China thinks it has the winning hand

William R. Hawkins
The collapse of the Soviet Union led many in the 1990s to proclaim the unassailable superiority of the democratic-capitalism model. The financial crisis that threw the Western economies into recession, with high unemployment and mounting fiscal deficits, has shaken that belief. The Bank of International Settlements has warned in a new report that sovereign debt is already starting to cross the danger threshold in the United States, Japan, Britain, and most of Western Europe.

The meltdown in the democratic-capitalist heartland has provided China with an opportunity to advance its model of state capitalism, or "socialism with Chinese characteristics" as the new way forward.

This theme was prominent in an editorial in the Communist Party's publication Global Times hailing the purchase from Ford of the Volvo franchise by the Chinese automaker Geely. The editorial was entitled "Time to adapt to globalized Chinese business" and proclaimed "It is time the world should catch up with the global strides Chinese business is making." Though Geely is considered a privately owned company, the one party-state embraces its national and Chinese identity.

No less clear is China's confidence in implementing the "going out" policy behind the Geely-Volvo deal. As the country's largest auto deal overseas, Geely's acquisition spells out China's ambition and determination for global business expansion.

Geely only started production in 1997, and did not have its first passenger car approved by the Beijing government until 2001. It ranks number ten among China's automakers, but plans to expand by building 300,000 Volvos in China, as many as are now made abroad. Its founder is Li Shufu, whose entrepreneurial spirit and rise from obscurity sounds like a tale from Ayn Rand. Yet, he financed his company with "soft loans" from government banks and is the "party secretary" at his firm. He may need state funding to complete the Volvo deal. Global Times emphasized the unity of business and the nation in the context of global rivalry.

The timing could not be better than it is now. While Western companies have suffered a heavy blow from the economic slump and are relying on the Chinese market to lift their profits, most Chinese enterprises have weathered the storm and gained strength to race ahead.

And, since early 2009, auto manufacturing has been listed by the Chinese government as one of the vital industries to lead the country toward adjusting its industry structure and shifting its growth model.

The hubris of the last twenty years in the United States with its emphasis on easy consumption and neglect for sound finances and international balances, has made it vulnerable to new rivals with large ambitions. The danger is not just commercial. Beijing understands that success in economic competition provides the foundation for national power.

Thus, the Obama administration's "dialogue" with China on currency manipulation and industrial policy, exemplified by Treasury Secretary Timothy Geithner's sudden trip, will fail to change Beijing's behavior. The Chinese believe they have the winning hand and are not going to be persuaded to fold just to keep the game friendly.
The collapse of the Soviet Union led many in the 1990s to proclaim the unassailable superiority of the democratic-capitalism model. The financial crisis that threw the Western economies into recession, with high unemployment and mounting fiscal deficits, has shaken that belief. The Bank of International Settlements has warned in a new report that sovereign debt is already starting to cross the danger threshold in the United States, Japan, Britain, and most of Western Europe.

The meltdown in the democratic-capitalist heartland has provided China with an opportunity to advance its model of state capitalism, or "socialism with Chinese characteristics" as the new way forward.

This theme was prominent in an editorial in the Communist Party's publication Global Times hailing the purchase from Ford of the Volvo franchise by the Chinese automaker Geely. The editorial was entitled "Time to adapt to globalized Chinese business" and proclaimed "It is time the world should catch up with the global strides Chinese business is making." Though Geely is considered a privately owned company, the one party-state embraces its national and Chinese identity.

No less clear is China's confidence in implementing the "going out" policy behind the Geely-Volvo deal. As the country's largest auto deal overseas, Geely's acquisition spells out China's ambition and determination for global business expansion.

Geely only started production in 1997, and did not have its first passenger car approved by the Beijing government until 2001. It ranks number ten among China's automakers, but plans to expand by building 300,000 Volvos in China, as many as are now made abroad. Its founder is Li Shufu, whose entrepreneurial spirit and rise from obscurity sounds like a tale from Ayn Rand. Yet, he financed his company with "soft loans" from government banks and is the "party secretary" at his firm. He may need state funding to complete the Volvo deal. Global Times emphasized the unity of business and the nation in the context of global rivalry.

The timing could not be better than it is now. While Western companies have suffered a heavy blow from the economic slump and are relying on the Chinese market to lift their profits, most Chinese enterprises have weathered the storm and gained strength to race ahead.

And, since early 2009, auto manufacturing has been listed by the Chinese government as one of the vital industries to lead the country toward adjusting its industry structure and shifting its growth model.

The hubris of the last twenty years in the United States with its emphasis on easy consumption and neglect for sound finances and international balances, has made it vulnerable to new rivals with large ambitions. The danger is not just commercial. Beijing understands that success in economic competition provides the foundation for national power.

Thus, the Obama administration's "dialogue" with China on currency manipulation and industrial policy, exemplified by Treasury Secretary Timothy Geithner's sudden trip, will fail to change Beijing's behavior. The Chinese believe they have the winning hand and are not going to be persuaded to fold just to keep the game friendly.