The Emergence of China

Foreign Policy of China

 Outline
i. Introduction
ii. Historical Background
iii. The Century of China
iv. Selling Chinese Culture
v. Change in the Air
vi. Some concerns
vii. Conclusion
 Outline
iv. The Century of China
– Building Megacities
– World’s Second Largest Economy
– World’s Leading Creditor
– Chinese Investments Overseas
– Challenging Western Global Dominance
– Flexing Military Muscles
– Challenge to the US Dollar
 Introduction
• The economic reforms, made China a shining
star on the international horizon.
• World’s largest exporter of merchandise goods
($2.1 trillion),
• Second largest trading nation ($3.7 trillion),
• Second-largest economy ($11.9 trillion GDP).
• Per-capita income has shot up to $8,123 from
a paltry $195 in 1980.
 Introduction

• China’s charted rise to superpower status, the

rapid industrialization, economic boom, and
the breakneck construction on new cities and
infrastructure is the hallmark of 21 st Century.
• The year 2015 will be remembered as China’s
breakout year with the BRICS alliance.
• Advancing the highly successful launch of the
Asian Infrastructure Investment Bank, and
 Introduction
• The inauguration of ambitious development
projects in Brazil, Peru and Pakistan.
• China is expected to challenge the status quo,
and what the next few years might have in
store.
• Has the Chinese century begun?
• The trend is certainly obvious.
 Historical Background

• Chinese civilization is known as one the oldest

civilizations of the world.
• For quite sometime china was known as the sick
man of Asia, popular for opium consumption.
• Communism was introduced in China by
establishing communist party in 1921.
• The famous long march led by Mao Xa Tung
led to the proclamation of PRC in 1949.
 Historical Background

• For the first three decades China remained truly

communist having no expansionist designs.
• Due to US refusal to recognize PRC, China
remained out of UNO upto 1971.
• China transformation started in 1978 after the
death of Mao.
• Deng Xio Peng, having average GDP rate of
10% for the last more than 35 years.
 The Century of China
• The Chinese plans of investing more than $62
billion in Pakistan to set up CPEC have some
commentators already comparing the investment
to the Marshall Plan.
• This kind of investment is unprecedented but
China seems to be making it a habit nowadays:
• It has invested tens of billions of dollars in
improving African infrastructure in the last few
years.
 The Century of China
• It intends to invest $250 billion in South
America over the next decade.
• It announced a $50 billion project with Brazil
and Peru.
• The scope and scale of these investments is
staggering and brings to mind the logical
question:
• Has the Chinese century begun.
 The Century of China
• Some of the giant strides China has made
recently.
• First, China is building megacities to cope with
a level of urbanization that is unprecedented in
human history.
• Secondly on the economic front, in 2013, China
became the world’s biggest trading nation and in
2014, overtook the US as the world’s largest
economy.
 The Century of China
• Thirdly, China is now the world’s leading
creditor and the largest holder of US foreign
debt.
• Fourthly, China started truly flexing its
muscles on the global stage and directly
challenging Western global dominance.
• The first step was founding the BRICS alliance
with Russia, India, Brazil and South Africa.
 The Century of China
• The second step was the creation of the Asian
Investment Infrastructure Bank (AIIB).
• Finally China has also flexed military muscle
recently.
 Building Megacities
• China is building megacities to cope with a level
of urbanization that is unprecedented in human
history.
• This relentless phase of construction can be
summed up with just a few breathtaking
statistics:
• For instance, in just three years, 2011 to 2013
China used more cement than the US did in
the entire 20th century.
 Building Megacities
• In the next 10 years, China plans to relocate 100
million people from the countryside into newly
built cities.
• The Chinese have advanced the art of
prefabricated construction.
• To the point where, entire skyscrapers can be
constructed in mere days.
• A developer erected a 57-storey building with
800 apartments in just 19 days.
 World’s Second Largest Economy
• China is the world second largest economy
after the USA. Its GDP is $11.9 trillion.
• BRI would connect Chinese economy to
almost 65 countries of the world.
• It was Chinese demand for German goods that
rescued the German economy after the
economic crisis of 2008.
 World’s Leading Creditor
• China’s immense wealth is not just
concentrated at home.
• Apart from investing in infrastructure in
developing nations,
• China is now the world’s leading creditor and
• The largest holder of US foreign debt (the US
is incidentally the world’s largest debtor).
 Chinese Investments Overseas
• Chinese investors are powering real estate
booms in several cities in the US, the UK,
Australia and Canada.
• Chinese investments overseas include billions
invested in companies dealing in resources,
metals, ores, petroleum, banks, food,
• Including big names such as IBM, Rio Tinto,
Ford, Volvo, Barclays, BP, Total, Telefonica,
Morgan Stanley, etc.
Challenging Western Global Dominance

• In 2015, China started truly flexing its muscles

on the global stage and directly challenging
Western global dominance.
• The first step was founding
the BRICS alliance with Russia, India, Brazil
and South Africa.
• A ‘bloc’ of five countries account for nearly
half the entire world’s population.
Challenging Western Global Dominance

• As per the BRICS vision;

• Brazil and Russia are on course to become the
world’s largest raw materials suppliers, and
• China and India the largest suppliers of
manufactured goods.
• The economic possibilities of such an alliance
are overwhelming.
Challenging Western Global Dominance

• The second step was the creation of the Asian

Investment Infrastructure Bank (AIIB).
• This Bank has challenged IMF, IBRD and
ADB.
• China has floated the idea to regional partners
for a megabank to finance badly needed
infrastructure in Asia.
Challenging Western Global Dominance

• The US, which has worked tirelessly to limit

China’s influence in the aforementioned
institutions,
• Predictably tried to sink the plan and leaned
heavily on Australia and South Korea to reject
the Chinese invitation.
Challenging Western Global Dominance

• Britain shocked everyone by joining the AIIB,

terming it “an unrivaled opportunity for the
UK and Asia to invest and grow together”.
• This completely unexpected move by the US’s
closest ally completely deflated US efforts at
sabotage.
Challenging Western Global Dominance

• The US expressed its displeasure publicly:

“We are wary about a trend toward constant
accommodation of China, which is not the best
way to engage a rising power,” but the words
fell on deaf ears.
Challenging Western Global Dominance

• France and Germany hopped on and Australia

and South Korea reversed their previous
refusals.
• Some 57 countries signed up, including India,
Russia, Malaysia, Iran, Indonesia, Singapore,
Saudi Arabia, the Philippines, Pakistan, Brazil,
Norway, Denmark, Finland, Egypt and Spain,
Italy, Kuwait, Qatar, Turkey, etc.
Challenging Western Global Dominance
• Former US treasury secretary Larry Summers, one of
America’s most well-known economists, sounded the
alarm for a “new economic era” announcing:
• “This past month may be remembered as the
moment the United States lost its role as the
underwriter of the global economic system,” and
• that he could “think of no event since Bretton
Woods” which compared with this Chinese victory.
 Flexing Military Muscles
• China has also flexed military muscle recently:
• It is actively reclaiming land in the disputed
South China Sea by building artificial islands
and setting up military and civilian facilities.
• So far, 2,000 acres have been reclaimed,
prompting a row with neighbours Japan, the
Philippines, Vietnam and Malaysia.
 Flexing Military Muscles
• The US publicly called for a stop.
• A Chinese government-run newspaper
promptly warned that this stance would make
US-China war “inevitable”.
 Challenge to the US Dollar
• China’s challenge to the US dollar, the world’s
dominant reserve currency. The vast majority
of international trade is conducted in dollars,
resulting in a constant demand for the
currency, and essentially, the counterintuitive
situation, where the US can simply ‘print’
wealth out of thin air.
 Challenge to the US Dollar
• This “exorbitant privilege” as dubbed by
French statesman Valery Giscard d’Estaing has
recently played havoc with world markets.
• Some commentators compare it to “exporting
inflation”, fomenting misery and civil unrest in
under-developed countries.
 Challenge to the US Dollar
• China has a three-pronged strategy to take on the
dollar:
• First, China is pressing the IMF to include the yuan in
the Special Drawing Rights basket.
• This fund, set up to enhance nations’ official foreign
exchange reserves, is an elite club currently
comprising the dollar, euro, yen and the British pound.
• If China gets in, it will be a major step towards
internationalizing the Yuan.
 Challenge to the US Dollar
• The US has, predictably, sounded a
discouraging note, claiming the Yuan needs
“further liberalization and reform”.
• However, countries including Britain,
Germany, France and Italy strongly support
the Chinese position.
 Challenge to the US Dollar
• The second step is the launch of a new
payment network which China has already
built, is currently testing and may initiate as
soon as September.
• Currently, there are only a handful of Yuan
clearing houses internationally and processing
cross-border Yuan transactions is very
cumbersome.
 Challenge to the US Dollar
• A new payment network, an alternative to the
SWIFT payments network, dedicated to the
Yuan will dramatically slash the operational
headaches, delays, and costs of processing
Yuan transactions, and significantly expand its
global reach.
• Standard Chartered Bank has dubbed it a
“game changer”.
 Challenge to the US Dollar
• The third step — and arguably the most
important — is via gold pricing. For the last
few years, China has been not only the world’s
largest producer of gold but also the world’s
largest importer.
• No one knows for sure the size of China’s
current gold reserves. Gold prices are not
particularly high at the moment so this may not
seem worrisome.
 Challenge to the US Dollar
• However, as banking scandals have demonstrated
in detail over the last couple of years, gold prices
are being systematically rigged by big Western
banks.
• A cable revealed by WikiLeaks in 2009 indicates
that China is well aware of this and considers it a
Western conspiracy to maintain dollar dominance.
• It has, therefore, taken matters into its own hands
and sought a greater role in gold pricing.
 Challenge to the US Dollar
• The Bank of China will very soon
directly participate in the twice daily electronic
auctions which set the LBMA (London Bullion
Market Association) Gold Price benchmark.
• The “London Gold Fix” has been the reference
gold pricing mechanism for almost a century
now, and China will be the first Asian lender to
participate.
 Challenge to the US Dollar
• More importantly, by the end of the year — in
direct competition with London and New York
— China intends to bypass Western gold
pricing mechanisms entirely, by launching its
own Yuan-denominated “Shanghai Gold
index”.
• So, overall, we can expect seismic shifts in the
current economic order in the next six months.
 Selling Chinese Culture
• In the next couple of years, we will also see a
lot more Chinese culture specially targeted at
international markets.
• A few years ago, China
launched the Xinhua cable news channel
modelled on the Al Jazeera formula.
• Now it is in cinema that China’s soft power
export is set to expand.
 Selling Chinese Culture
• Earlier in the year, a Chinese state-backed TV
firm signed a $1.5 billion deal to fund movies
made by US studio Lions gate.
• According to industry insiders, a flood of
Chinese investment is pouring into
Hollywood, with the intent to produce movies
which work within Chinese as well as US
markets, and sell Chinese culture to the world.
 Selling Chinese Culture
• Upcoming projects include
• The Great Wall, a science fiction epic set in
China, starring Matt Damon and Willem
Dafoe, and
• The Bombing, a Second World War period
piece, starring Bruce Willis, about an
American teaching Chinese pilots to combat
the Japanese.
 Change in the Air
• These are all signs that serious change is in the
air.
• The diminishing influence of the Western
guard is quite obvious as is China’s sudden
ascendancy.
• We may be witnessing the early assertive steps
of a new superpower.
 Change in the Air
• And there have been symbolic gestures
indicating that change is in the air.
• The entire world watched earlier in the year
when Chinese ships evacuated hundreds of
Chinese and foreign refugees from Yemen.
• China’s state media hyped the fact that the
passengers on the ships were treated like royalty
while ‘heroic’ Chinese soldiers made do with
eating pickles.
 Other Trends
• Other trends are underway as well.
• For one, China’s infrastructure development
companies have started expanding into the
international market.
• Four of the world’s five largest construction
and engineering companies are Chinese, so
this is not surprising.
 Other Trends
• One project recently announced is the
construction of an ambitious energy plant in
the UK, the world’s first to generate electricity
from the tide.
• A second major project is a new nuclear power
station.
 Some Concerns
• The world economy is extremely fragile at the
moment and, in China particularly, signs of
economic trouble can be discerned in the
shadows.
 Some Concerns
• Indeed, while the Greek financial crisis
dominated the news, the Chinese stock
market crashed in spectacular fashion, losing a
whopping $3 trillion in a mere few days,
leading some experts to call it the country’s
Lehman moment.
• And it is still unclear whether the damage has
been suitably contained.
 Some Concerns
• Overall, China’s public debt has
quadrupled from $7 trillion in 2007 to $28
trillion in 2014, a 282 per cent increase in
GDP. This stunningly accounts for nearly a
third of all global borrowing.
 Some Concerns
• And growth in GDP has slowed down to its
lowest point in six years as per official figures
(amid observers’ concerns that these figures
are massively fudged).
• China is now barely able to meet official
growth targets which are necessary for stable
employment.
 Some Concerns
• And even as it builds megacities with rows upon
rows of sparkling new apartment blocks, the
boom is artificial.
• The buildings are largely too expensive for
average folk.
• Commentators fret that building ‘too much too
soon’ has already triggered a dangerous housing
bubble in some cities. The real estate sector is in
dire straits and high-profile defaults have started.
 Some Concerns
• And there are structural concerns:
• The economic advantage of running a factory in China
is slowly dissipating as wages rise and income
disparity drops.
• The same inexorable forces of capitalism, which made
China the world’s factory over the last two decades,
are now relentlessly seeking out the next super-cheap
destination to set up shop.
• Factories are likely to shift to other Asian countries,
particularly India and Pakistan.