Fluidity and Transformation
China's foreign economic policy and the BRI, China-US relations remain icy, pressure on US dollar as core currency, Russia is winning, China strengthens.
UPDATE: Contemporary IR theory, dominated by Western schools of thought, clouds the lens of analysis when Chinese foreign economic policy, including the BRI, is the focus of attention. Liberal intervention in East Asia, such as in Japan, Korea, Taiwan and Vietnam, can be seen as an attempt to split the region from its historic links to China for Washington to impose its evangelical vision of political and cultural authority.
Following the May G7 summit in Hiroshima, US President Joe Biden claimed that he expects a “thaw” in relations with China. Yet despite some recent official bilateral meetings – with US Secretary of the Treasury Janet Yellen expressing hopes for a visit to China soon – relations remain icy.
We see that the US dollar, as the most important national currency in the international payment system, may still persist for a long time even after US hegemony ends. Since this year, the US has continued to issue more currency to ease the internal situation. The pressure will eventually seriously damage the status of the US dollar as the core currency in the international payment system.
The West's imperial lifecycle is drawing to a close. Today, as America struggles to support a crumbling dollar, marshal allies against Russia, ward off a rising China, it’s easy to forget that barely two decades ago it strode the planet like a colossus.
An Unconventional Reading of China’s Foreign Economic Policy: A Phase of Fluidity and Transformation
By Dr. Digby James Wren
PHNOM PENH - Contemporary IR theory, dominated by Western schools of thought (Muppidi, 2012), clouds the lens of analysis when Chinese foreign economic policy, including the BRI, is the focus of attention. China’s construction of a worldview, which integrates indigenous philosophy and culture, has its roots in the late 19th and early 20th centuries, when China assimilated intellectual ideas from Japan and elsewhere to modify its system of governance while maintaining territorial sovereignty and limiting colonial encroachment (Deng, 1998; Noesselt, 2015). The ideas of non- alignment and non-exclusionary regionalism developed by Nehru and fellow Asian and African leaders in the 1950s differed substantially from the military blocs of the classic European balance of power model (Grabowski, 2019).
Mao Zedong’s Three Worlds Theory (Wang, 2011) offered new thinking on IR, foreign policy, warfare, and strategy. Moreover, the communitarian teachings of Confucius and Mencius are often referenced in the construction of Asian values and provide an alternative to European and Anglo- American liberal individualist values. Arrighi (2007: 329) argues that strong central supervision by Chinese political power never rejected “the Confucian ideal of social harmony in favour of a view of unfettered struggle in the marketplace.” Thus, the notion of a distinctively East Asian international order is often premised on deep Confucian political, social, and cultural affinities, which are at odds with the liberal prescription of democratic peace (Acharya & Buzan, 2010). In this view, liberal intervention in East Asia, such as in Japan, Korea, Taiwan and Vietnam, can be seen as an attempt to split the region from its historic links to China for Washington to impose its evangelical vision of political and cultural authority.
A key contribution, therefore, is to illustrate how China’s indigenous Marxist IR theory has provided new perspectives on the theory and practice of global governance. Leading Chinese IR scholars, such as Wang (2021), Yan (2021) and Yang (2021), are informed by Chinese history, philosophy, and culture, and provide improved analytical frameworks and better theoretical tools to understand the relationship between China’s foreign policy and the deployment of the BRI (Smith, 2017). One example is Zhao Tingyang (2006), who wrote that China’s problems cannot be explained by European and Anglo-American theories because they generate tropes and motifs of China, such as the China threat, debt trap diplomacy, and the rise of China theses. For Zhao (Do, 2015: 23), realist and liberal theorising, which ignores traditional Chinese thought and its unique system of worldview, values, and methodology, “can explain conflicts, but only Chinese thought can fully explain harmony.” In this holistic view, Confucian thought provides the impetus for creating a harmonious world order of inclusivity that minimises inequality and promotes collective responsibility.
While Chinese scholars have sought to develop a new theory of a harmonious international political system, Xi Jinping’s vision for National Rejuvenation has been the most visible attempt to put such ideas into practice. Xi’s vision of a pluralistic and harmonious community of shared values “preclude[s] the idea of one civilisation imposing itself on another” (Dellios, 2017:227). The BRI’s win-win concepts of trust building and mutuality are deeply rooted in China’s philosophical past. Confucianism and yin-yang both view “harmony as including opposition as a productive force” (Wang, 2018: 6), which supersedes the Hegelian-Marxist dialectics of struggle; thus, each side requires the other to maintain the system. Moreover, the distinctive teachings of both
Daoism and Confucianism, often viewed through the prism of hierarchy, value non-interference. This means the Chinese cultural understanding of win-win cooperation views success and prosperity as a mutually entailing process in which China’s national interest is viewed as mutual interest (Ames, 2007; Dellios, 2017). Thus, Xi’s plan for National Rejuvenation is built on a vision of “a community of common destiny” and avoidance of regional or global hegemony (Dellios, 2017: 231).
In light of these general findings, the remainder of the article summarises and reflects on the key internal and external developmental determinants, innovations, deployments and implications of China’s Belt and Road Initiative.
A New Substructure for Global Economic Development
A thorough appreciation of the BRI’s significance requires recognition that the initiative forms part of a larger and longer-running mission of National Rejuvenation. The BRI is fundamental to China’s pursuit of the Two Centenary Goals, the constitutional addition of Ecological Civilisation and the reframing of economic advancement within the Dual Circulation paradigm. China’s pursuit of National Rejuvenation was also affected by its relations with other regional and global powers. For instance, between 2017 and 2021, China’s implementation of the BRI project was significantly impacted by the escalating Sino-American “strategic competition” (Lippman et al., 2021: 1) and the emergence of the COVID-19 pandemic.
This article offers a corrective view of the BRI, rooted in Marxist historical analysis and Gramscian approaches to hegemony. It finds that China is a culturally distinct yet natural nation-state with a legitimate claim to seek advancement within its national interest (Deng, 1974). This explains China’s consistent approach to strengthening its offensive/ defensive arrangements in its near periphery, protecting its merchant fleet from piracy (Erickson & Strange, 2012), and a minimal need for overseas military installations (Brewster, 2018; Liu & Yin, 2018). China has leveraged a web of bilateral, trilateral, and multilateral networks and forums to gain diplomatic traction. China’s so-called ‘wolf- warrior’ diplomacy (Zhu, 2020) is often referenced to highlight China’s robust counter to legacy liberal state accusations and allegations of human rights abuses, military/naval assertiveness and political influence. However, the 2021 Canadian attempt to garner votes in the UN about China’s alleged human rights and forced labour practices in Xinjiang revealed China’s growing multilateral and diplomatic influence. Canada’s ambassador to the UN circulated a document that garnered the support of over 40 countries. However, not one was a Muslim state, and China countered with a document supported by over 60 countries, which included almost all Muslim states, many of which are BRI partners (Liu, 2021).
Beijing’s deployment of the BRI is grounded in Chinese notions
of reciprocity outlined in Xi Jinping’s formula for “a new type of international relations featuring win-win cooperation”.
Marxist analysis of the BRI’s origins and operations reveals that the BRI material substructure is pan-continental, primarily centred on developing countries, and harnesses global trade and investment as a key means to check and reverse emerging trade protectionism and regional economic blocs (Dakila, 2020; Global Times, 2020; Amendolagine,
2021). Thus, analysis has reached quite different conclusions than the consensus from most Western politicians, scholars, and media outlets, whose narratives about the BRI tend to obscure facts pertaining to its deployment and purported benefits as well as its challenges. In particular, this article argues that realist assessments of the BRI, which focus on wealth and power, ignore the contextual importance of Chinese philosophical influence on the conceptualisation of the BRI and how internal and external forces are balanced to create harmonious relationships, whether economic, political, or social. Western political elites often ignore or fail to grasp the theory and practice of socialism with Chinese characteristics. To do so requires a fuller understanding of the complex amalgamation of cultural, social, ecological, political, and economic organisational concepts included in Confucianism, Daoism, Buddhism, and Marxism, such as ‘yin-yang’ (Wang & Zou, 2011) or ‘the principal contradiction’ (Xinhua, 2017).
Similarly, Beijing’s deployment of the BRI is grounded in Chinese notions of reciprocity outlined in Xi Jinping’s formula for “a new type of international relations featuring win-win cooperation” (Xi, 2017: 3). As such, external reciprocities require renewal or reform of the international system, including respect of political sovereignty and avoidance of external conflict. Internally, continuing reform based on Marxist notions of a ‘better state of being’ (Yilmaz, 2016; Eskelinen et al., 2020) underpins the identification of ‘the principal contradiction’, which in post-Mao China, is state-led responses to improve the material well-being of citizens (Xinhua, 2017). These internal and external yin-yang equilibria have evolved into the theoretical model of a Dual Circulation, which encompasses a better state of being as universal and embeds the notion into constructing the BRI.
Download the full journal and article here.
America and China Are on a Collision Course
By Nouriel Roubini
NEW YORK – Following the May G7 summit in Hiroshima, US President Joe Biden claimed that he expects a “thaw” in relations with China. Yet despite some recent official bilateral meetings – with US Secretary of the Treasury Janet Yellen expressing hopes for a visit to China soon – relations remain icy.
In fact, far from thawing, the new cold war is getting colder, and the G7 summit itself magnified Chinese concerns about the United States pursuing a strategy of “comprehensive containment, encirclement, and suppression.” Unlike previous gatherings, when G7 leaders offered mostly talk and little action, this summit turned out to be one of the most important in the group’s history. The US, Japan, Europe, and their friends and allies made it clearer than ever that they intend to join forces to counter China.
Moreover, Japan (which currently holds the group’s rotating presidency) made sure to invite key leaders from the Global South, not least Indian Prime Minister Narendra Modi. In reaching out to rising and middle powers, the G7 wants to persuade others to join its more muscular response to China’s rise. Many will likely agree with the depiction of China as an authoritarian, state-capitalist power that is increasingly assertive in projecting power in Asia and globally.
While India (which holds this year’s G20 presidency) has taken a neutral position on Russia’s war in Ukraine, it has long been locked in a strategic rivalry with China, owing partly to the fact that the two countries share a long border, much of which is disputed. Thus, even if India does not become a formal ally to Western countries, it will continue to position itself as an independent, rising global power whose interests are more aligned the West than with China and China’s de facto allies (Russia, Iran, North Korea, and Pakistan).
Moreover, India is a formal member of the Quadrilateral Security Dialogue, a security grouping with the US, Japan, and Australia whose explicit purpose is to deter China; and Japan and India have longstanding friendly relations and a shared history of adversarial relations with China.
Japan also invited Indonesia, South Korea (with which it is pursuing a diplomatic thaw, driven by common concerns about China), Brazil (another key Global South power), African Union Chair Azali Assoumani, and Ukrainian President Volodymyr Zelensky. The message was clear: The Sino-Russian friendship “without limits” is having serious consequences for how other powers perceive China.
But going even further, the G7 devoted a substantial portion of its final communiqué to explaining how it will confront and deter China in the years ahead. Among other things, the document decries Chinese policies of “economic coercion” and stresses the importance of an Indo-Pacific partnership to thwart China’s efforts to dominate Asia. It criticizes Chinese expansionism in the East and South China Seas, and it includes a clear warning to China not to attack or invade Taiwan.
In taking steps to “de-risk” their relationships with China, Western leaders have settled on language that is only slightly less aggressive than “de-coupling.” But more than the diplomatic argot has changed. According to the communiqué, Western containment efforts will be accompanied by a policy to engage the Global South with large investments in the clean-energy transition, lest key countries there be drawn into China’s sphere of influence.
No wonder China could not contain its rage against the G7. In addition to overlapping with a Quad meeting, the Hiroshima summit comes at a time when NATO has begun its own pivot to Asia, and when the AUKUS alliance (comprising Australia, the United Kingdom, and the US) is gearing up to confront China in the Pacific.
Meanwhile, the Western-Chinese tech and economic war has continued to escalate. Japan is imposing restrictions on semiconductor exports to China that are no less draconian than those put in place by the US, and the Biden administration is pressuring Taiwan and South Korea to follow suit. In response, China has banned chips made by US-based Micron.
With the US chipmaker Nvidia quickly becoming a corporate superpower – owing to surging demand for its advanced chips to power AI applications – it, too, will likely face new constraints on selling to China. US policymakers have made clear that they intend to keep China at least a generation behind in the race for AI supremacy. Last year’s CHIPS and Science Act introduced massive incentives to reshore chip production.
The risk now is that China, at pains to close its tech gap with the West, will leverage its dominant role in producing and refining rare- earths metals – which are crucial for the green transition – to retaliate against the US sanctions and trade restrictions. China has already increased its exports of electric vehicles by almost 700% since 2019, and it is now starting to deploy commercial airliners to compete with Boeing and Airbus.
So, while the G7 may have set out to deter China without escalating the cold war, the perception in Beijing suggests that Western leaders failed to thread the needle. It is now clearer than ever that the US and the broader West are committed to containing China’s rise.
Of course, the Chinese would like to forget that today’s escalation owes as much, if not more, to their own aggressive policies as to US strategy. In recent interviews marking his 100th birthday, Henry Kissinger – the architect of America’s “opening to China” in 1972 – has warned that unless the two countries find a new strategic understanding, they will remain on a collision course. The deeper the freeze, the greater the risk of a violent crack-up.
Read more here.
U.S. Fiscal Profligacy and the Impending Crisis
By David P. Goldman (2021)
Massive demand-side stimulus combined with constraints on the supply-side in the form of higher taxes is a sure recipe for inflation and eventual recession. The Fiscal Year 2021 US budget deficit will amount to 15% of US GDP after the passage of an additional $1.9 trillion in demand stimulus, according to the Committee for a Responsible Federal Budget, a proportion that the United States has not seen since World War II.
It is hard to avoid the conclusion that the Biden Administration’s fiscal irresponsibility arises from a cynical political calculation. It evidently proposes to employ the federal budget as a slush fund to distribute benefits to various political constituencies, gambled that the avalanche of new debt would not cause a financial crisis for the 2022 Congressional elections. The additional $2.3 trillion in so-called infrastructure spending that the Administration proposed consists mainly of handouts to Democratic constituencies.
During the 12 months ending in March, the deficit stood at 19% of GDP. Even worse, the Federal Reserve absorbed virtually all the increase in outstanding debt on its balance sheet. In the aftermath of the 2009 recession, when the deficit briefly rose to 10% of GDP, foreigners bought about half the total new issuance of Treasury debt. During the past 12 months, foreigners have been net sellers of US government debt. (See Figure 1.) The US dollar’s role as the world’s principal reserve currency is eroding fast, and fiscal irresponsibility of this order threatens to accelerate the dollar’s decline.
This is a bubble on top of a bubble. The Federal Reserve buys $4 trillion of Treasury securities and pushes the after-inflation yield below zero. That pushes investors into stocks. Foreigners don’t want US Treasuries at negative real yields, but they buy into stock market which keeps rising, because the Fed is pushing down bond yields, and so forth.
At some point, foreigners will have a bellyful of overpriced US stocks and will stop buying them. When this happens, the Treasury will have to sell more bonds to foreigners, but that means allowing interest rates to rise, because foreigners won’t buy US bonds at extremely low yields. Rising bond yields will push stock prices down further, which means that foreigners will sell more stocks, and the Treasury will have to sell more bonds to foreigners, and so forth.
The present situation is unprecedented in another way: Not in the past century has the United States faced a competitor with an economy as big as ours, growing much faster than ours, with ambitions to displace us as the world’s leading power. China believes that America’s fiscal irresponsibility will undermine the dollar’s status as world reserve currency.
Here is what Fudan University Professor Bai Gang told the Observer, a news site close to China’s State Council:
Simply put, this year the United States has issued a massive amount of currency, which has given the US economy, which has been severely or partially shut down due to the COVID-19 epidemic, a certain kind of survival power. On the one hand, it must be recognized that this method . . . is highly effective. . . . The US stock market once again hit a record high.
But what I want to emphasize is that this approach comes at the cost of the future effectiveness of the dollar lending system. You do not get the benefit without having to bear its necessary costs.
A hegemonic country can maintain its currency hegemony for a period of time even after the national hegemony has been lost. After Britain lost its global hegemony, at least in the 1920s and 1930s, the pound sterling still maintained the function of the world’s most important currency payment method. To a certain extent, the hegemony of the US dollar is stronger than any currency before it. . . .
We see that the US dollar, as the most important national currency in the international payment system, may still persist for a long time even after US hegemony ends. Since this year, the US has continued to issue more currency to ease the internal situation. The pressure will eventually seriously damage the status of the US dollar as the core currency in the international payment system.
America has enormous power, but the Biden Administration and the Federal Reserve are abusing it. And China is waiting for the next crisis to assert its primacy in the world economy.
Read more here.
The end of dollar supremacy
By John Rapley
The West's imperial lifecycle is drawing to a close. In January 1999, in a Washington of bustling bars and soaring stock markets, Bill Clinton rose to deliver his State of the Union address. America was so untroubled by threat or misfortune that it had spent the previous year debating the precise significance of fellatio. But Clinton, who had survived the scandal, exuded unshakeable personal and civilisational self-confidence. Declaring “a new dawn for America” and a future of “limitless possibility”, he called on Congress to decide how to spend all the record surpluses the government was soon going to enjoy. America’s only inconvenience, it seemed, was too much money. Today, as America struggles to support a crumbling dollar, marshal allies against Russia, ward off a rising China, it’s easy to forget that barely two decades ago it strode the planet like a colossus.
But pride before a fall has an ancient lineage, and only the arrogance of the historical present could treat American imperial decline as a novel phenomenon, let alone mere metaphor. Some 16 centuries before Clinton, in an uncannily similar setting of domes and colonnades, a Roman orator stood before the imperial Senate to deliver an equally triumphal speech. It was 1 January 399, inauguration day for the latest in a millennium-old line of consuls, the most prestigious Roman office. This year’s candidate was Flavius Mallius Theodorus. After rising to praise his audience — “here I see gathered all the brilliance of the world” — he went on to proclaim the dawn of a new Golden Age, celebrating the unparalleled prosperity of the Empire.
Rome’s rapid comeuppance is now a historical parable that America can learn from in real-time. Because the rhetoric of Clinton and his ancient predecessor was spoken from atop the crest of the same wave: an identical process of rise and decline which Peter Heather and I, in our new book, call “the imperial lifecycle”. Empires grow rich and powerful and attain supremacy through the economic exploitation of their colonial periphery. But in the process, they inadvertently spur the economic development of that same periphery until it can roll back and ultimately displace its overlord.
America has never thought of itself as an empire, mainly because with the exception of the few islands in the Pacific and Caribbean, it has never accumulated a large network of overseas territories. But this modern European model, in which colonies were (and in a few cases, still are) administered by governors who answered directly to the imperial capital, was but one of many. The late Roman Empire, for instance, functioned as an “inside-out” empire — effectively run from the provinces, with Rome serving more as a spiritual than administrative capital. What held it all together was the shared culture of the provincial nobility that ran it, most of whom has provincial origins but had been socialised into what Peter Heather has called the imperial culture of “Latin, towns and togas”.
The American Empire — or more accurately the American-led Western empire — mirrors this confederal model, with an updated cultural-political glue that we might call “neoliberalism, Nato and denim”. Under this regime, the nation-state was primary, borders were inviolable, relatively open trade and capital movement prevailed, governing elites were committed to liberal principles, and bureaucracy was based on increasingly standardised education systems (with economics training assuming an increasingly central role as the century progressed). But since its establishment in 1944 at the Bretton Woods conference, its fundamental economic model has been in the timeless imperial mould: exploitation of the periphery to the benefit of the imperial core.
The great wave of decolonisation that followed the war was meant to end that. But the Bretton Woods system, which created a trading regime that favoured industrial over primary producers and enshrined the dollar as the global reserve currency, ensured that the net flow of financial resources continued to move from developing countries to developed ones. Even when the economies of the newly-independent states grew, those of the G7 economies and their partners grew more. And while the treaty arrangements that cemented this system were periodically updated at international summits, even then the US and its main trading partners would typically draft a deal for sign-off by everyone else. As a result, the gap between rich and poor countries grew bigger than ever.
Clinton was speaking at the all-time peak of this American imperial order. Two years earlier, a financial crisis that had begun in Asia had ricocheted across the developing world. And when protesters filled streets and governments across the Global South collapsed, the rich in developing countries panicked and sent their money into the safe haven of US Treasury paper. That influx of cash sent the late Nineties US economy into overdrive, creating the abundance that Clinton took to be endless.
In fact, as he was speaking, the overall flow of global capital had already begun moving the other way. By this time, quietly but steadily, developing countries like China and India had shaken off the torpor of earlier decades and were starting to grow in leaps and bounds. The brief recessions induced in developing countries by the Asian Crisis and the consequent boom in the West obscured the fact that the really dynamic economies of the world were now in what was called the Third World. Once the protests died down and normal business resumed there, investors in the developing world — followed by fund-managers in Western countries — sent their money back to the growing economies of the global periphery.
In the Roman Empire, peripheral states developed the political and military capacity to end Roman domination by force. In the modern case, the conflict was fought through diplomatic, economic and political channels. The year of Clinton’s panegyric now looks pivotal — not only for the changing capital winds, but because of what happened at that year’s World Trade Organization summit in Seattle. After decades in which they’d more or less signed off on done-and-dusted deals, delegations from some of the big developing countries got together, refused to go along and brought the negotiations to a halt. As their diplomatic and political capacity rose to match their economic heft, developing countries were now demanding, and getting, better deals.
The Third World was rising, and it quickly showed in the economic data. On the eve of the millennium, the cusp of its supremacy — a supremacy no other empire in history had come remotely close to matching — the West accounted for four-fifths of the global economy. Today, that’s down to three-fifths, and falling. The fastest-growing economies in the world are now all in the old periphery; the worst-performing economies are disproportionately in the West. These are the economic trends that have created our present landscape of superpower conflict — most saliently between America and China. A once-mighty empire is now challenged and feels embattled. Taken aback by the refusal of so many developing countries to join in isolating Russia, the West is now waking up to the reality of the emerging, polycentric and fluid global order.
These trends are only set to continue. But this is where America and Rome diverge. The Roman Empire existed at a time where there was one fixed factor of production: land. The economy was therefore necessarily steady-state and overwhelmingly agricultural. For the periphery to rise, the core had to fall, as the barbarian invaders seized physical Roman real estate. But in the modern world, where continued technological progress means economies can keep moving forward, if more slowly, decline may only need to be relative. The West can continue to grow, and to play a pre-eminent role in global governance.
But meek acceptance isn’t what builds empires in the first place. The danger is that, obsessed with past glories and tempted by a desire to turn back the clock, Western countries attempt to restore their greatness. Since its own imperial marginalisation, Britain has been possessed by a manic and counter-productive declinism, most recently responding to the 2008 crash with a programme of austerity that has sunk its economy into what may become a permanent decay. America’s interminable annual wranglings over debt ceilings could, if they continue, diminish the attractiveness of the dollar, at a time when developing countries are looking for alternatives.
The fate of the West hangs in the balance, and it must stop drawing the wrong lessons from Roman history, not the least of which is a stubborn refusal to accept a diminished role in its world. After all, the Roman Empire might have survived had it not weakened itself with wars of choice on its ascendant Persian rival. By finding a way to coexist peacefully with its own rival China, however uncomfortable that may be, the US could do itself and the world a favour.
Read more here.