China’s Two Camps

Bankers and bureaucrats want peaceful ties. Hardliners are convinced the West is conniving to keep them poor.

The prospect of penetrating China’s huge and emerging market is still a tantalizing one for many businesses. But as the fates of Google and British-Australian miner Rio Tinto show, foreign companies must tread carefully.

Writing for Newsweek, Melinda Liu explains how China is sending mixed messages.

Premier Wen Jiabao welcomed foreign executives last week, assuring them that, “It’s important to reinforce your confidence in China.” But on the very same day, Internet giant Google shut down its operations in China, refusing to bow to government censorship any longer.

“That controversy,” notes Liu, “has contributed to the growing uneasiness of business leaders operating in China.”

Two camps

China may appear monolithic to outsiders, writes Liu, but in reality two camps are struggling behind the scenes over how best to engage the rest of the world:

On one side are the hardliners, who occupy prominent posts in the military and at Communist Party schools. Many of them “feel the US is conniving to deceive China and keep it poor,” says one Chinese foreign affairs expert who requested anonymity. On the other side stand internationally-oriented bureaucrats, including many in the Foreign Ministry and banking sector, who want to maintain peaceful ties with the West.

The hardliners have dominated in recent months. Their Sinocentrism prompted the persecution of Rio Tinto officials and could be read in the government’s official response to Google’s decision to leave the country when the People’s Daily excoriated the search engine for its “collusion” with American intelligence.

The international school isn’t giving up though. Even as the People’s Daily printed its denunciation, Foreign Ministry experts warned that Google’s exit would affect relations with the United States on the whole.

Currency manipulation

Analysts also see hints of a thaw in the much-contested issue of China’s currency.

The United States have long complained that Beijing is keeping the yuan artificially low. China has dismissed such claims as “irrational.”

Yet earlier this month, Zhou Xiaochuan, the governor of China’s central bank, declared that the yuan‘s dollar peg was a “special” response to the global economic downturn, suggesting it may be allowed to strengthen soon.

“That may sound like a victory for China’s cosmopolitan cadres,” writes Liu, but there is reason to be cautious: “it could also fuel nationalists’ anger as the intraparty wrangling continues.”