Long-time Asia hand and American businessman Merle Hinrichs, the chairman and chief executive officer of NASDAQ-listed Global Sources Ltd., knows how far China has to go to make itself a true superpower. He puts it simply in terms of the nation’s quest to make its currency a global currency.
“China has a long way to go before it can make the Renminbi a trade currency,” says Hinrichs, whose Hong Kong-based business-to-business company specializes in helping Western retailers source merchandise from Asian manufacturers. “First, you need to be able to buy and sell the currency, and you can’t do that so easily right now. But the major reason is simply there is no liquidity. I don’t expect to see the Renminbi replacing the U.S. dollar as a global reserve currency any time soon, certainly not in my lifetime.”
Hinrichs may be 68, but he’s a fitness buff and likely will live for decades to come, long enough to see the U.S. dollar still remain the dominant currency in the world – for at least the first few decades of the 21st Century. If Hinrichs is right, U.S. officials have nothing to fear from China for some time to come.
Since the global crisis began, Chinese officials have increased their voice globally, expressing opinions with a harsh tone never heard before. China’s central bank governor started it all last year when he called for an end of the U.S. dollar supremacy. China then announced that it was aiming to turn Shanghai into a global financial center on par with New York by 2020. Chinese officials successfully pushed for the formation of the G20 and its ascension and replacement of the G8 as the global financial and economic ruling council overseeing the World Bank and the International Monetary Fund. Recently in Copenhagen, they dug in their heels and refused an effort by developed nations to impose emission caps on developing nations, fueling anger in capitals including Washington, London and Paris.
Tensions are rising between Washington and Beijing. Complaining of the undervaluation of the RMB, which is pegged to the U.S. dollar, officials in Washington have imposed a slew of tariffs against Chinese imports in the past six months.
Last month, Google Inc. announced that it may pull out of the Chinese Internet search market as a protest to Chinese censorship, prompting U.S. Secretary of State Hillary Clinton to call upon Chinese officials to pull down China’s great firewall on foreign information. Last week, Washington drew Beijing’s ire by announcing that it is selling $6.4 billion worth of additional advanced weaponry to Taiwan, a democratic, self ruled island off of the China coast that Beijing considers as a breakaway province. For decades, generals in the Pentagon consider Taiwan a U.S. “aircraft carrier” off China’s coast. Chinese officials retaliated that they would “punish” U.S. corporations involved in the deal.
It’s really time for officials on both sides to cool down. The rhetoric and saber rattling leads to nothing but rising tension, which, if left to spiral out of control, could destroy the global spirit of cooperation that has sustained global capital markets since Lehman Brothers Inc. collapsed in September 2008. Some officials in Washington are calling for a “G2” meeting, a summit between just the U.S. and China, which would allow both sides to resolve their differences. So far, leaders in Beijing have been hesitant to participate in such a small grouping in which the weight of global leadership is put squarely on their shoulders.
Perhaps, China isn’t ready to take on a significant role in global leadership. Its 30 years of financial reforms have been a runaway success, but its leaders are still scratching their heads on how to keep the success going. The challenges they face in narrowing the divide between rich and poor and between the cities and poor countryside are perhaps even more daunting than the mounting debt crisis that America faces.
America has every right to concerned about what it sees to be an increasingly outspoken China. But I don’t believe America has to fear this new China, whose rulers are reliant on trade and economic growth for legitimacy. The key is to continue to push for dialog at the highest levels of government and not threaten to pull back, as Google is threatening to exit China.
I recently gave a luncheon speech in Beijing’s prestigious Capital Club, where more than a dozen chief executives of major Chinese companies sat in the audience. I asked them if they thought China’s success was a sure thing and whether they thought the 21st Century will automatically be “China’s century.” Not a single executive said “yes.”
Their collective answer: “We will grow and perhaps rival the U.S. in total size of GDP by 2040, but we’ll still lag far behind in per capita income. The 21st Century may not be the America’s century, but it won’t be the Chinese century either. We think America should just relax. We in China are still way, way behind.” China may pass Japan’s $5 trillion economy this year to become the world’s second largest, but it’s still just about a third of the U.S. GDP of $14 trillion.
Officials in Beijing and Washington should cool down and calm down. Rather than fighting, they should focus on cooperation and the fact that they have more to gain by working together: That is the only way to make the 21st Century every nations’ century.
Allen Cheng is the Institutional Investor Asia Bureau Chief.
