All eyes are on China, on wide range of areas

Posted in China | 26-Jan-06 | Author: Katrin Bennhold| Source: International Herald Tribune

Victor L.L. Chu, Chairman and CEO of First Eastern Investment Group speaks during the 'China Goes Global' session at the World Economic Forum (WEF) in Davos, Switzerland, January 26, 2006.
DAVOS, Switzerland: If you want to talk about China at the World Economic Forum here, try the panel on climate change or the workshop on nonproliferation - or pretty much any session on offer. The number of dedicated China events may be small and the Chinese delegation reduced compared with last year, but the China factor is everywhere.

The Davos microcosm is a measure of how pervasive the influence of China has become in world affairs. An economy about the size of France's that could not project its military power more than 280 kilometers, or 150 nautical miles, beyond its coastline is now influencing everything from American and European interest rates to international diplomacy, where it is increasingly emerging as a power broker.

Yet the question on everyone's lips for the months and years ahead is what will China do with all that influence.

"China has to decide what sort of global citizen - what sort of power - it wants to be," said Kenneth Roth, head of Human Rights Watch. "That will be a major factor shaping world affairs from economics to international politics."

China is not the only rising nation that has challenged the economic and political dominance of Europe and the United States in recent years. India, Russia and Brazil, among others, have all played their part in what international affairs experts describe as the most profound shift in the balance of power since the emergence of the United States more than a century ago.

But as a permanent member of the United Nations Security Council, the world's second largest user of oil, after the United States, and a holder of foreign reserves that some experts say may soon reach $1 trillion, China has influence with ripple effects in the West that none of the other emerging powers have enjoyed.

"Economics, finance, foreign affairs, the environment - you name it, they're there," said David Shambaugh, head of the China Policy Program at George Washington University in Washington.

According to Shambaugh, Beijing is not doing nearly enough with its influence. It has had only a small presence in peace-keeping missions and has so far not committed to concrete measures on fighting climate change.

Another area in which China is not taking into account its effect on the world, economists say, is its currency policy, which has raised protectionist rhetoric among American and European politicians. Many at Davos urged Beijing to consider allowing its currency to appreciate more against the dollar in a gesture to Western demand.

In Davos, Chinese officials and executives said they were conscious of their effect on the world, but they remained vague on how that awareness would translate into action.

"As China's role as a key player in globalization grows, obviously it has to take responsibility," said Victor Chu, chief executive of First Eastern Investment Group.

Chen Siwei, vice chairman of the Standing Committee of the National People's Congress, said that China was committed to international cooperation but that its priority remained economic growth and social stability at home.

China is still a relatively small economy, still worth less than 5 percent of global GDP last year, according to Min Zhu, deputy head of Bank of China. But given that the nation accounts for as much as 20 percent of the world's GDP growth, China's influence is undeniable.

"China is having a big impact on western markets because it is a very open economy," Zhu said. Exports and imports account for nearly three-quarters of the economy, and its record trade surplus with the United States means that Beijing's dollar reserves now account for 70 percent of the $819 billion in overall foreign reserves. About $247 billion of that total is invested in U.S. Treasury bonds. These factors have allowed Beijing to have a considerable effect on inflation and interest rates in the West.

Meanwhile, China's demand for natural resources, in addition to driving up global commodity prices, is increasingly interfering with global diplomacy.

China fought hard against economic sanctions against Sudan, fearing for its oil contracts. It has also undermined pressure by the International Monetary Fund on Angola to make its oil revenues more transparent, by investing $2 billion in the country. As Russia appears to become more inclined to close ranks with the West on referring Iran to the UN Security Council, China's energy interests are once again in the spotlight.

"Iran will be the litmus test for whether China will become a responsible stakeholder in the world," said Roth, of Human Rights Watch.