Rebalancing the Scales

Global economic power dynamics are quickly shifting east as China affirms its new leadership role

There has been much cynicism over the state of China’s economy. Following what can be regarded as a substantial decline in the economies growth numbers, and future projections, global investors have become more cautious towards what was once the global economic engine. A recent credit downgrade has also indicated that the country’s debt issues might be something the nation can’t shrug off any longer. And yet, with all that the far-east nation is still typified as the future of global power dynamics.

China’s economic boom is well-documented and is possibly the greatest economic rebirth in living history. By moving millions out of poverty, becoming the centre of global manufacturing and trade in the last few decades, and becoming a growing presence in international politics China is now clearly more than another roleplayer in global power. It is an active node from which influence flows.

This places the far-east nation at odds with the only other superpower the modern world has ever known, The United States of America. America’s place at the top of global influence is unquestionable. The nation boasts the world’s largest economy, military, stock exchange, and a variety of companies that lead their respective industries.

But that picture can change as China finds its footing in the 21st century. Many analysts already consider the coming century to be one dictated by Asia, with China at the forefront. So it only stands to logic that the most attention would be placed on the actions, and reactions, of America in this changing world. Thus, the election of Donald Trump as president of the US, and the subsequent decisions he’s taken since his inauguration have sent the world into a flurry of confusion.

How to lose friends and alienate allies

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Trump’s campaign to become president was predicated on moving America towards nationalism and isolationism, and since his inauguration, he has made this pertinently clear. So far the US has withdrawn a large section of its funding for foreign aid, created a tense relationship with Mexico, Germany and other allies through aggressive economic and immigration policies, and made strides to demolish Barack Obama’s legacy of a more internationally cooperative U.S.

These developments have called into question the global leadership role the US currently inhabits. It is debatable whether one can be “America first” and view the nation as part of a larger cosmos of systems. Consequently, many have seen the US as an increasingly unreliable source for leadership in a globalised world, when they seem to be actively combating globalisation.

The EU, primarily Germany and France, have come into focus as a result of this and Brexit. Their respective leadership in Angela Merkel and the newly elected Emmanuel Macron have come out in strong opposition to Trump’s global outlook. Both leaders have promoted trade when Trump has been sceptical, enforced unity when Trump has been divisive and emphasised compromise when Trump has been uncaring. So what to do when the “Leader of the free world” is outright contradicting his compatriots?  What do you do with an antagonistic ally? Is the EU, in such troubling times, capable of wrestling the reins away from the US? A simple answer is to look East.

The rebranding of China’s global brand has been remarkable to observe, especially when placed at odds with its history on certain topics. Slowly China has synced its global economic perspective more closely with that of a rising power. A notable moment is the World Economic Forum summit held earlier this year. Potentially the world’s largest platform for public economic discussion was highlighted by a key-note address by Chinese President Xi Jinping, in which Xi marked the turning point for Chinese global involvement.

A Global, Active China

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Now firmly the world’s second largest economy, and contributing more each year to the global economy, Xi defended free trade, the Paris Climate agreement, and indicated to all that would hear that globalisation is going nowhere. This was coherent with much of what was being discussed at WEF in Davos, but contrasted with the new hard-lining attitude of the new US president.

But Xi has done more than just talk up China’s new role as global influencer, the nation has forged ahead on many fronts. The developing world has already begun taking advantage of China’s new interest in expansion, in the form of loans and infrastructure projects, which has amassed a considerable collection of foreign projects for the state. China’s ability to provide an alternative source of finance is surely a great advantage to possess if they do not overextend. And they have shown their interest in continuing this with the establishment of the BRICS bank.

But all other projects pale in comparison to Xi’s One Belt One Road (OBOR) trade route. Stretching across from East-Asia to Western Europe, the OBOR initiative hopes to reimagine the Silk Road for a modern world. This means billions of dollars in building a trade region to rival any other, linking Asia, Africa and Europe, and opening access to greater trade flows between these nations.

Despite the initial scepticism to the plan, most nations have sought to build closer trade relations with China through the project. This includes the EU. The relationship between the EU and China has grown dramatically in recent years, including the establishment of further trade ties such as OBOR. With a rebounding EU economy, China can leverage the growing relationship in affirming its influence. This perhaps, is why the EU has taken a cautious approach to the blossoming relationship, avoiding China dominating economic relations.

But whilst the EU may have the weight to do this, other nations are not so lucky. With a potential void being left by America’s isolationism, and the desire to follow in China’s development footsteps, developing nations have been more than happy to sign up for China’s expansion agenda. This has included massive infrastructure investments in transport, energy,  and various other sectors that hope to provide states with the capacity to drive economic growth, financed by the Chinese.

Beyond the relations these programs build for China they also allow it to create influence in growing markets. An example is its involvement in Africa. By investing billions of dollars into infrastructure projects on the African continent China has created a solid footprint in many of the resource-rich nations. Reports indicate that U.S. FDI into Africa stands at almost a tenth of their Chinese counterparts.

 

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The new Standard Gauge Railway system in Kenya, that extends between Nairobi and Mombasa, is the nation’s largest infrastructure project since independence and was mostly  funded by Chinese loans

 

Not only does this expand the relative framework of influence garnered through traditional diplomatic ties, it also helps China to deal with one of its major issues, overcapacity.

As mentioned earlier, the recent downgrade of China’s sovereign credit rating by Moody’s from Aa3 to A1, indicates that investors worry whether Chinese leadership will be able to effectively implement reforms in sight of the pressure on state finances. With all the industrial capacity the nation has built over all these years, if it is not able to generate growth and provide demand to meet the capacity then its economic model is not sustainable.

Part of China’s strategy to deal with fears has been to promote initiatives such as OBOR that, although at a high price, see Chinese private enterprise active in foreign markets. This includes Chinese technology, expertise, and labour, and has provided an opportunity for the nation to flex its industrial muscle, and use it as a diplomatic tool.

This approach to establishing soft power in the developing world has so far been successful, China currently owns 57% of Kenya’s external debt, Signed fifty joint industrial capacity cooperation projects worth $30 billion in Kazakhstan, and has various projects that are either currently ongoing or in negotiation on all corners of the Earth.

Many have referred to this development as China taking the role of “modern coloniser” as its dominating global activity shares similarity to the European colonial efforts in its aggressive attempt to expand. Although this analysis does not truly reflect the exact nature of the Chinese expansion project, it does reflect the perceived weight of the movement.

China is no longer the rising star in the room, that might someday challenge Western dominance, its moment has already arrived, and it’s making that very clear to anyone with eyes to see it. How this will play out as the century rolls on will be the greatest question of our time, and mostly relies on Xi’s OBOR project, as well as the developing EU relationship.

 

 

 

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