Rising China, grouchy partners

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crisis of 1997-98, when affected southeast Asian countries feared that their efforts to stimulate exports through devaluation might be thwarted by an offsetting devaluation of the Chinese currency. Beijing set these fears at rest. China’s decision to maintain exchange rate stability was hailed as a constructive contribution to withstanding the crisis. Of late, the exchange rate of the Chinese yuan has become a prominent item on the US-China diplomatic agenda. Facing huge deficits in the bilateral trade balance, Washington has been pressing Beijing to revalue its currency in order to narrow the deficit.

During the early years of its reforms, China was heavily dependent on the West for investment inflows and export markets. After the Chinese economy took off, the initial one-way dependence was transformed into mutual interdependence. China’s dependence on western markets came to be matched by the importance of its own domestic market for other trading nations. China’s success in attracting foreign investment meant that MNCs developed huge stakes in the Chinese economy. Indeed, China’s economic relations with the West are marked by rivalry, but these are now played out within parameters set by interdependence.

The big question is whether economic interdependence exercises a similar moderating influence on political conflicts. A feature of the current pattern of globalisation is that the largest trade and investment flows occur between major powers, in contrast to the colonial period pattern, with flows occurring mainly between major powers and their respective colonies. As a hypothesis, it may be postulated that the new pattern of globalisation tends to exercise a generally benign influence in relations between economically interdependent major powers.