When China Rules the World

by Martin Jacques

  THE FUTURE OF THE INTERNATIONAL SYSTEM

  A key characteristic of the world’s leading power is its ability to create and organize an international economic system to which other nations are willing or obliged to subscribe. Britain ’s version was the international gold standard system which, prior to 1914, encompassed a large part of the world in some shape or form. In the interwar period, as Britain declined, this gave way to an increasingly Balkanized system based on currency areas, protected markets and spheres of interest. After 1945 the United States became the world’s leading power and the new system that was agreed at Bretton Woods, and further elaborated in the years that followed, was essentially an American creation, made possible by the fact that the US economy was responsible for over one-third of global GDP at the end of the war. That system only became truly global when China joined the WTO in 2001 and the former members of the Soviet bloc queued up to join the international system following the collapse of the Soviet Union. With China’s growing economic power, the greatest single threat to the United States’ global economic pre-eminence, apart from its own decline, lies in China’s attitude towards the international system. [1210] Since Deng Xiaoping decided that the country’s interests would be best served by seeking admission to it, China has become an integral part of the international system, but China ’s attitude towards it will not necessarily always remain unambiguously supportive. [1211]

  Take the IMF, for example, of which China is a member. During the Asian financial crisis, Malaysia and Japan proposed that there should be an Asian Monetary Fund, such was the level of dissatisfaction within the region about the role of the IMF. This was strongly opposed by both the US and the IMF, which correctly saw the proposal as a threat to the IMF’s position, and also by China, which was concerned that it had emanated from Japan. China has since abandoned its opposition and is now exploring with others in the region the possibility of creating such a fund. Any such body would undoubtedly have the effect of seriously weakening the role of the IMF. In the event of another Asian financial crisis, it is likely that a regional financial solution would play a much bigger role than was the case before. The power of the IMF, moreover, has declined significantly over the last decade or so, with its role as a lender having diminished. In fact sovereign wealth funds have injected more capital into emerging markets in recent years than the IMF and World Bank combined (see Figure 40). This brings us to the World Bank. As China ’s financial power expands, its ability to make loans and give aid will increase dramatically, as we have seen in the case of Africa, where Chinese loans already exceed those made by the World Bank; in time, Chinese aid and loans could dwarf those made by the World Bank on a global basis as well. [1212] Meanwhile the WTO, with the demise of the Doha round — effectively torpedoed by China and India [1213] — together with the growing popularity of bilateral trade agreements, presently looks rather less important than it did a decade ago when trade liberalization was in full swing. The process of trade liberalization in East Asia since 2000, indeed, has largely bypassed the WTO, with China playing a key role through bilateral trade agreements. Another institution of the present international economic system, the G8, acts as a kind of metaphor for the way in which the international system might come to look increasingly less relevant. Bizarrely, China, as of 2009, had still not been admitted as a member — and with the G8 being clearly unrepresentative of the global economy, it now suffers from a chronic lack of legitimacy. [1214] This was explicitly recognized in autumn 2008 when the world was faced with the prospect of the worst global recession since 1945: pride of place was taken not by a meeting of the G8, but a gathering convened by President Bush of a previously obscure entity called the G20, which included not only the rich countries but also China, India, Brazil, South Africa, Indonesia and other developing countries. It represented, at a critical moment, a belated recognition that the rich world no longer had sufficient clout on its own and that the big developing countries needed to be embraced if any action was to be effective.

  The rise of China and the decline of the United States are central to the present global recession. The fact that China is such a huge creditor, based on its propensity to save and export, and the United States such a colossal debtor, based on its addiction to spend and import, reflects a deep shift in the balance of economic power between the two countries. The American consumer boom depended on China ’s willingness to keep lending to the United States through the purchase of US Treasury bonds. In its present enfeebled state, the United States is still enormously dependent on China ’s willingness to continue buying US Treasury bonds, even though the rate of return makes little sense from a Chinese point of view: the resources of a poor country could be put to far better use, as is now being openly discussed in China. [1215] But the Chinese, as I discussed earlier, are in a catch-22 situation: if they start selling US Treasury bonds, or cease buying them, the dollar will plummet and so will the value of their dollar assets. So a Faustian pact lies at the heart of the present relationship between the US and China, which in the longer run is neither economically nor politically sustainable. The United States ’ position as the global financial centre and the dollar as the dominant reserve currency are on a Chinese life-support system. At the heart of the present global financial crisis lies the inability of the United States to continue to be the backbone of the international financial system; on the other hand, China is as yet neither able nor willing to assume that role. This is what makes the present global crisis so grave and potentially protracted, in a manner analogous to the 1930s when Britain could no longer sustain its premier financial position and the United States was not yet in a position to take over from it. Any talk of a global solution to the present economic travails has to confront these highly complex and intractable questions.

  As a harbinger of the decline, and ultimate demise, of the present US-DOMINATED system, there is the prospect of the emergence over the next decade of the renminbi as a reserve currency, which would mean it could be used for trade and be held by countries as part of their reserves. [1216] Having acquired full convertibility against other currencies, it could rapidly assume a very important role outside China, acting as the de facto reserve currency in East Asia, marginalizing the yen, and challenging the position of the euro and ultimately the dollar as global reserve currencies. [1217] It is clear from the American financial meltdown in 2008 that the days when the US economy could sustain the global reserve currency are now numbered.

  The present international system is designed primarily to represent and promote American interests. As China’s power grows, together with that of other outsiders like India, the United States will be obliged to adapt the system and its institutions to accommodate their demands and aspirations, but, as demonstrated by the slowness of reform in the IMF and even the G8, there is great reluctance on the part of both the US and Europe. [1218] Fundamental to this has been the desire to retain these institutions for the promotion of Western interests and values. For example, after China and Russia vetoed the Anglo-American bid to impose sanctions on the Zimbabwe president Robert Mugabe and some of his regime in July 2008, the US ambassador to the UN, Zalmay Khalilzad, stated that Russia’s veto raised ‘questions about its reliability as a G8 partner’. [1219] From late 2008 there was much talk of a new Bretton Woods, but any such agreement would require far more fundamental reform than the West has hitherto entertained. At present the Bretton Woods institutions — the IMF and the World Bank — are dominated by the Western powers. The US still has 17.1 per cent of the quotas (which largely determine the votes) and the European Union an additional 32.4 per cent in the IMF as of May 2007, while China had just 3.7 per cent and India 1.9 per cent. [1220] If these institutions are to be revived as a result of any new agreement, the West will have to cede a large slice of its power to countries like China and India. China, after all, is hardly likely to put very large resources at the disposal of the IMF unless it has a major say in how they are used, as Premier Wen Jiabao
has made clear. [1221] Should reform remain reluctant, partial and ultimately inadequate, then the international system is likely over time to become increasingly bifurcated, with the Western-sponsored bodies abandoning any claim to universality in favour of the pursuit of sectional interest, while a new Chinese-supported system begins to take shape alongside. [1222]

  Figure 40. IMF resources and countries with largest foreign exchange reserves.

  The American international relations scholar G. John Ikenberry has argued that because the ‘Western-centred system… is open, integrated, and rule-based, with wide and deep foundations’, ‘it is hard to overturn and easy to join’: [1223] in other words, it is far more resilient and adaptable than previous systems and therefore is likely to be reformed from within rather than replaced. This is possible, but perhaps more likely is a twin-track process: first, the gradual but reluctant and inadequate reform of existing Western-centric institutions in the face of the challenge from China and others; and second, in the longer term, the creation of new institutions sponsored and supported by China but also embracing other rising countries such as India and Brazil. As an illustration of reform from within, in June 2008 Justin Lin Yifu became the first Chinese chief economist at the World Bank, a position which previously had been the exclusive preserve of Americans and Europeans. [1224] In the long term, though, China is likely to operate both within and outside the existing international system, seeking to transform that system while at the same time, in effect, sponsoring a new China-centric international system which will exist alongside the present system and probably slowly begin to usurp it. The United States will bitterly resist the decline of an international system from which it benefits so much: as a consequence, any transition will inevitably be tense and conflictual. [1225] Just as during the interwar period British hegemony gave way to competing sterling, dollar and franc areas, American hegemony may also be replaced, in the first instance, at least, by competing regional spheres of influence. It is possible to imagine, as the balance of power begins to shift decisively in China ’s favour, a potential division of the world into American and Chinese spheres of influence, with East Asia and Africa, for example, coming under Chinese tutelage, and forming part of a renminbi area, while Europe and the Middle East remain under the American umbrella. In the longer run, though, such arrangements are unlikely to be stable in a world which has become so integrated. [1226]

  11. When China Rules the World

  I want to ponder what the world might be like in twenty, or even fifty, years’ time. The future, of course, is unknowable but in this chapter I will try to tease out what it might look like. Such an approach is naturally speculative, resting on assumptions that might prove to be wrong. Most fundamentally of all, I am assuming that China ’s rise is not derailed. China ’s economic growth will certainly decline within the time-frame of two decades, perhaps one, let alone a much longer period. It is also likely that within any of the longer time-frames there will be profound political changes in China, perhaps involving either the end of Communist rule or a major metamorphosis in its character. None of these eventualities, however, would necessarily undermine the argument that underpins this chapter, that China, with continuing economic growth (albeit at a reduced rate), is destined to become one of the two major global powers and ultimately the major global power. What would demolish it is if, for some reason, China implodes in a twenty-first-century version of the intermittent bouts of introspection and instability that have punctuated Chinese history. This does not seem likely, but, given that China ’s unity has been under siege for over half of its 2,000-year life, this eventuality certainly cannot be excluded.

  The scenario on which this chapter rests, then, is that China continues to grow stronger and ultimately emerges over the next half-century, or rather less in many respects, as the world’s leading power. There is already a widespread global expectation that this may well happen. As can be seen from Table 6, a majority of Indians, for example, believe that China will replace the United States as the dominant power within the next twenty years, while almost as many Americans and Russians believe in this scenario as think the contrary.

  Table 6. Opinions on if and when China will replace the USA as the dominant world power.

  There is a well-nigh global consensus that the Chinese economy will one day be as large as that of the United States, if not larger (see Figure 41). Furthermore, as can be seen from Figure 42, this is regarded, on balance, with a surprising degree of equanimity. In a widely cited report published in 2007, Goldman Sachs projected that China’s GDP, in terms of US dollars, will overtake that of the United States in 2027 to become the world’s largest. [1227] These predictions find reflection amongst the Chinese themselves in the extraordinary optimism that they display about the future, greater than that of any other people, Americans included, and which is obviously based on the transformation in their living standards over the past three decades (see Table 7).

  As China begins to emerge as a global power, what forms will its growing strength take? Or, to put it another way, what will a globally hegemonic China look like? How will its power be expressed and how will it behave in such a scenario? As we peer into the future, history can in a limited way serve as some kind of guide. Over the last two centuries, there have been two globally dominant powers: Britain between 1850 and 1914, and the United States from 1945 to the present. Given that it is the more contemporary example, the American experience, while in no sense acting as a model, can nonetheless serve as a reference point in seeking to understand what a Pax Sinica might be like, including how it might be different. So what are the characteristics of America ’s global hegemony?

  • It has the world’s largest economy.

  • It has one of the world’s highest GDPs per head.

  • It has the world’s most technologically advanced economy and also the most innovative, as exemplified by Silicon Valley.

  • It is by far the world’s strongest military power, which, based on its maritime and air strength, enables it to exercise its influence in every region of the world.

  • Its overall global power means that it is a key factor in the calculations and attitudes of more or less every country in the world. All countries, as a consequence, enjoy, in varying degrees, limited sovereignty, from the UK and Israel to Mexico and even China.

  • The international economic system was predominantly designed and shaped by the United States and its rules are still determined largely by the US.

  • It is home to the best universities in the world and has long attracted some of the most able global talent.

  • English has become the global lingua franca largely because of the power and appeal of the United States.

  • Hollywood dominates the global film market and, to a rather lesser extent, that of television as well.

  • American corporate brand names like Google, Microsoft, Coca-Cola and Wal-Mart tend to predominate over those of other nations. [1228]

  • The United States is not only by far the most important country in the world but New York is also, de facto, the world’s capital. What is American also frequently tends to have a global presence.

  • American history has become part of the global furniture, with its most important landmarks, such as the Declaration of Independence, the Civil War and the frontier spirit, familiar to the entire world. Similarly, its customs, from Thanksgiving Day to Halloween, often have a global resonance.

  • American values — be it individualism, democracy, human rights, neo-liberalism, neo-conservatism, the market, freedom or the frontier mentality — often enjoy a preponderant global influence.

  • American supremacy has been associated with the global dominance of the white race and, by implication, the subordination and subjugation of other races in an informal global hierarchy of race.

  Figure 41. Responses to the question, ‘Do you think that it is more likely that someday China’s economy will grow to be as large as the US economy or
that the US economy will always stay larger than China’s?’

  Figure 42. Responses to the question, ‘If China’s economy were to grow to be as large as the US economy, do you think that would be mostly positive, mostly negative, or equally positive and negative?’

  Table 7. Personal optimism (Nov 2005).

  Figure 43. Projected size of major economies, 2006–2050 (GDP at market exchange rates).

  Even in the case of the United States, however, whose influence is far greater than that of any other nation in history, this overweening power has never been without constraint. The concept of hegemony elaborated by the Italian Marxist Antonio Gramsci — which should be distinguished from the pejorative Chinese use of the term [1229] — entails the complex interaction of coercion and consent, force and leadership, and, though it was originally advanced to explain the nature of power within societies, it is also relevant to international relations. [1230] Gramsci’s idea bears some resemblance to the distinction between hard and soft power employed by the American writer Joseph Nye, though Nye’s appoach is less conceptual and more classifica tory in nature. [1231] Far from hegemony being set in concrete, it is constantly contested and redefined, the balance of power never static, always in motion. Nor is it ever absolute. Even though the United States possesses almost as much military firepower as the rest of the world put together, that does not mean that it can do whatever it likes wherever it chooses, as its disastrous occupation of Iraq illustrated. Moreover, as we have observed, while it enjoys military supremacy, its economic preponderance is steadily being eroded. Although the US is the world’s sole politico-military superpower, its influence varies from sphere to sphere and region to region — and in some cases it remains extremely limited. Take the unlikely example of sport. Although the US generally tops the medals tables in the Olympic Games, there are many sports in which it is not dominant and others from which it is virtually absent. The most popular American sports have remained largely confined to the US in their appeal, with the exception of basketball, while the world’s most popular game is football, a European export. Similarly, apart from its domination of a key sector of the fast-food market, American cuisine enjoys little or no global influence.