Peter Jones: Adam Smith may yet decide hue of Sino-US relations

Published on Tuesday 17 November 2009 21:24

OF ALL the facts about China, the most-known is its population of 1.3 billion, making it the world's largest nation, containing about a fifth of the planet's peoples.

But perhaps the more important fact is the size of its economy, which is set to overtake Japan next year as the world's second biggest and perhaps to take the lead over the United States by about 2040.

Does yesterday's summit between presidents Barack Obama and Hu Jintao mark the start of the passing of the baton from the 20th century world superpower to its 21st century successor? It could well do, judging by the unusually gingerly diplomatic moves made by Obama at this summit, and the courteous, but unmistakably robust stances taken by Hu.

The implications of such a tipping point in world hierarchies will affect us all. Even though it may seem a historical shift far away and above our own little corner of the planet, we should think about it. We might even be able to claim a special part in the building of 21st century China, of which more later.

Even in the relatively short space of time since Richard Nixon became the first US president to visit China and to meet with Chairman Mao in 1972, much has changed. The plainest fact is that China, as a country if not all its people individually, has become rich and its wealth is propping up the US economy.

The Chinese government is sitting on a vast pile of US dollars, about $2,000 billion. This is a large portion of the debt that America has built up in order to keep the US economy going. Thus a deferential approach by Obama would be understandable.

But his domestic audience is more concerned about the huge trade deficit with China. It has been selling vast amounts of manufactured goods – fridges, TVs, PCs – to America and buying next to nothing in return. Hence there has been some gesture politics by the Obama administration, slapping import tariffs on car tyres made in China. Hu has made it plain he does not much care for this.

And although his government holds a vast amount of US debt, it is also a two-edged sword. Americans want to see a reduction in the value of the Chinese currency which does not float, but has a fixed exchange rate with the dollar. Everybody, including such organisations as the International Monetary Fund, thinks that the Chinese yuan should be more expensive in relation to the dollar.

Hu has said that he will consider steps to achieve that, but there have been no firm promises of action. His problem is that by revaluing the yuan, he also devalues China's stock of of US currency, effectively losing several hundreds, if not several billions, of dollars. Also understandably, he is not terribly enthused by this prospect.

Some readers may think this is just an amusing example of the humbling of an over-mighty America. It is more serious than that and affects us directly. Over the past decade, as manufacturing has shifted to China and other Asian countries, the cost of everyday goods, from shoes to washing machines, has come tumbling down, to our benefit. An increase in the value of the Chinese currency would start pushing those prices up again, risking a rise in inflation, which would send interest rates up. So we should worry about how these two presidents get along.

There are wider global concerns too. Obama is a bit annoyed that the Chinese, whose demand for raw materials is insatiable, have just bought a copper mine in Afghanistan, but are doing nothing to help the Nato powers secure the country from the Taleban.

Hu, however, reckons – with some justice – that the Afghanistan mess is of America's, Britain's, and Nato's making and does not see why China should be dragged in. But if it did pitch in, it might be just enough to relieve the pressure on our soldiers.

And on the world stage, a lot of countries, notably in Africa, where the Chinese have become a big presence, primarily because of their search for supplies of oil, iron ore, and other minerals, think there is something to be gained from China. It, like many African countries, is not a democracy, but a totalitarian state. It is also, unlike most African countries, a highly economically successful state. Perhaps a good many dictators are wondering if the Chinese model might be made to work for them.

This is an obvious potential roadblock on the road to greater world liberty, which seemed to open so invitingly with the collapse of the Soviet Union. How will the Chinese handle that leadership role which has landed, whether they like it or not, on them?

Perhaps there is a clue in the interesting phenomenon that the most famous Scot among China's elites may not be Sir Sean Connery, but Adam Smith. Since 1906, his best-known work, The Wealth of Nations, has been available in Chinese. It has become avidly read as the Chinese have adopted the market, not entirely as a free agent of change, but more as a servant of the state and hence the people.

But they are also just as intrigued by the other side of the Smith coin, his Theory of Moral Sentiments. This, to Chinese eyes, stresses that while markets may be important to material wealth, that wealth is not properly used unless it also enhances people's moral well-being.

What is interesting is that while western politicians tend to divide over which of these two books is more important according to whether they are on the right or left of the political spectrum, the Chinese appear to be just as interested in both books.

How that gets debated, and what the outcome is, may not just result in a new political-economic philosophy but might also provide us in Scotland with an entry point to get to know the coming superpower a whole lot better.