The Chinese century?

There seems to be no stopping the rise and rise of China as prominent members of the Atlantic alliance desert the U.S. to join China’s Asian Infrastructure Investment Bank initiative, seen as its alternative to the World Bank and the IMF.

China's President Xi Jinping (fourth from right) with guests at the AIIB launch ceremony at the Great Hall of the People in Beijing on October 24, 2014.

Contemporary historians tracking the trajectory of the post-War world are likely to mark March 12, 2015, in bold on their calendars. On that date, Pax Americana, which had in large measure dominated the globe since the Second World War, was impaired. In its place was emerging a multipolar world, with China, networked with the Brazil-Russia-India-China-South Africa (BRICS) cluster, and many other countries of the Global South, as the principal pole. In an article that appeared on the website of the Strategic Culture Foundation, Wayne Madsen succinctly observed that a “Pax Sinica”, bolstered by support from the BRICS alliance and China’s new partners in the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank, was taking root. This constellation was overriding what had been described in 1941 by Henry Luce, publisher of Time magazine, as the beginning of an American century.

Madsen drew this audacious conclusion following an astonishing decision taken by Britain—a country with an established and well-earned, post-Churchillian reputation of being an American poodle—to sign up to the China-led AIIB. Despite the anticipation of a stormy, if not vicious, response from Washington, British Chancellor of the Exchequer George Osborne and the Tory leadership dug into their reserves of cold calculation, if not languishing self-esteem, to conclude that London’s future did not lie—in its entirety—with Washington and Wall Street. Instead, the bright lights of Shanghai, Shenzhen, Hong Kong and Beijing beckoned. The allure of Eurasia and the visualisation of its struggling companies and services sector dipping into the enormous profits that would be generated by the development of the Eurasian corridor were irresistible.

Britain’s Look East attraction was decisively swayed by the failure of the Western economies to recover from the heavy blow that had been rendered by the financial crisis of 2008. Europe minus Germany was broke, and the myths about the United States staging a game-changing recovery, mouthed by legions of spin doctors in the media, were a stretch.

Bubbling with ideas

On the contrary, China was abuzz with the sounds of bubbly new ideas—clean energy, electric cars, and Internet of things, e-commerce, mass innovation, and Industry 4.0. While Silicon Valley was unlikely to be eclipsed anytime soon, Shenzhen was fast emerging as a new oasis of innovation. In 2014, The Guardian captured a bit of the frenzied entrepreneurial spirit of Shenzhen. “To outside observers, this city of 10-15 million may look like another baffling Chinese metropolis. But for a small global community of hackers and entrepreneurs, this is a technological nirvana—a vibrant, multicoloured landscape of possibility, opportunity and creative exploration.”

The Chinese are currently engaged in imparting more method to Shenzhen, in tune with the country’s attempt to turn from a low-cost global manufacturer to a low-carbon, innovation-based economy, liberated from the “middle income trap” of economic stagnation. In late March, Ma Xingrui, China’s former moon mission chief, was appointed as party head for the city. The Hong Kong-based South China Morning Post (SCMP) described the scientist “as a pragmatic and open-minded reformist who will likely lead the city’s next world-class innovation hub”. A critical mass already exists in Shenzhen to raise the city to world-beating standards in the hi-tech domain. China’s digital capital—the starting point of Deng Xiao Ping’s reforms in 1978— has made its name as the headquarters of China’s hi-tech heavyweights. The list includes web giant Tencent, telecom star Huawei, drone maker DJI, and smartphone notable OnePlus.

As they re-rail their economy towards a world-class, consumption- and innovation-based “new normal”, the pragmatic Chinese are hungry for smart ideas, irrespective of where they come from. Thus, honouring Deng’s dictum, “it doesn't matter whether a cat is white or black, as long as it catches mice”, Bill Gates and Tesla electric car innovator Elon Musk were star guests at the annual Davos-style, Boao Forum for Asia that concluded in March in South China’s picturesque island of Hainan. Robin Li, the co-founder of the Internet search engine Baidu, is recommending the start of a “China brain” project which would focus on specific areas of research, including automated driving, smart drones and robotics, big data analysis and human-machine interaction.

It appears that for the British, the possibility of a cornucopia of new projects under Chinese President Xi Jinping’s ambitious Silk Road initiatives, funded by a string of new development banks, including the AIIB, was an opportunity not to be missed, even if it infuriated a hubristic U.S. Once Britain broke ranks, Germany, France and Italy—continental Europe’s core—deserted the U.S. and jumped onto the lengthening AIIB bandwagon, which soon also included Switzerland, Luxembourg and Denmark. As the March 31 deadline for countries to join the AIIB as founding members loomed, South Korea and Australia also announced their decision to join, crumbling the Pacific flank of the post-War Western alliance system on this issue.

As its flock dispersed, the U.S. response barely managed to mask the rage within. “We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power,” an unnamed U.S. official admonished Britain after it announced its intention to join the AIIB.

But many feel that the U.S. has failed to come to terms with the new ground realities of a rapidly changing world. An article in Financial Times pithily summed up Washington’s anachronistic perception of the hierarchy of economic and geopolitical power, following the escalating decay of a unipolar world: “As China approaches the status of the world’s largest economy, it has become an integral part of the global financial system. It is both bad policy and an ahistorical view that any strengthening of China regionally is necessarily damaging to U.S. interests in Asia,” the write-up said. It added: “The U.S. would be better served if we did not continue to treat China as a junior partner in its own backyard, and form a diplomatic partnership instead that recognises China’s importance to the development of Asia and as an intermediary funnelling domestic surpluses into high-value investments around the globe.

“It is true that we started this century believing that we would enjoy centre stage in a permanently unipolar world, but that is just not the case anymore. China differs from previous rivals we have historically faced in one crucial way in that its strategic goals are driven largely by economics and a desire to maintain internal social and economic stability.”

Eastward shift

With 46 applications, the Chinese are fully aware of the eastwards shift of global economic power. Yet, a write-up published by the state-run Xinhua news agency was bereft of jingoistic grand-standing or petulant triumphalism. The Chinese are making three quick points in their interpretation of the positive reception that has been accorded to the AIIB initiative. First, they note that the beeline of applicants across the globe for founding membership represents the emergence of a “new economic order”.

The Xinhua commentary notes that the “soaring participation has been seen as evidence of China’s growing international sway”. It notes that the essence of the large number of application is that “the world has sensibly voted for a more inclusive, balanced and mutually beneficial international economic order”.

Second, the bank will give voice to the demands of the cash-strapped developing Asian countries, which are expected to require over $700 billion each year by 2020 to meet their demands for infrastructure.

The write-up explains that infrastructural funds are drying up because international banks that once financed infrastructure have been losing interest on account of the new Basel rules, which make risk management more costly. “Pension funds and sovereign wealth funds are not effective enough in this arena and many countries invest their foreign exchange deposits in more profitable bonds and stocks.”

Third, the U.S. has blocked reforms in the International Monetary Fund (IMF) that could have released more funds following quota reforms. “However, most attempts to give greater weight to rising states in Bretton Woods institutions have been stalled out of national interests.”

The Chinese insist that development of infrastructure in Asia will offer abundant trade and investment opportunities for developed countries possessing advanced technology.

“Pivot to Asia” in shambles

The decision by the core members of the Atlantic alliance to abandon Washington in their quest for the AIIB has left Washington’s “Pivot to Asia” or “rebalance” strategy in a shambles. The “pivot”— viewed by Beijing as the military end of a China-containment policy—would result in beefing up the U.S. Pacific Command (PACOM). Once the “pivot” is fully in place, 60 per cent of all American forces would fall under its wings. Already, China’s anxieties have been fuelled by the existing presence of 3,60,000 personnel under PACOM. Besides, PACOM has positioned 200 ships, which include five aircraft carrier strike groups, concentrating enormous capacity to project power, in the region, with China and North Korea as the prime concerns. Under the “rebalance” doctrine, U.S. troops’ presence would also be enhanced in South Korea, Japan and Australia. A more active military role is envisaged for countries such as Singapore, which are closer to the Malacca Straits.

But with South Korea, Singapore, Malaysia and Australia already joining the AIIB, and therefore deepening their stakes in China’s economic well-being, the logic of being at the front end of a China-containment policy has been undermined.

With the breach in the Atlantic alliance and its off-shoots already visible, new questions are being raised about the salience of the U.S.-led Trans-Pacific Partnership (TPP). The TPP is widely viewed as the economic flank of the “rebalance” as it excludes China but includes 12 Pacific economies, such as Japan, Australia, Vietnam, Singapore, Malaysia and Canada, as part of a highly intrusive free-trade deal. But at last year’s Asia-Pacific Economic Cooperation (APEC) summit in Beijing, the grouping backed the Free Trade Area of the Asia-Pacific (FTAAP)—China’s free trade proposal, which is far more inclusive and free from the zero-sum mentality than the patently exclusionary TPP.

The process of AIIB’s materialisation has rendered a stunning blow to the U.S., which has so far failed to adjust itself to sharing economic and geostrategic power with an emerging multipolar world. In an article in the Global Times , Martin Jacques, author of the bestseller When China Rules the World , has summed up the American dilemma about adjusting to the dispersal of global power from the developed to the developing world.

Dilemmas of a declining power

He points out that ever since the 1990s, if not earlier, the U.S. has been a declining economic power in East Asia: in trading terms, for example, China and the U.S. have more or less swapped places, with China now occupying the position that the U.S. once had. The U.S. Congress has also been a roadblock to reforms in Western-backed institutions such as the World Bank and the IMF, by denying upcoming developing countries such as China a greater say in decision-making. Jacques then elaborates on what he calls “the dilemmas that the U.S. faces as a declining power”. “It [the U.S.] seeks to preserve the position and authority of the International Monetary Fund and the World Bank, the two major institutions of the post-1945 international economic order. But, as Western-made institutions, they are creatures of the West, above all the U.S. As the centre of economic gravity moves from the developed world to the developing countries, they are threatened with becoming an anachronism. To survive, they must reinvent themselves, so they are no longer the preserve of the West but are representative, above all, of the developing countries. But how to do that without losing control: this is the American dilemma.”

Jacques correctly concludes that the more the U.S. refuses to join Chinese-inspired institutions like the AIIB, the more isolated it will become. With each passing day, new institutions on the lines of the AIIB will replace the old institutional structure, which will decline and decay.