‘Nixon shock’ still felt four decades on

The country Richard Nixon visited in 1972 is a distant memory, but China has work to do to challenge the West, writes Minxin Pei

WHEN US president Richard Nixon embarked on his historic trip to China 40 years ago, he could not have imagined what his gamble would unleash. The immediate diplomatic impact, of course, was to reshape Eurasia’s geopolitical balance and put the Soviet Union on the defensive. But the long-term outcome of America’s rapprochement with China became visible only recently, with the economic integration of the People’s Republic into the world economy.

Had Nixon not acted in 1972, China’s self-imposed isolation would have continued. Deng Xiaoping’s reform and opening of China to the world would have been far more difficult.

Four decades after the “Nixon shock”, nobody disputes that China has benefited enormously. Today, the impoverished and self-reliant country Nixon visited is history. Global reintegration has turned China in to an economic powerhouse. It is the world’s largest exporter in volume terms and the second-largest economy.

However, China continues to fall short in overcoming systemic obstacles to long-term success. As China is widely regarded as a winner of globalisation, it is natural to assume the country has developed the means to meet its challenges.

While China has implemented policies to maximise the benefits of free trade (undervaluing its currency, investing in infrastructure, and luring foreign manufacturing to increase competitiveness), the country remains unprepared for deeper integration with the world.

One sign of this is China’s lack of the necessary institutions and rules. China has become a major player in providing economic development assistance (often tied to its strategy for acquiring natural resources).

Its loans and grants to Africa have now surpassed those made by the World Bank. However, China has no specialised agency in charge of international development assistance. As a result, its foreign-aid programmes are poorly co-ordinated and often seem counter-productive.

Another example is the lack of an immigration policy. Even though China is beginning to attract labour from around the world, it has yet to promulgate a comprehensive legal framework that would allow it to compete for the most talented people or deal with the complexities of international migration.

Perhaps most importantly, two decades of rapid GDP growth have masked serious weaknesses on the economic front. Because China still favours state capitalism and discriminates against the private sector, it lacks strong private firms that can take on Western multinationals.

Until now, China has not paid dearly for this. Its role in the global economy is confined to low-to-medium-end processing and assembly functions. The most critical, sophisticated and profitable parts of the value chain — research and development, product design, branding, marketing, service, and distribution — are occupied by American, European, Japanese, South Korean, and Taiwanese companies. China simply “outsources” these high value-added functions to the likes of Apple and Walmart.

China does have huge firms, but they are inefficient state-owned behemoths that owe their size and profitability to legal monopolies and government subsidies.

A China deeply embedded in globalisation also needs a large pool of talented people, comparable to the best that the West can produce. Today’s China lacks that pool. While tens of millions of young people display impressive innate abilities, the country’s system of higher education does an abysmal job cultivating their talents.

Unless China reforms its stagnant system, the country will not be able to produce enough highly trained talent to compete with the world’s best and brightest.

None of these shortcomings are insurmountable obstacles. The real question is whether China can remove them under a one-party regime that is hostile to the liberal values that inspire and underpin globalisation.

Nixon himself was probably not bothered by the nature of the Chinese regime four decades ago. The fact that the question must be addressed now attests to China’s astonishing progress since then. However, it also shows that China’s long march towards global integration remains unfinished.

* Minxin Pei is professor of government at Claremont McKenna College in California. Copyright: Project Syndicate, 2012


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