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China's strategy to rule the world

176 pages
The removal of customs barriers, launched with absolute dogmatism and maintained in spite of the huge undervaluation of the yuan, has produced an extreme imbalance of international trade. China refuses to revalue the yuan, Western trade deficits does not decrease, the crisis continues. China is pursuing a conquering strategy to take global hegemony away from the United States. To react to the Aggression from China, developed countries need to get together and be ready if necessary to leave the WTO to establish a WTO bis with countries that reject the attitude of China.
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Antoine Brunet Jean-Paul GUICHARD
Translated by Damyana Bakardzhieva Professor of Economics, Finance and Sustainable Development International University of Monaco
Titre original :
© L’Harmattan, 2012
5-7, rue de l’École-Polytechnique
75005 Paris
EAN : 9782336664385
Chapter 2
How Great Britain and the United States became superpowers
Chapter 3
The mercantilist strategy of current account surpluses and its advantages
Chapter 6
Chapter 7
Chapter 8
The confrontation is now generalized
“Let China Sleep, for when the Dragon awakes, she will shake the world.”
Napoléon Bonaparte
Sainte-Hélène, 1816
1789, 1989… There are dates we all remember! 1789: the fall of the Bastille is the symbol of freedom for all mankind; 1989: the world celebrates the two-hundredth anniversary of this event in various ways, but we shall remember mainly the immense hope born out of the fall of the Berlin wall, the “Velvet revolution”, the collapse of the totalitarian Soviet empire and the peoples’ peaceful return to freedom. We forget rather quickly though that this same year there was the “Beijing Spring” and that on May 30 students erected the “Goddess of Democracy” statue on Tiananmen Square opposite Mao’s portrait! The authorities were divided, they hesitated, but it didn’t take them long to answer the requests for freedom and democracy: on June 4 a tank crushed the statue and the glorious People’s Army of China massacred the students. Once again, totalitarianism prevailed in a spectacular way.
Yet, we forget these events; our memory is selective. All we recall from the deeds of Deng Xiaoping is that he restored capitalism in China, but we forget his war against Vietnam in 1979, his support for the Red Khmers, the merciless repression in China in 1989, and above all, the nature of this totalitarian capitalism that he spurred in China, and that Europe got to know well under Mussolini and Hitler! We forget all this because today we want to see China only as the much needed partner that we do “good business” with. We don’t want to see, or to believe, that China’s project consists in nothing less but dominating the world and spreading its own totalitarian organization around the globe.
The perspective is gloomy, for sure; but is it improbable? This book shall come to prove that, if the world does not react, this is exactly the fate it will face. We shall deny once and for all the belief, often repeated but never proven, that in order to prosper fully, capitalism needs democracy, which leads us to conclude that China is inexorably on its way to democracy...
Deng Xiaoping and the leaders of the Communist Party of China (CPC) gave us a clear answer in 1989: they shall make sure to prevent democracy in China. Now they are trying to prove in practice that the totalitarian capitalism prevails over the democratic capitalism.
During the past two centuries the world has been dominated successively by two superpowers: Great Britain followed by the United States. The imperial destiny of both went hand in hand with spurring the “democratic” norms and values, inherited from 18th century’s European Age of Enlightenment of mainly French and British ori in. Thus, the world was
governed by powers that developed a “democratic” capitalism.
The main challenges back then were already to be found in the foreign trade, which gave way to many conflicts, some of which very violent. Each big nation understood the major benefits of generating repeated trade surpluses. However, since world trade is a zero sum game, only one nation could obtain that advantage.
The United Kingdom was the first nation to practice the mercantilism strategy sustainably and efficiently, achieving repeated trade surpluses. Its major advantage came from the strength of its Navy. However, it had to overcome the resistance of France (from Louis XIV to Napoleon), and later that of imperial Germany from 1870 to 1918.
The United States used its cheap labor and its abundant natural resources to access the status of world trade surplus champion in the beginning of the 20th century and even more pronouncedly so after World War I. After 1940, this performance allowed the United States to supersede the United Kingdom as the dominant world power. However, between 1942 and 1945 it too needed to face the challenges of the totalitarian capitalist powers (Nazi Germany, fascist Italy and militarist Japan). Later on (in 1989) they had to overcome, though without direct military confrontation this time, the Soviet Union which was offering an alternative model – the totalitarian bureaucracy. In the same time, the United States ended the unbearable rivalry with Japan which was putting in practice its own mercantilist strategy based on monetary protectionism.
First Japan between 1960 and 1989, and then China, which started imitating it thereafter, developed a model of capitalist development based on significant trade surpluses generated by a more or less important undervaluation of their respective currencies. These two cases of “monetary protectionism” have however spurred very different reactions in the Western countries.
While Japan’s industry supplies the world with finished goods that directly compete with those of the Western industries, China is subcontracting in all areas of manufacturing. The American firms suffered from the Japanese competition, while they benefit from increased profit margins by buying cheap inputs from China. Thus, the American business oligarchy was actively opposed to Japan but remained rather complacent with China.
In 1989, when the bureaucracy-mined Soviet system collapsed and the Japanese rival dipped in the crisis in which the United States had pushed it, a new capitalist power started emerging with the following two characteristics: totalitarian political regime and mercantilist economic strategy. This power was none other but China.
From the Soviet experience Deng Xiaoping retained that one cannot become the dominant world power sim l throu h di lomatic and militar confrontation.
He realized that it was essential to first achieve economic dominance. Understanding that a bureaucratic system can never allow this, he decided in 1978 to abandon bureaucracy and definitively opt for capitalism, implying the return of private entrepreneurship and decentralized economic organization. The big mistake committed by the West was to think that China has opted for both capitalism and democracy. After eleven years of ambiguity, the CPC lifted its mask and stated that it had irreversibly opted for totalitarian capitalism instead. Since then, to the great disappointment of the world’s democrats, the CPC has been committed to prove that capitalism is absolutely not incompatible with a totalitarian organization of the society, a society in which each individual is submitted to the State and to the Party that leads it1while venerating their symbols2.
From the Japanese experience M. Deng retained that monetarist protectionism is a remarkably efficient tool on the way to economic dominance.
Overall, as we will later show, China destabilizes the developed countries through its economic strategy in order to overtake their place as dominant world powers while strengthening its political regime and exporting it shortly to numerous countries around the globe.
The factors that started the profound crisis shaking the world since 2007 can certainly be found in the excessive and rather uncontrolled levels of risk-taking of the American, British and European banking systems. However, these are only the “immediate” causes.
The current crisis has indeed a much deeper cause; the huge and growing repeated trade surpluses that China records since it joined the World Trade Organization (WTO) in 2001. These in turn are the result of the manipulated and largely undervalued exchange rate of its currency. This undervaluation can be sustained due to the substantial exchange rate interventions of the People’s Bank of China (PBC), which sells the yuan daily against dollars and euros, and cumulates reserves in dollars and euros, thus becoming an important credit-provider for the United States and Europe. Through these repeated interventions, China simultaneously increases its part of the world goods and services market and its creditor position with the United States and Europe. The cheater wins twice – once on the trade front and once on the finance front, while weakening all its rivals.
The colossal trade deficit that China imposes on the G7 countries weakens substantially their economic growth; in order to escape the threat of a prolonged recession, these countries are forced to practice the adventurous policy of repeated internal demand stimulation. They use bolder and bolder monetary and fiscal policies, keeping historically low interest rates to discourage savings and encourage borrowing, and tolerating growing public deficits. Thus, a miracle happened; the G7 countries managed to maintain significant growth despite the considerable recessionar im act of the colossal trade deficit that
China imposes on them. These are the dubious policies that the G7 central banks, led by the Federal Reserve, put in place with apparent success until 2007. By the way, the Chinese leaders contributed to the success by placing their enormous dollar reserves in long-term US Treasury obligations and their enormous euro reserves in long-term European sovereign debt. They knew already that they were dragging the long-term Western interest rates down while the short-term rates were brought down by the G7 central banks. During four consecutive years (2003-2007), the G7 economies gave the impression that they could overcome the repeated trade deficit handicap. The Western and Chinese leaders were even congratulating themselves with reconciling the world economic growth and the ever-growing enormous external imbalances between China and the G7 countries. However, history came to remind the Western leaders that even though the miracle happened four times in a row, it couldn’t carry on forever: the borrowers put limits to their borrowing; the creditors don’t have an unlimited lending appetite, and their financial capacity is normally constrained. The financial gymnastics used before 2003 stopped delivering the promised miracles and turned quite catastrophic as we all know now. The year 2007 brought the return to the naked truth: the miracles lost their magic; the real estate bubble burst and brought both housing sales and prices down. The profound banking and financial crisis that followed put an end to the debt process feeding the economic growth and opened the doors to a deep recession. Despite the illusions sold by the sorcerer’s apprentices (namely Greenspan and Bernanke), there was a clear and absolute incompatibility between the colossal trade surplus that China wants to maintain and the quest for significant and sustainable gross domestic product (GDP) growth in the G7 countries. While China has certainly caught up with the United States regarding its GDP size (roughly 20% of the world GDP each3), the difference between the growth rate of the Chinese and the American economy has remained at roughly 8% per year for the past ten years; it this margin is to last, the American superpower will be promptly surpassed by China with all the consequences we can imagine. Taking into account its unannounced but real dominance objective, China has no reason to play a cooperative game and clearly refrains from doing so, as we see proof of that on a daily basis unless we play the ostrich. Facing the continued Chinese aggression, the world nations should protect themselves, both by short-term safeguards and by the still timely though urgent instauration of an international economic relations system built around the objective of trade balance. This is a difficult but doable task. However, instead of showing the needed firmness, the Western nations seem weak.
The first reason for this weakness is that the democratic countries, by their own democratic organization, are less reactive and less able to withstand confrontation with a powerful totalitarian country like China4.
The second reason is even more worrisome; numerous Western firms earn very high profits thanks to their massive purchases of Chinese inputs, so they are directly interested in maintaining the yuan’s exchange rate at its current level; in a way, these companies are the “inside enemy” of their own home countries!
Today, there is a powerful pro-Chinese lobby in the United States consisting of big corporations, influent politicians, renowned academics and journalists; this phenomenon is catching up with Europe too. In the current economic war the battle of ideas could well be decisive; will the nations under attack continue to procrastinate and retreat until they finally capitulate, or will they decide at last to pull their forces together to stop the deindustrialization and the loss of economic substance that affects them? We shall clearly realize that the deindustrialization is well advanced and that the new technologies, the research and development (R&D) and the high tech activities will not fill in the gaps; the theme of the “post-industrial” society is nothing but an ideological lure5… Will the future European and American generations be forced to go begging for work in Asia and for the wages practiced there or will they be condemned to vegetate in poverty in their own countries?
The economic, political and social challenges that are in the center of today’s conflicts between nations signal that beyond the “material” questions of riches, wellbeing and growth, the fundamental conflict lies in the values of liberty carried by the countries claiming democracy and the values of individual submission to the State carried by the countries led by China.
In the following we will first present the essential characteristics of contemporaneous China: a superpower that is both capitalist and totalitarian, whose success relies on the very efficient mercantilist strategy of trade surpluses. A historic overview will allow us to show that there are precedents to the use of this strategy. Great Britain and the United States have paved the way towards world dominance by achieving themselves major repeated trade surpluses.
We will also analyze the contemporaneous Asian mercantilists – first, the predecessor Japan, then the triumphant totalitarian capitalist China and its monetary protectionism. We will see how China, through the trade imbalances it imposes on the United States and the other developed countries, has generated the very serious economic and financial world crisis.
The Chinese leaders are secretly rejoicing at the G7 countries’ difficulties and don’t hesitate to aggravate them through their decisions; their growingly arrogant attitude indicates clearly their willingness to take over the world superpower title from the United States. This is confirmed b the multitude of offensive initiatives