‘Sino Capitalism’ on the rise: How will U.S. cope?


(Note: This analysis origi- nally appeared in the Honolulu Star-Advertiseron as part of a monthly series on regional Asia Pacific issues leading up to the APEC leaders’ meetings in Honolulu in this month.)


second-largest economy, its state-guided development model is gaining increasing appeal among other emerging economies in Asia, Africa and Latin America. The spectacular rise of China’s current economic system – which I term “Sino- capitalism” – therefore presents huge questions for the existing global economic order, long dominated by Western free-mar- ket models that have lately been badly shaken by the ongoing economic strife in the U.S. and Europe.


W 16 ASIA November


Current debate over China’s rise tends to revolve around whether the U.S. and China are headed for inevitable confronta- tion, or whether China will in- creasingly become a so-called “responsible stakeholder,” will- ing to abide by the practices and institutions of the present global free-market economic order. In


ith China now


ranking as the world’s


the final analysis, though, China’s growing clout should not be viewed in such one-di- mensional terms, but rather as riddled with complexities and contradictions. Right now, the American and Chinese systems can probably best be described as being in both symbiosis and rivalry, with a fluid mix of mutual depend- ence, cooperation, competition and friction. But as China’s global influence increases, the question may become less how Sino-capitalism can adapt to in- ternational expectations and more whether the international system can evolve in response to China’s state-guided model. For the moment, the exten- sive economic entwinement be- tween the United States and China is forcing the two into a very close, if often uncomfort- able, mutual dependence, a situ- ation that former Treasury Secretary and presidential eco- nomic advisor Larry Summers has termed a “financial balance of terror.”


As events unfold, the inter- national response to the rise of Sino-capitalism will depend largely on individual leadership choices in China, America and beyond, since unforeseen world events could easily push the U.S.-China dynamic in one di-


rection or another.


Geopolitical issues, such as growing military rivalry in the Western Pacific as well as com- petition over energy resources and control of strategic sea lanes, are perhaps the flash- points most likely to produce deep-seated conflict. But the most pronounced and immedi- ate challenge from Sino-capital- ism is emerging in the economic realm.


Like previous East Asian growth economies, especially Japan and South Korea, China has pursued an export-led strat- egy based on programs of subsi- dized investment in “strategic industries” and exchange-rate controls to maintain an under- valued currency.


American industry is waking up to this profound challenge. Not only labor-intensive low- tech industries, but increasingly also cutting-edge high-tech businesses, are asking how they can be expected to compete against China’s targeted domes- tic subsidies, low-interest loans, cheap labor, massive economies of scale and focused govern- ment strategy to become num- ber one in a whole range of industries ranging from solar and wind power to electric cars and biotechnology.


Going forward, it is Sino-


capitalism’s combination of ag- gressive state sponsorship with enormous entrepreneurial and innovative capacities that will pose the greatest challenge to established competitors in the West, and to the existing global economic order as a whole. In the end, China’s rise re- mains a double-edged sword: it could bring peace and prosper- ity, or a drawn-out struggle for global leadership. While Sino- capitalism might eventually fade under the weight of an au- thoritarian state, it could also prove to be highly adaptable and resilient, perhaps even of- fering better institutional solu- tions to the present instability of international markets in finance, technology and resources. Either way, there is little doubt that China’s ascendancy will result in a new global eco- nomic and political era, for which the international commu- nity would be well-advised to prepare.


(Christopher A. McNally is a


Nonresident Fellow at the East- West Center and an Associate Professor of Political Economy at Chaminade Universityin Honolulu, Hawaii.)


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