCIAL PRIORITY ON
ENSURING CONTINUING FLOWS OF NEW IMMIGRANTS
CITIZENS; AND BY AN ACKNOWLEDGED NEED TO SUSTAIN
OUR OWN GROWTH IMPERATIVE.
· AND EVERYTHING SUGGESTS THAT THE SUPPLY SIDE OF
THIS EQUATION, POWERED BY ECONOMIC GROWTH, A RISING
MIDDLE CLASS AND THE CONTINUING INADEQUACIES OF A
CHINA STILL IN NEED OF DEVELOPMENT, WILL ALSO
CONTINUE TO RISE.
· CANADA IS A NATION BUILT ON TRADE. IT WAS THUS FROM
THE START OF THE EUROPEAN INCURSIONS – I WAS RAISED
ON STORIES AND SONGS OF THE “COURREURS DE BOIS” AND
THE FUR TRADE – AND IT IS EVERMORE THE CASE TODAY.
INTERNATIONALIZATION IS IN THE WARP AND WOOF OF OUR
ECONOMIC LIFE.
· AND SO IT IS BECOMING WITH CHINA, AS I’VE ALREADY
ILLUSTRATED.
· THUS, THE SUPPLY OF CANADIAN GOODS AND SERVICES TO
CHINA’S MARKET HAS GROWN, IN COMPARATIVE TERMS, AT A
RAPID RATE. CANADA’S EXPORTS TO CHINA 10 YEARS AGO
WERE VALUED AT CAD $2.1 BILLION, FIVE YEARS AGO AT $2.4
BILLION AND LAST YEAR AT $4.2 BILLION, GIVING US A
MATHEMATICAL INCREASE OF 100% OVER A DECADE.
· BUT THE ABSOLUTE NUMBERS REMAIN SMALL, JUST OVER
$4B LAST YEAR, IN CANADIAN DOLLARS. THAT’S LESS THAN A
WEEK’S EXPORTS TO THE US, ABOUT HALF OF OUR ANNUAL
EXPORTS TO JAPAN. EVEN ADDING HONG KONG TO THE MIX
DOES NOT CHANGE THE DIMENSIONS TO ANY GREAT
EXTENT.
· CANADIAN CONSUMERS OF TOYS, TEXTILES, CLOTHING,
FOOTWARE AND FURNITURE, AND CANADIAN IMPORTERS OF
MACHINERY HOWEVER HAVE BENEFITED FROM THE LOWER
PRICES OF CHINESE GOODS, SO THAT EXPORT TO CANADA
ARE ABOUT THREE TIMES IMPORTS FROM CANADA. BUT
AGAIN, THE NUMBERS ARE NOT HUGE, NOT SURPRISING,
GIVEN THE DEGREE OF INTEGRATION WE HAVE ACHIEVED
WITH THE UNITED STATES.
· WE CANNOT BE INDIFFERENT TO THESE RELATIVELY LOW
LEVELS OF TRADE, HOWEVER BENEFICIAL THEY ARE TO
THOSE INVOLVED. CANADA CANNOT WATCH THE PASSING
SCENE OF CHINA’S POST-WTO GROWTH WITH INDIFFERENCE.
A RANGE OF GOVERNMENT POLICIES MUST BE ADJUSTED TO
ENSURE THAT CANADIAN FIRMS ARE IN THE MARKET, AND
ARE ABLE TO TAKE ADVANTAGE OF NEW OPPORTUNITIES.
INFINITELY EASIER SAID THAN DONE, BUT THE IPE IS NOT A
GIVEN: IT IS SOMETHING TO SHAPE.
· HAVING SAID THAT, I ALSO BELIEVE THAT AS IMPORTANT AS
RAW NUMBERS ARE STRATEGIC PARTNERSHIPS. CANADA,
THROUGH THE ACTIVISM OF ITS BUSINESSES, BUT ALSO
SUPPORTED BY CANADIAN POLICY, HAS TIED ITSELF TO
CHINA’S DEVELOPMENT IN SIGNIFICANT WAYS. SOME OF OUR
BIGGEST FIRMS – NORTEL, SNC-LAVALIN, BOMBARDIER – AND
MANY SMALL BUT DYNAMIC ONES – PORTS INTERNATIONAL –
HAVE MADE LONG TERM BUSINESS AND MARKETING
INVESTMENTS THAT SERVE THEIR INTERESTS AND THOSE OF
CHINA. THESE STRATEGIC TIES WILL SHAPE CANADA’S LINKS
WITH CHINA AND THE ASIA PACIFIC. POST-WTO CHINA WILL
ONLY INCREASE THE SIGNIFICANCE OF THOSE TIES: THEY
WILL RESHAPE CANADIAN FIRMS AND THEIR OVERALL
RESPONSE TO THE INTERNATIONAL ENVIRONMENT.
· WHAT IS CLEAR FROM THESE EXAMPLES IS THAT THE IMPACT
OF CHINA ON CANADA’S IPE ENVIRONMENT IS NOT A MATTER
OF PASSIVE RESPONSE: IT IS A QUESTION – IT MUST BE A
QUESTION – OF SHAPING THAT RESPONSE. IN OTHER WORDS,
BENEFITING FROM THE CHANGES THAT ARE BEING
WROUGHT UPON THE WORLD THROUGH THE WORKINGS OF
THE INTERNATIONAL POLITICAL ECONOMY ALSO REQUIRES
POLITICAL WILL.
· IT REQUIRES THAT THE GOVERNMENTS OF CANADA AND THE
PROVINCES, AND OUR BUSINESSES, AND OUR INSTITUTIONS
SUCH AS UNIVERSITIES, AND OUR ACADEMIC, INTELLECTUAL
AND ARTISTIC COMMUNITIES ACKNOWLEDGE CHINA’S RISING
STRATEGIC IMPORTANCE AND DECIDE IN WHAT FASHION TO
RESPOND TO IT, FOR THEIR CORPORATE AS WELL AS OUR
NATIONAL BENEFIT.
· THAT PROCESS IS WELL LAUNCHED. WITH THE EXCEPTION
OF OUR RELATIONS WITH THE USA, NO COUNTRY HAS BEEN
THE TARGET OF GREATER POLITICAL ATTENTION THAN
CHINA. OVER THE LAST 10 YEARS, OUR POLITICAL LEADERS,
STARTING WITH THE PRIME MINISTER, WHO HAS MADE 6
VISITS TO CHINA DURING THE PERIOD, HAVE BEEN PAYING
ATTENTION.
· OUR BUSINESS COMMUNITY, SOME OF WHOM ARE MEMBERS
OF AN EXTREMELY DYNAMIC CANADA CHINA BUSINESS
COUNCIL, ARE “THINKING CHINA” AND MANY ARE “ACTING
CHINA”, THROUGH TRADE AND INVESTMENT.
· CANADA’S DEPARTMENT OF FOREIGN AFFAIRS HAS, IN MY
HUMBLE OPINION, A STRONG AND COMMITTED AND
STRATEGIC VIEW OF CHINA THAT IS PLANNING FOR THE
FUTURE. WE ARE TELLING CANADIANS THAT IT IS NECESSARY
FOR THEM TO ASSESS THE IMPACT OF CHINA’S GROWTH ON
THEM, AND TO DETERMINE WHETHER OR NOT IT IS TIME TO
DEVELOP THEIR OWN CHINA STRATEGIES.
· BUT GIVEN THE SIZE AND POTENTIAL OF CHINA, THESE
EFFORTS ARE NOT LIKELY TO BE ENOUGH. CHINESE LIVING IN
A GLOBALIZED, INTERCONNECTED WORLD HAVE AN
INCREASINGLY LARGE NUMBER OF OPTIONS. THEY CAN
CERTAINLY CHOOSE NOT TO HAVE MUCH TO DO WITH
CANADA AND GO SOMEWHERE ELSE FOR THEIR GOODS AND
SERVICES AND MARKETS AND UNIVERSITIES AND SO FORTH.
INDEED, THAT IS EXACTLY WHAT MOST ARE DOING.
· SO IT IS UP TO CANADIANS TO SELL THEMSELVES, TO RAISE
THE AWARENESS IN IMPORTANT CHINESE CIRCLES,
INCLUDING THE MIDDLE CLASS, THAT OUR SOCIETY AND OUR
BUSINESSES AND OUR EDUCATIONAL INSTITUTIONS ARE
DESIRABLE PARTNERS, INDEED AMONG THE BEST IN THE
WORLD. THIS IS CERTAINLY WHAT WE BELIEVE THEM TO BE.
BUT WE HAVE TO FIND MORE WAYS OF MAKING THAT POINT,
AND MAKING IT STICK.
· IPE IS NOT ONLY A GIVEN, IT IS AN ENVIRONMENT WE MUST
INFLUENCE.
CONCLUSION
· LET ME CONCLUDE BY MAKING THE FOLLOWING POINTS:
· STRAIGHT LINE PROJECTIONS ARE ALWAYS DANGEROUS,
AND ESPECIALLY SO WITH SUCH COMPLEX PHENOMENA AS
NATIONAL ECONOMIES AND DOMESTIC POLITICS. IT IS EASY
TO POINT TO THE DIFFICULTIES THAT CHINA IS FACING, AND
LET THESE DOMINATE OUR PERSPECTIVES. BUT CAUTION IS
NOT THE ONLY PRISM THROUGH WHICH ONE MUST ATTEMPT
TO DEVINE THE FUTURE.
· POLITICAL WILL AND THE VISION, AMBITIONS AND ENERGY OF
CANADIANS AS WELL AS CHINESE WILL ALSO BE
DETERMINANTS OF THE FUTURE.
IT IS INCUMBENT ON GOVERNMENT – AND
ACADEMICS – TO PLAY LEAD ROLES. DYNAMIC POLICY
DEVELOPMENT MAY RUN WELL AHEAD OF REAL WORLD
TRENDS, BUT THAT IS INFINITELY MORE PRODUCTIVE THAN
PLAYING CATCH-UP.
· BEING ABLE TO FORMULATE AND IMPLEMENT SUCH
FORWARD LOOKING POLICIES IS BOTH MY
RESPONSIBILITY AND YOURS.
THANK YOU VERY MUCH FOR PROVIDING ME WITH THE
OPPORTUNITY TO SHARE THESE THOUGHTS WITH YOU.