In the international arena, although China's most recent gains have been impressive, much of that is due to the relative current economic ill-health of the U.S. and EU rather than the absolute attraction of Chinese investment. In fact, repeated attempts by Chinese majors to secure an "A-list" investment have been frustrated, such as
Chinalco's failed $20 billion bidfor a 9 percent stake in mining giant Rio Tinto. Instead, Chinese industrial flagships have had to be content with mopping up
failing foreign outfits such as Volvo.
More generally, whether China will be able to maintain long-term relationships with foreign partners and develop genuine "soft power" is a cause for concern. Chinese diplomacy is founded on investment and technical assistance in infrastructure projects, but concern exists over the environmental and safety records of Chinese firms, along with
a tendency to overstate their engineering capabilities.
Similar uncertainties are raised by their notorious lack of business ethics. Many foreign companies have been badly burnt by Chinese partners, and even Taiwanese investors generally avoid working with their mainland counterparts due to the latter's disregard for corporate norms. Chinese companies operating abroad will have to significantly improve their operational standards, as many international partners are unlikely to tolerate for long the levels of regulatory abuse and environmental damage with which they operate at home.
Moreover, China's economic rise has exposed it to an unprecedented range of resource vulnerabilities. The country is facing severe challenges in terms of maintaining a supply of basic materials for its increasing domestic consumption, as well as the necessary inputs for rapid economic growth. China is already or will soon become heavily dependent on imports for petrochemicals, most precious and semi-precious metals (with the exception of rare earths), foodstuffs, timber, and advanced technologies. All of these represent significant leverage points for foreign partners.
The most serious threats to China's international expansion, however, originate in the domestic sphere. The country is facing a period of profound economic and social realignment, and, while the "literature of collapse" may be overblown, China is unquestionably struggling to maintain its current pace of development. Much of its previous economic growth was relatively "easy," because it was starting from such
a low baseline (.pdf), or has been enhanced by institutional manipulation, most notably the value of the RMB. Despite its quantitative gains, when analyzed in qualitative terms, China's marketization has relied on low-quality production accompanied by
worsening environmental degradation and
human costs, both of which already significantly undermine economic performance.
Any deceleration in economic development would pose an acute threat to domestic stability. Today, socio-economic inequalities continue to increase sharply across nearly all indicators. Meanwhile, official corruption is rampant, and despite growing national wealth, state services are still far from adequate. Although foreign coverage focuses on China's sporadic ethnic disturbances,
the incidence of social unrest among the Han Chinese, already at a record high, is a far more potent threat. Were GDP growth to slip below the government's 8 percent annual target for even just a few years, high underlying levels of inflation and poorly designed labor markets would result in an immediate and noticeable decline in living standards for hundreds of millions of Chinese. The Communist Party has staked its legitimacy on strong economic progress, and failure to deliver this could provoke widespread social and political instability.
Beijing's future international influence and capacity for international expansion is dependent on huge qualitative improvements in domestic economic activity, the creation of functional labor and land laws, vastly improved environmental and safety standards, and the elimination of corruption and localism, to name but a few bottlenecks to economic modernization. There is also the problem of fostering innovation and creativity in a society where freedom of speech and individual expression are culturally and politically stifled.
Lastly, were China to become involved in a large-scale military dispute,
doubts remain over the human and technological capabilities of its armed forces, which have not been involved in a conflict since the 1970s. A great deal of
China's hardware has been bought or copied from Russia, and even China's newest weapons, such as the J-10 fighter jet, are
one to two generations behind their U.S. equivalents. Despite double-digit funding increases for more than two decades, China's defense spending remains only around 12 percent that of the U.S., and it is hard to see China matching the U.S. militarily until well into the second half of this century at the earliest.
Despite the distance traveled, China's economic and security challenges are only just beginning. Nearly all of these relate directly or indirectly to domestic deficiencies, be it in resource endowments, standards of governance or business ethics. Future socio-economic development requires a paradigm shift from quantitative to qualitative improvement. Most of the "low hanging fruit" for stimulating growth
have already been picked, and the country's chief comparative advantage --
cheap labor -- is evaporating.
Beijing is enjoying a period of "easy" international expansion, but has yet to fully overcome fundamental doubts about its intentions and credibility on the global stage. Serious uncertainty also remains over the Communist Party's ability and desire to bring about the kind of radical domestic changes necessary to establish a robust public sphere that holds power to account and drives scientific debate and national innovation.
The inevitability of China's rise has become an increasingly orthodox position in foreign policy circles. But a host of cultural, political and economic factors represent significant obstacles on China's road ahead.
**Iain Mills is a Beijing-based freelance writer.
