Jiang Zemin and George W. Bush: allies or competitors?

Taiwan and US officials were recently alarmed to see the Taiwan-invested Semiconductor Manufacturing Industrial Corporation set up shop in Shanghai to produce chips, the technology at the very heart of computers. The US$ 1.5 billion investment is just the first of six major foreign-funded semiconductor projects setting up in China. Once all six are operational in the coming five years, China could well surpass Japan to become the world’s second largest semiconductor maker, behind only the US. As China purchases machinery and raw materials from its neighbours as never before, China has accompanied its new economic leverage with diplomatic efforts designed to assure its trading partners that it offers cooperation, not competition. To compensate neighbours for lost jobs, China recently announced a “go global” campaign in which CEOs of Chinese companies are encouraged to seek investment opportunities in South-East Asia. As part of this effort, the Bank of China has opened branches in Thailand, Malaysia, and Singapore, and soon will reopen one in Jakarta.

One greatly improved bilateral relationship is that between China and Indonesia. Earlier this year, China’s state-owned offshore oil company, CNOOC, bought a large Indonesian oil and gas field owned by Spain’s Repsol-YPF for US$ 585 million. More recently, another oil company, PetroChina, outbid four rivals to buy the Indonesian assets of Devon Energy Corporation for US$ 262 million.

For her part Indonesian President Megawati Sukarnoputri has buried hostilities going back to 1965 and has visited China twice in the past year, hoping to

convince Beijing to award Jakarta a US$ 9 billion liquid natural gas contract to power the industries of southern China.

China is already a leading manufacturer. Singapore, for example, has lost more than 42,000 jobs to China in the last five years because of China's lower cost of doing business. And lower labour costs may cause multinationals in Malaysia to relocate their assembly plants to the mainland. Prime Minister Mahathir Mohamad has told Malaysians to stop viewing China as a “black hole” sucking foreign investment away from Asean. “We want to live with the fact that there is a China and it is going to be very prosperous, very big and economically powerful,” said Mahathir.

Increasingly, the US is finding itself in the same shoes Great Britain found itself towards the end of the 19th century, says Goldman Sachs Vice Chairman Courtis. “Back then, the UK was the dominant power in Europe and in the world, but a declining one,” says Courtis. “The US must realise that there is no power that is capable of dominating all of Asia. It’s not Japan, not India, and it’s certainly not China.”

Maybe it is not the US either. Laurence Brahm, an American lawyer and entrepreneur based in Beijing and a noted author on China, claims American ideologues are trying to shift the blame overseas for what is clearly an American economic crisis. In addition, Brahm says China really isn’t competition for the US, not anywhere near. “China is just a US$ 1 trillion economy, while the US is a US$ 10 trillion economy,” says Brahm. “Let’s not forget that.”

In addition, Brahm says conservative Republicans gloss over the fact that America benefits hugely from China. He relates a personal story Chinese Premier Zhu Rongji shared with him. "Zhu was visiting the US and he needed a new pair of running shoes,” says Brahm, the author of the recent biography on the premier, Zhu Rongji and the Transformation of Modern China. “He sent an aide to go buy him a pair of Nikes. The pair of running shoes was ‘Made in China,’ but came with a price tag of $130. Zhu was surprised it was so expensive. He asked the aide to check the freight-on-board price of the pair of shoes when it left China’s ports. The aide came back and said ‘$5.’ Zhu was shocked. ‘You mean to say our manufacturers made only $5?’ the premier asked with incredulity. What the premier told me sums up the entire Sino-US relations for you. Much of the rest of that $130 price tag was pure profit for Nike and the American retailers.” In other words, good Sino-US relations are a winning combination, albeit with America winning much more handsomely than China.