Is China the Next Bubble?

The financial press is taking its eyes off the Google-vs.-China story long enough to pay attention to a growing worry in some quarters that the economy of the People's Republic of China could be the next bubble to burst.

Economist and former U.S. Secretary of Labor Robert Reich expressed such a concern in his January speech to The Commonwealth Club of California. In his Bank of America-Walter E. Hoadley Economic Forecast, Reich suggested that commodities and China's economy were two possible bubbles, despite the relatively good management of the Chinese economy in these turbulent times.  Watch the video excerpt below for more from Reich.



Now, two months after Reich's speech, the possibility of a burst China bubble are all over the news. We've collected some news links here for you:

ChinaStakes.com: "'Short the China Bubble' Trend Is Spreading"
National Post (Canada): "China's Financial Bubble Ready to Pop"
Business Week: "China Stocks Fall Most in Two Weeks on Rising Trade Tensions"
Business Insider: "Citi: If You Thought China Was in a Bubble, You Haven't Seen Anything Yet"
Financial Times: "Is China Blowing Bubbles?"
HargreavesLansdown (UK financial advisors): "A Bubble in China?"

Or watch our video of recent Commonwealth Club program "China: Great Power Interrupted."

Obama Visits Beijing: Yuan, Human Rights, Climate on Docket

Obama’s upcoming visit to China next week is generating global interest amid the release of an inflammatory Human Rights Watch report, repeated calls for climate change discourse and China’s giant holdings of U.S. foreign reserves.

The visit, Obama’s first to China, is already marked by a decidedly different tone than that of administrations past. U.S. concerns for human rights interests remain on the foreground, especially with regard to supporters of an independent Tibet. And an international cry has gone up over “An Alleyway in Hell,” the 53-page report by New York-based Human Rights Watch describing China’s use of unlawful jails and detention centers to quell political dissent – especially on the lead-up to visits by foreign leaders.

However, this time around the U.S. will be approaching China on an altogether more deferential note, owing entirely to two huge factors: the immense power now abiding within an artificially undervalued yuan, and the looming nuclearization of North Korea.

China’s status as the single largest holder of U.S. foreign debt places it in predictable position at the center of the post-recession economy. Any significant divestitures would ratchet up U.S. interest rates, reducing consumption at home and severely impacting foreign exporters. Complications arise as China’s expanding middle class increasingly seek their own avenues for consumption.

China is also a major player in the Obama administration’s strategy to persuade Pyongyang to discontinue pursuit of nuclear arms, the acquisition of which would certainly lend considerable instability to an already rocky relationship with North Korea. For more on the latter, watch video of Undersecretary of State for Arms Control and International Security Ellen Tauscher's recent Commonwealth Club speech and discussion.

With the approach of December’s Copenhagen climate conference, climate change won’t exactly be written off the agenda – especially given China and America’s shared title as the world’s largest CO2 producers. Whether China will be open to any pot-vs-kettle name calling or shrugs off any urging from the Obama administration remains of keen interest to many, given China’s burgeoning market for green technology.

--By Andrew Harrison

China at the Crossroads

A panel of experts convened at The Commonwealth Club last night for a look at the pivotal role China will play in the development of a post-downturn, 21st century global economy.

Recent studies from economic and environmental agencies alike point to the heavy influence China exerts on our daily lives, driving up fossil fuel prices and contributing to the quality (or lack thereof) of the very air we breathe.

According to a two-year study by U.S.-based Energy Foundation and the World Wildlife Fund, if China continues to grow at its current pace, its annual greenhouse gas emissions would reach 17 billion tons by 2050 - accounting for 60 percent of all emissions worldwide and easily supplanting the U.S. as the world's biggest "greenhouse gas gorilla." The fast-approaching U.N. Climate Conference in Copenhagen has identified discourse between China and the U.S. as a turning point in the fight against global warming.

Addressing these and other issues were Felicia Marcus, Barbara Finamore and Gao Jie of the National Resources Defense Council, which works in the U.S. and Beijing to preserve and protect the environment. Joining them were Peter Liu, founder and vice chairman of New Resource Bank, an FDIC-member community bank with expertise in funding green and sustainable businesses.

For more information on upcoming events, check us out at www.commonwealthclub.org. A China-related event of note is Lynne Joiner speaking about "Honorable Survivor: Mao's China, McCarthy's America and the Persecution of John S. Service" on October 7. For a list of upcoming climate and environmental programs, see our Climate One series of events and our Environment & Natural Resources Member-Led Forum events.

--By Andrew Harrison

China Gets Tough on North Korea

North Korea's best friend -- if the hermetic, authoritarian, communist state can be said to have any friends -- is giving it the cold shoulder. Bloomberg reports that China will, for the first time, agree to punish North Korean leaders in retaliation for Pyongyang's refusal to accept United Nations resolutions on nuclear tests and missile launches.

China has long defended North Korea, perhaps less out of ideological comradeship than out of what is believed to be a desire to keep a unified and likely pro-Western Korea off its borders. But that loyalty has cost the leadership in Beijing. "The failure to develop a consensus in the Chinese capital to use its leverage over North Korea has permitted [North Korean dictator] Kim Jong Il to repeatedly defy Beijing and the embarrass it," Gordon G. Chang told The Commonwealth Club on May 25, 2007. [Listen to audio of Chang's speech.]

Chang, author of Nuclear Showdown: North Korea Takes on the World and columnist for Forbes.com, urged the West to make nuclear proliferation "a litmus test of our relations" with China. "The West has been patiently engaging the Chinese for decades, and now it's time for them to act responsibly."

So what has changed in Beijing? Some observers say that North Korea's recent nuclear detonations and missile tests, reportedly designed to bolster at-home support for Kim Jong Il's youngest son and chosen successor, embarrassed China so much it had to take action. But Leif-Eric Easley writes in the Christian Science Monitor that China's rapid development has led it to diverge from North Korea, its economic model taking it closer to Japan, the United States, and South Korea than to North Korea.

Whatever the reason, China's most recent move to help punish its client state is likely to have significant impact in Pyongyang.

Tiananmen Square, Congress, and The Commonwealth Club

If you missed last night's Commonwealth Club program on "How Tiananmen Changed China," you might want to check with your U.S. senator or congressional representative. Thanks to Sen. Byron Dorgan (D-ND), who chairs the Congressional Executive Commission on China, the speech that made up the heart of the program has become an official part of U.S. history.

John Kamm, the founder and executive director of Dui Hua Foundation, was asked to testify at a hearing of the commission, but he had to pass up that opportunity because of his previously planned speech at The Commonwealth Club. Instead, he sent along a copy of his speech to Dorgan's staff, and the senator reportedly liked the speech so much he had it formally entered into the Congressional Record.

Central Asian Expert: U.S. Needs to Allow Iran, Others into the Afghan Question

President Barack Obama needs to give Iran assurances that the U.S. will not use Afghanistan to undermine the Iranian government, in exchange for assistance in the region, according to noted author Ahmed Rashid.

“You need Iran on every front, whatever you are talking about. Whether it is military, Taliban, terrorism or economics,” Rashid told a noon-time gathering at the Commonwealth Club of California in San Francisco today. “I think Iran is looking for that kind of minimum security for itself and Afghanistan. I think this is a big issue. It will obviously be opposed by the conservatives in the United States, but it needs to be done.”

Rashid, the author of the best-selling book, Taliban, which became the leading publication on the subject after 9/11, is promoting his current work, Descent into Chaos: The United States and the Failure of Nation Building in Pakistan, Afghanistan, and Central Asia, which chronicles the missteps and possible ramifications of further instability in the region.

One way the U.S. can begin to soothe the region, according to Rashid, is by reaching out diplomatically to the Iranians. "Obama needs to make private or public assurances to the Iranians that they will not use Afghan soil to undermine Iran like the Bush administration did or to seek regime change in Tehran through Afghanistan," said Rashid, adding that the U.S. must also assure all players in the region that it is not seeking permanent military bases in the future. “I don’t believe the Americans want to stay in Afghanistan just as much as they want to stay in Iraq and that is precisely why Obama was voted in to get out of Iraq,” he said.

Rashid also said the other regional powers, Russia and China, must be allowed to join the conversation because of interests in their border security, economic issues and the presence of Islamic extremism in both countries.

The issue of how President Obama will be able to sell the re-introduction of war in Afghanistan to the American people will be a complicated endeavor, yet Rashid believes it to be paramount to the success of any involvement in Central Asia.

“It’s going to be very difficult to sell a commitment to Afghanistan, but I think it is absolutely critical," he said, "It’s critical for your own homeland security. It’s critical for Europe -- for the fact that al Qaeda has spread there. It’s critical also because of the nuclear factor: Pakistan is a nuclear power and no one can afford for Pakistan to meltdown. And, finally, it’s really critical to stop the expansion of al Qaeda before these local jihadi groups become more organized and more of a part of this global jihad."

Rashid found little to argue with in the president's announcement last month of the addition of 17,000 troops into Afghanistan while looking at it in a practical sense. “You cannot talk to the Taliban from a position of weakness, and right now the U.S. is losing the war in Afghanistan," he said. "You have the president, who himself said the U.S. is not winning, which is a polite way of saying that the U.S. is losing.”

Report: U.S. Global Power Will Diminish By 2025

A MULTI-POLAR WORLD SHARED WITH CHINA, RUSSIA AND INDIA PREDICTED

The National Intelligence Council (NIC) has a thought-provoking outlook for the the global geopolitical future in a report released last month. (A .pdf of the report can be downloaded here.)

In the report titled, "Global Trends 2025: A Transformed World", it predicts the United States will continue to sit atop world leadership, but with diminishing returns and "where power will be dispersed with newer player with new rules to the game."

Along with Russia and China, one of these new players will be India, which was the subject of a four-person panel last night at The Commonwealth Club.

The assessment sees both China and India regaining economic power not seen in those countries in two centuries and predicting both will rival the U.S. and Japan in Gross Domestic Product by 2025. Here are some of the other points the report makes regarding India:

-States such as India and other nascent countries may not espouse the Western-developed modes of governing, but are more likely to drift toward methods of "state capitalism" used in China.

-Rapidly modernizing nations like India will likely usher in a new sense of stability as their economic livelihoods will depend on it. It cautions, though, that Russian aggression may be an outlier to that situation.

-The report also imagines the Middle East and Asia without Western intervention as potentially a stumbling block to globalization. If the West and the United States, specifically, find the region a burden to their interests, a scenario could arise where China and Russia, despite differences, come to a tacit union, leaving Iran and India with no choice but to support them in the absence of Western support.

As Michael T. Klare wrote in The Nation, "Not only will the United States be weaker in 2025 because of the hubris of Bush and Cheney; it will face a world of multiplied dangers, emboldened challengers and a paucity of reliable allies."

If you don't want to read the 130-page report, that's the conclusion in a nutshell.