Larry Summers, US Treasury secretary under president Bill Clinton and now
President Barack Obama's top economic advisor and director of the White House
National Economic Council, has proposed a multilateral approach to deal with
multilateral global economic problems that would involve a new grouping larger
than the Group of Seven richest nations with advanced economies. This moves in
the opposition direction of the geopolitical call by Zbigniew Brzezinski for
Washington and Beijing to set up an informal Group of Two (G-2), involving only
the US and China, in a
leadership bid to jointly address a wide range of global challenges of
bilateral interests.
Brzezinski, national security advisor to president Jimmy Carter from 1977 to
1981, made his proposal for a US-China G-2 in a speech delivered during a
conference in Beijing on January 13, 2009, a week before Obama was scheduled to
be inaugurated as president, to commemorate the 30th anniversary of the
establishment of diplomatic relations between the US and China. The conference
was sponsored by the Chinese People's Institute of Foreign Affairs and the
Kissinger Institute on China and the United States, and co-sponsored by the
National Committee on US-China Relations, with support from both the US Embassy
in Beijing and the Chinese Ministry of Foreign Affairs.
Led by former president Carter during whose administration diplomatic relations
were established, the large US delegation included key figures such as former
Republican secretary of state Henry Kissinger and former Republican and
Democratic national security advisers Brent Snowcroft and Brzezinski, who were
formally received by Chinese leaders President Hu Jintao, Vice President Xi
Jinping and Premier Wen Jiabao.
Unbalanced relationship
Perhaps reflective of the unbalanced state of relationship between the two
countries, the Beijing memorial conference was a mostly unilateral affair on
the Chinese side, with no official counterpart observation in the US. The New
York Times buried the story in a report on the conference deep in page A8 of
its New York edition. Reflective of the depressed state of international trade,
the event was cosponsored by Mary Kay, the US direct sale cosmetics maker
active in the emerging Chinese market, with attendees each receiving a pink
cosmetics bag filled with promotional samples. General Motors, for whom the
China car market was the distressed global automaker's only profitable
operation and which normally would have been an eager sponsor, was notably
absent, busy fending off bankruptcy with government aid.
Also absent were transnational financial giants, such as GE, Citibank, AIG,
Goldman Sachs, Morgan Stanley, all mere shadows of their former grandeur and
whose luxurious corporate jets would have normally carried their top executives
to Beijing in style for events of much less historical and political
significance.
In his speech, Chinese State Counselor Tang Jiaxuan, a former foreign minister,
recalled the NATO bombing of the Chinese Embassy in Belgrade in 1999 not as
evidence of ominous undercurrent but as proof of how relations between the two
countries have survived provocative tension. He also noted some of the still
unreserved longstanding obstacles to better relations between the two nations,
saying the two sides need to "properly handle issues that concern China's core
interests such as those related to Taiwan and Tibet so as to safeguard the
larger interests of China-US relations", in contrast to US intransigence on the
need for China to adjust its policy on both Taiwan and Tibet to met US
requirements of moral imperialism.
Brzezinski outlined a well-worn laundry list of international problems for
which he thinks China could help the US find solutions, such as the global
financial crisis, the challenges of climate change, North Korea and Iran
nuclear ambitions, India and Pakistan tension and the Israeli-Palestinian
conflict.
The Group of Two that could change the world
Rescuing the Beijing memorial conference from the fate of a nonevent in the US,
Brzezinski attracted worldwide attention by elaborating his G-2 idea with an
article in the Financial Times entitled "The Group of Two that could change the
world".
In the article, Brzezinski asserts that normalization of relations between the
US and China "precipitated almost from the start security co-operation that has
been of genuine benefit both to the US and China. The effect was to change the
Cold War's global chessboard - to the disadvantage of the Soviet Union.
Indirectly, the normalization facilitated Chairman Deng Xiaoping's decision to
undertake a comprehensive economic reform. China's growth would have been much
harder without the expansion in US-Chinese trade and financial relations that
followed normalization."
Commenting on "the current geostrategic status of the US-China relationship",
Brzezinski cites an article in Liaowang magazine (July 14, 2008) published by
the official Xinhua News Agency, which describes the relationship as one of
"complex interdependence", in which both sides evaluate each other in pragmatic
and moderate terms and in which "the two sides can compete and consult within
existing international rules". Yet the reality of US-China relations is one of
unending US provocation and hostility on a compliant China.
China faces surge in protests and riots
In its January 6, 2009 edition, a week before the conference, Liaowang ran a
story that China faces a surge in protests and riots this year as rising
unemployment stokes popular discontent, in a blunt warning of possible tarnish
of the image of effectiveness of communist party governance from a sharp
economic downturn. The uncharacteristically stark report warned that stalled
growth could spark latent anger among millions of migrant workers and
university graduates left jobless.
Huang Huo, a senior Xinhua reporter and bureau chief in the southwest city of
Chongqing, was quoted in the Liaowang report: "In 2009, Chinese society may
face even more conflicts and clashes that will test even more the governing
capacity of all levels of the Party and government."
Including students who graduated in 2008 and had not found work, there would be
more than 7 million university/college graduates hunting for jobs in 2009,
Huang calculated, adding that the government's goal of annual GDP growth for
2009 of 8% would generate only 8 million new jobs for the whole country. "If in
2009 there are large numbers of unemployed rural migrant laborers who cannot
find work for half a year or longer, milling around in cities with no income,
the problem will be even more serious," said Huang. By the end of 2008, there
were reportedly 20 million unemployed migrant workers in the export sector
located in the coastal regions.
President Hu Jintao has set a goal of building in China a "harmonious society",
but the goal is being tested by rising tension over shrinking jobs
opportunities and income disparity, as well as simmering public anger over
headlines of official corruption and illegal farmland seizures by private
developers, all part of the structural social ills that came with three decades
of market economy. Chinese Foreign Ministry spokesman Qin Gang asserted that
the government was confident it would be able to handle the difficult times.
"We have the ability and the confidence to ensure the Chinese economy's stable
and relatively fast growth and to ensure social stability," he said repeatedly
in recent news briefings.
The goal of 8% GDP growth
Yet the problem is less in sustaining a floor of 8% growth in gross domestic
product, but in where and how the benefits of growth are being distributed. Xu
Shanda, former vice director of the State Administration of Taxation and a
member of the National Committee of the Chinese People's Political Consultative
Conference (CPPCC), told a March 8, 2009 plenary meeting of the country's top
political advisory body that China's consumer spending has been declining over
the past 10 years, both when the economy was either overheating or contracting
and that more than economic cycles are behind the falling consumer spending.
Xu said the market economy would lead to a structural income gap that
suppresses spending, as high-income people tend to invest rather than consume,
while low-income people do not have spare purchasing power to spend. The
decline in new jobs and consumer spending, which was coupled with increases in
the society's wealth in China over the past 10 years, is another testimony to
the trend, Xu explained, urging the government to address such structural
imbalances inherent in a market-oriented economy.
Xu called on China to narrow the country's income gap to stimulate consumer
spending. He advised the government to compile income statistics of different
groups and routinely announce these figures, making such figures as important
as targeted GDP growth and energy efficiency in evaluation of local
governments. He also suggested changing the strategy of "keeping prices of farm
produce stable" into "working to moderately increase prices of farm produce in
the long run" in order to enhance farmers' income and to narrow income
disparity generally. Without saying so explicitly, Xu is advocating a
much-needed income policy for China.
Xu proposed that China should raise the ratio of social security taxes to GDP
to more than 10%, to be exclusively dedicated to the social security fund. In
the US, the annual cost of Social Security benefits represented 4.3% of GDP in
2007 and is projected to increase to 6.1% of GDP in 2035, then decline to 5.8%
of GDP by 2048 and remain at that level. US Medicare's annual costs were 3.2%
of GDP in 2007, or nearly three quarters of Social Security costs. They are
projected to surpass Social Security expenditures in 2028 to reach 10.8% of
GDP. Together, Social Security and Medicare would take up to 18% of GDP within
a decade. And the US is not a socialist economy.
Brzezinski mistakes China as a revisionist power
In public lectures in Beijing in September 2008 and March 2009, I proposed for
China to adopt a full employment objective and an income policy financed by
sovereign credit in order to develop a vibrant domestic market that would
absorb the sharp shrinkage of its export sector resulting from the global
financial crisis. The way for China to use sovereign credit to finance domestic
economic development is to free China from dollar hegemony by demanding
settlement of its export trade to be denominated in yuan.
Brzezinski observes that "a globally ascending China is a revisionist power in
that it desires important changes in the international system but it seeks them
in a patient, prudent and peaceful fashion. Americans who deal with foreign
affairs especially appreciate the fact that Chinese strategic thinking has
moved away from notions of a global class conflict and violent revolution,
emphasizing instead China's 'peaceful rising' in global influence while seeking
a 'harmonious world'. Such common perspectives also make it easier for both
sides to cope with residual or potential disagreements and to co-operate on
such
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