How China is Reshaping the International Order
Photo Credit: Reuters
By Anita Inder Singh

How China is Reshaping the International Order

Jun. 20, 2018  |     |  0 comments


Economic progress over four decades has enhanced China’s international influence and made it an economic and military power second in rank only to the US. It is not yet a global power. But it has been the biggest beneficiary of globalization. Its share of world GDP, measured in purchasing power parity terms, had moved up from 4.1 percent in 1990 to an astonishing 17.86 percent by 2016. India has also has benefited, with its slice of global GDP increasing from 3.6 percent in 1990 to about 7.3 percent by 2016, but it is not in China’s league. The share of the G-7 fell from more than half of the world’s GDP in 1990 to 30.9 percent in 2016. Unsurprisingly, China views globalization as an irreversible trend, and trade and investment as two essential drivers of national and global progress.


Currently China is incapable of replacing the post-1945 US-influenced structures of global trade and security. But it is increasing defence expenditure, modernizing its army and building up a blue-water navy to project its power in international seas and to promote its economic interests worldwide. As Chinese President Xi Jinping asserted at the 19th National Congress of the Chinese Communist Party in October 2017, China aims at becoming “a global leader in terms of composite national strength and international influence” by the mid-21st century.


Challenging the US-led world order, China has displayed territorial assertiveness in the South China Sea. And with the intent of creating a more level playing field for itself as well as increasing its clout in the structures of global governance, China has crafted different economic-driven strategies to reshape international economic ties.


One path has been through trade and investment. Having surpassed Japan as the world’s second largest economy in 2010, China inaugurated the Belt and Road Initiative (BRI) in 2013. Since 2017 the promotion of the BRI has been included in the Communist Party’s constitution, confirming the intertwining of China’s economic, strategic and political ambitions.


Currently China is a major investor in many Asian, African and European countries, and in Russia and its central Asian “near abroad.” Large investments have enabled it to gain diplomatic support in regional and international fora. It has the backing of several African countries in the UN. In ASEAN, Cambodia, Myanmar and Laos have used their influence to head off efforts to criticize China’s activities in the South China Sea. EU member-states like Czechoslovakia, Hungary, and Poland have welcomed Chinese investment. And last year Greece stopped the EU from rebuking China’s human rights record.


China has also pushed open the doors to influencing global governance through new initiatives like its BRI, or by building new institutions that complement existing ones. Outstanding examples of such institution-building include the Asian Infrastructure Investment Bank (AIIB), which is open to countries outside Asia, and its state-owned Silk Road Fund. The AIIB and the G-20 are two examples of the importance it attaches to different kinds of multilateral institutions or fora.


Many traditional friends and allies of the US are interested in what the Chinese-initiated institutions can offer them. The strong Chinese economy presented them with opportunities, even before Donald Trump started trade wars between the US and friendly and hostile countries alike. The AIIB appears as a Chinese-created multilateral institution — a major reason why the US’ European and Asian allies and friends joined it. China’s friend, Russia, and its main Asian rival, India, are on board in part because they feel that they lack a voice and influence in Western-dominated international financial institutions. China’s world image was thus enhanced even before it confronted Trump.



China cannot replace the US as the world’s primary power. Its USD 14 trillion economy is both less strong than — and cannot easily catch up with — the US’ USD 20 trillion one.



Meanwhile the West has been slow to reshape international institutions to advance China’s interests — or to change them to reflect economic and political changes in the world.

In the IMF, China’s voting power (and that of many other former and current developing countries) is still smaller than what could be expected based on the size of their economies. In the IMF China has 6.9 percent of the votes, India 2.64 percent, Russia 2.59 percent, the US 15 percent and UK 4 percent. In the AIIB China has 29 percent of the votes, India 7.6 percent, Russia 6 percent and the UK 2.9 percent.

 

Evidently China wishes to reform the global order. But what does it want to create? Fears of indebtedness to China exist in Asian countries on the BRI, so China does not necessarily look like a generous, far-sighted rising power that will steer the world towards a more economically just world.

 

China still has a long way to go before becoming the equal of the US. But its economic and foreign policies show its awareness that international influence is about more than military strength. Unlike the US, China lacks allies worldwide, and Xi knows that global clout must rest on domestic strength and stability. China, as the aspiring world power, gains benefits while providing global public goods whose benefits extend far beyond its national borders. Infrastructure connecting China with several countries and information technology are two examples of such public goods.

 

Time will tell whether China — with or without the help of the EU, Russia and India — is economically strong enough to challenge Trump’s declaration of trade war.

 

For now, China’s strong economy sustains its latest defence budget of USD 175 billion. Its territory-pecking tendencies alarm most of its neighbors in Asia, but it is the top trading partner of many of them. India — and in its immediate neighborhood — Pakistan and Myanmar come to mind. Farther to the east, China is ASEAN’s largest trading partner and the top source of imports for many ASEAN countries. In 2017 China’s trade with ASEAN was USD 514 billion, the US’ USD 273 billion, India’s around USD 72 billion.

 

To extend its global economic reach China wants to promote the use of the Yuan in international trade. It is exploring the chances of using the Yuan in projects that are part of its BRI. For example, it trades in Yuan with Pakistan, its partner in the China-Pakistan Economic Corridor. It wants the Yuan to replace the US dollar as the global or reserve currency.

 

However, the dollar remains the dominant international currency, US financial markets dominate the global economic system and the US remains the leading economic power. But there is also the reality that China’s mix of trade and investment has helped it to increase its economic and strategic influence in Asia.

 

China’s strength augurs that it will not go along with international norms that do not suit its interests. Rather, it may craft new international practices through its economic and political interactions with countries on the BRI, in international institutions — and through incremental territorial revision. Trump’s attacks on multilateral institutions and his trade war have given China, an economically protectionist country, the chance to present itself as the champion of globalization, free trade, and multilateralism.

 

Yet these very gains for China also highlight its own dependence on the global economic order and its susceptibility to events beyond its control. China may be the US’ strongest challenger in Trump’s trade war — but Beijing is seeking agreement with Washington with the intent of reducing an unfavorable fallout for itself.

 

At another level, China cannot replace the US as the world’s primary power. Its USD 14 trillion economy is both less strong than — and cannot easily catch up with — the US’ USD 20 trillion one. If the US continues to appear unreliable and unpredictable to its friends and allies, China may continue to enhance its regional and world influence. But that will remain much less than that of the US for a considerable time to come.

 


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