Indonesia Update: Economic War

The world order is under the rule of developed countries. This premise should be understood well by developing countries. China – and not Iran or Venezuela– as the best pathway of developing country gives the best examples what can be done and how to deal with the America-defined world.

The pivotal policy is whatever happens it will be about economy. Do not try against them directly unless it gives economic advantages. As long as you can sell your product across the world, your country can absorb investment, new technology from foreigners, then everything will be all right. These must be ensured before making any policies. And economic-based policy is best implemented by China and reversely, worst grasped by Iran or Venezuela.

We can spell out what China has done against developed country in a place that they can almost do nothing and not hamper China economy.

The long-standing dispute on Senkaku/Diaoyu between China and Japan rose again a few weeks ago after a collision between Chinese fishing boat against Japanese patrol boat. And then the Japanese detained the Chinese captain. Certainly it prompted protest both Chinese government and people.

It doesn't stop here. The Chinese government continues flexing its muscle. It seems China has a list of actions on what to do in certain situation against Japan. In this case China knows that Japan needs a lot of rare earth metals in which China's export accounts for of 90% world's demand. Rare earth metals are pivotal materials for Japanese manufacturers. Ridiculously, China out of the blue announced it would restrict its rare earth materials due to environmental issue. It implies China has imposed economic sanctions to Japan.

Let us see another battlefield between China and United States in Afghanistan.

If we ask who spent a lot of money "to secure" Afghanistan, the answer will be the United States. But the following question will be who benefit the most from the secured Afghanistan, and the answer will be China.

Since 2001 America has spent USD 940 billion to secure Afghanistan, and in December 2007 China was give a contract of USD 2.9 billion to extract copper in world's largest deposit there, without a single bullet from Chinese Army and even the Chinese did not explore the deposit. As usual America is a bad loser, they try to accuse that Chinese company has bribed the Afghan officials to win the contract. Despite the allegation might be true, the Chinese firm – supported by its government – clearly offered the best deal for Afghanistan government.

Moreover, the clash of America against Chinese also takes place in other field. Again, America is a bad loser. This time America blames China for its trade deficit. The United States accused China deliberately maintain its currency lower than its real value, therefore China's products will be cheaper. Some Americans want to retaliate this with trade war by imposing high tariff on Chinese products.

However, this "currency manipulator" allegation spark debates. The currency and trade between countries are not such a simple analysis. Even, the Nobel Prize winner, Joseph Stiglitz shared the different view. He said "All governments take actions that directly or indirectly affect the exchange rate." The reckless budget deficit or lower interest rate results in a weak currency. Can we also call these "currency manipulators"?

The United States likely want to repeat its economic coercion against Japan ending with 1985 Plaza Accord in which Japan succumbed to American demand. But China is not Japan. China can stand firm because it has more freedom in international politics than Japan. Besides China's economy is growing and more independent than Japan.

This is world we live in. It is all about economic competition. Every country wields their economic weapons at their disposal to press another country. And what we can learn a lot from China – and not from Iran or Venezuela– is building independent economy first. After that a country will have more alternatives to deal with any other countries.

Reference:

Indonesia Update

Tuesday, September 28, 2010

Economic War

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