The basis of China's 'win-win' foreign policy

By John Ross
0 Comment(s)Print E-mail, March 30, 2015
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Indirect inputs are not limited to components, as with the parts of a car, but involve numerous other aspects of production. Investment goods, the machine tools and the machinery used in production are also indirect inputs. Rises in such indirect inputs historically have increased the proportion of the economy devoted to investment. Specialized scientific research centers, a highly advanced form of division of labor, are created, increasing the percentage of research and development in the economy. Higher-level skills needed to carry out sophisticated production require longer periods of education, so teaching in schools and universities therefore constitutes an indirect input into production.

Globalization, the basis for advanced production, consequently increases not only the volume of components, trade or raw materials but also the level of investment, scientific research, education, culture and innumerable other features of human civilization.

China, a socialist country, has been more directly influenced by Karl Marx than by Adam Smith in forming its analysis of this development, but on this issue there was no difference between the two - Marx criticized national protectionist policies from their earliest modern appearance.

Such international production forms the firm economic basis for "win-win" relations between countries. Each country can achieve greater economic efficiency by specializing within global division of labor than if it attempted to be self-sufficient. This is why factual economic research clearly demonstrates that internationally "open" economies greatly outperform "closed" ones, China's "Opening Up" policy being one of the world's biggest examples.

This international "opening" of the economy in all countries in turn necessarily means that states become more interrelated with each other, creating - as in the central concept of the Boao Forum - a "Community of Common Destiny." Increasing mutual trade and investment requires not only reductions of tariffs and the creation of free trade zones but also the physical means to permit such interaction to take place - ports, railways, highways, airports and telecommunications links. This is the reason for the importance of the AIIB and similar infrastructure initiatives.

The advantage of international division of labor means, as Xi Jinping stated in a slightly different context, that one plus one can be greater than two. In economic analysis based on both Smith and Marx, mutual benefit results from this process. China's emphasis on "win-win" is therefore not simply rhetoric but is practically grounded in fundamental economic analysis. Furthermore, independently of whether other countries are or are not interested in the Smithean and Marxist basis of China's foreign policy, they are certainly interested in its practical proposals.

To illustrate this, take the AIIB. The United Kingdom decided to join the bank, breaking ranks with U.S. attempts to persuade other countries not to participate, because it saw a "win-win." China certainly benefits from the AIIB, as the bank will finance infrastructure in Asia, thereby increasing China's trade. But the U.K. will also "win," as London has great expertise in financial services, enabling the U.K. to provide inputs and derive benefits greater even than its allocation of capital to the AIIB.

The U.S. in contrast proposed a "win-lose" to the U.K. and other countries in urging them not to participate in the AIIB. China would win as it has the finances to proceed with the AIIB, but Britain would lose as it would not gain the benefits of participation. The U.K. logically preferred the solution in which China wins and the U.K. wins to the U.S. proposal in which China wins and the U.K. loses.

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