China has not only been able to promote its economic rise with its stimulation policies, it has also expanded its reach. — File Photo

I HAVE written before in these pages on Pakistan’s relations with China. The question now is whether an adjustment is needed in these relations in the light of President Barack Obama’s recent visit to India and his warm endorsement of the rise of India as a global power. I believe that a closer examination of the US position should not cause any worry in Islamabad.

China continues to raise its profile in the global economy, a fact noted by President Barack Obama, the United States president in his first visit to Asia in November 2009. Then in a widely noted speech in Tokyo before he continued his Asian trip that included stops in Singapore and China, President Obama declared that he wished to cooperate with Beijing to manage the global economy.

He was recognising two facts about the structural changes that were occurring in the global system at some speed. The first was that America was no longer able to dominate the global economy as it had done after the collapse of the Soviet Union and the fall of the Berlin Wall. The second was the fast rise of China as an economic power which was to set to pass Japan and become the world’s second largest economy. This in fact happened in the middle of this year. The American president proposed a type of arrangement that was soon dubbed the “G2” in which Beijing and Washington would collaborate to define the contours of the new global economy that was emerging. The details within these contours would be filled in by the larger G20 group of countries. This larger group included not only all the members of the club of rich nations known as G7 but also a number of large emerging economies such as Brazil, India, South Africa, South Korea and Turkey. Pakistan is not a member of the group.

On his more recent trip to Asia that began with a three day stay in India, President Obama seemed to signal a significant change in his earlier stance. He appeared no longer to be focusing on the Washington-Beijing relationship as the hub from which a number of spokes emerged to reach other parts of the world. In the reordering of the world, he was now advancing the case of India.

In a meeting with the press in Mumbai he described India not as an emerging economy but as an economy that had already emerged. He repeated that sentiment in a speech delivered to the Indian Parliament in New Delhi, his next and final stop in India.

“The just and sustainable international order that America seeks includes a United Nations that is efficient, effective, credible and legitimate. That is why I can say today that – in the years ahead, I look forward to a reformed UN Security Council that includes India as a permanent member” , he told the Indian legislature that resulted in a long applause from the law makers.

This appear to spell a major change in Washington’s position with respect to the Indian interest in securing a permanent seat – and hence a veto – in the Security Council. The US president was not suggesting that he would work quickly to seat India in the Security Council as a permanent member, a step that would not be supported by China, the only country in the region that had that status. “This is bound to be a very difficult process and it’s bound to take a significant amount of time” explained William J. Burns, the US undersecretary of state for political affairs. Burns was also speaking in New Delhi.

Why this change of heart – and mind – by President Obama and his administration about the relative roles of China and India in the global economic and political orders? There are several answers to this question. The first is that President Obama was promising India a much more important political role in the evolving global system. The role was different from the one he had promised Beijing a year earlier as he reached out to the Chinese leadership. The quasi G2 formulation was related to the management of the world economy, not the global political system.

Second, even more important than the first explanation was the rapid and somewhat unexpected economic rise of China. It had occurred much more rapidly than seen by Washington in November 2009. The US seemed to be getting worried about the pace at which China was rising. Some numbers about China’s performance tell an interesting story. According to the IMF the global economy grew by 0.19 per cent in 2009, measured in terms of purchasing power parity. China contributed 1.19 percentage points to that growth. This means that without China, the global economy contracted by one per cent.

China saved the world from serious recession. According to Vivek Arora, assistant director of the IMF’s Asia-Pacific department, China “clearly made a significant contribution. It is there in the numbers. But beyond the arithmetic impact, if you take into account spill over effects, the contribution is even larger”. China, for instance, contributed 46 per cent of global domestic demand in 2009-10, up from only 22 per cent in 2008-09.

What gave China the salience it now has in the global economy is the highly successful stimulation package it developed and launched n 2009. This was a four trillion renminbi programme worth $601 billion. It saved the Chinese economy from a free fall and provided employment opportunities to 200 million migrant workers who had lost their jobs and posed a real threat to the stability of the social and political systems. This stimulation was used to restructure the Chinese economy. It has now, for instance, the world’s biggest high-speed-rail net work.

While China went about rescuing its economy vigorously, the United States dithered. According to Nobel Prize winning economist Paul Krugman who is also a columnist for The New York Times, politics inhibited action by the Obama administration. “Fearing opposition in Congress, the Obama administration offered an inadequate plan, only to see the plan weakened further in the Senate. In the end the small rise in federal spending was effectively offset by cuts at the state and local levels so that there was no real stimulus to the economy.”

China has not only been able to promote its economic rise with its stimulation policies, it has also expanded its reach. Beijing has purchased $50 billion worth of IMF bonds thus increasing its presence in the institution which will help it influence the making of global economic policy. It has negotiated $95 billion in currency swaps with a number of countries including Pakistan which will pave the way for making the renminbi a global reserve currency. It has provided a third of the funds for a regional back-up mechanism for the countries in financial stress. The idea for such a fund was first mooted in 1997 following the Asian financial crisis of 1996-97.

China’s demand for industrial commodities is also helping to reshape global trade. Its demand for these commodities was only seven per cent of the total in 1999 but increased to 31 per cent in 2008 just before the global economy plunged into the Great Recession. As a result of the way it handled stimulation, the share increased further to 48 per cent in 2009. This has had an enormous impact on its relations with other major economies.

China now is a major trading partner of Germany. According to Goldman Sach’s Jim O’Neill, in another 12 to 18 months, “German trade with China could be as big as German trade with France”. Much of this is because of the Chinese imports of German machinery and automobiles. Total imports from Germany were $300 billion in the first nine months of 2010 compared to the same period last year.

In 2009 President Obama began to recognise China’s rising economic power and attempted to accommodate it in the evolving global economic structure. A year later he paid heed to India’s increasing political role in Asia. Pakistan needs to accommodate itself to both, not exaggerate the meanings of the American president’s recent pronouncements.