Eurasia Rising – Part I – China: Enter the Dragon

 

In this series I will be exploring some trends with the inevitable power shift from West to East, starting with China in part I, Russia in part II, other countries and emerging Eurasian projects/ institutions in part III, and finally the impact this will have on the Western empire, in part IV.

The East is once again rising

Some may call it the “Asian century”, while others a “multi-polar” world. One thing is almost certain – lots of big changes are happening across Eurasia that are converging towards a global power shift from West to East. Lets now explore some of those big trends and where things may be headed in the future.

The Chinese Economic Dragon Awakens

Once the centre of the most advanced civilisation on Earth, the historically insular Chinese mainland is once again re-establishing itself as a dominant force on the world stage. The most obvious trend in the past 20 years has been the notable economic rise of China, enjoying enviable double-digit growth rates for many consecutive years. The main mastermind behind China’s economic success has been Deng Xiaopeng, a true nationalist gifted with a long term vision of a Statesman. After some disastrous policies implemented by Mao Tse-tung, the father of China’s red revolution in 1949, in his footsteps Deng Xiaopeng took a less ideological approach and initiated a series of structural reforms that saw the economy become more decentralised and privatised. China joined the World Trade Organization (WTO) in 1997, enabling it to engage in global trade deals.

Proof of China’s robust economy was demonstrated in 1997 with the Asian Financial Crisis, when most south-east Asian nations, eager to open up their economies to Western capital, found themselves mired with sudden currency devaluations and asset price collapses due to capital flight and the fickle nature of “hot money”. China however, remained relatively unscathed, due to capital controls and a more cautious degree of “openness” to Western capital. Despite the gradual nature of China’s openness, its party leadership knew very well that they were in control of a Titanic that could not afford any sudden, ill-thought out decisions. And this paid off; by 2010, China’s economy overtook Japan to be the largest economy in Asia. Western firms began outsourcing manufacturing to China well before this. China’s notable rise was thanks in part to a managed peg against the US Dollar, enabling it to keep its currency artificially low to spearhead an export-lead growth model while buying time to develop a domestic consumer base of its own as well as a wealthy middle class. China’s exchange rate policy has drawn much ire and frustration from America. China as a result became the world’s manufacturing hub and main growth engine. In the mid-2000s, awash with massive US dollar reserves from a huge trade surplus and having to maintain its peg to the US dollar, China began to recycle some of those dollars into the US, buying Treasuries, property and stakes in various corporations. This played a big role in pushing up asset prices in America in the years leading up to the financial crisis of 2008, the moment power began to irreversibly shift East. The party leadership diversified their new riches globally – investing in vital infrastructure projects, – ports, airports, agriculture, factories, stock and gold exchanges, highways, property and energy projects in Africa, Australia, Europe, South America, North America, Asia and the Middle East. China pursued a policy of shrewd business Realpolitik and did not discriminate nor impose any conditionality or arrogance onto its business partners, unlike America, which was busy seeking to impose its values on its trade partners and meddle in their affairs. China offered an alternative – a less ideologically driven “hands off” approach, focusing on mutually beneficial deals, rather than lofty one-way streets of seeking to shape its trade partners in its own image.

Today China has become the world’s largest oil importer and boasts the biggest GDP on a PPP basis in the world, all thanks to the long term vision and steady manoeuvring by a pragmatic leadership. China, although notorious for copyright infringement and reverse engineering, has some of the world’s largest consumer markets and prefers to adopt its own domestic web platforms such as Baidu, Weibo, Youku and RenRen instead of America’s Google, Facebook, Youtube and Twitter. China is also becoming the global leader in Bitcoin mining, hosting the majority of mining processing power for the growth of Bitcoin in 2017. A business and scientific revolution is also making headway in China, with a wave of venture capital and start-ups sweeping the mainland, eager to innovate and leave their mark on the world. China is predicted to become a global leader in artificial intelligence with Baidu, its tech giant, and Chinese scientists are already leading the race in quantum encryption technology, having recently entangled particles to a low Earth orbit satellite for the first time. Quantum encryption standards will be the next revolution in data protection, surpassing RSA public key cryptography. China has also recently had its currency, the Renimbi or Yuan, added to the IMF’s SDR basket in 2016, which means global recognition of the Yuan as a reserve currency. With its domestic market growing, China will move past its export-lead growth model and mature as an economy, as a middle class emerges to sustain China’s new growth engine. I expect that by the time China is ready to make this transition, it will finally un-peg the Yuan from the US dollar and allow its currency to float. This will slowly begin to drain its dollar reserves and around the time this happens, the US dollar will begin to seriously slide. The Chinese leadership has been going on a gold buying spree, even purchasing the London Metals Exchange. With recent chatter of Yuan-backed futures to be issued on markets, fully convertible to gold, this may be a game-changer in beginning the process of internationalising the Yuan, readying China’s steady ascendency to the economic throne. This could also render America’s sanctions useless, as big energy exporters to China such as Iran and Russia use these futures to bypass USD trade entirely. The effort to set up Yuan swap lines with various countries also provides evidence of China quietly preparing the world for the Yuan. As of 2017, with the US currently growing around 2% and a $19 trillion nominal GDP, China at 7% growth and a $13 trillion nominal GDP, some simple back-of-the-envelope calculations predict that China will surpass the US as the # 1 economy at these rates, ceteris paribus, in about 8 years.

Chinese Military Capabilities

Militarily, China is still a laggard to the US and Russia, however, the dragon is playing catch-up, and it has a formidable capacity to grow like no other. From the nation that has constructed the Great Wall, the biggest man-made marvel of all time – visible from outer space, one can expect similar projects in grandiosity for the 21st century. China’s advantage lies in its sheer manpower. This easily produces the world’s largest spy/intelligence network, cyber-hacking network and standing army in the world. The raw volume of collective brain-power and intellectual capacity can also make for some breathe-taking engineering feats, such as the 3 Gorges Dam, the world’s largest power-station. I will be covering some of China’s massive international mega-projects in another article. Being traditionally a land power, China’s vulnerability lies in not being a prime naval power, unlike the US, which has this advantage. However, China has an ambitious plan of ramping up nuclear submarine production and entering the aircraft carrier race. As the mainland still imports a lot of oil and gas from the Middle East and Africa, it needs a corresponding naval force to defend its maritime interests. In terms of air superiority, while not as advanced as it’s US or Russian counter-parts, China nevertheless has an endogenous 5th generation multi-role fighter program going, the Chengdu J-20. One of China’s deterrents against the superior might of the US navy, is its cutting edge development of hypersonic missiles, to potentially render US maritime assets like aircraft carriers, as well as air defences, useless. As its quest to rise to the status of naval power begins, the Chinese have been testing the waters, literally, around the South China Sea, claiming and developing some uninhabited islands that are concomitantly claimed by the Philippines and Vietnam. The US of course has not been happy, but is largely unable to do anything about it. To be a naval power, one must be able to project power at some distance away from the mainland, and China has seized on the opportunity to do this in a relatively quiet part of the sea. The problem with being a net importer of oil and gas, like America, means that one is subject to supply choke-holds, in places like the Straights of Malacca, the Bab al-Mandeeb, Suez and the straights of Hormuz, where the US could still be able to close by force, cutting China off from maritime energy supply. This is partly why China has opened its first foreign base in Djibouti, next to the Bab al-Mandeeb, and also partly the reason for seeking to establish a new internal “Silk Road” passing through friendly Eurasian States.

Steady Wins the Race

As China emerges from the ruins of Maoist ideology, it is “Socialist” in name only, having a mixed market economy and a very pragmatic leadership that treats its relationships based on mutually beneficial business and respect. While not democratic, a behemoth like China stands to benefit so much more through having this pragmatic authoritarian style of leadership, in its expansion phase at least, while democracy proves to be too inefficient, beset by endless squabbling and back-tracking on promises and projects, essentially mired by the problem of high leadership turnover. This sort of squabbling and political undulation would ruin China’s current growth trajectory, should it get carried away with what it deems petty and distracting issues of pandering to the sensitivities of minorities. In China, the Han majority rules, and one is expected to toe the line for the benefit of all when the leadership says so. As such, China is able to power ahead with steady hands on deck and little opposition, provided that it keeps on delivering growth and wealth to its citizens. This phase will eventually plateau, and the leadership will try its best in what is needed to steer the Titanic and not sink it out of carelessness. China’s main focus is economic might, then military might. It’s preferred way of waging war and deflecting punches from the more assertive, yet declining, US empire is through financial and cyber means. Once it builds up enough wealth, financial and trading power, it will then focus on expanding its military might, something that has already started in earnest.

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3 Comments on "Eurasia Rising – Part I – China: Enter the Dragon"

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Mdude
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Another great blog yet again AJ, 1. I think the SCS (South China Sea) is far more than important than some think and is the most contested water zone in the world. Countries like Vietnam (which has defeated 3 superpowers and invaded another neighbour, Cambodia), the Philippines, Malaysia etc all contest this. The Chinese apparently feel that the SCS is very narrow and congested and can be used to block China’s maritime trade, in other words just a bigger version of the Malacca straits so to preemptively prevent any creation of “choke points” they have been staking claims in the… Read more »
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[…] having covered China in Part I, Russia in Part II, I will now explore what other countries in Eurasia are set to be key players in […]