‘If history is a guide, when existing great powers try to accommodate another great power [China, in this case] then there is a lot of movement of the tectonic plates.”  – Ex-Assistant Secretary of State Richard Armitage, August 2005

HONOLULU—The rapid spread of product development and research in high-technology industries toward the Asia-Pacific Region is accelerating China’s rise as an economic superpower. As China sucks in billions of foreign direct investment, a significant chunk of which are poured into research and development facilities, it has become the third-most important offshore R&D location after the US and the UK as early as 2005.

Economist Dieter Ernst, a research fellow at the East-West Center in Honolulu, cites China as among the major beneficiaries of a phenomenon he calls “innovation offshoring” or the internationalization of product development and research. This trend, he says, is being “driven by profound changes in corporate innovation management, as well as by the globalization of markets for technology and knowledge workers,” with American, Japanese and European companies at the forefront.

Among the companies that have set up R&D centers in China are technology icons like Microsoft Corp., International Business Machines Corp., Hewlett-Packard Co., Oracle Corp., Siemens AG, Sun Microsystems Inc., Toshiba Corp., Intel Corp. and Nokia Oyj.

Among the attractions for these companies is the huge pool of cheap talent in China. For instance, a microchip designer in China gets paid only about $28,000 a year, compared with annual salaries of $300,000 in Silicon Valley in the US, $150,000 in Canada, $75,000 in Ireland, $65,000 in South Korea, $60,000 in Taiwan and $30,000 in India.

In line with this offshoring trend is the increasing sophistication and rapid growth of local technology firms.

Case in point is Chinese high-tech enterprise Huawei Technologies Co. Ltd., whose R&D facility in Shanghai showcases the company’s breakthroughs in mobile, broadband, Internet protocol-based, and optical networks; terminals; and telecommunications value-added services.

With total sales reaching $11 billion in 2006, Huawei is currently serving 31 of the world’s top 50 telecom operators like Vodafone Group Plc, Telefonica SA, Deutsche Telekom AG, and BT Group Plc, covering more than a billion subscribers.

Ross Gan, Huawei’s corporate communications officer, says the company has expanded its reach worldwide providing third-generation telecommunications solutions. Huawei, she boasts, has become among the top three suppliers in global emerging markets, accounting for 13.7 percent of the Commonwealth of Independent States, 28 percent of the Middle East and North Africa, 26 percent of South Africa, 8 percent of Asia-Pacific, and 10 percent of Latin America.

As of end-March, Huawei had won 50 UMTS—universal mobile telecommunications system—commercial contracts, adds Gan.

Almost half of Huawei’s 62,000 employees are engaged in R&D. It spends a tenth of its revenues in a dozen research facilities around the world, including the United States, Sweden, Russia and India. The results? Huawei has applied for 19,187 patents as of December 2006 of which 2,742 have been approved, Gan says.

Huawei is just one of an increasing number of technology firms that are making their mark in global business. Earlier Chinese computer maker Lenovo Group Ltd. vaulted into the scene when it bought IBM’s PC business.

Just looking at the mushrooming of high-technology start-ups in China financed by American venture capital, accompanied by a continuous circulation of skilled engineers from Silicon Valley into China’s technology parks, and the unstoppable strength of its export-oriented economy, one could understand how the world has viewed China’s rise as inevitable.

“China will be a major economic, political and military superpower—a colossus,” declares Christopher McNally, a research fellow at the East-West Center, who specializes on the China and the Asia-Pacific. “Never has the world seen such an important political economy rise within such a short time span with such global influence.”

The China debate

Still, the rise of China as a global power has been greeted by two contrasting perspectives.

On one hand are those who are alarmed by what they see as a looming Chinese threat, which is poised to challenge the United States for global leadership. Those who ascribe to this view, especially the more hawkish Americans, see China as similar to the old Soviet Union—another “evil empire”—as it seeks to establish “a rival political, economic and cultural system that will inevitably come into conflict with that dominated by the United States,” McNally explains.

Then there are those who consider China as a more benign power. “China aspires to develop into a world power. However, she will not develop like other rising powers before in history and for the time being will go along the status quo,” McNally says. “Its rise will not go through any major war or protracted Cold War confrontation with other great powers.”

Instead, China is expected to act more as a “responsible stakeholder” that would properly integrate a more powerful economy into the global system.

McNally, however, believes neither of these contrasting perspectives adequately captures the deeper issues surrounding China’s rise.

“These perspectives at best misconstrue the dynamics of China’s rise and are at worst dangerous to our understanding of what exactly China’s rise will entail,” he says.

Viewing China as threat, he says, is dangerous as this may lead exactly to the situation it’s trying to prophesy. But at the same time, the more peaceful view “does not also incorporate an even-handed view of the inexorable quandaries of China’s rise.”

“Even the ‘responsible stakeholder’ concept glosses over the fundamental dilemma of how the existing power structure accommodates a rising China,” McNally adds.

Transitions in power

History has shown that the rise of new powers has always been associated with conflict with the dominant society or nation of that period, as seen in the rise and fall of the old European empires to the most recent collapse of the Soviet bloc.

Such transitions in power have taken place every 50 to 100 years and these are “usually dangerous periods,” says Mohan Malik, an expert on China and professor at the Asia-Pacific Center for Strategic Studies, based in Honolulu, Hawaii.

“Power transition theory holds that competition and/or conflict is likely when a dominant great power is threatened by the rapid growth of a rival’s capabilities, which reduces the difference in their power,” he explains.

That may be already happening, as seen in the increasing conflicts between China and its major trading partners, notably with Europe and the US, both of which have complained about China’s weak currency that has largely contributed to China’s ballooning trade surpluses. There are also persistent complaints about China’s ineffectual intellectual property rights laws, the dominant role of state-owned companies in the Chinese economy, abusive labor rights, as well as environmental policies.

But McNally cautions that there are several uncertainties within China’s system that would affect its rise as a global power.

For one, China’s political transition, he points out, is still incomplete and it’s probable that its development path wouldn’t be similar to those of advanced capitalist powers like the European Union, the US or Japan. “It doesn’t have sufficient legal and institutional certainty, the state remains dominant over subservient capital, and the middle class is embryonic,” cites McNally.

Moreover, China lacks a “constitutional state” as indicated by the lack of a relatively autonomous legal system and enforcement, as well as autonomous professional bodies for corporate leaders, journalists, accountants, lawyers and the like. As such, China has a “political economy in transition that has not reached the institutional certainty and predictability of advanced industrial economies,” he says, noting that while the Communist Party binds the system in China, “it also forestalls fundamental reforms.”

“In other words, if China’s present political economy is sustained, it implies a state-sponsored form of capitalism. On China’s scale, this could prove to be highly destabilizing for the global capitalist system,” says McNally. “Policy conflicts will increasingly dominate China’s international trade, investment and economic relations.”

Much closer to home is China’s evolving regional relationships, particularly over Taiwan, which it considers a renegade province, as well as competing territorial claims with Japan.

McNally considers Taiwan as a potential “tipping point” in the geopolitical rivalry pitting Japan and the US against China and “any change in the status quo will have reverberations in Southeast Asia, the Korean Peninsula and beyond.”

McNally also notes that China has no free and open access to the sea lanes of communications, including the Strait of Malacca, and the Sunda and Lombok Straits where 80 percent of its oil pass through. These sea lanes are practically under the control of the Americans such that China has been building its naval capability to address this handicap.

It has also adopted a “string of pearls strategy” to ensure its 1.3 billion people wouldn’t run out of oil. These “pearls” include Bangladesh, where a container port facility in Chittagong is being established; Myanmar, where China has naval bases and electronic listening facilities in the Bay of Bengal close to Malacca Straits; Cambodia, where it is helping in building a railway line from southern China to the sea; and Thailand, where China is considering the funding of a $20-billion canal across Kra isthmus that would allow Chinese ships to bypass the Strait of Malacca.

“China seems to be doing everything simultaneously in a much more condensed time frame,” said McNally. “In fact, China’s emergent capitalism combines aspects of crude Victorian capitalism with 21st-century technology and corporate organization… As with the rise of other great powers before it, China’s rise will be disruptive and difficult for the international system to absorb.”

Cold War residue

But for the Chinese, much of the jitters surrounding China’s ascent in the corridors of international power are caused by an overestimation of China’s capabilities and global ambitions.

After all, it has other problems to attend to.

Liu Xielin, a professor at the Management School of Graduate University of the Chinese Academy of Sciences, for one, insists China would not exert much influence on its neighbors because “domestic affairs will be more important for the Chinese government in the coming years.”

“It will take long time for the Chinese side to challenge the power of the US,” he says.

Chen Weihua, chief commentator of China Daily, a national English-language newspaper in China, dismisses Western concerns about China as paranoia and a residue of Cold War mentality. While China will carry increasing economic weight globally, Chen concedes that its political clout will be stymied by a “crippled political system” due to absence of political reforms and basic freedoms.

Instead he sees a benign China that will serve more as an engine of growth in the Asia-Pacific through greater intraregional trade and investments.

“It is true that with the current government, China has become more assertive and involved in international affairs and China’s increased integration with the rest of the world makes this not just necessary, but important,” Chen says, noting that China and the US and other Western countries differ in handling crises, whether it is Iraq or North Korea, Iran or Cuba.

“China will make its voice heard more clearly in the future as it becomes strong.  [But] it serves China’s interest best to be at peace with the rest of the world. We still have to fight hard to lift many people out of poverty,” he adds.

As China evolves into a more globalized society, Chen says the country would be steered into “a direction more compatible with the rest of the world.”

“It will not serve China’s interest to be a disruptive force,” he says. “It serves China’s interest to have countries in the region as our friends and good neighbors, including Taiwan and Japan. People here want stability.”

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