<B>The Peaceful Rise of China</B>

Marie-José Garot. Professor. Instituto de Empresa

31 October 2005

China is seeking to re-enforce its military power and foster economic growth without jeopardising its relationship with leading trade partners. It’s a delicate balancing act that illustrates how dependent China is on a stable international economy.

The ‘Peaceful Rise’ is a theory conceived by the current President of China, Hu Jintao, which seeks to reconcile economic growth with peaceful international relations. It is a global strategy aimed at spurring China’s economic and technological ascent while at the same time re-enforcing its military. China wants to avoid any kind of costly conflict (except perhaps with Taiwan, but for reasons having to do with domestic politics), in large part because its economy is so dependent on international stability.

China is undergoing an unprecedented economic boom that features a growth rate last year of 9.5% (with 8% expected for 2005), inflation of 3.9% and an unemployment rate of 4%. However, more than any other country, the Chinese have a very specific weakness: their dependence on the rest of the world. This explains clearly why the Chinese government is eager to avoid any kind of international clash that could endanger its own economic growth.

China’s international dependence is evident on two fundamental levels. On the one hand, China has been attracting foreign investment for the last two decades, which has helped fuel the economic take-off in the south-eastern and central regions of the country. On the other, Chinese industry flourishes thanks to imported energy. Oil imports, for example, covered 91% of domestic demand between 1998 and 2003, and they continue to grow every year to meet the needs of China’s vast industrialisation program and its growing middle class. Although it is the leading world producer of coal, China needs to import other sources of energy, such as Russian gas and hydroelectricity (despite the Three Gorges dam), in order to satisfy its growing demand.

The trade war between the EU and China over textiles (and its resolution) is a perfect illustration of China’s policy of peaceful growth. One of the agreements reached when China joined the WTO on 1 January 2002 ended the export quotas on textiles as of January 2005. The result was an avalanche of Chinese textile products into the United States and Europe. In response, the European Commission threatened to request safeguard measures aimed at halting the flood of Chinese textiles into the EU. China finally gave in last week and agreed to limit textile exports to Europe. In the words of European Commissioner Peter Mandelson: a 'good agreement in the interests of all concerned' was reached.

China is effectively the EU’s second largest trade partner and it can’t afford to jeopardise its good commercial and diplomatic relations for the sake of a single sector of its economy. Furthermore, the country wants the EU to lift its embargo on arm sales to China. Not only will this allow China to build up its army--whose budget continues to grow yearly—and keep up pressure on Taiwan, but it also will work to restore China’s image on the international stage to one of peace and dignity. Indeed, the Chinese government expects the size of the country’s economy to quadruple by 2020.

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