"This House Believes That the West is Not Prepared for a World Dominated by China"

29/11/2011 11:28 GMT | Updated 28/01/2012 10:12 GMT

This week the Cambridge Union will debate the motion "This House Believes that the West is not prepared for a world dominated by China", two Cambridge students argue the motion in the run up to the debate on Thursday.

Peter Richardson argues that the world is not prepared for a world dominated by China

It is clear that some in the West still believe in the inherited power of Western nations to govern the affairs of others. It is also clear that these people are wrong.

There is, firstly, a curious circularity that has recently been brought to light. In 1911, when the child Emperor Puyi had fled the capital and the last dynastic house had been smashed, foreign opportunists flocked to Beijing to invest in the new regime and lend Western credit to Chinese Republicanism. By contrast, the recent refusal of Wen Jiabao to grant aid to the struggling Eurozone appears to demonstrate the return to an older political framework, one that predates both the EU and the People's Republic of China - the Sinocentrism of classical antiquity, in which China was the jewel of the known world and radiated its culture to the barbarians outside.

But it is, perhaps, easier to highlight the issues facing the West. Looking over the last decade, one cannot deny that the currency of Western nations in financial and military transactions across the globe has weakened. Conflict in Iraq and Afghanistan has crippled our credibility, leasing us to an intractable problem. Furthermore, the ill-fated Eurozone and the consequences of the crash of 2008 have bound European nations and America into a cycle of economic instability. While many sectors of Chinese society may struggle with the allure of Western culture, it is undeniable that the economic and commercial gravitas of such a connection has slipped away. "The key to the twenty-first century," said Niall Ferguson in a recent debate, "lies in the decline of the West."

On ideological grounds, the concept of Western liberal democracy and its attendant trends of individualism and autonomy stand at odds with the ruthlessly collective nature of China's social history and political framework. A liberal democracy, forced to answer to an electorate, cannot muster a dedicated workforce or a centralised plan for economic reform. Since 1978, China's rise has been dictated by the introduction of capitalist reform under the banner of a repressive regime, allowing both the interplay of market forces and the implementation of centralised directives to chasten social and economic variation. While I do not wish to undermine the value of Western democracy, the patchwork of states that constitute Europe and America stand in contradistinction to a politically and militarily unified China.

The colonial history of many Western nations, including England, would also preclude a serious challenge to what has been termed the present "neo-colonial" era of Chinese foreign policy. The current scramble for investment in the mineral resources of African states and Middle Eastern oil reserves is a powerful expression of the PRC's diplomatic status, unfettered by a history of colonial abuse or the commitment to universal rights. America and Britain, by contrast, have suffered the consequences of the War on Terror and a legacy of conflict in Asia and the Middle East, and do not enjoy the same diplomatic freedom.

Granted, China faces social problems that demand a serious response. Gender imbalance and a rapidly ageing population have already led to civil unrest and a decline in support for the Communist Party. However, it appears that these issues, for the moment at least, will not damage the success of the economy. China emerged from the financial crisis in 2009 with an 8.7% rate of growth, compared to the contractions of Western economies, and now holds the world's largest share of foreign currency reserves ($3,201bn in September 2011). It has begun to shift its position from an export platform to a skill-based economy catering to a huge market open to foreign investment.

It is possible that dissatisfaction with the CPC, allied with growing calls for democracy, will see a new government installed that is more receptive to the idea of a capitalist society in name as well as in practice. But as long as the direction of China's economy remains unified, the West appears unqualified to challenge it.

Michael Dawes argues against the motion.

The fear in the West over consistently high economic growth in China is astonishing to observe. The fear is even more puzzling given that the global outcome of China's continued expansion seems positive. The increasingly large and intricate web of interdependencies, which span across the global marketplace between China and the world, has already been accounted for in structural economic changes. Is a lack of preparation of the West for a continued rise of China a cause for concern? Quite simply, no.

There are two questions we should be asking. Firstly, will China continue to grow at current rates (again, implicitly assumed in the motion)? Secondly, will divergence from the current growth path affect the West who have adapted already to the emergence of China onto world markets?

It seems that the underlying assumption is that China will continue to grow in the long term. Indeed, considering the short term in isolation seems fairly futile given the recent crises. I think those who assert that China has emerged far better than the West have jumped to conclusions a little too early.

Battling inflation domestically has become a true problem in China, currently at 5.5%, increasing costs for firms and also competitiveness in export markets. Rigidity in wages has had an impact on real incomes, sales falling 12% in the last quarter. Indeed, the pressures exerted by the US on the dollar-pegged yuan together with domestic inflation are increasing the costs of Chinese exports. Combined with a shortfall of demand in Europe, a fifth of China's total export market, and increasing protectionist measures worldwide, export led growth in the next few decades will be much harder to predict and achieve than in the last.

Furthermore the centralised banking system in China has been forced by central planners to take on abundant risk and liabilities throughout 2008 and the financial crisis in an attempt to keep markets stable. The result of this intake in risk has led to a certain uncertainty for the future of the Chinese financial system. A housing bubble is also apparent with a quarter of all fixed investment in housing - its probability of collapse is relatively high, leading to further uncertainty in predicting the future of the financial system. Why is this relevant? The informal banking sector in China has historically been heavily relied upon. Individual creditors are stemmed from the four centralised banks. Hence, a collapse or restriction in lending by those four banks could have dramatic impacts on investment and growth in China. The point: the common assertion that China will simply grow at ludicrously high rates forever is incredibly flawed.

Given China's current dominance in manufacturing, the continued growth in this sector will have limited systemic impact on the West. Existing interdependencies have already been established such that European and American manufacturing has tended towards the high-tech sector. Furthermore the rise of the service sector can also be attributed to the acknowledgement of superior competitiveness in China and the ASEAN Tigers amongst others. If China were to develop to a point where it began to increase high-tech and service sector production - no doubt, this would be more of a problem to the West to which they have not prepared.

This seems distinctly implausible in the foreseeable future. Given the recent crisis, the motivation for Chinese policy makers to switch to the service sector seem lacking and with larger markets in the West, an export of services seems an unlikely path to growth. High-tech manufacturing seems the more concurrent growth path yet the level of human capital and structure of informal lending in China is not sufficient to sustain such growth. If China were to invest heavily in increasing its human capital resource, the effect would be an increase in number of the middle income classes. Historically, the centralised structure of an economy and the growing middle-income class are unable to co-exist as pressure is exerted for a more liberalistic government. No doubt the success of China and its extraordinary growth is, in part, due to the explicit control of the centralised government- a more liberalistic government would no doubt slow this.

Could the West be more prepared? The West has already responded to China's rise by undergoing significant structural changes...China's motivation to diverge from their current growth path in staple manufacturing seems unlikely. Even so, growth in China will undoubtedly slow in the following decades, and we must not forget China is still in relatively early stages of industrialisation. The increase in human capital and pressure on liberalism has historically been shown to slow growth and there are few factors which state Chinese development will take a different course. Given existing interdependencies, there is nothing more the West can do but sit and wait.

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