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East Asia

China’s rise – risks and opportunities for Eurasia

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Balancing economic growth with demographic decline, calibrating brewing social expectations, tempting anti-politics of nationalism, all with the security dilemmas remains a fundamental issue for Beijing, but also for the most of Eurasia. Former Chairman of Morgan Stanley Asia, distinguished Yale University professor and friend of MD, Stephen S. Roach gives his highly interesting account on the topic.

It has taken nearly seven years of internal debate, but China now seems set to embark on a new economic course. Its long awaited pro-consumption rebalancing is finally at hand, or at least that seems the verdict to be taken from last November’s Third Plenum of the Central Committee of China’s 18th Party Congress.

The debate over China’s growth strategy began in earnest in March 2007, when former Premier Wen Jiabao pondered the fate of an economy that looked strong on the surface, but which in his own words was beneath the surface increasingly “unbalanced, unstable, un-coordinated, and ultimately unsustainable.” These “Four Uns” underscored the realisation that China’s highly successful “Producer Model” powered by exports and fixed investment had outlived its usefulness. That left the option of a rebalancing towards more of a consumer society, a strategy that was formally endorsed in March 2011 in the 12th Five-Year Plan.

But that plan was always more of a broad framework than a detailed transformational blueprint. It was up to China’s newly installed fifth generation of leaders headed by Xi Jinping to put the plan into action. The Third Plenum provided that opportunity, and by focusing on social reforms it filled in an important missing piece of the 12th Five-Year Plan. Committing 30% of the profits of China’s state-owned enterprises to funding woefully under-funded safety-net programmes like retirement and healthcare will make Chinese families’ futures much more secure. Other reforms to the one-child family planning policies, the residential permit (hukou) system, and a likely shift to market-based deposit interest rates also featured prominently in the Third Plenum.

China now has a well-articulated strategy (the 12th Five-Year Plan) as well as a comprehensive implementation framework (Third Plenum), both of which complement each other in the transition to a new economic model. The plan established new opportunities for emerging middle class consumers – more job creation via the development of an embryonic services sector and higher wages that come with aggressive urbanisation. Together, they will provide an important impetus for higher incomes and more consumer purchasing power. The social reforms of the Third Plenum complete the circle by prompting shifts in behavioural norms that should provide incentives for Chinese families to reduce their fear-driven precautionary saving and allocate more income toward discretionary spending.

With China on the cusp of a major structural transformation, there’s enormous opportunity for its major trading partners to participate in what could well be the most spectacular consumption bonanza of the 21st century. Unlike Japan, which was modern Asia’s first growth miracle, although a relatively closed economy, there is good reason to believe that China will be much more effective at spreading the wealth. China’s imports have averaged 28% of its GDP since 2002 – triple Japan’s historical ratio – and its neighbours in Asia are specially well positioned to benefit from the coming upsurge in Chinese consumption – not just because of their proximity but also because they have long provided critical supply chain inputs to Chinese producers and assemblers.

A simple extrapolation helps convey the dimension of this coming opportunity. It is based on three key assumptions: One, that average Chinese GDP growth will tail off to about to about 7% between now and 2025. Two, that the growth rate in U.S. dollar terms will be about 1.5 percentage points faster per annum due to the steady appreciation of China’s currency, the renminbi. Three, that the consumption share of Chinese GDP increases by about 1 percentage point a year, starting in 2014, from its current rock-bottom portion of 35%. Under those conditions, Chinese consumption would increase between now and 2025 by about $10 trillion in U.S. dollar terms. If the import share of its GDP holds at the historical norm of 28%, that would translate into incremental growth of nearly $3 trillion that would be available to China’s trading partners.

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The coming structural transformation of the Chinese economy will only deepen China’s now well-established role as the dominant economic engine in Asia

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Export-led Asia will be first in line to benefit from this rebalancing bonanza, because China is now many Asian countries’ largest export market. It wasn’t always that way; throughout the 1990s, the United States and Europe were the largest export markets for most Asian economies other than China. Then, around the turn of the century, Asian exporters started to draw greater support from China, and that’s especially true of Japan, South Korea and Taiwan. The World Trade Organisation says their exports to China account for an average 23% of their total export earnings. For ASEAN countries like Indonesia, Malaysia, the Philippines, Thailand and Singapore, shipments to China generally rank in the top three export destinations and account for around 12% of their total exports.

So as an increasingly open Chinese economy shifts from export-led to consumer-led growth, the rest of Asia will be well positioned to capitalise on this latest shift in China’s development. The China-centric character of Asia’s export-led growth dynamic offers the region a new and potentially powerful source of economic growth at just the point in time when many are questioning the dynamism of the developing world.
The coming structural transformation of the Chinese economy will only deepen China’s now well-established role as the dominant economic engine in Asia. Data from the International Monetary Fund underscores recent dramatic shifts in China’s economic leadership position. In 2012, the Chinese share of world output was estimated at 14.7% when measured on a purchasing-power parity basis which adjusts for international disparities in pricing structures. In other words, China accounted for nearly 43% of total Asian output in 2012, up from about 36% of the Asian total in 2000. China’s export impetus was even more powerful, its one-third share of all Asian exports in 2012 was 2.3 times the 14% share in 2000.

The rebalancing from the producer model towards a consumer society will undoubtedly change the character of China’s economic leadership in Asia. It will become an economy that relies increasingly on its trading partners – not just in Asia but even in the developed economies of Europe and America – as sources for its emerging internal demand of both goods and services. That stands in contrast with the first phase of the Chinese development miracle from 1980 to 2007, where the producer model squeezed out others for market share. In that vein, the rebalancing of China’s economy should be viewed as an opportunity for its major trading partners, especially in Asia.

But the opening up of a rebalanced Chinese economy to Asian partners comes with a possible offsetting wildcard – mounting pan-regional strategic frictions between China and its neighbors. This would be, to say the least, a disconcerting development. That’s especially true of the deep-rooted animosity between China and Japan now being exacerbated by the territorial dispute over the Diaoyu/Senkaku Islands in the East China Sea. It will be especially difficult for two nationalistic leaders, Xi Jinping and Shinzo Abe, to defuse these tensions without damaging their carefully cultivated public support for the “China Dream” or the rejuvenation of Japan after two lost decades. The establishment of overlapping air defense identification zones over the disputed islands is already heightening the risk of a military accident that could then escalate.
There isn’t as much geopolitical tranquility as might be wished elsewhere on China’s borders. Tensions over maritime security lanes in the South China Sea have been mounting, leading to frictions with the Philippines, Vietnam, Malaysia, Indonesia and India. Add Washington’s “Asian pivot” to the equation, with its shift in American naval strategy back towards Asia, and there’s little mistaking China’s growing sense of geo-strategic isolation. Acutely sensitive to these risks, the Third Plenum’s establishment of a new State Security Council, rumored to be headed by Xi Jinping and apparently modelled after the U.S. National Security Council, looks set to elevate geostrategic security concerns as a major consideration for China.

This is a precarious balancing act. The pan-Asian economic opportunities that will stem from China’s pro-consumption rebalancing could go for naught if regional security tensions were to boil over. Historians have long warned of the risks of its rising power, and the record-breaking speed of China’s economic ascendancy only accentuates these risks.
Modern China’s leaders have long spoken of the “peaceful rise” of their nation, and its focus on internal stability and rising prosperity, with an absence of territorial ambitions. The rest of Asia has benefitted greatly from the economic rise of China, and is likely to realize even greater benefits from the coming consumer-led transformation of the Chinese economy. The risk that escalating geostrategic security considerations might compromise those benefits remains a worrisome wildcard for Asia and the world at large.

(First published by the Europe’s World, article re-posted per author’s permission)

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East Asia

U.S.- China Strategic Competition in The East Asia

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East Asia has been the most dynamic region where development has been internationally recognized. The regional politics of the region has developed a paradox that has flamed up the economic environment of the region. The trends have shown the increased intensifying security issues along with the strategic completion that has spread the security and economic tensions across the East Asian Region. In a global circle, China is known as the revisionist state. The historical manners suggest the reclaim of East Asia by the Chinese. This claim has intensified the relations between the US and China in East Asian Region.  The main challenge for China is to shift the US intervention from the East Asian region for the balanced equation at the strategic level. This might provoke the US and its allies in East Asia such as Japan that will help the US to jeopardize the Chinese rule from the region. The challenge for the US and its allies in the East Asian Region is more complicated because of the economic stability of China at the International Level. This might be a proxy war for both the superpowers in the East Asian region where the conflict may rise compromising the strategic stability of the region. The strategic location of the US lies in the actual form of ability and project power over great sustainable intervals. The strategic behavior increases the policies and shapes the allies.

One prevalent belief in the United States about China’s long-term policy goals in Asia is that Beijing aspires to be the regional hegemon and wants to restore a Sino-centric order in the region.

First, Beijing favors unipolar ties at both the global and regional levels and believes that with ongoing economic growth, this trend will continue intra-regional political consultation in Asia, influence on regional affairs is going to be more diversified and more evenly distributed. Secondly, although China expects some relative increase in its influence in Asia, it understands that thanks to the boundaries of its hard power and particularly its soft power, China can never achieve a grip cherish its role within the ancient past or to the U.S. role within the region at the present.

Beijing’s perspective:

From Beijing’s perspective, the US is an East Asia power, although not an Asian power, and its political, economic, and security interests within the region are deep-rooted, as are its commitments to regional stability and prosperity. Beijing has always welcomed a constructive U.S. role in regional affairs. At the identical time, however, Beijing also feels uneasy with certain aspects of U.S. policy. As a superpower, The US has been too dominant and intrusive in managing regional affairs. It fails to pay due regard to the voices of other regional players and sometimes gets too involved within the internal affairs of other states, lacking an understanding of their culture, history, and values.

The US and European aspects towards the South China Sea and East Asia should involve long-term perspectives of engaging ASEAN states. Such impacts will create room for the US to tackle China in the East Asian region. The development of any comprehensive strategic security policy is the need of the hour that assures one’s interest in the region. Both the states perceive a threat from each other and try to further advance their capabilities for the sake of safety and security. The US is not in a position to deal with the other power far away from its homeland, sustaining its military and protecting allies. Aggressive behavior in strategic competition can lead to unwanted results. The US would have to accept the strategic realities of China to normalize the relations. China on the other hand should rethink its policies in East Asia and Indo Pacific. However, as yet, deterrence has played its part by keeping states from a large-scale action. States running in the race of acquiring arms conventionally due to uprising strategic competitions are worsening any likely condition of conflict.

Key points for US:

In terms of identifying specific actions for a U.S. strategy for competing strategically with China in East Asia, a key element would be to possess a transparent understanding of which actions are intended to support which U.S. goals, and to take care of an alignment of actions with policy goals. Cost-imposing actions are actions intended to impose political/reputational, institutional, economic, or other costs on China for conducting certain activities within the East Asian Region, with the aim of persuading China to prevent or reverse those activities. Such cost-imposing actions need not be limited to the East Asian Region only. 

Conclusion:

The development of any comprehensive strategic security policy is the need of the hour that should involve joint military maritime exercises. The US and China have set their limits in coordinating military to military joint cooperation due to their desired interests and competition. Both the states perceive a threat from each other and try to further advance their capabilities for the sake of safety and security.  

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East Asia

Summit for Democracy Attempts to Turn Multicolor Modern World into Black and White Divisions

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One of the most important takeaways from the recent sixth plenary session of 19th CPC Central Committee is that Beijing flatly rejects Westernization as the path to modernize the Chinese society and the national economy. Instead, as it was underscored in the plenary Communiqué, the country will continue to stick to “socialism with Chinese characteristics in the new era.” The leadership will preserve and further develop the system that served the people so well over last more than 70 years.

This statement did not come as a surprise to numerous China watchers all over the world. In fact, the critical choice between socialism and Western-type liberalism was not made in November of 2021, but decades ago.

One can argue that the outcomes of the sixth plenary session are yet another manifestation of a more general global trend: The world has been and will continue to be very diverse in terms of political systems, social models and economic patterns of individual nation states. Moreover, the odds are that this diversity will increase further literally in front of our eyes. Instead of the “end of history,” we will observe more intense multifaceted competition between different types of social development.

One way to react to this emerging reality is to accept it as a positive trend that enhances the overall stability of the global social system. The more diverse and complex the system is, the more resistant it is to various shocks and disturbances. To make a rough analogy with biology, a natural forest, which is a very diverse and complex ecosystem, is much more resistant to whims of the weather and natural disasters than a man-cultivated monocultural field. Accepting the trend, we should focus on how to manage competition within the increasingly diverse and complex world so that this competition will ultimately benefit all of us.

The other way to deal with this reality would be to start fighting against social, political and economic diversity by trying to advance one single model over all others. This is exactly what the Joe Biden administration is committed to doing by launching an ideological crusade against China, Russia and other nations that dare to deviate from the fundamentals of the Western development model. To make its case, the White House has announced a virtual Summit for Democracy to be hosted by the US on December 9–10 with the goal “to renew democracy at home and confront autocracies abroad.”

This vision reduces the multi-color palette of the modern world to a minimalist black and white graphics of a global fight between “democracies” and “autocracies.” It divides the international system into “us” and “them,” into “good” and “bad,” into “legitimate” and “illegitimate.” Such a reductionist system, if constructed, cannot be stable and shock-resistant by definition: Any major international crisis or a regional conflict could spark high risks of implosion.

It goes without saying that the nations of the world should firmly oppose corruption, abuses of power by state authorities and gross violations of human rights. If the goal of the Summit for Democracy were to confront these evils on a global scale, there would be no need to make the event exclusive by inviting mostly US friends and allies. If the goal is to advertise the US political, social and economic model, Washington should probably delay the summit and put its house in order first. If the goal is to isolate Beijing and Moscow in the world of politics, this is not likely to work well for the US.

Nations of the world have a right and even a duty to experiment with their political and social development paths. This experimenting contributes to the overall social experience of the humankind. Only history is in a position to judge what models turn out to be efficient, productive and fair and what models will find their place at the dump of human delusions. And history has a lot of means at its disposal to punish leaders, who believe that they possess a “one size fits all” model, which could successfully replace the existing diversity with an imposed universalism.

From our partner RIAC

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The Chinese diplomatic force in the IAEA to confront Western leadership

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At the level of international relations, through China’s presence in all the relevant international organizations, and its membership in all of the United Nations organizations, specifically in the International Atomic Energy Agency “IAEA”, China aims to play the role of the (international balancer),  in light of its quest to maintain a certain level of competition with the United States of America politically and economically, this is in line with its desires to constantly play the role of the pole calling for (multipolarity and multilateral international pluralism through the Chinese political speeches of Chinese President “Xi Jinping”), in order to oppose American hegemony over the world and Washington’s policies to maintain its position as a single pole in the international community. China’s increase in its foreign investments, in order to enhance its economic hegemony over the world through its political and diplomatic tools with countries that have equal economic power with it in a number of (trade, scientific and technological issues, in addition to military and intelligence tools, as a reference for China’s new foreign political center).

  We note that the patterns of Chinese foreign policy is (the pattern of dependence, which is based on the high level of foreign participation in all current global issues), to restrict the attempts of the United States of America to pass its decisions internationally, and therefore China is trying to enter the membership of all international organizations so that China’s foreign policies remain more comprehensive, broader and more effective in the global change, and to change all directions of these issues and control them in the United States, and this is one of its new political tools that serve its global expansion through the (Chinese Belt and Road Initiative).

   In the same context, China focuses its external and competitive strength on its presence in effective international organizations, and rapprochement with the European Union, especially (France, Germany), despite not denying their relations with Washington, because of their strong influence in the global economy.  In addition to China’s reliance on the plan of foreign and foreign investments in countries that influence American influence through the Belt and Road projects, as well as China’s resort to the import policy of many resources necessary to develop its economic capabilities from certain European countries to open influential relations with them, leading to (the Chinese strategy to obtain  political support through the policies of alliances, consulates, representations, and its membership of international organizations), with the aim of influencing countries’ policies economically to pass important international decisions regarding the US challenge to China, such as: (the Iranian nuclear file, North Korea, Myanmar, Afghanistan, Syria, Venezuela, etc.), to increase with this  The level of external penetration of China economically and politically).

    China is mainly aiming to increase its membership in international organizations and the International Atomic Energy Agency, to (create a new balance of power and get rid of unipolarity restrictions through the medium powers and small states that the international system prevails with real pluralism, instead of the current state of American unipolarity).

   In my personal opinion, the countries of the Middle East may find in the rise of China and Russia, and perhaps other international powers to re-compete the United States,  as a (real opportunity to advance the effects of the pluralism of the international system at the regional level, and this would create more space for movement and opposition or bargaining and flexibility of movement for all to confront the policies of American hegemony, according to Chinese planning with Russia), and this also works to alleviate those restrictions and American dictates, and perhaps the sanctions and pressures it imposes on opponents of its approach internationally.

  The strategy of competition between China and the United States has become China’s long-term strategy, which is based on (the necessity of a heavy Chinese presence in all international organizations and forums, which allows China to communicate with various global powers and balance its relations with them compared to Washington), as well as diversifying the People’s Republic of China for its relations and distribution of its power among the competing countries, which allows China to show wide options on all important issues, and the most dangerous is that this Chinese presence, which (allows Beijing to prejudice the foundations of its relationship with the United States of America and the other various powers around the world).

  China and Russia also aim to form an alliance into all international and regional organizations to change the current provocative approach of the American policies in their confrontation, especially those related to mobilization policies and American alliances against them around the world. The Chinese alliance with Russia was so clear with the (Russian Foreign Minister “Sergey Lavrov’s visit” to Saudi Arabia, the UAE and Qatar, while on the other hand, both Kuwait and Qatar have received a member of the Political Bureau of the CPC Central Committee and Director of the Office of the Foreign Affairs Committee of the CPC Central Committee “Yang Jiechi”).

    On the other hand, China is among the Security Council countries that have the largest number of (Chinese peacekeeping forces around the world), and China is at the forefront of the (most contributing countries to the international peacekeeping budget, in addition to sending naval fleets to carry out maritime guard missions according to according to the UN Security Council resolutions), and therefore China may play an important role in establishing security in many countries in the world, and this is perhaps what China plans to ensure its use, in the event of a decline in American interest in the security of many regions in the world, within the framework of (the strategy of pressure of the American expenditures, retreat and withdrawal from many places around the world and devote its concern to the American interior issues and its worsening economic crises).

  The point is worthy to be considered here, is the report issued in July 2021 by the (International Atomic Energy Agency), entitled “Nuclear reactors around the world”, in which he analyzed China’s plan to (establish the dream of nuclear sovereignty around the world by starting to build and establish about 11 reactors). There are other Chinese nuclear reactors under construction, as well as the (new Chinese planning to build other 29 nuclear reactors), while the International Atomic Energy Agency’s work report on the other hand indicated that the known total number of reactors that are actually in service, other than those planned for construction, and other reactors under construction, is up to  About 50 Chinese nuclear reactors, a step that confirms that “China is clearly shifting towards nuclear energy in the production of electricity, and depends on it directly in its industrial renaissance during the coming period, especially as it is the number one country in the world that is expanding in the establishment of nuclear plants, followed by Russia, which plans to build other 20 new nuclear reactors, while it has 38 nuclear reactors in active service”. Some leaks indicate the presence of Chinese nuclear reactors, exercises and tests in the “Doklam Desert” region on the borders of “Xinjiang” province in northwest China.

   It also notes that, from the reality of the report issued by the International Atomic Energy Agency “IAEA”, its confirmation regarding (Chinese planning to become the first country in the world in the production of nuclear energy during the next ten years, in return for the decline in the share of the United States of America in nuclear reactors, which continues to the continuous decrease with the exit of new American numbers of reactors annually), as the future plan of the United States of America does not include the establishment of new reactors, which indicates that (the expansion of this type of energy tends towards China and Russia during the coming period, and these countries will have accumulated experiences, enabling them to dominate and control this new nuclear industry in various countries of the world, and this is what is actually common happening in the region).  Knowing that its uses will be mainly peaceful and to serve the interests of peoples and countries, so we may witness the coming period intensifying the role of the International Atomic Energy Agency in many files around the world to study them, inspect different regions and various other areas to ensure (their peaceful uses of nuclear energy in many development projects around the world).

   Hence, we almost understand (the importance of the Chinese presence and presence and its membership in the International Atomic Energy Agency in the first place), given that it actually owns 50 nuclear reactors in service, and its contribution to the production of electricity and providing energy to one and a half billion citizens, and China also has new nuclear reactors under construction, so (China seeks to be near the International Atomic Energy Agency, to embarrass, restrict and limit the American influence on the one hand against Beijing’s allies, led by Iran and then North Korea. Therefore, China has developed a strategic plan in the coming years, which is based on the intensity of the Chinese international presence and passing its foreign policies and decisions with the help of its Russian ally internationally).

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