Geo-Politics–Non-Western Eurasia rises


June10, 2018

Geo-Politics–Non-Western Eurasia rises

by Bunn Nagara@www.thestar.com.my

Sloppy US policies helped to build a growing China-Russia alliance for a full decade now. This is evident enough from the meeting rooms of the UN Security Council to the battlefields of Syria to the South China Sea and the Baltics.–Bunn Nagara

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Shanghai Cooperation Organisation (SCO) Summit, in Qingdao, China on June 10, 2018.

THE week that was ended with a significant non-Western event often ignored or misunderstood by the West: the latest Shanghai Cooperation Organisation (SCO) summit.

The 18th annual SCO summit in the Chinese port city of Qingdao this weekend is only the fourth held in China. Beijing is relaxed about its role in a growing organisation of eight member countries, six Dialogue Partners and four observer nations – a confidence that suggests considerable clout.

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Tajikistan President Imomali Rakhmon, left, Russian President Vladimir Putin, center, and Chinese President Xi Jinping, right, walk for talks at the Shanghai Cooperation Organization (SCO) Summit in Qingdao in eastern China’s Shandong Province Sunday, June 10, 2018. (AP Photo/Alexander Zemlianichenko)

 

China and Russia are the two hulking members of a group that boasts formal parity, being the conspicuous “firsts among equals.” And as two consecutive US administrations unwittingly drive these giants closer than ever before strategically, Western attention is led astray.

Western reports track President Putin’s travel to Qingdao and the diplomatic niceties exchanged there. At the same time, Western commentators are tempted to dismiss the summit as yet another futile talk fest. Both approaches are wrong or misplaced. While Xi-Putin exchanges may not be the highlight of this year’s SCO summit, neither are they insignificant.

Sloppy US policies helped to build a growing China-Russia alliance for a full decade now. This is evident enough from the meeting rooms of the UN Security Council to the battlefields of Syria to the South China Sea and the Baltics.

The latest SCO summit reaffirms the trend but adds only marginally to it by way of atmospherics. There are more important developments visible at, if not represented by, the Qingdao summit.

It is the first SCO summit at which both India and Pakistan arrive as full members.

Beginning as the Shanghai Five in the mid-1990s, the SCO has grown steadily and now incorporates three giants – China, Russia and India – in the great Eurasian land mass where both the US and the EU have scant inputs.

With Pakistan coming in at the same time as India as an equal partner, the SCO should be free from any sub-regional turbulence within South Asia.

Turkey is also an SCO Dialogue Partner whose interest in full membership is not without broader implications for the West.

Turkey has considerable military strength and is also a member of NATO, hosting its Allied Land Command and a US air base in Izmir. However, Ankara’s years-long effort to join the EU has been snubbed by Brussels.

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Turkey may have to forego its NATO membership before SCO membership can be entertained.

 

Turkish President Recep Tayyip Erdogan has famously mulled over choosing between the EU and the SCO, reportedly preferring the latter. How would the West find a NATO member joining a non-Western group led by Russia and China?

Deep-seated discomfort would be a mild way to put a reaction in Brussels and Washington. To US policymakers, Turkey is a strategic country because of its location as well as its status as a prominent Muslim country.

Both China and Russia have sounded positive about Turkey’s prospective membership of the SCO. Nonetheless, SCO members share an understanding of sorts that Turkey may have to forego its NATO membership before SCO membership can be entertained.

However, Beijing and Moscow may be less concerned than Washington and Brussels about Turkey’s SCO membership with its NATO credentials intact. That immediately makes Turkey more comfortable to be in SCO company.

Turkey has already received what amounts to special treatment within the SCO that no other Dialogue Partner has enjoyed. Last year it was elected as Chair of the SCO’s Energy Club, a position previously enjoyed only by full members.

Erdogan has called the SCO “more powerful” than the EU, particularly in a time of Brexit. Bahrain and Qatar seek full SCO membership; Iraq, Israel, Maldives, Ukraine and Vietnam want to be Dialogue Partners; and Armenia, Azerbaijan, Bangladesh, Egypt, Nepal, Sri Lanka and Syria want Observer status.

Iran already has SCO Observer status and had applied for full membership in 2008. Following the easing of UN sanctions on Tehran, China declared its support for Iran’s membership bid in 2016.

The recent US pullout from the Joint Comprehensive Plan of Action (“Iran nuclear deal”) has further prodded Tehran to “look East.” These days that means China and a China-led SCO.

Iran already trades heavily with China with myriad deals in multiple sectors. Mutual interests abound, far exceeding the basic relationship of oil and gas sales to China.

As Europe treads carefully, mindful of possible new sanctions on Iran following the US cop out, cash-rich Chinese firms take up the slack. US policy is also pushing Iran, among others, closer to China.

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Modi and Xi–A Strategic Partnership for development and progress

In preparing for Prime Minister Modi’s arrival in Qingdao on Friday, Indian Ambassador Gautam Bambawale said both countries were determined to work in close partnership and would never be split apart.

This echoed two main points already shared by Indian and Chinese leaders – that their countries are partners in development and progress, and what they have in common are greater than their differences.

All of this seems set to undo the Quadrilateral Security Dialogue (Quad) that groups the US with Japan, Australia and India, all boasting a democratic system in common in a joint strategic encirclement of China. But India’s relations with China have been on the upswing for half a year now.

The day before Modi arrived in Qingdao, a Quad meeting in Singapore closed on Friday with India expressing differences with the other members. Its Ambassador to Russia Pankaj Saran said the Quad was not the same as its hopes for an inclusive “Indo-Pacific region” (IPR) that did not target any country.

He added that India wanted closer ties with Russia as well in an IPR. Just a fortnight before, Russia’s recent Ambassador to the US Sergei Kislyak said President Trump also wanted closer ties with Russia.

That was only a small part of the roller-coaster ride of international diplomacy in the first half of 2018.

In January Trump condemned the Taliban for a spate of attacks in Afghanistan, vowing that all talks with them were off. Until then, top US diplomats were carefully planning negotiations with the Taliban.

In March, US officials blasted Russia for allegedly arming the Taliban, which Moscow denied. The following month Nato voiced support for Afghan President Ashraf Ghani’s efforts to talk with the Taliban to “save the country.”

Meanwhile Trump’s ramparts of trade barriers in the direction of a trade war would decimate allies from East Asia to Europe. French President Emmanuel Macron expressed a European position in reaching out to China on climate and security issues.

By March the EU had dug in, preparing for the worst of US trade barriers while vowing retaliation. The WTO also warned Washington that it was veering towards a trade war with tariffs on steel and aluminium.

In April, China’s new Defence Minister Gen. Wei Fenghe arrived in Moscow for talks with his Russian counterpart Sergei Shoigu. Wei rubbed it in for Washington, publicly announcing that his visit was to show the US the high level of strategic cooperation between China and Russia.

Two days later the Foreign Ministers of China and Russia expressed similar sentiments. They championed negotiations and sticking to pledges while weighing in against the unilateralism of a unipolar power.

Where China has the SCO, Russia has the Eurasian Economic Union (EAEU).

If any discomfort is felt in Washington, it is from acting as a unipolar power in an increasingly multipolar world.

Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.

Read more at https://www.thestar.com.my/opinion/columnists/behind-the-headlines/2018/06/10/nonwestern-eurasia-rises-where-us-policymakers-are-not-at-war-with-themselves-in-washington-they-thr/#pl8bhiuGHkVCyD5C.99

Pursuing the Chinese Dream


May 29, 2018

Pursuing the Chinese Dream

By Michael Heng
 https://www.chinadailyasia.com/articles/49/199/85/1527492769468.html

The goal of realizing national rejuvenation will contribute to the cultural richness of humanity

by Professor Michael Heng

The top Chinese leaders, on assuming power, would set out their agenda by announcing a vision to inspire the people. The vision of former President Hu Jintao was to build a harmonious Chinese society. The current President, Xi Jinping, has called on the Chinese people to fulfill the dream of building a moderately prosperous society and realizing national rejuvenation.

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Seen historically, Xi’s Chinese Dream is a continuation of China’s ongoing project of national reconstruction after the traumatic experience of repeated defeats by foreign powers since the Opium Wars 150 years ago. This project formed a common theme in the lives of China’s historical figures such as Sun Yet-sun, Chiang Kai-shek, Mao Zedong and Deng Xiaoping.

The world should welcome a wealthy and powerful China. A powerful Song Dynasty (960-1279) might have deterred eventual Mongolian military conquests in the Middle East, Europe and Russia. Likewise, a powerful China in the more recent past would have stopped Japan from invading Korea, China and Southeast Asia.

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Deng Xiao Ping –China’s Great Moderniser–To be Rich is Glorious

A strong Chinese economy in the last few decades has energized the global economy, especially after the 2008 financial crisis. However, while welcoming a powerful China, the world would not like to see a bullying China.

The rise of China affects the balance of economic power globally. But, how would Chinese like this period of their history to be understood by future generations?

As a period of remarkable economic growth only? Or as a period of economic development coupled with cultural and intellectual brilliance, with an enduring positive impact throughout the whole world, at par with previous glorious periods of human history?

Most Chinese would prefer the second scenario.Radical economic and social transformations are often accompanied by intellectual ferment and cultural effervescence. These transformations throw up many serious issues, challenging the best brains of the time. In attempts to solve these issues, the great thinkers draw on their intellectual heritage, learn from other sources, cross-fertilize them and creatively synthesize them to produce original thoughts.

Examples are Ancient Greece, China’s Spring-Autumn-Warring period, the Islamic golden age, the Indian Mughal period, and China’s Tang-Song period. The most recent experience is the periods of European Renaissance and Enlightenment, which produced giants in the fields of philosophy, natural sciences, social sciences, fine arts, music, architecture, and literature.

European intellectuals acted as a positive force during that critical period, functioning both as social conscience and as sources of forward-looking ideas. Their works have shaped the character of modern European civilization.

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Such historical perspective provides new dimensions to the Chinese Dream. In addition to wealth and power, it envisions building a modern Chinese civilization of material prosperity and cultural refinement in equal measure.

This is in line with a deep Chinese aspiration to preserve their cultural heritage while evolving a system of social, economic and political philosophies to cope with the demands of modernization. In this endeavor, the best of morality, culture, ethics and societal values will feature prominently.

Two challenges emerge from this perspective. The first is to draw on China’s own cultural and intellectual resources. With an open and inquisitive mind, old ideas take on new meanings and interpretations in the context of new social and political challenges. In reworking old ideas from one’s culture, one is free and indeed encouraged to refer to other cultures.

The second challenge is to learn from other civilizations. The Chinese are glad that the period of European Renaissance and Enlightenment drank from the well of Chinese civilization. The West has borrowed from China bureaucracy as a system of governance and has improved upon it.

Likewise, the Chinese should be glad to borrow and learn from others, for it can only increase the range of possible solutions. Since the West has a longer history of modernization, China can benefit much from learning their experiences.

What is critical here is meticulous and rational learning, adapting them to suit local conditions and drawing upon local cultural resources to absorb them.

Reinventing socio-cultural practices is quite common in societies undergoing structural changes. It is a part of the societal efforts to refine and refurbish the inner resources of their societies. It is hoped that the Chinese can further refine their intellectual heritage, learn from foreign sources, cross-fertilize them and, through creative synthesis, produce schools of original thought.

The process touches societies in the most profound sense, involving ideas, values, morality, belief systems, culture and institutions. It requires us to revisit our concept of justice, truth and beauty. It is a project with both social and spiritual dimensions. It is a project that looks into the soul of history.

However, economic resurgence does not guarantee corresponding intellectual ferment and cultural effervescence. There are formidable obstacles in the long journey.

The economic rise of China may thus be conceived as an opportunity for a Chinese cultural revival, which may or may not happen. Much depends on how the Chinese themselves use the opportunity.

The project of a cultural rejuvenation is an ambitious undertaking. It is likely to last for several generations. It has no walls and borders nor time limits. Contributions from all corners of the world are warmly welcome. Though the stage is in China, the cast and audience are global. This opens up a new arena of international cooperation for all who aspire to contribute to the long-term well-being of humanity. If and when Chinese cultural and intellectual reinvigoration does happen in its full glory, it will lift the Chinese civilization to a higher level.

In so doing, it will contribute to the cultural richness of the world and, through it, elevate humanity to a higher level of civilization. If it succeeds, China will reap its full glory through the realization of the Chinese Dream.

The author,Michael Heng is a retired professor who held academic appointments in Australia, the Netherlands, and at six universities in Asia.

 

The sharp power of development diplomacy and China’s edge


April 12, 2018

 

https://www.orfonline.org/expert-speaks/sharp-power-development-diplomacy-china-edge/

Chinese development diplomacy not only offers alternative sources of finance, but also presents a model that seems to overcome the major criticisms of traditional aid. However, such power relations are rarely horizontal, and often come attached with significant geopolitical implications.

Development Diplomacy,The China Chronicles

This is the fifty third part in the series The China Chronicles.

Read all the articles here.


Military might and economic coercion have traditionally been the preferred tools for the pursuit of geopolitical ambitions with soft power playing a supporting role. For the first time in contemporary geopolitics, we witness this accepted norm turn on its head. The experience of China being a classic example — where, in several cases, we see development diplomacy assume a central role in reinforcing Beijing’s hegemonic ambitions. Beijing’s conduct calls into question not only established understanding of geopolitics, but also that of global development.

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The sphere of global development will increasingly be the arena where geo-strategic tensions play out. As such, perhaps it is time to give development cooperation some serious consideration in the larger study of geopolitics.

The soft power of attractiveness and persuasion has often been treated as the stepsibling of coercive hard power. As Joseph Nye Jr. argues, diplomacy and economic assistance programmes are generally underfunded as they rarely show immediate visible results. Take the case of the United States — with arguably the largest strategic influence across geographical clusters, foreign aid makes up less than 1 percent of the American federal budget. In addition, when budget cuts take place aid faces the axe first, creating the perception that development aid is dispensable, particularly when compared to military spending. Yet, it is development diplomacy that has come to China’s advantage in securing its interests abroad.


 

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The soft power of attractiveness and persuasion has often been treated as the step sibling of coercive hard power.


China’s development assistance model — much like those of other emerging powers — are based on two fundamental pillars articulated in the two White Papers on foreign aid. First, it stresses non-interference and respect for the sovereign rights of partner countries. Articulated as a direct contradiction to the controversial conditionalities prescribed by traditional aid donors — most particularly the International Monetary Fund and the World Bank — the Chinese development approach provides recipient countries with the agency to choose their independent growth and development trajectories based on individual requirements.

Second, Chinese development finance follows the win-win principle. Identifying itself as a country still struggling with its own domestic development challenges, China’s economic assistance must bring benefits for the Chinese state — in addition to development gains recipient countries reap. The mutual-benefit principle also brings with it another aspect — the perception of a horizontal partnership and equal power dynamic. Thus, Chinese development diplomacy not only offers alternative sources of finance, but also presents a model that seems to overcome the major criticisms of traditional aid. The issue, however, is that such power relations are rarely horizontal, and they often come attached with significant geopolitical implications.

While it would be impossible to decipher the motivations behind China’s development diplomacy programme — other than those stated in the White Papers — development assistance has allowed China to secure a range of strategic gains. Beijing’s engagement with the African continent showcases many such instances. Beijing — through the People’s Bank of China, the China Development, the Export-Import Bank of China and the China-Africa Development — has provided Africa with a considerable volume of aid in the form of investments and loans. As per calculations by SAIS-CARI, Chinese loans to Africa amount to USD 86 billion in the 2000-2014 period. A major portion of these going to resource-rich countries such as Angola, the Democratic Republic of Congo and Sudan. Today, Africa is the second largest source of crude oil to China. More important, however is the increasing Chinese military presence in Africa. China’s contribution of military personnel to peacekeeping missions in Africa has seen a sharp rise — with more than 2,500 troops and experts committed to six such UN missions, according to the Council on Foreign Relations. Further, in 2015 Beijing promised the African Union military aid worth USD 100 million; and China’s first overseas naval base has recently been constructed in Djibouti.


Beijing — through the People’s Bank of China, the China Development, the Export-Import Bank of China and the China-Africa Development — has provided Africa with a considerable volume of aid in the form of investments and loans.


Asia too offers several such examples. The latest and most controversial one being Sri Lanka’s Hambantota port. In 2010, Beijing provided a loan of USD 1.5 billion for the construction of the Hambantota port — a project that many deemed economically unviable from the start. This loan, in addition to many other Chinese loans for various other infrastructure projects, has meant a monumental debt. The turn of events has been well covered — Sri Lanka signing a 99-year lease with Chinese state-owned firms for the Hambantota port. This also raises alarm bells for the rest of the infrastructure projects financed by Beijing — for instance, the many segments of the Belt and Road Initiative, which are unlikely to provide any significant commercial returns. Further, Beijing has invested in the construction of the strategically located Gwadar port in Pakistan; it has pledged USD 7.2 billion to develop a deep-sea port in the Straits of Malacca; and has entered into an agreement to develop the international airport of Maldives.

A country’s development policy and economic assistance programme can, thus, lead to more than the mere creation of global goodwill. In fact, such diplomacy figures as a useful instrument for a revisionist power to further its geopolitical ambitions. Consequently, the conventional categorisation of development diplomacy within soft power no longer holds. Considering this, then, does the study of soft power in international relations require a revision that reflects current geopolitical realities? Secondly, is there an added urgency in reconciling the existing ideological differences between traditional and emerging providers of development assistance — in order to develop an internationally accepted normative framework that is conducive to development and geopolitical stability? Lastly, will the threat of becoming a global outlaw be enough to bring an increasingly confident Beijing within the boundaries of such a normative framework?

The views expressed above belong to the author(s).

The de-dollarization in China


April 10, 2018

The de-dollarization in China

 

The US dollar is so important in today’s economy for three main reasons: the huge amount of petrodollars; the use of the dollar as the world’s reserve currency and the decision taken by US President Nixon in 1971 to end the dollar convertibility into gold.

The US currency is still a large part of the Special Drawing Rights (SDR), the IMF’s “paper money”. A share ranging between 41% and 46% depending on the periods.

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Petrodollars emerged when Henry Kissinger dealt with King Fahd of Saudi Arabia, after “Black September” in Jordan.

The agreement was simple. Saudi Arabia had to accept only dollars as payments for the oil it sold, but was forced to invest that huge amount of US currency only in the US financial channels while, in return, the United States placed Saudi Arabia and the other OPEC neighbouring countries under its own military protection.

Hence the turning of the dollar into a world currency, considering the importance and extent of the oil market. Not to mention that this large amount of dollars circulating in the world definitely marginalized gold and later convinced the FED that the demand for dollars in the world was huge and unstoppable.

An unlimited amount of liquidity that kept various US industrial sectors alive but, above all, guaranteed huge financial markets such as the derivatives – markets based on the structural surplus of US liquidity.

After the Soviet Union’s collapse, the United States always thought about world’s hegemony and, above all, imagined to oppose the already active Eurasian union between China, Iran and Russia – the worst nightmare for US decision-makers – both at military and financial levels.

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As early as those years, following Brzezinsky’s policy line, the US analysts warned against the unification of Eurasia – to be absolutely prevented – and against the subsequent reunification of Eurasia with the Eurasian peninsula, to be avoided even with a war.

At that time, the three aforementioned States still conducted their business in dollars: China wanted to keep on becoming the “world factory”; Russia had run out of steam and was near breaking point; Iran had to inevitably adapt to the rest of Sunni OPEC.

With Putin’s rise to power, Russia’s de-dollarization began immediately. The share of dollar reserves declined year after year, while Putin proposed new oil contracts. Since last year, for example, dollars cannot be used in ports.

In the case of Iran, the sanction regime – in particular – has favoured the discovery of means other than the dollar for international settlements. The operations and signs of the de-dollarization continued.

The war in Iraq against Saddam Hussein was also a fight against the Rais who wanted to start selling his oil barrels in euros, while the war in Afghanistan was viewed by China as part of the ongoing overall encirclement of its territory.

Hence the importance of the Belt and Road Initiative. Also the war in Afghanistan was an attempt to stop the Eurasian project of economic and commercial (as well as political) union between Russia, Iran and China.

As further sanction, the United States has removed Iran from the SWIFT network, the well-known world interbank transfer system, which is also a private company.

Iran, however, has immediately joined the Chinese CIPS, a recent network, similar to SWIFT, with which it is already fully connected.

Basically China’s idea is to create an international currency based on the IMF’s Special Drawing Rights and freely expendable on world markets, in lieu of the US dollar, so as to avoid “the dangerous fluctuations stemming from the US currency and the uncertainties on its real value “- just to quote the Governor of the Chinese central bank, Zhou Xiao Chuan, who will soon be replaced by Yi Gang.

In the meantime, Russia and China are acquiring significant amounts of gold. In recent years China has bought gold to the tune of at least 1842.6 tons, but the international index could be distorted, as many transactions on the Shanghai Gold Exchange are Over the Counter (OTC) and hence are not reported.

Again according to official data, so far Russia is supposed to have reached 1857.7 tons. Both countries have so far bought 10% of the gold available in the world.

Meanwhile, Saudi Arabia has already accepted payments in yuan for the oil sold to China, which is its largest customer. This is a turning point. If Saudi Arabia gives in, sooner or later all OPEC countries will follow suit.

In many cases, India and Russia have already traded with Iran by accepting oil in exchange for primary goods and commodities.

China has also opened a credit line with Iran amounting to as many as 10 billion euros, with a view to getting around sanctions. It is also assumed that North Korea uses cryptocurrencies to buy oil from China.

As devastated as its economy is, Venezuela no longer sells its oil in dollars – and it is worth recalling it can boast the largest world reserves known to date.

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Furthermore, China will buy gas and oil from Russia in yuan, with Russia being able to convert yuan into gold directly on the Shanghai International Energy Exchange.

Keynes’ “tribal residue” takes its revenge. So far the agreements for trade in their respective currencies were signed between China and Kazakhstan (on December 14, 2014),between China and South Africa (on April 10, 2015) and between Russia and India (on May 26, 2015) while, at the end of November 2015, the Russian central bank included the yuan into the list of currencies that can be accepted as reserves.

On November 3, 2016 an agreement was signed between Turkey and Russia for the exchange of their currencies and in October 2017 a similar agreement was reached between Turkey and Iran.

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For financial institutions, the de-dollarization continued with the establishment of the BRICS Fund worth 100 billion dollars (on July 16, 2014) and with the establishment – on January 16, 2016 – of the Asian Infrastructure Investment Bank (AIIB), made up of 57 member countries, including Italy, which automatically caused the US anger.

In May 2015 the Russian-Chinese Investment Bank was created, followed in July 2015 by the opening of the new bank for the development of BRICS, based in Shanghai. In November 2015, however, Iran approved the establishment of a bank together with Russia.

It is worth underlining that in April 2015 the Russian national credit card system was opened, dealing also with small currency transfers.

It is also worth recalling the Duma law on de-offshorization of November 18, 2014, i.e. the legislation obliging the Russian companies resident abroad to pay taxes directly to the Russian Treasury.

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The above mentioned Chinese CIPS started operating in October 2015, while in March 2017 Russia implemented a system similar to SWIFT (interacting with the Chinese one).

The issue is complex because with fracking, the United States has become the first oil producer – hence there is less need to keep the huge amount of petrodollars. This happens while a natural oil and gas shale deposit has just been discovered, off the coast of Bahrain, with reserves of 80 billion oil barrels and 4 trillion cubic meters of gas.

The United States does no longer buy oil and gas because it does not need them, but China is increasingly the best global buyer.

Apart from the stability of gas and oil prices, which should be guaranteed in the coming years, China and its allies should be ever more able to select between the supply and, certainly, between the countries which accept the non-oil bilateral exchange with China and payments in yuan or gold.

Still today, the US GDP accounts for 22% of world’s GDP, while 80% of international payments are made in dollars.

Hence the United States receives goods from abroad always at comparatively very low prices, while the massive demand for dollars from the rest of the world allows to refinance the US public debt at very low costs. This is the economic and political core of the issue.

In fact, the Russian government held a specific meeting on de-dollarization in spring 2014.

This is another fact to be highlighted. It is a political operation that appears to be a financial one, often in contrast with the “volatility” of current markets, but its core is strategic and geopolitical.

In theory, the de-dollarization regards three specific issues: payments, the real economy issue and ultimately the financial issue, namely the financial contracts denominated in dollars.

In the first case, China will tend to eliminate every transaction denominated in US dollars by third countries and to remove settlement mechanisms involving the dollar and operating in its neighbouring areas.

In the second case, the dollar transactions will be – and are already – largely prohibited for individuals.

In the third case, the share of foreign contracts denominated in yuan is now equal to 40% and strong acceleration will be recorded in 2018.

The oil futures denominated in yuan are now booming. The first attempt was made in 1993, when China opened its stock exchanges in Beijing and Shanghai.

China itself closed operations two years later, due to market instability and to the yuan weakness. Two other things have changed since then: in 2016 the yuan was admitted as a currency making up the IMF Special Drawing Rights and in 2017 China overtook the United States as the world’s largest oil importer.

Hence, thanks to the oil futures denominated in yuan, China is reducing its dependence on the dollar and, in the meantime, it is supporting its oil imports, as well as promoting the use of the yuan globally and expanding its presence in the world. Russia has done the same.

Therefore the United States is about to be ousted as world’s currency due to its continuous series of wars and military failures (former President Cossiga always told me: “The United States is always on the warpath and up in arms, but then it is not able to get out of it”) and, like everyone else, it shall pay for its public debt, which is huge and will be ever more its problem, not ours.

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Here it is worth recalling what the US Treasury Secretary, John Connally, said to his European counterparts during a meeting in 1971: “The dollar is our currency, but your problem”.

Obviously, in relation to all these issues which also concern primarily the euro, the European Union is silent and sleepy.

Xi Jinping and the Perils of One-Person Rule in China


March 3, 2018

Xi Jinping and the Perils of One-Person Rule in China

Last year, during several trips in which I travelled across China by train, two things in particular caught my attention. First, the red hammer and sickle—the universal symbol of the Communist Party—seemed to be proliferating on posters in cities, towns, and villages with the kind of vigor that I hadn’t seen since my childhood, growing up in an army hospital in Chongqing. Second, the only image I saw more frequently—in elementary-school classrooms, in airports and shopping malls, on billboards on highways and in rice paddies—was the face of President Xi Jinping. Each image was identical: the country’s supreme leader, with raven-black hair and a face fastidiously airbrushed to erase any hint of human blemish, smiling calmly, against a sky-blue background: an unimpeachable deity in an officially atheist state.

The announcement, made last Sunday, that the Party is proposing to abolish term limits for the Presidency further confirms the notion that Xi aims to be something other than just another leader in a parade of apparatchiks. In October, when he presided over the nineteenth Communist Party Congress, where his doctrines were enshrined in the constitution, I wrote that Xi’s status licensed him to “play an almost imperial role in shaping the fate of the nation.” Shortly after the term-limits announcement, a widely shared image of China’s last Emperor, Pu Yi, with the caption “Emperor calls: ‘Is my Qing Dynasty returning?,’ ” was banned on WeChat, China’s most popular messaging app.

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The People’s Daily, however, noted of the move to abolish term limits that the “Party’s proposition is in accordance with the people’s will.” It is true that, while China’s liberal intelligentsia laments Xi’s increasingly repressive policies—which have curbed human rights and undermined the rule of law in the most severe crackdown on civil society in decades—the majority of Chinese people, who do not live in the élite coastal cities or have access to news beyond the Great Firewall, take comfort and pride in Xi’s projection of strength. Still, if Xi wants to extend his rule indefinitely, there are a few historic truths that he will need to confront.

The Communist People’s Republic of China was founded in a theatrical break with history. In 1949, Mao Zedong stood atop the Gate of Heavenly Peace and declared that the “Chinese people have finally stood up,” a slogan that became the origin story of the modern nation. Equating the people’s independence with the Communist takeover was imprinted in the minds of every man, woman, and child. To my mother’s and my grandmother’s generations, the Party is what saved the nation from existential peril. China’s current leaders, including Xi, remain the beneficiaries of that origin story.

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Sun Yat-sen, the first President of the Republic of China, had laid the groundwork for it a couple of decades earlier, in his manifesto “The Three Principles of the People.” He wrote, “If we do not earnestly promote nationalism and weld together our four hundred million into a strong nation, we face a tragedy—the loss of our country and the destruction of our race.” Xi echoed that conviction at last year’s Communist Party Congress, promising to “strive with endless energy” to restore China to its rightful superpower status by 2049, and invoking Sun’s principle of “national rejuvenation.” But Sun also highlighted the greatest challenge to that plan. “Despite four hundred million people gathered in one China, we are, in fact, but a sheet of loose sand,” he wrote. This is a point that Xi may do well to heed. He is stridently confident and has broad support among the population now, but, by attempting to concentrate political power in his own hands, in a nation of not four hundred million but 1.4 billion people, Xi is assigning himself the sole responsibility of protecting an origin story that has largely been a myth.

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In the more than a century since Sun’s rule, China’s loose sand seems hardly to have settled into concrete. The market reforms that Deng Xiaoping introduced, in the late nineteen-seventies, ushered in a period of prosperity (there are now nearly six hundred billionaires in China), and Xi, with his immensely ambitious Belt and Road Initiative, clearly intends to go far beyond Deng’s goals and make China the economic engine of the world. But, despite the improvement in the average standard of living, China has gone from being a collectivist state that aspired to be egalitarian to being one of the most baldly unequal societies in the world. According to a report from Peking University, the poorest twenty-five per cent of households own just one per cent of the country’s total wealth, and the income gap is increasing. And the wealth is accumulating among the coastal élites, while the economy in the remote rural regions, many of which are inhabited by minority populations, remains stagnant. China’s Han majority has always been culturally dominant, but the nation is home to fifty-five officially recognized ethnic minorities, and the culturally distinct and significantly poorer western borderlands of Tibet and Xinjiang are the scene of increasingly violent unrest.

One-person rule is also prone to the kind of excesses and paranoia that may not only alienate the citizenry but undermine the institutions that previously insured the country’s stability. The crackdown has affected not only pro-democracy activists but also Xi’s high-ranking opponents in the Party. The military, which Xi heads, has taken an aggressive stance in territorial disputes in both the East China Sea and the South China Sea. Internet censorship is increasingly absurd—this week saw the banning of not only Winnie-the-Pooh (because he has been compared to Xi) but, reportedly, the English letter “N” (because it may denote the number of terms Xi may want to remain in office), along with the words “shameless” and “disagreement.” The portraits of Xi that I saw all across China serve as a reminder that a government’s need for propaganda tends to be inversely proportional to the strength of its political mandate.

China’s slated return to a one-person autocracy is sobering but hardly exceptional, given the rise of populist strongmen around the world. Xi’s particular asset—and what may sustain his support—is the deferred dream of true solidarity that Mao promised the nation nearly seventy years ago and that generations have held onto. But then, as now, authoritarian command of the nation requires not that the Chinese people “stand up” but that they bow to authority.

Why There Is No “Beijing Consensus”


March 1, 2018

Why There Is No “Beijing Consensus”

 by Andrew Sheng and Xiao Geng

https://www.project-syndicate.org/commentary/china-development-beijing-consensus-by-andrew-sheng-and-xiao-geng-2018-02

China observers can’t seem to agree on the underlying logic of the country’s development model. But, with faith in the West’s long-dominant Washington Consensus breaking down, both sides may be in a similar position – a reality that could facilitate cooperation to deliver global public goods.

 

HONG KONG – Four decades would seem to be plenty of time to identify the underlying logic of China’s development model. Yet, 40 years after Deng Xiaoping initiated the country’s “reform and opening up,” a “Beijing Consensus” – that is, a Chinese rival to the Western neoliberal Washington Consensus – has yet to be articulated.

Over the years, China has worked to transform its closed, planned economy into a more open, market-based system. Industry and, increasingly, services have replaced agriculture as the main drivers of growth, and the country has gone from technological copycat to global innovator. Meanwhile, China has tackled several difficult challenges, from excessive debt and overcapacity to severe pollution and official corruption.

This has been a highly complex process. According to China Academy of Social Sciences economist Cai Fang, it can be understood only in the context of the country’s unique history, demography, and geography, not to mention broader technological and global trends. All of these factors have, after all, helped to shape China’s governance and institutions.

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Yet the veteran China watcher Bill Overholt – one of the first to predict China’s rise – argues in his latest book, China’s Crisis of Success, that the country’s reforms were driven by “fear and simplicity.” The same factors, he asserts, drove East Asia’s post-1945 development.

Other observers – including the World Bank, the OECD, and think tanks like Harvard’s Fairbank Center for China studies – can’t seem to agree on who is right. They are not accustomed to assessing an economy whose primary influences – including historical legacies, values and ideologies, and institutional and governance traditions – differ so profoundly from those of the West.

Consider governance. Western economic dogma holds that the state should intervene in markets as little as possible. Yet, for China’s leaders, it is not clear whether the state can even be separated, conceptually or operationally, from the market.

For thousands of years, state control was China’s default governance strategy, with a strong central government overseeing stability and preventing regional and factional rivalries from causing chaos. So when China wanted to increase its leaders’ accountability, for example, it focused not on creating a market-based, much less democratic, system, but rather on introducing regulations to curb abuses of power and facilitate the flow of products, capital, people, and information.

Within the constraints of this paternalistic approach, the experimentation and adaptation that have been so crucial to China’s growth had to be carried out by local governments, which have enjoyed considerable, albeit uncertain, authority to do so. The idea was that, by using local-government (and market) expertise, China could generate growth without disturbing social cohesion or compromising national integrity.

Yet Chinese governance has not exactly been beyond reproach. When it comes to the quality of market competition, questions about the state sector’s dominance, as well as the effectiveness of regulations and adherence to international laws, standards, and practices, have persisted. And while China’s government has proved adept at providing “hard” infrastructure, such as highways, railroads, and airports, it has far to go in developing soft infrastructure, such as that related to education, health care, energy, the environment, and finance.

So China continues to grapple with the question of how to balance the state and the market, in order to ensure accountability, market competition, and adequate provision of public goods for one-fifth of the world’s population. Compounding the challenge are rapid technological change, globalization (and the backlash against it), and geopolitical considerations.

But it is not as if the West has proved definitively that its free-market approach works. The state’s role – measured according to the public sector’s share of GDP, for example, and the depth and complexity of laws governing private activities – has been expanding in almost every economy since the beginning of the twentieth century.

The United States, in particular, provides a useful benchmark. Like China, it is a continental economy. But it also represents the global gold standard in many fields, including technology, defense, and research and development.

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Contrary to China’s statist legacy, America’s historical experience has instilled in citizens and leaders a devotion to liberty, including free markets, and local autonomy. The US federal government’s size and power grew only very slowly until the 1930s, when the New Deal – which included federal programs, public works projects, and financial reforms and regulations – was implemented in response to the Great Depression.

The US federal government expanded again during and after WWII, reflecting the country’s new global hegemony and the prosperity of its middle class (created in no small part by the New Deal’s support for unionization and home ownership). The government assumed a larger role in areas ranging from defense and foreign policy to health care and social security.

But even as the federal government increased regulation in some areas, the US remained highly reliant on the market, resulting in rising inequality, the deterioration of public infrastructure, and an unsustainable fiscal deficit and debt. The global recession triggered by the 2008 financial crisis intensified growing doubts about the Washington Consensus.

So some of America’s most fundamental challenges – such as reducing inequality, supporting stable fiscal and financial conditions, and ensuring environmental sustainability – are the same as China’s, and neither country has a clear and proven “consensus” to guide it. Against this background, cooperation to deliver global public goods – including peace – should be possible.

The key is for the two sides to work toward common goals, while agreeing to disagree on certain ideological tenets. Here, the US needs to recognize that global cooperation is not a zero-sum game, and that China’s rise need not be viewed as a threat. On the contrary, China – along with other emerging economies, such as India – can contribute to a global rebalancing that actually strengthens economic and geopolitical stability.

Andrew Sheng, Distinguished Fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance, is a former chairman of the Hong Kong Securities and Futures Commission, and is currently an Adjunct Professor at Tsinghua University in Beijing. His latest book is From Asian to Global Financial Crisis.

Xiao Geng

Xiao Geng