Thu, Aug 30, 2007 page8

• Underneath China's happy mask

  • By Giles Merritt
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  China's "face" may be its Achilles' Heel. As it basks in its new status as an economic superpower -- the dragon that is outpacing Asia's tigers as well as the donkeys of the West -- China is mistakenly downplaying its own serious structural weaknesses.

  Its leadership finds it hard to mention, let alone emphasize, the country's problems. Officials' preoccupation with commanding respect and not losing face leads them to focus almost exclusively on China's achievements. This is a strategy that risks backfiring, because it misunderstands the dynamics of international politics.

  Emphasizing China's meteoric rise means less understanding in the rest of the world of the need to sustain rapid economic development in order to satisfy the expectations of its 1.3 billion inhabitants. The government knows that it has a political tiger by the tail, but refuses to acknowledge it, either inside China or outside.

  Trade tensions continue to mount. The US is deeply concerned, following the minimal results of its "strategic economic dialogue" with China in May, and Congress is threatening tough protectionist measures. The EU may not be far behind; much will depend on how China presents its case over the coming 18 months as the two sides negotiate a wide-ranging Partnership Cooperation Agreement, which will determine the quality of bilateral relations for the next decade.

  German Chancellor Angela Merkel has just visited Beijing, with French President Nicolas Sarkozy likely to follow soon. Both are surely aware that China's surging exports last year helped it surpass the US as Europe's largest foreign supplier.

  What they won't see, of course, are the desperately low living standards of China's teeming millions, especially the rural poor. Yet China is in no mood to plead poverty when dealing with the West. Its aim is to gain as much prestige as possible from the Olympic Games next year and the six-month World Expo in Shanghai during the spring and summer of 2010.

  It remains to be seen whether the two events will be capable of swinging world opinion in China's favor and keeping it there. Indeed, the government's suspicion of the international media is liable to spark friction when thousands of journalists arrive and inevitably widen their coverage beyond athletics to politics and human rights.

  For the time being, sentiment about China's future remains relentlessly upbeat. McKinsey consultants have even forecast that the upper middle-class will number 520 million by 2025 -- the sort of projection that the communist mandarins welcome as a tribute to their strange hybrid of a market economy and rigid state control. Yet it is almost certainly the sort of forecast of which they should beware.

  The reality of life in today's China looks very different from the vantage point of a province far from the heady atmosphere of Beijing or Shanghai. For example, like much of the country, Gansu Province, at China's geographical center, is grappling with structural and social problems that range from the daunting to the apparently insuperable. Average annual output per capita is about US$900, and incomes among the peasants who make up most of its rural population of 26 million are less than US$250.

  Gansu's challenges range from modernizing its heavy industries to resisting desertification and the encroachment of the Gobi Desert. While it has been making slow but steady progress, its future is clouded by worsening water shortages. Though it straddles the Yellow River, the water table is dwindling fast.

  Back in Beijing, the chief preoccupation is to safeguard 11 percent GDP growth while assuaging Western government fears. By the end of this year, China's exports will be 24 percent higher than they were at the same time last year, at US$1.2 trillion, and its trade surplus will have grown 43 percent.

  But trade will probably not be the main worry for China's international relations. Trouble seems more likely to come from growing concern in the West over climate change. Political leaders in EU capitals and the US may be well aware of China's global economic importance, but the widespread public perception is that its factories are dirty and environmentally harmful. Rows over product safety and intellectual piracy could all too easily fuel calls for tough new trade limits.

  The answer is not for China to step up public-relations efforts. Instead, it should be revealing its weaknesses and vulnerabilities to gain Western understanding. That would really be a cultural revolution.

  Giles Merritt is secretary-general of the Brussels-based think tank Friends of Europe and editor of the policy journal Europe's World.

  Project Syndicate/Europe's World
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