By Wang Wen Source: Global Times Published: 2018-3-25
Wang Wen speaks at the Forum on Sino-American Relations in New York on March 21.
Editor`s Notes: On March 21, AmCham China hosted a forum on“US-China Relations Outlook Under Trump’s Administration”in New York. Zhang Qiyue, consul general of China in New York, Edward Cox, chairman of the New York Republican State Committee, and Wang Wen, executive dean of Chongyang Institute for Financial Studies at Renmin University of China, attended and spoke at the event. On March 25, the English edition of Global Times published Wang’s speech with a full page.
The concept of co-evolution has its earliest origins in biology, mooted by American ecologists P.R. Ehrlich and P.H. Raven when studying the relationship between plants and insects. They defined co-evolution to mean the evolution of traits in one species as a response to traits in another. Triggered by interactions between and among different species, this evolution is a mutual action.
Thereafter, the concept was applied to socio-economic systems. The economist Richard B. Norgaard pointed to the existence of a mutual feedback mechanism between participants in economic systems: adaptive change in one participant alters its evolutionary trajectory through the adaptation of another participant, which in turn further restricts or promotes changes in the former.
In May 2011, former US secretary of state Henry Kissinger published a new work entitled "On China," in which he mentions the concept of "co-evolution." Kissinger notes that as the world`s two biggest economies, relations between the US and China should not be reduced to a zero-sum game, but be cast as a quest for `co-evolution" rather than partnership. In the process of pursuing their own interests, both the US and China should seek to maximize cooperation and reduce mutual antagonisms, to the extent that this is possible. In other words, neither side can demand that the other stand in its shoes when analyzing international affairs, but both sides should employ reasonable endeavors to achieve complementary development. This concept earned widespread recognition in both countries.
China and the US Enter a New Era of "Co-evolution"
It is certainly true that, over the past decade, China and the US have indeed `evolved together." In the new period, they should assess the current situation, avail themselves of the general characteristics of their development, and seek complementary development.
First, China and the US are both growing. China`s GDP rose by 6.9 percent to nearly $13 trillion in 2017, while the US GDP exceeded $18 trillion, representing more than 40 percent of the world`s total. China`s share of the global economy has risen to about 15 percent from 2008 figure of 7.3 percent. The US` economic clout, on the other hand, has remained relatively steady at between 23-25 percent for the past decade. It is therefore plain to see that China`s rise has not resulted in a fundamental or radical recasting of US hegemony in the global economic order, and that considerable difference persist between the two.
China`s development is entering the bracket of middle-income countries. Data from the Washington Post in January shows that the Chinese people are set to consume $5.8 trillion in real goods, setting the country on course to surpass the US as the world`s premier consumer power this year. Currently, the prime driver of China`s economic growth is consumption, which accounts for 58.8 percent. This represents a major opportunity for US economic growth.
Second, China`s evident industrial structural transformation complements the US industrial structure. In 2017, the added value of China`s primary industry was 6.5468 trillion yuan ($1.0386 trillion), up 3.9 percent on the previous year.
The added value of its secondary industry was 33.4623 trillion yuan, up 6.1 percent from the previous year; the added value of its tertiary industry was 42.7032 trillion yuan, up 8 percent on the previous year. Both countries should strengthen cooperation for their own economic development. Of particular note is the fact that China and the US account for 81 percent of the world`s unicorn startup companies.
China leads the world in e-commerce and financial services as a result of rapid development. China has two powerful e-commerce platforms in Alibaba and Jingdong - which play a leading role - as well as the world`s largest e-commerce demand market, with an internet population of 772 million. Led by e-commerce platforms, diversification in consumer demand has driven the rapid development of e-commerce in China. By the end of 2017, the volume of e-commerce transactions in China attained a global first of 29.16 trillion yuan. E-commerce development is set to gather maturity, from traditional B2B to brand sales, second-hand transactions and cross-border shopping to fresh produce and group purchasing, among other increasingly detailed subdivisions of e-commerce. In 2016, China`s digital economy attained 22.6 trillion yuan, accounting for more than 30.3 percent of GDP. The internet is set to be the new space of Sino-American cooperation.
Third, in the services sector, recent years have seen China`s financial institutions integrate and utilize resources, culminating in significant changes in cloud computing, artificial intelligence as well as block chains. Its financial sector will continue to grow. As for the world-leading US, the finance industry and service industry remains a major opportunity for cooperation and market development.
These changes stem from China`s urbanization. As of 2017, the urbanization rate in the US is as high as 82 percent, while China, progressing since 2011, attained 58.52 percent. This disparity, wedded to the relative perfection of enterprise structure in the US, explains why demand for business services arose before China. At the same time, by leveraging Silicon Valley, the US enjoys an obvious technological advantage with established companies such as IBM, Microsoft, Apple and Oracle. Together, these form a mature service system based on big data and network security cloud services. In this regard, China would do well to continue looking to the US.
In transportation, China has contributed enormously to the world`s connectivity with breathtaking development of its transport industry. By the end of 2017, Chinese railways had an operating mileage of 127,000 kilometers, of which 25,000 kms were high-speed rail; the total length of highways in China is 4,77 million kms, of which 136,000 kms are expressways, ranking it first in the world. America, the "nation on wheels," pales in comparison with only 76,000 kms of expressway.
China`s unsurpassed highway mileage benefits from rapid development of its infrastructure construction, world-leading technology and construction firms employing a wealth of qualified engineers, technical personnel and construction workers whose sheer number cannot be equaled in a short period of time. The CIA World Factbook suggests China`s waterways rank first in the world with 110,000 kms, double that of the fifth-placed US with 41,000 kms. China is also possessed of ports such as Dalian and Tianjin supporting its import and export waterway transport.
Starting from the four aspects of gross economic value - industrial structure, service industry and infrastructure - Sino-American co-evolution is both necessary and important. We are entering a new phase of world development marked by deep reform and adjustment. Uncertainty is aggravated by factors such as weak momentum for economic growth, geopolitics and terrorism, to name but a few. As the world`s two biggest economies, gaps do still exist between the strength of US and the China. Yet the latter, as a late-starter, is fast catching up by taking advantage of the internet and big data. China has a lot to learn from the US. At the same time, the former should not regard China as its enemy, but learn lessons therefrom. In the new era and new phase, both countries would do well to act in accordance with Kissinger`s proposal of "co-evolution," work hand-in-hand and evolve together in order to benefit the world.
China is a Force for Cooperation, Win-win and Peace
It is regrettable the US media and certain of its politicians persist in interpreting China as a zero-sum game and power politics. The year 2018 marks the 40th anniversary of China`s reform and opening-up as well as the establishment of diplomatic relations. Four decades of Sino-American evolutionary history has proven China a global force for the maintenance of peace with whom cooperation is worthwhile.
On the issue of cooperation, everyone will be agreed that China is not Russia, Iran or a force for global revolution, but rather a protector of the status quo. Ian Johnston, professor of political studies at Harvard, estimated that China`s participation in the international system, international organizations, international law and the formulation of international rules since the 1990s has been close to that of developed countries. China is gradually moving from the periphery to the center, becoming a participant, builder, contributor and beneficiary of the current international system. China has participated in and supported the so-called `liberal international order` established by the US since World War II. Since 2017, the US has withdrawn from the Paris Accords and UNESCO, which China is still supporting. The charge of undermining the international order is unfair and does not stand.
Regarding "win-win," we owe a particular debt of gratitude to American companies for their investment in China over the past 40 years, a positive element in promoting "reform and opening-up." On the other hand, many friends at American companies in Beijing tell me that their companies are reaping good profits. During President Trump`s state visit in November 2017, Sino-American companies signed a total of 34 cooperation projects worth $253.5 billion, setting a record not only for bilateral economic and trade cooperation but also the history of world economic and trade cooperation. As the world`s two largest economies, cooperation between companies in the two countries will be the engine of regional and global economic growth, with results benefiting the whole world.
As for peace, China and the US have always displayed a high degree of unity on the road to world peace, stability and the fight against terrorism. In the last two years, terrorist attacks have been rising, especially in Europe and the US. Terrorism has been harming world peace and development. As a permanent member of the Security Council and a big developing country, China contributed to international counter-terrorism, making the largest contribution to UN peacekeeping operations. China has not participated in a war for 35 years and its social stability has fostered the creation of a more secure environment in the Western Pacific, where the risk of either terrorist attacks or war is lower than other regions. Peace is a necessary precondition for corporate development, social progress and economic growth.
The US Needs to Know What China is Up To
However, I often come across American newspaper articles and think-tank reports that cast China in a negative light, accusing it of various "crimes" such as undermining the global order and closing its doors. This is surely a misconception. What, then, is China up to?
First, China is undergoing economic transformation to become a democratic, civilized, harmonious, prosperous and beautiful country. At present, China is promoting supply-side structural reform and changing from high-speed growth to high-quality growth. Targeted poverty alleviation, ecological protection and risk prevention are China`s three most important battles. At the same time, China is promoting industrialization and urbanization, with year-on-year rises in disposable income forming the "double engine" that drives domestic demand.
Second, China`s markets are opening up, with policies launched over the past five years offering major new opportunities to foreign capital. In the just-concluded Two Sessions, China has formed a new leadership core. It can therefore be predicted that market access will expand further. This is a great news for US asset management firms. Currently, eight of the world`s top 10 asset management companies are registered in China. Apart from broadening the capital management market, opening up the bond and stock markets has also enhanced the efficiency of international financial trade, providing considerable convenience to overseas investors. In addition, China will full liberalize the general manufacturing sector, expand the opening-up of telecommunications, medical care, education, old-age care, new energy vehicles and other fields; simplify procedures for the establishment of foreign-funded enterprises; implement tax deferral on domestic profits realized by foreign investors, in addition to replicating and popularizing FTZs and exploring the construction of Free-Trade Ports (FTPs). With the implementation of these reforms, there is a rare business opportunity for the US.
Third, China`s "Belt and Road Initiative" promotes public goods for the rest of the world. In contrast to the Marshall Plan, it will not seek to dictate the economic and political systems of recipient countries. Rather, it aims the promotion of economic cooperation in a manner that is inclusive, win-win and coordinated. By the beginning of 2018, more than 80 countries and international organizations had signed relevant cooperation agreements with China. My institution, RDCY, published a research report entitled "Case Studies and Practical Solutions for the US to Connect to the Belt and Road Initiative," in order to guide its participation. I believe that the US will eventually come on-board and cooperate with China in this respect, since it is not only in the US` own interest but will also achieve win-win, enhance cooperation and stimulate development.
Lastly, China seeks the creation of a community of shared future for mankind, in accordance with its rise as a great power. China is a large country with 5,000 years of civilization, and our forefathers have taught us that "if you are poor, you will be alone. If you are rich, you will benefit the entire world." The concepts of cooperation, win-win and universal benefits contained within China`s proposal are highly compatible with the UN`s concept of peace and common security. The US should realize that conflicts can be avoided, and that strengthening Sino-American cooperation is a key measure to realizing this goal. Moreover, the community of shared future for mankind can be further developed into a broad consensus in the region and world.
China and the US Must Avoid a Trade War
I know how to understand the future of Sino-American relations. In recent years, there has been a policy debate in the US over whether its strategy of contact to China over the past 40 years has failed. This has been sparked in part by China`s comprehensive rise, much to the anxiety of the US. The latter`s elites believe that the policy has not yielded fruit, in the sense that China has not integrated into the West-dominated international system in a manner consistent with the wishes of the US. Further, they fear that China may even become a subversive force. Nothing could be further from the truth.
Yet, a glance at the words of both countries` leaders since the end of the 1970s illustrates that regardless of changes in the international landscape, successive leaders have remained committed to bilateral relations and friendship. History has shown that the friendly and cooperative relations between China and the US have had a decisive impact on world peace, stability and prosperity. In welcoming US President Donald Trump on November 9th 2017, President Xi Jinping noted that "China and the US should be partners instead of adversaries. Cooperation between the two countries holds huge significance for both countries and the world. Challenges facing Sino-US relations are limited, while the potential for development knows no bounds."
I am rather inclined to agree with the following statement by former deputy US secretary of state Kurt Campbell in last month`s issue of Foreign Affairs: "neither the carrot nor the stick can change China, which has embarked on its own path with resolve, deviating from American expectations in many ways."
To understand the history and future of Sino-US relations, we need to transcend the limits the Western theory of replacement of power by power. The US needs to understand that China will not become a second US, nor will it seek to replicate the rise of America, indeed that of the whole western world. China`s reform has devoted itself to strengthening the country, enriching the people and rejuvenating the nation. A strong China is an important and constructive force for maintaining global stability and prosperity. During China`s 40-year course of reform and opening-up, the US has benefited greatly. It is therefore in the latter`s interest to continue to support China`s further reform, and benefit from win-win cooperation between the two countries.
History has on many occasions enunciated that China and the US will benefit from harmonious relations, while neither will win in the event of conflict. As the world`s two largest economies, if a trade war were to break out between the two countries as predicted by some media, the inevitable outcome will be a lose-lose situation.
First, China and the US are hugely dependent on each other for economics and trade. From 2013 to 2017, Chinese exports to the US increased from $440.43 billion to $505.6 billion, up 14.8 percent. US exports to China increased from $121.75 billion to $130.37 billion, up 7.1 percent in 2017. The US is China`s largest export market, while China is the US` biggest import market.
The astronomical trade deficit between China and the US has always been a sensitive issue in economics and trade. What we must realize is that, to a certain extent, this has been exaggerated by the US. In fact, over the past decade or so, overall increase in the Sino-US trade deficit has been revised down from 24.5 percent in 2005 to 8.1 percent in 2017. In addition, from 2006-2017, US goods exports to China grew by 147 percent, far exceeding the 44 percent increase in exports to the rest of the world；Exports of service trade to China rose 421 percent in the decade 2006-2016, again eclipsing the 76 percent increase to the rest of the world. The trade deficit is the inevitable result of the international industrial division of labor and the optimal allocation of resources against the backdrop of economic globalization. Balancing bilateral trade relations requires the joint efforts of both sides: China needs to further open its market, and the US should accordingly relax restrictions on high-tech exports. Blind accusations will benefit no-one.
Second, once a trade war breaks out between China and the US, the industries of both countries will be negatively impacted. In 2017, transport equipment, mechanical and electrical products, plant products, chemical and mineral products were among the top five US exports to China, accounting for more than 60 percent of total exports. A trade war will no doubt hit hard states and regions whose exports are dominated by these products.
Third, the trade war`s potential impact may also endanger employment, prices and other areas of people`s livelihoods, negatively impacting on society. The large amount of quality goods imported at modest prices from China not only helps to keep inflation low, but also increases the real purchasing power of the American people, especially the middle and low income groups. A study by the US-China Trade Commission shows that US trade with China results in an average saving of $850 per household per year, with US exports responsible for creating a large number of jobs. A report from China`s Ministry of Commerce notes that US exports to China actually supported 1.8 million new jobs in the US for 2015. Combined with two-way investment from China and the United States, supported some 2.6 million jobs.
On March 8th 2018, at a press conference at the first session of the 13th National People`s Congress, Foreign Minister Wang Yi responded to "the need for the Trump administration to decide whether to impose penalty tariffs on imports of solar panels, as well as steel and aluminum products from China." He pointed to the absence of antagonistic or competitive relations between China and the US, further underlining that history has proven a trade war to never be the right way to solve a problem. This observation is especially true in today`s globalized world, where such a parochial choice will only harm others. China will respond proportionately and in kind.
In the course of Sino-American economic and trade cooperation, a trade surplus has always existed. However, China has gradually shifted from an export-oriented type to one driven more by domestic demand. The overall trade surplus narrowed by 17 percent in 2017, which not only alleviated pressure on the US` trade deficit, but also brought great opportunities for foreign capital. Moreover, China hold an international import fair in November 2018 to set up an new open platform for cooperation in international trade, which is conducive to promoting balanced development of bilateral trade between China and the US.
The US Should Seize the Opportunity and Invest in China
At present, the impressive growth of China`s economy is accompanied by structural transformations to bring about high-quality growth. Its economic structure is constantly optimizing, and technological innovations such as the digital economy, AI and other scientific and technological innovations have injected new momentum to economic development. For the US, China`s sustained economic growth and optimal transformation means a broader investment market and bigger profit margin.
As mentioned above, China will become a global consumer power. Its middle-and high-income group (i.e. the middle class) is expanding, accounting for more than 20 percent of the total population in 2016. This figure is expected to exceed 40 percent in 2021, or 300 million people. In the future, China`s huge domestic consumer market will be able to provide more business opportunities for and drive the economic development of the US.
In terms of innovation and entrepreneurship, China has led the world in artificial intelligence and e-commerce platforms. In 2016, China`s digital economy attained 22.6 trillion yuan, accounting for more than 30.3 percent of GDP. Driving this is the rapid development of China`s internet industry, with the `Internet+` model spurring on mobile payment and a series of shared economic development in emerging industries. The Internet is set to be the new space of Sino-American cooperation.
Looking back on four decades of diplomatic ties, bilateral relations between China and the US have been through thick and thin, always managing to weather adversity. The degree of interdependence between the two countries has deepened in various fields, with bilateral economic and trade relations forming a pattern of interwoven and interdependent. The establishment of a new type of great-power relations requires both sides to overcome the weight of tradition, avoid the trap of "self-fulfilling prophecies," reduce or minimize strategic misjudgment, and confront squarely differences and challenges. China and the US should also continue to give play to the anchoring role of economy and trade in bilateral relations, create new civilizations with new business partners in the 21st-century, evolve together and cooperate amicably in order to realize a win-win situation that results in the construction of a community of common destiny for mankind.
Wang Wen is executive dean at the Chongyang Institute for Financial Studies at Renmin University of China.