China’s Silkroads to World Power

It is an interesting and intense November in international relations. The APEC Summit in Beijing has gathered the leaders of a number of countries, which represent 54% of the world Gdp; 9 of them are G-20 members. The G-20 Summit itself, taking place in Australia (15-16 November), seems to once more highlight the centrality of the Pacific region in the world economy and politics.  At the region’s core, China is slowly but steadily taking the lead and asserting its own centrality. Obama arrived in Beijing in the unpleasant role of the ‘lame duck’, and Japan’s Abe (a staunch nationalist) was ‘forced’ to shake hands with his more powerful Chinese opponent, President Xi Jinping. China had already launched the BRICS New Development Bank, based in Shanghai and with an initial capital of 50 billion dollars. Amongst the initiatives which are changing the shape of the world financial system, another and recent one (launched in the last weeks) deserves then specific mention and attention: the AIIB (Asian Infrastructure Investment Bank). 

First announced by Xi in October 2013, the Bank was formally launched on 24 October 2014 in Beijing. 21 countries have already signed the foundation treaty (or Memorandum of Understanding), and the initial capital stands at 50 billion dollars. AIIB’s main purpose is to finance infrastructure in Asia, and some Asian countries (particularly, giants like India and Indonesia) badly need it. Railways, roads, pipelines, harbours, can boost trade and industry across South and Central Asia and give reality to China’s dream of the ‘New Silk Roads’. IMF- and US-driven institutions do not provide enough capital, and China is putting forward an alternative solution. There are talks of high speed rails from North China to Singapore, and even from Inner China to Turkey and Germany. China has built almost 8,400 km of high speed rail in 6 years, while the USA, despite a comprehensive federal plan adopted in 2009, does not have a single inch of it. Of course China is seen as a reliable partner, especially in this sector. A journey by sea from East Asia to Europe takes 60 days; by train, 14 days. If countries like Kazakhstan, with Chinese support, upgrade the quality of their railroads, the journey time can be brought down to 10 days, and the costs, slashed. This of course would be highly beneficial also for European goods en route to Beijing and Shanghai. 

Infrastructure and trade are important, but the stakes in finance are even higher. Perhaps the US dollar will still be used in the early stages, but it is likely more and more countries will trade in their own currencies and swap to the Yuan Renmimbi. The latter is already in the top ten of the world’s most traded currencies and its role is expanding exponentially. The Yuan’s rise would be a tremendous blow to dollar supremacy. China is expanding in all continents and the People’s Bank has recently acquired a 2,001% stake in Italy’s prestigious Mediobanca as well as stakes of 2% or more in Fiat Chrysler, ENI, ENEL, Telecom Italia, and Prysmian, that is, almost all the biggest groups in the Italian peninsula. Lenovo has then swallowed Motorola for 2.9 billion dollars, a fact that has been almost unnoticed, but represents a major investment in a high-tech US company; could have we imagined it, say, just ten years ago? Meanwhile, VTB, Russia’s second largest bank by assets, announced (10 November) it might leave the London Stock Exchange and list in Shanghai. Shanghai Stock Exchange is about to merge with that of Hong Kong (17 November) in the Shanghai-Hong Kong Stock Connect, a potentially immense ‘Wall Street in Asia’. Gazprom, too, has expressed interest in listing in Hong Kong, a fact which brings us back to the political nature of China’s rise and its links with Russia. 

Western media have pointed to the fact that, thanks to US influence, States such as Japan, South Korea, and Australia have so far refrained from joining China-led AIIB. The opposite is true, if anything. US influence in the region has been very limited, almost close to zero. First, India, a liberal democratic country with historical grievances vis-à-vis China, has contributed to the AIIB foundation. India was supposed to be an ally of Japan and the USA in China-containing…Pakistan, too, has joined, despite its enmity with India. So have traditional US allies (The Philippines), emerging economies with powerful Chinese communities (Malaysia, Thailand), and even Singapore, the key financial hub of Southeast Asia. Three resource-rich countries, Qatar, Kuwait, and Oman, have signed the Memorandum as well. Doha will be the first Yuan hub in the Gulf region – a Trojan horse in the citadel of the Petrodollars? The AIIB has also reached out to Kazakhstan and Uzbekistan, two important former Soviet republics. Here China has to tread softly because Russia is still perceived as the regional hegemon and will hardly give up its historical, political, and economic role in Central Asia. While the future might be cloudy, for the time being Moscow and Beijing can proceed hand-in-hand. 

Russia is in fact the only political player with the capacity to create hurdles to China’s expansion into Eurasia. Its resilience is proved by its politics in Ukraine and the way it is creating division in the EU. Some countries in Central and Eastern Europe, including Austria, the Czech Republic, and Slovakia, have opted for a policy of ‘zero conflict’ with Russia. After all, this makes sense, if we consider their dependence on Russian fossil fuels, a problem which the EU as a whole has never seriously addressed. Germany and Italy, which also depend on the Russian market, should have taken measures far earlier. All in all, these are difficult times for democracy; Europe is divided, and the USA, sliding back. In contrast, China’s rise (together with other BRICS) is not only crucial to trade and finance; China discreetly shows the power of an authoritarian model, which can find sympathisers, in Asia, Africa, and even Europe; Turkey and Hungary (at the heart of the EU!) have praised Beijing’s political system. Hard times for the ‘old’ West.