Prospect of China's domination

Even in a nuclear world, economic leadership, cooperation, not military power will be main influence

Last week I had discussed China’s growing ambitions and investments in the world economy, as manifested in the One Belt One Road (OBOR) initiative. The conference last month to highlight the plan was attended by around 130 countries, including the US, and 28 were represented at the leadership level. India did not participate presumably because the China-Pakistan Economic Corridor (CPEC), which is part of OBOR, goes through Pakistan-occupied Kashmir. A couple of weeks later, India hosted the annual meeting of the Africa Development Bank in Ahmedabad, where Indian leaders highlighted India’s contribution to Africa’s growth. Our Prime Minster referred to the lines of credit extended by India to 44 African countries aggregating $8 billion. Contrast this with the $55 billion CPEC and $125 billion promised by China to OBOR over the next decade. (To be sure, as argued last week, the economic success of China’s OBOR is far from certain at this time.) No wonder even the Indian media gave far less coverage to the Ahmedabad conference as compared to the Beijing one. This apart, Saba Naqvi has reported (The Times of India, May 18) how, in a recent visit to Iran, she heard many complaints about the tardy implementation of the Chabahar port project in that country, a part of OBOR providing a gateway to Iran, Afghanistan and Central Asia. On the other hand, the Chinese are famous for fast implementation of projects. 

Coming back to India and China, will it be better to focus on economic cooperation leaving political issues aside? After all, many other countries from Russia to Japan to Taiwan etc are doing so. As Ravi Bhoothalingam of the Institute of Chinese Studies argued in the article, “Why China matters” (May 2), in this paper, “India will have to master the art of managing political differences with China while pursuing a wider” economic engagement. One area that strikes me: With manufacturing wages tripling in a decade, China is fast getting out of labour-intensive manufacturing and exports. Surely Chinese businesses and capital can help bring it to India, creating badly needed jobs? Today, much of it is going to Vietnam and Bangladesh, which, too, have political problems with China. 

Coming back to China in the world economy, its banking sector is the world’s largest by assets. Its state-owned China Development Bank has larger foreign assets than the World Bank’s, and the Export-Import Bank of China is close behind. Multinational institutions promoted by China, namely the New Development Bank (BRICS Bank), and the Asian Infrastructure Investment Bank, headquartered in Shanghai and Beijing respectively, are just getting off the ground. Chinese private sector companies are busy taking over/founding businesses not only in the emerging markets of Asia, Africa and Latin America, but also in the advanced countries. Its technology companies like Alibaba and Baidu rival Amazon and Google in their respective fields in terms of size and sophistication.

One area in which progress has been slower than expected is the internationalisation of the yuan (renminbi) since its admission to the Special Drawing Rights basket last year. In fact, its use as an invoicing and depositing currency seems to have gone down. China has recently liberalised foreigners’ access to its bond market in a bid to reverse the trend. Eswar Prasad has argued in an article in Finance and Development (March 2017): “The renminbi’s adoption in global markets is constrained, however, since the Chinese government seems unwilling to condone a fully market-determined exchange rate and an open capital account that allows for free cross-border capital flows.” Market-determined exchange rates are, almost by definition, volatile and unpredictable. The currency trader/speculator in the financial economy loves them; the real economy, surely not? Should macroeconomic policies cater to the interests of the former for the privilege of “adoption in global markets”?

The other side is that in the book, When China Rules the World, Martin Jacques, an academic who has done research in both China and the UK, argues that China’s impact on the world will not be limited to the economy, but encompass ideology and culture as well; it may end the era of global dominance of the West. This goes completely against what the “neocons” in the US have propagated for the last 20 years. Their think tank, Project for the New American Century, argued that because of its military strength, US dominance of the world would continue in the 21st century. In a nuclear world, will military power or economic leadership and cooperation be the principal influence? I for one vote for the second.

The author is chairman, A V Rajwade & Co Pvt Ltd; avrajwade@gmail.com