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Economy Long-Form Article Series

Emergence of China in the New World Order

INTRODUCTION

There’s been a lot of discussions about the emergence of a new system where a duopoly might exist in terms of Economic Supremacy between America and China. Some discussions even suggest we might see a future where China might supersede America in terms of Military, Technology and Economic power. While China’s meteoric rise to the top might not come as a surprise to many nowadays, however, it’s definitely noteworthy that this nation was famine stricken, isolated from the rest of the world and largely an agrarian landmass a couple of decades ago. In this article, I’ll be exploring China’s geopolitical and socio-economic positioning and its correlation with Sun Tzu’s “Art of War” strategies.

ASYMMETRIC WARFARE

I’d like to expatiate a military model called “Asymmetric Warfare”, which I’ll circle back to at the end of the article. To set things straight, I’m definitely not implying that the two parties in consideration (US and China) would be exploring a military solution in case of heightened geo-political tensions. However, the underlying philosophy behind this military model is an important one to consider in this scenario.

Asymmetrical Warfare is a set of unconventional strategies and tactics utilised by a party when the military capabilities of the entities involved in the warfare are significantly different from one another. For example, the utilisation of Non-Violence propagated by MK Gandhi as a tool to call for mass action against the colonial rule of the British Empire in India was a widely successful strategy. [1]

It’s pivotal to understand, especially in the modern era that, the conquests to power can be won with no military force at all. What’s more important is the underlying strategy and philosophy followed by the leadership and the participating entities.

“The best of all is not to win every battle by force. The best of all is to make the opponent yield without fighting. So, the highest of all military principles is to overcome the enemy by strategy.”

Sun Tzu – The Art of War

POLITICAL LANDSCAPE

Indeed, the political models and the culture that prevails within China and US couldn’t be further apart. This socio-economic framework is a direct contributor to the decision-making, control and management of resources within these countries.

CASE IN POINT: CHINA

With an average growth rate of 10% per year in the past and a whopping 800 million people escaping poverty to join the middle class, no country has grown at this rate in the last 40 years. Now first, let’s rewind and look at the history leading to this growth:

  • A lot has changed since October 1st 1949, when the People’s Republic of China was officially established, with Mao Zedong as its new supreme leader. “China has stood up” said Mao. He had strong ideologies about how he wanted to shape China, his founding philosophy was deeply rooted on the principles of communism and socialism. In his philosophy, the state was the representative of the people and the wealth would be divided amongst its residents. It’s to be noted that any sort of defiance to the principles established by the State were viewed to be disrespectful and the dissenters were sent to “Re-Education Camps”. Mao brought about several campaigns for realizing his vision, for instance in the period between 1958-1962, he envisioned transforming China from a largely agrarian based land into an industrialized hub. The State encouraged the farmers to leave their farmlands and work in factories. However, when this idea was brought into fruition, it failed to provide necessary farm yield to sustain the population’s food requirements and ultimately led to a devastating famine. Another notable campaign was the “Cultural Revolution” introduced by Mao. This focused on erasing the Western influences of Capitalism and substituted it with “Maoism”. The idea was to be completely self-reliant and have no ties to the Western world. China was isolated from the rest of the world, it’s economy had taken a toll, it was famine stricken and there was widespread chaos and clashes amongst the people and paramilitary groups.
    • After Mao’s death in 1976, PCP leader Deng Xiaoping came into power in 1978 and brought about many reforms in order to step-up the economy and restore order. “Doesn’t matter, if the cat is black or white, it just has to catch mice” said Deng Xiaoping. The priorities to revive the nation were: Agriculture, Industry and Trade. A notable economic reform which was brought about was the introduction of: Special Economic Zones (SEZ). These SEZs played by different rules as compared to rest of communist China. For instance, the gates were open for import and export activities with the rest of the “Capitalist” world. Foreign companies could set up factories in these zone with minimal to no tariffs, had widespread availability to cheap labor and special corporate privileges. These SEZs were an experiment aimed at raising resources, to help support rest of China.  Initially 4 SEZ’s were set up namely Shenzhen, Zhuhai, and Shantou and Xiamen. This was the start of rapid economic development in China and was further augmented by the reopening of the Shanghai Stock Exchange. China was well in pursuit to becoming a communist nation with a market economy. The Chinese state officials reiterated that this initiative was to help support the rest of China and that they still deeply abided by Mao’s principles of Socialism. This was titled “Socialism with Chinese Characteristics”. [5]

“To know your Enemy, you must become your Enemy.”

Sun Tzu – The Art of War

Fast forward to the present day, it goes without saying, that the authoritarian Chinese Government has a greater degree of control over decision making and organization relative to the USA. The Chinese State can tweak every controllable component in a direction suitable for its growth – be it through censoring media, blocking western imports, corporate decision-making or massive investments in global infrastructure development projects with no opposition. So, the State-Sponsored Capitalism is definitely driving China’s economic success. However, with this amount of massive power, also comes the risk. This lies in the fact that it might lead to severe internal dissention amongst the Chinese population demanding a relaxation of the communist rules and increase in freedom of expression. An example from the past is the unfortunate Tiananmen Square incident.

MILITARY PROWESS

While America is still the world leader in terms of military power and prowess, with over 800 military bases span across the planet. It seems to have a challenger arising over the South China Sea region. No points for guessing which nation that is: it’s China. The South China Sea region is a very important region for international trade. And consequently, it makes sense for nations to strive to consolidate influence over this region. China’s One Belt One Road initiative, which has been dubbed as the modern-day silk-route, is high speed under development to ensure the same. David H Shinn in 2008, had predicted that China will need to expand their naval capacities in order to protect supply lines of vital resources from Africa and the Middle East to China. And now, they’re pretty much doing exactly that.

  • China’s Maritime Silk Road (MSR) initiative is aimed at boosting connectivity throughout Southeast Asia and East Africa. This project unveiled in 2013 is the maritime complement to the infrastructure development project across Central Asia. These projects are part of the One Belt One Road initiative, which aims to promote rapid economic development across the Indo-Asia-Pacific region. With the shortage of capital and infrastructure in this region, the developing nations along with other nations have readily welcomed the OBOR initiative and the opportunity to bid for Chinese funding. However, there have also been growing concerns about the geopolitical intentions behind this whole initiative. [2]
    • There are always two sides to every story however, let’s explore both:

(I) BENEFITS

  • While questions are being flung around about the underlying intentions behind these massive infrastructure projects established in debt-strapped countries by the Chinese. It’s to be duly noted that this massive OBOR initiative is going to contribute to lift millions out of poverty, create jobs and help uplift the economy in many poorer regions.
    • For example: (a) One Belt One Road promotes trade between each country and generates mutual economic benefits. For example, Kazakhstan is a landlocked country in Central Asia, and as its winters are very cold, there is barely any vegetable production. One Belt One Road connects Kazakhstan and the North-Western part of China. The cross-border trade of vegetables provides Kazakhstan’s people with their basic needs. (b) Another example of OBOR’s economic advantage is the investment in Africa. The nation’s leaders have identified one of its major bottlenecks to development as the lack of sufficient infrastructure. Estimates by United Nations Economic Commission for Africa, state that East Africa’s exports could potentially increase by 192 million dollars annually if the OBOR initiative is leveraged appropriately. [3]

(II) CONCERNS

The Andaman and Nicobar Islands though popularly known for their aesthetic travel spots, also play a role in trade. The Andaman Region is utilized as a strategic trade route for the movement of oil barrels from the Indian Ocean to the Pacific Ocean, which China heavily depends upon. This means, if we hypothesize of a stress scenario where heightened geopolitical tensions would lead to this important Chinese trade route being blocked out, it’ll leave China gasping for oil in a couple of months. Now put yourself in the shoes of a Risk Manager, what would you do if your company was bound to go under in a particular stress test performed? Well you’d obviously come up with strategies to either deter or avoid that scenario in the first place. The MSR initiatives so far, have mainly been concentrated in the littoral states of the Indo-Pacific region like Pakistan, Sri Lanka and Bangladesh. These are mostly port-development projects, which are currently deemed to be used for non-military purposes only. However, with the inability of these nations to pay back their debt it provides China the additional potential to exert undo leverage over the domestic and foreign policies of these heavily indebted countries. This has also raised questions about whether these investments are truly economic in nature or is whether there’s a long-term military motive. [2]

“All warfare is based on deception. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.”

Sun Tzu – The Art of War

TECHNOLOGY

Apart from the military and economic standpoint, China also seems to be contributing massively to the Technology domain. Some reports suggest that at the pace of technological innovation in the Land of the Dragon is clearly rivalling that of Silicon Valley. Let’s understand why below:

  • E-Commerce: With China’s massive boom in the online retail market space, it’s transaction value amounting to a whopping 1.5 trillion dollars and 855 million digital users as of 2019, it’s clear who the world leader in E-Commerce is. Can we just take a moment to realize that the size of China’s online retail market is equivalent to that of USA, France, Germany and United Kingdom combined? [6]
  • Fin-Tech: (a) China’s Fin-tech adoption rates is amongst the highest in the world at close to 87% compared to the world average of 64%. The major avenues include account transfers and online payments, amounting to an adoption rate of 95%. (b) By the mid of 2019, almost 10 Chinese banks had already established their own Fin-Tech subsidiaries. For example: China Min­Sheng Bank, ICBC and Bank of China. [7]
    • Digital Currency: China has been working on producing its own digital currency, called digital yuan since the past 5 years. And now they are very close to the finish line. With the widespread percolation of digital payment utilisation, this has also led to a stark rise in risky and low-grade investments by both individuals and corporations in China. The Chinese authorities push the story that having digital yuan in circulation will help them have a greater amount of control and regulation over the “over-stretched” debt markets partly aided by the shadow-banking system. With the digital-yuan set to be distributed in markets by 2021, this would officially be the first sovereign digital currency in the world.
    • Artificial Intelligence & Start-Up Culture: China had publicly announced its plan to become the global leader in AI by 2030. It certainly seems to be following through with this plan with half of the world’s investment in AI coming from China in the year 2018. Furthermore, technology giants like Baidu, Alibaba and Tencent are also heavily investing in this domain. China is currently implementing the utilization of AI in several domains including Venture Capital, Class room Education and Social Credit System. Additionally, the State has been heavily invested in promoting the start-up culture in this domain, by providing sufficient capital from the state and private space to ensure their scalability, growth and success. Almost 1 in 3 unicorns all over the world are Chinese! [8]
    • The Race to 5G Supremacy: China is leading in the race to becoming the biggest 5G market in the world. Of course, it has an early adopter’s advantage and has already rolled out its 5G plans internally to over 50 Chinese cities, while rest of the world plays catch-up. The United States and China have locked horns in this domain before, remember the whole banning of Huawei fiasco which percolated every forum’s headline prior the COVID-19 pandemic? 5G’s ability to connect millions of users at ultrafast speeds could transform the way the world functions. Having technological supremacy is a priority for every economy out there and Donald Trump hasn’t shied away from stating so explicitly- “The race to 5G is on and America must win.” [9]

“Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.”

Sun Tzu – The Art of War

CONCLUSION

We’ve observed the rise and decline of Empires in history. The rise of the British empire, the rise of the US economy and now China’s stride to world leadership. Ray Dalio’s book “The Changing World Order” beautifully outlines the key contributing factors which aid the accession of empires. These include, growth in Education, Innovation & Technology, Military, Reserve Currency Status, Financial Centers, Trade, Output and Competitiveness. Despite greater international influence, capital and current reserve currency status lying with the USA, China’s growth over the past few decades has catapulted it to the same ring. This is a classic case of asymmetric warfare (without the explicit “war” component, atleast so far thankfully). With a mix of socialist capitalism, strategic investment projects and rapid technological innovation, China seems to be well on its path to becoming the world’s next economic superpower. While caution needs to be exercised by the PRC in order to prevent mass internal dissension and rising geopolitical tensions with multiple external parties, it’s intriguing to note a page from Sun Tzu’s Art of War does fare well for nations after all. To sign off, in midst of the competitive world stage to rise to economic, political, technological supremacy let’s hope we see a new world order which abides by one pivotal principle shared by Sun Tzu:

“There is no instance of a nation benefitting from prolonged warfare.”

References:

[1] https://www.britannica.com/topic/asymmetrical-warfare

[2] https://www.csis.org/analysis/chinas-maritime-silk-road

[3] https://www.bbc.com/news/world-asia-china-49631120

[4] https://borgenproject.org/one-belt-one-road-benefits/

[5] https://www.history.com/topics/china/china-timeline

[6]https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/china%20digital%20consumer%20trends%20in%202019/china-digital-consumer-trends-in-2019.ashx

[7] http://www.chinabankingnews.com/2019/08/05/new-report-highlights-14-key-trends-for-chinese-fintech-in-2019/

[8] https://www.forbes.com/sites/cognitiveworld/2020/01/14/china-artificial-intelligence-superpower/#784c4afb2f05

[9] https://www.cnbc.com/2019/11/01/china-5g-mobile-networks-go-online-as-race-with-us-heats-up.html

[10] The Changing World Order – Ray Dalio

[11] The Art of War – Sun Tzu

2 replies on “Emergence of China in the New World Order”

I have been a strong believer of Saam,Dhaam,Dand,Bhed for Political aspects ,also a strong believer of Karma . But this article has opened my eyes to a global political/economic approach.
Atleast now we know in which direction should the youth and the country move for the growth .

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