Previously, I have discussed the military confrontation issue following the publication of an article, The Once and Future Superpower – Why China Won’t Overtake the U.S. (Foreign Affairs May/June/2016), by Stephen G. Brooks and William C. Wohlforth, professors at Dartmouth. That article’s main point is that the U.S. is militarily superior and China will not overtake the U.S. at least decades away even if she goes all out to try. My opinion is that it is wrong for U.S. to provoke China into a military competition, whatever outcome; it is not beneficial to the U.S. A nation’s continued successful military development is contingent on a strong economy of that nation. The collapse of the British Empire and the Soviet Union are clear evidence in the history to back this conclusion. While China is rising more rapidly economically comparing to other nations, it is a bad strategy to provoke China to divert her resources into military spending. Some may say that China has been increasing her military budget steadily over the past decade, but has anyone asked why? A country, with many thousands miles of coast line and bordering 14 nations (some historically hostile) plus a century of foreign bullying and invasions in her history, deserves to have a defense capability, doesn’t she? At present, China’s defense budget, proportional to her GDP, is less than a quarter of the U.S. defense budget and is peaked due to a slower economic growth. Why shouldn’t the U.S. pursue a strategy to limit each other’s military spending instead of engaging in an arms race?
Recently a congressional paper entitled, China Naval Modernization: Implications for U.S. Navy Capabilities – Background and Issues for Congress, by Ronald O’Rourke, Specialist in Naval Affairs, was published by Congressional Research Services dated May 31, 2016. This paper investigated China’s Navy Plan in detail and raised issues for the Congress to consider backing a US Navy plan to counter China’s Anti-Access/Area-Denial plan (A2/AD) and her Anti-Ship Ballistic Missile (ASBM), submarines and command and control, communications, computers, intelligence and reconnaissance (C4ISR). The details of the Chinese naval plan, just like the acronym names implied, are defense and not offense military strategy. Why should our Congress be encouraged to increase military spending so we could break China’s defense? What is the logic? Don’t we understand the Causality Principle? If someone is building a strong shield, must we build a stronger spear to pierce the shield to prove that we have the strongest spear? After examining this and other reports about China’s military strategy, it is easy to come to the conclusion; China is reducing her military size (reducing 300,000 personnel) to reduce cost but is increasing technology content especially in communication to deal with modern warfare like that occurred in the Middle East. I think this should be clear to our Congress; the military confrontation with China is not an issue if the U.S. does not create that issue; and we should never provoke China to develop spears from shields!
On the other hand, the U.S.-China economic confrontation is real, but it is not an issue to be solved by arms race or a military solution. Another recent article in Foreign Affairs (March/April 2016), entitled, Can China’s Companies Conquer the World?, by Pankaj Ghemawat (Global Professor of Management and Strategy at New York University) and Thomas Hout (Lecturer at Middlebury Institute of International Studies, Tufts University and University of Hong Kong) is very relevant to the topic of economic confrontation. Ghemawat and Hout essentially argue that GDP number is not the measure of the real strength of economic power. Even China’s GDP surpasses the U.S. (in their estimate not until 2028), but the real economic strength is in the corporations underneath the economy. They claim that strong macroeconomic data do not tell the economic story, citing that from 1990 to 2013, as the Chinese GDP grew at roughly 10 percent annually, the stock market barely moved. They attribute the real strength of economy lies in the real world of corporations and industries that actually create growth and wealth. Then they venture to characterize the differences between Chinese and US corporations and industries and claim that the U.S. is leading in design and R&D as well as ‘capital goods’ and high-tech manufacturing. (*Capital goods are goods used to produce other goods.)
The above paper sounded more like a morale-boosting article for US businesses and industries than an objective economics thesis analyzing two economic models, the U.S. vis-à-vis China. It seems to me some of the observations and deductions are little outdated and confined in a nationalistic view rather than a global view. Since the US-China economic confrontation (or any global competition) is not avoidable, perhaps, it makes sense for economists to examine the business models in the global context. It is true under free capitalism the U.S. (and Western) corporations and industries (claimed in the above article) are leading in the global economy. However, the transformation of global business models does not guarantee that the US corporations remain to be US owned forever nor US industries can remain their leadership as seen in auto and solar industries. The U.S. must cultivate her business environment to entice the corporations and industries to remain in the U.S. and yet be competitive enough globally.
Conversely, China’s growth has been accelerated by state planning and propelled largely by state-owned corporations. As China engages more into the global markets and opening her domestic market for competitors from multi-national corporations, she also faces a challenge to transform her business environment to enable her state-owned corporation to evolve into a free enterprise to compete in the free markets without government subsidies or strings attached. Observing recent business activities, it shows that China is eager but gingerly in executing her economic transformation, internally through upgrading industries to higher technology content and externally through investment abroad to gain leverage to expand globally. Contrasting the two economies, it appears that the U.S. and China have a lot to be gained if they collaborate in their economic development to find win-win cooperation rather than scheming to exclude each other in trade, investment and technology development.
In US-China Relations, if both countries can realize that military confrontation bears no good fruit and economic confrontation is natural and unavoidable, then it would make good sense that two countries channel their energy to a business transformation process and develop a collaborative relationship to cultivate win-win projects and supplement each other with the other’s unique strength.