AIIB – Strategic Culture Foundation https://www.strategic-culture.org Strategic Culture Foundation provides a platform for exclusive analysis, research and policy comment on Eurasian and global affairs. We are covering political, economic, social and security issues worldwide. Sun, 10 Apr 2022 20:53:47 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.16 China Removes Its Ambassador From Canada, Decides Canucks Are Too Nuts Under Technocrat Trudeau Regime https://www.strategic-culture.org/news/2019/06/21/china-removes-its-ambassador-from-canada-decides-canucks-are-too-nuts-under-technocrat-trudeau-regime/ Fri, 21 Jun 2019 12:00:59 +0000 https://www.strategic-culture.org/?post_type=article&p=121529 As the international financial system is becoming increasingly shaped by the spirit of cooperation and long term development shaped by China’s Belt and Road Initiative and the greater Russia-China alliance, Canada’s adherence to the “old liberal order” has caused the Asian giant to make a tough decision: Remove its Ambassador Extraordinary Plenipotentiary Lu Shaye from the Northern Monarchy until saner heads become a factor in Canadian politics.

This has left the already beleaguered government of Justin Trudeau (and Chrystia Freeland… let’s not kid ourselves here) in an embarrassing situation as Trudeau’s requests to meet with Xi Jinping at the upcoming G20 have gone ignored for the past several days. Freeland has announced that her many requests to speak with China’s Foreign Minister have similarly gone unheeded.

Since attaining power in 2015, the Liberal Government has demonstrated nothing but constant belligerence to China. Many then watching the Canadian political scene had hoped that Trudeau would continue the pro-China traditions which his father initiated in 1970 and which paved the way to China’s opening up under the leadership of Deng Xiaoping a few years later.

This did not occur.

Rather than adapt to the shifting current of the times which calls for nations to reject “each against all” geopolitics and instead join a new win-win framework driven by the Belt and Road Initiative model of development, Canada has only dug its heels ever deeper into the ground in defense of the sinking Titanic of Globalization. This was seen by Canada’s unrelenting support for the COP21 depopulation agenda, the anti-China Trans Pacific Partnership, the anti-Russia/China NATO missile shield, and anti-everybody WTO system.

Once the Chinese government made their disapproval of Canada’s behavior known with the December 2017 rejection of the Canada-China special relationship, Trudeau and Freeland were assigned to take on a more aggressive tone against China, first by blocking the sale of Canada’s Aecon to China due to “security risks” in May 2018, arresting Huawei’s Meng Wanzhou in December 2018, firing a pro-Chinese ambassador in January 2019 and mobilizing international support against China’s human rights abuses due to China’s arrest of two Canadians on espionage charges and the death penalty given to a Canadian drug smuggler.

How a low level “middle power” like Canada ever gained the hubris to believe that it could intimidate a country like China is a mystery, but it happened.

Now Xi Jinping has sent a clear message that it will no longer tolerate a mosquito who thinks it is a dragon trying to bully China any longer. China’s ambassador Lu Shaye has done everything for 3 years to offer Canada the opportunity to join the Belt and Road Initiative and open up to a new system of cooperation with China’s investment into decayed North American infrastructure. In a recent Ottawa event Ambassador Lu said:

“China and Canada could engage in third-party market cooperation, create a kind of synergy and achieve triple-win by combining the needs of developing countries, China’s production capacity, and Canada’s advantages in capital and technology. Canada is one of the members of the Asian Infrastructure Investment Bank (AIIB), which provides favourable conditions for the country to participate in the Belt and Road facility connection.”

With the total rejection of these peace offerings, Lu Shaye has induced Canada to demonstrate where its true allegiance lay. Once Canada’s true colors were exposed, Ambassador Lu himself, breaking with the typical protocols of subtle and polite diplomatic conduct for which the Chinese are well known, called out the “racist, Five Eyes Intelligence network” which is really trying to run the world. In January 2019 Ambassador Lu described the hypocrisy of the western technocratic elite who attack China saying:

“the reason why some people are used to arrogantly adopting double standards is due to Western egotism and white supremacy – in such a context, the rule of law is nothing but a tool for their political ends and a fig leaf for their practising hegemony in the international arena”

Now with Canadian elections fast approaching and finding only anti-Chinese vitriol even among the Conservative Party of Andrew Sheer (the only contender against Trudeau), China has decided that Ambassador Lu can be more productive if re-deployed to France where greater opportunities for BRI-cooperation can be found. Of course, China’s wish that Canada take part in the BRI and its new Arctic extension remains firmly on the table awaiting only a sane political leadership to arise and accept this ticket to the future.

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China Joins Afghanistan, Pakistan, Tajikistan in Security Alliance https://www.strategic-culture.org/news/2018/10/25/china-joins-afghanistan-pakistan-tajikistan-security-alliance/ Thu, 25 Oct 2018 07:55:00 +0000 https://strategic-culture.lo/news/2018/10/25/china-joins-afghanistan-pakistan-tajikistan-security-alliance/ The United States has entered its eighteenth year of war in Afghanistan with no end in sight. Talks begin and end, strategies and tactics are invented and tried, but all to no avail — nothing works. The American public is fed up with this war and it is sapping US resources. During the 2016 presidential race, Trump campaigned for a radical new approach to this conflict that offers America no victories or benefits. It’s time to keep his word.

Of the country’s 407 districts, the number under government control has decreased from 66% in May 2016 to 56% in May of this year. But the US has failed anyway. Afghan antipathy to the Western military intervention is also factor to be reckoned with. Army General John Nicholson, the US top military commander in Afghanistan, told the Senate Armed Services Committee last year that he would like several thousand more servicemen in order to stabilize the situation in that country. Some 8,400 US troops and 6,400 NATO soldiers remain in Afghanistan. The United States is involved in several conflicts at once, and a decisive win in all of them is not possible. Не who chases two hares catches neither. A withdrawal from Afghanistan will free up resources and reduce expenditures.

With Washington eyeing China as a global rival and not ruling out the use of force against Iran, the US does not need to maintain a military presence in Afghanistan. Its withdrawal does not mean that country will plunge into chaos. Quite the contrary, other nations located much closer to the conflict-ravaged country have a better chance of pulling it out of its unending quagmire.

No doubt, China could play a greater role. After all, a peaceful Afghanistan furthers the interests of the One Belt Initiative (OBI) project that is backed by the Asian Development Bank and Beijing’s Asian Infrastructure Investment Bank. Russia, India, Pakistan, Iran, and Tajikistan could join those efforts. China and Pakistan have offered to extend the China-Pakistan Economic Corridor (CPEC) into Afghanistan. The Shanghai Cooperation Organization (SCO) and the Collective Security Treaty Organization (CSTO) could step in to lend a hand. The Taliban could be convinced to take a seat at the round table. Speaking at the June 2018 meeting of the Shanghai Cooperation Group (SCO), Chinese President Xi Jinping said that in order to “facilitate peace and reconstruction in Afghanistan, we need to give full play to the role of the SCO-Afghanistan Contact Group.” 

In August 2016, China, Pakistan, Afghanistan, and Tajikistan formed a military alliance — the Quadrilateral Cooperation and Coordination Mechanism (QCCM) — with the goal of pooling its members’ counterterrorism and intelligence efforts. China is not a Muslim state but it is battling an ethnic minority group of Islamist militants in its Muslim-dominant, oil-rich region of Xinjiang near its border with Pakistan. The chiefs of the general staffs of the four armed forces meet annually to promote the group’s agenda. Pakistan and China are involved in large-scale economic cooperation. Those two states are on their way to forming a strategic alliance.

There have been recent reports that China, Pakistan and Russia are inching closer toward forming an alliance to stabilize Afghanistan. An Uzbekistani-Pakistani Security Alliance is also reportedly emerging. Russian President Putin visited Uzbekistan October 18-20 for talks with his counterpart Shavkat Mirziyoyev to spur the development of this “strategic” relationship.  The two countries have a common enemy. The Islamic Movement of Uzbekistan pledged its allegiance to the Islamic State in 2014. Roughly 1,500 Uzbeks have joined the group’s ranks to fight in Syria, Iraq, and elsewhere. Now that that jihadist group has been defeated all over the map, those volunteers are expected to return home. Last year Uzbekistan held its first joint military exercise with Russia in 12 years.

Some military preparations have also been taking place. China is building a military base for the Afghan armed forces in the province of Badakhshan. This makes Tajikistan an integral part of the Chinese-Afghan military cooperation. The short border the province shares with China is impassable by vehicle. If China’s troops enter Afghanistan, it’ll be a landmark event, as Beijing will be conducting those operations without approval from the UN Security Council, but still legally, at the request of the Afghan government that is extending an invitation to its QCCM ally.

In July, Russia and Tajikistan conducted a joint exercise in Badakhshan. Russia has recently beefed up its military bases in Tajikistan and Kyrgyzstan. Some 7,000 Russian troops are now stationed at two military facilities collectively known as the 201st military base — in Dushanbe and Qurghon Teppa, some 100 kilometers from Dushanbe. Tajikistan is considering a role within the Russian-led Eurasian Union.

The conflict in Afghanistan has lasted too long. The US has tried and failed. It’s time for it to leave and let others solve this urgent international problem. The country must not be abandoned. Offering it a new hope for peace is the right thing to do. 

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Afghanistan’s Tryst with China Begins – in Washington https://www.strategic-culture.org/news/2017/10/19/afghanistan-tryst-with-china-begins-in-washington/ Thu, 19 Oct 2017 08:15:00 +0000 https://strategic-culture.lo/news/2017/10/19/afghanistan-tryst-with-china-begins-in-washington/ M.K. BHADRAKUMAR

Afghanistan has been accepted as a permanent member of the Asian Infrastructure Investment Bank (AIIB). Jin Liqun, president of the Beijing-based institution, formally presented a certificate confirming the country’s new status to Afghan Finance Minister Eklil Hakimi on Friday on the sidelines of the International Monetary Fund (IMF) and World Bank meetings in Washington.

The  Afghan government said in a statement on Saturday that the two sides “discussed the progress in Afghanistan’s membership in this bank, providing financial and technical facilities for solar energy, railway connectivity of five countries (Afghanistan, Kyrgyzstan, Tajikistan, Iran and China), financing infrastructure projects and some other important subjects.” It  said it attaches great importance to Afghanistan’s AIIB membership and hopes it “paves the way for the implementation of major national projects,” adding that Jin will visit Kabul in the near future  “in order to begin the practical work of this cooperation.”

The annual World Bank/IMF meetings being chosen as the backdrop for the announcement is consistent with Beijing’s commitment to the AIIB conforming to western banking standards and its hopes for a collaborative relationship with established financial institutions in the West.
Equally, the choice of Washington as the venue for the formal admission of Afghanistan into the AIIB is symbolic. Without a doubt, Kabul is all set to enter the orbit of the One Belt and One Road Initiative (OBOR). Afghanistan and China signed an OBOR memorandum of understanding in May 2016, expressing their commitment to “jointly promote cooperation on [OBOR] in a bid to realize the goal of common development, and translate the advantages of solid political ties, economic complementarities and people-to-people exchanges into pragmatic cooperation in an effort to promote increasing economic growth.”

Kabul estimates that Afghanistan is poised to benefit from a partnership with China through OBOR. At their last meeting in Astana, capital of Kazakhstan, in June, Afghan President Ashraf Ghani and Chinese President Xi Jinping pledged to boost bilateral cooperation within the framework of OBOR. Ghani said Afghanistan hoped to align its development with OBOR.

China’s initiative calls for the integration of the region into a cohesive economic area by building infrastructure and broadening trade and investment. A central belt in OBOR traverses Central Asia and West Asia to the Persian Gulf and the Mediterranean. In specific terms, the Afghan Foreign Ministry has prioritized exploring “concrete linkages between the US$43 billion China Pakistan Economic Corridor and steps to transform Afghanistan into a regional hub.”

Afghanistan’s AIIB membership comes as Beijing hopes to activate the China-Afghanistan-Pakistan Foreign Ministers mechanism and carry out “cooperation in the fields of common interests, starting with practical cooperation” within the year, as outlined in the trilateral press communique following Chinese Foreign Minister Wang Yi’s shuttle diplomacy to Kabul and Islamabad in late June.

A Voice of America (VOA) commentary in May anticipated that China would propose extending OBOR to include Afghanistan. It noted, “The extension plan would involve extending the China Pakistan Economic Corridor, known as CPEC, to neighboring Afghanistan.” The commentary singled out a project to create a road linking Pakistan’s Peshawar to Kabul and to Kunduz, “and then deeper into Central Asia.”

Interestingly, the VOA underscored that OBOR “will bring more Chinese and Pakistani economic interests into Afghanistan,” which will help reduce regional tensions. So far so good. But then, earlier this month, US Defense Secretary James Mattis appeared to express opposition to OBOR during a hearing in the Senate Armed Services Committee. Mattis said, “In a globalized world, there are many belts and many roads, and no one nation should put itself into a position of dictating ‘one belt, one road’.”

It appears that to the extent that China’s calculus might bring economic benefits to Afghanistan and probably even help stabilize the overall situation, the US would welcome its integration into OBOR. On the other hand, the US cannot be oblivious to the fact that China has multiple objectives in its OBOR strategy – ranging from it being an outgrowth of its decades-long project to integrate Xinjiang Autonomous Region to utilizing the region’s peculiar geopolitical position to create traction for a China-centric Eurasian geo-economic system.

Suffice to say, while the US and China would have a convergence of interests in stabilizing the Afghan situation, the geopolitical calculus points in a different direction. The contradiction is difficult to reconcile. The bottom line is that the matrix of common interests among regional states that OBOR visualizes makes redundant a long-term western military presence in Afghanistan. On the other hand, paradoxically, the US’s “basing strategy” in Afghanistan – to keep bases and troops indefinitely – requires that the region (which comprises Russia, China, Iran and Pakistan) remains in a state of suspended animation.

Interestingly, in his Senate testimony, Mattis echoed India’s opposition to the CPEC. The US attributes centrality to India in its entire South Asia strategy and will be more than pleased if India gains further ground in Afghanistan on its own steam. New Delhi understands that it has had a much freer hand since the US intervention in Afghanistan in 2001.

Indian National Security Advisor Ajit Doval traveled to Kabul on Monday. Doval met Ghani and CEO Abdullah Abdullah,  held discussions with his Afghan counterpart, Hanif Atmar, and exchanged views with the interior and defense ministers,  the chief of army staff, the heads of the National Directorate of Security and the Independent Directorate of Local Governance, and senior National Security Council officials.

An Indian Foreign Ministry press release highlighted that “both sides welcomed the opportunities created by the new US strategy for bringing peace and security in Afghanistan. It was agreed to further strengthen strategic dialogue and consultations for achieving the shared objectives.”

 

It is the clearest indication possible that the US rejects the Pakistani “pre-condition” that as quid pro quo for its cooperation, Washington should exorcize India’s growing influence in Kabul.

atimes.com

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China Is Already Living in 2020 https://www.strategic-culture.org/news/2016/03/28/china-is-already-living-in-2020/ Mon, 28 Mar 2016 09:45:00 +0000 https://strategic-culture.lo/news/2016/03/28/china-is-already-living-in-2020/ Consumed by myriad manifestations of its existential crisis, as usual the West neglected or underestimated the biggest show in Chinese politics: the famous «two sessions» – of the People’s Political Consultative Conference and the National People’s Congress, the top legislative body – which ended up approving China’s 13th Five-Year Plan.

The key takeaway was Premier Li Keqiang stating Beijing boldly aims at an average growth from 2016 to 2020 above 6.5 per cent a year – based on «innovation». If successful, by 2020 no less than 60 per cent of China’s economic growth would come from improvements in technology and science.

President Xi Jinping was even bolder, promising to double China’s GDP by 2020 from 2010, along with the incomes of both urban and rural residents. That’s the practical meaning of the Chinese Dream, Xi’s immensely ambitious official policy, and the contemporary translation of a «fairly comfortable life for all» – what Little Helmsman Deng Xiaoping promised almost half a century ago.

Economically, Beijing’s road map ahead includes liberalizing interest rates; keeping the yuan stable (as in no spectacular devaluations); and controlling «abnormal flow of cross-border capital effectively». For this massive collective effort to bear fruit, Premier Li went straight to the point, hard work is essential. And that will translate into «zero tolerance» for messing it all up, and «room for correction» for those who made mistakes. Innovators will be handsomely rewarded.

Xi’s Chinese Dream is now hitting high-speed rail velocity. The 100th anniversary of the Chinese Communist Party (CCP), in 2021, is practically tomorrow; thus the rush towards the avowed goal of «building a modern socialist country». And yet doubling up GDP is a larger than life endeavor when you have a rapidly ageing population, massive property overhang (and that’s a euphemism) and rising debt.

Everything will have to be perfectly calibrated. For instance, China used more cement between 2011 and 2013 than the US used in the entire 20th century; and a lot of it was just for nothing. As Jia Kang, a Political Consultative Committee member stressed«the 6.5 per cent is an iron bottom that should never be broken… if growth slows to approach the bottom, there will be pro-growth policies».

Enter Xiconomics

Even with the economy «slowing» to 6.5 percent a year, Chinese GDP is forecast to reach 25 trillion yuan ($3.8 trillion) more in 2020 than in 2014; to put it in perspective, this excess roughly matches Germany’s entire GDP.

Premier Li, in a very Chinese way, commented that in 2016, the Year of the Monkey, he’s bound to wield the mythical monkey's gold-banded cudgel to «smash all obstacles» that may prevent Beijing from reaching its ambitious economic targets.

Enter, thus, Xiconomics. Xiconomics is the successor of Likonomics – which implies that Xi, and not Li, is the real driver of China’s economic reforms, although it is Li who holds a doctorate in economics from Peking University.

Everyone in China is talking about Xiconomics since the People’s Daily run a series extolling «Xi Jinping’s economic thought». In practice, this amounts to Xi heading the Central Leading Group for Comprehensive Deepening Reform and the Central Leading Group of Finance and Economics Affairs. In China, these two bodies are usually presided by the Prime Minister.

The 13th Five-Year Plan is heavily imprinted by Xiconomics. It’s crucial to note that before the final version was drafted, Liu He, Xi’s top aide, had been on the phone a lot with US Treasury Secretary Jacob Lew; they extensively discussed China’s exchange-rate policies.

One of the key aspects of Xiconomics is Beijing preferring mergers and acquisitions of state-owned enterprises instead of privatization. Economists interpret it as Xi bolstering state capitalism to tap plenty of overseas markets – many of them virgin – to make up for slowing domestic growth.

And that leads to the crucial importance of the New Silk Roads – or One Belt, One Road (OBOR), according to the official Chinese terminology. State-owned enterprises will play a key role in OBOR – which will be essentially creating Eurasia integration via an immense trans-Eurasian emporium.

OBOR happens to be the only global economic integration plan in play (there are no Plan Bs), implying almost $1 trillion in future investments already announced. Last June, China Development Bank announced it would invest an astonishing $890 billion in over 900 OBOR projects across 60 countries. And that will include a crucial, 2,000-mile long high-speed railway from Xinjiang to Tehran, an essential part of the growing energy/trade/commerce China-Iran strategic partnership.

Internally, Beijing’s top challenge arguably will be the pacification of Xinjiang – a key OBOR hub. There is an effort to encourage integrated residential blocks, as Premier Li stressed, targeting cities where Uyghurs and Han Chinese have been segregated since the 2009 riots, especially in Urumqi, Xinjiang’s capital. Uyghur students will also be encouraged to study in Han Chinese schools. Whether this will work will largely depend on provincial cadres strictly following Beijing’s integrationist directives.

All about Xi

Beijing is unabashedly ramping up its soft power in parallel to economic power; the launch of the Asia Infrastructure Investment Bank (AIIB) – which will be key for many projects across OBOR – is mirrored by the establishment of an Air Defense Identification Zone (ADIZ) in the East China Sea and turbocharged construction in parts of the disputed South China Sea.

Not accidentally, the CIA is sending its own signals, stressing the US «would be uneasy» at the prospect of China dominating Central and South Asian security in the long term.

Beijing is not exactly worried. The reform of the People’s Liberation Army (PLA) is also in progress – and should be completed by 2020. The reform, coordinated by the Central Military Commission, relies on better coordination between the four Armed Forces to «win wars», according to Xi himself.

Xi has already announced that before 2017 the PLA will be streamlined by no less than 300,000 jobs – but will still count on 2 million active troops. Another key objective is to develop China as a maritime power – totally capable of monitoring surface and aerial traffic across the South China Sea.

For instance, Beijing has deployed the powerful HQ-9 air and missile defense system to Yongxing in the Paracel archipelago – inhabited by about 1,000 Chinese since 1956 but still also claimed by Vietnam and Taiwan. The HQ-9 is able to transform enormous amounts of territory into virtual no-fly zones. Only the F-22 Raptor and the B-2 Spirit stealth bomber can operate in the vicinity of an HQ-9 in relative safety.

Behind these Chinese military reforms, the unstated goal is clear; the US military better not start entertaining funny ideas, not only in the South China Sea but also across the Western Pacific.

China’s anti-access/area denial strategy is a go. And Xi is right behind it – now widely regarded even at the provincial level as the «nucleus» (hexin) of all these reforms. Talk about a lightning-fast consolidation of power. And talk about a lot to talk about when China hosts the next G20 summit, in Hangzhou, in September. The 13th Five-Year-Plan has just been approved, but China is already thinking, and mentally living, in 2020.

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IMF Reform Effective: There Is Quite a Fight Ahead https://www.strategic-culture.org/news/2016/02/02/imf-reform-effective-there-quite-fight-ahead/ Mon, 01 Feb 2016 20:00:01 +0000 https://strategic-culture.lo/news/2016/02/02/imf-reform-effective-there-quite-fight-ahead/ The 2010 IMF quota and governance reforms took effect on January 26. Approved by the IMF's Board of Governors in 2010, they will double the IMF's quota and reallocate quota and voting shares. This will better reflect the changes in relative weights of the IMF member countries in the global economy.

On December 15, 2010, the Board of Governors, the Fund’s highest decision-making body, completed the 14th General Review of Quotas, which involved a package of far-reaching reforms of the Fund’s quotas and governance.

Having become effective, the Review will: 

– double quotas from approximately SDR 238.5 billion to approximately SDR 477 billion (about $659 billion at current exchange rates);

– shift more than 6 percent of quota shares from over-represented to under-represented member countries (dynamic emerging markets and developing countries).

The under-represented group includes the states with emerging economies, first of all China and other BRICS members (Brazil, Russia, India, and South Africa). The over-represented category comprises the so-called developed countries, especially G7.

The Fund had been ripe for revision of the rules since a long time ago. The IMF introduced no changes regarding the two groups in a quarter of century (1985-2010). The BRICS capital share in the IMF was 9.8 percent in 1995. By 2010 it had insignificantly increased to 10.6 percent. 

The 2010 IMF governance reforms did not come into force because the United States – the main shareholder – refused to ratify the Review. With the voting shares exceeding 15 percent (holding just over 15% of the votes can block IMF decisions) Washington exercised effective control over the International Monetary Fund. It did not want to lose this leverage. Besides, the United States easily found “allies” to team up with when it came to simple majority vote. The G7 group member states made up the backbone of this cordial understanding. All in all, the voting rights of the leading capitalist states had exceeded 45% of total number of votes before the reform. Australia, New Zealand, Saudi Arabia, Israel and many other states easily sided with Washington. There was another reason behind the reluctance of the US Congress to ratify the document. The G20 reforms plan calls for the IMF’s capital base to increase twofold (by about $350 billion with around $60 billion coming from the US). Congress did not want to pay.

Washington’s reluctance to support the changes gave rise to growing tensions inside the Fund. By and large, the quota and voting shares for IMF members did not correspond to their growing contributions into the global economy. 

Until recently, G7 had commanded 45-50 percent (never less than 2/5) of voting power. The group accounted for less than 32 percent of the GWP in 2014.

The glaring injustice took place regarding the BRICS group. Until the recent reform, BRICS aggregate share in the IMF vote accounted for only 11.5 percent with the aggregate voting power of the BRICS countries making up 11.03%. At the same time (2014) the BRICS share in the GWP was 30.94%. Actually, the contribution of the BRICS group into the global economy became comparable with the share of the seven leading states of the West while for many years it controlled four times less votes that the G7 group.

The fight for the IMF reform has been waged for five years. At annual IMF and World Bank summits Christine Lagarde, the Managing Director of the International Monetary Fund, never missed an opportunity to tell the United States it was time to ratify the 2010 reform plan. The same thing took place during G20 summits. The further delay in implementation of the reforms began to imperil the very existence of the International Monetary Fund. Washington has appeared to realize that the collapse of the IMF as an instrument of US foreign policy would further weaken American global power. Unexpectedly, last year the US Congress changed its mind on the issue. In December, 2015 US lawmakers approved changes to International Monetary Fund governance that were included into the federal budget appropriations.

On January 21, the IMF executive board put an end to the process of governance reform: 149 states (out of 188 members) having 94.04 percent of total voting power voted for the implementation of the International Monetary Fund's 14th General Quota Review. According to the IMF rules, the approval required 60 percent of the votes. The next step is doubling quotas.

The information offered by media on new quotas and shares has not been made officially confirmed as yet. The IMF publications included economic indicators as of 2010. 5 years have passed since then, and the positions of many countries with emerging economies have significantly strengthened. In 2016 their IMF quotas and shares are to be reviewed. It’s not known how this decision will be executed. Either the quotas will be calculated on the basis of the 2010 indicators to be recalculated afterwards according to the indicators of 2015, or the changes will take effect immediately.

In any case, the current reform will not rectify IMF imbalances. Of course, it will be easier for the BRICS member-states to block IMF decisions that run contrary to their interests. Finding a couple of allies would be enough to guarantee they got the needed voting power to block an unfavorable decision. But these are only defensive actions. The BRICS group still lacks power for an offensive to promote the decisions it needs.

The struggle will continue both inside and outside the IMF. This year the battles will be fought over the revision of the IMF quota formula. The one currently used serves the interests of the West. Those who represent the capitalist periphery will fight for simple and easily understandable formula predominantly based on GDP (calculated according to purchasing power parity) and also international (gold exchange standard) reserves. 

Outside the IMF the countries representing the world capitalist periphery will fight to bolster their global financial positions. It will increase the role of the new international institutions: the BRICS Development Bank and the Asian Infrastructure Investment Bank. If the United States will further hinder the IMF reforms, the countries with emerging economies and developing states will use these institutions according to their back-up plans.

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China on Peaceful Path https://www.strategic-culture.org/news/2016/01/21/china-on-peaceful-path/ Wed, 20 Jan 2016 20:00:03 +0000 https://strategic-culture.lo/news/2016/01/21/china-on-peaceful-path/ Over the last few weeks, the announcement of President Xi Jinping’s plan for modernizing China’s military, including building a second aircraft carrier, coupled with the recent announcement of China’s first-ever military support facility in East Africa’s Djibouti, revived the somehow repetitive but always interesting question on the «real intentions» of China.

Modernizing internally and speculating abroad

As a matter of fact, China’s military (like all other military establishments do), is cyclically updating, this time embracing its fifth modernization since the mid-50’s. And beyond its permanent concern for the state-of-the-art equipment, new reshuffle basically means more unified control by, first, strengthening the army leadership; second, moving away from its traditional land-centric system to a joint command system. In simple terms, «China wants to build a modern military system that can potentially win an information-based war».

As expected, speculations in the West started to appear that fit the hypothesis described in the «Coming conflict with China» book by Ross and Munro. The «China challenge» mentality gives rise to bizarre conclusions in articles published by institutions that contribute to the distorted views of the non-China specialized Western élites. It is the kind of approach that is traditionally and aprioristically applied to Beijing (and by the way to Moscow too).

The «China threat» vision is now adding to itself a paternalistic view arguing that the greatest challenge lies in dissuading Beijing from regional aggression while encouraging it to contribute to the international order, as it is contended in Christensen’s recent book, The China Challenge: Shaping the Choices of a Rising Power. As if recently Beijing had not been crucially contributing to combined international negotiation efforts to settle the Iranian crisis in 2015 and moderating in the unfolding North Korea «crisis» which follows Pyongyang’s allegedly fourth nuclear test since 2006. Not to mention Beijing’s contribution by hosting already scheduled 2016’s G20 Summit in Hangzhou. But most notably the misinformed and paternalistic view is neglecting Beijing’s contribution to the creation of major institutions and initiatives over the last months, such as the Asia Investment and Infrastructure Bank (AIIB), the BRICS bank (and BRICS-related initiatives), plus the One Belt, One Road initiative (including the new Silk Road Fund). As a whole, such moves in an amazingly short period of time represent the most important initiatives put forward by any power since the settling of post-World World II order.

Security planning implemented by Beijing over the last two years is coherent with the national interests of an emerging power on the international stage. In fact, it may even be behind its real international role, if we consider that China is, in the words of Lee Kuan Yew, «the biggest player in the history of mankind».

Pivoting and competing

In 2006 the US (who since George Bush’s administration turned China’s definition from «strategic partner» to «strategic competitor») was the main trading partner for 127 countries, compared to only 70 for China. In 2012 it was 124 for China, 76 for the US. Last year Beijing surpassed US’s economy at Purchasing Power Parity (PPP).

In 2014 Beijing’s military expenditure reached $216 billion, 2.1% of its GDP, compared to Washington’s $610 billion, 3.5 % of its GDP, according to the much commented Stockholm International Peace Research Institute (SIPRI)’s 2015 report.

And while Beijing has just announced its first-ever overseas military support facility in East Africa’s Djibouti, there are around 800 US military bases in 80 countries worldwide (40 in 1989). While evidence shows that Beijing is clearly willing to play an assertive role mainly in order to secure raw material supplies to bolster the growth which is a key component of world’s economy in times of uncertainty, Washington’s military expansion tries to secure US’s hegemony without signs of strategic effectiveness. In fact, overseas bases in distant regions and regional dynamics poorly understood have been adding to a less secure world, and absurdly enough, pushing against Washington’s long-term hegemonic designs.

In terms of conflict-engagement, global Pax Americana cannot compare with the emerging Pax Sinica in both, economic and defense terms.

Insights from the present, insights from the past

Last October the Permanent Court of Arbitration in Hague ruled that the case of territorial claims in the South China Sea filed by the Philippines against China falls under its jurisdiction. This case and the ruling are strongly opposed by Beijing, which, however, has not menaced Manila in any way. In contrast to that, last December US secretary of Defense, Ash Carter, onboard of a US aircraft carrier sailing in the South China Sea delivered a speech defending the principle of «free navigation» and Washington’s role as a regional «stabilizing» factor.

Would China be mad enough to disrupt a marine route through which more than $5 trillion in global trade passes every year? Apart from damaging China’s vital interests, such a scenario would lead to subsequent escalation, that would include not only the Philippines, but also Vietnam, Japan and the US, leading to brinkmanship. That would be too unreasonable to consider. As the Chinese saying goes, «Peace with neighbors brings prosperity at home».

In recent years and decades there was no trace in China’s international behavior resembling, for instance, the «accidental bombing» of the Chinese embassy in Belgrade by US bombers in 1999 (allegedly an act outside NATO’s framework). Or the 2001 US EP-3 plane spying «incident» south of Hainan’s island in Southern China. Or the above mentioned landing of the US Secretary of Defense on an aircraft carrier in the South China Sea. In other words, and conversely, showy and unnecessary Chinese surveillance of US territory from planes flying on relatively low altitude, or a Chinese deputy secretary of State landing on a Chinese aircraft to deliver a speech on sea freedom and promising support to Caribbean partners, let’s say in the Gulf of Mexico, has never taken place.

For years China has been following the «peaceful rise» theory, first made public by Chinese strategist Zheng Bijian at the Boao Forum in 2003, and this theory is fully valid for 2016. Zheng said that: «China will not follow the path of the great powers vying for global domination during the Cold War. Instead, China will transcend ideological differences».

How long will it last?

It’s practical to keep in mind Sun Tzu’s strategic thinking, with its classic dictum being: «if you know the enemy and know yourself, you need not fear the result of a hundred battles» – winning without fighting.

The facts confirm that today’s China is a cautious and peaceful power. And the facts don’t lie. 

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International Finance: Legacy of 2015 https://www.strategic-culture.org/news/2016/01/05/international-finance-legacy-2015/ Mon, 04 Jan 2016 20:00:02 +0000 https://strategic-culture.lo/news/2016/01/05/international-finance-legacy-2015/ Despite their varied nature, when viewed as a whole, the mechanisms at work in 2015 in international finance were so significant that they could alter the entire architecture of the global financial system in 2016. And it is unlikely that there is along period of transition ahead. Chances are that the global financial transformation will happen quickly and dramatically.

These days are very reminiscent of the 1930s-1940s. At that time, the global economic crisis triggered several events, such as the economic and financial disintegration of the world, the fragmentation of the global financial system into currency zones and blocs, and the erosion of global trade and other forms of international economic ties. The monetary and financial disintegration was only halted in the summer of 1944 at the international conference at Bretton Woods, where the decision was made to establish a global monetary system based on gold and the US dollar. Shifting the global monetary and financial system to this new mode required a 15-year cycle of work, beginning with the onset of the crisis in October 1929. And even after the Bretton Woods conference, at least another five years passed before the new system was operational. Overall, the transition cycle to move the system from its old state to its new one took about two decades.

Now fast forward to our era. The starting point of the transition of the global financial system to its new role can be dated to 2007, when the global financial crisis began. Almost nine years have passed since then. The beginning of the “new era” of global finance can be seen as the point at which the process of financial globalization came to an end, and it was no longer possible to build the Tower of Babel of global debt any further. A retrenchment began, which took the form of a crisis, and multitude of “excessive” debts burned up in its flames.

The first wave of the financial crisis (2007-2009) has already led to significant financial disintegration worldwide. But judging by the statistics from the International Monetary Fund, the Bank for International Settlements, and other international institutions, higher levels of trading were seen on global financial markets in 2015 than in 2007. According to the assessments by the renowned consulting firm McKinsey & Co., debt in early 2015 also surpassed its pre-crisis levels –worldwide as well as in individual countries and groups of countries. McKinsey & Co. identified three potential epicenters of the second wave of the global financial crisis – the US, the European Union, and China. The world is anxiously awaiting an imminent financial tsunami. Worrying signs emerged in August in China, where the stock market indices began to fall sharply. Chinese officials succeeded in halting the destructive developments (primarily through direct administrative actions), but the bubble in the Chinese stock market hasn’t gone anywhere.

Bubbles in the financial markets continued to expand in 2015 in the US and EU as well. This is the first time that the world of global finance has been faced with bubbles that have been growing for so long, and it can be explained by the fact that the central banks’ printing presses have been working more energetically than ever before. Plus, the Federal Reserve, ECB, and other central banks in the industrialized world have been keeping their interest rates close to zero. This kind of free money was not available even at the height of the economic crisis in the 1930s.

Many experts had predicted other upheavals for last year as well, including the collapse of the dollar-based system, the full or partial destruction of the eurozone (the exit of a number of countries from the euro area), a full-fledged default in Ukraine, the paralysis of the International Monetary Fund, the dissolution of the G20, etc. Most of these predictions did not come true in 2015, but no one has given up on them – they have simply been held over until 2016.

Allow me to briefly characterize what I feel are the most important events in the life of international finance in 2015.

1. The end of the London Gold Fix on March 20, which had existed intermittently since 1919, and the transition to a new system for determining prices for gold. This event has not yet had a very significant impact on gold prices, but its effects will be felt in the future.

2. The announcement by Greece that it was defaulting on its obligations to the International Monetary Fund (it did not make its scheduled payment of approximately 300 million euros). In July Greece again defaulted and the fund did not receive about 1.5 billion euros that had been slated for debt repayment. In August, after negotiations between the Greek government and the Big Three creditors (the ECB, European Commission, and the IMF), an agreement was reached to provide Greece with a third bailout package worth 85.5 billion euros. That package will be distributed over the course of three years, assuming that Greece does not deviate in any way from its program of austerity, reforms, and privatization of state assets (totaling 6.2 billion euros).

3. The creation of the Asian Infrastructure Investment Bank (AIIB). China spearheaded the project and is its biggest shareholder. The first phase of its creation ended in the spring of 2015. A total of nearly sixty states have joined the bank. It is worthy of note that 20 of these states lie outside of Asia (including the United Kingdom and some other major European countries). In reality, the AIIB is not a regional organization, but a global one. The bank should begin its operations in 2016.

4. China’s yuan acquired the status of an official reserve currency. That decision was made by the International Monetary Fund on Nov. 30. The yuan became the fifth official reserve currency, joining the US dollar, euro, Japanese yen, and British pound sterling. It is telling that based on the weight set for it, the yuan was immediately ranked third in the IMF’s basket of reserve currencies, ahead of the yen and pound sterling.

5. The change to some of the basic principles of the International Monetary Fund. Dec. 8 decision allows the fund to finance countries that do not meet their obligations to their sovereign (official) creditors. The fund’s decision was timed to coincide with the impending Dec. 20, 2015 repayment of Ukraine’s debt to Russia. On one hand, the fund’s decision encouraged Ukraine not to meet its obligations to Russia; but on the other hand, it also shattered decades-old precepts that guide the work of global finance.

6. The Dec. 18 announcement by officials in Kiev of a moratorium on the repayment of Russia’s $3 billion loan. For all intents and purposes, this means a full-fledged default by Ukraine. After the New Year’s holidays, the story of Ukraine’s default will probably blow up in the global media.

7. Congressional approval in the US of the budget for the next fiscal year. Washington passed a spending package that includes an important clause agreeing to reforms for the International Monetary Fund (the review of the quotas of capital and voting shares assigned to its member countries, as well as the doubling of the fund’s capital). This was a significant event, since the decision to reform the fund had been approved back in 2010, but had been blocked by the United States for five years.

8. On Dec. 17, the IMF’s managing director, Christine Lagarde was summoned to appear in a French court. She is suspected of abusing her official position when she served as finance minister under President Nicolas Sarkozy. This démarche against Christine Lagarde looks like psychological pressure against the fund’s highest officer in order to make the IMF a more obedient tool in the hands of Washington.

My list of events is quite varied. Many of them might not currently seem very significant. For example – the elimination of the famous London Gold Fix. Outwardly, this even looks like a weakening of the role of gold in international finance. However, this is merely an issue of the reorganization of the system for managing the global market for the yellow metal, under the auspices of the same Rothschild family.

The biggest struggle for influence in the world of international finance will develop between Washington, which is attempting to salvage the dollar system, and Beijing, which is trying to squeeze American banks and corporations out of global financial markets. Some experts see this confrontation as a tussle between the two biggest clans of money masters – the Rockefellers, who are using the state power of the US, and the Rothschilds, who are seeking to establish control over China.

Returning to potential changes in the global monetary and financial system, I cannot rule out the fragmentation of a unified system into separate zones and blocs, which is exactly what happened in the late 1930s, on the eve of World War II. At that time trade and economic ties within the zones and blocs were maintained with the help of the currencies of the suzerain states (the British pound sterling, French franc, US dollar, etc.). Trade between the blocs fell by a huge ratio and inter-bloc ties were based on barter, clearing accounts, and gold.

The second wave of the global financial crisis will wreak only minimal damage on countries that are able to navigate the global financial chaos and protect their economies using import duties and restrictions on the cross-border movement of capital, sheltering themselves behind the walls of their regional economic, financial, and currency blocs.

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What is Behind IMF’s Decision on Yuan? https://www.strategic-culture.org/news/2015/12/06/what-behind-imf-decision-yuan/ Sat, 05 Dec 2015 20:00:01 +0000 https://strategic-culture.lo/news/2015/12/06/what-behind-imf-decision-yuan/ In recent years, China’s legal tender, known as the yuan, has begun to compete on the global stage with the leading reserve currencies.

According to one definition, the currencies that make up what is called the Special Drawing Rights (SDR) basket have the status of official reserve assets. The SDR is a non-cash form of supranational currency that has been issued by the International Monetary Fund (IMF) since early 1970.

To date, IMF member countries hold the equivalent of $280 billion of SDR reserves. But that is only a very small percentage of the member countries’ international reserves. The value of SDR assets is based on a basket of several currencies. There are currently four currencies in the SDR basket: the US dollar; euro; British pound sterling; and Japanese yen. These are reserve currencies in a narrow sense. Being granted this status boosts a currency’s prestige and generates additional demand for it in global financial markets.

China proposed that the yuan be included five years ago when the IMF was reviewing the composition of the SDR basket, but that request was firmly rejected. During the ensuing five years, China doggedly prepared a new bid to make the yuan an official reserve currency. Beijing’s efforts were two-pronged. On one hand, China continued its global expansion in trade and finance, increasing its economic potential and stepping up its number of yuan transactions on international markets. And on the other hand, Beijing also made some adjustments to its national monetary and financial policy. Those adjustments essentially made the yuan a more convertible currency, in accordance with the IMF’s requirements and minimized the influence of the state on the exchange rate of yuan (also an IMF requirement).

China’s success on the first front looks very convincing. In terms of gross domestic product based on purchasing-power parity, China has already outpaced the US, taking top honors in the world. China is also the world’s largest exporter. China’s export-import trade is increasingly conducted in yuan, with the dollar, euro, and other reserve currencies taking a back seat. Letters of credit are very commonly used to settle accounts in international trade. In January 2012, 1.89% of all letters of credit in the world were opened in yuan, a figure that had risen to 9.43% three years later. Just for the record, that exceeds the number of letters of credit issued in euros. 

The role of the yuan in all international payments (in international trade as well as other routine and capital transactions) is growing. In 2012 the yuan was only the 12th most commonly employed currency in international payments. But by August 2015, 2.79% of international settlements were made in yuan (based on the value of the transactions), compared to 2.34% in July. For the first time the yuan has eclipsed the Japanese yen by this yardstick. China’s currency ranks fourth in the list of the world’s most-used currencies, after the US dollar, euro, and pound sterling. In addition, the yuan is for all intents and purposes already a reserve currency in some countries, because those central banks include the Chinese currency in their international reserves. The precise total of international reserves held in yuan is not known. 

There have also been big changes on the second front, but it is here that Washington is doing its best to throw a monkey wrench into Beijing’s plans. The US Treasury and other American government agencies have accused Beijing of artificially lowering the value of the yuan. In fact, there are suspicions that China is conducting a currency war. Washington has made accusations against Beijing, claiming that last summer’s slight devaluation of the yuan was not the result of market processes, but the consequence of deliberate actions taken by the People’s Bank of China. And Washington alleges that the numerous limits on foreign capital in the Chinese economy are in fact serious restrictions on the free convertibility of the yuan. By the end of last summer, various US officials had repeatedly stated that they do not support the idea of including the yuan in the SDR basket. 

However, the tenor of Washington’s rhetoric shifted in the fall. That happened after Xi Jinping’s September visit to the US. Beijing was extremely annoyed by the fact that Washington has embarked on a course of opposition to IMF reforms. In 2010, the fund’s executive board (24 executive directors) decided to review the quotas assigned to its member states (quotas of capital and votes), in view of those countries’ altered economic and financial positions. Although the economic potential of the US and China, as measured by GDP and international trade, is now approximately equal, their allotted voting power in the fund is not comparable. The US share exceeds 17%, while China’s is only 3.8%. The US and its G7 allies control 43% of the votes in the IMF. This state of affairs suits Washington very well, which is why for the last five years it has blocked congressional ratification of the decision of the fund’s executive board to adjust the quotas.

In recent years, US policy toward the IMF has transformed China from America’s partner into its enemy. Consciously or not, Washington has encouraged solidarity among the BRICS countries. In 2015 the BRICS Bank was established, which could become an alternative to the IMF. Beijing is playing a decisive role in the creation of the Asian Infrastructure Investment Bank (ABII), which could be another alternative to the IMF. 

Washington was forced to make a tactical concession when it dropped its opposition to including the yuan in the SDR basket. In mid-November, the IMF’s managing director, Christine Lagarde, and the fund’s experts recommended that the yuan be added to the pool of reserve currencies. On Nov. 30, 2015, the IMF’s executive board made the decision to include the yuan the in the SDR basket – a move long awaited by Beijing. However, that ruling will not take effect until Oct. 1, 2016 – a delay of ten months. Perhaps Washington was responsible for this postponement, hoping to keep Beijing on a short leash. I think it is possible that if need be, Washington will be able to compel the IMF to freeze any decision about enforcing the decision of Nov. 30, 2015. 

The first analyses have emerged about how the yuan’s new official status as a reserve currency will affect the Chinese economy. Experts anticipate an additional $ 600-billion influx of capital in the form of yuan-based assets by 2020. 

However, there have also been negative reactions, pointing out the danger of a hike in the yuan’s exchange rate, which would weaken Chinese export market that is already growing wobbly.

But be that as it may, Beijing feels victorious. The yuan’s share has been set at 10.92%. While the share of the US dollar will decline a purely symbolic amount: from 41.90 to 41.73%, it is the euro that will primarily feel the squeeze, sliding from 37.40 to 30.93%. The proportion of the British pound sterling will also drop (from 11.30 to 8.09%), as well as the yen (from 9.40 to 8.33%). This means that the share of two European currencies (the euro and the pound sterling) in the SDR basket will fall by nearly ten percentage points. It is also worthy of note that, once voted into the club, the yuan immediately took over the third-place position, displacing the Japanese yen and British pound sterling.

It can be expected that, having won this special status for the yuan, Beijing will in the near future also try to win reforms within the IMF. This might mean, first of all, the enforcement of the executive board’s 2010 decisions to adjust the quotas. Second – the adoption of a new formula for calculating quotas (one that more accurately reflects the position of the fund’s member countries in the global economy). Third – the preparation of new quota adjustments (as of 2015). 

Beijing’s ongoing struggle to find its place under the sun within the IMF is fraught with great risk. Some US politicians have made these kind of comments about the future of the IMF: the fund is only useful to Washington as long as the United States holds the “controlling stake” in it, and as long as they can use the fund as an instrument of their foreign policy.

If China and other countries deprive the United States of its controlling stake in the IMF, there will no longer be any reason for Washington and its allies to continue their membership in that organization. It would be interesting to know whether Beijing is bearing this in mind as it prepares to scale new heights in the fund.

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Silk Road Moving on in Times of Uncertainty https://www.strategic-culture.org/news/2015/11/23/silk-road-moving-on-in-times-of-uncertainty/ Sun, 22 Nov 2015 20:00:03 +0000 https://strategic-culture.lo/news/2015/11/23/silk-road-moving-on-in-times-of-uncertainty/ «One Belt and One Road» (OBOR) policy (or Silk Road Economic Belt and the 21st Century Maritime Silk Road) heralding further integration of China with South East Asia, Central Asia and Russia, Europe, the Middle East and Eastern Africa is gaining renewed momentum and further international attention. Following recent attacks in Paris, Turkey, Lebanon, Sinai together with increase of terrorist activity in several countries included or bordering OBOR’s space, sophisticated technical, diplomatic and defence factors are bound to influence the initiative and its very significance. 

Global reach, and the need for a balanced view

OBOR transport connectivity and infrastructure dimensions as a key for development have come to be considered under a new light at bilateral and multilateral fora, including APEC’s summit in the Philippines and the G20 summit in Turkey.

Beijing, wishing to play a more global role than ever, is convinced that linking OBOR and the UN’s post-2015 development agenda will ensure that relevant programs will contribute to the medium- and long-term development and promote regional stability and security. 

Few hours after Paris terrorist attacks, China's Vice Finance Minister, Zhu Guangyou, in Antalya, Turkey, declared that «It will be of important economic and political significance for us to ensure the sustainable, balanced and strong economic growth, and also deliver on the UN pledge that by the year 2030 poverty should be eradicated worldwide, because we believe this will eliminate the soil that breeds terrorism».

Poverty and security issues are clearly related in many conflicts around the world. Nevertheless, the situation is much more complex. Consider, for example, the situation in Xinjiang, China’s Western-most Autonomous Region, which has experienced spectacular double digit economic growth for decades, and yet the Region, and various Chinese cities have been hit by Xinjiang-inspired attacks in recent years.

At continental level Xinjiang happens to be crucial for OBOR since it is a strategic communication node and a gate to Kazakhstan, Russia, Central Asia and Europe.

For China’s economy, which will hardly reach 7% growth this year, but represents as high as about one third of global economic growth, firmly betting on innovative mega projects, such as OBOR, the Asian Infrastructure Investment Bank (AIIB) and the BRICS New Development Bank, security acquires a renewed significance. But if economic performance is one of the tools to eliminate the soil that breeds terrorism, it should be coupled with additional measures.

The inclusiveness challenge

At Turkey’s G20, key concepts such as inclusiveness, implementation and investment have been highlighted by different leaders. If OBOR is about to make an impact, it should make an extra effort to bolster the first two components and certainly reinforce the third one. 

Nowadays Beijing is used to lead projects implementation of all sizes at home and abroad. In many countries of Asia, the Arab world, the Persian Gulf and Africa, Chinese companies have been building bridges, highways, railroads. In neighbouring Pakistan, China has tens of thousands of workers (20,000 in the Karakoram-Highway alone). Overall outcomes are spectacular, but sometimes local labour forces in different countries do not feel enough included in these implementation processes.

Also, following Chinese pro-development approach, we should bear in mind that economic growth by itself, no matter how strong, sustainable (ecological) and balanced it might be, does not necessarily reinforce an adequate Gini index.

Actually imbalances might create new complexities, either in China’s Xinjiang or in the West. Consider EU countries (particularly France and Belgium). Due to the economic crisis and thanks to the educational and economic system’s inclusiveness gap, a tiny but deadly proportion of native Europeans and immigrants feel inclined to alienation and ultimately attracted by terrorism.

As a result, in security terms (ominously and surprisingly) Brussels, the capital of the EU and of NATO’s headquarters, is at the moment perhaps one of the most fragile cities in Europe and Eurasia.

The importance of moving forward in a synergetic fashion

Over centuries (and in the first decades of the People’s Republic of China), unlike Western powers, Beijing did not pursue an expansion of national interests in distant continents (mainly economic, investing and entrepreneurial activities), which precisely at present translates into a relative economic intelligence gap on several countries, including developing and emerging ones. This is particularly sensitive at official levels. As professor Jiang Shixue states: «As a matter of fact, it is not realistic for the Ministry of Foreign Affairs to understand everything about all the countries relevant to the OBOR initiative». Traditional inward-looking views have also played their own role reinforcing this knowledge gap. Until recently Beijing argued that due to China’s demographic size, by well governing its own people it was contributing to world’s governance. 

But over the last two decades, things have clearly changed. First came Beijing-Moscow initiative of creating the Shanghai Cooperation Organization (SCO), in 1996. In the post-World War II global order, it was the first truly international institution in which China was a co-founding member. 

A second step came with China’s accession to the World Trade Organization (WTO), accelerated thanks to Beijing’s support for the international anti-terror campaign following September 11 attacks in New York.

Currently, one of the strong aspects of China’s OBOR is to highlight Russia’s significance as a key Eurasian player. For example, in spite of recent Euro/Atlantic-Russia divergence, among VIP participants in October’s OBOR major event, «Silk Road Forum 2015» held in Madrid, there was Russian representation. In fact, although timidly, long-term geostrategic factors leading to Eurasian collaboration are being seriously considered among EU policy-makers. After all, the members of the SCO and the Russian-led Eurasian Economic Union have already agreed to develop Silk Road projects. Beijing and Moscow are discussing details to build high-speed rail to link both capitals against the backdrop of the Yiwu-Madrid railway already stretched across Eurasia. 

Europe is expected to respond to Beijing’s OBOR plans. And that reaction would likely to have an added bonus if such cooperation would also support EU-Russian rapprochement. Actually the global anti-terror campaign against ISIL and other forms of terrorism is also a great chance for renewed synergies of all kinds.

In any case, to make synergies work, the EU should consider reinvigorating internal coordination and act ASAP. Already the Juncker Plan (also called European Investment Plan) that aims at providing public and private investments of at least €315 billion over a three year fiscal period is expected by diplomats and analysts in the EU and China to be connected with OBOR. If we bear in mind that unemployment in the EU is a soil on which alienation and terrorism may flourish, such initiatives are helpful in a long-term comprehensive security approach.

In spite of some reasonable but mainly unfair criticism to the initiative, each of the EU leaders visiting China over the last weeks has made explicit commitments to actively participate in OBOR. Not bad, taking into account that even growing clearly at less than 7% a year, China is likely to become the largest overseas investor by 2020. Then its global offshore assets are expected to reach $20 trillion

Notwithstanding the fact that Doha trade negotiations are not concluded, most likely OBOR policy will continue high on the agenda, promoting further interaction and growth among different States and cultures. But if China is big in the world, the world is too big for China. An increasing regional collaboration among concerned OBOR countries is bound to reach higher degrees of sophistication.

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Beijing is transforming EU-China ties by transforming the context https://www.strategic-culture.org/news/2015/06/21/beijing-is-transforming-eu-china-ties-by-transforming-the-context/ Sat, 20 Jun 2015 20:00:04 +0000 https://strategic-culture.lo/news/2015/06/21/beijing-is-transforming-eu-china-ties-by-transforming-the-context/ The announcement by Beijing that it will pledge a multi-billion euro investment in Europe's new infrastructure 315 billion euro’s fund at a summit on June 29 in Brussels, signals not only a milestone in financial diplomacy, injecting dramatic vitality to EU-China ties at the expense of the US. It is also the latest step in China's efforts to shape regional, macro-regional and global economic governance by peaceful means, challenging the US, embarked on a policy of containing China at the South East Asia Sea and at the Asia Pacific in military terms. Beijing’s move deserves EU’s active action, among other things, in order to persuade Washington that in fact there is no Chinese threat to its security, and on the contrary, a series of economic measures aimed at peaceful development encompassing not only EU-China ties, but also the Eurasian landmass as well as the Asia Pacific.

China understood as a chance for common prosperity

Beijing’s latest move follows major EU governments' decision to join the Beijing-led Asian Infrastructure Investment Bank (AIIB) last March. But China’s plans are even more comprehensive in geostrategic scope, including macro-regional dimensions as well, integrating the Silk Road policy, also known as One Belt One Road (OBOR). It encompasses Eurasia’s hinterland including Central Asia, a region where specifically Beijing has projects worth more than $ 50 billion, plus the maritime route including the South China Sea, the Indian Ocean and the Mediterranean. As a whole, the Silk Road Fund is endowed with $ 40 billion aimed at revamping the old routes connecting Asia to Europe, carrying goods and ideas across Eurasia over centuries, nowadays including some 60 countries.

Such comprehensive plans reinforce the idea of China’s «peaceful rise», first made public by Chinese strategist Zheng Bijian at the Boao Forum, in 2003. Zheng explained in subsequent articles that: «China will not follow the path of Germany leading up to World War I or those of Germany and Japan leading up to World War II, when these countries violently plundered resources and pursued hegemony. Neither will China follow the path of the great powers vying for global domination during the Cold War. Instead, China will transcend ideological differences». 

On the other side, specifically, in its latest move, Beijing’s pledge of a multi-billion dollar investment in Europe's 315 billion euros new infrastructure fund is both inclusive and grand strategy-oriented, since albeit its figures are not known yet-it will presumably be in the billions-, it is expected to come with a request to the EU for return investment in China's westward infrastructure effort – the OBOR initiative – setting up important energy and communications reaching Greece from Central West and South Asia.

Zheng’s vision, more than a decade ago, seems more real than ever. As he stated then, Beijing: «advocates a new international political and economic order, one that can be achieved through incremental reforms».

On the other side, it has been noted by some Western observers that beyond idealism, some of these China plans will predominantly benefit several Chinese firms, particularly midsized ones, more than foreign countries. But rightly said, in view of China’s size, several Central Asian countries and some small EU countries might benefit more than China exactly due their size. Also, presumably, the interrelation of all these projects will bring common benefit and good will and collaboration with foreign companies in areas where Chinese counterparts lack experience and capabilities.

New approaches are needed

If China’s peaceful rise concept is not believed by US State Department’s strategists (still willing to see the new superpower’s emergence through Cold War lenses), it might be strongly argued that all the infrastructure and financial plans show that China is acting as a responsible global player, cooperative in the international arena, not behaving as a «free rider», as frequently accused by the Obama administration in recent years.

More important is the lack for many years of refined knowledge among EU’s political and bureaucratic élite to cope with China’s synergies. Indeed, most of Eurocrats were born in the Euro-Atlantic era and principally by that very fact are mentally less prepared to act in a post-American world. In other words less prepared to see all the potential of new China-led initiatives. The 1985 EU-China trade and cooperation agreement plus seven legally binding agreements document signed by Brussels and Beijing have been governing bilateral relations for most of the four decades. The overview propelling that agreement is Eurocentric in nature, encompassing a «change through trade» approach. Nothing contradictory here, except by the fact that several Eurocrats have thought that a way to contribute to a democratic and open society in China is a possible goal to reach via the transformational powers of trading with Europe. 

Now the idea is back under a new guise, in the most potential positive way in a continent whose leaders have domestically been unable to tackle the economic crisis and show at some points, clear signs of lack of unity as EU partners. Just think for example at the prospect of Greece or Britain’s potential exit from the EU, to the perplexity of Xi Jinping’s administration, eager to see stability at home and abroad among its closest trading block partner.

As the European Commission announced it last November, the 315 billion euro Investment Plan (also known as Juncker Plan following European Commission President’s name) is aimed at mobilizing European growth again and get more people back to work. Presumably, when Beijing announces its contribution in Brussels, by the end of the month, with specific details to be announced in Beijing in September, China, will have won higher prestige among many European citizens in the year of the 40th anniversary of the establishment of bilateral relations.

Recent Facts and figures

2015 it is the year to turn back and see that one decade after the EU-China trade and cooperation agreement was signed, in 1985, Europe enjoyed a trade surplus with China, in those times a big Third World country largely isolated and communicated by modest infrastructure. Now its economy is over three times what it was in 2005. According to International Monetary Fund purchasing power parity estimations last December, China’s economy it is worth $17.6tn, lower than the EU block, worth $ 18.5tn (both higher than the US, worth $17.4tn). 

In 2015, as in most recent years, the EU is China’s biggest trading partner while China is now the EU’s biggest trading partner, just behind the United States. Immersed in an impressive bilateral trade well over 1 billion euros a day, China might well become the EU’s first trading partner within this decade.

Surprisingly enough, in the last year EU’s closest US ally, Britain, has been clearly assessing its own interests in tune with the new Asia Pacific era, distancing itself from Washington’s views. One innovative measure is London’s decision to become the first country in Europe to open a yuan-denominated money market fund. Another more than technical and clearly geopolitical attitude has being distancing itself from US position of non-adherence to the Asian Infrastructure Bank. London’s adherence to the bank last March was hastily followed by several European capitals as if they were no partners but competitors trying to get a seat first. Brussels had little special to say about a move of both historic and geostrategic significance. Now, with the prospect of prime minister Li Keqiang visiting Brussels this month to announce China’s compromise with Juncker’s plan, a new engagement can be forestall.

A broader scope is needed

Several former European leaders have all tried to explain in Europe the need to act without internal divisions for a common foreign policy and long-term projects with China. Now the big moment has come, but more is necessary.

Beijing defines China and Europe, whose bilateral relation reached strategic partnership status in less than two generations, as ‘civilizational partners’. China’s driving force is showing a Eurasia path, including Russia as a major partner. Under the present circumstances of economic crisis and volatile security prospects, it is a fact that should be taken into account as soon as possible in Brussels and in the main EU capitals for the development of a cooperative Eurasia including all the members of the macro-continent. China is about to alter dimensions of the geostrategic context and it is advisable to consider both realistic and imaginative new routes of action. Actually it is a pressing issue.

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