As the war in Ukraine grinds on, a look at the economic battlefield and how the conflict might permanently reshape the global economy. Diane talks to Sebastian Mallaby, senior fellow for international economics at the Council on Foreign Relations.
Just 30 years ago, China was a poor, isolated nation of rural farmers. The vast majority of its citizens struggled to afford food and clothes. But a series of free market reforms in the 1980s and ’90s transformed China, propelling it to the No. 2 spot in the global economy. China is now the world’s largest manufacturer and has the second biggest military. But a leading China expert says the rise of the Middle Kingdom has been greatly exaggerated. He says China’s influence is limited by isolationism and a focus on low-end manufacturing. Diane and author David Shambaugh discuss the myth of China’s global power.
- David Shambaugh Professor and director of the China Policy Program in the Elliott School of International Affairs at George Washington University.
Read An Excerpt
Excerpt from “China Goes Global: The Partial Power” by David Shambaugh. Copyright 2013 by David Shambaugh. Reprinted here by permission of Oxford University Press, USA 2013. All rights reserved.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. China's rise has been widely reported. The world's leading manufacturer and America's largest foreign creditor is a major player in global affairs. But in a new book titled "China Goes Global," China scholar David Shambaugh says the country's global reach and influence are actually limited. He says China is just a partial power because of its risk-averse foreign policy and focus on low-end manufacturing.
MS. DIANE REHMDavid Shambaugh joins me in the studio. You are welcome to be part of the program. Give us a call, 800-433-8850. Send us an email to email@example.com. Follow us on Facebook or Twitter. Good morning to you, David, good to have you here.
MR. DAVID SHAMBAUGHGood morning, Diane, nice to be here.
REHMYou know, before we talk about the elements of your book, I wanted to ask you what you thought of The New York Times story this morning about China's cyber-spying. What's going on there?
SHAMBAUGHOh, goodness. Well, it's quite a piece of investigative journalism and I must say it's done by or at least one of the Times' correspondents who contributed to the piece is David Barboza. He's based in Shanghai. He's the same correspondent who, I think, just yesterday won a journalistic prize for his investigation of Premier Wen Jaibao's family fortune, you might say.
SHAMBAUGHSo he's done it again. This may well get him expelled from the country. I don't know. But this is an extraordinary story about a very serious issue that you actually did a program on last week, I understand.
REHMThat's right. But the question becomes what's to be done about it? Should we simply stand by and watch this happening or should we be taking further steps? China says the U.S. is doing its fair share of spying on China.
SHAMBAUGHWell, I think it's first important to realize that there are different types of Chinese cyber-spying on the U.S. First is against American government institutions. Indeed, China targets many other government institutions. They penetrated the British Foreign Office, German Chancellor Merkel's personal office and many others around the world.
SHAMBAUGHThe second is commercial espionage. The article today has an interesting story about their penetration of Coca-Cola at a very key time in negotiations between Coke and the Chinese. Third, they target China specialists, people like me and others who try and influence international opinion or, you know, are watching China from abroad. Fourth are magazines and newspapers such as The New York Times and the Wall Street Journal. So they are different, and then finally critical interest structures...
SHAMBAUGH...here in the United States. So these are all different types, but it's very serious and you ask what should we do about it? Several things, first, President Obama, just a few days ago, issued an executive order that instructs for the first time American intelligence agencies, the National Security Agency in particular, to share information with American corporations and other potential targets of Chinese penetration.
SHAMBAUGHThat's the first thing, the American government has got to be involved and they've been sort of asleep at the switch on that, I would say, at least legally. The Congress failed to act in the last session on a bill. They fail to act on a lot we know, but they also failed to act on a cyber bill.
SHAMBAUGHAnd then, secondly, we have to publicize this as The New York Times has done and thirdly we have to talk very directly to the Chinese government about it, which we have been doing. And the Obama administration has been doing that behind closed doors.
REHMYou know, I found it fascinating that one of the victims The New York Times talked about was Telvent, a Canadian company that designs software for oil and gas pipeline companies and power grid operators. That company keeps blueprints for more than 50 percent of North American oil and gas pipelines. How can we afford to allow that kind of cyber invasion of security to occur without taking some very, very strong steps?
SHAMBAUGHWell, you're quite right. I mean, the most important thing we can do in addition to what I just mentioned are defenses, corporate defenses, government defenses. But, you know, we can't insulate ourselves from the cyber world. We are all wired into the cyber world today for better or for worse.
REHMAnd that's the question, is there any way to be more secure, to create walls around these cyber industry pipelines, whatever?
SHAMBAUGHWell, there are. I'm not an expert in this, but there are a number of, you might call them buffers or walls, protection devices that any institution, whether you're a university or corporation or a government or The New York Times, you can install that will repel and track attempted attacks on you.
SHAMBAUGHThat doesn't mean that they're -- it's like missile defense. It doesn't mean there won't be any penetration through the missile defense shield. There will be cyber penetration through these shields but indeed there are such shields that companies can put into place.
REHMYour book is titled "China Goes Global," but then as a subtitle you have, "The Partial Power." In it, you talk about six measures of power and where you believe China ranks. Talk about those measures and China's ranking.
SHAMBAUGHRight, okay. Well, when I started off researching this book six years ago, at first I considered doing it regionally, you know, discussing China's relations with Latin America and Europe or whatever. But then I decided, no, the better way to explore the subject was functionally so I have these, as you say, six chapters, each of which is a different sort of functional subject.
SHAMBAUGHThe first of which is a chapter on China's domestic discourse and debates inside of China about their global role and I spent a year as a Fulbright Scholar in Beijing from 2009 to 2010 tracking this discourse and it was very animated, very contested.
SHAMBAUGHThe Chinese, I would argue, have something of a rather significant identity crisis about their global role. And they haven't figured out what their global role is or should be. There are many views in cyber space, in the Chinese blogosphere, in society, in the Chinese government, and Chinese newspapers. They're all arguing about what they should be doing and not doing abroad so that's sort of one measure.
SHAMBAUGHThen I have individual chapters on Chinese diplomacy, China's role in global governance, China's global economic presence, China's global cultural presence and finally China's global security presence. And in each of these areas one finds -- or I went into it expecting, I must say, to find that China's influence was indeed growing and broad and increasingly influential.
SHAMBAUGHAnd I came out of the research in each of these areas with a rather different conclusion which is why I subtitled the book as I did.
REHMWell, it's fascinating to me because each time we talk about China in relation to the U.S. economy, the first thing that experts say is China holds the greatest amount of U.S. debt and that would seem to create in China a very, very powerful entity. Is that not the case?
SHAMBAUGHWell, they do own a great amount of America's debt, but it is certainly under 10 percent. I seem to recall it's 3 percent of American national debt. Three percent is held by China. Most Americans think it's probably well in excess of 50 percent, but it's not.
SHAMBAUGHBut let's look at the economic domain. This is the one area where one would expect -- and one does find China's global influence to be the greatest, but if you scratch beneath the surface of that area, I find at least that it's not as great as it's cracked up to be.
SHAMBAUGHTake for example its trade. Yes, China is the world's largest trading power, but according to the World Trade Organization, 94 percent of its exports are merchandise exports, the kinds of things that you and I buy in Target and Wal-Mart. This is not a country that is at the cutting edge of virtually any field in innovative terms.
SHAMBAUGHSo they're involved -- they're not what you might call a knowledge economy. They're not exporting services. They're not exporting innovative ideas. Their intellectuals and their scientists, I find, are not at the frontiers of knowledge in their respective fields.
REHMBut if you go back to the front page of The New York Times today, aren't there cyber-warfare experts out there doing things that have penetrated U.S., Canada, and Germany and so on?
SHAMBAUGHYes, there are areas in which China is a global leader and is a global power and it's important, I think, to distinguish those areas from the other ones where I think it is not a global leader or a global power. Cyber-hacking is one of those areas where China is indeed probably the global leader, a rather dubious distinction, but that's one area.
SHAMBAUGHEnergy is another area and commodity markets. China is the world's largest energy consumer and its insatiable appetite for various raw materials has a major effect on global commodity markets.
SHAMBAUGHChina has a major impact on the global tourism industry on, you may laugh, but on the world's global luxury goods market. Chinese consumers are now quite wealthy. They're traveling abroad. They're staying in very high-end hotels and they're buying top-end luxury goods.
REHMHow large a population of the Chinese, overall population, would you say are consuming that luxury goods end?
SHAMBAUGHOh, as a percentage of the overall population, less than 2 percent.
REHMThat's what I thought. That's what I thought. David Shambaugh, we're talking about his brand-new book. It's titled "China Goes Global: The Partial Power." When we come back, we'll talk more, take your calls, your email. I look forward to speaking with you.
REHMAnd welcome back. Scholar David Shambaugh is with me. He's written or edited more than 30 books on China. He has a new one out. It's titled "China Goes Global," but the sub title is "The Partial Power." Before the break, David, we were talking about the economy, but you also said that there is an identity crisis going on. That many, many people are involved in talking about what it is that constitutes China's identity. What did they want it to be?
SHAMBAUGHWell, it's a good question. And as I indicated, it's a very animated and ongoing debate. It's far from closed. And in the book, I identify seven different schools of thought that participate in this debate. I'm not going to go through seven schools for you, but they basically break down into those who would like to be more withdrawn from the world and relatively inactive in the world. Indeed, Deng Xiaoping, more than -- almost 30 years ago, set down the grand strategy for China to lay low basically and now be actively involved.
SHAMBAUGHBut there are those who are even more, you might say, xenophobic and want to withdraw from the international community. They've never been comfortable with China's integration and opening to the world in the first place. So they're sort of on one end of the spectrum. Well, on the other end, and really very prevalent and particularly in the blogosphere and cyber community, but newspapers and the average man on the street in urban China is of view that China should really be much more assertive, tougher abroad. Should flex its muscles, that China is a great power and it should act as such.
SHAMBAUGHSo there's a lot of domestic pressure on officials -- and if you interview Chinese officials, they're quick to say this -- from the society to be more assertive, vis-a-vis the United States, vis-a-vis, vis-a-vis its other Asian neighbors, vis-a-vis the European Union and others. So basically, that's the predominant school, a kind of get-tough-China-first school.
REHMAnd what would that mean in their terms as far as say the U.S.'s concern? What would getting tough mean?
SHAMBAUGHWell, cyber attacks may be part of it. But we've been seeing it over the last three or four years of the Obama Administration. Take Syria, you know, China has been -- has vetoed along with Russia two UN resolutions to arm the rebels in Syria and try and stop the bloodshed in Syria. That's one form of getting tough. It's sort of noncompliance getting tough. I would argue North Korea falls into the same category. In other words, China can be unhelpful to the United States by not helping the United States.
SHAMBAUGHBut if you talk to American officials, they will tell you that the meetings with the Chinese over the last three or four years have become increasingly contentious. The Chinese come in and argue and accuse the United States of several things such as containment. The Obama Administration so called pivot policy to Asia, which I think you've had another show on recently. They see entirely as an attempt to restrain them, contain them and hold them down. So they're very disturbed by that and they're very assertive about that in talking to the United States.
REHMSo if they want to exert power, you call them a partial power. Where does the partial power come in?
SHAMBAUGHRight. Well, the reason I use the word partial is because I equate power with influence. If you're going to have power in international affairs that means you influence events and you influence other actors. You change things. That's the sort of definition -- operative definition of power. The Chinese, I find, are not influencing international events in diplomacy, in the world -- except for -- in the world economy I was about to say, except for things like energy and commodity markets and international security affairs.
SHAMBAUGHTheir cyber hacking, yes, but their military, no. Their military has no global power projection at all. And then you take the category of global culture and the Chinese pursuit of soft power. And I have a long chapter in the book on that. And I find that while they're pursuing it they don't have it, and they're a long way away from getting it.
REHMDefine soft power for us.
SHAMBAUGHSure. Well, the soft power's a term that was coined by Harvard Professor Joseph Nye in his very important book by the same title. And it's essentially the ability to co-opt others through attraction. I've always thought of soft power like a magnet. You draw others to you. They want to be like you. They want to emulate you. Well, I don't see any country in the world wishing to emulate China in any way. Yes, we admire China's economic growth. Everybody admires their economic growth but I argue that their economic growth model is sui generis. It's not exportable and it's not replicable in other countries.
SHAMBAUGHChina's political system. Who wants to emulate that? You don't see people seeking political asylum in China. You don't see people trying to immigrate to China. You don't see, as I said earlier, Chinese intellectuals setting global standards in their various fields or winning Nobel Prizes. So I -- in terms of soft power, soft power generally comes from society, its values, its popular culture, its high culture and its political system, according to professor Nye. So in these areas China is not magnetic. It's not attracting others to it.
REHMYou talked earlier about the say 2 percent who are able to buy luxury goods for themselves. What about the other 98 percent of China's society? Where do they live? How do they live? What are the income levels? And does that also go into the partial power definition?
SHAMBAUGHWell, the Chinese society -- there's been an interesting sort of geographic, demographic shift in the last decade or so. You know, forever until the last decade or so the majority of the population, 80 percent plus, has lived in the countryside. Today I think the figure's 55 percent live in cities. Now cities have expanded physically so that many live in sort of metropolitan suburban areas.
SHAMBAUGHBut the point is that most of Chinese citizens now are urbanites and they're online. And they are part of the growing middle class in China. Their disposable incomes have increased. Their aspirations have increased. And their demands on the government for various, you might say, public goods have also increased.
SHAMBAUGHPensions are a big part of it. They don't have them, health care, safety, clean air. Not only clean water but just water. China's aquifers are drying up.
REHMAnd yet wasn't it the Chinese government itself which encouraged that demographic change?
SHAMBAUGHYes, but it's also -- I think it's more a natural process of the economic development of the country. But, to be sure, the Chinese government has poured trillions into urban infrastructure, be they apartment buildings or roads or other infrastructure. And that has had a magnetic effect on demographic shifts.
REHMAnd what's happened to the people who have remained in the rural areas?
SHAMBAUGHWell, their incomes have risen too. The government has actually, I think, been pretty good and particularly during the last -- the current government, the outgoing government. They're going to change in three weeks. But Wen Jiabao, the outgoing Premier spent a lot of time trying to rectify problems in the rural sector. And he's done so. And one does not find that much discontent in the rural areas today compared to the past. Discontent in China is in urban China in my opinion.
REHMIn urban China, to what extent? How are they feeling the pain?
SHAMBAUGHWell, there's a large number of migrants for example first of all in urban China. This has also inflated the migrants from the countryside to the cities. And they don't have access to any of the local public goods. They're illegal, in fact, because China has a household registration system they call the hukou system. And they're not -- unless you have a hukou in a city like Beijing, if you're not permitted to live in Beijing you cannot access any of the public goods in that city. So they're a very frustrated class...
REHMDoes that include water? Does that include electricity and all the basics that one assumes of as urban area?
SHAMBAUGHIllegally, yes, Diane. So they're operating sort of like our immigrants in our country, under the radar illegally. They don't worry about a knock on the door at night like immigrants in this country do, but they're a huge element of urban populations in China today.
REHMWhen you think about China's economy, you say they're no real global powerhouse because they do not have large industries, large manufacturing areas except for, as you said, the things that people buy at Wal-Mart or Target. What do they have? These tiny goods?
SHAMBAUGHWell, this is one of the more interesting parts of the book, or at least the research for me was, to look into China's so called multinational corporations. They are establishing a global presence. On the Fortune 500 list china now ranks second in terms of multinationals. They have 61 I believe this year. But that list is based on revenues. It's not based on global presence. So -- and if you look at the 61 companies, only three of them make more than 50 percent of their income abroad. In other words, these companies are all domestic operators.
SHAMBAUGHMore interesting though are brands. Diane, how many Chinese brands can you name?
REHMMaybe the ones I would talk about would probably turn out to be Japanese rather than Chinese.
SHAMBAUGHWell, you probably know about Tsingtao Beer or maybe Air China. There are a few others. You know, Huawei has been in the news because of cyber hacking recently higher, you know. But I bet you and many people, myself included, we can't even get to ten. And if you look at the list of global brands as published by Business Week magazine every year -- this is sort of the Bible of global branding -- there isn't a single Chinese company in the top 100 on that list. So they have not established global brand presence. Their multinational corporations are not doing very well abroad.
SHAMBAUGHAnd their overseas investment, while growing, is only one-fifth of that of the United States.
REHMBut isn't it just a matter of time?
SHAMBAUGHYes, it is. And ten years from now we can sit here in the studio and I'm not sure it will be a partial power. Many of these things will change. We will know Chinese brands. The Chinese military may have a presence abroad. China's diplomacy may be more assertive and so on. But for the time being I find China to be a partial power.
REHMDavid Shambaugh. His new book titled "China Goes Global." And you're listening to "The Diane Rehm Show." We're going to open the phones now, 800-433-8850. First to, of all places, Cadillac, Mich. Good morning, Kathy, you're on the air.
KATHYGood morning, Diane and Mr. Shambaugh. You alluded just recently to the brands but that's my always concerned, so many figures point to China. But it's actually American businesses that send their manufacturing orders to China and facilitate the importation of these groups. A wide group of American business individuals have made China what it is. And may I add, to the detriment of our country.
SHAMBAUGHWell, first of all, nice to hear from you in Cadillac, Mich. I spend my summers in Traverse City.
KATHYOh, very near here.
REHMBeautiful, beautiful spot.
SHAMBAUGHAnd I drive through Cadillac on my way. Anyway, you're quite correct in that a lot of China's exports -- I don't know the percentage exactly -- are the result of joint ventures with Western largely and Japanese companies and other Asian companies, and European companies must be said. It's not just American. But I think at least 50 percent of those are the product of joint ventures. So yes, American companies and others have gone over, helped transfer technology, have joined into joint investment projects with Chinese companies. And then those goods come back to us and wind up on our shelves.
SHAMBAUGHSo, you know, this is globalization today. This is -- and I don’t' view it in a zero sum term our loss is their gain. This is just the nature -- it's a more positive sum nature of globalization and globalized business today.
REHMThanks for calling, Kathy. To Phoenix, Ariz. Hi, Chris.
CHRISHi there. Yeah, I always hear that term globalization and we're just supposed to accept it. But I would refer everybody to the 2009 report to Congress from the Committee on U.S. China Trade. And not only did it talk about cyber attacks, but they talk about, you know, many human rights violations. You know, I think Liu Xiaobo who was in the Tiananmen Square protests, he just got sentenced to ten years in prison. And, you know, there's a $250 plus billion trade deficit.
CHRISAnd, you know, with the human rights violation, the trade deficit, I mean, I don't see how we're -- you know, trade continues as it is. You know, to me, Congress is in treason because they're supposed to regulate foreign trade per Article 1, Section 8 of the Constitution. And, you know, when they imprison people for, you know, speaking up for human rights and, you know, the average manufacturing worker making, like, 60 cents an hour, I mean, how do we -- how are we, you know, allowed to trade with a country like that?
SHAMBAUGHWell, thanks for your question. And indeed you're right. There are a lot of problems that China presents to us, a lot of very significant challenges and a lot of egregious ones. We've already been talking about cyber hacking, that's one. You point out the human rights issue. That's certainly another one. Liu Xiaobo, the individual that you mentioned, is serving a, I think, 11-year prison sentence in solitary confinement in Liaoning Province at present. And he is the recipient of the 2010 Nobel Peace Prize.
SHAMBAUGHAnd the trade issues that you and the previous caller have mentioned are very much at the top of the agenda. Intellectual property theft is a key problem, not just for American companies but others. And there are all kinds of diplomatic problems we have with the Chinese. So this book -- and I myself certainly are not about to argue there are no problems with the Chinese. There are, they're huge ones and they're growing.
SHAMBAUGHThe question is how we deal with them and that takes very concerted effect on the part of our government, whether it's cyber hacking or human rights or intellectual property theft or the Syrian uprising or North Korea. It takes a very engaged assertive American government.
REHMBut at the present?
SHAMBAUGHWell, I think there needs to be a kind of new recognition on the part of the U.S. government, that the nature of the U.S./China relationship is fundamentally changed. It's changed from being predominantly cooperative, or at least the hope that it would be cooperative, to a relationship that is now predominantly competitive. And so the new normal, I think, is a competitive U.S./China relationship. And we have to learn how to manage that and keep it from becoming fully adversarial while trying to expand the zone of cooperation.
REHMDavid Shambaugh and we'll talk more about competitiveness when we come back.
REHMAnd welcome back. Here's an email from Andrew, who says, "Diane, your guest is kidding himself when he says no other countries want to be like China. Many of the countries that surround China would love to be like them, even with their oppressive regime. Many people from surrounding countries move to China to start up businesses, even with the bureaucracy and corruption, as they will be able to make a lot of money. With the right connections a person can make a lot of money and a better life. Though to us it might seem reprehensible, to them it's an improvement."
SHAMBAUGHWell, I suggest that your emailer travel around China to some of these other countries and talk to other Asians.
REHMAs you did.
SHAMBAUGHAs I have done and as I do every year for my profession, but one finds, indeed, a great deal of alienation from China amongst it's neighbors, whether it's India, Japan, South Korea or Southeast Asian countries. These countries don't wish to emulate China. As I said, they certainly admire China's economic growth. We all do. We wonder what the secret could be, but, as I said earlier, too, that's not an exportable model. Anyway, your emailer's point about companies going to China to do business and set up factories, that is opportunistic capitalism. That's all that is. These people are not seeking to immigrate to China, become Chinese citizens.
REHMThey just want money.
SHAMBAUGHThey want to make money. They don't go there because they love, you know, the Chinese culture. Most of them don't even speak the Chinese language.
REHMBut isn't that going to make China that much more powerful?
SHAMBAUGHI'm not so sure. You know I've been going to China for over 30 years and many others who go to China have a kind of sweet and sour view of the country. Living in the country does not necessarily endear you to the country. You come up against all kinds of impediments, bureaucratic impediments, social impediments, various logistical problems. This is not an easy country to live or work in.
REHMHere's a tweet from Joshua, "Would the guest consider China's lack of civil liberties and artistic freedom a primary factor in limiting their soft power?"
SHAMBAUGHExactly. That's my point. Their lack of freedoms in many realms limits their soft powers. Soft powers, I indicated, comes from society largely, but it also comes from the nature of a country's political system and the relationship between the two. So as long as the Chinese government and political system is restricting, in a sense, the freedoms of its people, it is impeding its own global soft power. So the major impediment to China's soft power is China's own political system.
REHMAll right. You're talking about soft power, but what about competitive power?
SHAMBAUGHWell, economically, China, as I mentioned, I don't think China is a global competitor in terms of innovation and setting standards for new goods or new ideas. You know, if you look at the social sciences, the medical sciences, the biological sciences and virtually any sphere of technology, China's not at the cutting edge. They're trying to leapfrog, indeed, and become innovators. The government has what they call an indigenous innovation program that they are throwing billions of dollars into to try and spur innovation. That worked in Japan, in South Korea, but not necessarily in China.
REHMAll right. Let's go to North Kingsville, Ohio. Good morning, Mark.
MARKGood morning, Diane. Good morning, Dr. Shambaugh. Dr. Shambaugh, I looked quickly on Amazon and saw that Dr. Kissinger wrote a nice review of your book. And I'm sure you're familiar with his recent book on China. In that book he advanced what I thought was a very interesting thesis. I call it the self-sufficiency thesis. And that is the biggest fear that we have with respect to China isn't a lot of the fears that some of the listeners have already voiced, but rather that day when China becomes self-sufficient, when it no longer needs to have such a large export trade with the rest of the world and certainly the United States to fuel its economy.
MARKAnd really once it's middle class becomes more wealthy and the renminbi stabilizes a bit more then that's what I understand Dr. Kissinger to be advancing, at least one of his thesis was China's self-sufficient and doesn't need to trade with us. That's going to be a major problem.
SHAMBAUGHWell, I very much enjoyed Dr. Kissinger's most recent book on China. It's one of the best ones he's ever written, among many. And he has many useful arguments in it. One of which you point to with the self-sufficiency argument. He's got another one on the U.S.-China relationship he calls the co-evolution argument. And even he, you know, the father of detente with China, who went there in 1971, he is very worried about the state of U.S.-China relations and this growing strategic mistrust between the two countries and the growing competitive dynamic between the two countries.
SHAMBAUGHActually, there's a new edition of his book out in which there's a new epilogue and I commend that you go out and read that. But on your point about China becoming self-sufficient, not in our lifetimes, not in my lifetime anyway. China's very dependent on the world for all kinds of things, particularly energy inputs and many other things. We all are. We all live in a globalized world. So the whole notion of self-sufficiency I, frankly, have a little bit of trouble with. I don't think any country is ever going to be self-sufficient in this globalized world.
REHMSo you see that as something way in the future?
SHAMBAUGHOh, I, as I said, I don't think it's going to occur, as I say, Diane.
SHAMBAUGHBut I will note that the Chinese government has tried to change its growth model to boost domestic consumption. For the last 30 years China's been operating on a growth model that combines domestic investment into infrastructure. And we've seen the physical growth of the country as a result. And secondly exports, to the west, largely. The World Bank has told them that this is no longer a sustainable growth model and they have to shift to one that's based on domestic consumption, plus innovation, becoming a knowledge economy, not an exporter of low-end goods to Wal-Mart . So the consumption part of that gets to your question about self-sufficiency.
REHMWhat about infrastructure? To what extent do you see that kind of growth and where?
SHAMBAUGHOh, Diane, you just go to China. It's astounding. China now has more miles of interstate highway than does the United States. And we're all familiar with their high-speed rail network. It's to be emulated, I would say. That is one area that is magnetic, if you will. The rest of the world would like to have China's high-speed rail. The U.K., just last week, Prime Minister Cameron unveiled a 20-year program to build high-speed rail across Britain. We're trying to do it on the West Coast from Sacramento down to San Diego.
SHAMBAUGHWe're trying to do it in Florida and parts of the Northeast corridor. So you see it in high-speed rail. You see it in buildings. You see it everywhere. You get off the airplane in Chinese airports--and Chinese cities now are, you know, look like New York City. Many of the smaller Chinese cities almost look like miniature Manhattans.
REHMAnd what about labor costs, how are they achieving this?
SHAMBAUGHLabor costs are rising in China, actually. And that's one reason among several reasons that foreign companies are beginning to move their production elsewhere, to Vietnam, to Indonesia, to Mexico and to India because China's not as cost effective as it used to be. There are other reasons, such as intellectual property theft, forced technology transfer and bureaucratic red tape. As I said, foreign companies may be making profits in China, as one of your earlier emailers noted, but there are many impediments and labor costs and operating costs are now one of them.
REHMBut if China is doing all these infrastructure projects and doing them rapidly, successfully, are they paying their own labor lower wages then they would charge if another country came in to use that labor?
SHAMBAUGHOh, absolutely. And this is the migrant labor that I mentioned earlier. They are the ones who are building the buildings, building the roads, building the harbors. And they're paid a pittance. So they're doing the infrastructure building. Workers in these joint venture companies, though, their wages are rising.
SHAMBAUGHAnd that's become a cost factor.
SHAMBAUGHBut you might be interested to know China's exporting this labor abroad. They're building a lot of infrastructure in Africa, Southeast Asia and Latin America.
REHMAll right. Let's go to Gainesville, Fla., after I remind you, you are listening to "The Diane Rehm Show." And now to Kristen, who's in Gainesville. Good morning to you.
KRISTENGood morning. Thank you for taking my call.
KRISTENSo you've commented that China doesn't have much soft power and I absolutely agree with that, but I was wondering at your thoughts about the so-called Beijing consensus, which could be a potential, maybe, economic development model. And that may be very attractive for governments in less savory regimes that would like to pursue economic growth without having, you know, concurrent political reform or specifically democratic reform.
SHAMBAUGHOkay. Thanks, Kristen. The Beijing consensus is a term that was coined by an American author a few years ago, Joshua Ramo. And basically it argues that the combination of China's authoritarian and political system with its entrepreneurial state capitalist system has produced this incredible miracle and that other countries would like to emulate that miracle. But I would argue that it's not transferable. It is certainly admirable, as I've said, but China's economic growth is a combination, first of all, of the Soviet style planned economy.
SHAMBAUGHStill 40 percent of China's economy is in the State sector. Secondly, it's the product of targeted government investment and industrial policy, just like Japan and South Korea. Thirdly, it is the product of entrepreneurship in society. So these are three unique factors that define the Chinese economic model that other developing countries, I would argue, do not have. So I don't think it's exportable and replicable, even if, you know, some other autocratic countries admire the political part of the Chinese model.
REHMHere's an email from Howard, who says, "Please address how the Chinese concept of face will never allow them to be open in their international relationships."
SHAMBAUGHGreat question. Actually I have a little discussion in the book about it, what I call face diplomacy. And that is to say that China is obsessed with sort of the protocol of diplomacy, the appearance and the symbols of diplomacy. How their leaders are received abroad, you know. Will they get a 21-gun salute or a 19-gun salute? Do they get a working luncheon or a State dinner? Who's going to meet them at the airport? Are there going to be any demonstrators allowed near their leaders when they travel abroad? What's the nature of the motorcade that's going to take their leaders around the city?
SHAMBAUGHThese kinds of symbolic issues, Chinese diplomats pay extraordinary attention.
REHMWell, don't we, as well?
SHAMBAUGHWell, for security reasons of the President, but not in the way the Chinese do, I would argue. There's an obsession really with the protocol and the appearance of diplomacy. And the Chinese, I would argue, wish they were as obsessed with the substance of diplomacy as they are with the symbols.
REHMAll right. To Monterey, Calif. Good morning, Gregory.
GREGORYGood morning. I'm a long-time listener, first-time caller.
GREGORYI appreciate the topic on China, an area of interest. My question for your guest is in regards to trade imbalances. I know that the U.S. is certainly guilty of protectionism in certain agricultural areas, but so is China and areas where they just--I don't know that they're necessarily meeting their demand, but are really not open to say, you know, fresh produce from the U.S. And at the same time they are, you know, forcing many U.S. manufacturers to either relocate and/or, you know, reconsider how their production goes. And I'll take my comment off the air. Thank you.
SHAMBAUGHWell, you're absolutely right about Chinese barriers to trade and to investment and American exports to China, but I must say, too, that American exports to China is one of the little known good-news stories these days in the U.S.-China relationship, but globally. American exports to China are growing at a faster rate than to any other country in the world. And actually they're beginning to eat into this massive trade deficit. I just looked at the figures the other day and it's narrowed slightly. It's still enormous. It's about $400 billion or so.
SHAMBAUGHBut the barriers that you point to, the Chinese barriers, particularly in financial services, agriculture to be sure and other areas continue to be a major problem, along with intellectual property theft and, as I had mentioned, forced technology. This is not an easy country to do business with and hence that's why our companies are going elsewhere. And I think we should.
REHMHere's an email from Joe in New York. "Is it true that the Chinese are racist and that they see other peoples of the world as inferior?"
SHAMBAUGHWell, needless to say that's quite a sensitive question. I wouldn't quite frame it that way. They have a sense of their own centrality, you know, the word in Chinese for China's jung-gwo, that means middle kingdom. And they have long thought of themselves historically for 3,000 years as the center of the universe. And the Hans people do have such a sense of themselves to the extent, though, that they are racist towards or condescend towards, look down upon, other peoples, that's difficult to make any kind of generalization for Chinese society, as it would be for any other society.
SHAMBAUGHTo be sure, there are such Chinese who evince that, but there are many Americans who evince that and many from many other countries. So I don't think one can make, you know, that sort of generalization and accusation. That's a very serious accusation to make against the Chinese people.
REHMDavid Shambaugh, Chinese scholar. His new book is titled, "China Goes Global: The Partial Power." Congratulations on the book. I know you've worked on it for many years. Thank you for being here.
SHAMBAUGHThanks, very much, Diane. It's been a pleasure.
REHMMy pleasure. And thanks for listening all. I'm Diane Rehm.
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