The Contest of the Century (42 page)

The private dialogue with China Eximbank lasted for about a year. In May 2007, the African Development Bank held its annual meeting in Shanghai, another striking indicator of the new economic symbiosis between China and Africa. Bosshard decided to bring along two activists, one from the Merowe region of Sudan and the other from Mozambique, where Eximbank had signed another controversial dam-building agreement. He tried to organize a chance for them to talk to officials at the bank about their experiences, but after a lot of delaying, Eximbank declined to arrange a meeting. So Bosshard went to the media instead, offering a session with his two African visitors to the Shanghai Foreign Correspondents Club. Eximbank was furious and has not spoken to International Rivers since.

After falling out with China Eximbank, Bosshard began a similar dialogue with Sinohydro, the biggest dam-builder in the world. International Rivers has been discussing with the company a new policy of environmental guidelines. Sinohydro has ordered that all its overseas subsidiaries must use Chinese environmental law if they are working in countries that have weaker regulation, which Bosshard says could be an important step forward. He says they are taking it more slowly this time, after the bust-up with Eximbank, to see what sort of response the NGO gets from the company. But the revealing aspect of Bosshard’s attempt to engage with China’s hydropower sector is the way it has started to change some of his own views on dams and economic development. Bosshard is now married to a Chinese woman, and when I met him in Beijing, he had just come back from spending Chinese New Year with her family in Benxi, a rough mining town in the northeast. Even there, he said, it was clear how life has improved for the residents as a result of the booming economy. Western NGOs can be so focused on their particular human-rights or environmental issues, he says, that they can sometimes forget that economic growth is also a prerequisite for improving the welfare of ordinary people. He has not altered his views
on the need to have much greater social and environmental protections attached to large dams, but he has come to see how major infrastructure projects do not always end up as huge boondoggles that hurt the poor. If well executed, they can have a major impact on the broader economy. “The years we have spent coming to China have definitely persuaded us that things are more complicated than we thought,” he admits.

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Working more with China is one approach. At other times, the U.S. will need to work around Beijing. In a contest for influence, the country that prevails will be the one that manages to draw a larger number of other governments to its side. By building strong coalitions of support on specific issues, Washington can shape Chinese behavior, even in areas where they do not agree.

This approach is already being used in trade policy. As well as the Trans-Pacific Partnership (TPP), the trade agreement that brings together a group of countries from Asia and the Americas, the U.S. is also negotiating a trade agreement with the European Union which would unite into one economic zone 40 percent of the world’s GDP. The two negotiations have a powerful theme in common: they are partly designed to take on Chinese state capitalism. The agendas of both agreements cover subjects like intellectual-property protection, generous financial subsidies, protection of foreign investment, and labor rights—precisely the areas that are becoming so contentious because of China’s model of doing business. American negotiators see these agreements as a firewall against what they describe as Chinese abuse of trade rules. If Washington can get enough of the most important economies in the world to sign up for this sort of trade agreement, it can effectively set standards for the way international trade is conducted that China would find very hard to overturn.

These trade talks reflect a very different approach to dealing with China. American officials once talked about encouraging China to be a “responsible stakeholder” in the international system, and in the first year of the Obama administration there was a brief flirtation with a sort of G-2, an informal compact to try and solve some of the world’s problems together. But by working around China in this way, Washington
is almost trying to present China with a fait accompli. If the international consensus is strong enough, China could risk appearing like a pariah if it tried to resist the new rules. On many of these issues of economic governance, the U.S. is likely to find that the EU shares the exact same concerns—from cyberhacking, which is a huge issue for German manufacturing companies, to fears about Chinese subsidies. As China’s economic influence grows, the U.S. and Europe are likely to find greater common ground, although Europe will likely remain divided on how to deal with China.

The talks are also the harbinger of a different way of trying to address global issues. The U.S. used to push its ideas through the ambitious global organizations it set up after the Second World War, including the UN, the World Bank, and the World Trade Organization. But whether it is the prolonged deadlock over the Doha round of trade talks or the endless series of climate-change talks that produce little, there is now a pervasive sense of gloom about the idea of big global agreements. TPP and the U.S.-EU trade talks are a reflection of a more modest approach, the idea that the best way to get things done now is through smaller agreements with like-minded governments, diplomatic coalitions of the willing.

The danger in such an approach, of course, is that it alienates China further and gives it more reason to break with the American-led system. Beijing is frank about what it thinks of the new trade talks. “The U.S. is trying to rewrite global trade rules behind our backs,” says one senior Chinese official. A strategy based on sticks alone will likely only create a more frustrated China: Washington also needs to devise some carrots.

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During the decade when he ran China, Hu Jintao rarely looked more relaxed than on the day he visited a Boeing factory in Seattle in 2006. He smiled broadly, donned a baseball cap with the Boeing logo, and gave a factory supervisor a hug. Hu’s speech was somewhat leaden, but he still received a loud round of applause from the workers. As the event was coming to an end, the then head of Boeing’s aircraft division, Alan Mulally, put one hand on Hu’s shoulder, pumped his fist with the other, and shouted: “China rocks!” Such moments have been rare, however.
It has become so common to talk about the interconnectedness of the U.S. and Chinese economies that it is surprising just how shallow the personal links are in China. For all the powerful financial and trade ties that bind China to the U.S., the number of members of the Chinese elite with a direct stake in the U.S. economy is limited. China may own $2 trillion of U.S. assets, but those investments are handled by the small group of bureaucrats who manage the central bank’s reserves. Trade offers a similar story. At least half of China’s exports of consumer products are manufactured by foreign-owned companies in China. The number of Chinese firms that rely on the U.S. is much smaller than the headline figures would suggest. Investment has been even shallower. Of all the money that Chinese companies have started to invest in other countries in recent years, only 1 percent has come to the U.S. In terms of big-picture economics, China leans heavily on the U.S., but that does not translate into business careers and life experiences.

The coming wave of overseas Chinese investment is a new opportunity for the U.S. to think about what sort of relationship it really wants to have with China. Given the toxic politics over cybersecurity and the suspicions that Chinese companies enjoy unfair financial advantages, it would be easy to see a repeat of the Japan scare that accompanied Japanese investments in the early 1990s. Some politicians might be tempted to indulge in a round of China bashing. Yet that would be a big mistake. At a time when military rivalry between the two countries is accelerating, and when new economic tensions are swirling, one way to persuade China that the U.S. has no plans for containment would be to roll out the red carpet for Chinese investments that do not have clear national security implications. This is one of the tools America has at its disposal as it tries to influence China’s long-term calculations.

The U.S. has an opportunity to build up its own lobby of supporters within the Chinese system. The bosses of the large Chinese state-owned companies are among the most important officials in the country, and if they have a personal stake in continued good relations with the U.S., this can only help Washington. Until China started to play hardball with foreign multinationals, the biggest supporter Beijing had in the U.S. was the business lobby. A surge in Chinese investment would also give the U.S. a bigger window to try and shape the behavior of large
Chinese companies as they become important global players. CNOOC, the oil group which was humiliated in its 2006 effort to buy Unocal, has since then acquired a group of smaller assets in the U.S. One upshot is that CNOOC and the rest of the Chinese oil industry have been relatively cooperative with the U.S. over the issue of Iran sanctions. Chinese companies have not progressed with the large investment deals they had signed in Iran and, under pressure from Washington, they have scaled back imports of oil from Iran. Encouraging Chinese state-owned groups to operate in the U.S. is one way of acquiring a little more leverage over them and the senior party officials who manage the companies.

America, it should be said, also needs the money. There is an odd disconnect between the way some in Washington see Chinese investment and the response in the rest of the country. In 2011, when Hu Jintao visited the U.S., the White House put on a grand state dinner in his honor, yet that evening the leaders of Congress—the speaker and the Senate minority and majority leaders—realized that they had somewhere else they would rather be. Not one wanted to be seen having dinner with the Chinese leader. The next day, Hu went to Chicago, which put on a lavish reception for him in the hope that China would send some investment its way. Richard M. Daley, the mayor and heir to his family’s political dynasty in the town, called Hu a “man of vision.”

During the 2012 election campaign, Barack Obama and Mitt Romney crisscrossed Ohio, slamming “Chinese cheaters” who were taking American jobs. On the same September day when both candidates were in Toledo, the city’s mayor, Michael Bell, was hosting a conference for a group of 150 Chinese businessmen he had invited to try and attract investments. “I have to say, the campaign is really hindering us,” Bell told me, referring to both candidates’ China bashing. “The Chinese people we invited here are asking, ‘Why are you picking on us?’ or ‘Why are we suddenly the big issue?’ ” Bell had made three trips to China in the previous two years to solicit investments. (His business card has his name in Chinese on the back.) In turn, he has received thirty different delegations of potential Chinese investors, many of whom have been treated to private performances of the Toledo Symphony.

Toledo is the vision of a rundown Midwestern city. The downtown area has plenty of old warehouses whose windows are boarded up or
broken. Nearby, along the river, is a plot of unused land that the City Council has been trying to develop for a decade, only to see two deals with local developers fall through. In 2011, however, two Chinese investors bought the sixty-nine-acre stretch of land for $3.8 million in cash and have announced a $200-million retail-and-residential project on the riverfront plot, which is known as the Marina District. “We are planning on building it into an international city,” said Yuan Xiaohong, one of the Chinese investors. Exactly how the project will develop is still not clear, but Mayor Bell thinks the reality is obvious. “There is a difference between the political rhetoric and what is actually happening in the country,” says Bell, whose city faces a large budget deficit. “All we are trying to do is to get people to invest in our city.”

The tidal wave of Chinese investment is coming. The only question is whether a significant slice of it is directed toward the U.S., or whether China ends up channeling more of its investment toward places like India or Brazil, in a bid to decouple from the U.S. and curry political favor elsewhere. This is a pivotal test for the U.S. It gives the U.S. an opportunity to deepen the links between the two countries, placing new restraints on China’s more hawkish elements, and to build up its own vested interest within China. At the same time, if Washington routinely blocks Chinese companies from coming to the U.S., alleging national security and the excessive influence of the Chinese state, it would deeply antagonize Beijing, where large parts of the Chinese establishment would see this as concrete evidence that America is out to curtail its rise and weaken its economy. The rest of the world would interpret a Closed Door policy in America as a major failure of leadership, a sign that Washington was backing away from its basic commitments. America wants to cement its position as the leading power in a new age, and it aspires to continue setting the international agenda. To do so, the U.S. will need to remain open for business, including from China.

W
HOSE PROBLEMS
would you rather have?

On November 6, 2012, Barack Obama won what was in the end a comfortable re-election, but it followed a dispiriting campaign that rarely lifted above the resentful. Even before his second term began, Obama seemed mired in a never-ending series of budget crises and at the start of an era of grinding cuts. The following week, a new generation of leaders was unveiled in Beijing, the group of seven men who will run the country for the next decade. With the new party boss Xi Jinping at the head of the line, they filed onto a stage in the Great Hall of the People, a row of begonias and ferns separating them from the cameras. Standing in the center of the group, the new leader did not take any questions. Instead, he gave a brief speech laced with a few populist hints, which contrasted with his wooden predecessor but gave away little about his governing philosophy.

There have been three new Chinese leaders since the Tiananmen Square crackdown, and each one has assumed office amid the same sniping prediction in the West that only drastic action can fend off a looming crisis. Yet there does seem to be something different this time, a powerful sensation that China is approaching the end of a road. Chinese officials, scholars, and acquaintances almost universally acknowledge that the economic and political structures that have got them this far so fast are breaking down.