Rise of Middle Kingdom begs new strategy

‘WE NEED a new model for sustainable economic growth which goes beyond conventional thinking, and China will have to be at the heart of it . . . China has to lead the world because it will suffer most from global warming, the common threat that confronts all mankind.’

These extracts from a talk on March 31st last by Eddie O’Connor, chief executive of Airtricity and Mainstream Renewable Power, indicate a growing realisation by Irish business leaders of how important it is to understand and engage with China (http://www. iiea.com/event/ archive_view url Key=china-leading-the-world-again).

Drawing out the implications for Irish foreign policy, he says we “should prepare for a future in which China evolves into the dominant force in the world and becomes what it has always seen itself to be, the Middle Kingdom around which the rest of the world revolves.” He calls for an extensive language learning programme and much more intensive exploration of business opportunities there, including in renewable energy and agricultural products like beef.

A similar argument was made by Cathal Brugha, a professor at the UCD Smurfit and Quinn school, in last week's Sunday Business Post. He concentrated on Chinese leaders' acute awareness of the euro zone crisis: "If European countries default one by one, starting with Greece, the euro will crash, Europe will go into recession, and China will lose its much-needed markets because of its own rapid growth in recent years." They are ready to invest €500 billion to help recapitalise Greece and other vulnerable economies to avoid that fate.

Brugha says Ireland has an opportunity to benefit. The open economy, strength of foreign and especially US investment here, communications skills, English language proficiency, educational facilities, together with the strategic position of industries like pharmaceuticals and information and communications technology, are all potentially attractive for forging partnerships – indeed an “inter-cultural bridge” – with China.

That could include alternative borrowing facilities if interest rates remain penally high on our bailout debts. He wants to see bureaucratic obstacles to these developments removed. Both men are right to underline the worldwide consequences of China’s transformation and the need to think strategically about them from Ireland’s point of view. Just as Ireland is one of the world’s most open capitalist economies, China too is locked into the global economy. Its model of high investment and export growth requires access to world markets if it is to continue, so it has a deep interest in their stability. The huge Chinese holdings of US dollars are vulnerable to devaluation; they want to see the euro succeed as an alternative or supplementary world currency.

O’Connor emphasises the colossal achievements in China. Never has a people come so far so fast, whether in terms of per capita income (an eightfold increase since 1978); bringing 500 million people out of poverty; urbanisation that has reduced the rural population from 82 per cent to 54 per cent of the population in the same period – the greatest migration in human history; or the phenomenal 15 per cent average growth. This has confounded expert predictions that unsustainable inflation, internal conflict, growing inequality or political turmoil would upend the transformation.

These predictions have not ceased to be made as economists examine the country’s latest five-year plan ahead of next year’s major changes in the Communist Party leadership.

Shifting priorities from exports to domestic consumption as planned and advocated by many to maintain world demand will not be easy, given conflicting interests and competing needs for continuing investments, making a hard landing probable.

There is a deeper problem about sustainability, too, as O’Connor recognises. If China eventually catches up with US average incomes (currently eight times more than China’s) the number of road vehicles there would increase from 40 million to one billion – more than the rest of the world’s combined.

That is an impossible scenario, and the same extrapolations applied in other spheres reinforce the picture.

In his recent book Consumptionomics, Chandran Nair argues Asia, therefore, cannot save capitalism, or the planet, in this way.

O’Connor points out that while China is now investing more in renewable energy than the US, it still relies on coal plants for 77 per cent of its energy, and therefore lags behind in decarbonising. In the long run that is dangerous, not least because coal-burning in India is destabilising the Himalayas, the source of water for its three great river systems. Hence the urgent need for a new model of sustainable growth going beyond conventional thinking.

Debate rages in China about the feasibility of these models. Exceptionalists believe China can forge a distinctive socio-economic model – a Beijing consensus – based on authoritarian capitalism and illiberal state-centred politics. It could have wide appeal in the developing world. Universalists say this is not possible because China is so closely bound up with global realities.

These two interesting Irish views draw on both arguments to make their case for greater awareness and engagement with this world-changing debate.