I just mentioned in the previous segment that I believe that China will be an important and influential country on the global stage during the 21st century. But I would like to bring to your attention some very important arguments showing that China's influence might actually be more limited or constraint than what most people assume. This is the Forbidden City in Beijing, China. This use to be of course the imperial palace for two dynasties of emperors, the Ming and the Qing until the year 1912 when the last emperor abdicated and the Republic of China was proclaimed. During the imperial period, early imperial period, China was one of the most developed countries in the world. They invented the printing press, gun powder. They also invented the compass and, of course, paper. Admiral Heye, before this palace was built, explored the Indian Ocean and all of the seas surrounding China. So China was a very outgoing looking country. Until an emperor decided to seal of the country from foreign influence. That was the beginning of China's decline. And as you know during the 19th century, China was forced by the European powers into a series of trade treaties. And also the United States forced China to sign a trade treaty. It wasn't until after the communist revolution in 1949, that China started to find its way out of decline. I'm at the Great Wall in China. This was built over a period 2,500 years and it stretches over 13,000 miles. There's 25,000 of the watchtowers that you can see in the background. Most of it was build during the Ming dynasty. But then the Qing dynasty, that's over the last 400 years or so, it became redundant because Chinese borders then included parts of Mongolia. Now, it is very important also to think about the role that the the Great Wall played in trade. So during time of peace this was used to as a way to collect custom's duties as the goods moved in and out of China. And it is also very useful in terms of regulating immigration into China. So in other words, the Great Wall was not just a defensive feature, a fortification, it was also a very important structure in terms of how China related to the rest of the world in terms of trade and migration. First of all, let's just examine China's economic imports. It is the country in the world with the largest population as we speak and it's only going to be India in the near feature that will have a bigger population than China. It is already the second largest economy and by some indicators has already overtaken the United States. It is also the leading trading power in the world. And it has the largest current account surplus cumulative over a certain period of time, although during some years, Germany has registered a higher or a greater surplus. It is also the country in the world with the largest foreign reserves and it is increasingly important source of foreign direct investment. But China as an economy and China as a potential global power is also very limited. For instance, cities are growing way too quickly in China and there is many problems associated with that growth including pollution and environmental degradation. The population is aging very quickly. They have a gender imbalance as a result of the One Child Policy. There's plenty of environmental degradation, not only in cities but also in the county side as a result of the country's rapid industrialization. They have lost competitiveness in terms of their wages and their costs to other economies such as Vietnam or Bangladesh. They have a fragile banking system and China is finding it very difficult to make the transition from a export related economy to one based on domestic consumption. Part of the problem is that they don't have the right institutions in place. They don't have currency convertibility, meaning that the government continues to set the value of its currency. There is a lot of corruption in China at various levels of government. There's income inequality. There's lack of political legitimacy of the regime. There's internal ethnic strife, especially in Tibet and the Western Provinces. And there are other internal territorial issues. And China has conflicts with most of its neighboring countries, both on land and at sea. And, as I mentioned earlier, China really lacks open access to the ocean. We can evaluate this problem here on the map. China is surrounded by many different kinds of neighbors to the north, the south, the east and the west. Those neighbors actually outnumber China in terms of population. And China has territorial disputes as you can see on this map with every one of them. They also have disputes at sea with several other countries including the Philippines, and Vietnam, and Malaysia, and Indonesia. And these conflicts of course, are very important for the region, because they affect potentially global trade. Now, it's also important to think about China's situation in the world right now relative to United States. It is important to keep in mind that the United States as a country and as an economy is still head and shoulders above China in terms of financial, military, and cultural power, and influence. However, the US is no longer hegemonic as it once was, especially at the end of World War II and then again at the end of the Cold War. Having said that, no topic of global significance can be discussed in the world right now without the simultaneous presence of the United States and China. And when I say no topic of global significance I would like to give you a few examples. Global trade, the global financial architecture, climate change, none of these topics in the world right now can be resolved or can be addressed without the simultaneous presence of both China and the United States. There are of course exceptions to this rule. And most of these exceptions involve localized conflicts in which or for which for instance, that US and Russia should be sitting at the table. So in other words, what are the prospects for the so-called Pax Sinica, that is to say a situation in the world in which China is a country that sets the rules. In the same way that the United States imposed a Pax Americana at the end of World War II, at least over the economies of Western Europe and the Western Hemisphere more broadly. Students of China's role around the world differ on their assessment as to the extent to which China might be able in the near future to impose its own rules on the rest of the world. I list here on this slide a number of books that are quite optimistic about the ability of China to influence global affairs let's say in 20 or 30 or 40 years down the road. But I would like to bring to your attention that similarly smart people wrote books earlier in the 1980s about the rise of Japan. Arguing that Japan was going to become the next super power. And of course, it only took five to ten years to prove them wrong. There's also a long list of historians, political scientists, and economists, who are skeptical about the ability of China to be an influential power in the world. Joseph Nye, Jared Diamond, Aaron Friedberg, and John Ikenberry, have written books or articles, that I urge you to read if you're interested in this topic. Which essentially define the limits and the constraints under which China operates and raise quite important doubts about the country's ability to become a super power. There's also a large number of Chinese scholars and observers who have written books or articles indicating that those limitations and constrains pointed out by European or American scholars, are actually quite accurate. For instance, Justin Yifu Lin, a Chinese scholar and policy maker, wrote an influential book a number of years ago called, Demystifying the Chinese Economy. In which he provided very interesting details as to the ways in which he thought the Chinese economy was limited in terms of enabling the country to play a very influential role in global affairs. So in other words, what I'm trying to emphasize to you here is that there are many open questions as to which countries will be in a position over the next 20 or 30 years to exercise a large amount of influence over global affairs.
