China’s Role and Impact on the

World Political and Economic system:

An assessment of its past, present and Future


Du Zhifu

2006 03 24










Among developing countries, China’s economic growth is impressive. China has sustained an 8% per year GDP growth over the past 25 years. In 2005, China’s GDP surpassed the GDP of UK for the first time. Goldman Sachs predicts China’s GDP will surpass Germany’s by 2010 and Japan’s by 2020[1]. At the end of 2005, the foreign debt US owed to Asian countries is over two trillion dollars. Out of this amount, 820 billions is held by China alone[2]. With a 1.3 billion population, China’s continue growth at this rate can make it a major player on world stage, economically and politically.


This paper analyses the coming impact of China on the world following two theoretical approaches. The first is the Neo-Gramscian Critical Theory Approach[3]. Under this approach, this paper considers: 1) the international social relation of production, 2) how China internalizes it, 3) the stability of world order, 4) future transformative projects for China, internally and externally.


The second theoretical approach used is the Gramscian historicization approach[4]. By this approach, the emphasis is on China’s perception of itself and its perception of the historical structure it is in. These perceptions help us understand China’s past actions and plausible future directions. This approach also emphasizes the importance of the author’s reflective selection of future transformative projects. It recognizes the role of the writer to bring forth new insights based on his/her historicized reflections. China in this paper means the state-civil complex[5] as the actor/agent on world stage.


A Brief History of China’s coming out and joining the world system

China is an old civilization. China’s history can be traced back four thousand years or more. For most of its history, China was ruled by a succession of dynasties built on self sufficient, agricultural based economies. After 2000 years of dynastic history, China’s last dynasty, Qing, was finally extinguished by 1911. Its demise was brought about by western military and technological challenges. Between 1911 and 1949 China struggled to establish a stable republic but failed due to internal strives and the Japanese invasion between 1937 and 1945.


The relevant Chinese history for this paper is from 1949 onward. In 1949, China was finally unified under a new republic, namely: the People’s Republic of China. The new republic was based on the Marxist/Leninist principle. But more importantly, the new country took up position in the Soviet camp and entered the Korean War in 1950 against the UN and the US. UN responded with an embargo of China in1951. As a result, China was isolated from the capitalist world until 1978.


From 1949 to 1978 China’s economy was centrally planned. Due to the UN embargo, China adopted a self reliant and self sufficiency economy. China also followed the Stalinist development model of maximum extraction from agriculture to build heavy industries. The central planning and the negligence of the agricultural sector led to disastrous results. Meanwhile China managed to sour its relationship with the Soviet Union and got itself further isolated, even from the Soviet bloc.


In 1978, under a new leadership, China decided to do a 180 degree about turn. It broke its isolation and announced the Reform and Open to the World Policy (gaige kaifang)[6]. Since 1978, the world saw a China abandoning Marxism/Leninism and plunging unreservedly into the world capitalist system. However, politically, China steadfastly holds onto its one party authoritarian rule. The difficulty of steering 1.3 billion people and internal stability concerns are the reasons given for this insistence.


China’s re-emergence since 1978 is our main focus. China’s prior history given above is to help us to build a base to historicize China as an actor on world stage. To historicize China is to understand China’s self image and its perception of the world. These inform us of China’s behavior today. The author’s own reflective selection of China’s cultural and historical perspectives is to discern future transformative roles for China both internally and externally.





China’s behavior in the world system and the response of others

China’s behavior towards the world

Since coming out on the world in 1978, every step China took was to deepen its tie with the world’s capitalist system. By now China is a member of all the major international institutions, including the UN, WTO, WHO, IMF, the World Bank and some thirty other organizations. Its economy is now inexorably a part of the world capitalist economy. At the same time China has transformed itself to become the world’s factory for cheap consumer goods.


Economically, this makes sense. The dominant world social relation of production today is the transnationalization of production and finance. China provides the labor in this social relation of production as well as being the largest sink for foreign direct investments. China’s most abundant factor endowment is its inexhaustible human resources. Maximizing the use of this factor is economically sound[7].


However, China’s overall behavior towards the world can be summed up as mercantilist[8], realist and nationalist. These are evidenced by its export oriented trade and exchange rate policies, its military build up[9] and its reliance on nationalism to maintain internal stability.

China’s current behavior is driven by its sense of itself and its perception of the world.

China’s sense of itself is a mixture of victimhood and its unshakable pride based on its dynastic and cultural histories. Its feeling of victimhood comes from long years of suffering under European and Japanese invasions. It makes China see every move of the super powers as potential encirclement. Its dynastic and cultural histories make it impossible for China to accept a semi-periphery[10] status for long. This mixture of self perceptions explains China’s realist tendency and its constant desire for a peaceful rise.


Its mercantilist behavior in trade is both a direct copy of the other Asian NIEs and also due to its trade relations with them. Many of the Asian NIEs have set up factories in China for exporting to the US market.


Its nationalistic approach to internal stability is due the current value crisis within the country. The PRC, in its rise to power, adopted the Marxist/Leninist ideology and at the same time rejected its Confucian past. Since the Marxist/Leninist ideology is proven bankrupt, the state’s raison d’etre is under question and its legitimacy too. In the vacuum of value guidance, the state stirred up nationalism to maintain internal cohesion. However, after 1990, China started to re-habilitate Confucianism (p2 footnote 6), in the hope to use it to support its authoritarian rule. This is also inspired by the Singaporean and Malaysian idea of Asian Value.




US behavior towards China

Within the US there are different voices about China. The neo-liberal side welcomes China’s re-emergence. They would like to see China getting ever deeper into the world capitalist system. These are also the people who come to China’s defense in trade and exchange rate matters. They are found mostly among Wall Street financiers, the Treasury, and the State Department officials. On the other hand the conservative and the neo-conservative wings of the US political spectrum see China as one of the top three threats to US security[11]. Their main concern is that China, unlike the other Asian NIEs, is still not a democracy. Under the current Chinese political system, there in no protection of basic human rights and freedom of press. Without a free press, China’s statistics on economy, military and other areas are not trustworthy. With no political opposition, China can enter a war without popular restraint. While China can not be trusted as long as it is a one party dictatorship, US military bases in central Asia, Japan, Korea, and Guam form a circle around China. Thus the US can react to any move China may take against its neighbors, especially Taiwan. This encirclement further arouses China’s realist instinct.


Other key players

The other key players to China are the EU and Japan. EU is currently expanding its trading relationship with China. Unlike Japan, there are no urgent political conflicts between the EU and China. The only issue outstanding is when EU will lift its arms sale embargo to China. EU will probably lift this embargo on its own except for the US pressure to maintain it.


Japan is also deepening its trading relationship with China. Japanese firms are investing heavily in China. 2005 saw the first time Japanese trade with China overtook Japanese trade with the US[12].  However, on the political front, the Japanese relationship with China is difficult. Japan’s military alliance with the US covers the Taiwan Straight as part of the areas they will protect. In addition, Japanese leaders’ nationalistic pronouncements often stirred up China’s painful memory of Japan’s military past. This situation is further complicated by oil field disputes between China and Japan. These problems do not appear they will be resolved soon adding to China’s heightened sense of encirclement by both the US and Japan.


The likely long term outcome of China’s interaction with the world

Pessimistic Structuralist Perspective: as a large semi-periphery

Even with China’s sustained economic growth in the past 25 years, China is still a developing country. Its 2005, China’s per capita GDP at $1324 US dollars is still very low among nations (p9 footnote 1). This is also evidenced by its population structure. 61% of China’s 1.3 billion populations, that is 800 million people, are rural and many of them have an education level below grade 6. This is partly because of the extremely low level of spending on education by the Chinese government[13]. But also because rural education is not funded the same way the cities are. This lowly educated peasant population is now leaving their villages in droves to become migrant workers in the cities. The migrant worker population has swell to more than 120 millions in recent years[14]. They provide the inexhaustible pool of cheap labor for foreign joint venture factories. This pool can only increase over time and their wage will not change much beyond a few US dollars per day. With this low level of education and this massive pool of cheap labor, China may remain a semi-periphery in the foreseeable future.


To move beyond this stage, China needs to restructure its society to become more than 80% urban, and to invest in education, infrastructure, and health system for many years to come.  In addition, it has to transform itself into an open society to encourage creativity and initiatives. Development is not just GDP growth. It includes human development and democratization goals[15]. These are monumental tasks and it is not clear China has the political will to change its system. Without these changes, China may remain a large semi-periphery.


Optimist structuralist perspective: as part of the core of advance countries

China eliminated all classes between 1949 and 1978. This was achieved by brutal confiscations of properties from rich peasants, business and the industrial classes[16]. What was unexpected was a government official class emerged instead. After 1978, new business and industrial classes are recreated from the ranks of the government official class. Today a new state-civil complex is emerging. It is made up of three types of elites, the political, the business and the knowledge elites[17]. They see themselves as the rightful stake holder and the new capitalist class of China.


Hartmut Elsenhas[18] talked about the need of a state class to be the authentic author of a national development strategy. Strategies such as more equal distribution of income, maximizing internal investment, land reform and institutional changes[19], require a purposeful and capable state class to carry out the changes.


In this regard, the confluence of the political, business and knowledge elites is indeed a powerful grouping capable of this role. With this grouping, strategies of development beyond semi-periphery have a chance.


However it is very important to make sure the state class is sufficiently pressured to deliver the goods to the masses and not just for their own benefits. The current Chinese state-civil complex has already showed signs of deep seated corruption[20]. This is clearly due to the lack of checks and balances from institutions or from the masses.


If China is able to harness the power of this state-civil complex, and make sure it has the welfare of the masses in heart, China may have a better chance to grow beyond the semi-periphery status, particularly if the education level of its people can be greatly improved.


Realist perspective: containment and counter containment

China’s current perception of encirclement by the US, and particularly the situation involving Japan and Taiwan is worrisome. The US under the Bush Administration sees China as a potential threat and a competitor. The threat to world stability may become real if all sides take the realist view as their main guidance.


The trigger of conflict is unlikely to come from economic frictions, given the deep integration of the Chinese economy with the world capitalist system. More likely the trigger of conflict will come either from the Taiwanese independence movement or from oil field conflicts with Japan.


From the West, there should be an understanding that the Chinese were never a conquering race; save for the Mongol and Manchu periods. These two periods had its military vitality came from outside of China. Historically, China’s military posture (e.g. the building of the Great Wall) was defensive due to the pressure put on it by the nomads from the north. This is further supported by the fact that China claimed no colonies even when its fleets ruled the seas as far as the East Africa coast.[21]


The realist instinct of China and the West needs to be tempered by a broader view of world order and economic integration. Without this broader view, realist instincts from all sides can lead to self fulfilling prophecies.


Neo-liberal perspective: peaceful rise

Today, China’s economists, in government or in institutions, are all trained in the western economic tradition. Almost all of them belong to the neo-liberal school. This explains China’s current belief in the power of the market and its goal of a peaceful rise[22]. With all its economic views coming from the neo-liberal school, China’s economic future has no other path than to be firmly rooted in the capitalist market system. If China can get out of the victimhood mood and not see every move of the West as encirclement, it can then better focus on the economic transformation task in front of it and the goal of peaceful rise may become more achievable.


Author’s reflective selection of transformative projects for China

Internal Transformative Projects

China’s state class elites have internalized the dominant neo-liberal globalization project. In essence it is renting out its cheap labor pool to attract foreign direct investments. The state becomes the transmission belt for the MNCs[23]. The social cultural interplay between the ruling state class and the subaltern classes at this stage is simply turning lowly educated peasants into migrant or factory workers. China thus becomes the factory of the world for cheap consumer goods and the Chinese economy becomes export oriented and also mercantilist in character.


This situation is not sustainable, from a number of perspectives. Externally, the continuous trade surplus China has with the US can not last. China already holds 820 billion US dollar in its foreign reserve. Internally, the low wages paid to the factory and migrant worker can be as low as 60 cents US per hour. The low wages plus land confiscated from peasants and city neighborhoods to build factories and high rises caused 74 thousand riots in 2005 alone[24]. The low wages also mean the Chinese internal market is anemic. The majority of the population, i.e. the 800 million rural populations, is too poor to consume despite the fact that some city folks can consume like North Americans. China’s assembly factory economy means also severe environmental damages[25].


China, with a foreign reserve of 820 billion US dollars, has a great opportunity to enter into a major internal transformative project. That is to transform its rural society into a modern agricultural and industrial society. This requires massive investment in education, infrastructure, financial institutions, markets, new towns, new industries, scientific and technological dissemination capabilities[26]. If successful, this transformation can turn China into a healthy, self sustaining and continent wide economy instead of an export oriented NIE. The real transformative nature of this project is to educate China’s subaltern classes and turn them into modern citizens.

On March 5, 2006, Premier Wen Jia Bao announced just such a project, called the New Village Initiative. One trillion US dollars will be invested over 25 years for this initiative[27]. It appears the Chinese leadership is on the right path towards economic transformation beyond the current MNC subsidiary mode of production.


There is another internal transformative project that is of equal importance. That is the democratization of the Chinese political system. This is crucial because without it the creativity of the Chinese people will continue to be shackled. Deep seated corruption and arbitrary political decisions can not be checked.


The democratization of China also has external implications. Without it China is a security risk. China had gone to war with the US in Korea, then with India, Vietnam, and the Soviet Union all in the short span between 1949 and 1982. This is because the decisions to go to war in the current Chinese political system rest on the shoulder of the supreme leader alone. It was Chairman Mao before the Korean War and Deng Xiao Ping before the war with Vietnam. 


It will be reassuring if China’s rise is also democratic at the same time. This is a more difficult project simply because no alternative political force is allowed to build and no one can challenge the current political establishment.



External Transformative Projects

Externally, China can begin by playing the role of a constructive contributor in its region. In 1997, during the Asian financial crisis, China had demonstrated it can be a responsible player. It held the line by not devalue its currency[28] . New transformative projects in the region can include the widely desired Asian Monetary Fund[29] and a number of regional free trade zone possibilities. China has trade relations with Thailand, Burma, Vietnam, Cambodia and Laos to the south. Korea, Japan and Taiwan are all heavily invested in the Chinese economy. A number of free trade zones are possible. These projects may have significant meaning for the less developed countries of the region. China can play a constructive role in a self reliant and mutual support strategy for the region’s developing countries[30], i.e. strengthening the south-south trade and co-operations.


In a wider scope, the world economic system can be made a healthier multilateral system. China’s strong and sustained growth will make it an economic force soon and allows it to join the US, EU and Japan to form a multilateral world economic system. Russia, Brazil and India are also up and coming economic powers.  Reform in IMF, the World Bank and the WTO will have to be made to accommodate these new economic players.


From a world order and security consideration, China’s contribution can go beyond its current role as a junior partner in world affairs and a mediator in the negotiation with North Korea.


Historically China is better known as a cultural power. The dominant Chinese social philosophy is Confucianism. Taoism and Buddhism are the other two major philosophical influences in China. During Song dynasty (960-1279), the three philosophies merged into Neo-Confucianism. Neo-Confucianism keeps the basic tenets of Confucianism on self cultivation, social order and global harmony as its dominant idea. But it also brought in the non-aggression influence from Taoism and Buddhism and particularly the Taoist concept of Wu-Wei (no unnatural action)[31], and its respect for nature.


Neo-Confucianism has a surprisingly wide influence around the world, but not widely known. It was introduced into Europe by the Jesuits in 1583 and later exerted significant influence on Europe’s Enlightenment period thinkers. They include Voltaire, Rousseau, Montesquieu, Comte, Quesnay, Fontenelle, Diderot, Leibniz, Wolff, Malebranche, Bayle, and even Defoe. Lionel Jensen claimed the European concept of modernity was influenced by Confucianism’s secular, humanistic and rational thoughts[32]. Today, Confucianism continues to enjoy Asia wide influence. Some writers believe the economic successes of Japan and the Asian NIEs’ are built on the Confucian emphasis on education, hard work and social harmony. It is called Confucian capitalism[33].


For today’s world order and security considerations, China’s Confucian heritage has particular relevance.  In the ancient text of Da Tong and Xiao Kang[34], Confucius described the ideal of universal (global) harmony, and contrasting it to local (national) prosperity. The global harmony ideal stresses self cultivation, restrain, social order and harmony. It can be a moral counter to the current conflictual and hegemonic world system. It can form part of what Robert Cox called: “a model of global governance in a new multilateralism, with a weak center as the depository of moral unity”[35].


For world order and peace, China should promote the Confucian ideal of global harmony as a transformative project at the UN level. Without such leadership, China can only continue to play catch up as a late realist. Then, China offers nothing really new.


We need all cultures to make positive contributions to create a plural world of coexisting civilizations[36]. Without such contributions we already know what the world system looks like, a conflictual world with tragic under-development in many parts of the world.

Summary and Conclusion

China was an isolated communist country between 1949 and 1978. After 1978, China broke its isolation and rejoined the world. In the process, China accepted and converted to the world capitalist system. However, politically it remains a one party authoritarian state.


China’s one party political system is a world security concern due to its lack of internal checks and balances. As China’s economy sustained a 25 year long fast growth, it is becoming more urgent for the world, as well as China, to ponder the paths ahead.


This paper examined China’s immediate past and its perception of itself and of the world. It points out the root causes of China’s realist, mercantilist and nationalist behavior on world stage.


This paper further analyses the current social structure and internal contradictions within the Chinese societies. The author then identified a number of transformative projects China should consider entering into. These transformative projects are to deal with China’s internal and external conflicts. It also takes into consideration China’s rich cultural and historical heritages.


The internal transformative projects identified  are:

1)      Economic transformation to bring in a balanced development model instead of the current export oriented model. In this transformation, the aim is to achieve a balanced and self sustaining economy with fairer distribution of income, education and other social benefits.

2)      Political transformation to bring in a democratic political system where people’s creativity and talents are liberated, rights and properties are protected and the political power is shared with checks and balances built in.


The external transformative projects identified are:

1)      Join force with other regional countries to establish a regional monetary fund

2)      Join force with other regional countries to form regional free trade zones, and aims also to mutually help each other on the road to development

3)      Join EU, Japan, Brazil, Russia, India and the US to effect a truly multilateral world system, economically and politically


China’s peaceful rise is possible and desirable if China can change itself by carrying out these transformative projects. With its rich cultural and historical heritages, China can be a positive contributor and even a leader in the world political and economic system.





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