(For How Long) Can China Rise Peacefully?

As mentioned in other ChinaFund.com articles, many of the vocal adversaries of today’s China have been willing to tolerate and even support China’s economic growth for an extended period of time (not just years but downright decades). Fast-forward to the present and we see China being painted as the proverbial economic as well as (geo)political bad guy not just in the US but in many other Western nations as well.

Why?

For a wide range of reasons, such as:

1. The problematic trade balance that China has with various countries, a trade balance so frequently in China’s favor that is difficult for Western politicians to “sell” the status quo
2. China’s less than stellar track record with respect to topics such as respecting intellectual property rights
3. China’s even less stellar track record on the political front, especially human rights-related particularities
4. Domestic political pressure with respect to “always hot” topics such as employment, with Western citizens being anything but thrilled about the fact that jobs have been lost to China

… the list of reasons could continue but an important question arises: why now?

In other words, why are more and more trading partners voicing concerns now, when many of the issues have been just as valid for an extended period of time, some even more so? For example:

1. China doesn’t exactly have a trade deficit track record with the proverbial West to show, trade surpluses have been the status quo since pretty much… well forever, as far as the People’s Republic of China is concerned, of course
2. Respecting intellectual property rights has also been an issue for an extended period of time in China and, if anything, the current landscape can be considered more conducive to reasonable measures being taken
3. Respecting human rights by Western standards has never been China’s goal
4. Again, the offshoring issue (Western companies outsourcing to far-away jurisdictions) has been a hot topic since the very beginning of China’s rise. At this point, the trend has actually subsided in light of the fact that China has switched to a growth model which revolves more around internal consumption and less around aspects such as representing a wage arbitrage jurisdiction

… again, why now?

As a bit of a tongue-in-cheek reference, because, well, size matters.

In other words, for geopolitical reasons which revolved around the West wanting to encourage China to continue with Deng Xiaoping’s vision of opening up to other nations and several others, highly developed Western nations have been willing to not just tolerate but even encourage the rise of China. After all, despite its impressive population, China was anything but a force to be reckoned with in terms of GDP size during the let’s say Deng Xiaoping days. As such, it wasn’t perceived as much of a treat, with the opposite being closer to the truth and the West being eager to include China in the proverbial club.

Fast-forward to the present and China represents the world’s #2 nation by nominal GDP, with its per capita GDP of just north of $10,000 (roughly 6.5 times lower than the US GDP per capita, for example) making it clear that there is ample room to grow. The “catching up with the West” narrative has run its course and has even been replaced by a “dominate the West in the long run” one. It is not even as much a matter of complex economics as it is a matter of simple logic: as China gets even remotely close to the West in terms of GDP per capita parity, it will inevitably end up dominating Western nations in terms of sheer (nominal) GDP. Something that comes with the territory when the productive capacity of 1.4 billion individuals in unleashed and, needless to say, the West is concerned.

Can China continue its peaceful rise?

It ultimately all depends on how “peaceful” is defined.

Some might argue that in light of the United States situation and similar conundrums pertaining to trade with other partners, the “peaceful” dimension is long gone. Should you embrace that perspective and definition, then China’s peaceful rise has already ended.

Should we define “peaceful” from a strictly military conflict avoidance perspective, then the answer is most likely quite a bit closer to being affirmative. Due to the deeply interconnected nature of today’s economy and the mutually assured economic as well as military destruction military escalation would bring about, let’s just say that while there are no certainties in the world of geopolitics, there is a strong disincentive associated with seeking out a military conflict for all parties involved.

As always, however, prudence is the operative word and as an investor interested in gaining exposure to Chinese assets, you cannot afford to adopt a static perspective on China’s rise, peaceful or otherwise. Should you require assistance with respect to keeping your finger on the pulse of China from this perspective and many others, the ChinaFund.com team is only one message away.