China’s new global lead­er­ship

Financial Mirror (Cyprus) - - FRONT PAGE -

The big­gest eco­nomic news of the year came almost with­out no­tice: China has over­taken the United States as the world’s largest econ­omy, ac­cord­ing to the score­keep­ers at the In­ter­na­tional Mon­e­tary Fund. And, while China’s geopo­lit­i­cal sta­tus is ris­ing rapidly, along­side its eco­nomic might, the US con­tin­ues to squan­der its global lead­er­ship, owing to the unchecked greed of its po­lit­i­cal and eco­nomic elites and the self-made trap of per­pet­ual war in the Mid­dle East.

Ac­cord­ing to the IMF, China’s GDP will be $17.6 trln in 2014, out­strip­ping US out­put of $17.4 trln. Of course, be­cause China’s pop­u­la­tion is more than four times larger, its per capita GDP, at $12,900, is still less than a quar­ter of the $54,700 recorded in the US, which high­lights Amer­ica’s much higher liv­ing stan­dards.

China’s rise is mo­men­tous, but it also sig­ni­fies a re­turn. After all, China has been the world’s most pop­u­lous coun­try since it be­came a uni­fied state more than 2,000 years ago, so it makes sense that it would also be the world’s largest econ­omy. And, in­deed, the ev­i­dence sug­gests that China was larger (in terms of pur­chas­ing power par­ity) than any other econ­omy in the world un­til around 1889, when the US eclipsed it. Now, 125 years later, the rank­ings have re­versed again, fol­low­ing decades of rapid eco­nomic de­vel­op­ment in China.

With ris­ing eco­nomic power has come grow­ing geopo­lit­i­cal clout. Chi­nese lead­ers are feted around the world. Many Euro­pean coun­tries are look­ing to China as the key to stronger do­mes­tic growth. African lead­ers view China as their coun­tries’ new in­dis­pens­able growth part­ner, par­tic­u­larly in in­fra­struc­ture and business de­vel­op­ment.

Sim­i­larly, eco­nomic strate­gists and business lead­ers in Latin Amer­ica now look to China at least as much as they look to the US. China and Ja­pan seem to be tak­ing steps to­ward bet­ter re­la­tions, after a pe­riod of high ten­sions. Even Rus­sia has re­cently “tilted” to­ward China, es­tab­lish­ing stronger con­nec­tions on many fronts, in­clud­ing en­ergy and trans­port.

Like the US after World War II, China is putting real money on the ta­ble – a lot of it – to build strong eco­nomic and in­fra­struc­ture links with coun­tries around the world. This will en­able other coun­tries to boost their own growth, while ce­ment­ing China’s global eco­nomic and geopo­lit­i­cal lead­er­ship.

The num­ber of Chi­nese ini­tia­tives is stag­ger­ing. In just the past year, China has launched four ma­jor projects that prom­ise to give it a greatly ex­panded role in global trade and fi­nance. China joined Rus­sia, Brazil, In­dia, and South Africa in es­tab­lish­ing the New De­vel­op­ment Bank, to be based in Shang­hai. A new Asian In­fra­struc­ture In­vest­ment Bank, to be based in Beijing, will help to fund in­fra­struc­ture projects (roads, power, and rail, among oth­ers) through­out the re­gion. The New Silk Road land belt seeks to con­nect China with the economies of East Asia, South Asia, Cen­tral Asia, and Europe through an ex­panded grid of rail, high­ways, power, fiber, and other net­works. And the new 21st Cen­tury Mar­itime Silk Road is aimed at boost­ing ocean-based trade in East Asia and the In­dian Ocean.

All told, th­ese var­i­ous ini­tia­tives are likely to lever­age hun­dreds of bil­lions of dol­lars in in­vest­ment over the com­ing decade, speed­ing growth in the coun­ter­part coun­tries while deep­en­ing their pro­duc­tion, trade, and fi­nan­cial link­ages with China. There is no guar­an­tee that all of this will suc­ceed or pro­ceed smoothly. China faces huge in­ter­nal chal­lenges, in­clud­ing high and ris­ing in­come in­equal­ity, mas­sive air and wa­ter pol­lu­tion, the need to move to a low-car­bon econ­omy, and the same risks of fi­nan­cial-mar­ket in­sta­bil­i­ties that bedevil the US and Europe. And if China be­comes too ag­gres­sive to­ward its neigh­bours – for ex­am­ple, by de­mand­ing rights to off­shore oil or ter­ri­tory in dis­puted wa­ters – it will gen­er­ate a se­ri­ous diplo­matic back­lash. No one should as­sume smooth sail­ing for China (or for any other part of the world, for that mat­ter) in the years ahead.

Still, it is strik­ing that just as China is ris­ing eco­nom­i­cally and geopo­lit­i­cally, the US seems to be do­ing ev­ery­thing pos­si­ble to waste its own eco­nomic, tech­no­log­i­cal, and geopo­lit­i­cal ad­van­tages. The US po­lit­i­cal sys­tem has been cap­tured by the greed of its wealthy elites, whose nar­row goals are to cut cor­po­rate and per­sonal tax rates, max­imise their vast per­sonal for­tunes, and cur­tail con­struc­tive US lead­er­ship in global eco­nomic de­vel­op­ment. They so scorn US for­eign as­sis­tance that they have thrown open the doors to China’s new global lead­er­ship in de­vel­op­ment fi­nanc­ing.

Even worse, as China flexes its geopo­lit­i­cal mus­cles, the only for­eign pol­icy that the US sys­tem­at­i­cally pur­sues is un­ceas­ing and fruit­less war in the Mid­dle East. The US end­lessly drains its re­sources and en­ergy in Syria and Iraq in the same way that it once did in Viet­nam. China, mean­while, has avoided be­com­ing en­meshed in over­seas mil­i­tary de­ba­cles, em­pha­sis­ing win-win eco­nomic ini­tia­tives in­stead.

China’s eco­nomic rise can con­trib­ute to global well­be­ing if its lead­ers em­pha­sise in­vest­ment in in­fra­struc­ture, clean en­ergy, pub­lic health, and other in­ter­na­tional pri­or­i­ties. Still, the world would be bet­ter off if the US also con­tin­ued to lead con­struc­tively, along­side China. The re­cent an­nounce­ment by Pres­i­dents Barack Obama and Xi Jin­ping of bi­lat­eral agree­ments on cli­mate change and clean en­ergy show the best of what’s pos­si­ble. Amer­ica’s per­pet­ual war-mak­ing in the Mid­dle East shows the worst.

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