Economy

A beaten-up red taxi took me home one afternoon as spring was turning to summer. The driver’s accent, which tagged a lazy ‘er’ sound onto the end of most words, identified him as ‘lao Beijing’, or ‘old Beijing’ — a singular description. In English we differentiate between London and Londoners, and between New York and New Yorkers. But the Chinese language makes no distinction between the alleyways and courtyard houses that make up the old quarters of the national capital and the people whose families have lived in them for generations. Both are called “old Beijing”, as if long association has somehow fused one with the other. Most often alleyways in Beijing’s old quarters have been bulldozed over the last decade, sweeping away hundreds of years of history. A city with the antique charm that rivaled Venice is preserved only in photographs. The people of the “old Beijing” can still be seen walking to the imperial parks dedicated to the sun, earth, moon and sky to fly kites.

They also wander with songbirds in ratten cages of Pekinese dogs tucked under their arms to their old haunts — places that once had some local significance but are now road intersections or the forecourts of soaring new office towers.

In the years I have lived in Beijing one of the things I have enjoyed has been the company of such people. Friendship. It means different things to different people. But in China the boundaries have been blurred by dint of a strenuous, state-sponsored drive to nuture ‘friendship’ between Chinese and foreign individuals as an important instrument of foreign policy.

Yet the warmth, the closeness and respect that are simulated are all calculated to achieve utilitarian aims. Sometimes it is exclusivity rather than adulation that is employed. More rarefied gradations of exclusivity are reserved for people like Rupert Murdoch, the magnate who controls News Corporation, the media group. During the years he has been trying to crack the Chinese market, he has gained access to most of the inner sanctums of Communist power. The phenomenon of ‘waishi’ friendships is interesting on different levels. It can be looked upon as an aspect of public diplomacy, or an exercise in social psychology. But I found it absorbing for what it suggests about the Chinese government’s attitude towards the outside world.

They call it ‘pragmatism’. But before getting into that, some balance is required. It must be said that from a global perspective, China’s emergence is of enormous economic benefit. The value created by the release of 400 million people from poverty, the migration of over 120 million from farms to factories where they churn out electronics, the quantum leap in educational standards for tens of millions of children, the construction of first world infrastructure, the growth of over forty cities with populations of over one million, the commercialisation of housing and the vaulting progress up the technology ladder have helped unleash one of the greatest ever surges in general prosperity. The prime beneficiary of this is China itself, but the mobilisation of wealth on such a scale is necessarily, in aggregate terms, lifting the fortunes of the planet.

Regionally, however, the benefits are unevenly spread. Generally, the countries that have gained most are those that are rich in energy and other resources but do little in the way of manufacturing. Africa has seen particular advantages. Trade between China and the countries on the African continent has tripled in the last three years and helped power a boom that was expected to carry African growth to its highest level in thirty years.

But Europe and America, in large part due to homegrown deficiencies, are finding it increasingly tough to identify a net advantage from their engagement with China. A key question for the future therefore is not so much how China’s rise will affect the world but to what extent the world will allow China to continue its ascent. While a general shutdown in trade would have a catastrophic impact on the global economy and is therefore unlikely, even a practical pruning of commercial links or a gradual upsurge in Western protectionism towards China would have profound effects on the world’s well-being. But such decisions rarely come down to dispassionate economic analysis; they turn instead on the perceptions of electorates — people such as those in Rockford, Illinois, or Prato in Tuscany or a thousand other places reeling from China’s manufacturing might. And therein lies the rub.

China is particularly vulnerable here, pointing to an uncomfortable paradox: China owes its emergence in large part to the free-trade system created by America since the second World War, but in many ways it is still not a creature of that system.

In the past, this may not have mattered much. China’s differences with the West have not caused the West to turn away from China during the past two-and-a-half decades, so why should they start to make a difference now? The answer to that question is linked to 2004 when the manhole covers were disappearing from drains all over the world to feed the churning hunger of Asia’s rising giant for scrap steel. At that time, a Rubicon was crossed. Even though the central government did not control the nation’s appetite, it had no option but to do everything in its power to satisfy it.

Whatever else happen-ed, China had to be fed. A new era in international relations dawned, one defined by the geopolitics of scarcity. Greater and greater competition, both commercial and political, began to set one country against another in pursuit of finite resources and energy. As recently as five years ago Beijing’s leaders hardly had to worry about where and how their companies would secure supplies of oil, gas and a host of traded commodities and resources. In those days, the country’s demand, though significant, was relatively easily accommodated on world markets. But now it is the second-largest importer of oil in the world after the US. Its imports of aluminium, nickel, copper and iron-ore have risen from an average 7 percent of world demand in 1990 to a predicted 40 percent by the end of this decade. Beijing has therefore become anxious in case supplies of crucial inputs run out or are diverted to other countries, thus threatening the growth that produces the 24 million new jobs it must create each year. This scarcity, or finding ways to alleviate it, has in a few short years leapt up Beijing’s agenda to become the key motivator of foreign and domestic policies. The imperative to put end to its cravings has brought China more and more into strategic and diplomatic conflict with the US. Because it has no slack in the decisions of where to sate itself, Beijing has had to strike deals for access to resources as they have become available, wherever they have been. Many have been with countries that are rivals with the US or designated as pariahs by Washington. Thus America is watching with rising angst to see if Beijing enters agreements that impinge upon vital interests or threaten its only establised energy supply lines. So far the situation has not revived the dynamics of the Cold War, when great powers jockeyed for influence in third-word countries around the world, but the conditions are there for it to become so. As Condoleeza Rice, the US Secretary of State, has said, the US “welcomes the rise of a confident, peaceful and prosperous China” but hopes it will be “able and willing to match its growing capabilities to its international responsibilities”. In other words, it does not want to see Beijing befriending Washington’s rivals in order to divert away the oil supplies that sustain American growth.

Elsewhere, the issue is not that China may impinge on US supply lines, but that in its alacrity to shore up supplies, it is forging ties with countries that Washington has made a policy of blacklisting. Sudan is a case in point. In 1997, when the predominantly Muslim government in Khartoum was engaged in a gruesome war against Christian rebels in the south, Washington imposed a ban on US companies from doing business in the East African country. This gave the Chinese a clear run at tapping into its oil reserves. In the years since, Sudan has become China’s largest overseas oil provider and China has turned into Sudan’s biggest supplier of arms. Chinese-made tanks, fighter planes, bombers, helicopters, machine guns and rocket-propelled grenades have added new impetus to the civil war between the north and south of the country which has already lasted two decades. The money to buy those weapons, meanwhile, has come from oil revenues generated largely by the activities of the state-run China National Petroleum Corporation.

China National Petroleum owns 40 percent, the largest stake, of the Greater Nile Petroleum Operating Co., a consortium that dominates Sudan’s oilfields. Another Chinese firm, Sinopec, is erecting a pipeline over hundreds of miles to Port Sudan on the Red sea, where China’s Petroleum Engineering Construction Group is building a tanker terminal. The total investment runs into billions of US dollars and as production increases, Sudan has come to furnish China with 10 percent of its total oil imports. But the benefit derived from this has to be weighed against the cost to Beijing’s reputation. Not only has China become the chief supporter of a government that has perpetrated repeated instances of genocide but, according to human rights groups and locals quoted by Peter Goodman, a reporter for the Washington Post, the construction of Chinese oil rigs has also led directly to the slaughter of Sudanese people.

The US-funded Civilian Protection Monitoring Team, a non-governmental organisation, has asserted that government troops have sought to clear a cordon sanitaire around oil installations by moving out the mostly ethnic Nuer and Dinka tribes there. On 26 February 2002, the Nuer town of Nhialdiu was wiped out during one such operation to make way for a Chinese well that now functions in the nearby town of Lal. Mortar shells landed at dawn, followed by helicopter gunships directing fire at the huts where people lived. Antonov aeroplaines dropped bombs and roughly 7000 government troops with pro-government militias then swept through the area with rifles and more than twenty tanks, according to Goodman’s report, which was based on numerous local sources. “The Chinese want to drill for oil, that is why we were pushed out,” Goodman quoted a local, Rusthal Yackok, as saying. Yackok added that his wife and six children were killed in the operation. The chief of Leal, Tanguar Kuiyguong, who lost three of his ten children on that day, told Goodman that around 3 000 of the town’s 10 000 inhabitants died and every house was burned to the ground.

There is no evidence, however, that the Chinese government’s largest oil company had any advance notice of the Sudanese government’s scorched-earth strategy at Leal. Beijing also brushes off any suggestion that it is complicit in Sudan’s genocide. As Zhou Wenzhing, a deputy foreign minister, said in 2004: “Business is business. We try to separate politics from business. I think the internal situation in Sudan is an internal affair, and we are not in a position to impose upon them.”

A few months later, though, Chinese diplomats successfully diluted the impact of a United Nations resolution condemning Khartoum, thereby undermining Washington’s efforts to threaten sanctions against Sudan’s oil industry in protest at other waves of genocide in the Darfur region of the country. Having watered the resolution down, however, Wang Guangya, the ambassador to the UN, denied that his actions had anything to do with a desire to protect Chinese state oil interests in the country.

Sudan is by no means the only country in which Beijing has pursued energy and resources at the expense of its international reputation. When the president of Uzbekeistan, Ismal Karimov, visited Beijing in 2005, the government rolled out the red carpet for him in spite of the fact that just twelve days earlier the Uzbek army had killed hundreds of civilian protestors in a town square in the east of that Central Asian nation.

It was not long before clues emerged as to the real motivations behind China’s courting of a “reliable friend”, as the state media referred to Karimov. The Uzbek president had brought with him a $600mn deal that allowed China’s national Petroleum access to twenty-three Uzbek oilfields.

A couple of months after Karimov it was the turn of Zimbabwean dictator Robert Mugabe to accept a twenty-one gun salute, a small loan and some encouraging words from Hu Jintao. Much more substantive than these ties with either Uzbekistan or Zimbabwe has been China’s warming relationship with Iran, another country high on Washington’s list of pariah states. Iran supplies 11 percent of China’s oil imports, so it is already a crucial resource partner. But the level of reciprocal interest is set to surge as Sinopec, the second largest state oil firm, implements an oil and natural gas agreement with Tehran that is said to be worth as much as $70bn — the biggest energy deal yet by any member of OPEC, the cartel of oil-producing companies.

The anxiety this causes in the White House is hard to overestimate: preventing Iran from developing the bomb has long been a cornerstone objective in the State Department’s global view. Tensions are rising palpably. China’s willingness to elevate the agendas of resource-rich pariah states to the UN’s Security Council is a major departure in the way that it conducts itself. The first ripples of counter-reaction may already be evident. The failure of the bid by CNOOC, the oil firm, or its US counterpart, Unocal, in 2005 was an indication of how sensitive US public opinion has become towards a rising and potentially threatening China.

If that perception starts to gel, then it may start to condition Washington’s thinking on a panoply of strategic and commercial issues and lead to the step by step reversal of the policy engagement that has underpinned China’s rise over the past 27 years. If the sense of China as an adversary permeates deeply enough into the US political psyche, then a whole range of familiar anti-Beijing arguments — that it is an unfair trader, a manipulator of its currency value, a pirate of intellectual property, an exploiter of its own workers, a beneficiary of subsidised financing from its state banks and others — may grow in potency. If these spill over into the realm of commerce, as they did quite clearly during the CNOOC bid for Unicol, then slowly but surely, the free market assumptions of the West that have facilitated China’s remarkable ascent since 1978 could start to be undermined.

If this happens, the biggest economic event of the second half of the twentieth century could be thrown off-course in the first half of the twenty-first, causing dislocations that would convulse not only China but also much of the rest of the world. That prospect, so damaging for so many hundreds of millions of people, is made possible by globalisation’s most fundamental limitations — which is that, although trade increases the mutual economic dependence of the countries that engage in it, it does not make the peoples of those nations any fonder of each other. Maybe the scenario I have painted is too pessimistic. Indeed, when I think of all the issues, of how the acrimony, ill will and strategic competition could one day rupture China’s trading relationship with the West, a particular memory recurs to me suggesting that these concerns may be overblown. The memory in question is set in the embassy quarter of Beijing in the aftermath of NATO’s bombing of the Chinese embassy in Belgrade. The smoke still billowing from the rubble of the Chinese embassy complex, Washington issued a statement saying the bombing had been a tragic mistake, a case of a pilot under pressure using an outdated map.

Foreign residents of Beijing found themselves subject to closer than normal questioning from Chinese as to which country they came from. If the answer was the UK, the US or other NATO countries, the reaction was never favourable. Suddenly, the number of self-professed British and Americans in Beijing started to drop precipitously, while those calling themselves South Africans and Canadians surged.

The next morning I had become South African. I bumped into an influential official in the Chinese Ministry of Foreign Trade and Economic Cooperation and asked her whether she thought the negotiations to enter the WTO would be derailed because of this. “Of course, how can you talk about trade when the other side is bombing your embassy,” she shouted.

But the episode does not end like that. A month or so later we were back in Haagen-Dazs and she informed me that the deliberations on joining the WTO were proceeding. When I asked her when and how they had resumed, she replied that they had never stopped. “We are prepared to make concessions to benefit ourselves in the long run,” she said.

It is this flexibility and pragmatism, visible in China’s transformation over and over again, that supplies the counter-argument to future scenarios full of doom and gloom. China is perhaps too wedded to the world, too deeply insinuated into its organisations and treaties, and too dependent on others to bite the hand that feeds it.