Three years ago, China became the world's second largest economy after the US. This is calculated based on purchasing power parity (PPP). For example, if a dozen of eggs cost five yuan in China, based on PPP, this would be 16 yuan or US$2 in the US.
China's GDP is one-ninth that of the US and one-third of Japan's. However, according to western economists, China's GDP will exceed Japan's by 2015 and top the US between 2020 and 2045. If these predictions come true, China's overall economic production will become the world's highest, although the average per capita income of people in China at that time will be only one-third of their US counterparts. Last year, Mark Helprin, a US academic, even predicted that China's budget for its national defense, expressed in PPP, will be comparable to that of the US by 2013.
While these are perhaps academic discussions, China's booming economy and ascending cultural power have begun to move the tectonic plates of the geopolitical world. Last fall, China became the world's third largest trading nation. Beijing has already taken advantage of such favorable trends to position itself on the global stage.
Firstly, in Europe, Beijing has poured money into the European space and fighter programs, saving them from bankruptcy. Moreover, as EU trade with China has been higher than its level of trade with the US since 2003, naturally the EU is eager to lift its arms embargo on China. In fact, EU arms sales that fall outside the limits of the embargo grew from 62 million euros in 2001 to 428 million euros in 2003.
Secondly, the US trade deficit with China reached US$125 billion in 2003, the largest imbalance the US has ever experienced with a single country. The trade deficit with China rose still further last year to US$160 billion. Trade deficits with China have become financed by China's foreign exchange reserves, of which 80 percent is now held in US dollars. Last November, the rumor that Beijing was shifting its US dollar-denominated reserves to euros abruptly set back the US dollar exchange rate. In the future, if Beijing could turn even a subtle hint of such an event into diplomatic pressure, Washington will feel it.
Thirdly, last year, Japan's trade with China for the first time overtook that with the US. On the surface, Sino-Japanese relations have been strained due to a recent Chinese submarine intrusion into Japanese territorial waters, anti-Japanese sentiment during last year's Asian Cup soccer tournament, and the Japanese prime minister's visits to the Yasukuni Shrine.
This negative trend belies an undercurrent of a rather different nature. Japanese Prime Minister Junichiro Koizumi has twice, since late last December, called for the strengthening of bilateral economic cooperation and emphasized the importance of Tokyo-Beijing relations. In January, the chief editor of Japan's Fuji SanKei Business-i, Masaru Soma, predicted that economic cooperation between Japan and China would eventually overwhelm Sino-Japanese tensions.
Fourthly, Beijing has quickly expanded its influence in South East Asia, South America and Africa through investment, financial aid and oil diplomacy.
Beijing has been proactively turning its economic power into cultural status, which it then uses to enhance its international influence. Beijing aims to make the world subconsciously look to China for future leadership. Such efforts have produced notable results in the following areas:
In the academic arena, last year China -- with the support and resources of the state -- started a large-scale international academic conference termed the "Beijing Forum." Last December, China's first Chinese Culture Center in Asia was inaugurated in Seoul.
In the language sector, China has helped establish a growing number of Chinese-language schools in Southeast Asia. Singapore now sends as many officials to study in China as in the US.
Beijing is also moving to influence popular culture: Over the past few years, China has held international beauty pageants in Hainan Island, Shanghai and Beijing. European fashion scouts have swarmed to the mountainous tribal villages in Yunnan Province to look for leggy supermodels. Interestingly, the chounu (ugly girl) from Henan Province has recently captivated Europe with her exotic charms.
In the entertainment sector, China's Shenzhen University has generously invested in "The Magic Kingdom," a 3-D animation film, by attracting top international artists and managers with the intention to compete with Walt Disney Pictures and Pixar Animation Studio.
In sports, over the past two years, China has held high-profile international sporting events, including the Formula One car race, NBA basketball games and a tour of China by the Real Madrid soccer team. Beijing made the most of these events by placing itself in the international limelight and flaunting its national progress and attractions.
China's leaders are also focusing on tourism. In recent years, a swelling number of Chinese tourists have flocked to resorts in the Pacific, which used to be almost exclusively the playgrounds of the Europeans and Americans. That has come with Beijing's bountiful financial aid to these island states. The Pacific Ocean, once dubbed the American Lake, has been "invaded" by the Economic China.
And finally, Beijing is promoting Chinese medicine. With its hefty investments in Hong Kong, it has been pushing the region to become a hub of traditional Chinese medicine and biotechnology research. In 2003, Hong Kong business tycoon Li Ka-shing (李嘉誠) became a shareholder in the Beijing Tongrentang Group Corporation (同仁堂), a company with a century-long history of specializing in traditional Chinese medicine.
It has been a decade since scholars predicted the collapse of the Chinese economy as a result of a host of problems, including bad debts. Why has it yet to happen? Is it because the huge scale of China's economy has made the existing textbooks inapplicable? While academics have been busy debating, Beijing's grand strategy has already come into play.
Taiwan is used to thinking of defending itself mainly from an amphibious assault of the People's Liberation Army. Is this sufficient? Beijing's economic and cultural warfare can evolve into a diplomatic game of "go" that encircles Taiwan unnoticed. When we wake up, it may be too late.
Chong-Pin Lin is a professor in the Graduate Institute of International Affairs and Strategic Studies at Tamkang University.
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