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Is China Ready to Lead?

by Zhou Li

October 30, 2017

Can China lead the world?

China offers world leadership a complementary viewpoint

China’s growing economic power—combined with the perception that the US is retreating from global matters under the Trump administration—has many people calling for more active Chinese leadership in the world, albeit for different reasons. Many developing nations see China as a champion and as an investor. Western countries wish to see China shoulder a greater share of the burden of global leadership, and a growing number of Chinese citizens want China to reclaim its ancient role of international paramountcy.

But is China ready to “lead the world?” Has it reached the stage where it can set the international tone, take the central role on global issues and provide preeminent guidance toward the future? With China’s pledge at the World Economic Forum in January to defend global free trade and support the Paris climate agreement, just as the United States seemed to be abdicating its roles in both arenas, the answer for some was a “yes.”

That may be a premature assessment.

Perceptions and Reality

Economic strength, while important, is far from the sole factor in determining a nation’s global influence. In the early 1800s, China was the world’s largest economy, but the country projecting itself around the globe was a small island nation in northern Europe, the United Kingdom. And although the United States overtook the UK as the world’s largest economy around 1890, it didn’t become the globally dominant power until after World War II.

[pullquote]The foundations of that powerhouse economy are actually weaker than they seem[/pullquote]

China, of course, has only recently reclaimed its position as an economic powerhouse. The foundations of that powerhouse economy are actually weaker than they seem for several reasons, including the following:

1) Shifting Gears: After three decades of astounding growth, the Chinese economy is slowing down. Since the 2008 World Financial Crisis, China has been pushing to switch its economy from being export and investment-driven to consumption and innovation-led. Such fundamental changes do not happen overnight.

2) Big Economy and a Large, Poor Population: Although China in absolute terms is the second-largest economy behind the US, it ranks only 71st in per capita GDP terms, close to the level of Mexico and Kazakhstan. People can be misled about China’s wealth if they only see Shanghai’s futuristic skyline with its growing forest of supertall skyscrapers. They may find it hard to believe that almost 11 million people in China lived on less than $3.10 a day in 2013, notwithstanding the Chinese government’s historic achievements in lifting more than 700 million people out of extreme poverty (the World Bank’s poverty line is $1.90 per day). The fact is, China’s economy is not yet rich and is far behind that of Japan, which is both rich and “old” while China is becoming “old” before it is rich.

3) Constrained Market: Reform of the inefficient state sector lost momentum in 2008 when China undertook massive stimulus spending via state-owned enterprises (SOEs), to stabilize the economy. Inefficient SOEs suck resources from the private sector. According to Gavekal Dragonomics, a Beijing-based economic consulting firm, state companies obtain almost 30% of all loans but contribute less than 10% of GDP.

4) Trapped Redback: Despite the acceptance of the RMB by a handful countries as a settling currency for trade with China, the “redback” is still under strict control and is not yet fully convertible. Because of the government’s emphasis on maintaining financial stability, full convertibility of the RMB cannot be expected any time soon. Envisioning an economy with such a tightly controlled currency as ready to set global policy is difficult.

But while China may currently lack the capacity to lead the world, that does not mean it has nothing to contribute to global leadership. Far from it.

Global Problems, Chinese Solutions

The discussion about China’s leadership role in the world is not simply the result of the expansion of the Chinese economy, although that is important. It also stems from a parallel crisis of faith in the current global order. The fall of Leman Brothers in 2008 triggered a new era of skepticism toward capitalism.

The surprise success of Thomas Piketty’s 2013 book, Capital in the Twenty-first Century, describing the return to wealth inequality, is another sign. Indeed, Piketty argues that the progressive concentration of wealth is an inherent feature of the liberal capitalist system. That should come as no surprise given the explicit responsibility of companies to shareholders rather than to society.

After driving economic growth for the past few centuries, capitalism has been increasingly challenged on how social good, at national and global levels, is created and maintained. In this regard, however, China has much to offer to the global discussion—specifically, values found in traditional Chinese culture, most particularly Confucianism.

A Chinese Renaissance

Confucianism is commonly perceived as a philosophy of hierarchy that favors the rulers. But growing interest in Chinese culture, a bi-product of China’s economic success, means more people are going back to ancient texts to rediscover the true values of Confucianism. Some compare this to the revisiting of Greek and Roman classics in Renaissance Europe.

[pullquote]Confucianism has great potential to offer a new dimension to the common values system of the world[/pullquote]

The foundations of Confucianism are the Five Constants: Humanity, Righteousness, Propriety, Wisdom and Sincerity. (They used to be translated as Benevolence, Justice, Order, Knowledge and Integrity.) Overall, there is an emphasis on humanity and harmony, and especially on the greater good of society. These are the exact aspects that liberal capitalism is accused of lacking—indeed, the lack of concern for the little guy underpins the recent global backlash against the “elites.”

Confucianism has great potential to offer a new dimension to the common values system of the world because of its nature and history.

1) A Philosophy for All: Professor Tu Weiming, a world leading scholar of Confucianism and a CKGSB Honorary Professor, suggests that the core Confucian values of humanity and propriety can be new parameters to add into universal values. One can become a Confucian Christian, Muslim or Buddhist. As Professor Tu suggests, the values of compassion, social justice, moral standards and sense of responsibility in the revised Confucianism are complementary to those of rationality, individual freedom and human rights emphasized in the Western tradition.

2) Re-engagement at Home: Today, people at all levels of society in China have re-engaged with national history and Confucianism, from the very top—Xi Jinping delivered a keynote speech at the 2,565th Anniversary of Confucius’ Birth in 2014—down to the bottom, where schoolchildren are learning the basics of Confucian morality. Xi often quotes Confucius in his speeches. In his 2014 speech, he stated that “contemporary human beings face such outstanding problems as widening wealth gaps, endless greed for materialistic satisfaction and luxury, unrestrained extreme individualism, continuous decline of social credit, ever-degrading ethics and increasing tension between man and nature.” He encouraged people to find answers to those issues by leveraging ancient wisdom, including Confucianism.

3) Asian Origin, Global Impact: Thanks to China’s increased importance in the world and Tu’s influence in academia, the World Congress of Philosophy, held every five years, will take place in Beijing next year. According to Tu, not only were people in Japan, Korea and Vietnam once strongly influenced by Confucianism, but so were some of the Enlightenment’s great thinkers such as Voltaire, Quesnay and Leibniz. In Tu’s view, traditional Asian values can become a new set of values for the world. Indeed it is interesting to notice that Confucianism is gaining popularity amongst the younger generation in the West—Chinese philosophy is now one of the most popular courses at Harvard, third only to “Introduction to Computer Science” and “Principles of Economics.”

Common Aspirations

Some in the West view the effort to reconnect with the basics of Chinese culture with skepticism. Is it sincere? Does it include the possibility of Samuel Huntington’s “clash of civilizations,” a springing of the Thucydides trap by cultural nationalism?

This fear is misplaced. China’s contribution to the world of its ancient philosophies does not mean “taking over” in any sense of the phrase, but rather the emergence of a new, more cooperative and inclusive form of the global values system that marries the technology, progressiveness and individualism of Western liberal capitalism, with the moral temperance, humanity and mutual responsibility of Confucianism. This is contrary to Huntington’s prediction of a clash between what he called “Sinic Civilization” (China, Korea and Vietnam), and “Western Civilization.”

But the challenge of sharing Confucianism with the world falls on the Chinese. Since the time of Confucius in roughly 500 BCE, and especially since Confucianism became the state philosophy in the Han Dynasty, the ideas of Confucius have been interpreted and modified many times. Importantly, it was the object of criticism in mainland China for almost a century.

Today, there are many versions of Confucianism in China and in other parts of the world. Through more exchanges between government officials, academics and business people, China needs to become better at articulating the core values of Confucianism among its own people as it starts engaging in serious dialogue with other nations on the global stage.

Regardless of the calls for China to take on global leadership, the reality is that it will take years, or even decades, before China’s economy is sufficiently strong and further reforms have taken root. On the cultural front, however, China now has an opportunity to start a dialogue with other major nations by rediscovering its ancient values. Its concept of Tianxia, or “all under heaven,” may offer a new and universally accepted perspective as the world re-globalizes, with or without China’s leadership.

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