China – Oliver Stuenkel

china russia

Since last year, a small but vocal number of Western commentators and politicians have been calling for banning Russia from the SWIFT payment system, a move that would impact Russia's economy far more than the economic sanctions adopted so far. Recently, Prime Minister David Cameron suggested keeping the option of excluding Russia from the Belgian-based payment system on the table. Considering that there is a broad interest in "raising the cost" for President Putin, and that military engagement is highly unlikely, the SWIFT option is indeed a possibility.

Policy makers in Beijing are likely to be secretly rooting for such a move, for it would benefit China in several ways.

First, asking SWIFT (the Society for Worldwide Interbank Financial Telecommunication) to stop working with Russian banks would affect the Russian economy far more than countries like Iran, because Russia's economy is much more globalized and interconnected, and thus more vulnerable to such restrictions. SWIFT sanctions would push Russia further into China's economic orbit and become less of a competitor in Central Asia. Just like the recent Sino-Russian gas deal, most new deals Moscow strikes with Beijing would be highly beneficial for China.

Secondly, and most importantly, the move would weaken SWIFT as a global standard. The cooperative organization plays a crucial role in the world financial system, and its perceived neutrality is its key strength. Pushing Russia out of the SWIFT banking payment system would send a powerful message to decision-makers in Beijing that the service has turned into a tool of Western foreign policy. If Moscow can be targeted, the thinking goes, China could be next at some point in the future. Efforts to strengthen new platforms such as China Union Pay, an alternative payment system set up in 2002, would thus likely to be accelerated in order to obtain greater autonomy. Russia, aware of the West's discussions about cutting Russia off SWIFT, has been working on an alternative system, yet Moscow would, in any case, also opt for embracing China Union Pay.

While other large economies that have not joined the West in condemning Russia -- such as India and Brazil -- would continue to using SWIFT, they would also begin to look out for alternative mechanisms to continue doing business with Russia, possibly further strengthening Union Pay's international footprint. The Chinese interbank credit-card association already accounts for 45% of all credit and debit cards in circulation and is now accepted in 135 countries. The exclusion of Russia from the SWIFT system would also strengthen those in China and Russia who seek to avoid the US-dollar when doing intra-BRICS trade.

For now, the Western financial system remains firmly in control. That is mainly due to the strength of the US dollar. 87% of international trade is still conducted in US dollars and 61% of global foreign-exchange reserves is denominated in the currency. Yet the more profound and lasting Russia's estrangement with the West becomes, the more likely the emergence of alternative systems -- most likely to be led by China -- will become.

Read:

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Responsible Protection: Chinese norm entrepreneurship?

Photo credit: ITAR-TASS/Barcroft Media

Banco de investimento chinês cria era de multipolaridade, diz especialista

Oliver Stuenkel, especialista da FGV em emergentes, diz que os EUA usam a ajuda militar como principal moeda de troca para impedir a adesão de países como o Japão e a Índia ao banco de investimento criado pela China, que já tem apoio dos países europeus.

Florência Costa florencia.costa@brasileconomico.com.br e Gabriel Vasconcelos gabriel.vasconcelos@brasileconomico.com.br

http://brasileconomico.ig.com.br/mundo/2015-03-18/banco-de-investimento-chines-cria-era-de-multipolaridade-diz-especialista.html

As crescentes articulações de Pequim a fim de atrair parceiros para o Banco Asiático de Investimento em Infraestrutura (AIIB), sob seu comando, incomodam a diplomacia americana. De acordo com Oliver Stuenkel, professor de Relações Internacionais da FGV-São Paulo, especialista em países emergentes, a principal moeda de troca dos Estados Unidos será os acordos de proteção militar. Mas ele avisa: não será fácil impedir a “ascensão lenta e sutil” da influência global chinesa. Segundo Stuenkel, este é o início de uma nova era de multipolaridade em que a China se afirma como polo de poder pela primeira vez em duas décadas.

A decisão de potências europeias de aderir ao Banco Asiático de Investimento em Infraestrutura (AIIB) denota uma nova ordem geopolítica independente dos EUA?

A capacidade da China de criar uma instituição e convencer as principais potências europeias a participarem aponta para uma mudança importante na ordem global. Mas, neste momento, essa mudança é simbólica. Este banco ainda não vai substituir o Banco Mundial no curto prazo. Também já existem outras instituições como o Banco Asiático de Desenvolvimento. Vamos ver nos próximos anos uma convivência entre essas instituições. Mas temos observado uma campanha diplomática dos EUA para evitar que seus aliados integrem a iniciativa. É o início de uma nova era de multipolaridade, em que a China se afirma como polo de poder pela primeira vez em duas décadas. Ser líder de uma instituição que reunirá tantos outros países importantes, dá legitimidade à China, algo que só os EUA tinham até então.

Quanto tempo vai demorar para o novo banco se tornar uma opção real para países que buscam financiamento?

Será uma decisão da China. Mas não será uma coisa tão complexa. O lançamento desse banco não deverá demorar mais de um ou dois anos. Os primeiros projetos surgirão já em 2017. Nas próximas semanas vários países vão se juntar ao grupo. A Inglaterra tomou uma decisão muito inteligente porque se tornou o primeiro país europeu a aceitar o convite. Ela fez isso numa tentativa de tornar-se a porta de entrada para investimentos chineses na Europa. Há uma luta entre Londres e Frankfurt para ver qual vai ser o polo principal de investimentos da China. Há entre os europeus uma disputa pelo capital chinês. Mas além dos países europeus, outros entrarão. A grande questão é saber se nações como Japão, Austrália e Coreia do Sul serão membros fundadores ou entrarão mais tarde.

Qual será o impacto do banco chinês no Banco dos Brics?

A criação do banco do Brics já está mais avançada. A China está construindo o prédio em Xangai, o governo indiano está próximo de escolher o primeiro presidente, e a gente provavelmente vai ver o banco em atuação a partir do ano que vem. O banco do Brics faz parte de um novo tipo de instituição liderada por países emergentes. Também faz parte de um grupo no qual a China tem uma liderança importante. Eu não acho que este novo banco vá prejudicar o trabalho do banco dos Brics. Temos uma demanda de infraestrutura tão grande que nenhum banco consegue suprir sozinho. Esses dois bancos representam, do ponto de vista de Washington, uma ameaça que a médio e longo prazo vai enfraquecer as instituições baseadas nos EUA, como o Banco Mundial e o FMI.

Como os EUA tentarão evitar as adesões?

Continua lendo aqui.

Política Internacional em 2015: dez previsões

Política externa brasileira: na escuridão

Brasil China

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Observation: This article was published on March 19. On March 27, Brazil announced that it would join the Asian Infrastructure Investment Bank. This move will grant Brasília a seat the table during discussions about the birth of a potentially new order in Asia, a region that will be crucial to Brazil's development in the coming decades.

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The decision by Europe's largest economies to become founding members of the AIIB, the new Chinese-led development bank is an unmistakable sign of the dawn of a more multipolar order. It is only a question of time before Japan, South Korea, Australia and eventually the United States will follow Great Britain's lead and join the Asian Infrastructure Investment Bank (AIIB), just like Germany and France have just announced. Policy makers in London, Berlin in Paris are right to support Beijing for a number of reasons.

First, being part of the new bank will allow European powers to participate in the decision-making process of what seems to become a key international financial institution over the coming decades. This will allow them to push for more rigorous environmental and human rights standards, but also strengthen their presence in a region that is in the process of reemerging as the world's economic center. London and Frankfurt are also competing for becoming the leading financial market place for Chinese capital. Even if the AIIB fails to take off (a possible scenario given how difficult it is to set up such a bank), the blame would be placed on China, not on the other member states.

In addition, a regionally well-integrated and accepted China is an important step towards assuring long-term stability in Asia. Irrespective of whether one believes that trade reduces the risk of war, joint regional infrastructure projects are widely seen as strengthening cooperation between governments in a region that still lacks a strong institutional framework.

While Washington tried to convince other countries not to join the AIIB (thus turning the issue into a diplomatic contest), the United States is unlikely to punish Britain and others for their move. The World Bank continues to enjoy ample support, and even a wildly successful Asian Infrastructure Investment Bank is unlikely to overshadow existing institutions anytime soon. Even World Bank Group President Jim Yong Kim welcomed the new multilateral infrastructure bank, saying there was a "massive need" for new investment in this area.

With a March 31 deadline looming for countries to gain “founding member” status, Brazil should be part of Beijing's initiative. While Brazil is already a member of the New Development Bank (often called BRICS Development Bank), there are signs that the AIIB will be larger and economically more powerful. While the NBD will invest in projects in the BRICS and other developing countries all over the world, the AIIB will focus on Asia alone -- a region that has long become far too important for Brazil to ignore. Today, China's "One Belt One Road" initiative (often simply called "OBOR") is known only to a small number of specialists in Brazil, yet Brazil's economic interests will increasingly be affected by it. China may already be Brazil's most important trading partner, but Brazilian diplomacy, academia, private sector and civil society must learn far more about China in order to understand the consequences of its rise.

Joining another developing bank in times of a domestic economic crisis may sound counterintuitive. The potential long-term benefits of being a founding member of the AIIB, however, could be considerable. Other countries that suffer from anemic growth, such as Italy, have expressed their desire to join. Even a small contribution would grant Brazil a seat at the table of the powerful. The next ten days offer Brazil a rare window of opportunity to become the AIIB's only founding member from the Western Hemisphere.

Read also:

Can Brazil learn to manipulate China?

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China vs. India: Will the “contest of the 21st century” lead to war?

Photo credit: AFP/Yasuyoshi Chiba

China

Book review: The Hundred-Year Marathon: China's Secret Strategy to Replace America as the Global Superpower. By Michael Pillsbury. Henry Holt and Co Publishers, 2015. 336 pages, $15.58, kindle (www.amazon.com)

Of all the recent new books on China's role in the world, The Hundred-Year Marathon, a provocative mix of policy analysis and memoir by a former CIA employee, has made the biggest splash. Directed at the US-American policy audience, Pillsburg's analysis has an alarmist tone, yet it is sufficiently grounded in personal experience and well-researched to be taken seriously. Pillsbury used to be a "panda hugger" for many years, he confesses, but at some point it dawned on him that China would never be satisfied with anything less than replacing the United States as global hegemon.The Hundred-Year Marathon describes how Chinese hawks -- who, Pillsbury believes, now control the way decision-makers in China think and behave -- seek to turn the country into the world's leading power by 2049, a century after Mao declared the Chinese Republic. Hopes that China will liberalize are delusional and based on a false Western-centric expectation that once countries become rich, they become liberal democracies.

To the author, the Chinese concept of shi (an alignment of forces or creation of an opportunity) is crucial to understanding Beijing's grand strategy, which involves “deceiving an opponent into complacency, whereby he expends his energy in a way that helps you even as you move to encircle him.” China is also drawing on arts of warfare and deception dating from the country’s ancient Warring States period. Seen through that lens, Mao managed to trick Nixon into helping China develop its economy after the Sino-Soviet alliance no longer served Beijing's interests. To Pillsbury, Kissinger did not realize that he inadvertently contributed to China's rise, part of Beijing's larger strategy to eventually topple the United States.

The book's clear thesis and somewhat conspirational tone make it a highly entertaining read, but sometimes The Hundred-Year Marathon implicitly attributes to Chinese strategists an almost superhuman talent to plan in the long term. Chinese policy makers generally come across as smarter and, notably, more cunning, compared to the slow-witted Western policy makers. They are also extremely paranoid, insecure and fixated on what they consider to be the greatest threat to Chinese supremacy: the United States.

To some readers in Washington, the fact that China wants to overtake the United States by the middle of the century may seem outrageous. And yet, viewed from an outside perspective, the plan will strike observers as rather natural. Objectively speaking, it would be astounding if the country with the world's largest population and strong growth rates would hope for anything other than global leadership. Indeed, if Chinese per capita GDP reached only half of that in the United States, the Chinese economy will be more than twice the size of the US GDP. It seems highly questionable whether maintaining US hegemony in such a scenario would be desirable, even from a US perspective.

The author writes that "we believed that American aid to a fragile China whose leaders thought like us would help China become a democratic and peaceful power without ambitions of regional or even global dominance." Considering that Pillbury lived in China, speaks Mandarin and is aware of Chinese history and a strongly developed sense of Chinese exceptionalism, that seems rather naive -- but then again, it must be taken into account that during good part of the Cold War, China was poorer than India is today, thus hardly seeming a credible threat.

Pillsbury suggests that the rise of China will negatively affect the future of democracy around the world. However, there is no clear evidence that China actively promotes autocracy (Read also: Does China promote autocracy?). Beijing may prop up dictators in some instances, but it does so for strategic reasons (e.g. to gain access to resources), not specifically to undermine democratic ideas. In that sense, China's foreign policy differs little from that of the United States, which supports governments based on strategic interests, not on their democratic ideals -- think of Washington's ties to Saudi Arabia or Vietnam. Arguing that democracy in Latin America depends on continued US support is unconvincing, as is the claim that Beijing willfully exports environmentally damaging technologies. Still, his descriptions of how China systematically monitors and academics, advisors and policy makers around the world, and denies visas to those it deems a threat, is a worrisome signal that may one day pose a challenge to the freedom of expression on a global scale.

Pillsbury's argument that Kissinger was a mere tool of China's Grand Strategy is ultimately unconvincing. After all, the United States gained tremendously from China's development and integration into the global economy, and scientific exchange programmes were not only beneficial to China, but also helped globalize U.S. universities and bring thousands of talented researchers to the United States.

Still, the book's detailed descriptions of how the Chinese government is carefully promoting anti-American feelings -- for example, by depicting the United States as the eternal villain in school and university textbooks -- is intriguing and does not bode well for the future of Sino-US relations.

How important, then, is Pillsbury's thesis? He is certainly right that policy makers from around the world must spend much more time trying to understand China. The number of diplomats from countries other than the United States conversant with Chinese strategic thought, the importance of the Warring States period, or general Chinese history is shockingly low and needs to increase.

In the final chapter, the author lists a number of policy recommendations, mostly regarding competitiveness and a clearer response to Chinese cyber theft, which all sound reasonable. His recommendation to support Chinese human rights activists, on the other hand, while correct, may not be the panacea he hopes for: Democracy in China is of course desirable, but there is little evidence that a democratic China would be less nationalistic or more pro-American. Is there any evidence that the hawks would not be as influential in a democratic government as they are now?

In the end, it all comes down to Pillsbury's claim that China's hardliners -- who no doubt exist -- have now occupied key policy making decisions. Even if that were the case, however, it is too early to accept that China's rise to the top is inevitable. Environmental, economic, demographic, geopolitical and political challenges could still derail or at least delay the project. Still, The Hundred Year-Marathon deserves to be widely read among scholars and diplomats working on Chinese foreign policy and the future of global order.

Book review: “Will China Dominate the 21st Century?” by Jonathan Fenby

The missing 1.3 billion

Liu Jieyi, Permanent Representative of the People’s Republic of China to the UN

Review: Garwood-Gowers, Andrew (2014) China’s "Responsible Protection" concept : re-interpreting the Responsibility to Protect (R2P) and military intervention for humanitarian purposes. Asian Journal of International Law.

The global discussion about the prevention of mass atrocities and the responsibility to protect (R2P) is often wrongly understood in the context of a West vs. Rest dynamic. The US and Europe, according to this view, tend to be quick to adopt resolutions criticizing governments of countries where atrocities occur, and often recommend military intervention, while the BRICS, led by Russia and China, are categorically opposed to both critical resolutions or intervention. The situation in Syria, according to this narrative, shows that we are witnessing a return to the days of Rwanda and Kosovo, in which there is a stark choice between inaction in the face of large-scale killings and action outlawed by the U.N. Charter.

Yet that view fails to take into account that the BRICS have officially endorsed R2P ten years ago, and since then emerging powers have played an important part in the process of turning R2P into a global norm. Both Russia and China, often seen as the most irresponsible stakeholders, have voted in favor of resolutions including R2P in the vast majority of cases. As tragic as Russia's and China's vetoing against Syria-related resolutions is (which, it must be noted, did not include the use of military force), it would be wrong to argue that the deadlock over Syria symbolizes the "new normal". Even after NATO's controversial interpretation of resolution 1973 regarding Libya, Russia and China routinely support resolutions that mention the responsibility to protect of governments all over the world (even though mostly pillar I and II). It is also often forgotten that Beijing has supported several UNSC resolutions on Syria, including those mandating the UN Observer Mission, the destruction of Syria’s chemical weapons, and most recently a humanitarian aid access plan.

A recent semiofficial Chinese initiative - called Responsible Protection (RP) - powerfully shows that the discussion in China about the prevention of mass atrocities is far more sophisticated and advanced than is often thought. As an interesting journal article by Andrew Garwood-Gowers about RP explains, the concept originally appeared in a 2012 newspaper opinion piece by Ruan Zongze, the vice-president of the China Institute for International Studies (CIIS), which is the official think-tank of China’s Ministry of Foreign Affairs. An expanded account of the idea – explicitly framed as an example of China contributing “its public goods to the international community” - was published later that year. Since then, the author contends, RP has gained more prominence among Chinese decision-makers.

The similarities to Brazil's concept of the "responsibility while protecting" (RwP) are striking. Similarly to RwP, RP indicates that China does recognize, in principle, the need for non-consensual military intervention under R2P's third pillar, albeit under a more restrictive set of conditions than Western powers tend to follow. In that sense, both RwP and RP are contributions which advance and complement R2P’s third pillar, rather than attempting to replace the current version of R2P.

Garwood-Gowers writes that "RP continues RwP’s push towards “fleshing out” the normative content of what is currently a largely indeterminate third pillar." Indeed, in the September 2013 UNGA informal interactive dialogue on R2P, China indicated that it “supports discussions at the United Nations to discuss RwP by Brazil." The author's analysis includes a useful table in which he compares RwP to RP, looking at key principles such as just cause, right intention, last resort and monitoring mechanisms, among others.

Just like the RwP proposal developed by Antonio Patriota in 2011, which states that “[e]nhanced Security Council procedures are needed to monitor and assess the manner in which resolutions are interpreted and implemented to ensure responsibility while protecting”, the Chinese proposal calls for the establishment of "mechanisms of supervision, outcome evaluation and post factum accountability”. Even though China's proposal is less specific about how such a supervision should look like, its inclusion is remarkable considering that China is a member of the P-5, and capable of undertaking military interventions in the future.

Responsible Protection, albeit not yet launched officially by the Chinese government, shows that the concerns raised in Brazil's RwP concept are set to play an important role in the global discussion about the prevention of mass atrocities in the coming years. The issues China's concept raises are highly complex and unlikely to find much initial support among NATO countries. Yet given that both Brazil’s RwP and China’s RP have made guidelines a central part of their proposals for advancing the discussion about R2P’s third pillar, the issue of criteria must be taken seriously by Western powers. Garwood-Gowers is right to argue that a recent RP conference in Beijing was a positive first step in this direction which suggests that China is genuinely interested in engaging constructively in the debate over R2P’s third pillar.

Brazilian policy makers may ask why did not China support Brazil more openly when it went out on a limb by launching its RwP idea, thus seeking to advance the global debate. One possible answer is that the idea may not have matured enough in the internal Chinese discussion. As Brazil realized in 2011, officially endorsing a new concept carries the risk of initially being criticized from all sides. Unlike France, which currently spends considerable time and energy to promote the idea of the Responsibility not to Veto (RN2V) in case of mass atrocities, China may not regard norm entrepreneurship in this field as a foreign policy priority at this point.

Still, policy makers from around the world should recognize RP as an important and welcome contribution by China, and as an opportunity to engage with an actor that will inevitably play a key role in mass atrocity prevention in the coming decades. The deployment of the first Chinese infantry battalion to take part in a UN peacekeeping mission in South Sudan and China's offer to help the Iraqi government in its fight against the Islamic State underline a trend of China's more systematic international engagement.

The author's suggestion that Beijing could introduce RP at the 7th BRICS Summit in Russia is excellent, and its inclusion in the final declaration would mark an important step in advancing the discussion. In the process, Brazil's experience with initially promoting RwP could be of great usefulness to policymakers in Beijing.

Read also:

What does China think about R2P?

The BRICS and the Future of R2P: Was Syria or Libya the Exception?

Is R2P a Western idea?

BRICS and the ‘Responsibility while Protecting’ concept (The Hindu)

Photo credit: CCTV

Book review: When China Rules the World. The Rise of the Middle Kingdom and the End of the Western World. by Martin Jacques. Penguin, 2012, 848 pages (U$ 15.14, paperback, www.amazon.com)

Five years ago, Martin Jacques published When China Rules the World, followed by an extended paperback version in 2012. Perhaps only second to Fareed Zakaria’s The Post-American World, published a year earlier, Jacques’ book became a symbol of the global hype around the decline of the West and the “rise of the rest”, which was fuelled by the financial crisis in the United States. China, as a ‘civilization-state’, Jacques repeated in interviews across the world, would rise on its own terms. Its impact would be not only economic but also cultural and political, leading to a global future of ‘contested modernity’. Martin Jacques' TED talk, which summarizes the main arguments of his book, has been watched over 2 million times over the past years, becoming one of the most popular International Affairs-related presentations on the online platform. The book has been translated into eleven languages, and sold over a quarter of a million copies worldwide.

Why was When China Rules the World such a massive success? After all, the chapters that deal with the West's, Japan's and China's history (2, 3 and 4) hardly reveal anything new and can safely be skipped by those familiar with the subject, even though he rightly criticizes historians who regard the rise of Europe as an endogenous phenomenon. More importantly, however, his gentle treatment of Mao is somewhat disturbing, as is his explicit admiration for China's Communist Party. In addition, Jacques' thoughts on the future of global order and the recreation of the tributary system are both shallow and ill-conceived.

Rather, contrary to most other analysts who see China's rise mostly in economic terms, or International Relations scholars who engage in abstract debates about the implications for global order, Jacques' analysis is essentially sociological and cultural, arguing that even a rich, modern and globally integrated China will never be Western:

There has been an assumption by the Western mainstream that there is only one way of being modern, which involves the adoption of Western-style institutions, values, customs and beliefs, such as the rule of law, the free market and democratic norms.

More than that, the author affirms, the economic side of the story has lulled the West into a false sense of security. “The mainstream Western attitude has held that, in its fundamentals, the world will be relatively little changed by China’s rise,” he writes. Yet China's political and cultural effects are "likely to be at least as far-reaching" and the West will lose its monopoly on defining modernity.

Jacques asserts that most analyses about the rise of China are blinded by Western-centrism, which leads us to vastly overestimate the importance of Western civilization as we look towards the future of international affairs. We have, Jacques writes, come to take Western hegemony for granted: "It is so deeply rooted, so ubiquitous, that we think of it as somehow natural." He argues that

We stand on the eve of a different kind of world, but comprehending it is difficult: we are so accustomed to dealing with the paradigms and parameters of the contemporary world that we inevitably take them for granted, believing that they are set in concrete rather than themselves being the subject of longer-run cycles of historical change.

The title of the book is both overly dramatic, misleading, and was probably merely chosen to boost sales. China is highly unlikely to dominate the world culturally, partly because the Zhonghuaxing – ‘Chineseness’ – is highly exclusive, as the author readily concedes, so the world's population will probably never be profoundly influenced by a Chinese type of Leitkultur. A title more faithful to the book's content would have been something like "The Rise of China and Contested Modernity", for Jacques -- correctly, I believe -- argues that

The rise of competing modernities heralds a quite new world in which no hemisphere or country will have the same kind of prestige, legitimacy or overwhelming force that the West has enjoyed over the last two centuries. Instead different countries and cultures will compete for legitimacy and influence.The new world, at least for the next century, will not be Chinese in the way that the previous one was Western. We are entering an era of competing modernity, albeit one in which China will increasingly be in the ascendant and eventually perhaps dominant.

Some of Jacques' predictions are conservative. He writes that

For perhaps the next half-century, it seems unlikely that China will be particularly aggressive. History will continue to weigh very heavily on how it handles its growing power, counselling caution and restraint.

Several more, however, strike the reader as fanciful (for example, that Mandarin will rival English as the world's lingua franca), and many of them are based on very optimistic growth forecasts developed during the first years of the 21st century. As such, When China Rules the World must be read as a provocation, rather than the only source of information for a public discussion on the future of China. The author himself acknowledges that political upheaval could reduce Chinese growth, and thus its capacity to influence others. Yet Jacques is notably silent on the many signs of discontent in Chinese daily life -- corruption, pollution and the growing number of protests -- that anyone who will spend more time in the country will witness first hand.

Still, five years after its publication, many of Jacques predictions still seem largely valid: “One of the consequences of China’s growing economic importance has been that the great majority of countries in the region have become more closely aligned with it.”, he writes. Beijing's recent diplomatic success, when even countries skeptical of China, such as South Korea, sought membership of the new Asian Infrastructure Investment Bank, seem to support that argument.

Most recently, David Shambaugh, a leading US-American China expert, made the bold prediction that the Communist Party is about to collapse, an event that could dramatically change China's long-term perspectives. One day, China may indeed become a democracy, like Taiwan. Such points of view need to be taken into consideration by policy makers around the world as they design their strategies vis-à-vis China. Yet it is as important that they consider Jacques' more bullish argument.

Why Britain is right to join China’s new development bank

Why China would benefit from Western SWIFT sanctions against Russia

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Book review: A Contest for Supremacy. China, America, and the Struggle for Mastery in Asia. By Aaron L. Friedberg. W.W. Norton & Company, 2011. 385 pages. R$ 32,46 (www.amazon.com.br, kindle)

Britain launched the Industrial Revolution and built a global empire with a comparatively small population, and the United States created the myth of the sole superpower with a population on the order of 100 million people (a century ago). What will the industrialization of China, with its 1.3 billion people, mean for the world?
Prof. Jin Canrong, China's People's University

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How can we explain the United States' diplomatic disaster in the context of the China-led Asian Infrastructure Investment Bank (AIIB)? How could policy makers in Washington so seriously misjudge their capacity to convince countries around the world -- ranging from Britain, Germany, Brazil, South Korea, Japan and Australia -- not to join the new institution? Perhaps more perplexing still, why did it frame the creation of the AIIB as a diplomatic contest in the first place? Had the United States early on sought membership of the bank, or merely decided not to comment on the issue, observers around the world would not pay as much attention to the institution today, or interpret it as a watershed moment in the transition from unipolarity to multipolarity.

Washington's strategy vis-à-vis the AIIB -- to frame it as a contest with China -- points to a group of intellectuals and policy makers who regard the rise of China mostly in the context of inevitable tension and possible conflict. One example of this school of thought is Aaron Friedberg, a Princeton professor with some policy experience, who wrote, a few years back, the book A Contest for Supremacy about US-China relations in Asia.

It only takes a few pages for the reader to grasp Friedberg's unequivocal opinion. An intense geopolitical rivalry between the United States and China is already underway in Asia, and unless the United States responds more vigorously than it has to date, the military balance in the Western Pacific is going to start to tilt sharply in China's favor:

If the United States can stay in the game, it should have a good change to ultimately win. But if America and its allies permit their position to erode until it is too late to respond, they could yet lose the struggle for mastery in Asia.

Non-American readers will find the tone of A Contest for Supremacy oddly nationalistic and seemingly aligned with US government rhetoric. If, the author writes, "we permit China as presently constituted to dominate Asia, our prosperity, security and hopes of promoting the further spread of freedom will be seriously impaired." Indeed, it seems to be precisely this type of sweeping rhetoric that makes future confrontation difficult to avoid.

Many of Friedberg's assertions lack a proper explanation. He incessantly points out that the "ideological chasm" -- the fact that China is not a democracy -- significantly enhances tensions between Washington and Beijing. He does not consider that an authoritarian government in China may reduce nationalist sentiment that may actually help, not hinder, the bilateral relationship. The author often quotes Thucydides, yet seems to forget that the national interests of a rising power do not necessarily depend on its political regime. His argument that a democratic China would be less likely to launch a surprise attack on the United States seems unconvincing.

Friedberg recognizes that a strong economic relationship between the United States and China may contribute to avoiding conflict, yet in the end, he even turns trade into a potential cause for friction, arguing that "if disputes over trade imbalances, exchange rates, investment flows, access to and control over scarce commodities become increasingly vituperative (....), the entire relationship could unravel with surprising speed."

Though well-written, A Contest for Supremacy has a somewhat bland feel to it, and his historical analysis is a summary of well-known facts. Expressions like "if it is true that democracies really never fight each other" leave the reader uncertain of what the author actually believes -- after all, can two democracies start a war between each other or not?

pandavseagle

Those who have read Henry Kissinger's On China can safely skip the first several chapters -- still, in the chapter "Congagement", Friedman nicely describes the contradictory interests that shaped US policy towards China during the Clinton years. The author comes out as a supporter of a mix of engagement and containment: "there is no alternative approach that is clearly superior on its merits." He furthermore bemoans that "respectable opinion" in academic, politicial and policy-making circles is still solidly behind engagement and wary of balancing. What Friedberg overlooks is that perhaps engagement has more supporters simply because it is the more sensible choice -- and not because it is politically more correct. The author stubbornly writes that "China is too important to leave it to the China experts" -- yet it was precisely the China watchers that urged the United States to join the AIIB as soon as Xi Jinping announced its creation. Such a -- more collaborative -- move would have avoided the rare diplomatic humiliation Washington experienced during the global rush to join China's new bank.

Friedberg rightly points out that, as China's economic strength and capacity to help promote development in its neighborhood increases (through initiatives like OBOR, the Silk Road Fund, the AIIB and CICA), the United States may find it ever more difficult to justify its continued military presence around China in the name of global public interest - such as preventing a nuclear arms race, fighting terrorism, or assuring maritime security. If Beijing manages to be seen as a boon, rather than a threat, for regional economic development and political stability, Washington's position will weaken -- even though, despite Japan's surprising decision to join the AIIB, such a scenario still seems unlikely in the medium term.

In the end, though, Friedberg's focus on regime change in China seems excessive and misplaced, largely because there is no evidence that democratization would help U.S. national interest. (Read also: Should the world root for democracy in China?) "The ultimate aim of the American strategy", he writes, "is to hasten a revolution, albeit a peaceful one, that will sweep away China's one-party authoritarian state and leave behind a liberal democracy in its place." His assertion that when far-reaching political change comes to China, "it will doubtless owe something to America's long-standing policy of engagement" seems delusional and vastly exaggerates US influence in Chinese domestic affairs. Friedberg never recognizes the obvious: Even a democratic China would seek regional hegemony and work towards limiting US influence in Asia.

Eluding the two facile and overly simplistic extremes of either confronting or joining existing order, the creation of several China-centric institutions will allow China to embrace its own type of competitive multilateralism, picking and choosing among flexible frameworks, in accordance with its national interests. That will make it extremely difficult for the United States to limit China's influence without being seen as a self-interested bully.

Still, Friedberg is certainly right that while the long-term odds are in Beijing's favor, Chinese hegemony is far from preordained. Demographic challenges, rising inequality, environmental disaster, political protests and regional conflict are all factors that could dramatically slow down China's rise. The greatest dilemma that policy makers in Washington face is that, from a purely economic point of view, the United States should do everything possible to help China continue its growth trajectory.

Why Britain is right to join China’s new development bank

China’s parallel global order

China vs. India: Will the “contest of the 21st century” lead to war?

Photo credit: project-syndicat.org

China

In the end, it all comes down to Pillsbury's claim that China's hardliners -- who no doubt exist -- have now occupied key policy making decisions. Even if that were the case, however, it is too early to accept that China's rise to the top is inevitable. Environmental, economic, demographic, geopolitical and political challenges could still derail or at least delay the project. In addition, the book's overall thesis, to my mind, overestimates the degree to which China's day-to-day policy is driven by one grand plan. Still, The Hundred Year-Marathon deserves to be widely read among scholars and diplomats working on Chinese foreign policy and the future of global order.

Book review: “Will China Dominate the 21st Century?” by Jonathan Fenby

The missing 1.3 billion

Sinicization

Sinicization and the Rise of China: Civilizational Processes Beyond East and West. By Peter Katzenstein (ed.) Routledge, 2013. 313 pages. R$ 153, 51 (kindle, www.amazon.com.br)

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Sinicization: sinicisation, sinofication, or sinification, (Chinese: 汉化; pinyin: Hànhuà), also called chinalization (Chinese: 中国化; pinyin: Zhōngguóhuà), is a process whereby non-Han Chinese societies come under the influence of Han Chinese state and society. Areas of influence include alphabet, diet, economics, industry, language, law, lifestyle, politics, religion, sartorial choices, technology, culture, and cultural values. More broadly, "Sinicization" may refer to policies of acculturation, assimilation, or cultural imperialism of neighbouring cultures to China, depending on historical political relations.

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When China will reclaim the world's economic leadership, Martin Jacques predicted in "When China Rules the World" five years ago, the future of global affairs would very much look like the past - dominated by China. Its impact would be not only economic but also cultural and political, leading to a global future of ‘contested modernity’. Aaron Friedberg, on the other hand, suggests in "Contest for Supremacy" that the United States must seek to assimilate China and transform it into a liberal democracy. John Ikenberry writes in "Liberal Leviathan" that China can integrate into a Western-led system.

In the edited volume "Sinicization and the Rise of China: Civilizational Processes Beyond East and West", Peter Katzenstein and the other authors complicate popular conceptions of civilizational interaction by focusing instead upon hybridity and plurality. "We need to move beyond the sharp distinction between East and West", Katzenstein writes.

Japan may provide a useful example. At the height of the country's power, in the 1980s, Japanization did not mean only, as the Japanese had expected, making Asia more like Japan, but also, making Japan more like Asia. The same, Katzenstein argues, will happen to China and the phenomenon of Sinicization: It is always a give an take. History suggests he is right, as it is marked not by rigid cultural entities that impose specific ideas on each other, but a far more complex and messy process of mutual influence, even in cases of extreme power asymmetry. The colonizer is as much influenced by the colonizer, even though the former's history books may not admit it.

To foreign observers, Chinese society may seem utterly opaque and resistant to outside influence. Yet the changes China has undergone over the past decades are remarkable and very much a product of broad and multi-faceted dialogue with the rest of the world. Thousands of foreign advisers played a key role in modernizing China throughout the second half of the nineteenth and all of the twentieth century - from Europe, Japan, or, after World War II, from the Soviet Union. In several instances, foreigners occupied key positions - like heading the nation's tax collection - showing a degree of openness unthinkable in the West. In the 1920s and 1930s, Eugene Chen, born in Trinidad in 1878, served as China's foreign minister, although he spoke no Chinese. Interestingly enough, Jean Monnet, who would later become one of the founders of the European Union, worked in China for several years in the 1930s, as chairman of the Chinese government's committee to facilitate the availability of credit for companies that wanted to invest in China. Just like these foreigners influenced China, their own ideas were shaped by China.

This also renders many debates about the civilizational origins of certain ideas (such as human rights) or technologies rather futile. Civilizational interaction, according to Katzenstein, can be best described by the history about the origins the 'Chinese fortune cookie’:

In the nineteenth century, fortune cookies were a Japanese invention. Nobody then thought about marketing them: In the 1920s and 1930s, American-Chinese would go to Japanese confectionary stores in California to buy Japanese fortune cookies. Japanese cookies became fully Chinese in the 1940s, most likely because of the internment of American-Japanese after Pearl Harbor. Japanese-run shops were closed or relocated, and the little scraps of wisdom were no written in English rather than Japanese. By the 1940s, fortune cookies were common in San Francisco and modern California, enjoyed especially by GIs on leave who soon demanded them nationwide. By 1946, “Chinese fortune tea cakes” as they were then called, were removed from the Office of Price Administration control list. Fortune cooked found their way into American restaurants and later to restaurants in Europe and all over the world – except for China. (…) Full of unintended consequences and historical twists and turns, it reflects diverse practices spanning East and West.

The Daoguang emperor of China, who reigned from 1820-50.

Indeed, what is true for civilizational interaction is most likely to be true about global order as well. New orders rarely emerge from scratch or destroy existing structures completely. Rather, the old parts live on and become the materials out of which restructuring develops when formerly peripheral players become central actors in the new system. A glance at the creation of Post-World War II order confirms this: Rather than being a completely novel organization that broke with the past, the UN can very much be seen as an adaptation of existing structures, such as the League of Nations. In the same way, China -- a country that seems certain to occupy a more prominent role in a more multipolar post-Western global order -- is unlikely to undo the rules, norms and structures that exist today. Rather, it will modify them according to its interests, yet building on the past -- just like any great power with system-shaping capacity, such as the United States, has done before. While this compilation of essays is far too theoretical to be read by policy makers, it has a highly relevant message, which occupies a welcome middle ground in the current acrimonious debate.

Read also:

China’s Grand Strategy to Become No. 1

The Politics of China’s Amazonian Railway

Book review: “Will China Dominate the 21st Century?” by Jonathan Fenby

aiib

On June 29, representatives from 50 countries gathered in Beijing to participate in the signing ceremony of the articles of agreement of the Asian Infrastructure Investment Bank (AIIB). The significance of the event for both Asia and global order could hardly be overstated. It represents the definitive end of China's traditional strategy to 'Hide your strength, bide your time', articulated by Deng Xiaoping. China's claim for a global role is now fairly explicit, and for the first time, the country has opted for the creation of a new global institution to cement its leadership ambitions.

The creation of the AIIB is good news for three reasons.

First, the membership of countries from around the world will force China to operate according to a clear set of rules and norms. If other countries started to sharply disagree with the way China leads the institution, they would leave, creating an embarrassment Chinese leaders will seek to avoid. For third countries, receiving loans from the AIIB will be far safer than dealing with China bilaterally. More broadly, China's decision to opt for multilateralism is to be welcomed, affirming the basic principles of today's global order. China will hold 26.06% of the votes, giving it an effective veto over major decisions, followed by India with 7.5% and Russia with 5.92%. Countries defined as "within the region" will hold a combined 75% stake in the bank's $100bn capital base. And yet, as Amitav Acharya rightly wrote in a recent op-ed, "the AIIB is good news for the international community. It poses no risk of Chinese hegemony, while putting China's leadership capacity to its most severe test to date."

Secondly, Asia badly needs greater investment in infrastructure, and none of the existing banks have been able to satisfy such a massive demand. Over the past years, Nicholas Stern, Joseph Stiglitz, Amar Bhattacharya, and Mattia Romani have campaigned globally for new structures. As the four economists point out in a 2013 op-ed,

The infrastructure requirements in emerging-market economies and low-income countries are huge — 1.4-billion people still have no reliable electricity, 900-million lack access to clean water and 2.6-billion do not have adequate sanitation. About 2-billion people will move to cities in the next 25 years. Policy makers must ensure the investments are environmentally sustainable. To meet these and the other challenges, infrastructure spending will have to rise from about $800bn to at least $2-trillion a year in the coming decades or it will be impossible to achieve long-term poverty reduction and inclusive growth.

Together with the World Bank, the New Development Bank, the Asian Development Bank and others, the AIIB is thus a boon for Asian economies, which -- in their entirety -- are set to turn into the center of the global economy during the 21st century. The AIIB therefore does not represent a threat to any other institutions, including the BRICS-led New Development Bank, set to begin operating next year.

Thirdly, a new large organization like the AIIB -- which will greatly benefit from existing knowledge generated at the World Bank and elsewhere -- may itself produce new ideas and best practices that take the global debate about development further.

The articles, agreed to at a meeting of the bank’s 57 founding member countries last month, call for the Asian Infrastructure Investment Bank to be overseen by an unpaid, nonresident board of directors, unlike the World Bank, the African Development Bank and the Asian Development Bank. The AIIB, which will use English as its operating language, will open bidding for projects to all, unlike the ADB, which restricts contracts to member countries. Several differences with existing institutions will emerge, likely to create a healthy competition of ideas, which may strengthen the effectiveness of lending practices across the board.

AIIB

As 50 nations signed the bank’s articles of incorporation at a ceremony in the Great Hall of the People, seven nations which had previously announced their interest stayed away: Denmark, Kuwait, Malaysia, Poland, South Africa, the Philippines and Thailand. However, they have until the end of the year to sign the articles of agreement and would still be regarded as founding members. At least in the case of the Philippines, the reason is overtly political, and tensions between the two countries have recently mounted. The other countries alleged logistical reasons and are most likely to join by the end of the year.

Brazil's decision to become a founding member of the bank -- as the only country of the Western Hemisphere -- will allow the country to participate in and benefit from an institution central to a historic transformation of Asia. Brazil's economic ties to Asia are set to increase further in the coming years, so another institutionalized foothold in the region -- in addition to Brazil's BRICS membership -- matters greatly. It will also help make Brazil assume a gateway function for Latin America when it comes to AIIB-related matters, at least until other countries from the region will apply for membership.

Why the BRICS grouping matters more than ever

Entrevista com o jornal Brasil Econômico sobre o Banco Asiático de Investimento em Infraestrutura (AIIB)

Entrevista: “Dinheiro chinês é chance única de integrar fisicamente América Latina”

Photo credit: AP

As the financial crisis in China unfolds, analysts are scrambling to grasp the implications for the global economy. As Martin Wolf wrote in his excellent analysis in the Financial Times,

One must distinguish between what is worth worrying about and what is not. The decline of the Chinese stock market is in the second category. What is worth worrying about is the scale of the task confronting the Chinese authorities against their apparent inability to deal well with the bursting of a mere stock market bubble.

Indeed, market corrections occur, and while China has been hardest-hit, they are already taking place elsewhere. While such events are unlikely to affect global China's standing much, the Chinese government is under growing pressure to show that it can handle current turmoil -- necessary to convince observers that Chinese policy makers are skilled enough to manage the transformation of China's economy from one dependent on investment to one fuelled by private and public consumption. After all, that is a challenge far more complex than this week's stock market crash.

The international credibility of the Chinese government will determine the speed with which the country can advance in the creation of sinocentric international institutions which, in their entirety, will create a "parallel order" to increase China's autonomy from the Western-led order. The success of these institutions will depend to no small degree on the trust other nations have in China's capacity to take the lead as a global institution builder.

The year 2015 already marks the most important in that sense since the end of the Cold War, with the creation of the Asian Infrastructure Investment Bank (AIIB) and the institutionalization of the BRICS grouping, the most visible element of which is the New Development Bank (NDB) and the Contingency Reserve Agreement (CRA).

An additional step, still this year, is generally thought to be China's much-hyped international payment system (CIPS) to process cross-border yuan transactions, thus greatly increasing global usage of the Chinese currency due to lower transaction costs. The existing networks make processing yuan payments relatively slow and bureaucratic, thus failing to put the Chinese currency on an equal footing with other global currencies. Cross-border yuan clearing requires an offshore yuan clearing bank in London, Hong Kong or Singapore, or with a bank in mainland China. Seven of the 20 banks selected to participate in the new system initially are foreign.

As Dominic Basulto argues in the Washington Post,

What the creation of such a system means in the short-term is that the Chinese currency (officially known as the renminbi) has the potential to become a truly international, convertible currency and a more attractive currency for conducting international trade and finance. What it means in the long-term is that America’s long reign of economic dominance is at risk.

Just like with other Chinese ambitions such as the plan to transform Shanghai into a global financial center, the desire to turn the yuan into a globally traded currency is natural for a country whose economy is about to become the world's largest. The yuan already accounts for nearly 9% of all trade finance deals worldwide, the second largest behind the US-dollar. The Chinese currency is also the fifth most used payments currency in the world, behind the dollar, the euro, the pound sterling, and Japan's yen. Still, the yuan is nowhere close to threaten the dominance of the US-dollar. Less than 3% of global payments involve the yuan, compared to over 40% that involve the US-dollar.

It is unclear whether the Chinese government will go ahead with the implementation of the system in the current state of financial turmoil. Rumors are that rather than launching CIPS completely, a limited version of the payments system would now only be used for cross-border yuan trade deals and won’t have capital-related transactions, the sources said.

Still, those who believe that current financial instability will keep the Chinese government from seeking to adjust global structures to its new found economic power are likely to be mistaken. Even if China and the United States were to grow at similar speeds for the coming years, the need for reform would remain in place, and China's institutional representation is, considering its position as the world's second largest economy, still low in both the economic and security realm.

BRICS: Time to create an OECD-type structure?

TPP vs. RCEP: Trade and the tussle for regional influence in Asia

Photo credit: Silvery (Zastavki.com)

yuandollar

At the IMF board meeting tomorrow, the Chinese yuan is expected to join the elite basket of currencies used to value its own de facto currency. If approved, it will be the first important change to the institution's Special Drawing Rights (SDR) basket since the euro's inclusion fifteen years ago. The IMF's preconditions to be included -- and be recognized as a global currency -- is that a currency must be “widely used” and that it is “freely usable”. The decision, long overdue due to the size of the Chinese economy, marks a milestone in the Chinese government's efforts to increase the global role of its currency. Central banks around the world are now far more likely to add the yuan to their reserves.

In August, in an effort to help protect currencies in the Southeast Asian region against global headwinds, Indonesia proposed a broader use of the Chinese yuan in the ASEAN region in order to better synchronise with China as Asean's largest trading partner. The timing of the statement was noteworthy, as it occurred at the end of a week that, some argue, badly affected the Chinese government's international reputation of being the world's leading technocrats, firm in control of the second largest economy. Quite to the contrary, China's decision to de-peg the yuan from the dollar, only to hastily spend U$ 200 bn to prevent the currency from devaluating, make the Chinese leadership seem hesitant and divided about the speed of market liberalization. It is a cautionary tale for those who had predicted more profound reforms, a necessary step to start challenging the US-dollar's global dominance, the bedrock of US hegemony.

China is seeking to establish, since 2009, a controlled internationalization of the yuan. The creation of the China International Payments System (CIPS) is a key element of this strategy, as is the plan to transform Shanghai into a global financial center.

As Hu Jintao explained in 2011,

The current international currency system is the product of the past. As a major reserve currency, the US dollar is used in considerable amount of global trade in commodities as well as in most of the investment and financial transactions…It takes a long time for a country's currency to be widely accepted in the world. China has made important contribution to the world economy in terms of total economic output and trade, and the renminbi has played a role in the world economic development. But making the renminbi an international currency will be a fairly long process.

The reasons for such a strategy are clear. The global dominance of the US-dollar provides the United States with a tremendous privilege. It costs less for US-Americans to borrow, allowing the government to fund deficits and firms to raise money that would otherwise not be possible. Put differently, the United States has to work less to retain the confidence of global investors, and the pressure to reduce government debt is lower than in economies whose currencies matter little in the international system.

In addition, it allows Washington to wield its political influence far more effectively. The United States can impose sanctions many countries are forced to follow. After all, most international bank need access to the US-American banking system, for which it needs a license. Therefore, banks worldwide have to accept whatever sanctions the United States impose – as seen in the cases or Iran and North Korea.

Even though the Chinese government’s goal is to limit the US-dollars dominance and create “currency multipolarity” in the medium or long-term, the internationalization of the yuan will take place in small and experimental steps, as those are less likely to generate instability or anxiety in the domestic or international economy. Giving the yuan more freedom would weaken the currency, potentially spurring capital flight (as happened in the past weeks). Since Beijing started pursuing its yuan internationalization, the use of the currency to settle trade with China has increased strongly. Almost 30% of China's global trade is now settled in yuan. The Chinese currency is already accepted as a form of payment in Mongolia, Pakistan, Thailand, and Vietnam.

As with any such momentous policy changes, decision-makers in Beijing are far from united regarding the internationalization of the yuan. State-owned enterprises and banks are generally reluctant to internationalize the Chinese currency, as the necessary liberalization would reduce their control over key decisions that affect China’s export-led development model. In the same way, the Ministry of Finance, the National Development and Reform Commission (NDRC), and the State Asset Supervision and Administration Commission (SASAC) are not among the move’s strongest supporters. On the other hand, liberal forces led by the People’s Bank of China (PBoC) are in favor of internationalization as this would help them to push through important domestic financial and monetary reforms. After the recent stock market crash, their internal standing is almost certain to have suffered. In addition, their strategy may be dangerous. As Mallaby and Wethington argue,

Only once the domestic financial system has been fortified in this manner is it safe to open the economy to foreign capital inflows, allow the exchange rate to float, and let the country’s money circulate offshore. Currency internationalization should be the endpoint of reform, not the starting point.

The speed of internationalization thus does not only depend on China’s growth trajectory, but also on internal power dynamics. This is particularly so because there are sound economic arguments that transforming the yuan into a global reserve currency could have downsides for China’s economy, too: It would lead to foreigners buying and holding massive amount of yuan, which could lead to a permanent appreciation, thus hurting Chinese exports. In addition, if the US-dollar ever lost its role as uncontested reserve currency, depreciation would almost certainly ensue, negatively affecting the value of China’s dollar reserves.

The perhaps most important move to internationalize the yuan are the numerous swap agreements with central banks, RQFII programs to liberalize capital markets. Since 2008 China has also agreed some $500 billion in currency swaps with nearly 30 countries, including Argentina, Canada and Pakistan.

Although CIPS is, at first glance, little more than a platform to facilitate transactions, its medium- to long term consequences could be significant. It will allow banks and companies to move money around the global on a financial superhighway delinked from the US-centered dollar structures. Being excluded from the US-American system will thus no longer as terrifying as it once was, reducing US leverage over perceived wrongdoers. However, it is too soon to say whether the yuan may ever be able to challenge the US-dollar as the world’s main reserve currency. The challenges China faces are formidable. Not only must the yuan be universally convertible, the country would also have to create a transparent and liquid bond market. Government intervention during market turmoil in July and August 2015 shows that China still is a long way off allowing the markets to self-regulate. In the same way, it is hard to imagine how the yuan could compete with the dollar without a more transparent legal system, which would enhance trust in the government. Injoo Sohn points to additional difficulties:

The absence of formal alliances also seems to constrain the scope of China’s political leverage to internationalize its currency. The dollar internationalization of the early postwar years was supported not only by the United States but also by key Western European allies – China does not enjoy such support as it pursues RMB internationalization. The Cold War period gave U.S. allies more political incentives to maintain economic and financial ties with the United States through the offshore dollar market. With political confidence and trust, London banks started to lend out Eurodollars to other corporate customers in Western Europe in the 1970s.

What we can say is that, compared to the transition from the British pound to the US-dollar in the mid twentieth century, risks were manageable largely because both the pound and the dollar were convertible into gold at fixed rates. In the same way, policy makers in Washington and London were largely aligned on many broader issues concerning global order. Washington and Beijing, by comparison, think of their bilateral relationship far more in the context of ambiguous mutual dependence and suspicion.

Can Shanghai become a global financial center?

BRICS: Time to create an OECD-type structure?

Photo credit: bloomberg News

modi sharif

Last month, India and Pakistan were accepted as full members of the Shanghai Cooperation Organisation (SCO), a platform to discuss politics, economics and security matters in Eurasia. While some observers doubt the organization's importance, the step is likely to have three main beneficiaries: China, Russia, and the region as a whole.

Benefits for Beijing

India's and Pakistan's inclusion are good news for Beijing, as it turns the organization into an ideal negotiating platform for China’s regional investment plans. Once sanctions on Iran will be lifted, Tehran’s accession seems only a question of time. An expanded SCO allows China to promote the Silk Road Economic Belt, China-Pakistan Economic Corridor (CPEC), Bangladesh-China-India-Myanmar (BCIM) Corridor and Central Asia-China Gas Pipeline with policy makers in Delhi, who regard China’s growing presence in the region with suspicion. China's Silk Road Fund in particular may be seen as a threat by Russia and India, who will rightly interpret China's efforts as a challenge to their own attempts to assume regional leadership.

From a geopolitical point of view, the organization’s significance (though still largely symbolic) is often seen as a potential counterweight to the Western security institutions, primarily NATO. Yet contrary to some would expect, the SCO, which was founded in 2001 in Shanghai by the leaders of China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan, will not rival or balance NATO frontally. Rather, it provides an alternative platform that will seek to play an increasingly important role in the agenda-setting process of geopolitical issues that affect Asia – ranging from terrorism emanating from Afghanistan and instability in Central Asia to China’s attempts to finance the region’s physical integration. The question of whether China still prioritizes SCO in this context is secondary: Rather, it will provide Beijing with additional autonomy and yet another option for forum shopping.

Benefits for Moscow

For Moscow, the organization's benefits are more basic. The SCO's mere existence reduces the West’s capacity to diplomatically isolate countries that it believes do not play by the rules. Russia may not always get what it wants in the SCO – particularly now that India has joined the grouping – but its membership increases its legitimacy and reduces its dependence on Western partners (even though it cannot compensate for the economic losses generated by the sanctions). India's accession increases the SCO's standing: Not only does it now include the majority of people in Asia (and a sizeable portion of mankind), but, including the world's largest democracy, it can no longer be seen as a club of autocrats.

The organization has often been understood in the context of defending autocracy and limiting US influence in the region, and in 2005, the group called on Washington to set a timeline for the removal of its military bases in Central Asia. Russia’s Foreign Minister Lavrov has argued that the SCO is a key element of a new “polycentric world order.” At the Dushanbe summit in 2000, members agreed to "oppose intervention in other countries' internal affairs on the pretexts of 'humanitarianism' and 'protecting human rights;' and support the efforts of one another in safeguarding the five countries' national independence, sovereignty, territorial integrity, and social stability.”

During summits, discussions usually revolve around Central Asian security-related concerns, often describing the main threats it confronts as being terrorism, separatism and extremism, and policy responses are sought in the realm of military cooperation, intelligence sharing, and counterterrorism. Regular military exercises are being held since 2003. In 2014, China hosted the SCO’s largest-ever series of military drills, which included China and Russia conducting joint naval exercises in the Mediterranean. That may be little more than symbolism, but matters greatly to Russia, in need of demonstrations of support.

The Shanghai Cooperation Organization is in the midst of a broad transformation as it has started dealing with economic issues, including the potential creation of an SCO development bank. Other new issues concern infrastructure, transnational border and water disputes, and cultural exchange programs. Russia has also proposed linking the Eurasian Economic Union (EEU), which consists of Armenia, Kazakhstan, Belarus and Russia, with China’s Silk Road Economic Belt.

Benefits for the region

All these topics will play a decisive role in the geopolitical future of Eurasia, a region that seems to regain its importance as Russia turns its back on the West, and as China is articulating its strategy to strengthen its presence in Central Asia and beyond. Asia is a region with a relatively low institutional density, and increasing the number of high-level fora that bring leaders together must be welcomed, considering the many potential points of friction that exist between countries in the region. In this sense, the Ufa Summit already produced a very tangible benefit -- have India's Narendra Modi shake hands with Pakistan's Nawaz Sharif, during what was the first meeting between the two leaders since May 2014 and came after increased border hostilities in the past few months and India’s cancellation of secretary-level talks last year.

Read also:

OBOR: China’s Pivot to Eurasia

China’s Silk Road Fund: Towards a Sinocentric Asia

CICA: Another step towards a Post-American security architecture in Asia?

Photo credit: PTI

Shanghai

Shanghai's current stock market turmoil has left the many observers wondering about short-term implications for the global economy. Looking beyond immediate worries, two issues are worth noting. First of all, the current crisis is an unmistakable sign that the Post-Western World is already a reality: Two decades ago, a plummeting stock market in the global economy's periphery would have hardly caused global tensions. Today, by contrast, the saying "When China sneezes, the world catches a cold" seems remarkably fitting. After all, a staggering 38% of global growth in 2014 came from China, and 120 countries trade more with China than with any other country.

Secondly, the current crisis adds an interesting twist to one of the Chinese government's most ambitious and fascinating strategies, which symbolizes the extent to which China is willing to alter global structures: To turn Shanghai, a regional also-ran behind other geographically close cities like Hong Kong, into a global financial center capable of challenging New York and London, the world's only truly global financial centers. According to China's State Council, this should be achieved by 2020.

Financial centers concentrate enormous economic power, and being home to one is seen as crucial to complement Chinese efforts in the realm of trade expansion and military modernization. Put differently, a global power cannot do without a global financial center.

As Kawaii explains,

A regional center can grow to function as a global financial center if it offers deep and liquid financial markets for global players – in addition to national and regional players; becomes a hub for global financial information; has a reservoir of highly educated and well-trained professionals (for investment banking, law, accounting, and information and communication technology (ICT); provides a conducive, responsive regulatory environment; and ensures economic freedom supported by unambiguous legal certainty.

China’s challenge, thus, is a complex one that involves not only the set-up of a clear regulatory framework, but also attracting global talent from around the world, which requires turning Shanghai itself into an attractive city. Considering how low Chinese cities tend to rank in the global quality of life indexes (as virtually all urban centers in developing countries), the Chinese government may have to undertake profound reforms to generate the momentum necessary to make young talents prefer Shanghai over New York, Zurich, Singapore, or other financial centers around the world.The government is considering lowering income tax for financial staff to become more attractive, particularly since income tax in Hong Kong is as low as 15%. Considerable investments in education, such as the Advanced Institute of Finance at Shanghai Jiao Tong University, are meant to help enhance the city’s still insufficient intellectual infrastructure – after all, banks still prefer Singapore and Hong Kong due to their larger talent pool -- another area in which rich countries almost always beat poorer ones. If the Chinese government were ever to experiment with greater free speech, they may start in Shanghai, as censorship is unlikely to help bring international talent to the city. Anecdotal evidence suggests that most executives in finance from around the world would ask for substantial pay rises to accept a posting in mainland China, even though Shanghai offers a far more comfortable life style than Beijing or Chongqing.

China’s objective to turn Shanghai into a global hub is intimately tied to internationalizing the yuan, creating the China International Payment System (CIPS) and the establishment, in 2013, of the Shanghai Pilot Free Trade Zone (FTZ), which is seen as the Chinese government’s most innovative experiment. Initially the first free trade zone on the Chinese mainland, it has already led to three additional free trade zones, in Fujian, Guangdong and Tianjin. It is in these zones – and primarily Shanghai – that the Chinese government is set to conduct liberal experiments, not only regarding trade, yuan convertibility and interest rate systems, but also regulatory issues concerning joint ventures in the financial sector. Indeed, full convertibility of the yuan would be a requirement for Shanghai to begin to rival the existing financial centers. Before that, any such talk seems far-fetched.

In addition, the Shanghai Gold Exchange (SGE) launched, in 2014, a global trading platform in the city's pilot free trade zone, a move meant to challenge the dominance of New York and London in gold trade and pricing – considered to be of great strategic importance. China has recently turned into the world’s leading importer of gold, and the SGE is the world's largest trading platform for physical gold. However, Shanghai does not yet rival London or New York in its capacity to influence gold pricing. It ranks fourth worldwide for global gold transactions, just ahead of Dubai which is in fifth place. Too increase Shanghai’s attraction, foreign investors who are not legally established in China can now trade gold in the country. For China, a one-kilogramme yuan-denominated gold index could be useful to favour its own consumers and protect them from other foreign-currency denominated indexes, which Beijing might argue are prone to manipulation, or favour "Western interests". Shanghai is also seeking to establish pricing benchmarks for a number of other commodities, most importantly oil.

Shanghai’s success in becoming a global financial center will ultimately depend on a large number of factors, not at least China’s overall economic trajectory. Provided that 5% growth can continue over the coming years, the State Council’s ambition do not seem completely unrealistic, even though they are still unlikely to be fulfilled in time. Shanghai’s advantage is, without a doubt, its role as the financial hub of what will be the world’s largest economy, even though a lot of financial power is still concentrated in Hong Kong and Beijing. That does not mean, of course, that Shanghai may rival the importance of London and New York in their entirety. New York and London have been central to the process of globalization over the past two centuries, and even if Shanghai were to seriously rival their financial capacity, the former two will remain cultural fixtures on a global scale for decades to come, and a magnet for artists and leading thinkers that China will struggle immensely to emulate.

London’s continued dominance is a case in point: Despite the expansion of the US economy, adverse impacts of WWI and the gradual decline of the British empire and economic prowess, New York never fully succeeded or overtook London as a global financial center. This shows that a financial center can sustain its strength even though its economic hinterland – in this case, Great Britain – no longer plays a key role in the global economy. China’s economic growth alone will therefore not be enough for Shanghai to replace existing global financial centers.

The idea of turning Shanghai into an international financial center is far from revolutionary – rather, in the eyes of China, it is about reestablishing the city’s key role it held as early as the 1920s and 1930s, when it was known as “Paris of the East”. Yet today’s ambition is still more than merely copying the past, and policy makers in Beijing are interesting in more than merely hosting the world’s most important stock exchange. Rather, they want Shanghai to be the place where the leading minds of the financial world gather to develop the ideas that will shape global finance for decades to come. Simply put, Shanghai’s role as financial center would allow it, the Chinese government hopes, to become the world’s leading agenda-setter in global finance. Considering that China will most likely be the world’s largest economy by then (China today represents about 15% of the global economy), a decentralization of financial power and a more diverse, geographically evenly spread allocation of decision-makers in the area is to be welcomed. After all, London and New York are far too homogeneous and similar to be able to act on behalf of a far more diverse global financial landscape.

Yet following reforms in Shanghai is important for another reason: It is likely to serve as a blueprint for the rest of China once the government feels safe to slowly release its grip on the country’s financial system.

Photo credit: Carlos Barria (Reuters)

RCEP

If implemented, the Trans-Pacific Partnership (TPP), which would liberalize trade in 40% of the global economy, would represent Barack Obama's greatest foreign policy legacy. He could claim that, despite having being distracted by urgent challenges in the Middle East and Eastern Europe, the United States articulated a coherent strategy to deal with what will be, by far, the most important foreign policy challenge in the coming decades: the rise of China. The TPP would connect the United States to the economic center of the 21st century, one of the fastest-growing regions of the world, and cement its relationship with Japan, its key ally. It would be the only real manifestation of Obama's pivot to Asia, which so far consisted of mere rhetoric.

China, which is excluded from the countries negotiating the TPP, has responded by promoting the Regional Comprehensive Economic Partnership (RCEP), which excludes the United States, and which would promote rapprochement between Beijing and Tokyo. The tussle for regional influence between the United States and China has thus also taken hold of the debate about trade agreements. Just like the TTP, the RCEP, whose negotiations were launched at the ASEAN Summit in Phnom Penh in November 2012, would connect a large chunk of the global economy, placing China and Japan at the center, as well as harmonize trade-related rules, investment and competition regimes. The RCEP includes a vast array of rules about investment, economic and technical cooperation, intellectual property, competition, dispute settlement and government regulation, also focusing on easing the way for supply chains. Still, in its entirety, RCEP is more modest and far less ambitious than the TPP. Notably, India, set to play a key economic role in Asia in the coming decades, is also part of the grouping. That may potentially slow down negotiations, considering Delhi's stance during trade negotiations during past decades.

Now that the US electorate is gripped by populist anti-globalization feelings, both Hillary Clinton and Donald Trump were forced to pledge that they'd scrap the deal in its current form. Clinton may not personally be opposed to the TPP, yet the specter of a tea-party style takeover of the Democratic Party and her struggle to build trust with voters will make it hard for her to copy Bill Clinton's famous turnaround on trade after being elected. The implementation of the TPP seems ever more unlikely.

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While Obama's pivot to Asia was above all a broad vision, the TPP always was its center piece. Without it, the idea will be reduced to little more than a vague concept. When Obama launched the idea of the pivot, the US shifted 2,500 Marines to a base in northern Australia, but otherwise Obama has taken very few concrete steps. The Obama administration understood early on that the TPP was about far more than trade. Rather, it was meant as a tool to contain China in its neighborhood and retain the US role as an agenda-setter in Asia. Obama's strategy can be understood in the context of a growing number of Chinese-led initiatives that, in their entirety, create a "parallel order" to complement and possibly some day rival existing US-led structures. In the end, the prevailing deal — either the TPP or RCEP — will allow either Washington or Beijing to act as a regional agenda-setter, shaping the architecture of economic cooperation in the Southeast and East Asian regions, and helping secure economic interests.

As a consequence, US trade representative Froman famously argued that rejecting the TPP would be like "handing China the keys of the castle" on globalization. Portraying the TPP as a way of countering China carried a risk, of course: failure to implement the treaty would produce another Chinese diplomatic victory, just like after US failure to convince its allies to stay away from China's Asian Infrastructure Investment Bank (AIIB). China's rhetoric has been more measured. Indeed, Beijing always officially welcomed the TPP, saying that it was open to all the free trade arrangements that are beneficial to the world’s trade liberalization and regional economic integration, as long as they were open and transparent.

There seems to be a tiny window of opportunity for the United States. The FT's Edward Luce argues that

The only realistic scenario is that Mr Obama could somehow bludgeon the lame duck Congress to rush it on to the statute books after a landslide victory by Mrs Clinton.

Naturally, the death of the TPP would not mean Asian countries will automatically embrace the China-led RCEP proposal instead. Success is far from guaranteed. India has made a further increase in its offers in goods conditional to other member countries agreeing to a higher level of commitment in trade in services. Yet others are reluctant to accept India's proposal of a liberalized visa regime for movement of professionals in the region. The next meeting on August 5 in Laos will determine the rhythm of negotiations in the coming months and years. RCEP members also remain divided over whether to have an investor-state dispute settlement (ISDS) mechanism.

And yet, even if RCEP negotiations do not succeed for now, the failure to implement the TPP would be a tremendous setback for US geopolitical goals in Asia. Even if Hillary Clinton won the election and vowed to maintain US security commitments, Washington's influence in the region would stand reduced. China's neighbors would increasingly look to Beijing for leadership on economic matters, marking another step towards a more Asia-centric world order.

A Fractured West in a Post-Western World

The New Development Bank (NDB): The BRICS grouping promises to go green

Market turmoil and the future of Chinese institution building

BRICS: Time to create an OECD-type structure?

OuroPreto

Affonso Celso de Ouro Preto

Embaixador em Bissau (1983);Chefe na delegação brasileira na Conferência Técnica sobre a Institucionalização do Parlamento Latino-Americano (1987); Embaixador em Estocolmo (1990-1993); Chefe do Gabinete de Ministro de Estado (1993-1995); Embaixador em Viena (1995-1999); Embaixador em Pequim (1999-2003); Representante Brasileiro para Assuntos do Oriente Médio na Secretaria Geral das Relações Exteriores (2004-2010); Diretor do Instituto de Estudos Brasil-China (IBRACH).

Baixar entrevista na íntegra aqui.

Entrevistador(es): Oliver Stuenkel, Kelly de Souza Ferreira

Duração: 1h 43min

Outras entrevistas podem ser encontradas no acervo de história oral do CPDOC por meio do link http://www.fgv.br/cpdoc/acervo/historia-oral.

Para citar a entrevista:

OURO PRETO, Affonso. Entrevista concedida para o projeto “O Brasil em crises Internacionais”. CPDOC, São Paulo, 12 dec, 2014. Programa de História Oral.

Parte 1: Convite feito pelo Embaixador Barros Netto para que se tornasse embaixador do Brasil na China no ano de 1999; a visita com Celso Amorim à China no início dos anos 1990; relato sobre a visão negativa que os estrangeiros tinham sobre a China no ano da sua chegada ao país; fechamento de agência do Banco do Brasil na China em 2000; a opinião das empresas brasileiras sobre a China em relação a outros países da Ásia no início dos anos 2000; relato sobre a estrutura física e pessoal da embaixada brasileira na época de sua atuação; a falta de informação sobre a China dentro do Itamaraty nos anos 1990 e 2000; relato sobre o seu trabalho com temas internacionais durante o seu período na Áustria; relato sobre o tratamento pessoal dos chineses; o lançamento do CBERS (Satélite Sino-Brasileiro de Recursos Terrestres); reconhecimento do Brasil como potência regional por parte da China; opinião sobre o sistema político chinês; a presença de correspondentes internacionais de jornais brasileiros na China; primeiros contatos com o Ministério das Relações Exteriores Chinês; relato sobre o embaixador da Argentina para a China durante a sua estadia; as duas visitas do presidente Lula à China; A visita de Jiang Zemin ao Brasil no segundo governo Fernando Henrique Cardoso; problemas e políticas comerciais envolvendo Brasil e China; aumento do número de diplomatas brasileiros na China ao longo dos tempos; mudança da posição brasileira em relação a China com a gestão de Lula na presidência e Celso Amorim no Itamaraty; a atuação da EMBRAER na China; A presença de famílias e empresas familiares brasileiras na região de Guandong; As viagens para diversas regiões na China; opinião sobre o governo de Hu Jintao e Jiang Zemin.

Parte 2: Visita de Jiang Zemin ao Brasil em 2001 e a reação de Fernando Henrique Cardoso; as críticas que Brasil e China fazem aos Estados Unidos; o projeto de crescimento de Deng Xiaoping; a proximidade chinesa com Venezuela e Cuba; a falta de crítica do governo brasileiro aos eventos de 1989 na China; reaproximação comercial entre Brasil e China no momento em que foi embaixador na China; a desconfiança do governo brasileiro com a entrada excessiva de chineses no Brasil; relato sobre funcionários da embaixada brasileira em Pequim que se casaram com chinesas; a falta de presença da sociedade civil nas cooperações promovidas pelo Brasil; a falta de especialização em áreas geográficas por parte do Itamaraty; a presença de especialistas chineses que falam português; a China como principal parceira comercial do Brasil; a negociação da China com o Brasil para a entrada na OMC; a criação do COSBAN; a falta de um consenso entre as empresas e associações de empresas brasileiras sobre o aumento do comércio com a China; relato sobre o seu tempo como coordenador para o Oriente Médio dentro do Itamaraty; a necessidade de uma posição coordenada em relação a China dentro do Itamaraty; instalação de um escritório da Petrobras na China em 2003; as mudanças ocorridas no Itamaraty com mudança de governo e regime; a não existência de uma fidelidade política dentro do Itamaraty; opinião sobre as semelhanças das políticas externas chinesas e brasileiras; a grande visita de Lula a China acompanhado de políticos e 400 empresários; a falta de interesse na China por parte do governo Dilma; a importância dos Institutos Confucius para a China e a sua presença no Brasil; a falta de experts brasileiros sobre China; opinião sobre Kissinger; o seu interesse sobre a história chinesa.

Entrevista de história oral com Luiz Felipe Lampreia

Entrevista de História Oral com Clodoaldo Hugueney

Photo credit: Ministério das Relações Exteriores — Brasil

Easternization

Book review: Easternisation. War and Peace in the Asian Century. Gideon Rachman. Vintage Digital, 2016. 320 pages. $28.19 (kindle, amazon.com)

The Financial Times' Gideon Rachman recently told his readers about a profoundly unsettling experience. A group made up of "plenty of eminent people" from the West, including former prime ministers and billionaires, traveled to Beijing to meet China's President Xi Jinping. There, according to the writer, the foreign grandees were lectured, "treated a bit like a class of schoolchildren."

We stand at the cusp of a historic shift of power away from the West towards Asia, and the consequences are increasingly being felt in global politics. With the day when China will overtake the United States as the world's largest economy appearing on the horizon, the West is slowly losing the remarkable capacity to set the agenda on a global scale, something we have become so used to that it has become hard to imagine global affairs with a West no longer dominant. Several books over the past years have sought to make sense of this remarkable development, such as Randall Schweller's Maxwell’s Demon and the Golden Apple (reviewed here), Martin Jacques' When China Rules the World (reviewed here) and Aaron Friedberg's A Contest for Supremacy. China, America, and the Struggle for Mastery in Asia (reviewed here). All of them focus, directly or indirectly, on China, whose strategy will have a crucial impact on geopolitical dynamics in the 21st century.

While several Washington-based scholars with ambitions to advise future Presidents still insist that the United States will be able to retain its position of leading power throughout the 21st century, Rachman forcefully states the obvious: It is only a question of time until Asia will yet again become the world's economic center, after having temporarily lost it in the late 19th century, when Western powers technical and military superiority allowed them to plunder and control Asia — a period now known as the "century of humiliation" in China. A considerable part of the book is dedicated to an analysis about how the United States' reaction to China's rise. This makes sense, considering how important the bilateral relationship has become for the future of global order.

The trouble with books is that editors often insist on simple and catchy titles that oftentimes oversimplify the argument, and Easternisation sits uneasily with the far more complex phenomenon Rachman describes. Perhaps something like China's Return to the Center or The Coming Rivalry between the United States and China would have been more adequate, since a lot of things he describes are not really about Asia's rise, but about Beijing's growing influence, and how the United States should respond. The book's section on the United States' troubles in the Middle East are interesting, but it is not entirely clear how it is related to the book's overall theme.

The majority of analyses also argue that the decline of US hegemony will have largely negative consequences and make the world a more dangerous and unstable place (Amitav Acharya's The End of American World Order, reviewed here, is an exception). Easternisation embraces the near-consensus that the arrival of genuine multipolarity will make the world both more complex and unstable. While that may be true, Rachman is somewhat guilty of Western-centrism, paying little attention to China's and other emerging powers' efforts to provide global public goods. China, for example, provides more peacekeeping troops than all the other P5 combined, and its decision to help launch several development banks is a positive step.

For those who have read previous books on the subjects, Rachman's analysis does not bring anything fundamentally new. Rather, the book is enjoyable because the author includes many engaging anecdotes he collected during his travels as the FT's chief foreign affairs editor, which provided him with direct access to the powerful all over the world. The chapter on Russia's turn to the East is particularly interesting, even though there is also evidence showing that we should not blindly believe current Russian rhetoric. Perhaps the best example for the chasm between rhetoric and reality is the year-long delay in the bridge across the Amur River between Russia and China (the Chinese have finished their part, but completion is delayed due to Russia's bureaucracy).

China's rise is inevitable, Rachman points out, and resisting it is largely pointless. Yet in his conclusion, he suddenly changes course and recommends that the United States should push back and contain China until Beijing accepts democratization. Pushing back against Chinese hegemony in the Pacific is "both morally defensible and strategically feasible, he says. Yet democratization in China is not only unlikely, but also overlooks a fundamental truth Western liberal scholars struggle to accept: Even a democratic China would hardly accept US hegemony in the long term. Indeed, the Communist Party may be the best institution to control nationalist forces at home and avoid a worst-case scenario in Asia: A repetition of Europe's experience in 1914.

Book review: “The End of Power” by Moisés Naím

Goodbye Hegemony, Hello Multiplex World?

BRICS1 1
By Oliver Stuenkel
September 26, 2016

http://thediplomat.com/2016/09/the-post-western-world-and-the-rise-of-a-parallel-order/

The Financial Times‘ Gideon Rachman recently told his readers about a profoundly unsettling experience. A group made up of “plenty of eminent people” from the West, including former prime ministers and billionaires, traveled to Beijing to meet China’s President Xi Jinping. There, according to the writer, the foreign grandees were lectured, “treated a bit like a class of schoolchildren.”

We stand at the cusp of a historic shift of power away from the West toward Asia, and the consequences are increasingly being felt in global politics. With the day when China will overtake the United States as the world’s largest economy appearing on the horizon, the West is slowly losing the remarkable capacity to set the agenda on a global scale, something we have become so used to that it has become hard to imagine global affairs with a West no longer dominant. For more than a century, an extreme concentration of economic power allowed the West, despite representing a small minority of the world’s population, to initiate, legitimize, and successfully advocate policy in the economic or security realm. To most observers, non-Western actors hardly, if ever, played any constructive role in the management of global affairs.

As a consequence, the future of global order—no longer under Western rule—is generally seen as chaotic, disorienting, and dangerous. As Randall Schweller, an influential scholar at Ohio State University predicts, the only alternative to U.S. leadership is “banality and confusion, of anomie and alienation, of instability without a stabilizer, of devolving order without an orderer.” Indeed, the vast majority of International Relations scholars believe the relative decline of U.S. power will have profoundly negative global consequences.

Yet our understanding of the creation of today’s order, its contemporary form and predictions about the future, are limited because they seek to imagine a “Post-Western World” from a parochial Western-centric perspective. Harvard University’s Graham Allison calls the last one thousand years “a millennium in which Europe had been the political center of the world.” Such views dramatically underestimate the contributions non-Western thinkers and cultures have made, and how much the West depended on foreign knowledge, technology, ideas, and norms—such as from China and the Muslim world—to develop economically and politically. They also disregard the fact that non-Western powers have dominated the world economically for much of the last thousand years.

Our Western-centric world view thus leads us to underappreciate not only the role non-Western actors have played in the past and play in contemporary international politics, but also the constructive role they are likely to play in the future. With powers such as China providing ever more global public goods, post-Western order, most likely some kind of “managed rivalry,” will not necessarily be more violent or unstable than today’s global order.

Indeed, rather than directly confronting existing institutions, rising powers—led by China—are quietly crafting the initial building blocks of what we may call a “parallel order” that will initially complement, and later possibly challenge, today’s international institutions. This order is already in the making; it includes, among others, institutions such as the BRICS-led New Development Bank and the Asian Infrastructure Investment Bank (to complement the World Bank), Universal Credit Rating Group (to complement Moody’s and S&P), China Union Pay (to complement Mastercard and Visa), CIPS (to complement SWIFT), the BRICS (to complement the G7), and many other initiatives.

These structures do not emerge because China and others have fundamentally new ideas about how to address global challenges or because they seek to change global rules and norms; rather, they create them to better project their power, just as Western actors have done before them. They partly arose because of the limited social mobility of today’s order and because of existing institutions’ incapacity to adequately integrate rising powers. As part of a hedging strategy, emerging powers will continue to invest in existing institutions, recognizing the strength in today’s order, but they will seek to change the hierarchy in the system to obtain privileges so far only enjoyed by the United States. Furthermore, eluding the facile and overly simplistic extremes of either confronting or joining existing order, the creation of several China-centric institutions will allow China to embrace its own type of competitive multilateralism, picking and choosing among flexible frameworks, in accordance with its national interests — just like Western powers have done for decades.

Western hegemony is so deeply rooted and ubiquitous that we think of it as somehow natural, reducing our capacity to objectively assess the consequences of its decline. Fears about a post-Western chaos are misguided in part because the past and present systems are far less Western than is generally assumed (the world order already contains many rules and norms that emerged as a product of clashing Western and non-Western ideas). And while the transition to genuine multipolarity—not only economically but also militarily and regarding agenda-setting capacity—will be disconcerting to many, it may be, in the end, far more democratic than any previous order in global history, allowing greater levels of genuine dialogue, broader spread of knowledge, and more innovative and effective ways to address global challenges in the coming decades.

Oliver Stuenkel teaches International Relations at the Getulio Vargas Foundation in São Paulo, Brazil. His new book, Post-Western World, has just been published by Polity Press.

“Brazil on the Global Stage: Power, Ideas, and the Liberal International Order” by M. Taylor and O. Stuenkel

IBSA: The Rise of the Global South?

Photo credit: Beto Barata/PR

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http://www.dn.pt/mundo/interior/russia-e-hoje-um-ator-que-nao-se-compara-com-china-ou-eua-5457861.html

Oliver Stuenkel, especialista em Relações Internacionais brasileiro, esteve em Lisboa a convite do ISCTE-IUL para falar da nova ordem mundial, com a China a assumir um estatuto de grande potência graças à força da sua economia, já a segunda do planeta

No seu último livro, fala de uma nova ordem mundial, que já não é dominada pelos Estados Unidos. É dominada por outra potência ou é, simplesmente, multipolar?

É uma ordem multipolar, porque a gente vem de uma ordem mais unipolar, na qual a maior concentração de poder esteve nos Estados Unidos. Agora temos outras potências emergindo mas, dessas, eu diria que a China é o principal ator. Então, apesar de ser uma ordem multipolar, ela tem características bipolares, na verdade, porque as duas grandes potências serão, por um lado, os Estados Unidos, que se mantêm como grande potência, mas, por outro lado, a China que, em breve, superará os Estados Unidos como principal economia do mundo.

Mas não é uma ordem bipolar como a que existia na Guerra Fria: Estados Unidos versus União Soviética?

Não. Não haverá um embate ideológico, porque a China não tem como objetivo promover a sua própria ideologia. Acima de tudo, a ordem mudará porque o centro económico estará na Ásia, já está na Ásia na verdade, e, com isso, também o poder político, a capacidade da China e de outras potências asiáticas influenciarem os outros politicamente aumentará muito.

A China é claramente, dos BRICS originais, um dos que mantém o fulgor. A Índia também. Continua a fazer sentido falar dos BRIC? O próprio Jim O"Neill disse que, um dia, devíamos falar só de IC, Índia e China, deixando cair os outros.

É, a economia chinesa é maior que a economia dos outros BRICS em conjunto. Então, claramente, existe lá a China como a principal potência emergente. Os outros não se comparam ainda, apesar de a Índia estar em torno de 20 anos atrás da China, ou seja, daqui a 20 anos a gente terá outra grande potência. O que prova também o quão grande será a Ásia, porque temos duas grandes potências lá junto. O grupo faz muito sentido do ponto de vista político, porque os outros querem ter acesso direto à China. Mas é verdade que o fenómeno de deslocação de poder, acima de tudo, é simbolizado pela Índia e pela China. Isso, sem dúvida.

A Rússia e o Brasil estão nos BRICS mas não têm o mesmo potencial que têm a Índia e a China?

Não, certamente que não, também por questões demográficas, não é? Temos praticamente metade da população mundial morando ou perto ou dentro da Índia e da China - nessa região vive metade da população e, portanto, é essa região de facto que será o novo centro económico do mundo. Devido ao seu tamanho menor, a Rússia, a África do Sul e o Brasil certamente não terão o mesmo potencial.

No caso do Rússia, fala-se muito de voltar a ter ambições de superpotência, nomeadamente com a forma como atua na Ucrânia, a intervenção que faz na Síria, mas do ponto de vista de ordem mundial, isto é significativo ou não?

Bom, a Rússia, em si, é hoje um ator que não se compara com a China ou os Estados Unidos em termos de importância. Mas eu acho que a Rússia percebeu que, nesse processo de declínio relativo dos Estados Unidos, abre-se um espaço para outras potências também, porque os Estados Unidos claramente não têm mais a disposição para lidar com todos os desafios, nem a capacidade de fazê-lo, não é? A gente vê a Síria, a Ucrânia, vários outros desafios ao redor do mundo e, devido ao processo de multipolarização, uma potência só não consegue mais lidar com os desafios. É preciso incluir a China, inclusive, ou outras grandes potências. Então, vejo a atuação russa mais como um sintoma de uma nova estrutura que está emergindo agora. E ainda não está muito claro quem vai cuidar de quais desafios, mas certamente o G7 - que antigamente solucionava ou tentava solucionar grandes desafios - não consegue mais fazer esse trabalho?

Falou do declínio dos Estados Unidos. É relativo porque continuam a ter o maior PIB e um orçamento militar muito superior mesmo ao da China. Acha que estas eleições presidenciais podem acentuar esse declínio relativo, com Donald Trump a ter até dúvidas sobre a NATO?

É um sintoma também disso, porque o principal desafio dos Estados Unidos agora é lidar com essa realidade de que dificilmente terão os privilégios que tinham ao longo das últimas décadas. É impossível porque há outras potências, como a China, que também vão querer isso e vão disputar o lugar privilegiado dos Estados Unidos na ordem internacional. Então, dificilmente os Estados Unidos conseguiriam, por exemplo, invadir hoje o Iraque, sem de facto sofrerem sanções, sem ser criticados duramente nas instituições. Ninguém, na época, pediu para se tirar os Estados Unidos do G7, porque tinham uma posição central no sistema. Mas agora, com a sua ascensão, a China vai também querer esses privilégios. A gente viu isso quando a ONU condenou as atividades no mar do Sul da China e a China não se importou muito.

Comportou-se como se comportavam os Estados Unidos antes.

Exatamente. Está começando a pedir os mesmos privilégios e isso é extremamente difícil. E é o grande desafio do próximo presidente americano: gerir a ascensão de um outro ator que pede os mesmos direitos que os Estados Unidos tinham e, até hoje, têm. Isso a gente percebe com uma certa naturalidade, porque os Estados Unidos têm tido um papel de ordenar a ordem internacional, com todo o custo que isso envolve. Há um quarto de milhão de soldados americanos em bases militares mundo fora, mantendo uma certa estabilidade, mas isso também dava direitos a, quando preciso, violar algumas regras. E isso agora não é mais possível, porque o primeiro lugar onde a gente vai ver isso é na vizinhança da China, onde esta cada vez menos aceitará uma presença hegemónica dos Estados Unidos.

E há possibilidade de haver confronto, se isso for mal gerido?

Sim, se for mal gerido, certamente. Mas a China não é uma potência revolucionária no sentido de querer mudar as regras. Os políticos em Pequim têm uma noção muito clara de que as regras atuais beneficiam muito a economia chinesa - a abertura comercial, etc. Então há pouco o desejo de alterar isso. O que, sim, a China quer é ter um status mais privilegiado, que, por exemplo, lhe daria o papel de potência hegemónica na Ásia. A grande questão, para o próximo presidente dos Estados Unidos, é até que ponto vai ceder a vizinhança da China a Pequim. Obviamente, vai haver resistência no Japão e no Vietname, que são aliados dos Estados Unidos. Um ponto importante nisso tudo é que há uma tensão, porque, do ponto de vista dos Estados Unidos, a China é uma potência emergente, mas, do ponto de vista chinês, a China apenas volta ao lugar que lhe pertence. A China só deixou de ser a principal economia do mundo em 1870. Então, para ela, ela apenas está superando uma aberração histórica que ocorreu devido à ascensão precoce do Ocidente. Então, aí, eu acho que a gente vai ter uma tensão de como estas duas potências se acomodam, visto que cada um deles se enxerga como única e especial.

Esta nova ordem mundial passa pela disputa da Ásia. Isso, significa, por exemplo, que a União Europeia, apesar de ser um bloco com grandes potências, é um ator menor na ordem internacional?

Bom, é interessante porque hoje mais de 130 países do mundo têm a China como principal parceiro comercial. Cada vez menos os Estados Unidos se apresentam como o parceiro principal. É o caso do Brasil, por exemplo. Porém, se a gente pegar a União Europeia como uma economia só, ela seria o principal parceiro comercial de muitos países, incluindo o Brasil. Isso depende muito da capacidade da... continue aqui.

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OBOR

Review: The Emerging Political Economy of OBOR. The Challenges of Promoting Connectivity in Central Asia and Beyond. A Report of the CSIS Simon Chair in Political Economy. By Alexander Cooley. October 2016. Full report available here.

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In September 2013 at Nazarbayev University in Astana, Kazakhstan, Chinese president Xi Jinping announced that China would fund a New Silk Road Economic Belt (usually referred to as OBOR) across Eurasia to connect China with Europe, the Middle East, and South Asia. Media estimates investment in OBOR at between $800 billion and $1 trillion, covering 890 projects in over 60 partner countries — a truly monumental initiative. Several commentators have made parallels between OBOR and the U.S.- sponsored Marshall Plan that aided in the reconstruction of postwar Europe.

Xi's OBOR initiative serves a dual purpose. Domestically, he hopes that better transport links will promote growth in underdeveloped central and western regions such as Xinjiang, Gansu Province, Ningxia, Guangxi and Yunnan Province. That would not only boost overall GDP, but also reduce regional economic inequality, and thus migration into the coastal areas, a trend that may contribute to social tension. An economic boom in Xinjiang is also seen as the best way to combat the rise of Islamic extremism in the region.

From a foreign policy perspective, the most immediate goal of the OBOR initiative is to boost China's influence in Central Asia, a resource-rich region that no longer falls into Moscow's orbit. As a growing number of countries becomes dependent on Chinese transport and energy infrastructure, stronger economic ties will make it increasingly costly for Central Asian governments to oppose China.

Different from the ancient Silk Road, which mainly focused on trade, the "One Belt and One Road" could also include the flow of financial services, information, technology and people. China will involve its neighbors in a series of institutional setups - such as the Asian Infrastructure Investment Bank (AIIB), the CICA security architecture, and corridors through Pakistan and Myanmar to the Indian Ocean that may, in the medium term, contribute to the creation of a increasingly sinocentric Asia.

According to China's Foreign Minister Wang Yi, 2015 was crucial in promoting and carrying out the "Belt and Road" initiatives:

The 'Belt and Road' initiative will not only focus on infrastructure to physically connect [these countries], but also to explore free trade agreements.

Western analysts often point out that China is likely to encounter strong resistance to its plan to strengthen connectivity both on land and sea. Among others, resurgent Russia and a more ambitious India are supposedly eager to block Beijing's schemes. While such a possibility indeed exists, Chinese roads and ports could also be welcomed with open arms by those who rightly see them as a chance to boost economic development and connectivity.

Seeking to test these assumptions, Alexander Cooley, a professor at Columbia University, assesses, in a highly informative report for the Center for Strategic and International Studies, how Chinese-led projects will interact with local political agendas, social conditions, and networks across different regions. He divides most analysts into "Gamers" (who focus on geopolitical implications) and "Traders" (who look for economic opportunities), but says that few analyses focus on the political economy of OBOR and how it is likely to play out in Central Asia, one of the most volatile regions on earth.

As the author points out, Beijing's role in the region changed dramatically in the 2000s: China became Central Asia's most important trading partner, and Beijing turned into the region’s main external creditor. During the financial crisis, China extended loans for energy agreements worth $8 billion to Turkmenistan and $13 billion to Kazakhstan, making it a de facto lender of last resort and regional development assistance provider.

Cooley questions the common assumption that greater investment in the region will promote economic development, political stability and, most importantly, pro-China sentiment. He shows how, in several instances, China's growing clout has led to instability and anti-China movements. In Pakistan, he points out, Chinese projects (mining and construction) and workers have been attacked by Baloch rebels and have become embroiled in separatist struggles with the Pakistan government. As the Financial Times recently reported, China’s diplomats have taken the unprecedented step of intervening in Pakistan’s complex domestic politics to ensure the smooth passage of its $45bn investment in infrastructure projects as part of OBOR. The risks involved are immense, particularly when considering China's limited experience in such matters: "It is precisely on this issue that Beijing faces two potential major challenges in Central Asia: growing Sinophobia and regional ethnic and social divisions", the author states.

The second major set of challenges in Central Asia, according to the report, is how OBOR will affect governance and corruption in the region. Cooley writes that

The “development equals stability” equation emphasizes almost exclusively on the “hardware” of development, but it ignores the “software” that is necessary for development—namely how to overcome problems of graft, informal barriers, and rent- seeking that plague the region.

Astonishingly, Chinese officials privately expect to lose 80 percent of their investments in Pakistan, 50 percent in Myanmar, and 30 percent in Central Asia — a kind of investment "leakage" difficult to avoid. Yet as Cooley convincingly argues, the inflow of Chinese money could worsen corruption, particularly in the realms of privatizations, private-public partnerships. That could, at some point, fuel anti-China sentiments, provided that observers regard China as a negative influence. But more importantly, due to bad governance in the region, there is no evidence that OBOR projects will reduce cross-border transaction costs.

Commenting on the report, Catherine Putz writes for The Diplomat that "offers a refreshing dash of lukewarm water on the hype surrounding China’s visionary trans-Asian infrastructure development scheme." Indeed, for those who hope that OBOR will transform and modernize Central Asia, the report will be somewhat disappointing.

Policy makers in Beijing will regard it as a useful warning. While they care more about stability and less about good governance, it shows that operating in Central Asia requires sophisticated on-the-ground knowledge to avoid the emergence of anti-China sentiments.

Considering that China is the world's second largest economy and no.1 trading partner of many countries around the world, anti-China sentiment is still remarkably limited. And yet, as Chinese investments will enhance its political influence, politicians around the world will be tempted to identify China as a scape goat. Beijing's challenge in Central Asia will be to assure that OBOR is seen by both elites and the population as a win-win situation. Only if it succeeds will its pivot to Eurasia cement, rather than undermine, China's regional leadership claims.

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The Daoguang emperor of China, who reigned from 1820-50.

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