China adopted economic policies in regards to the crisis with internal as well as external implications. The external aspects which this study is focusing on include new policy drives and visions that are unprecedented in history adopted by a Chinese government. From the present research it is visible that China has a broad vision to create its own Bretton Woods system. The 2008 global financial crisis made it clear to the new ruling elite how vulnerable it is to global imbalances, and that the classical approach of hoarding US dollar reserves served no more its economic and political interests. As a result of the crisis and due to the fact of holding huge US dollar reserves, China incurred big losses with the dollar loosing value in the aftermath of the crisis thereby melting the dollar stock it had accumulated for decades. China has come to realize that a pragmatic policy approach is in its interest when competing with the US. Hence the new policy drives towards a framework resembling that of Bretton Woods.
The Bretton Woods system was a major tool for the US in shaping and dominating the international financial system. Its purpose was to govern and shape the international monetary relations of states. Although the so called Bretton Woods system collapsed in 1971, the institutions it created survived and to this day are the main pillars of the international financial system. China seems to establish a similar system, when looking at the policies adopted. The Asian Infrastructure Investment Bank, New Development Bank, the ‘one belt one road’ initiative, the Silk Fund, and the Internationalization of the RMB. China seems to follow the same path such as the US half a century ago by establishing very similar institutions to that of the Bretton Woods.
Thus the outcome of the Bretton Woods system catapulted the US into a hegemon of the global economic world order. The question to be asked now is whether China is about to follow the US footsteps and create a ‘Bretton Woods’ on its own, by cooperating with other states?
This paper is organized in the following structure. Section 2 is the literature review. Section 3 presents the road to the Chinese Bretton Woods system, Section 4 describes the internationalization of the RMB, Section 5 provides for a conclusion.
Since the developments are very new, and the mentioned institutions and policy drives by China are a recent phenomenon, the literature is very limited on the subject. Duggan (2013) focuses more on the international clearing union (ICU) and the effects it would have on Sino-US relations. According to the empirical results an ICU would have prevented de-industrialization in the US and allowed for Chinese export led growth (Duggan, 2013). Hence there would be no need for the Chinese to seek for alternative initiatives. There are related studies on the Bretton Woods system and China, Dooley (et al. 2003) review the Bretton Woods System, and Dooley (et al., 2011) come up with the notion of Bretton Woods II, and argue that it still rules the international monetary system. Furthermore Eichengreen (2011) elaborates on the possibility of the internationalization of the Chinese renminbi and the subsequent challenge to the US dollar. However to the best of the author’s knowledge, there is so far not a study that is directly assessing the establishment of a pseudo Chinese Bretton Woods system.
The Pseudo Chinese Bretton Woods System
As far as China is concerned one can indeed see a policy shift that is more proactive in international relations. Thus looking at the policies adopted and the active foreign policy drive one can indeed argue that China aims to create its own unique form: a ‘Bretton Woods’ system with Chinese characteristics. Of course the conditions and international situation at the time the Bretton Woods was adopted were completely different to the conditions states’ face nowadays. However, the term ‘Chinese Bretton Woods’ seems to be appropriate when looking at the Chinese policies, they resemble the creation of similar institutions and regimes like that of the Bretton Woods system. Below are the main policy moves that arguably justify this view:
-New (BRICS) Development Bank based in Shanghai -similar to the IMF
-Asia Infrastructure Investment Bank (AIIB) –similar to the World Bank
-One Belt One Road/Silk Fund- A Chinese Marshal Plan
-Internationalization of the RMB: Currency swap Agreements and China International Payment System-
Indeed when looking at these newly established institutions one can see the vision behind these policy drives. Similar to the USA in being the major force behind creating the intuitions of the Bretton Woods system, China also seems to follow a similar strategy by creating institutions and regimes that are vital to broaden its own international sphere of influence with the aim of eventually taking the lead. Now let’s have a closer look at these institutions.
Asian Infrastructure Investment Bank (AIIB)
By many seen as a rival to the World Bank and IMF, its main aim is to provide for infrastructure development in the Asia-Pacific region. The blueprints of the creation of the Asian Infrastructure Investment Bank surged in October 2013, mainly due to the frustrations by the Chinese government with the current international intuitions such as the IMF and World Bank, with little or no room for reforms that would enable greater Chinese input into the respective organizations (Braningen, 2015). Despite major critics by the US that the creation of a new international investment bank is unnecessary, many states and major international institutions disagree. Head of the International Monetary Fund Christine Lagarde as well offered support for the Chinese-led multilateral lender; Lagarde and her counterpart from the Asian Development Bank said at a conference in Beijing that they were in talks with the AIIB for cooperation (Miller and Goh, 2015).
It is obvious that the US is opposing the AIIB initiative on political grounds since it poses a challenge to the US led international economic system that it created decades ago, and with the rise of China as another main actor in the global economy that has a vested interest in pursuing its own developmental goals, we will see such initiatives in the future more.
Thus notably one has to remark that in the immediate aftermath of the Second World War, it was relatively easy for the US to create its own international economic order, since all the major economies of the period were ravaged by war and indebted themselves to the US. The situation is different for China today, basically because the terms and conditions are not the same as faced by the US in the post-World War II period. There is already a global hegemonic order in place through which the US and other major powers are operating and cooperating. Examples include the IMF, World Bank, OECD, OSCE (Organization for Security and Co-operation in Europe), the Asian Development Bank, ASEAN, G7, G20 etc. Furthermore the global economic system is so interdependent and integrated nowadays, that it is not easy establishing new international regimes. Thus China will face a challenge in its endeavor for creating its own ‘Made in China’ Bretton Woods system, but the developments of the AIIB so far show a very positive outcome for China.
The countries joining the AIIB are not just usual countries, on the contrary they are major allies of the US, especially the United Kingdom, the founding member and a country that had such a great impact on building the Bretton Woods system now joins an initiative that is seen by many as an act to counterbalance the role of the IMF and the World Bank. Perhaps the most interesting move besides initial UK membership comes from Israel, a staunch ally of America heavily depending on it for security, economic and regional issues, Israel too applied for membership (Reuters, 2015). A country heavily depending on the US for its security, economy and international support against sanctions from the UN, is bidding to join the Chinese led AIIB despite US opposition marks indeed a shift in the global economic policies of nation states.
The Obama administration made from the beginning its position vis-a-vis the AIIB clear, it is vehemently opposing the establishment of the AIIB initiated by China on the grounds that there is no need for a further lending institution since there is the IMF and the Asian Development Bank and that it has concerns over transparency, procurement practices and environmental safeguards and concerns over lending practices alike (Northam, 2015). Nevertheless, according to Bergsten from the Peterson Institute for International Economics, there is a very big demand for infrastructure projects in most parts of Asia, since the lack of vital infrastructure such as roads, airports and power facilities constitute a big barrier to Asian development. His estimation is that in the coming decade about 8 trillion US dollars are needed for infrastructure projects in Asia, and he argues that the AIIB can fill that gap (Bergsten, 2015). It is projected that China is prepared to provide for half of the initial 100 billion US Dollar Budget. Thus it is seen by many as a move by China to compete for global, economic, and political leadership (Northam, 2015).
These developments indicate that the new policy drive of China after the Global Financial crisis that resemble that of the US leading to the establishment of the Bretton Woods system may not be a far reached goal after all, but a deliberated policy action as a result of the effects that the global financial crisis brought with it along the way. These actions can be seen as a policy response to the crisis, like every country, China suffered from the crisis, and not satisfied with the current international financial system, that led to incur China big losses, it is in the trial of making and developing new structures and institutions, attracting prospective members. This major shift in the Chinese policy drive can be seen as a move by China to develop its own ‘Bretton Woods’ system just like the USA did in the post-World War II period.
Since the creation of the World Bank and IMF in the 1940s the US has dominated these institutions and the major European countries seem to look for a change and position themselves stronger within global finance and trade by joining this new initiative led by China (Mason, 2015).
Chinese Foreign Minister Wang Yi said in an interview that China is trying to foster a “new type of international relations featuring win-win cooperation […]” (CCTV, 2015).
The move by China to tunnel its massive currency reserves into infrastructure investments in Asia has led to a lot of debate, long had Western countries asked China to use its trade surplus in the development of transport, energy and telecommunication in developing countries, only they expected it to be done through US dominated institutions such as the World Bank and Asian Development Bank (Taylor and James, 2015), an alternative model, i.e. the AIIB prevailed at the end detrimental to the US and Japan. Conversely one has to acknowledge the US share in the lead to the establishment of the AIIB.
The fact that Congress did not ratify in 2010 an agreement that would increase the voting rights of China and other emerging economies within the IMF literally pushed China and alikes to seek for alternatives. Members of Congress openly started to acknowledge this situation. However the United States is not watching bluntly to the current events that put a drift between itself and major traditional allies, as a counter movement the US initiated the Trans Pacific Partnership (TPP) trade pact with eleven Asia-Pacific states excluding China (Taylor and James, 2015). It aims to boost US export to the region, but also to help gain the US a foothold in the Asian markets, but mainly it’s a move to limit growing Chinese influence in the region. President Obama made this clear in his address to Congress; he stated that without the active involvement of America, “China will be free to ‘write the rules of trade in the 21st century’ ” (Brodbeck, 2015).
For sure we will see a steady competition among the two major global players on the international economic system, the former the hegemon the latter posing serious challenges to the status-quo.
For instance this cleavage became visible as soon as China announced its plan for the creation of the AIIB. The US response was prompt warning its allies and any potential member states that there is no need for another multilateral lending institution, expressing concerns over the transparency of the Bank, good governance, and concerns over corruption and abiding to environmental standards among other things. Although the IMF generated much criticisms with its structural adjustment programs, as well as the World Bank with some major projects conceived environmentally questionable, with more and more public scrutiny in the last decade minor reforms were undertaken to satisfy public concerns as well, which led to some best practice operational conduct in the mentioned institutions, but still many scholars find these steps not far reaching enough.
Thus indeed the strategic policy move of China establishing the AIIB, upset many decision makes and led to new formations and the adaptation of positions by major players of the international financial system such as Europe and some Asian countries. It led to the shift away between the US and its traditional allies such as the UK, Germany, France and Italy and even Israel. It seems the European countries want back the ‘golden age’ period of the early Bretton Woods system and join a similar initiative that has the prospect to deliver on those promises.
The developments are stunning on the one hand the hegemon (America) tries to undermine the participation of other states in the Chinese-led AIIB, and on the other hand we have witnessed unexpected moves by Western powers belonging so far to the US-led international economic order. It becomes visible that the 2008 global financial crisis shook all the existing relationship between states, since like China, the European countries are also not contend anymore with the status-quo of the system and aspire change. The AIIB could be regarded as being one of the main pillars of the new policy drive initiated by China to create its own Bretton Woods system, thus the success of this institution will play a major role for the other mentioned pillars.
The membership looks promising, with 4 of the 5 permanent UN Security Council members aboard, 17 out of the 34 OECD members, and all ten countries of the ASEAN. The only major global economies abstaining from joining the AIIB are the USA and Japan (Olsen, 2015).These developments already indicate that the new policy initiatives by China managed to attract attention around the globe, and pave the way ahead for the establishment of a pseudo Chinese Bretton Woods.
Abstention by both countries comes to no surprise, since the US views the AIIB as a challenger to the US dominated Bretton Woods institutions and has possible fears over a spill over that gradually a rising China might challenge its dominant position in the global system. For Japan under the leadership of Prime Minister Shinzo Abe the reasons are similar, it fears that the AIIB will be a competitor to the Japanese dominated Asian Development Bank (ADB) in the region and undermine Japanese economic interests in Asia.
As opposed to the other traditional US allies Japan does not want to jeopardize its relations with the US, especially not in times when it has disputes with China over some islands in the Pacific Ocean, and the fact that Japan leads the ADB is another vital factor for its abstention. Its customary that the Manila based ADB is led by a former senior official from the Bank of Japan or the Japanese Finance Ministry (Kajimoto, 2015).
Although the AIIB is an Asian Infrastructure Investment Bank, its reach is indeed global as seen by its membership, it managed to attract members from diverse regions of the world reaching as far West as Latin America and North as Sweden or Denmark, per capita rich countries such as Switzerland and poor ones such as Nepal, all are on board. Moreover it has shown the increasing rift between the US and its traditional allies, perhaps it is unprecedented in the post-World War II period where the US was not able to convince or force its allies from a policy move that it vehemently disapproves of. Major staunch allies that have been so reliable in the past such as the United Kingdom and even Israel did turn its back on the US. For the first time in the century was the USA so alone on its position, leaving it isolated from a major global initiative.
For example in the follow up of British negotiations to join the Bank, the White House has accused Great Britain from constantly accommodating China, showing its disapproval and posing as threat to other potential candidates.
Besides the voiced critics to the AIIB related to transparency, environmental standards, good governance and so on; there is the concern that China does not have enough experience to lead a multilateral infrastructure investment bank due to its lack of experience and it would be advised to seek help from peer institutions, i.e. the institutions of the Bretton Woods: the IMF and World Bank, or Asian Development Bank or Western member states that have the necessary know-how. However, the critics seem to fail to mention the China Exim Bank; which is already operating for almost more than a decade in these regions, already undertaking infrastructure projects not only limited to public sector projects but also the private sector. Former Chairman of the China Exim Bank Li Ruogu highlighted in an interview that they have been doing projects such as city rail systems, ports, railway systems, and power facilities among other things on the ‘belt way’ for decades and to his accords countries in the region started to favor the China Exim Bank over the competitors of the World Bank and Asian Development Bank (Li Ruogu, 2015). That indicates that China not only has the financial resources in place to pursue the creation of its own brand of the Bretton Woods system, but also the required international experience in gradually getting closer step by step to its envisioned grand strategy of the creation of the ‘Chinese Bretton Woods’ system. One has to understand that this is a long term project; China does not have the luxury the US enjoyed in the 1940s when it emerged after the War as a Superpower, which enabled it to act fast and impose its will relatively easy creating the Bretton Woods. Since we live in a different world than in the late 1940s, with different conditions and different global power structures, China’s choice is to adopt a gradual long term approach in getting there. It seems to have found its way, since it is not taking the classical confrontational way that the former colonial powers as well as the US did in the past, but it’s taking the way of diplomatic conduct.
New Development Bank
Also called BRICS Development Bank is one of China’s latest initiatives on the way to establish its own version of the Bretton Woods. Like the AIIB the New Development Bank (NDB) is also a multilateral development Bank, only limited in its membership compared to the AIIB. It was set up with the aim to foster greater financial and development cooperation among the BRICS (Brazil, Russia, India, China and South Africa). This is another important step, a milestone in development since the original BRIC states excluding South Africa together comprise more than 3 billion people; 41.4 % of the world population, cover about a quarter of the world’s land area spread over 3 continents, and account for about 25 % of global GDP as of 2014 (NDB, 2015). One can easily see why it is of such high importance.
It’s headquartered in Shanghai, and as opposed to the World Bank and for the matter the IMF, where votes are based on capital share, in the New Development Bank each participating state has one vote and there is no veto power in its structure (NDB, 2015). The mere fact that member states have equal voting rights regardless of capital share and no veto power is an indication that the emerging economies of the BRICS countries want to go a different way than the orthodox international financial institutions of the IMF and the World Bank of which most participating states are voicing their complaints about. In a way it’s a show off of the soft power China projects in the 21st century, since in this establishment it’s the biggest economy.
Like its counterpart the AIIB, the NDB is also focusing on infrastructure projects, with authorization of up to $34 billion annually. The initial founding members agreed that any member cannot increase its share of capital without the agreement by the other 4 founding members, the Bank also allows for new members to join but the BRICS capital share cannot fall below the threshold of 55 percent (NDB, 2015). Again this arrangement does not allow the institution to be dominated by one member country. Perhaps the reason why many see the NDB as a competitor to the IMF lies in the major detail, that this new initiative also has a ‘Contingent Reserve Arrangement (CRA).
The CRA was designed with the intent to support countries with liquidity in response to actual or potential short term balance of payments pressures. Thus the mentioned reserve has the objective to protect states against global liquidity pressures, including cases of member countries where national currencies are being negatively affected by global financial pressures or in times of crises. Due to the exit by the US from its expansionary monetary policy the Bank also aims to provide for assistance to other states as well(NDB, 2015).Thus the NDB is another vital pillar of the Chinese response to the 2008 crisis and its drive in creating a Chinese Bretton Woods system.
Rapoza points out that in most emerging economies the private sector has grown rapidly with the public sector lagging behind to provide the necessary infrastructure projects, emphasizing that regulatory measures by Western governments have made it very difficult for institutional investors to provide enough funding. Furthermore he stresses the fact that it will be in Chinas interest to provide for infrastructure developments since it needs the infrastructure to place its goods in the market and expand its export base (Rapoza, 2015).
Moreover Totten points out to the fact that with the so needed IMF reforms desired by most of the nations, especially the BRICS, it is no surprise that after the devastating global financial crisis of 2008, the BRICS patience would come to an end especially when the US Congress vetoed any new reforms to the IMF. Thus like Keynesianism was the outcome of the Great Depression, so could the global financial crisis lead to the establishment of a “paralleling international financial system” as pursued as a long term goal by Beijing. A very important aspect one shall emphasize is that the paid in capital and reserves are planned to be denominated in the national currencies of the member states of the Bank (Totten, 2014). This is a very important fact one cannot neglect, this means a shift away from the traditional dollar and the US dominated global economic order.
Thus so far the emerging economies of the BRICS nations followed the line and pursued undisrupted economic growth under the current traditional global financial system with future prospects of playing a larger role in those institutions when time is due, and they played along. However, the 2008 global financial crisis led to unforeseen events that upset the whole current system of global financial governance and a major cleavage emerged over the say in the future decision making structure of the global financial system and the respective institutions, in which the current power holders were not ready to share their power in those institutions. Add to that the IMF reform bill was rejected by the US, it practically disillusioned the BRICS among other countries, which saw that it is very hard and difficult to put though their concerns and active participation in those institutions controlling the major global economic order.
It should come to no surprise to anyone that there would be a challenger seeking better terms to the current global financial system.
Just like the US challenged the British gold standard system earlier this century even leading to war among them. So it is the course of history that a country acquiring a major power status in the international system, which China did by becoming the number two of the world economy,will instigate new policies and initiatives different from the current global financial system that led to the illusion of not only the emerging countries but also many other states. This is not the only example, there are many states eager to see a change to the current hegemonic structure established and dominated by the USA over many decades. One has to acknowledge that change does not come overnight, these new initiatives established by China are laying down the ground framework and paving down the way for structures that have the potential to the create a new ‘Chinese Bretton Woods’ system or a ‘parallel global financial/economic order’. The key concept one has to understand is that this shift will come gradually over time, and will be perhaps less painful than the one we have seen during the events that led to the two World Wars.
One has also to see the development in light of the South-South economic cooperation, thus instead of competing with each other the BRICS realized a coordinated effort in place is much more valuable to them, and the New Development Bank just serves well this purpose. Comparatively speaking the value of South to South trade exceeds North to South trade by approximately $2.2 trillion, which is over 1/4 of global trade. There is also the surge in South to South foreign aid, with countries like China, Brazil and India increasing their share in foreign aid. Another important fact to notice is that China became Africa’s most important trading partner and Brazil for example has more embassies there than the former colonial giant Great Britain (Desai and Vreeland, 2014). All this necessitates a coordinated approach within the BRICS, since each country on their own competing against the former colonial powers and another BRICS member would definitely be to the disadvantage of the latter. With a structure such as the New Development Bank in place, this coordination and cooperation among the BRICS will ease the entry to new markets.
This new initiative will enable the BRICS to play a greater role in the world economy than is the case under the current system. The group of the BRICS comprises one fifth of the global economy, but have only 11 percent of votes in the IMF. With all reform attempts to increase the share of the BRICS in the IMF stalling, mainly due to US but also to some smaller European states concerned not to lose voting shares to others, the establishment of the NDB was almost inescapable. We have seen a forerunner to the NDB in Latin America for example, with frustrations from the World Bank and the IMF a regional ‘Development Bank of Latin America’ the CorporacionAndina de Fomento (CAF) was developed to bypass the strict infrastructure rules of the World Bank. The CAF funds more infrastructure projects in Latin America than the Inter-American Development Bank and the World Bank combined. According to Desai and Veerland the NDB has the same potential and its loans could surpass that of the World Bank (Desai and Veerland, 2014).
Moreover, as mentioned throughout the research, the 2008 Global Financial Crisis has upset all the current balances of the global financial order and led to major cleavages especially between China and the US, the number two and number one economies of the world, respectively. Before the crisis China was financing the US debt by buying US Treasury Bills, which the US used to import goods from China. As a result China was accumulating huge US Dollar reserves, earning interest on them as well, but with the global crisis, this option became no more in the economic interests of China, since it incurred big losses due to the dollar loosing value. Sitting on $4 trillion in foreign currency reserves and the rate of return of US Treasuries not anymore promising, something needed to be done with the vast reserves (Bloomberg, 2015). Thus with considering the Obama administrations ‘pivot to Asia’ making China uneasy it has no options but to look to alternatives. Bearing in mind also that we are still in the aftermath of the crisis which disillusioned and affected many states negatively, including major US allies, the time seemed to be ripe for the fomenting of a parallel international economic order, or simply balancing US domination of the world economy by establishing alternative economic policies that might look uncorrelated at the first glance, but are all inter-related in creating a Chinese Bretton Woods system; the AIIB, NDB, One Road One Belt, and the Currency swap Agreements and China International Payment System. Connected together under one roof they constitute the main pillars of the Chinese Bretton Woods.
The AIIB initiative just serves well in demonstrating the new role played by China and its capacity for providing for an alternative gravitational point in the world economy that has the potential ultimately to lead to a Bretton Woods made in China. Seeing this as an opportunity the powerful economies of Europe joined the Chinese led initiative of an Asian Infrastructure Investment Bank, despite heavy opposition from the US.
After having discussed the two key pillars of the new initiative that paves the way down for a new global economic order, now let’s focus perhaps on the most important pillar that complements all these combined efforts in the making of the ‘Made in China” Bretton Woods system, the ‘One Belt One Road’ initiative. Not only a grand economic policy but also a geopolitical maneuver that will have a huge impact once completed not only to all the states involved but also to the different geographical regions of Europe and Asia as a whole, changing the economic and political landscape by bridging continents together.
One Belt One Road
The ‘one belt one road’ program initiated by President Xi Jingpin is perhaps an unprecedented bold move in Chinese foreign and economic policy since the days of Deng Xiaoping. It covers and combines so many inter-related issues such as economic development, export promotion, FDI, and new investment opportunities for Chinese companies when looking solely from the economic perspective but it is for sure not only limited of being a tool to fomenting a new economic order which has huge potential to bring development to the states in question as well, that is not dictated by World Bank and IMF adjustment or structural programs.
The ‘one belt one road’ initiative was first announced by Xi Jingping in October 2013, it’s a policy that constitutes two complimentary projects connected together to one another, on the one hand to review the historical Silk Road between Europe and Asia, there is the ‘New Silk Road’ initiative and on the other hand to connect China to the markets of Southeast Asian countries, Europe and Africa throughout the sea, or the so called ‘21st Century Maritime Silk Road’. So on the one hand a Maritime network and on the other hand a land based road-train network that will serve China to further assert itself into the world economy and increase its economic and political influence further in the global arena eventually perpetuating a Chinese Bretton Woods system. President Xi is attaching a great importance to the project, since he allocated a budget of $40 billion to a newly created Silk Road Fund, intended to improve trade and transport routes in Asia. He stressed that the purpose of the Fund is to support the ‘one belt one road’ project’, i.e. the New Silk Road Economic Belt and the 21st Century Maritime Silk road (Caixin, 2014).
On November 2014 giving a speech to the APEC Central Leading Group on Financial and Economic Affairs, President Xi stressed on the urgency of the construction of the ‘one road one belt’ initiative. Thus the timing of the announcement of the Silk Fund Road was interesting, at the signing of the memorandum of understanding establishing the AIIB, he announced the creation also of the Silk Road Fund, stating that the former and latter are complementary in nature rather than being a substitute to other institutional development banks (Chen, 2014). As mentioned earlier the AIIB, the NDB, and the Silk Road Fund are all a well calculated and executed policy strategies in the road towards fomenting the Chinese Bretton Woods system and serve for that purpose. Under the new leadership of President Xi, China has found a creative way to use its huge currency reserves for lessening its dependency on the US led global financial system that is prone to incur China big losses and at the same time to use these reserves for a grand policy strategy that will lead to the creation of its own economic gravity area, or sphere of influence that will help maintain the much needed economic growth figures in the future years ahead.
The ‘one belt one road’ initiative is also called China’s Marshall Plan, referring to the US development and reconstruction plan of post-World War II Europe, and integrating its markets thereby establishing a grip over the postwar European economic order. Now if we compare the ‘one belt one road’ initiative to that of the Marshall plan one can indeed see some similarities, since the ‘belt and road’ projects were envisioned to serve China’s increasing needs, be it economic expansion or creating alternative secure routes to its markets beyond its borders.
Like the Marshall Plan, the ‘one belt one road’ policy is aiming to cement the framework for the export sector of China in those states. However, here one has to look to the role China has played so far in the region and in the regional institutions such as the ASEAN. China promises a win-win cooperation system where both the investor as well as the host country will gain; this is visible in the stance it takes in those institutions, by setting up a relatively fairer operating system and giving space to its partners, like forgoing of the veto power in the NDB although it’s the biggest contributor by far. Moreover as opposed to the Marshall Plan it’s all encompassing by welcoming new members, the Marshall Plan was limited only to Western Europe. Furthermore due to its vast scope it faces bigger challenges by competitors, such as roadblocks by US like the TPP initiative etc. However, its impact will be huge to the region and the global economic system, and since all the countries involved have a high stake in this project as well, it has a promising outlook (Dingding, 2014).
Thus the aim of the ‘one belt and one road’ projects incorporates the development strategies of participating states into regional cooperation thereby linking those states’ economies with the Asia-Pacific, European and African area. Thus China is well suited to lead this initiative, with being the largest trading partner of more than 120 states, engaging in different types of partnerships with 67 countries and five regional organizations. More importantly the developing world as well as economic powers and staunch allies of the USA don’t shy away anymore entering into initiatives led by China; more than 60 states have expressed willingness and interest in the ‘one belt one road’ initiative (Zhang, 2015).With the implementation of the ‘one belt one road’ policy Xi aims to double the 2010 GDP per capita and build a prosperous China by 2021, thus connecting China and Europe by both land and sea. These new initiatives are by no means to be compared with traditional foreign policy or economic development policies adopted by states’.
Just to highlight and understand the scope and pace of the ‘one belt one road’ initiative one simply needs to look at its routes; the sea route or Maritime Silk Road (MSR) is set to start from Fuzhou in Southeast China and glide south through the ASEAN states, crossing the Strait of Malacca turning west to countries along the Indian Ocean till reaching the land based Silk Road in Venice via the Red Sea and the Mediterranean. Moreover under the structure of the MSR China has plans to broaden this initiative and build hard and soft infrastructure projects form the Indo-Pacific area to Africa (Deepak, 2014).
The mentioned design of a ‘one belt one road’ policy looks promising; however one cannot also deny the geopolitical competition that has roots in the formation of such a policy. China is highly energy dependent and imports most of its energy from abroad. To keep a balance in its energy supply new projects such as the Central Asia Gas Pipeline (CAGP) were established, including the Central Asian nations of Turkmenistan, Kyrgyzstan, Tajikistan, and the Turkmenistan, Uzbekistan and Kazakhstan line that roughly supply half of Chinas gas imports. However gas has only a 4 % share in Chinas total energy consumption, oil accounting to 20 % that is mainly coming from the Middle East (Qureshi, 2015).
For about 40 % of its oil supply China relies on the Straits of Malacca also in the Maritime Silk Road, the Malacca Strait is the key gate to the West. However the strong presence of the US Navy in the Strait of Malacca and the threat of piracy stipulate for the search of alternative routes as well, this is where the New Silk Road comes in as a complementary measure. China has no option but to diversify its supply routes, the Trans-Myanmar oil and gas pipelines just come as another lucrative option for securing oil and gas resources (Qureshi, 2015).
Source: Qureshi; 2015
As one can see the ‘one belt one road’ option not only provides China with an increased role in the global economy, but at the same time it serves its economic interests in diversifying the supply routes for its energy needs. In the North-West it has set up land based pipelines with the Central Asian Nations, in the South-West it has set up pipelines reaching Kunming that provides for an energy corridor giving it direct access to the Bay of Bengal. These initiatives are still regional in nature. However the pearl of the ‘one belt one road’ project connecting China to the far West by land is indisputably the New Silk Road railway project starting from Yiwu crossing the heartlands of Asia and Europe finally reaching Madrid. This railway network connecting dozens of states and creating a direct line from the East Coast of China to the far West up to Madrid not only serves the purpose of fomenting China further into the global market, increasing its role, and providing a cornerstone for the ultimate goal of a Chinese Bretton Woods system. This project is of major strategic value to China since it helps circumvent US naval superiority and strives for greater business efficiency between Europe and Asia, thus bridging the continents. It’s a win-win scenario since the countries along the belt would get the necessary infrastructure investment and benefit from this route (Qureshi, 2015).
Source: Qureshi; 2015.
Perhaps the ‘one belt one road’ initiative is one of the biggest economic and political endeavors of the 21st Century, thus its success along with the other Chinese initiatives resembling the Bretton Woods would change the outlook of the global economic order and create a different ‘parallel economic and political order’ that can pose as a major challenge to the US led system.
One has to understand that in this one China does not go it alone, it would be too costly, open to sabotage of the project by competitors and other difficulties such as coordination issues since it is encompassing such a diverse region and different countries with different backgrounds, add to that the financial burden solely placed on China, opening the success of the project to more vulnerabilities. But it’s not only the Chinese policy makers who grasp the importance of this unique project and the incorporated win-win option for all participating states makes it lucrative to join; it will benefit them in multiple ways, not to mention better infrastructure, easier and broader access to markets due to deepening integration etc.
It should be for that reason that the Shanghai Cooperation Organization (SCO) declared it will combine its development plans with the ‘one belt one road’ policy initiation, thus giving it more cloud and international leeway in its course of actions. The Secretary General of the SCO, Dimitry Mezentsev gave in an interview on CCTV more insights and details on the shape of such cooperation between the SCO and the ‘Silk Road’ project. The SCO prepares a draft of cooperation plan between itself and the ‘one belt one road’ initiative to be handed over to member states for review and ratification. The focus is on mutual benefits on the area of politics, economy and culture; in addition all observer states as well will be invited to join the Silk Road Economic Belt initiative (Mezentsev, 2015).
Not only brings the Silk Road Economic Belt initiative states closer to each other by means of providing them with a common economic interest where all sides win, but also fosters stability and decreases the chances for conflict in the region, since with the deepening integration the costs of conflict becomes much higher than cooperation. So states are much more likely inclined to cooperate out of sheer self-economic and political interest rather than choose the path of conflict. Add to that the increasing role of the Shanghai Cooperation Organization, which has a huge potential not only as mentioned above in fostering and developing ‘political, economic, and cultural’ traits but also providing states with a forum to litigate their differences and promote harmonious relations among them by taking a leading role in this new initiative, and the fact that the SCO has by now longstanding professional operational structure where states are already engaging each other for quite some time now. Hence it has a good reputation among the member states, thus making it a viable organizational tool for the smooth functioning of the New Silk Road Economic Belt.
The importance of this initiative lies not only in providing for infrastructure investments, such as ports, railways, and power facilities and a network of connecting geographical regions, but also the additional benefit of generating economic growth.
According to a study conducted by Minsheng Securities the ‘one belt one road’ initiative will have an impact on 4.4 billion people in 26 countries and regions whereby the economic effect is estimated at about $21 trillion. Furthermore, on the one hand the investments are expected to include domestic provincial infrastructure investments in China, in areas like railway, highway and airport construction totaling $ 1.04 trillion. On the other hand, international projects are expected to be $ 52.47 billion in areas of Central and South Asia, with highway, railway, and of course energy projects. The funding for these projects comes from the ‘custom made’ Silk Road Fund consisting of $ 40 billion. Thus China started already in funding some projects that are in line with the Silk Road Economic Belts philosophy (Wang, 2015).
In light of these developments one can see, how important the ‘one belt one road’ policy is to China, since it is not only a vital pillar of an economic strategy to gradually foster the Chinese Bretton Woods system, but also an economic policy tool to stimulate economic growth at home at times of downward economic pressures. Thus summing up the ‘one belt one road’ initiative by China, it is an ambitious project that has the potential to change the outlook of the current global economic order. As discussed in the section above, it has many sides; economic, political, geo-politics, as well as cultural aspects that provides for the further integration of the region of Asia that will according to analysts foster regional peace. Moreover it’s not only bound to bridge the continents of Asia and Europe, but reach out to the entire world. The reason why so many countries embrace the ‘belt and road’ project cannot only be explained by economic motives and gains of the countries encompassing it, another reason includes the fact that it is built on a win-win concept as opposed to the Bretton Woods system that is criticized of being mainly Western dominated.
In order to accomplish this goal, many Chinese Scholars for example refer to the “three no” notion, i.e.: non-interference into domestic affairs of other states, not to create a sphere of influence, and lastly not to seek for hegemony (Deepak, 2014). Thus one thing is for sure, there is a big need in the development of the infrastructure of Asia, which the AIIB has the potential to fill in the gaps, and other initiatives such as the ‘one belt one road’ provide even a bigger potential in integrating continents. However all these pillars of the Chinese Bretton Woods system mentioned so far are not complete without the internationalization of the RMB.
The Internationalization of the RMB
Already being traded in currency markets in London, Singapore and elsewhere the RMB is on its way to full internationalization. Many Asian central banks and some non-Asian states have also RMB reserves. Furthermore China has currency swap agreements with almost all states in the Pacific region, many in Europe, and beyond to enable for direct trade in the Chinese Yuan, circumventing the long established passage through US dollars (Smith, 2015). Though one has to note the internationalization of the RMB does not mean that it will at the outset replace the dollar; it means that like the Euro it will become another powerful reserve currency and be dealt in with international transactions.
Barry Eichengreen (2011) for example elaborates on how long it will take for the Chinese renminbi to attain international currency status. By referring to the historical analogy of the US dollar that managed to gain international currency status from 1914 to 1924; only in a decade did the US Dollar surpass the British Sterling and became by 1924 the leading international and reserve currency (Eichengreen, 2011). Moreover he points out to the fact that the internationalization of the RMB does not need to come at the demise of the US Dollar or the Euro for that matter, according to Eichengreen: “it is possible to complete the internationalization process quickly if the authorities set their minds to it.”
For sure it seems that China set its mind to make the RMB an international currency when one looks at the policies adopted, like the currency swap agreements between major trading partners and also other states and moves such as the China International Payment System (CIPS) and applying to the IMF for the placing of its currency in the Special Drawing Rights (SDR) basket of currencies in the IMF. Since the monetary pillar of the Chinese Bretton Woods system requires the internationalization of the RMB, these policy moves show a willing Chinese government to enter the international stage and play a bigger role.
Coming back to Eichengreen’s historical analogy of the British Sterling and the US Dollar, there are challenges to the internationalization of the RMB but also advantages in going ahead with the policy. Just like the USA today with the Bretton Woods institutions and its major global financial status, so was London an established center for global trade and the international financial market. It had the entire infrastructure needed with sets ranging from specialized investment banks to foreign branches and institutional and individual investors. Like the US Treasury market nowadays, London was the single most liquid market in the world (Eichengreen, 2011). Just like New York had to face this situation a century ago and compete for its position, so does China face similar challenges that New York faced when jockeying for the number one position in global finance.
Eichengreen (2011) argues that there are sequencing stages in order to internationalize a currency: first the use of the RMB in invoicing and settling trade; second promoting its use in private financial transactions; third encouraging the RMB to be held as foreign reserves by central banks and governments. Thus China has to provide for greater exchange rate flexibility to accompany the transition to capital account convertibility and allow a higher amount of capital flows. The Chinese policy authorities seem to follow the lines as argued; they have begun promoting the use of RMB for trade transactions, initially at the infant stage the authorities permitted the RMB to be used by special eligible companies in cross border trade with neighboring states such as Cambodia, Vietnam, Mongolia, Nepal and North Korea and the special administrative zones of Hong Kong and Macao. In addition to this it set currency swap agreements in 2010, starting with Brazil to allow the two countries’ currencies to be used in bilateral trade settlements (Eichengreen, 2011).
Moreover in the same year of 2010 the Monetary Authority of Hong Kong got the approval from Beijing to liberalize supervisory regulations about the RMB denominated business in the region, granting the right to any company in the world to open a RMB denominated account. This basically unleashed the way of open trade in RMB denominated transactions in Hong Kong. The conventional finance packages started to be provided in RMB’s. A year later in January 2011 the Bank of China was authorized by the government to provide for RMB based deposit accounts in New York. Thus as opposed to critics, the internationalization of the RMB will be a positive development for the global financial system as Eichengreen (2010) puts it; the existence of alternative international reserve currencies to the US dollar such as the Euro and the RMB will be an improvement for the smooth functioning of the international monetary system, since countries will not be forced to accumulate hoards of dollars. Thus: “No one reserve-currency country will be able to finance its current account deficit as freely as did the United States in the years leading up to the recent financial crisis” (Eichengreen, 2010). The competitive nature of the international monetary system will provide for an auto balance system that prevents irresponsible financial behavior as showcased by the United States during the 2008 crisis.
Regarding the internationalization of the Chinese renminbi, it will come sooner than expected by many; the China International Payment System is a vital move in that direction. It will not elevate the RMB to the level and status the US Dollar shares on the international arena, but will pave the way for future developments. Obviously it’s questionable whether the Chinese renminbi will manage to surpass the US dollar within a decade as the US currency did a century ago vis-à-vis the Sterling. However Eichengreen (2011) points out to the possibility of this, by outlining the major sequences that need to be done if Shanghai wants to surpass New York as the international center of finance.
When one looks to the different policy initiatives of China such as the establishment of the AIIB or the New Development Bank, one belt one road policy or financial instruments such as the CIPS and currency swap agreements on their own then these developments might not show us the grand strategy that lies behind these initiatives. However, analyzing those major moves in combination as part of a bigger strategy one can indeed see a move towards the establishment of a Chinese Bretton Woods system, a mechanism ultimately leading to the challenge of the status quo that is dominated mainly by the US. Thus this analysis has tried to shed light on the Chinese policy drives that have the potential to challenge the current world economic order in the future by the emergence of a new economic as well as political gravitational point that will be possible with the creation of a Bretton Woods system made in China.
Flourishing Forex Market amidst Covid pandemic
The Covid-19 outbreak has halted the normal channel of life, people losing their livelihood and income has dwindled over the past eight months all over the world. However, in the tailspin the world has faced, the Forex accounts have witnessed a phenomenal growth over the pandemic-ridden months. Month-on-month growth has been recorded as close as 25-50% while the total volume has expedited at an all-time high of 300% growth. Over the past decade such a phenomenal growth was hardly ever seen since the last record high was a close to 40% which is mere compared to the colossal figure posted on the stage in June 2020.
The developing markets, however, post a lucrative section to invest in since the region has been the biggest contributor to the FX rise: close to 60% being the beneficiary of Europe, Africa and South Asian countries. Safe to say that this trend has been so steep largely due to the investors being ridden with optimism over the volatile prices of many of the commodities that were rendered stagnant over the previous decades. This includes the oil prices, gold valuation and even the real estate market that despite being involved in a price bubble leading to the worst financial crisis of the millennial, still stood relatively steady over the past 11 years.
The FX market is oozing optimism to say anything about the trend which could be directly associated to the unprecedented financial climate and the looming atmosphere of recession and financial crisis pushing people towards adopting a new income stream. As conventional income channels come to a dead stall and people having time and focus to spare towards trading, the large volume of cumulative accounts could be further expected to extrapolate since price volatility and unexpected events both in the trade and world affairs have had a conducive effect on even the layman to dip into the trading cycle: FX market being the coherent choice due to safe commodity and currency investments and quick gains.
Exacting one’s mind towards the milestones achieved this year, be it the plunge of global oil prices to the negative scale of the exchange or the sharp fall and sudden rise of DJI or even the injection of one of the largest stimulus packages in the United States since the infamous financial crisis, this year marks the focal point of risks and opportunities. The prospects of a new vaccine are still trailing to the second quarter of 2021 despite some countries picking up the pace to vaccinate early means the trend in the market is not short term unless a breakthrough is imminent. On the market front, the interest rate crunch with UK expected to nudge the rates in the negative along with global relief to debt financing, traders have a global ticket on both the borrowing and the lending front to turn up abnormal gains. However, reliable brokers are a tough nook to find since the uncertainty also grips the traders regarding investments in the skewed conditions as such. Moreover, with naïve traders entering the market, small scale brokers clustering the exchanges and limited physical interactions due to social distancing protocols are all but exhaustive factors that could easily deteriorate the growing trend and bring about a financial crisis much sooner than expected if not regulated efficiently.
Public Council Sets New Tasks to Support Russia-Africa Relations
In this interview with Armen Khachatryan, Deputy Chief Executive Officer and Programme Director at the Roscongress Foundation, and now a member of the newly created Public Council under the Secretariat of the Russia–Africa Partnership Forum, argues that the first Summit held in October 2019 ultimately seeks to inject a new dynamism in the existing Russia-Africa relations.
According to him, as the African continent undergoes positive transformation, platforms for dialogue between Russia and Africa are profoundly changing too. The Russia–Africa Summit demonstrated the sheer enormity of potential that exists for collaboration across various areas, and one of the outcomes of that historic event was the establishment of the Secretariat of the Russia–Africa Partnership Forum. The Secretariat further created a Public Council, the body also incorporates a Coordinating Council, Research Council and Media Council.
Speaking with Kester Kenn Klomegah early January 2021, Armen Khachatryan unreservedly stressed that building on the existing relations and all that have been achieved over the past few years, needs new platforms such as the Public Council. This Public Council aims primarily to uplift and solidly support the relations into a new stage, change perception among the public and give it an entirely new outlook into the future. Here are the interview excerpts:
A meeting of the Public Council of the Russia–Africa Partnership Forum Secretariat took place early November 2020. What were the main outcomes of the event?
It was the first kick-off meeting held last year. We determined the objectives facing the Public Council of the Russia–Africa Partnership Forum Secretariat. Specifically, these were to do with implementing the decisions of the inaugural Russia–Africa Summit and organizing the second summit, which is planned to take place in 2022. We discussed the current state of Russian-African relations in the humanitarian sphere, as well as the potential to develop them further. We also set out the council’s plan of action.
In your opinion, what social initiatives were prioritized – particularly at this time when Russia is seriously looking to focus on Africa?
Humanitarian cooperation has recently played an increasingly significant role in the development of Russian-African relations. The lively discussions at the Russia–Africa Economic Forum in October, 2019, in Sochi are testament to the importance of joint social initiatives, and to the shared desire to implement them. I believe this is with good reason, as collaboration in this area can help build an atmosphere of mutual trust. It isabsolutely essential to forge sustainable partnerships in different spheres with Africa.
In terms of priorities, areas in which we have traditionally collaborated include education, healthcare, culture, the environment, safety and security and so forth. All of these fields possess enormous potential for Russia and Africa to work together, and our country is ready to share its experience and expertise on mutually beneficial terms. Unlike some other countries, Russia wants a strong Africa with genuine sovereignty and a competitive economy. With this in mind, I would place particular emphasis on education. From my point of view, Africa’s most valuable asset is not its natural resources, but its people.
Young people currently make up a significant percentage of the population across the African continent. And that figure is going to increase further still. The population of the continent has already passed the 1.3 billion mark, with a median age of about 20. Around 60% of the population are young people under the age of 25. And according to forecasts, by 2050 the elderly will account for just 9% of the population. Given these numbers, we not only need to increase quotas for African students looking to study in Russia, but also open branches of our universities in African countries. That would allow us to offer a Russian education to many more African students as well as establish student exchange programmes.
By all appearances, aspects to do with education and professional training – and issues of humanitarian nature – are currently being examined in keeping with the course that has been delineated. Do you think that civil society should be involved in extending the reach of public diplomacy between Russia and Africa?
There is no doubt that collaboration between Russia and Africa should extend across the board, and take place at various levels. It should not be limited to ties between government officials and members of the business community. In any country, ordinary citizens make up the majority of the population, and for countries to collaborate effectively with one another, there needs to be an understanding of their perspectives and wishes. Therefore, as we look to establish direct ties and foster an environment conducive to regular dialogue with the people of various African nations, it is vital to involve civil society more closely.
It would appear sensible to provide more opportunities to people in Africa in terms of volunteering and doing internships at large Russian companies that are looking to build their presence on the African continent. The aim would be for these people to potentially be offered jobs at the companies’ African branches. Human resources need to be at the heart of our efforts, given their potential role in strengthening ties in both industry and science.
For our part, the Roscongress Foundation, as a socially oriented non-financial development institution, is open to proposals and is ready to provide assistance in promoting Russia’s image in African countries. This includes through organizing business, cultural and sporting events. As far as this is concerned, I imagine that the Foundation will receive support from Russian embassies and Rossotrudnichestvo’s offices in African countries.
Do you envisage any problems during attempts to better leverage Russia‘s soft power and to strengthen public diplomacy in Africa? Do you view competition from other foreign players as a challenge?
I don’t think it’s entirely appropriate to use the term “soft power” in this instance. In this regard, I am of the same opinion as Yevgeny Primakov, Head of Rossotrudnichestvo. The term I take issue with is “power”, which implies pressure of some kind. We have no intention of pressurizing anyone. We are in favour of equal relations with all of our partners, and this includes African nations. In particular, we are guided by the principle of “African solutions to African problems.”
Obviously, there is competition, but I would not call that a challenge as such. Our main objective is not to compete with someone, but to offer our own perspectives on certain issues, communicate our values, and build a positive image of Russia in the eyes of people in Africa. Let me explicitly reiterate here, we are not exerting power in any way. People in Africa will have the benefit of several alternative perspectives, and will be able to choose the approach they feel is closest to them. This, in my opinion, is the principle of equality and mutual respect.
Of course, there are things that are hampering efforts to implement a systemic Russian humanitarian policy in Africa. For example, Rossotrudnichestvo has only eight offices across Africa’s 54 nations. It would appear that Russian-African ties would benefit from Russia opening new diplomatic missions in the region. If we want Russia’s voice to be heard on the African continent, special attention needs to be given to this issue.
In terms of the media landscape, what steps need to be taken to improve the work done by various outlets? How can we better inform society about events in both parts of the world? Why, for example, news in Africa rarely reported on in Russia?
In terms of working with the African continent, I believe that raising awareness on both sides is one of the most important issues we face. It is difficult to talk about joint ventures, for example, to develop the SME sector, when the African continent remains so little known in Russia, and in Africa, there is only a vague notion of what Russia is. The Russia–Africa Summit and Economic Forum played a crucial role in addressing this, as did the 2018 FIFA World Cup. That event saw many people from Africa visit Russia for the first time. They were able to see with their own eyes what our country is like, instead of being presented an image by the Western media. People were following events using various information resources.
These events played a huge role in helping to shape the media landscape. However, this exchange of information needs to be done on a more permanent basis. It’s worth pointing out that in today’s world, awareness can be raised in more ways than just via the media. Given the spread of social media, the student exchanges I mentioned earlier could, over time, play a much more important role in cultivating Russia’s image than conventional media channels. However, in order to achieve this, it is vital to work with young people in both Russia and Africa.
Going back to conventional media, I believe that first of all, Russian news agencies need to expand their network of correspondents in Africa. That would allow our journalists to work with primary sources, rather than rely on material put together by foreign news agencies. It will also be important to get Russian and African journalists working together, for example, through placement programmes, master classes, roundtables and so forth.
To answer the question on news in Africa being reported on in Russia, things are developing. Telegram channels dedicated to the African continent are appearing, for example, so it is possible to stay up-to-date with key events. One organization which is doing much to leverage Telegram channels is the Association of Economic Cooperation with African States (AECAS). Its members include the Roscongress Foundation, which has considerable experience in developing and implementing humanitarian initiatives. AECAS is also currently working to build an integrated space for people in Russia and Africa to obtain information. This appears to me to be a very promising area. Admittedly, when it comes to large news agencies, the problem is that there are not enough events to report on which would garner widespread interest. However, I am in no doubt that as Russian‑African relations develop further, things will improve in this area.
The second Russian-African Public Forum took place in November 2020. In his welcome address, Foreign Affairs Minister Sergey Lavrov said that amendments needed to be made topolicy initiatives in order to respond to changing realities in Africa. What was he referring to, and what is your take on “changing realities” in Africa?
First of all, I would say that the African continent has undergone an enormous transformation over the last few years. Across all areas, Africa has become much more profoundly involved in the economic processes driving globalization. Partners in Africa are implementing a programme to ease the movement of goods, capital and people, and to employ new technology in business and marketing. This has made the African economy more open and attractive to foreign investors.
The first Russia–Africa Economic Forum in Sochi served as yet another clear demonstration to the Russian and global community that the African economy is becoming more organic. It served as proof of Africa’s increasingly significant role in the global economy. Indeed, the continent has a direct bearing on global growth, and on progress in science and technology. Africa’s economic ties with the rest of the world are certainly no longer solely about supplying raw materials and being a market for finished products.
The socioeconomic growth we are witnessing, together with the global economy’s accelerated transition to a new wave of tech innovation, has meant that Africa’s role and position in the global economy has shifted significantly. The continent is also becoming an important growth pole in terms of global demand. Consumer spending on the continent has already reached US$ 680 billion. According the World Bank, this figure is set to grow to US$ 2.2 trillion by 2030.
As the continent undergoes this transformation, platforms for dialogue between Russia and Africa are profoundly changing too. The Russia–Africa Summit demonstrated the sheer enormity of potential that exists for collaboration across various areas. It was a historic milestone for Russian-African cooperation. One of the outcomes of the event was the establishment of the Secretariat of the Russia–Africa Partnership Forum. In addition to a public council, the body also incorporates a coordinating council, research council, and media council. Never before in Russia’s modern history has there been such a serious mechanism for bringing together expertise and best practices from all sides and across all areas. It is set to act as a foundation to develop all aspects of Russian-African partnership, and to effectively position Africa’s transformation, which we briefly discussed earlier.
The high-level summit also led to the establishment of the Association of Economic Cooperation with African States, which will serve as a platform to strengthen business ties between Russia and Africa.
The situation is so diverse – politics, economy and culture – in Africa. In your opinion, what are the best pathways for promoting policy initiatives, as well as the social aspects of diplomacy with Africa?
That is quite important, but I don’t think we should try to identify a single “best” or “universal” pathway. It’s important to understand that Africa is a diverse continent – every country is unique, and requires an individual approach. And that’s before we consider that methods and initiatives that are employed in one region of the world – for example, Europe – are not at all necessarily appropriate for countries in Africa. We need to meticulously analyse each initiative, and be sure to draw the greatest possible benefit from them.
Generally speaking, there needs to be a focus on working with people, and in particular, with young people in Africa. These efforts should be based upon the needs of the population. And as I mentioned earlier, the pathways to achieving our aims could look very different from one another. Africa, just like Russia, is blessed with a wealth of extremely young talented people: some make films, others dance, others draw. But that’s not the important thing. What’s important here is to do everything we can to connect the lives of people in Africa with our country –we show that Russia is ready to help develop their talents. After all, these people could well become the thought leaders of the future, as well as ambassadors for Russian-African relations. These people could help foster a positive image of Russia in their respective countries. We are ready to engage and cooperate with intergovernmental organizations, civil society and African partners, work constructively to consolidate the results from the first summit and what both Russia and Africa further set inthe joint declaration in Sochi, in October 2019.
The role of economic warfare in understanding contemporary geopolitics
Despite Fukuyama’s theses, the traditional war is not over: especially in Europe, from the former Yugoslavia to Ukraine. As for economic relations between states, these – with all due respect to the Austrian school – do not amount to “soft trade”. Indeed, as early as 1990, Edward Luttwak heralded the age of geoeconomics when Bernard Esambert published The World Economic War. German surpluses against French deficits, weak dollar against strong euro, difficult negotiations between the United States and the European Union on the subject of the transatlantic treaty, the world yesterday as today is an arena. Economic warfare is so pervasive that expression is a victim of its success. It is therefore necessary to precisely define this new theoretical and practical object, to evaluate its real scope and its mode of action.
It should be clear, looking carefully at the contemporary dynamics, to affirm that economic war is the daughter of globalization
Although economic warfare in the broadest sense of the term is not new, its contemporary form has relatively recent roots. We can consider that after the Second World War, with the revival of an international monetary system and the signing of the GATT agreements in 1947, the rules for commercial competition between largely national economies were established within the Western bloc. Thus, the economic struggles that have taken place in recent years have been confined to an arena of limited size.
Furthermore, when Bernard Esambert published Le Troisième Conflit mondial in 1968, he traced the contours of an economic war with positive virtues: not only did this “soft” war replace the real war in the West, but it was also a stimulus for industrialized countries, engaged in a profitable competition for all. Furthermore, the Cold War forced the nations of the Western bloc into a de facto solidarity that further limited the effects of their economic rivalries.
It was precisely this balance that was upset in 1991 with the fall of the USSR and the end of communism. From that moment on, nothing stood in the way of the capitalist and free trade model which, until then, represented only one of the two economic systems at work on the planet. Now the arena is global and hardly anyone challenges the rules of the game, but at the same time the end of the war does not bring down the politics of power; it moves them from the military and geopolitical terrain (clash of blocs, peripheral conflicts, etc.) to the economic and commercial terrain (rivalry between powers over resources, the struggle for market share, etc.). According to Luttwak, “in the future, fear of economic consequences could settle trade disputes, and certainly more political interventions motivated by powerful strategic reasons.” If Luttwak probably underestimated the importance that geopolitical issues would maintain, he underlined the new dimension of our globalization: that of economic competition between nations Far from thinking like the men of the Enlightenment that trade softens morals, it believes that trade is only one of the modes of war when its armed side weakens.
Winners of the Cold War, the United States was in fact the first to take stock of the change that the world was going through. Basically, the Cold War gave them the opportunity to subsidize entire segments of their economy.
But if at the beginning of the 90s, the geopolitical argument collapsed, the economic discourse remains in all its purity. In the same year, Secretary of State Warren Christopher officially declared that “economic security” was to be elevated to the top foreign policy priority of the United States of America.
In other words, the winners of the Cold War have officially declared economic war on the rest of the world. The perspective is certainly largely liberal; everyone has their chances and can win this game, but the discourse is ambiguous because it is tinged with the defense of national interests. In the end, it mixes both liberal and mercantilist rhetoric, principles hardly compatible in the eyes of economists but perfectly legitimate for politicians.
In order for a country to be fit to fight in economic warfare, it needs a state, that is – Esambert would say – a resolute warlord, who knows the profession of arms and who reduces the morale and spirit of conquest to the economy.
Yet in the 1980s and 1990s, in the era of neoliberalism and the Washington Consensus, the state had been mistreated; it was seen as an obstacle to economic development and therefore President Reagan was not afraid to say that “the problem is the state”. Financial globalization, the transnationalization of companies, the intensification of international trade have rung the death knell for this relic of the past. Not only has the state resisted the neoliberal potion, it is now making a comeback. The state continued to play its role of overseeing the private space by creating a favorable legal, fiscal and infrastructural environment for the economy. In our current context, states have also taken on the role of military leaders, to conquer markets and resources, both to secure their power and to enrich their businesses and their fellow citizens.
In fact, the state has a certain number of prerogatives or capabilities that companies are naturally lacking. The state can think long-term, finance long-term when companies prefer the short or medium term. Furthermore, it can implement expensive tools at the service of its companies to distinguish the sectors of the future, the fields in which they have an interest in investing; in short, the state has a far better view of the battlefield than any of its troops. The Japanese example of the MITI has a paradigmatic value, as demonstrated by the pioneering studies of the Paris school of economic warfare directed by Christian Harbulot.
It is also the state that guides the dynamics of tomorrow by setting goals: thus, the Lisbon strategy that the EU member countries adopted in 2000 intends to make the Union “the first knowledge economy” by 2010 by explicitly linking this goal to that of full employment. Only a state can tackle these kinds of tasks, the scope of which far exceeds the financing capabilities and motivations of a business.
States don’t wage wars without troops. These are businesses, large and small.
But what does all this mean specifically?
First of all, it concerns a simple but at the same time extremely delicate question in an era of globalization: the nationality of companies. Isn’t it an illusion to say that more and more multinational companies, owned by foreign capital, are American?
Indeed, economists have shown that, despite the logic of transnationalization, the idea of “corporate nationality” is not obsolete. First, because a number of strategic companies are protected by states: directly when they are shareholders indirectly when they are guarantors their independence from foreign companies. We recall, for example, that in 2006 the Bush administration forced the Dubai Port World company to sell to AIG International the management of the six large American ports carried out by the P&O company that DPW had purchased. Likewise, advertising firm China National Offshore Corporation was prevented in 2005 from acquiring the US company Unocal. What does this mean if not that states easily recognize national companies, even if their capitalization is now international?
In short, even in the era of the “Global Players”, we can speak of nationality of companies.
Secondly, we can assimilate the present large companies, even more so the multinationals, to the legions of the late Roman Empire; mixed, variegated, composed of Roman cadres and barbarian troops, they are nevertheless the army of the Empire. Today’s companies, despite their global character, still maintain a national foothold. Furthermore, the recent Peugeot bailout around an alliance between the family, the French state and the Chinese manufacturer Dongfeng illustrates well that the idea of a national company did not die with globalization, it is only more complex than in the past. .
Returning to contemporary economic warfare this can be read as a traditional conflict, with its war objectives. The first is to defensive carette: saving industrial jobs. This challenge has become an obsession as relocations or subcontracting to low-wage countries are draining our industrialized countries.
Why this obsession with industrial jobs in our outsourced world? It is because our post-industrial societies, in the sense that most of the GDP no longer comes from the secondary sector, are no less industrialized than they have ever been. Not only do industrial jobs generate tertiary employment, but there are also many that require a qualification. Bernard Esambert speaks of an “industry-service symbiosis” to designate this pair formed by the high-tech industry and the service sector that accompanies it. Losing the former to the advantage of the new industrial powers means losing the latter and risking regress, not to mention the risk of unemployment or underemployment, which no democracy can bear in the long run. Advocates of economic warfare therefore believe that industrial employment must be defended and even maintained . Beyond the economic debates about their cost-benefits, the destruction of jobs is difficult to accept in the eyes of voters and, therefore, decision makers.
The other objective of the war, decisive for the states, is no longer defense but the conquest of markets and scarce resources. Economic warfare scholars have clearly demonstrated the intensification of the war for the control of natural resources, mainly for the control of hydrocarbons.
Perhaps nothing better than this example illustrates in the eyes of its proponents the obviousness of economic warfare: oil is a scarce and limited resource. Every drop gained by one is lost by the other. Therefore, as it is the basis of development, it is necessary for each state to ensure a secure and continuous supply. The inexorable struggle that the United States and China are waging for African oil but also for the other resources of the subsoil of this continent is an example of this. Absent in Africa 25 years ago, China is now the third largest trading partner after the United States and France; for two thirds it imports oil, but also metals, cotton and precious stones.
This war for natural resources is the scene of a reversal of the balance of power between Western countries on the one hand and emerging and / or developing countries on the other. The rise of China, of the BRICS, the rise of sovereign wealth funds in the Arab oil exporting countries would demonstrate this. In economic warfare, resources are powerful ammunition. And everything suggests that this conflict will escalate.
The International Energy Agency estimates that energy needs will increase by 50% by 2030, in part due to Indian and Chinese growth. The search for raw materials will in fact become a crucial issue for the States. As early as 2007, the Committee on Critical Mineral Impacts on the US Economy published a report in which it lists eleven minerals that are particularly crucial to the American economy due to their scarcity, their need in high-tech industries … the more coveted, is rhodium, used in particular in catalytic converters, and found in Russia but also in South Africa, a much better ally than Moscow. Rare metal, today it is the subject of struggles in which states and multinationals fight side by side. As guarantor of the national economy, each State is called upon to draw up, in its own way, a list of the resources that are or will be essential for it.
The “scarce resources” also include companies that today more than ever are falling prey not only to their private counterparts but also to governments. As such, the crisis has facilitated the entry into the capital of very large companies in the countries of the South through powerful sovereign wealth funds. The large investment funds of the United Arab Emirates, in particular Dubai and Abu Dhabi, have invested extensively in favor of the economic crisis in prestigious companies in difficulty: EADS, AMD, Sony, Citigroup … The Chinese sovereign fund holds almost 10% by Morgan Stanley. As for the Singapore fund, it entered the equity of Merril Lynch at the same level. Here we find the idea of revolution in the North / South hierarchy: winning in the economic war is not a legacy. The newcomers are shaking up the old hierarchy. Saudi Arabia is estimated to be responsible for 5% of US GDP thanks to wealth creation made possible by the use of Arab oil. Suffice it to say that Riyadh has a strategic advantage over its powerful economic partner.
Finally, there is a scarce and strategic commodity that constitutes a relatively new objective of the war: information. It is now important that companies and states know their opponents, their exact technological level, their strategy, in order to be able to anticipate them. Sometimes we speak of cognitive warfare to refer to the advanced weapon of economic warfare. In fact, the acquisition of information with high added value is also essential for the development of the tango economic activity as much as the accumulation of financial capital and the coordination of human skills. If states now want to help their companies gain market share, they must equip themselves with economic intelligence programs, otherwise they will lag considerably behind in a form of struggle that appears increasingly crucial as all the immense theoretical and operational work done by Ecole du guerre economique founded by Chrustian Harbulot.
In short, our time is woven of contradictions; on the one hand, the states hold an official speech supporting, sometimes with nuances, a multilateralism supported by the main international institutions such as the UN, the WTO, the IMF. On the other hand, everyone can see that the states are developing quite different reasoning. The imperative of solidarity in the financial field advocated by the G20 t new response to the need not to lose market share in a context of tension. In the midst of the crisis, the logic of competitiveness requires the conquest of foreign markets.
It is up to Christian Harbulot to have clearly shown this shift from Cold War Manichaeism to the multilateral economic war that states are waging today. According to him, the ally / opponent pair replaced the partner / competitor one. This transformation of possible alliances is accompanied, according to Harbulot, by a reorganization of the field of partners and competitors in geographical terms. The two blocks of the Cold War would have succeeded three blocks: the first is the degraded space of the Western world from which we can possibly extract the United States, the second is the expanded room for maneuver of the new powers, the third, finally, is space of survival of other countries. Each of these spaces follows very different power strategies. Furthermore, the members of each block are not necessarily allies as we have just seen.
Therefore, any peremptory statement becomes impossible. The United States and China are waging a relentless war over Africa’s resources. But China, through the purchase of US Treasuries, is the country that allows the United States to live on credit. Another example, China and Taiwan are political enemies but economic partners.
If economic warfare is a struggle, it is based on weapons and countermeasures. In covert warfare, a large number of tools count as weapons. The first of all is undoubtedly training: in our constantly changing societies, initial training helps create a workforce or managers prepared for change.
Likewise, the importance given to research is fundamental. Since 2010, China has more researchers than the United States, although the latter enjoy, thanks to the practice of brain drain, the sharpest minds on the planet. In this context, public-private collaboration is fundamental: in the United States, the Bayh-Dole Act of 1980 provides that patents financed with public funds – by universities or public research centers – are assigned mainly in the form of exclusive rights to private companies American.
In other words, in the eyes of states in economic warfare, the search for patents is truly a national affair, a guarantee of productivity, a decisive weapon in the perspective of a trade struggle between nations. These tools are at the service of competitiveness, this ability to face competition on external and internal markets. As for the attractiveness – which could be understood as the competitiveness of a territory – it is the object of particular attention by many states that the disputes between the European Commission and Ireland regarding Apple have brought to light.
The ultimate hidden weapon of warfare is economic intelligence. It is similar both to a weapon, which anticipates the enemy’s movement to surprise him and steal his victory, but also to a defense tactic because it anticipates enemy moves, practicing disinformation for example. The United States is the main player in this information war. We now know that the NSA, initially created in a counterintelligence logic during the Cold War, would have used the Echelon network to know the position of the European Union in 1994 during the final negotiations of the Uruguay Round. In 2014, the New York Times revealed that the agency had spied on an American law firm defending a foreign country in a trade dispute with the U.S. Information has become one of the key issues of the economic war.
As states move from covert warfare to open warfare, weapons change. These attacks can take the form of geoeconomic retaliation in response to a geopolitical crisis; this is for example the case in the fruit and vegetable embargo between the European Union and Russia.
Voluntary import restrictions also amount to retaliatory measures. The well-known example of the restrictions imposed by the United States on Japanese cars in the 1980s testifies to the violence of the conflict. Faced with rising Japanese car sales, Washington sought to protect the “Big Three”. Rather than proceed unilaterally, the US government has asked the Japanese to limit their exports. Tokyo preferred to negotiate this perfectly anti-liberal measure rather than run the risk of even more unfavorable restrictions being imposed: this is the voluntary restriction agreement of 1980.
A series of disputes between states led to the adoption of tariff peaks in retaliation; for example, the United States decided in January 2009 to triple tariffs on Roquefort in response to a ban on exports of hormone-containing beef in Europe. In each of these cases, the best offense was the defense.
When worried about avoiding frontal conflicts, states prefer an alternative approach which is to facilitate the assault of their companies on foreign markets. For this reason the political power is an ardent promoter of its companies. This ancient practice has been systematized in the United States in the form of “commercial diplomacy”. This is based on three principles: preparing the ground by liberalizing trade with the destination country; use economic intelligence, industrial and commercial intelligence to provide American companies with all the data on the ground to be conquered; finally, to set up ad hoc structures such as the War room. This offensive public strategy is entirely in the service of the private corporations that are the strength of the United States. It is in the same perspective that Washington has increased the number of bilateral free trade treaties: with most of the countries of Central America in the 2000s, with Morocco in 2006, South Korea in 2010.
Finally, there is one last weapon that, individually, is now almost the prerogative of a few emerging countries: sovereign wealth funds. Although they deny themselves, these funds take hold in sometimes strategic groups and help guide their strategy.
To cope with these dangers, those involved in economic warfare have developed policies that resemble shields or even counterattacks. In a context where customs barriers are historically low, there are other means to preserve its market: export subsidies, standards, favoritism given to national companies in one form or another (think of the Small Business Act which reserves some public procurement for SMEs) In short, all means are good.
So it is with money, which has long been – and continues to be – a defensive weapon in the hands of states, especially in the form of devaluation. The UK gave us a recent example of the geo-economic use that could be made of a currency: at the height of the crisis, London let the pound slip while the euro remained strong. In this way, British exports were stimulated. We could reproduce the analysis for the yuan or even the yen at a time when Shinzo Abe has launched a policy of monetary expansion.
For large Western states, it is primarily about protecting their markets at a time when old-fashioned protectionism is almost outlawed. For emerging countries, the stakes are different: by increasing the number of regulatory sources (state, international, private, public, etc.), they weaken the universal legal system designed by the dominant states. Paradoxically, the desire to unify world trade has led to a legal fragmentation of the latter.
The rules of trade have become a battleground in a few decades. Witness the emergence in France of the notion of “economic patriotism”. Spread out in 2005 by Dominique de Villepin, then Prime Minister, the doctrine of economic patriotism is based on the idea that it would be up to the state to defend companies considered to belong to strategic sectors. In practice, success is mixed: while Suez was married to GDF in 2008 to deal with a potential takeover by Italy’s Enel, Arcelor was absorbed by Mittal.
Looking at the world today, it is tempting to provocatively conclude that war has a bright future; economic warfare of course, but also traditional warfare. But there is also a more dramatic scenario, namely that tomorrow’s economic wars can degenerate into armed conflicts.
In short, yesterday as today, historical reality is an ocean of forces that are opposed to each other, in a dynamic that determines a perpetual flow that now leads to ascent now to decline.
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