The US Must Wise-Up And Back China

Business, China, Company Strategy, Economics, Europe, US

By John Richardson

us-chinaAUSTRALIA has very sensibly reversed its decision not to join the China-led Asian Infrastructure Investment Bank (AIIB). This is the first good policy move I can think of since Tony Abbott became Australia’s prime minister.

And with the UK, France, Germany and Italy also now on-board with the AIIB, and with South Korea likely to join later on, this leaves the US extremely isolated in its determination to oppose the bank. This is starting to remind me of Britain in the 1950s, when my home country was struggling to come to terms with the end of its Empire. Failure to own up to this irreversible historical shift was thrown into stark relief by the Suez Crisis.

What on earth did the US expect China to do? It had its opportunity to make China part of the existing Washington-driven international financial order by changing the composition of the International Monetary Fund (IMF). But instead Congress has consistently blocked perfectly justified calls by China for a bigger percentage share in how the IMF is run.

So now the US is faced with wising-up and supporting China or continuing to go down the road of confrontation. I have an eight-year-old son. Where this latter approach might ultimately lead I therefore find nothing short of terrifying.

Luckily, though, America should eventually, as Churchill said, “do the right thing after exhausting all other possibilities”.

A good starting point would be a little bit of empathy. The US should realise that China must:

  1. Get through this current economic crisis. It has to find a way of maintaining jobs whilst the economy is radically reformed. One great way of doing this is by keeping its engineering companies busy on AIIB-related infrastructure projects. This is also a terrific way of helping get rid of huge manufacturing surpluses in, for example, chemicals, steel and cement. Perhaps the US would prefer the alternative of a devalued Yuan and an international trade war?
  2. In the longer term, provide a better “route to market” for its manufactured goods. This will allow it to move low-value manufacturing from coastal China, where it has become too expensive, to inland China and still reach Western markets in quick-enough-time. The plan is that at the same time, coastal China will move up the manufacturing chain, so enabling China to escape the “middle income trap”.
  3. Help neighbouring, very poor countries such as Cambodia, Loa and Myanmar grow their economies through infrastructure development. This will create new markets for Chinese goods and services. The Asian Development Bank, another part of the existing global financial infrastructure, has estimated that Asia  in general needs $8 trillion worth of infrastructure investment.

So, what’s in it for the US economically?

China cannot do all of the above on its own. It is going to need lots of overseas expertise in manufacturing and services to make not only the AIIB, but also its whole economic transformation, a success. It is obviously much more likely to source this expertise from countries that are on its side.

The direct implications for chemicals are obvious. China will need, for instance, electronic chemicals to escape the “middle income trap” by becoming a high-value branded goods electronics manufacturer. It will also need lots of metallocene-grade polyethylene.

It is much more likely to source both of the above from US companies if Washington supports the AIIB.

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