Wednesday, 10 May 2017

Geo political concerns and Geo economic aspirations of China

       China’s strategy to become world leader can be understood by analyzing its Geo-economics. The strategy of geo-economics has been adopted in such a manner to change Geo politics of the world.   China will overtake the US in 2028 to become the world’s largest economy. It uses its economic power to link up to the rest of the world and develops a series of relationships and institutions which result in a more China -centric world order.  Preferred style is to craft a series of bilateral relationships that link it to different capitals, sometimes organised around regional summits the aim of which is to bring China at core of the wider economic and geopolitical system. As per the report published by World Eonomic Forum on ‘Geo-economics with Chinese Characteristics: How China’s economic might is reshaping world politics  Geo economic strategy of china rests upon 5 key instruments trade, investment, finance, the internationalization of the Chinese currency and China’s infrastructure alliances most prominently the One Belt, One Road initiative which has geopolitical implications. China's analysis on these 5 parameters has been given below.
1)      Trade –
Ø  World’s largest exporter, with export goods worth $2.119 trillion in 2016.
Ø  China’s consumer economy is projected to expand by about half, to $6.5 trillion, by 2020. It is World’s Fastest growing consumer market.
Ø   Largest trading partner to over 130 countries.
Ø  Claims its ‘One Belt, One Road’ initiative will create $2.5 trillion of additional trade for 65 countries.
Ø    World’s largest assembling hub of manufacturing products,
Ø  Contributes over 50% to Asia’s economic growth
2)      Investment –
Ø  China has been the world’s 3rd largest investor in foreign direct investment (FDI). China’s growing overseas investment contributes to its geo-economic powers especially in Asia Pacific.
Ø  Unlike US and Japanese investors who focus on manufacturing, most of Chinese investment is concentrated in energy, raw materials and infrastructure.
Ø  Even if Chinese economic growth slows down as forecasted by some scholars. Indeed, investment in Russia and especially Central Asia are vital for the new Silk Road vision connecting China to the leading markets in Europe, Middle East and North Africa.
Ø  Russia’s neighbours most importantly, Kazakhstan– worried by “big brother’s” efforts to restore its geopolitical might – are welcoming an increased Chinese involvement in the region to major economic counterweight to Russia’s dominance.
Ø  Also, given that Russia’s economy is short of cash, its neighbours are even more interested in foreign investment from the East. Western investments are unlikely to fill the gap, in particular because of high corruption in this region. In this sense, China will remain the most important source of capital for these countries in the foreseeable future.
Ø  Now even Russia has become member of  AIIB and NDB.  It has allowed Chinese companies to buy stakes in the Russian natural resource industry, and even leased large domains of land in the Far East to explore oil.
Ø    Pakistan is China’s closest and oldest partner. It will help China move from being a regional to a global power countering India.
Ø   In Africa and Latin America Chinas’ investment presence is significantly high.
Ø  In west Asia and Middle East China is entering into alliances and treaties only to secure its growing need of natural resources and is avoiding taking an active political role to counterbalance US hegemony, which Beijing is actively trying to avoid.
3)      Infrastructure One Belt, One Road Initiative-
Ø  Aims at promoting China’s economic cooperation with countries in South-East Asia, Central Asia, South Asia, West Asia and Eastern Europe.
Ø  Under this,  infrastructure alliance proposals of the Silk Road Economic Belt, The 21st-Century Maritime Silk Road, China-Pakistan Economic Corridor, and Bangladesh-China-India-Myanmar Economic Corridor is being promoted. These plans are intended to facilitate trade and investment, improve traffic connectivity, as well as monetary cooperation. Countries in the loop are particularly interested in China’s participation in their infrastructure development as their underdeveloped transport system is a major bottleneck to their economic growth. For instance, China is helping Kazakhstan and Pakistan to upgrade their railway facilities and port.  This China’s geo-economic influence in Eurasia.
Ø  Together with the land-based Silk Road, its geo-economic and geopolitical impact would be extraordinary. When completed, the two routes would traverse an area that is home to 63 % of the world’s population (4.4 billion people) and accounts for 29 % of world GDP or $ 21 trillion of economic output.
Ø  As per the westerners, ‘Security’ is major global public good that America provides. Today, America’s military “pivot” to Asia deters Chinese expansion, but China diverts that energy into building more infrastructures with its neighbours (and beyond) to more deeply bind them to China which America cannot deter. Infrastructure provision and the connectivity have made countries to maintain good political and economic relations with China. 
Ø  China’s “String of Pearls” strategy has been to develop maritime access points on either side of India. Under this China has taken contract to upgrade and modernize Myanmar’s Maday Island, Sri Lanka’s Hambantota Port, and Pakistan’s Gwadar. Invested $1.5 billion in the capital Colombo’s port complex, where a Chinese nuclear submarine docked in September 2014, and upgraded most of the national motorways and roads. Such infrastructure alliances are aimed at encircling India, Reduce India’s dominance over Indian Ocean and create influential political leadership in South Asia to subdue India. 
4)      Multilateral Financial Institutions-
Ø  In recent years, China initiated the establishment of the Asian Infrastructure Investment Bank (AIIB) and BRICS New Development Bank (NDB) to provide financial support for the One Belt, One Road initiative as well as infrastructure development in BRICS countries are at the core of China’s strategy of supporting international trade and securing natural resources.
Ø   China holds over 30% of the shares and 26% of the voting rights in AIIB, and 41% of the shares in the NDB, more than any other member. This gives China a greater say in making the rules as well as operations of the two institutions. As more and more services offered by these institutions, China’s geo-economic clout will naturally grow.
Ø  The $100 billion AIIB budget is approximately as much as the Marshall Plan spent in Europe (in inflation-adjusted dollars), and mostly goes to finance roads, railways, pipelines, electricity transmission and other connectivity across Eurasia to smooth China’s westward expansion.
Ø  Western multilateral institutions such as the World Bank and Asian Development Bank (ADB) will lose mindshare and market share in Eurasia as they may fall behind in expenditure and efficiency to new bodies such as the AIIB, BRICS Bank, Silk Road Fund, and others.
Ø  Commodities-dependent economies depend more than ever on Chinese loans. Which are disbursed much faster than the IMF can and tailored to allow repayment in raw materials if countries can’t meet financial terms. China has offered Ecuador $11 billion in loans since 2008. As Ecuador’s debts mount, it is effectively selling one-third of its Amazonian rainforest region to Chinese oil companies for oil exploration.
Ø  It has eroded importance of western dominated institutes such as IMF and WB. Over the past year and against Us admonitions Australia, the Republic of Korea, Saudi Arabia, and even the UK, have opted to join China’s AIIB.  It has not only able to counterweight US at multilateral financial institution level but also able to made clear its political influence even on US close allies; which in a way challenging super power.
5)      Internationalization of the Chinese currency –
Ø  The RMB became the first emerging market currency to be included in the IMF's SDR basket on 1 October 2016. This have a bigger geopolitical impact in providing China a voice in international monetary decisions; in enabling China to create a money transfer system to compete with the widely used “Swift” system; and in limiting the dollar’s use in enforcing political sanctions.
Ø  Before this China had so far concluded 10 agreements on direct exchange of RMB with other currencies, treaties on clearing banks in 15 countries, and 32 swap agreements with central banks, and 15 country-specific RMB Qualified Foreign Institutional Investor Quotas.
Ø  In addition to official arrangements, the RMB is widely used in China’s neighbourhood, from Vietnam to Myanmar, and Mongolia to North Korea, which is de facto RMB internationalization. As China’s Overseas Direct Investments (ODI) increases, RMB internationalization will expand even further.
The foundation of China’s geopolitical power is its economic might. Rather than overthrowing existing international institution or going with traditional way of multilateral institutionalism, China is focusing more on creating bilateral relations that have trade as a focus area which result in more China –centric world order bringing china at the centre of geo politics of the world.



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1 comment:

  1. Nicely written article with deep research that can be seen after reading. Post worth reading ...! Keep up