Author Archives: Alan Alexandroff

About Alan Alexandroff

Alan is the Director of the Global Summitry Project and teaches at the Munk School of Global Affairs & Public Policy at the University of Toronto. Alan focuses much of his attention on difficult global order issues including the appearance and consequences of the multilateral environment and the many global summits, especially the Informals such as the G7 and G20.

Banishing “Scary Images” and Behavior in the China-US relationship

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I think it’s fair to conclude that the Hu Jintao State visit will be viewed in retrospect as a mild success.   Now in the context of the US-China relationship recently, that’s not bad.   The relationship didn’t go backwards and there was some sense that the two Leaders were working off the same page – building a comprehensive and closely coordinated bilateral relationship.

The key question is whether the two – through their speeches and actions –  helped to dispel each nation’s “Scary Image” of the other.

For the Chinese the true Scary Image is a US foreign policy that seeks to encircle and contain China.  In that regard of course there is the evident discussion of Taiwan – the continuing provision of Taiwan military with new weaponry – and the close-in approach of various US carrier flotillas in areas surrounding China, the tension over the South China Sea and of course the Korean Peninsula.

In this regard President Obama’s statement on the positive good that China’s rise can bring goes some way in assuring the Chinese people that the US is not focused on a containment strategy.  The following comment by President Obama was targeted directly at the containment view: “I absolutely believe China’s peaceful rise is good for the world, and it’s good for America.”  For good measure the President went on to declare that the United States wanted to sell all sorts of stuff to China – underscoring the need to broaden trade and increase American exports to China.

On the US side, the Scary Image of China is the new assertiveness of China being the product of American declinism.  In this scary image all the pessimism over the US economy and the growth of  China’s military leads China’s military in particular, or the leadership generally, to press the United States on various territorial and policy fronts in the belief that the US has been fundamentally weakened.  Such a view could give rise to miscalculations that might leave both sides unable to back down in a crisis.

But President Hu sought to counter this overly assertive China view.  As Jeffrey Bader, President Obama’s chief Asia adviser concluded in the NYT:

The message seems to be you don’t need to fear us, but you should also know that we can’t do do everything you want.

Again Bader concludes:

“The notion that they can challenge our supremacy in our lifetimes is not in the cards.  They can challenge us on certain technologies”, and militarily, “in areas close to their shores – but not globally, not for a long while.”

Now this won’t stop congressmen and those on the right from beating the drum of Chinese economic and military pressure, but the behavior and words of President Hu give no fodder to those who focus on “the China Threat”.

And that’s a positive outcome.

Waiting for Godot

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As is always the case, it has been extremely interesting to travel around China  and to talk to colleagues at various research centres and think tanks.  My discussions have focused on global governance and the G20.  And in the current context, of course, there have been large dollops of discussion on the impending Hu Jintao state visit to Washington.

Let me focus on that just a bit.  I have acknowledged in a recent blog post the growing commentary in the US characterizing and then analyzing  the US-China relationship – “Defining the Key Relationship“.  In this post I comment on the Zbigniew Brzezinski op-ed from the NYT.  Brzezinski argued that the leaders should work to produce a declaration to set out the basic principles and practices that should govern the US-China relationship.  I must say I was rather critical of this approach and argued for pragmatic and meaningful steps to advance US-China collaboration.

I am less puzzled now by Brzezinski’s deliverable.  For at stop after stop I got an earful from my colleagues about US policy being unilateral and potentially harmful for other G20 and a wider circle of countries. Colleagues raised the spillover impact of current US policy most notably quantitative easing or QE2.  Though indirectly acknowledging China’s unilateral and hurtful efforts  – mainly fixed exchange – China experts, chose to attack current US efforts.

It would appear that neither country comes away with clean hands and each threatens to impact the G20 countries with policies  carrying significant spillover implications.

Defining the Key Relationship

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With the state visit by Hu Jintao to the United States scheduled for this month, experts ad former officials are ‘coming out of the woodwork’ to give their evaluation of the US-China relationship and to declare what is necessary from the meeting of the leaders of these two key powers.

One of those experts and former officials is Zbigniew Brzezinski – formerly a national security adviser in the Carter administration.  In an op-ed in the NYT on Monday, Brzezinski in “How to Stay Friends with China” sets out his perspective.  What Brzezinski wants is a “joint charter”.  What he hopes this will lead to is to:

… set in motion a process for defining common political, economic and social goals.  It should acknowledge frankly the reality of some disagreements as well as register a shared determination to seek ways of narrowing the ranges of such disagreements.  It should also take note of potential threats to security in areas of mutual concern, and commit both sides to enhanced consultations and collaboration in coping with them.

For him the hope is that this joint declaration will:

… provide the framework not only for avoiding what under some circumstances could become a hostile rivalry but also for expanding a realistic collaboration between the United States and China.

It is an odd request – or maybe I’m just too far from diplomacy. But why spend effort on setting a broad declarative statement.  I t would seem to me that making some progress on key issues – bilateral to be sure – but also likely to have clear implications for multilateral policy – seems to me to be a far more useful effort and far less likely to be condemned for rhetorical overkill.

As I’ve expressed in earlier blogs starting with “Jumping to Conclusions“,  is that US-China relations swings from being a fried to being a foe.  What will advance global governance is for the US and China to take steps in global economic imbalances or climate change which points the way to a more collaborative policy that can foundation for collaborative multilateral policy.

Such steps move the yardsticks in global governance. Declarations are little more than rhetoric – and potentially wrong.

Brazil and Global Leadership

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Now my excuse on waiting to blog on the Brazil meeting (November 21st-22nd, “Global Leadership: The Role of Brazil and the US and the Agenda for the 21st Century) referenced in my blog post “Constructing New Leadership“, was in anticipation of the finaling of the meeting’s consensus document. Well the document is now out and you can review it at the Stanley Foundation website.

The Conference in Rio de Janeiro hosted by CEBRI , the Brazilian Center for International Relations,  lasted a day with Brazilian and US experts – yes, your right,  once again I was the interloper in the crowd – in Rio de Janeiro hosted at Cebri offices and focused on global governance leadership questions.  It was both a lesson for me in Brazilian motivations, attitudes and behaviors toward the United States and Brazil’s role in international relations.

Brazil feels highly satisfied by its emergence as a rising power.  Brazilians have always seen themselves as a great power but their domestic political and financial conditions in particular always seemed to get in the road.  But they believe that – finally – they have made it.  As one Brazilian expert pointed out Brazil always saw itself as “Greece upside down”.  The Greeks always look back to a golden age; but Brazilians always look forward.  Brazilians now believe they have gotten their democratic politics right; they have emerged as a multicultural/multiracial society; and their economics and finances have overcome the limitations and manipulations of earlier decades.  They are proud of President  Lula – who leaves on January 1st extraordinarily popular – leaving the presidency  to his PT party successor, Dilma Rousseff.

Brazil was – as one of the Outreach 5 (Brazil, China, India, Mexico, South Africa) and was most vocal in questioning the legitimacy of the G8.  Now, of course, with the emergence of the G20 leaders club it sits at the heart of global governance leadership.  But there is no sense that Brazilian experts feel that it needs to shoulder greater leadership responsibility.  While it is possible, even likely, that President Lula took on an animated role discussing issues in Seoul (he didn’t show up in Toronto), his countrymen seem less inclined to claim a visible leadership role.  Evaluate the following from the Report:

A Brazilian participant helped explain why his foreign policy expert compatriots are hesitant about new global political responsibilities when he noted that Brazil’s basic outlook is to be generally satisfied with its strategic position and lack of immediate threats. Conversely, in other words, the United States has not been totally convincing as it argues for urgent action and the unsustainability of the status quo. Naturally, all participants hope their countries join each other and the rest of the world for enough international cooperation to promote the steady spread of peace and prosperity.

The lack of enthusiasm for seizing leadership was sharpened by the difficulties encountered by Brazil with Turkey when President Lula tried to mediate the proliferation issues between Iran and the P6 (the permanent members of the Security Council plus Germany).   The rather harsh public dismissal by Secretary of State Hillary Clinton of the compromise offered by Brazil and Turkey certainly embarrassed President Lula – and did nothing to encourage the President or Brazil to continue his efforts.

But international leadership remains in flux.  The greater diversity of leadership seen most evidently in the G20 suggests a more-concert-like structure for global governance.  But how to move from American hegemony to a diverse concert of powers that may not reflect like-mindedness is not clear at all. As the Report identifies:

The task of integrating newer pivotal powers into the multilateral order and adapting its structure, norms, and policy frameworks involves intertwined challenges. The international system must make room for the new players to assume a bigger role— which calls for traditional powers to welcome political leadership and policy ideas from new quarters, support adjustments to multilateral decision making, and address their own leadership shortfalls. In return, the emerging powers must give tangible content to their new stature by shouldering some of the burden of leadership, bolstering key international norms, and adding their impetus and influence to resolution of major global problems.

China Cannot Rise Peacefully

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The title in this blog post is the declared bottom line from John Mearsheimer’s recent speech (given in Australia in August 2010) and the article from the China Journal of International Politics, (Vol 3, 2010, “The Gathering Storm: China’s Challenge to US Power in Asia”).  Now I promise to get off this US-China relationship thing soon but I couldn’t leave without evaluating John’s speech and recent article.

For those who don’t know John, he is the R. Wendell Harrison Distinguished Service Professor of Political Science at the University of Chicago.  He is an IR celebrity – a rather hard thing to do.  He is well known for developing what is called, “Offensive Realism,”  an international relations approach that asserts that all states in an anarchic international system seek power and dominance in the international system.  This is not classic realism but realism that sees nations seeking hegemony more from uncertainty than defensive actions.  Offensive realism in contrast is realism on steroids.

So John looks at the current situation and sees US-China relations through this offensive realism lens:

Thus, the core question that any leader has to ask him or herself is this: what is the best way to maximize my country’s security in a world where another state might have significant offensive military capability as well as offensive intentions, and where there is no higher body I can turn to for help if that other state threatens my country?  This question—more than any other—will motivate American as well as Chinese leaders in the years ahead, as it has in the past.  … The best way for any state to ensure its survival is to be much more powerful than all the other states in the system, because the weaker states are unlikely to attack it for fear they will be soundly defeated. No country in the Western Hemisphere, for example, would dare strike the United States because it is so powerful relative to all its neighbors. To be more specific, the ideal situation for any great power is to be the hegemon in the system, because its survival then would almost be guaranteed.

John is a mild-mannered –  and a thoroughly likable colleague (actually I went to graduate school at Cornell with him) – who is seriously committed to international relations. So while I can, and do, disagree with him frequently – I always take him seriously.  But as you can see from the quotes above, offensive realism is anything but mild-mannered.

For John the actions of China will be not unlike the United States.  The emergence of the United States as a great power is defined by the US’s achieving regional hegemony.  It is the only great power, according to John, to have done so, and having done so it has dedicated itself to not facing another hegemon.  In John’s world of great powers – best expressed in: The Tragedy of Great Power Politics (NY: Norton, 2001)  – a rising power like China will imitate a previous great power – the United States.

It is unlikely that China will pursue military superiority so that it can go on the warpath and conquer other countries in the region, although that is always a possibility. Instead, it is more likely that Beijing will want to dictate the boundaries of acceptable behavior to neighboring countries, much the way the United States makes it clear to other states in the Americas that it is the boss. Gaining regional hegemony, I might add, is probably the only way that China will get Taiwan back.

China will seek hegemony in Asia – pushing out the United States as the United States pushed out the Europeans in the Western Hemisphere to establish regional hegemony.  China will then claim regional hegemony in the Asia-Pacific.  The struggle will not be identical to but also not unlike the struggle between the United States and the Soviet Union during the Cold War.

For John the world is a world of great powers, not identical to the past but not that different either.  And the significant differences that describe global relations today fade into insignificance in the face of great power dynamics.  As it was; so will it be. Even the dynamics of globalization so dramatic over the last decades fade away and are assessed as insignificant:

My view is that economic interdependence does not have a significant effect on geopolitics one way or the other. After all, the major European powers were all highly interdependent and prospering in 1914 when First World War broke out.

And though the interdependence that John acknowledges was present in the twentieth century, I think most would recognize as significantly different in scale and influence taking into account financial, trade and investment trends.  These trends describe a tight global economic system far beyond the world understood in 1914.  And China is so much more integrated into the world economy than earlier rising powers.  Is conflict impossible? Of course not.  But the dismissal of the global economic context by John is not realistic.

I remain convinced that US-China relations are best described as “yi di, yi you” ( 亦敌 亦友) – “Both Friend and Foe” (see recent posts including “Jumping to Conclusions“).  China and the United States will have to work through periods of rivalry and periods of partnership. Those periods of rivalry could be quite tense but the periods of partnership in global leadership are likely to be quite restorative.

The picture narrated by John Mearsheimer is tragic –  possible  but not likely.  We do not have to conclude as he does:

Indeed, it is downright depressing. I wish that I could tell a more optimistic story about the prospects for peace in the Asia-Pacific region. But the fact is that international politics is a nasty and dangerous business and no amount of good will canameliorate the intense security competition that sets in when an aspiring hegemon appears in Eurasia. And there is little doubt that there is one on the horizon.

Jumping to Conclusions

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I am becoming slightly obsessed, I think, with the views from the commentariat on the US-China relationship.  So I am joining in on examining the ‘horse  race’ slightly after arguing, I think correctly that you need to avoid the kind of analysis that focuses on  – ‘who is ahead, who is behind’ in the US-China relationship – ‘who can dis the other’ – in the ongoing diplomatic discussions. It will yield little in understanding the state of US-China relations.But I will focus on one of these pieces because it underlines the inherent difficulty of analyzing the US-China relationship in trying to read that relationship from the latest diplomatic effort.

The latest article I found was again – surprise, surprise – by David Sanger at the NYT.  In this instance David co-wrote with Michel Wines (see, “North Korea Is a Sign of Chilled US-China Relations“).

Their negative framing comes early:

But in Beijing, both Chinese and America officials and analysts have another explanation: the long silence epitomizes the speed with which relations between Washington and Beijing have plunged into a freeze.  This year has witnessed the longest period of tension between the two capitals in a decade.  And if anything, both sides appear to be hardening their positions.

Then for good measure they quote Bonnie Glaser a China scholar from CSIS Washington and elsewhere with: “I don’t think this is easily repairable, and I think we’re going to have a fairly cold relationship over the next two years, and potentially longer.”

But wait a minute.   Just last spring we were all commenting on the positive turn in relations between the US and China with President Hu’s call to President Obama and then his attendance at the US nuclear security conference in Washington.

Ah but today’s ‘horse race’ is around the Korean Peninsula.  There things have not gone well.  China has been notably absent in condemning the North Koreans – the DPRK- for the attack on the Republic of Korea (South Korea) and a weak Chinese follow up.  Not surprisingly, I think, the Chinese have been reluctant to condemn their ally. For China given the strong PLA (military) support for the DPRK – the short term policy remains to encourage diplomacy and eschew any demarche and public disapproval of DPRK actions.  As the authors note: “…China’s strategy is to reassure the Koreans about their security, not lecture them about diplomatic obligations.” Indeed far down in the article the journalists are more pointed in acknowledging that Chinese leadership is having a difficult time – it always thus where leadership consensus is required – defining a policy direction.  As they say, “… the Chinese leadership is still debating how to balance its interest in propping up North Korea with their interest in preventing more incidents or another nuclear test, …”

But Sanger and Wines are not content to draw out the differences between the two on Korea, and suggest that this tense diplomatic relationship over Korea only reflects a part of the growing chill between the two.  As they argue: “But the lack of cooperation on North Korea only hints at the deterioration in the US-China relationship.” Well maybe it does and maybe it doesn’t.  For Wines and Sanger this unwillingness to condemn DPRK actions is more reflective of a decision – reached at the the time of the global financial crisis in 2008 – to oppose the US where “… Chinese officials have railed loudly and publicly against what they consider to be American efforts to smother their rightful emergence on the global stage.”

While the US has not fully been able to adjust itself to a world without a hegemon, I see nothing in immediate US policy toward China that smacks of ‘hegemonism’ as the Chinese would say.  And while there is a ‘China can Just Say No” school of thought in Beijing there is no indication that this School of foreign policy thinking is now the accepted consensus in Zhongnanhai.

Their analysis of current US-China relations is – “Jumping to Conclusions”.  I have not altered my view that this key leadership relationship is one of, ” yi di, yi you” ( 亦敌 亦友) – “Both Friend and Foe”.  And in that complex relationship there will be rivalry and competition as well as partnership and collaboration. It can get nasty.  But it can be friendly as well.

The Tools of Influence

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Again this weekend David Sanger of the NYT has provided some real insight into the ways the US has implemented Barack Obama’s commitment as a candidate to restore “engagement” in US foreign policy.  While I have posed to you – the reader – that a key issue in clarifying the success – or not,  of global governance is an examination of current US leadership.  I am working through – as quickly as I can honestly –  Steven Weber (Berkeley) and Bruce Jentleson’s (Duke University)  recently released, “The End of Arrogance: America and the Global Competition of Ideas”.  I suspect further clues will emerge from that future post on this new book on US leadership.

But back to David Sanger.  Relying on WikiLeaks, David examines Obama Administration behavior and comes away suggesting:

Engage, yes, but wield a club as well – and try to counter the global doubts that he is willing to use. … Mr. Obama’s form of engagement is a complicated mixture of openness to negotiation, constantly escalating pressure and a series of deadlines, some explicit, some vague.

This article then describes the successes but also the failures in applying the Administration’s policy of engagement as just described above.  While successes have occurred – Russia policy most evidently – there are evident limits – Iran, North Korea and China.  The dilemma is that engagement is only part of the equation; another element is influence.  Fortunately, in this week’s “Week in Review”  is just full of insight in of all things United States foreign policy.

And particularly useful – that is in giving us some perspective on “influence” – is  Tom Friedman’s op-ed in his Sunday NYT piece, “The America Big Leak“.  What Tom points to – and to be fair he has been beating on this drum for some time- the US has little leverage – what I define as influence. The reason – oil.  What external trade is to China; oil and oil US consumption is to the United States.  It is all addiction.

For the United States, as described by Friedman:

When we [United States] import $28 billion a month in oil, we can’t say to the Saudis: “We know the guys who would come after you would be be much worse, but why do we have to choose between your misrule and corruption and their brutality and intolerance?” … We also lack leverage with the Chinese on North Korea, or with regard to the values of China’s currency, because we’re addicted to their credit. Geopolitics is all about leverage (emphasis added).  We cannot make ourselves safer abroad unless we change our behavior at home.  But  our politics never connects the two.

While it may not represent the entire picture, leverage or influence – the same are critical to leadership.  And the US needs to change the equation of influence starting currently  with cheap oil.

Less US dependence on oil would have a major impact on global governance leadership.  But it would not be the whole picture.  Beyond “influence” we need a clear behavioral strategy.  Stay tuned.

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The Global Declinist Position

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Harvard’s Niall – pronounced like Neal –  Ferguson is an absolutely prolific writer and a creator of some of the more colorful contemporary metaphors for the evolving world.  A good friend was kind enough to forward me a piece that Niall had penned in the WSJ – “In China’s Orbit“.  The principal thesis of the article is – as the subtext promotes – “After 500 years of Western predominance the world is tilting back to the East.”

One of the dilemma’s for prolific writers such as Ferguson is that they tend to run right into their own earlier position.  Thus in Niall’s case he and a colleague create “Chimerica” the fusion of the the Chinese and American economies  – one export and surplus, the other consumption and deficit – and then in the midst of the meltdown declare it dead.  The problem is that the declaration may yet remain premature.

In this article, the problem presented by his analysis may be that the facts fail to reflect – at least for the time being – this narrative.  Niall suggests that China’s strategy is what he parodies are the Four “Mores”.  By this Niall means: “consume more, import more, invest abroad more and innovate more”.  And while there are elements of this in current Chinese policy, it is not such a clear cut strategy nor outcome.  And certainly it not yet east versus west  as described by Niall – “What we are living through now is the end of 500 years of Western predominance.  This time the Eastern challenger is for real, both economically and geopolitically.”

First on the 4 Mores there remain questions over each element. The fact is China has not really achieved it’s rise on the back of consuming.  Indeed the problem for China is that it remains addicted (see my recent blog post The ‘Drug’ of External Trade)  to exporting and achieving the shift to domestic consumption will not come easily or quickly.  As for more importing, well there is no question that to fuel the manufacturing machine – owned by the way by a variety of folk including the lao wai （老外）  the foreigners, there is significant importation of resources including energy.  But there is a rising chorus of complaint from a number of these countries – (having just returned from Brazil – it is one) that China is only interested in natural resources.  And such disquiet of course spills over from  resources to investments especially by Chinese State-owned enterprises – owned by the government (so much for privatization) – being made in many of these countries.  As for innovation, the final one of the 4 Mores, there is not yet strong evidence of an innovation society.    I might add – since Niall quotes a Chinese Rear Admiral – that the investment strategy justifies, apparently,  ambitious plans for naval expansion and ties it to recent official statements – not public – that raised the temperature on the South China Sea.  But if we want to look at naval strength there is a very long way to go before others – read that the United States – need to start worrying about naval challenges.

The reality is China has made enormous strides and has drawn a greater number of folk out of poverty than any other country in history.  But the development of newly emerging large market countries is not confined to Asia.  And I’m not prepared to conclude that the current primus inter pares – the United States – is now a spent force.  The reality is Asia is rising but the United States is a part of that rising.  It is present in alliances and the US has committed significant military forces in Asia.  As a power that backs on the Pacific it contends along with others in the emergence of this vast region.  So yes, Niall is right in his conclusion –  China is not the master but is no longer the apprentice. But that’s a far cry from some of the more excited assertions about China.

Constructing New Leadership

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An area of obvious difference between the Brazilian and American experts in Rio de Janeiro at Cebri was the question of leadership actions by the rising states.  Much like the Obama Administration, many US experts urged that Brazil  – as other rising powers – needed to step up and take greater responsibility for global governance.  The Brazilians were skeptical of the variously expressed views by US experts that Brazil needed to accept a “pay-to-play” approach to leadership.  Like the US Administration many of these experts urged that Brazil  needed to take responsibility first – to shoulder the burden of leadership – and receive leadership benefits subsequently.  As David Shorr, the Program Officer of the Stanley Foundation, co-host of the Brazil meetings, suggested in the “Discussion Summary” “… the United States has not been totally convincing in making the case for urgent action and the un-sustainability of the status quo.” – Yes I know I haven’t done a full review of the Stanley Foundation-Cebri conference, notwithstanding an earlier promise – and it won’t be done here. But I will tackle it – really.

In struggling to construct a new global governance leadership in the  contemporary circumstances there is no more frustrating calculation than understanding the nature of the relationship between the US and China.  Here is the quintessential traditional power-rising power  conundrum.  This is the power transition in ‘spades’. How should China and the United States interact and to do so in a way to move forward on some of the growing challenges to global governance?

In Sunday’s NYT (November 28, 2010) Helene Cooper in “Asking China to Act Like the U.S.” explores the complex nature of the US-China relationship.  As Cooper suggests, the critical question “turns on a question that is, at its heart, an impossible conundrum: How to get Beijing to make moves that its leaders don’t think are good for their country?” What is evident is that increasingly in the China-US relationship, but also more generally in the rising power relationships, the US is apparently asking the new and diverse leadership circle to take actions that fail to be in conformity with their national interests.

Among others, Cooper turns to some of the realists – possibly neo-realists – in the Washington circle.  And you won’t be surprised these folks are hardly supportive of the current Administration.  One of the identified critics is David Rothkopf a former US official in trade and a former managing director of Kissinger Associates – and now a strategic consultant in the Washington beltway.  For Rothkopf the problem is clear – and so is the answer for that matter.  As Rothkopf sees it this Administration is, as he says, “…still struggling with a post-unilateralist hangover.”  Rothkopf concludes:

… the United States is heading into a future in which countries like China, with independent sources of power, are not reliant on or easily influenced by the United States, and so are pursuing their own national interests.

Given this, what does Rothkopf and others offer up – good old fashioned balance of power? So whether its dealing with global imbalances and exchange rate regimes or the problems of North Korea and nuclear proliferation, it would seem that Rothkopf urges a return to the past.  As he says:

… the United States must first determine the areas where China won’t bend, and work with Beijing to find compromises so that America is not in the impossible situation of trying to tell China to act against its own national interests.  … We have moved from the cold war era of bipolar reality through the brief bubble of sole superpower unilateral fantasy into a world of a new multipowered system which requires old-fashioned balance-of-power diplomacy.

Why “Washington” is appealing to the nineteenth and twentieth century tools of international relations – which seldom worked then – and are even more unlikely to work in the complex contemporary global governance world – is hard to understand.  It is familiar but promoting renewed rivalry and competition with the China’s and Brazil’ of the world hardly seem the way to fashion a new leadership.  And I don’t think it will.

What will?  I promise – really – to examine and answer this conundrum in an upcoming blog post.

The ‘Drug’ of External Trade

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Notwithstanding the assurances from China on exchange rate and valuation, the current account surplus that was just announced by the Chinese government has jumped dramatically.  In a WSJ article it is reported that China’s second quarter surplus was $USD72.9 billion a 35 percent increase from a year earlier.  The announcement from SAFE (State Administration of Foreign Exchange) was that China’s trade surplus had reached $102.3 billion. This figure represents a doubling from a year earlier.

The second quarter numbers signaled a major rebound from the first quarter when the current account surplus was down 32 percent from a year earlier. It would appear with this announcement  of third quarter figures that China’s external current account surplus is returning to levels reached before the 2008 global financil crisis.

With figures reaching 7.2 per cent of gross domestic product that all the discussion of redirecting China’s economy to greater domestic consumption is to be kind – ‘premature’.  It would appear that China’s foreign  exchange reserve are now about $USD2.65 trillion.  This very large figure puts pressure on China’s authorities to address exchange rates and should be putting pressure on these officials to accelerate efforts to finalize “indicative guidelines” for the global imbalances discussions at the G20.

If not ‘currency war’ the expression coined by the Brazilians to describe the current global imbalances may be proven not to be wrong.