Mar 19th 2018

China’s Distorted Vision of the World

by Daniel Wagner

 

Daniel Wagner is the founder and CEO of Country Risk Solutions and a widely published author on current affairs and risk management.

Daniel Wagner began his career at AIG in New York and subsequently spent five years as Guarantee Officer for the Asia Region at the World Bank Group's Multilateral Investment Guarantee Agency in Washington, D.C. After then serving as Regional Manager for Political Risks for Southeast Asia and Greater China for AIG in Singapore, Daniel moved to Manila, Philippines where he held several positions - including as Senior Guarantees and Syndications Specialist - for the Asian Development Bank's Office of Co-financing Operations. Prior to forming CRS he was Senior Vice President of Country Risk at GE Energy Financial Services. He also served as senior consultant for the African Development Bank on institutional investment.

Daniel Wagner is the author of seven books: The America-China Divide, China Vision, AI Supremacy, Virtual Terror, Global Risk Agility and Decision Making, Managing Country Risk, and Political Risk Insurance Guide. He has also published more than 700 articles on risk management and current affairs and is a regular contributor to the South China Morning Post, Sunday Guardian, and The National Interest, among many others. (For a full listing of his publications  and media interviews please see www.countryrisksolutions.com).

Daniel Wagner holds master's degrees in International Relations from the University of Chicago and in International Management from the Thunderbird School of Global Management in Phoenix. He received his bachelor's degree in Political Science from Richmond College in London.

Daniel Wagner can be reached at: daniel.wagner@countryrisksolutions.com.

The emergence of any new global power often profoundly shifts the political and economic landscape and causes considerable discomfort among the established order. China’s resurgence is doing that, but apart from the inevitable uncertainty and tension associated with any shift in global power, much of the angst other nations in Asia and around the world are feeling with respect to Beijing’s rise is its failure to acknowledge a willingness or desire to play by many of the same rules that the rest of the world plays by.

China’s leaders nurse a profound grievance against perceived “colonialists” and “aggressors”, part of a well-conceived strategy to portray China as needing to constantly be on the defensive.  On one hand, Beijing seeks to leverage benefits consistent with being a developing country, playing upon the West’s historical guilt over colonialism while exploiting its continued belief that economic development will inexorably lead to pluralism. On the other hand, it does not hesitate to attempt to parlay its growing power into influence whenever and wherever it can, in a Janus-like strategy that gives Beijing leeway and flexibility in crafting its international political and economic policy on its own terms.  

At home the Chinese Communist Party (CCP) remains deeply paranoid that its rule could fall apart at any time, even though – given its vise-like control over the Chinese people, economy and information flow – it must realize that this is an extremely remote possibility; The CCP’s perpetuation of state capitalism ensures the political survival of the ruling class. As a government that now presides over the second largest (soon to be the largest) economy in the world -- and one that depends intimately on flows of international goods and capital -- the CCP no longer simply practices state capitalism at home, it applies it globally with great success.

Although the West has long played mercantilist games, it gradually migrated toward the belief that liberalization of international markets is mutually beneficial for all countries. But China continues to see international economics as a zero-sum game, finding its “developing” status a convenient cloak and justification for the application of global state capitalism. It engages in beggar-thy-neighbor policies it deems advantageous, and distorts the world’s markets according to the dictates of its political demands, while dismissing criticism of such behavior as unfair to a developing country. Similarly, on political issues, China portrays naked self interest as the reasonable demands of a developing country and displays this behavior in nearly every arena in which it interacts with the world, from foreign aid and investment to multilateral institutions and international relations.

The deliberate undervaluation of the yuan in the previous decade pointed to further distortions of international markets by China’s state capitalism. The Peterson Institute for International Economics estimated that the yuan was undervalued by between 20 and 40 percent at the time, amounting to a massive export subsidy. However, the yuan’s undervaluation was just the tip of the iceberg. As importantly, Chinese banks receive a hidden subsidy: a wide spread between the rates paid on household deposits and the rates banks charge for loans. Domestic bankers, who are in effect state employees (given that the banking system is largely government run) funnel the artificially cheap money to state-owned enterprises. Since households have no investment alternative to domestic banks, they in effect provide a huge subsidy to Chinese industry. The CCP’s state capitalism mandates growth and employment through exports and investment at all costs in order to ensure its political supremacy.

Politically, China is an irredentist power that arguably has done more to advance global nuclear proliferation than any other state apart from Pakistan, while routinely doing business with some of the world’s worst governments. Apart from the issues of Taiwan and the South China Sea, China lays claim to much of India’s state of Arunachal Pradesh and caused major jitters in 2009 with incursions into the territory combined with strident rhetoric. It has blocked Asian Development Bank projects approved for India over the issue. It helped Pakistan develop its nuclear arsenal and ballistic missile technology.  The largest recipients of Chinese military aid have in the past been India’s neighbors, including Myanmar, Pakistan, Nepal, Bangladesh, and Sri Lanka. India fears that China remains engaged in a concerted campaign to undermine and contain it. In addition, China continues developing its “string of pearls” strategy in the Indian Ocean, investing significant resources to develop deep water ports in the Bay of Bengal, the Arabian Sea, Pakistan, Sri Lanka, and the Seychelles. These appear to be a basis for the projection of a powerful naval presence into what India considers its backyard.  

Meanwhile, China blocks action against or actively supports a rogue’s gallery of nations, among them Iran, North Korea, Sudan, and Zimbabwe. It claims it has no influence over their actions, based on its policy of non-interference, but China’s support clearly requires a quid pro quo, be it natural resource wealth, business ties, or a geopolitically strategic use. China has avoided sanctions from the international community, partly due to the image it has cultivated of itself as a non-interfering developing country. While the West has also projected its power and dealt with equally noxious states, domestic political constraints make such “deals with the devil” increasingly difficult to sell to electorates attuned to human rights, ethics, and governance, and who are provided with the freedom of speech to object to their governments’ actions. No such freedom exists in China.

As long as the CCP continues to govern, China will continue to comport itself according to its zero-sum vision of the world. And with President Xi now president for life, the most the West can hope for is that the CCP’s interests converge toward those of the larger globalized world. Even as China speaks of a peaceful rise within the existing international structure, its behavior, which at times may be described as impertinent, belies the West’s desire to have faith in its words. Indeed, many nations around the world appear to be running out of patience with China’s uncompromising approach to the promotion of its own self-interest. Of course, other leading nations act in their own self-interest, but they do not have the same disdain for human rights, the same desire to control their own people, or to create their own set of rules to abide by.

 

Daniel Wagner is CEO of Country Risk Solutions and author of Virtual Terror.

This article first appeared in the Sunday Guardian.

 


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