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|Cameron must be quietly ruthless in China|
The Times - November 8th 2010
It is never easy or comfortable for a western leader to make an official visit to China, as David Cameron will on Tuesday. On one shoulder, an elf whispers in your ear of the importance of promoting British exports to the world’s new economic superpower, while on the other an elf keeps reminding you of the need to uphold British values of justice and democracy. Best to call them elves, rather than angels and devils, since both think they are doing good.
Meanwhile your briefing paper tells you not to lecture the Chinese or to make them “lose face”, for that would be counter-productive. Your wife tells you not to eat or drink too much at the huge banquets you will attend. And your American allies remind you that next weekend in South Korea you and other world leaders will meet at the G20 summit to discuss “economic imbalances”, so could you please put in a strong word for the American proposal to set targets for current-account surpluses and deficits?
Puzzled, you ask your advisers what leverage does Britain, or the West in general, have over China? None, really, comes back the answer. What they want is simply the same as you want: open trade, access to foreign markets, stability and security, all with freedom from meddling foreign governments. You want their capital and their market at least as much as they want yours. Moreover we don’t like Eurocrats infringing our sovereignty, and they don’t much like Nobel peace prize juries infringing theirs. If you are hypocritical about this, they will not hesitate to point it out. They seem to worry rather less about causing you to lose face than they supposedly worry about losing it themselves.
So what can Mr Cameron do? It won’t be among his obvious sources, but a better guide than the elves on either shoulder might be George Orwell, and his “Politics and the English Language” (1946). The Chinese Communist Party is a superb exponent of the use of words to mislead, to change meanings and to divert attention. As Orwell wrote, this sort of political prose serves “to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind”. Without needing to hector or to deliver noisy lectures, Mr Cameron can and should respond simply by being ruthlessly, quietly clear.
The British government has already reacted well to Chinese pressure not to send officials to attend the Nobel peace prize ceremony for Liu Xiaobo, the imprisoned campaigner for democracy. The Chinese have warned that any country attending “will face consequences” and that the award is an affront to justice and the law in China.
Rightly, Britain insists it will send its ambassador to Norway, as usual. But also, Mr Cameron should say that his understanding of the word “justice” is rather different from that claimed by his Chinese hosts. To lock Mr Liu up on an 11-year sentence simply for having drawn up a “Charter 08” calling for an eventual move to multiparty democracy is plainly unjust—especially when in other speeches and statements Chinese leaders already claim their country is a democracy, with several parties. It is just that only one is allowed to be in power, and all the others exist only by the Communist Party’s say-so. It is true that there is no point in saying this aggressively. But it can still be said clearly.
The same issue, strangely enough, surrounds the American proposal at the G20 about economic imbalances. The only difference is that in this case, the Americans are conspiring to help the Chinese government hide behind evasive language.
The idea being pushed by Timothy Geithner, America’s Treasury Secretary, is that the G20 countries should agree to limit surpluses and deficits on the current-account of their balance of payments to a maximum of 4% of their respective GDPs. Countries would agree to take measures, presumably using fiscal and/or monetary policy, if their surplus or deficit exceeded this figure for a substantial period of time, as China’s currently does. A special exception would be made for commodity exporters like Saudi Arabia, whose surplus can be blamed on movements in the oil price.
It sounds reasonable. People often sneer at countries with big deficits, which run into trouble in their international borrowing and which—as in America—quickly blame trade barriers in other countries for their export shortfalls. While asking deficit countries to tighten their belts, to import and borrow less, why not require surplus countries to loosen up and to import more, to make things more balanced?
The proposal can be made to sound even more reasonable if you hark back to the last eminent economist-cum-policymaker to suggest it: the great John Maynard Keynes, in 1944 when the Allies were debating what trade and financial rules should be established to make the postwar period more prosperous than the 1930s. But his proposal for symmetrical obligations on surplus and deficit countries was not accepted by America then—for it was the one with a surplus.
It was right to reject it, on two grounds. First, that it is impractical: whatever limit is chosen will be arbitrary, for there is no objective reason to say that 4.1% is too big while 3.9% is fine, and no sanctions are being proposed to enforce it. But also, second, the proposal is really using an economic lever to solve a non-economic problem, namely political perceptions of unfairness and mistrust.
Keynes proposed a limit in 1944 because the 1930s had been a decade of trade conflict and deep mistrust. Mr Geithner has proposed his limit because China’s rigid currency system is believed to make its exports unfairly cheap, but he has lost patience with saying so. He seems to think that a limit on surpluses that would affect other countries too should give China the chance to relax its currency controls without seeming to do so. But instead, China is taking the chance just to attack his proposal and to divert attention by also criticising America’s ultra-loose monetary policy.
Again, in his smooth, diplomatic way, Britain’s prime minister can and should reject these obfuscations. The Geithner proposal is a front for the real issue: the fact that the world’s second largest economy, China, is the only major economy whose currency is not freely convertible, and which has run up foreign-exchange reserves nearing $2.5 trillion to sustain that rigidity. Mr Cameron should say that he is pleased that American monetary policy is being used to avert the risk of a new recession, but surprised that China wishes to stay detached from the world and to behave so unjustly in its trade. And then he can smile sweetly, saying he looks forward very much to seeing the Chinese in Seoul next weekend.