'Chimerica' a powerhouse, not hegemony, for global economy

08:45, January 26, 2011      

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Two years after the global financial crisis in 2008, China overtook the United States as the largest trading partner of the European Union. Also, in the same year, China became the second largest economy in the world. And in early 2011, China and the United States, the world’s No. 1 economic power, pledged to build a "cooperative economic partnership." What do the closer relations between the world's two biggest, albeit different, economies mean for other economies and the world economy as a whole?

The economic interdependence between China and the United States, or "Chimerica," to use the phrase coined by Harvard economic historians Niall Ferguson and Moritz Schularick, will further increase in the next 10 years. However, what such interdependence will mean for the rest of the world depends on to what extent the world's two largest economies can cooperate.

Together, China and the United States can play a leading, positive role in the world economy. But that can be possible only when they overcome the following challenges.

First, interdependence is just a "platform" upon which further cooperation is "attainable" rather than any reflection of the "reality" of cooperation because interdependence could also lead to conflicts, said Qin Yaqing who leads China Foreign Affairs University as one of the most respected Chinese scholars on international relations.

He stressed that great efforts are crucial to realize the cooperation potential that has been provided by the growing interdependence. A key part of the solution, he asserted, is to tip the balance of mutual "perception" toward the side of cooperation instead of competition.

There is concern over the increasingly competitive nature of China-U.S. economic ties, which are normally described as "complementary." Jin Canrong, deputy principal of School of International Studies at the Beijing-based Renmin University, for example, has warned that the growing competition could potentially be one of the biggest risks for China-U.S. economic relations in the future.

Although that is not an imminent challenge, it is an important one to tackle now. Qin believes that it is important to focus on the cooperative side both practically and rhetorically. Otherwise, it will create a self-fulfilling prophecy that competition will prevail in China-U.S. economic ties and in turn undermine China-U.S. relations as a whole.

The current spat between China and the United States in the economic domain mainly comes from the huge U.S. trade deficit with China. As Yao Jian, spokesperson of China's Ministry of Commerce said, trade is no more than "a tip of the iceberg" in China-U.S. economic relations. He urged the two sides to pay more attention to much wider cooperative areas beyond trade, such as the service sector, finance and investment.

Second, both China and the United States have to be highly aware of the significance of their cooperation in global economic governance. Although any China-U.S. G2 pattern is neither realistic nor desirable as a result of the cooperation between the world's largest two economies, their joint contribution to the stability and reform of the global economic governance is.

The rise of China and other emerging economies will definitely bring some "non-Western ideas" into the existing Anglo-American-dominated form of global economic governance, Qin said. And it has made real difference in the globalization process, Yao said. That will in turn make a difference to the global economic growth as a whole.

But that does not mean that China would challenge the existing system. Instead, it would contribute to the stability and proper reform of the existing system. The G20, Qin believes, can be effective as possible in supporting a balanced world economy only insofar as China and the United States have healthy bilateral relations and make concerted efforts within this framework. He has high hopes for the G20's "crucial role" in global economic and political governance.

Jin also agrees that China-U.S. cooperation should move toward balancing the world economy as a whole. Benefiting from the existing global governance system, China has "no intention" of challenging that system, he noted.

In addition, emerging economies as a whole have a long way to go before they have real participation in global economic governance despite the fact that the voices of the major emerging economies, such as China, Brazil and India, have increased in the IMF and World Bank. Yao said that China's per capita GDP still lags behind most other countries in the world. And China has to think about the right balance between greater rights and greater obligations brought by higher shares, Qin said.

Third, any cooperation between China and the United States should not be regarded as anything like a joint dominance in the world economy or world economic governance. The importance of the European market for China, for example, is even more evident after the global financial crisis as the two sides became the largest trading partner for each other for the fist time in 2010. China's trade with other emerging markets, particularly the ASEAN, has soared after the China-ASEAN free trade zone was built in 2010.

Because those old industrial countries are declining as the new emerging economies are on the rise, world economic power will be structurally even more diversified than ever, making any dominance or hegemony even less possible, Jin said.

The China-U.S. Joint Statement issued on Jan. 19 during Chinese President Hu Jintao's high profile visit to Washington reaffirms their support to "strengthen the global financial system and reform the international financial architecture" and for a bigger role for the G20 in international economic and financial affairs. How much substantial cooperation they can make for the sake of the world economy will be this year outside China and the United States in Cannes, France, the venue of the G20 Summit, at which the two largest economies have committed to jointly "push for positive outcomes."


By Li Jia, People’s Daily Online
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