TPP - AT: China Turn – No link

China’s participation in the TPP strengthens its IP protections and locks them into US-dominated economic order

Pushing for opening-up in the spirit of reforms and promoting reforms and development through deepening opening-up has been an important experience for China over the past 30-plus years, as Vice-Premier Zhang Gaoli highlighted in March at a high-level Beijing forum on China's development. More efforts are needed than at any other time for China to continue the interaction between reforms and opening up, he added. In March, during his first inspection tour of the Yangtze River Delta after he took office, Premier Li Keqiang said that China still has a lot of room to use opening-up to promote a new round of reforms to release "systematic dividends" and expand domestic demand.

The active opening-up strategy the government has vowed to adopt, as mapped out in the report delivered to the 18th Congress of the Communist Party of China in November, means that the country should be more active in pursuing new opening-up targets.

China should hold an active attitude toward the Trans-Pacific Partnership that the United States is vigorously pushing. Given that the TPP sets higher requirements for membership, in terms of financial institutions, management of enterprises and their competitiveness, more active involvement in free trade talks with the US and the European Union would offer China a new and bigger driving force for a better domestic environment and strengthen its protection of Intellectual Property rights. At a time when no substantial progress has been made in the WTO-led Doha Round of negotiations, China, as the world's second-largest economy, should not turn a blind eye to the TPP, a wide-ranging economic cooperation arrangement that has drawn worldwide attention.

Compared with other free trade or economic cooperation agreements, what the TPP advocates is complete demolition of tariffs among member states, and it will not recognize "exceptionalism" in principle. If joined by Japan, it will account for 40 percent of the world's economic aggregates and become a new stage for the making of international economic and trade rules.

Failure makes a US-China war inevitable. We must reverse China’s belief that economic cooperation with the US is optional

There is still considerable mutual dependence in U.S.-Chinese relations, grounded mainly in the complex commercial ties of the two nations. But there are also risks that are more dangerous for Washington than anything produced by the long U.S.-Soviet stalemate. The Berlin Wall separated East and West, but it also acted as a kind of shock absorber, ensuring that economic bankruptcy on the Communist side had little impact on the freer world. There is no such buffer between China and the United States. The financial crisis of the past twenty months has produced significant aftershocks in China. And in the coming decade, economic developments inside China will have profound implications for America’s financial well-being—and, therefore, its security.

Champions of market reform within the Chinese leadership used the collapse of European Communism as a different sort of cautionary tale by making the case that only by delivering on the promise of an ever-rising standard of living could Beijing succeed where Moscow had failed, allowing the leadership to maintain its monopoly on domestic political power. Mikhail Gorbachev had tried to invigorate the Soviet economy by reforming Soviet politics. China’s leaders attacked the problem from the other side, reforming the economy to ensure long-term political stability. China’s own experience had proven that no state can simply mandate growth. The creation of jobs meant empowering manufacturers to sell products to those who could afford to buy them by winning access to consumers in the world’s largest markets—America, Europe, and Japan. It meant welcoming foreign companies and investors on an unprecedented scale. It meant an irreversible drive toward capitalism that has only intensified in the years since this strategy was put in place.

The 1990s marked an important shift in China’s relations with America. As a candidate for president, Bill Clinton had denounced China’s leaders as “butchers” in the aftermath of Tiananmen Square. Once in office, he acknowledged the unique power of trade with China to fuel U.S. growth. American manufacturers won access to low-cost Chinese labor and the world’s most promising new market, and the flood of Chinese imports provided Americans with newly affordable consumer products that helped keep inflation in check. In March 2000, Clinton signed legislation that granted China “permanent normal trade relations.” The U.S.-Chinese trade relationship had become too big to fail.

To fuel the next phase of China’s growth, the party committed in the late 1990s to a policy known as “Go Out,” a concerted state push to send Chinese companies abroad to establish new trade ties and to lock up long-term supplies of the energy and other commodities on which future economic growth would depend. In 2001, China formalized its commercial ambitions by joining the World Trade Organization, a commitment that gave Beijing all the more reason to value American power and Washington’s willingness to use it. Developing trade and investment relationships with potentially volatile emerging states in Africa, the Middle East, Southeast Asia, and Latin America—and depending more than ever on sending tanker traffic through troubled waters—exposed China to unprecedented levels of foreign political risk. America’s role as global policeman helped open and maintain trade routes and sea-lanes for Chinese companies. Expanded access to American purchasing power helped China’s economy create millions of jobs. In short, by protecting China’s hard-won gains and allowing it to build a capitalist future on a solid foundation, American power—hard and soft—proved indispensable for China’s expansion, and China’s growth kept America’s good times rolling.

China’s commitment to foreign trade and investment has generated an astounding three decades of double-digit growth, a trend impressive enough to inspire some to believe that it just might last forever. Western firms, large and small, are now banking on the promise of steady long-term profits as China develops what is expected to become the largest middle class in history. This investment boom has also lifted a fast-growing number of Chinese companies onto the commercial playing field, inside China and around the world.
Y et over the past several years, China’s leadership has also been forced to embrace the natural volatility and often toxic side effects that come with decades of hypertrophied growth in a developing country. Rapid industrialization has done enormous environmental damage, displaced huge numbers of people, and widened wealth gaps between increasingly affluent coastal cities and the slower-to-develop interior. Among the results has been an annual spike in the number of large-scale public protests across the country. To engineer a more “harmonious” economic expansion, President Hu Jintao and Prime Minister Wen Jiabao have crafted a more direct state role in managing capitalist growth, one that allows the political bureaucracy much greater control over how and where jobs are created, to whom and how much banks lend money, and which companies dominate strategically important economic sectors. In other words, certain that command economies are doomed to fail but fearful that truly free markets will spin out of control, the leadership has invented something new: state capitalism with Chinese characteristics.

Beijing continues to rely on a wide variety of state-owned companies in several economic sectors to secure long-term access to the resources China will need to feed future growth, to develop China’s technological prowess, and to create jobs in decades to come. China’s finance ministry has reported that state companies produced $3.3 trillion in sales in 2009, about seventy percent of the country’s GDP.

The bureaucracy uses select privately owned companies to dominate key industries. They use sovereign wealth funds, created from the country’s enormous reserves of foreign currency, to direct huge flows of capital. In sum, China’s political leaders are using markets to create wealth that can be used to maximize state control of the next phase of the country’s development—and their own chances of political survival. This is a form of capitalism in which the state uses markets primarily for political gain. It is a model that has so far proven strikingly successful.

The financial crisis and global recession have given that model a new sheen—and shifted the balance of power in U.S.-Chinese relations. The international market meltdown hit China only indirectly, but had a dramatic impact nonetheless. Its banks were not exposed to the contagion as much as Western financial institutions were, but a loss of purchasing power in America, Europe, and Japan sharply reduced demand for Chinese products, led to enormous overproduction in China, and temporarily cost millions of Chinese their jobs. Beijing moved quickly to stop the bleeding with a massive stimulus package, directing hundreds of billions of dollars through state-controlled lenders to state-owned companies for use on large-scale, job-creating infrastructure products. The robust recovery that followed has further persuaded the leadership that state capitalism heals the wounds inflicted by under-regulated free markets.

Put bluntly, China’s leaders no longer believe that American power is indispensable for their country’s prosperity—or their own long-term political survival. The financial crisis has underlined the risk that China has accepted in relying on exports to developed states for economic growth. This has increased the urgency with which the leadership works to build domestic demand for Chinese products. Chinese officials have made news in recent months with the occasional call for the establishment of a new reserve currency to replace the dollar. That cannot happen overnight, but as China reduces its dependence on market conditions in the West, the need to purchase dollars will gradually ease, and much of the reserves will flow toward the purchase of commodities. This is a long-term project and one that will have to be undertaken carefully to ensure that the creative destruction that accompanies this transition does not force so many people out of work at one time that widespread social unrest reaches critical mass.

In addition, now that a growing number of Chinese firms have developed the management, marketing, and technical expertise needed to compete, they increasingly see foreign companies and investors as commercial rivals for local market share. As China’s need for foreign investment wanes, so will the influence of foreign companies, and in a growing number of cases, Chinese companies are already using their new leverage within the political bureaucracy to win advantages and protections that force their competitors onto a less-than-level playing field. In 2009, Coca-Cola was hoping its lead role as a sponsor of the Beijing Olympics the year before would warm official attitudes toward its $2.4 billion bid for the Chinese juice maker Huiyuan. During the negotiation process, Huiyuan owner Zhu Xinli stoked popular anger over the proposal, even as he courted the bid in case the state approved it. The Chinese government ruled that the proposal violated antitrust legislation, and Coke came away empty-handed.

In July 2009, the New York Times published a surprising account of the public backlash inside China against foreign players in the country’s professional basketball league. Just a year earlier, league officials had moved to generate more excitement for Chinese fans by attracting larger numbers of high-talent foreign players, mainly Americans. The league eased restrictions on the amount of money that players could earn and eliminated limits on their playing time. Within one season, the game won a wider audience throughout China. Now the fans want to see Chinese power forwards and shooting guards on the court.

This patriotic pressure has also become a growing problem for foreign companies and investors trying to make a name for themselves within China’s state-dominated system. The state itself now faces unprecedented pressure to satisfy public demand for all kinds of things. Ironically, it is one of globalization’s primary engines, the Internet, that makes this possible. According to a recent report from McKinsey & Company, an international management consultancy, there are now more than three hundred and eighty-four million Chinese online, an increase of fifty percent from 2008. Like Web surfers everywhere, the vast majority of Chinese users appear to spend the vast majority of their time discussing popular culture, their personal lives, and local issues. But in the past two years, the Chinese leadership has repeatedly found itself reacting to waves of angry popular sentiment pushing through Chinese cyberspace. Far from swelling popular demand for pluralist government and better relations with foreign governments, the Internet has on many occasions become an incubator of wounded national pride and demand for a government that better defends China’s interests in the face of Western criticism. This helps explain why, though economic decoupling will take years to accomplish, a process of political decoupling is already well underway.

A growing number of U.S. companies have begun to complain both publicly and privately about the Chinese government’s plan to support homegrown intellectual property via its promotion of “indigenous innovation.” Beyond claims of espionage, high-tech firms in the United States and Europe now charge that China’s policy of favoring products made with domestically created intellectual property in government procurement proves that Beijing has lost interest in even pretending that it will observe international intellectual property rules and maintain a level playing field for foreign firms throughout the next several years.

American media continue to cover the recent story of the hacking of Google as if the crux of the conflict is a dispute over cyber attacks, censorship, and state persecution of dissidents. All those issues are important, but Google’s battle with China is also about the market dominance of Baidu, Google’s primary Chinese rival. Baidu already holds larger Chinese market share than Google. If the American firm leaves or is forced out, Baidu will be the beneficiary. In fact, Baidu represents all the Chinese companies that have developed the skills and market muscle to compete with foreign rivals. These firms have become points of pride in China for the government as well as the public, both of which appear pleased to see the home team whip the foreign competition.