From Sandton to Shanghai

(A Reunification gift from the Mainland to Taiwan. When put together, the Panda names mean ‘reunited.’ Taiwan is a key part in China’s Superpower puzzle. Photo Source: Shanghai Daily)

China’s current rise is often viewed through a lens of economic indicators. It is after all China’s sustained economic growth rates over a period of 30 years that pushed the country back into the global spotlight.

However, while Goldman Sachs famously predicted that China’s economy will overtake that of the USA by the year 2025, the more important question to be answered is:

‘When will it be poignant to say that China has arrived as the world’s next superpower?’

At the end of the day, while a superpower is more than just a big economy, it is through having a big economy that China will start influencing global agendas and exerting significant international influence.

In China reaching superpower status, there are two definitive indicators to look out for. They represent significant global milestones that will be the catalyst for pushing China beyond the realms of a sizable global economic entity.

• Reunification with Taiwan
• Man on the Moon

1. Reunification with Taiwan

The latest gift from Mainland China to Taipei was of a pair of giant pandas. Their names - Tuan Tuan and Yuan Yuan - are deeply symbolic. Added together, ‘tuanyuan’ means ‘reunification’ in Mandarin and there will be much pressure on the panda couple to add to this symbolism by producing a new generation of reunited offspring in Taiwan.

The China -Taiwan togetherness issue, notwithstanding bumps along the way, is a matter of when not if. Even Japan has expressed recent concern at just how much momentum has been made on the cross straits relationships front - to the detriment of its own interactions with Taiwan.

Taiwan’s reunification with China is profound on many levels. Economically, there are great benefits on either side. Politically, it will represent a united force in the region on an issue that has often been a powerful, divisive wedge in recent history.

It will also be a huge gain of face for the Chinese people and government after being spurned by the Nationalists 60 years ago. Reunification will finally show that after many wrong leadership and economic turns, the Chinese nation has thrown off its internal chaos and emerged as a swan on the other side.

Probably little explored is the cultural importance of a China - Taiwan merger. The Cultural Revolution had devastating effects on Chinese society including destroying centuries of traditions and cultural heritage.

This is by no means a unique experience in Chinese history - it has often gone through severe book-burning periods between chaotic dynasty transitions. However, it was the reconnection with this lost heritage through cultural emissaries that have then speeded up China’s subsequent development phase.

Taiwan is this emissary - representing a physical and cultural treasure trove for their Mainland counterparts that have largely been protected from China’s tumultuous purges under the Great Helmsman Mao. The reintegration of this knowledge in all its many forms across various levels of society will give great depth to refocusing attention on China’s long held mantle as the Middle Kingdom.

2. Man on the Moon

As respected academics pointed after the historic 2008 Beijing Olympics, it is fine for China win the Olympic Gold Medal tally, but what really counts is China winning gold on the science and technology front - an area that it is severely lacking in on at the moment.

As mentioned in a previous posting, I predict that the next man on the moon will be Chinese. There are many assumptions that make sense for China to have a big, over-arching national goal - both to see the country through the difficult transition from a socialist to a market economy and also to focus the nation and its economic engine on the next big prize.

In essence, now that the battle for the ‘manufacturing’ mountains has been won, the battle for the ‘science and technology’ plains has begun.

Putting a man on the moon by the year 2020 will show serious intention to spend on military hardware that puts China at the forefront of global martial influence. Such a focus would also serve to wean China away from imported technology. Having a concentration on home-growing innovation has strong downstream benefits too - both for broader society and as a means to build China’s next generation of global super companies.

In the Greater Scheme of Things

Reunification with Taiwan would reflect that China’s economic environment is strong enough to be at the negotiating table in the first place. From cross strait bridges would arise strong political and cultural progress beyond regional borders.

Putting a Man on the Moon will also point to a substantial economy that can effectively engage in long-term planning and invest significant resources in science and technology development. Its outcome of home grown technology will support global business ambitions and significantly increase international military prowess.

Having obtained these 2 key pieces of the puzzle - reuniting with Taiwan and putting a Man on the Moon, China will be in its strongest position in over 500 years, while also clearly having arrived alongside the USA as the world’s next superpower.

(Australian Mining Stocks on the Decline: S&P ASX 300 Mining and Metals Index showing a 49% drop over 6 months ended 1 December 2008)

‘Be bold on expanding overseas’ is the near official line hailing from China Daily’s front page yesterday.

After years of battling to keep input costs down amid a rampant commodity boom, the current global economic marketplace has swung round 180 degrees in China’s favour.

A strong sense of risk aversion is definitely needed after China’s baptism of fire on the international investment scene. Recent overseas equity purchases at the height of the business cycle have definitely burnt deep holes in the balance sheet: Rio Tinto, Fortis, Barclays and Blackstone have all been far from pretty.

“These are rare opportunities for Chinese enterprises which want to expand overseas,” emphasized Zheng Xinli, vice-director of the Policy Research Office of the CPC Central Committee. You can almost sense the anticipation in the air. Hard lessons have been learnt, but we seem to be in a strategic pause before a concerted buying spree in 2009.

Australia will be one of the first destinations.

In the past 6 months, listed Australian resource stocks have lost up to 60% of their market capitalisation. Over the same period, the Australian Dollar currency depreciation has moved over 30% in China’s favour.

Australia is China’s most successful resource investment destination. The market is efficient, well managed and transparent. Its proximity to China keeps logistics costs down. Iron and high quality coal - bountiful in Australia - are staple products for China’s manufacturing economy and in short supply back home.

What will make this investment period different from before is the move to M&As and significant ownership levels. This is a sharp contrast from China’s previous preference for a more hands-off policy of minority stakes, off-take agreements and long term contracts.

Here are a few more tangibles to look out for:

• Iron Ore and Coal Companies are priorities
• China’s SOEs will take the lead like Sinosteel, Baosteel, Angang Steel, CITIC, Yangzhou Coal, Shenhua and Chinalco
• Keep tabs on smaller, more nimble and internationally adept Chinese resource players like Jiangsu Shagang , Zijin Mining, Western Mining, Jinchuan and Hunan Nonferrous
• Expect large equity stakes in companies part of recent large-scale M&As who are now saddled with a huge debt burden like Rio Tinto, Oz Minerals

(An old symbol of China’s bygone colonial legacy nestled in the bamboo mountain retreat of Moganshan near Shanghai. Picture: Julian Hewitt)

The Chinese economy is still on track to overtake the USA economy in real GDP terms in less than 2 decades Is this the ominous decline of the American empire and rise of the new Chinese global order?

I think not. It’s a question of Empire v Economy and is often easy to get swayed by the latter as the overriding measure of global worth. Empire v Economy is really a hardware v software debate or putting it even more bluntly, it is a question of ideology v stuff.

The real issue at stake is not so much country X v country Y , but really a battle of ideologies. At a trade issue, China can command considerably sway over USA policy and decision makers and even the throngs of Wall Mart consumers directly impacted. Here China has strong elements of leverage over (for example) the USA in terms of a significant trade deficit, artificially strong currency and rising American consumer credit built up on cheap Chinese imports.

Of course, if you do favour the Economy argument, then it is worth keeping in mind the other side of the GDP debate. By the year 2030, China’s GDP capita is predicted to reach the 1990 level of Western Europe and Japan. Given China’s population size and the complexity this brings, it is close to inconceivable for China to ever lead the way on this front.

In my mind, the recent clash of interests over Tibet scratched the surface of one very interesting dimension. While China can have strong sway on a country to country basis, its power and influence over a more united West seems very adolescent in comparison. In many ways, China was at a loss how to actively engage with the West - apart from marshaling statements of support from emerging economy friends and filling page upon page of propaganda in local Chinese newspapers.

So in my view, whether or not China’s economy eclipses the USA economy in 2027 misses the point. It is all about Empire. Let us assume that the USA is an empire. There is some debate about this but a quick glance at the USA’s military presence around the world shows there is some fire behind the smoke. Before the USA it was the term of the British Empire and so on.

The reality is that both the USA and UK are really part of a broader Western Empire whose democratic, social, educational, legal, capitalistic and of course religious nature all drew strongly from Christian influences. That is to say that over the last half a millennium, while individual countries in the West have experienced rising and falling fortunes, a vast economic entity has all arisen out of shared common values.

It is important to create this broader distinction, because there is a time in the future that ideologies will come into play when people really start to analyse the nature of Chinese software that it brings to the global stage and ideological lines will be drawn not between country v country parameters but on a broader Western Empire v China context.

(3 minutes of silence in Beichuan near the earthquake epicenter. Photo: European Pressphoto Agency)

There are lots of things I would like to write about the devastating earthquake to hit Sichuan Province.

I would love to say more about how the Chinese Prime Minister Wen Jiabao was on a plane to the disaster zone within 1 hour and 22 minutes and talk about how he was bleeding from stumbling over collapsed rubble. I would like to talk more about how George Bush hightailed it in the opposite direction on Air Force One when the Twin Towers can tumbling down or how it took a week for him to fly over Hurricane Katrina’s aftermath.

I would like to explore the idea that natural disasters are often a prelude to seismic shifts in Chinese affairs. The massive earthquake that hit Tangshan near Beijing in 1976 was only 2 months before Mao died and the subsequent opening up of China to the rest of the world after China had withdrawn into its shell during the preceding 500 years. Or how in the first place, it was a lightning strike that razed the Emperor’s Imperial Palace to the ground and under this ominous sign that the mandate of heaven was on shaky ground, China closed doors on the world.

I could talk more about how the political pettiness of Tibet seems years away already when more than 50 000 have died and many took their last gasps beneath building rubble. How even the unstoppable Olympic Flame will be stopped in tracks for 3 days of national mourning. Or how sad it is that it needs such a huge tragedy to show the world that maybe China’s Communist Leadership is not quite the bumbling, emotionless human rights disaster that seems to always crop up in the last paragraph of most foreign articles on China like a big ‘but’ at the end of an argument.

I could say more about how the earthquake was so powerful that my wife and most of Shanghai’s financial district so many thousands of miles away had to be evacuated as the long waves from the Sichuan epicenter swayed the huge concrete forests to dizziness. Or about a fellow South African student who slept outside in the rain for days in Chengdu as 140 aftershocks of level 4 or more pummeled the buildings that remained defiant to gravity.

Standing on my balcony yesterday with all these thoughts flowing through my head, a national 3 minutes of mourning kicked off at 2:28pm to commemorate the dead and give channel for a national outpouring of unified grief. Only the silence was not silence as people had been encouraged to sound every car horn and air raid siren in the country. It reminded me how Chinese people like to set off loud firecrackers to chase the evil spirits away and bring luck to new businesses, new years and new homes.

In my case, every single barge that littered the Huangpu River was simultaneously sounding their fog horns in what was one of the loudest noises I have ever come across. The silence was truly deafening for me and a couple of Chinese people that scrambled to the river to pay their tributes.

Africa’s New Colonialists

Julian Hewitt
Published 5 April 2008

“India and China have become Africa’s new colonialists,” declared respected international financier, George Soros, during a Reuters interview earlier this year. More recently, the Economist ran with a cover story titled “The new colonialists”, which detailed China’s huge appetite for acquiring global resources.

The real question is whether there is any fire behind this talk of “colonialist” smoke.

While Beijing has gone to great efforts to play down any comparison with Africa’s former colonial masters, this tag will probably not be far from the surface of the Africa-China debate as China’s substantial financial and political investment on the continent starts to show dividends.

One only needs to take a look at recent trade and investment numbers between China and Africa to tell that something significant has happened within a really short space of time.

China’s bilateral trade with Africa has gone from a negligible $12-million in 1956 to $73,6-billion in 2007, making China Africa’s third-largest trading partner in the process. Forecasts predict that this figure will surpass $100-billion by 2010.

Further signs have been profound. Last year was a watershed year for Chinese investment into Africa. Firstly, a $9-billion financial and infrastructural package was signed with the mineral-rich Democratic Republic of Congo. This would be China’s single biggest country-to-country investment to date.

Then, a few months later, China’s largest bank, ICBC, bought a 20% equity stake in Standard Bank for $5,5-billion — which, at the time, was one of both Africa and China’s largest transactions and clearly signalled the fact that the Chinese powers that be were embarking on a holistic investment approach to Africa.

However, to really get a sense of China’s unfolding relationship with Africa and whether it warrants “colonialist” warning bells going off, it is worth unpacking the key drivers that have given rise to the present situation.

Firstly, the timing perspective is important to comprehend. When China emerged on the global scene through its “Go-Out Strategy” in 1991, it saw Africa from another viewpoint to the basket case of poverty, corruption and violence that Africa had largely been written off as by the rest of the world.

The continent that China saw was one that was emerging from decades of post-colonial chaos to a period of increased socio-political stability. Most importantly, though, Africa was also home to the world’s largest untapped oil and raw materials that China so desperately needed to meet its vast industrialisation requirements.

With the most accessible and economically viable natural resources already sewn up by the developed world, China had few other places to turn to.

Secondly, it is important to keep in mind that China’s foreign policy has been virtually unwavering from its stand of “non-interference” in an external country’s domestic issues. This stance distances China from the traditional definition of colonialism that involves political, territorial control. The flipside, though, is that China is not morally selective about which regimes it has dealt with.

There is, however, a definite political element to China’s African relations. Most Chinese companies that have invested in Africa are still state-owned and are pursuing national resource mandates. To a large degree, China’s heavy government to government involvement has been essential in limiting the risks of investing in some of Africa’s most unstable countries such as Sudan and the Democratic Republic of Congo.

But it is probably the scale of Chinese commercial infrastructure in Africa that should be the biggest cause for colonial unease. China is building almost 5 000km of rail network to connect mines with harbours, while also investing heavily in port facilities in many African countries along the Indian and Atlantic seaboard.

Furthermore, Chinese sources are already projecting that 40% of its oil and gas imports will originate from Africa, and countries such as Sudan, Nigeria and Angola have all seen heavy investment in oil-related infrastructure.

Over time, it is logical to assume that as China’s economic interests in Africa deepen, so too should its political impetus. This is where the lines with neocolonialism get blurred.

Nevertheless, China’s current ambitions clearly do not involve the same institutionalisation of political and economic jurisdiction that countries such as Britain, France, Belgium and Portugal exerted in days gone by.

To its credit, China has been ultra cautious about ensuring it projects a relationship of equals with its African partners. While it is definitely the chief instigator in China-Africa affairs, keep in mind that it was not too long ago when China itself was at the receiving end of colonialism’s darker side.

No nation in the world can truly claim to be void of self-interested tendencies and this is very much how China’s relationship with Africa should be described. Painting China with broad colonial brush strokes does not accurately assess its current role on the continent.

Still, a note of caution is needed. When Mao Zedong was once asked what he thought of the French Revolution, he famously responded: “It’s too early to tell.” In a similar vein, maybe the same can be said for the merits of China’s relationship with Africa.