A New China and the New Global Power Relations

By Dorothy-Grace Guerrero[1]

We are now entering an era of a multipolarity with the “rise of the South” or the increasing powers of emerging economies China, India, Brazil, Russia and South Africa getting more visible. This era is characterized by a major crisis to the system of limitless growth and clearer manifestations of the planet’s limits. Many believe too that with the economic stagnation in the Eurozone and the US, new powers like China are gaining more wealth, expertise, consumption power and the political clout to influence and re-arrange the global system to their advantage. The lingering economic crisis in the US is also seen as a deepening and acceleration of the ongoing decline of US hegemony and that among the new powers, many think that China is the most likely challenger to US dominance[2].

The big question that preoccupies China watchers is whether it is offering a better model of partnership with other developing countries or is it turning out to be just another imperialist power or a new bully-state that will continue the same or more intense practices of exploitation and extraction of natural resources from poorer countries to further enrich itself. Social movements and activist academics concerned with and following these issues are increasingly wary of the economic model that China is advancing, and the relationships that this model is based on. There is concern that the same unsustainable and unjust paradigm that facilitates accumulation of wealth by a few while resulting in the dispossession and pauperization of the already marginalized and powerless, and increases inequalities.

For the Chinese, the bad state of China’s environment is an obvious downside of the fast-track growth in the last three decades. The result of the Third Plenum of the 18th Party Congress, which was anticipated by millions, carries a rhetoric that calls for a decisive role for the market in allocating resources. That and other decisions will have huge impacts both within China and worldwide. The new economic framework, although aimed at solving internal headaches like pollution, social inequality, economic inefficiencies brought about by operations of state-owned banks, soaring property prices, etc., will affect global political economy.

2013 showed the highest pollution levels in China in fifty two years, according to state media. More than 100 Chinese cities or almost half the country spent early December enveloped by smog. Environmental worries such as water pollution, land pollution and toxic air are becoming major drivers of popular unrest and instability. No government propaganda can hide the fact that people can’t breathe and have to stay indoors lest one gets health problems. The government also recognizes that it has to find quick yet sustainable solutions to environmental issues and that climate change is potentially a troublesome question for a long time. At the same time, it must ensure that the economy continues to be robust. As China climbs to a new position of power, it is crafting new relations with other developing countries and old powers alike, especially on matters linked with securing natural resources.

China’s “Rise” as Global Power: what does it mean to the rest of the South

Various forecasts predict that China will soon surpass the US as the top global economic power[3]. Whether this will happen as early as 2016[4] as the IMF predicted using purchasing power parity as basis of analysis or by 2020[5] or 2030[6] according to the World Bank, the “guesstimates” agree that it will be earlier than previous assessments.

China’s role in the global political economy entered a new stage in 2005 when it started to become a new exporter of capital. China is currently the largest holder of foreign currency reserves on the planet, 54 percent of its USD 3.2 trillion in foreign reserves are in US dollars[7].

Since the 2008 global financial crisis, China has accounted for more than 35 percent of all global economic growth[8]. For the first time since 2003 China surpassed the US as the world’s largest recipient of global foreign direct investment (FDI) in the first half of 2012. The data from UNCTAD show that US FDI inflows reached $57.4 billion in the first half of said year, down from $94.4 billion in 2011 while China attracted $59.1 billion in foreign investment in the first six months, down from $60.9 billion[9]. Although short-lived, as the US regained dominance by end of 2012, this indicates that investors continue to be attracted by China’s huge market.

China is now investing in Central and Eastern Europe. Premier Wen Jiabao’s Europe tour in April 2012 promoted bilateral and economic trade relations between China and Iceland, Sweden, Poland and Germany and was seen in the Chinese and European sides as an indication of China’s willingness to help alleviate the debt crisis in Europe. A $10 billion credit line to support Chinese investments in Central European infrastructure, new technology and renewable energy was set up in April 2012 during the China-Central Europe-Poland Economic Forum in Warsaw, attended by leaders of 16 countries in the region who all traveled to the Polish capital to meet with Wen[10].

China’s economic priority is ensuring access to its goods, securing energy sources, expanding outward investments, and consolidating its position as a regional and global hub of advanced production networks. For countries in the South, the more important question about China’s challenge to the US and other old powers is whether such rivalry is making other developing countries more prosperous and stable or if it is leading to more desperate “race to the bottom” among the weak.

China’s aggressive FTAs are underpinned by two objectives. The first is to secure long-term energy supplies and establish sources of other natural resources that it needs for its manufacturing exports. The second objective is to expand its market to various regions to enable it to continue its growth. Currently, China has 14 FTA partners comprising 31 economies and regions including the Asia-Pacific region, Latin America, EU, Africa and Oceania[11]. Since 2002 China has signed FTA Agreements with the ASEAN, Chile, Pakistan, New Zealand, Singapore, Peru, Costa Rica as well as Economic Partnership Agreements with Hong Kong, Macau and Taiwan. It is negotiating FTAs with the Gulf Cooperation Council (GCC), Australia, Iceland, Norway, Southern African Customs Union, Japan and South Korea (China-Japan-SK FTA), and Switzerland. It is in the stage of finishing FTA Feasibility Studies with India and South Korea.

Until 1993, China was a net exporter of oil. The need to find a secure supply of energy prompted it to negotiate oil and gas deals with various countries in the Middle East, North Africa, Sub-Saharan Africa, Russia and Eurasia, Southeast Asia, Australia, and the Americas.

China’s export credit and guarantee agencies; particularly China EximBank and Sinosure are now playing a crucial role in fostering the rapid expansion of Chinese trade and overseas investments. The China EximBank, a state bank solely owned by the Chinese government and the country’s official credit agency, is the world’s largest export credit agency. In total, China has extended $12.5 billion more in loans to Sub-Saharan Africa in the past decade than the World Bank; $67.2 billion was also lent to the world’s poorest region between 2001 and 2010 compared with the World Bank’s $54.7 billion[12]. The China Development Bank, the world’s largest development institution in terms of assets, is putting more resources behind the overseas expansion of Chinese enterprises, particularly in natural resource projects.

Contrary to earlier impressions, it is not true that Chinese investment or loans have no strings attached to them. A study on Chinese banks financing in Latin America, showed that Chinese loans have more stringent demands than World Bank loans. In 2010 China Development Bank lent $20billion to Venezuela in exchange for Venezuela’s payment through oil shipments to China. China sent 30 consultants, led by a former vice-governor of CDB, to Venezuela for 18 days with a mission to check how Venezuela will deliver the oil and to make proposals how to reform its economy to ensure that it will get its money back[13]. In Africa, many riots were spurred by the fact that Chinese workers had been brought in by Chinese investors instead of hiring local labor. Cheap Chinese products are also flooding local markets.

The North’s Continued Dominance

Despite impressive economic figures, it is misleading to think that China’s “rise” means that China will be a world hegemon in the way the US has been. The US is still the world’s largest economy and its military is still the most powerful. However, it is finding it increasingly difficult to assert a hegemonic role the way it used to due to its own crisis, its burgeoning national debt, the impacts of the Iraq and Afghan invasions and ongoing wars, and the relatively “reluctant” global role played by President Obama.

The rise of new powers like BRICS does not necessarily mean that they are seeking to displace the US in its hegemonic role, with all the implications which this may have. It is more likely that a multipolar world means that a new mix of leading countries will define the global political economy together with the US. At this point too, the emerging economies are still playing supporting role to the US and the West. The old powers are still maintaining the lead in many political arena and spaces of decision-making like in the UN, the World Bank and International Monetary Bank (despite latest attempt to put a non-American in the WB in 2012), and in trade and investments[14]. This was also glaring in the last trade negotiations of the World Trade Organisation in Bali, Indonesia in December.

China is also grappling with huge internal problems. Chinese leaders are constantly preoccupied with the task of finding the best formula to address the need for stability and reform as the continued success of China’s economic agenda and more importantly the survival of the Party and the current character of the state are at stake. It is also misleading to focus on China’s and India’s soaring GDP considering the huge number of people in both countries that are poor. Another reality is the huge gaps between the old and new powers’ technological know-how, military capability and political influence in international affairs[15].

China achieved what the 200 years of industrial revolution and modernization efforts of the now advanced economies had achieved in just three decades of fast-paced experimentation using an unusual mix of communist politics, developmental experiences of other East Asian countries and capitalist economics. The grow-at-all-cost development paradigm that has enabled it to make the giant economic leap has now reached its limits as shown by its increasingly degraded environment, growing inequality and economic imbalance.

Critics of Asia’s development paradigm have long argued that free trade and neo-liberalism have increased inequality and poverty in the region and especially in China and India despite the two countries’ phenomenal growth. China and India ranked 120th and 170th in the global human security index. China’s market socialism in its modern form is a predatory, dysfunctional and grossly inefficient system that is enormously wasteful and unsustainable[16]. China’s model merely reflects 21st century capitalism, which is characterized by high-speed accumulation by the few, dispossession of the majority’s access to resources and marginalization of their voice in the management of resources. The majority of the current analysis about China’s role in the changing global political economy fails to locate China in the context of neo-liberal globalization and global class politics.

In the context of the ongoing debate about China’s growing environmental footprint in other developing countries, two aspects are seldom discussed: the limits to growth and a planetary transition to low carbon consumption. China’s “rise” was achieved through importation of natural resources and their re-exportation in the form of value-added inputs of final products for consumption in other countries, mostly in the West. In effect, the emergence of China as the factory of the world is upholding the unsustainable consumption and production patterns in the developed world. There is also the reality of Chinese TNCs joining the game that has given transnational corporations from developed countries unbridled power.

 

*This paper is a shortened and updated version of the original “The Rise of China and Emerging Economies” in  The BRICS and Social Participation: From the Perspective of Civil Society Organisations, Instituto de Estudos Socioeconomicos (INESC) and Rede Brasileira pela Integracao dos Povos (REBRIP), Brasilia, August 2013



[1] Dorothy Guerrero coordinated the China Programme of Focus on the Global South from 2005 to 2011. She is now coordinating the Climate and Environmental Justice Programme and can be reached at d.guerrero@focusweb.org .

[2]Ikenberry, G. John, “The Rise of China and the Future of the West: Can the Liberal System Survive?”, 87 Foreign Affairs, January/February 2008.

[3]Maddison, Angus, 2006, “Asia in the world economy, 15002030”, Asian Pacific Economic

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[10]Millner, Caille, “Eyes on the Price: Beijing Sets its Sights on Central Europe”, Der Spiegel, May 18, 2012 http://www.spiegel.de/international/europe/with-10-billion-dollar-credit-line-china-deepens-presence-in-central-europe-a-833811.html#ref=rss

[12] Cohen, Mike “China Exim Lend More to Sub-Saharan Africa than the World Bank – Fitch says”, Bloomberg, December 28, 2011 http://www.bloomberg.com/news/2011-12-28/china-exim-loans-to-sub-sahara-africa-exceed-world-bank-funds-fitch-says.html

[13]Rabinovitch, Simon, “ A New Way of Lending”, Financial Times, September 23, 2012.

[14] Wade, Robert, “The United States and the World, The Art of Power Maintenance: How Western States Keep the Lead in Global Organisations”, Challenge, Vol.56. No. 1, January/February 2013, M.E. Sharpe, Inc., pp.5-39

[15]Ju, Zhongwen, “Moving toward multipolar world”, China Daily, Dec.12, 2010, http://www.chinadaily.com.cn/opinion/2010-08/12/content_11141897.htm

[16] J. Lee, Will China Fail? The Limits and Contradictions of Market Socialism, Center for Independent Studies, 2007