With just a week to go until the U.S. presidential election on November 6,and a further two days until China’s 18thNational People’s Congress on November 8, people around the world are waiting to see how the next chapter in the political futures of two of the world’s most important and powerful countries will begin. The relationship between the U.S. and China over the last 100 years has gone through many changes — from indifference at the turn of the 20hcentury, to wartime allies during World War II, to ideological rivals during the Cold War, to economic partners during the Deng Xiaoping Open Door Policy, and now to complex co-dependent economic rivals. With so much resting on this relationship one needs to question the logic behind Mitt Romney’s day one campaign promise, if elected, to label China a “currency manipulator”.
If Romney were to renege on his promise, he will immediately lose credibility, and China would have won a battle of face. If he attempts to officially label China as a currency manipulator, but fails, he still loses credibility, will appear ineffectual, and China would still win and still have reason to react. If however he is successful, he runs the risk of Chinese retaliation from an inexperienced new Chinese government that will be in the spotlight and looking to keep face. This retaliation could come in the form of a trade war with protectionist practices, selling off of US treasury ponds, anti-Japanese style demonstrations against the US in China and the icing out of US business opportunities from China. With so much at risk one has to question Romney’s logic and surprisingly, his business sense. What is surprising though is that many within China’s central government are privately hoping that Romney does win the election.
With such a tough and critical stance on China, which China has publicly slammed Romney for, why on Earth would they secretly want Romney in power? To answer this question one needs to look at the current political and economic climate in China. After two decades of excessive government spending on economic projects that have failed to increase the competitiveness of Chinese exports beyond their previous cheap prices and labour cost, rising inflation in China and fewer exports has led to the country’s GDP growth to slow to 7.7%. This is a 13 year low, and by Chinese standards a snail’s pace of a growth rate.
As such, the people aren’t happy and the government has a lot to answer for. The main motivations of the Chinese government is to maintain the supremacy of the Communist Party above all else. For the last 20 years the majority of China’s 1.3 billion citizens have been willing to sacrifice a degree of personal freedom in exchange for lightning-fast improvements to their quality of life and personal wealth. Now with slowing economic growth and an ever widening income gap between rural and urban populations, both the rural poor and urban middle class are becoming more vocal in their criticism of the government. This is terrifying the powers at be, and is leading to increasingly more factionalism and discord within the ruling party. An example of which could be seen recently when Vice President, and presumptive President to be, Xi Jinping disappeared for several weeks. Furthermore, the very fact that the date of the leadership transfer was postponed to November 8 instead of its original October date shows that not everything is running according to plan.
So what is a government to do when its population is increasingly unhappy with how things are being run? Elections? Reform? Revolution? None of these are what a communist leadership ever wants. What it will do is take a page out of its playbook and divert the population’s attention elsewhere. With such an aggressive anti-China stance, a Romney-led U.S. makes the perfect patsy for all of China’s problems. To externalize an enemy as the root of all evil allows China’s government to divert their people’s anger and aggression away from themselves and at the same time unite them through a surge of nationalism. Blame America is the answer and the Chinese government has done this before to other parties before and very successfully.
Back in the late 1950s Mao initiated a series of economic development policies known as The Great Leap Forward. These policies failed miserably and led to the mass starvation and deaths of hundreds of millions. As a result of his failure, many within the government tried to oust Mao and his followers. Not willing to go quietly, Mao initiated a smear campaign against his rivals, the country’s technocrats and educated elite, accusing them of betraying the ideals of a communist China. This led to what is commonly referred to as the Cultural Revolution, which only ended upon Mao’s death. More recent examples can be seen with the government pointing the finger of blame to an even easier target then the U.S., Japan. Whenever it needs something inconvenient to be ignored by the public, the Chinese government plays the history card and blames Japan, leading to riots and anti-Japanese hysteria — all which are secretly orchestrated by the government through crowd control, news media, internet and even text messaging.
Now let’s get one thing clear. China does not want a trade war with America, or even an actual war for that matter. Neither does the U.S. What China wants is the upper hand. Right now economically it has it, but despite what all the doomsayers say about China’s economy taking over America’s, they are slowly losing this upper hand. This is thanks to a slowing economy whose growth is nearly entirely dependent on exports and loosing several trade disputes with the U.S., championed by Obama, through the World Trade Organization.
What a Romney-led America provides China is an aggressive bully that gives China reason to play the role of innocent victim and respond accordingly, the whole ‘America started it’ argument. With China’s population turned to America-bashing the Communist Party can ride out the slowing economic growth, and give them time to come up with a solution that is best for them — the Communist party that is. The only danger in this strategy is that, even though China has gotten very skilled at controlling its massive population’s mood, it needs to control its on response even more carefully without handing the advantage back to the U.S. If it does, it could find it self having to react in kind or risk the wrath of an angry population (that they made angry in the first place), shifting their anger back onto the government for not doing enough. The Communist Party would then find themselves back where they started.
This is a tricky global chess game and right now its America’s move, with the upcoming election I hope that a more measured approach to China will be formulated. To label China a currency manipulator, regardless of whether it is accurate or not, would put the U.S. in a confrontation China. The U.S. may not have created the problems, but it would have started the fight.