World Trade - March 2009 - (Page 20) COVER STORY trade sanctions.” If China does not respond proactively, he believes, the U.S. will impose high tariffs or other barriers on Chinese goods. “I think the pieces are falling into place for a conflict [on trade],” agrees Walter Lohman of the Heritage Foundation think-tank in Washington. “It’s going to take real free market leadership on our part—and cooperation on the part of the Chinese—to avoid it.” For all his weapons, though, the new president still might not be able to change Beijing. China is in a far stronger position than it was a decade ago: Even if Obama comes down hard on China, Beijing may have other options. In the past five years, China has courted Africa, the Middle East, and other parts of the globe outside of the U.S. and Western Europe, where it has many tough trade disputes. According to one study by the World Bank, China has become the largest lender in Africa, while in some Asian nations, like Cambodia, Chinese investment now has surpassed that of all other rivals. In downtown Phnom Penh, Cambodia’s capital, Chinese construction firms furiously put up new offices and hotels, with officials in Beijing. “They [in Beijing] expect more frictions in trade and other economic relations, but Beijing will be able to handle them through a combination of resistance, talks, and minor concessions. Many also note that China may not budge significantly given the domestic economic pressures brought by the financial fiasco.” With large pools of cash and the state behind them, Chinese companies also are in position to pick over distressed Western assets. Andy Rothman, a longtime strategist at CLSA Asia Pacific Markets in Shanghai, believes Chinese companies will be very careful as they continue expanding abroad. “I expect that Beijing will be very cautious given the level of global uncertainty on both commodity prices and financial issues,” he says. But Shaun Rein, on the other hand, thinks some of China’s biggest players actually will not be so cautious. China’s “national champion [companies] will use the downturn to more aggressively expand abroad to take advantage of low valuations to make acquisitions.” For example? “I see some of the big Chinese auto firms acquiring brands like a Volvo or Saab in order to get Once content to slowly build up domestic companies, today China, backed by vast currency reserves, is beginning to invest abroad in large numbers. while Chinese industrial companies peddle new tractors and trucks to Cambodian government officials. “We have almost no choice but to buy from China,” one Cambodian trade official told me. “They give so much support to the [Cambodian] government—we have to.” Now, with the global financial crisis hitting China’s trade relations with the West even harder, Beijing may step up its courtship of other regions. “I think the Government will use investments like Chery to gain more influence in other regions, in order to find more allies and a balance of power away from the U.S.,” says Shaun Rein, managing director of the China Market Research Group. “You see many of China’s national champion [companies] expanding first into the Middle East and Africa to help build up bilateral relations.” What’s more, with Beijing concerned about keeping their growth going during the global downturn, China will be in no mood to make many concessions on trade. “People in Beijing generally believe [Obama’s tough stance] is mostly campaign rhetoric,” agrees Li Mingjiang, an expert on U.S.-China relations at the S. Rajaratnam School of International Studies in Singapore who frequently speaks 20 WORLD TRADE MARCH 2009 access to technology and brand awareness,” he says. This Chinese expansion could only make the anti-trade backlash in America worse, tying Obama’s hands. Even some of China’s largest companies do not seem to understand: When Chinese oil giant CNOOC tried to acquire U.S. firm Unocal in 2005, it was shocked to find its way blocked by Congress, which feared America losing strategic energy firms. “CNOOC totally underestimated the response in the U.S. because they have no experience dealing with something like Congress, or public opinion, and they were kind of blundering around,” said one Washington lobbyist who had worked closely with Chinese clients. And today, with U.S.-China tensions far higher than in 2005, another blunder could prove far more explosive. WT Joshua Kurlantzick, a visiting scholar in the Carnegie Endowment’s China Program, is the author of Charm Offensive: How China’s Soft Power is Transforming the World. For reprints of this article, please contact Cindy Williams at williamsc@bnpmedia.com or 610-436-4220 ext. 8516.
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.