Posted By Ian Bremmer Share

By Ian Bremmer and David Gordon

Amid a sluggish global recovery, China's return to go-go growth will generate plenty of resentment in 2011 -- and not just in Washington. Though China has become the world's second-largest economy, its leadership insists it must continue to manage the country's development at a measured pace. For some of China's biggest trading partners, that argument is beginning to ring hollow.

To rebalance the global economy, policymakers in both the developed and developing world have called on China to reduce its enormous trade surpluses by reducing the country's dependence for growth on exports and increasing Chinese consumer demand, both for foreign and domestically made products. Chinese policymakers would like to do exactly that. The Western financial crisis briefly created turmoil in China, not because Chinese banks were exposed to contagion from Western banks, but because reduced demand for Chinese products in Europe, the United States, and Japan hit local manufacturers hard and forced millions of Chinese from their jobs. Beijing scrambled to create new jobs, primarily by targeting massive state stimulus spending at infrastructure projects that required lots of manual labor. For the Chinese leadership, generating much greater domestic demand would make China less vulnerable to hard times elsewhere.

But China's plans for rebalancing will take a generation to accomplish, and a lot of its trade partners would like to see the change come much faster than that. In the near term, Beijing will offer only small adjustments to accommodate them because the leadership must negotiate demands from various interest groups within the leadership and because this transition will put many more workers on the street than the slowdown did, and the Chinese leadership knows it must manage that challenge carefully to avoid a dramatic surge in civil unrest.

Unsatisfied, outsiders will grouse that China's rate of export growth remains twice its rate of economic growth. In 2010, relations between the United States and China became much more contentious. In 2011, China will likely face increased pressure from Europe, Japan, and probably from emerging markets like India and Brazil. Further, China's security-driven assertiveness in East Asia will continue to provoke tensions with many of its Asian neighbors even as trade relations deepen.

In the past, China has taken the edge off international pressure by adjusting the pace of its reform efforts modestly just before major multinational gatherings -- for example, by depegging the renminbi from the U.S. dollar in advance of the June 2010 Toronto G-20 summit. But there aren't many "steam-releasing" events on the calendar in 2011. President Hu Jintao visits Washington later this month, but the North Korea crisis will occupy much of that conversation, decreasing the likelihood that China will see much value in any major moves on rebalancing.

The next G-20 meeting, this one in Cannes, won't be held until November. French President Nicolas Sarkozy has grand ambitions for this event, but frustration with China will build over the next 10 months and so too will the risks of market-moving international reactions to China's incremental, deliberate, consensus-driven policymaking process. At Cannes, tensions may come to a head as more countries than ever prove ready to confront Beijing on issues from industrial policy to intellectual property rights protections to currency valuation.

On Monday, we'll examine the threat from North Korea, which hits our list of this year's top risks at No. 5.

Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.

FREDERIC J. BROWN/AFP/Getty Images

 

TECHGUY222

2:56 AM ET

January 15, 2011

This article is disingenous.

This article is disingenous. It's not "all countries vs China" like the author naively implies. It's more along the lines of:
-Some countries supporting China's economic policies, mainly military allies like Pakistan or high-tech manufacturing powers like Germany and Australia, who depend and benefit off the Chinese market.
-Countries that oppose Chinese policies, because they are trying to maintain or regain their low-quality manufacturing exports, like America and the BRIC countries (excluding China).
-And the majority of the countries in the world, who really don't care how China or America acts, unless it affects economic aid.
There's also the problem of not mentioning the fact that countries often switch alliances, depending on the issue, like when BRIC sided with China during Copenhagen. It's disappointing how much this article ignores the complexities of its subject.

 

DINGYIBVS

7:35 AM ET

January 15, 2011

Very biased view

China's exports grew last year at twice the rate of its GDP, sounds bad right? Until you see that China's imports grew last year at an even faster rate than exports. In terms of absolute values, the surplus is getting bigger, but in terms of the surplus growth rate, it's slowing down.

 

MARTY MARTEL

6:11 PM ET

January 15, 2011

Fitting monument to Nixon-Kissinger far-sightedness

China was a pariah country in the world just like today’s North Korea until Nixon’s 1972 visit. All the West European and East Asian countries stayed away from China following the US lead until 1972 and embraced China after Nixon’s visit. While US would not give MFN status to Soviet Union (remember Jackson-Vanik amendment?) unless Russia shed Communism, it had no problem giving it to China’s Communist dictators with a capitalist mask. Trade with China expanded by leaps and bounds during 12 years of Republican rule beginning in 1981. After campaigning against butchers of Beijing in 1992 elections, even Bill Clinton became enthusiastic supporter of trade with China once he took lessons in foreign policy from Nixon in early 1993 during a special Whitehouse-arranged meeting. US also promoted China to a super power status by accepting it as a permanent UNSC member.

Had it not been for that Nixon embrace in 1972, China’s rise to super power status would have been far more slower with all the US, West European and East Asian markets closed to cheap Chinese products. Had it not been for that Nixon embrace, China’s technological progress would have been far slower in the absence of West’s technology transfers. Had it not been for that Nixon embrace, China’s military progress would have been far slower in the absence of huge forex reserves that China accumulated from the massive exports of cheap Chinese products and China used those forex reserves to acquire latest military technology.

Now China has US by the tail - US businesses are hooked to huge profits that cheap Chinese products generate for them as a walk through any Walmart, Home Depot, Sears and Macy’s filled with Chinese goods prove and US government is hooked to huge investments that China makes in US treasuries from the sales of cheap Chinese products to US businesses.

China’s rise to super power status to challenge US is a fitting monument to the much-celebrated far-sightedness of Nixon-Kissinger to embrace China to counter Soviet Union in 1972 just as 9/11 attacks is a fitting monument to Reagan embracing Islamic fundamentalists to counter Soviet Union in 1980s Afghanistan.

 

NICOLAS19

10:16 AM ET

January 19, 2011

commanding needs

In 1972, the US needed China against the Soviet Union. Now the US needs China for the prosperity of their private sector as well as for cheap credit. There is no going back.
The desirability of keeping a country in pariah state in order to prolong another's hegemony a little longer - are you reading what you write? I sincerely hope you merely represent some isolated minority and will come to your senses soon.

 

TORTINKA

4:54 PM ET

January 16, 2011

Market players need a lot

Market players need a lot more detail on how the crisis mechanism will work, but it's a step in the right direction. Monitoring and enforcing fiscal targets will be more straightforward

 

FLOATINGPOINT

4:11 AM ET

January 17, 2011

Hmmm

At first I thought this is just doing China-bashing.
But now I decided it's a China lobby piece.

 

HPPPPP

10:40 AM ET

January 17, 2011

Counting on China for everything?

Naturally, over-expecation always leads to frustrations....and this is particularly true when people are trying to create this propaganda based on such a revived cold-war mentality --- that is, unfairly counting on China for every major issue which is supposed to be an outcome of multilateral reconciliations. Whilst it is universally easy to understand the need of someone, not to mention these authors, to reignite the bygone cold war era, for the sake of their own political interests, one has to be fair enough to substantiate his arguments by proper finger-pointing, in a more masterful way. I don't however see any masterful approach being adopted here, which merely delivers the image of an eager China-blamer.......so here is my two cents: be more creative next time, dude.

 

NICOLAS19

10:20 AM ET

January 19, 2011

my thoughts exactly

It is always easer to say "all is China's fault" than trying to correct one's own system, starting by "we've f*ed up".

The article is hardly "cutting edge" political science. Please, change the summary of the blog, Ian.

 

XTIANGODLOKI

7:29 PM ET

January 17, 2011

China is frustrating the world because it's successful

China's success is a proof that authoritarian government can do better than democratic governments. That SOE (state owned enterprises) can successfully compete against free corporations. This is making a lot of Western folks nervous because it completely with against what they have been indoctrinated with since young.

Of course, the fact that China is made up of Asians doesn't help either.

 

The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.

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