By Gaurav Sharma
In the short span of three weeks this month, the Shanghai Stock Exchange shed a massive $ 4 trillion in stock value, sparking renewed suspicion on China as the economic counterpart to America’s hegemony in the global financial markets.
The abrupt crash, apart from casting a shadow on the strength of the Chinese currency and markets has also brought to question the reformist striving of Xi Jinping, who was given the mandate of not only sweeping-out rampant corruption from the Communist Party but also of economically empowering a burgeoning middle class.
But does the pitch alarm raised by Western media over the Chinese stock market plunge and notions of a Chinese “slowdown” hold any merit to predictions of an impending economic collapse or is it merely a classic case of jumping the gun via concoction of overblown fallacies?
Almost as soon as it plummeted, the market bounced back with much gusto. Despite predictions that its growth would be laggard this year, the Chinese stock market has managed to sustain the 7 per cent quarterly growth rate it had aimed for.
Firstly, the notion that a vast majority of the Chinese population is invested in the stock market is a myth. The Financial Times has quashed this misconceived notion by stating that a meager 6 per cent of the Chinese people have invested in the market which largely include a small coterie of billionaires.
Moreover, the larger Chinese industrial workers do not have their wages held-up in stock options and neither does the elderly population have its retirement pension at risk. This is in stark contrast to the intertwined nature of the financial crisis that rocked the developed world in 2008.
(Employees had their salaries connected as part of stock-options with New York Stock Exchange and more than 50 per cent of the American population was invested in the stock market)
Secondly, the ‘free market’ in China is kept under close watch by the Communist Party, the founding and ruling party of China comprising of more than 88 million workers. Although many leaders in the party were indicted for corruption charges, people on the ground believe that with the change in leadership, China would be restored back into a successful socialist society.
In fact, Xi Jinping has been described by the Economist as a leader enjoying ‘unusual popularity’, surpassing that of Mao Zedong, the renowned Chinese communist revolutionary who founded the Communist Party of China(CPC).
In line with the new leadership of Xi Jinping’s ambitious ‘Going out’ strategy, China has shifted from an expansionary mode to an exporter of goods and services, a policy measure aimed to appease its South East neighbours of the hawkish military stance undertaken in the South China Sea.( Also known as ‘Peripheral Diplomacy’ in geo-political parlance)
Massive infrastructural projects spanning across construction of road, railways, bridges and hospitals have been put under the charge of Chinese state-owned companies in emerging nations such as Ecuador and the Galapagos Islands as part of its emergence into Latin America and the Pacific.
As a counterpart to US’ construction of the Panama Canal to link the Atlantic and the Pacific and serve as a detour of South America, China has decided to build a 170-mile canal cutting through Lake Nicaragua.
Under the One Belt One Project, China has mooted plans to revitalize the Silk route; comprising of the New Silk Road Economic Belt connecting it with Europe through Central and Western Asia and Maritime Silk Road providing China with connectivity to South Asia and Africa. China has also undertaken major construction activity in the Gilgit-Baltistan region, a disputed territory between India and Pakistan. It is building a 7000 megawatt power hydroelectricity plant in Bunji.
For fostering such a development strategy, China has allocated a massive corpus of $40 billion to the “Silk Road Fund” to ensure financial flows within the network of global infrastructure plans.
Meanwhile, in the economic space, the Chinese state development bank has overtaken the World Bank in international lending. To add to the growing clout of its currency -the renminbi, China has launched an internationally funded organization called the Asian Infrastructure Investment Bank (AIIB), as a direct rival to the US-backed World Bank and the Asian Development Bank.
As a reminder of China’s emergence as the new economic powerhouse, the institution has drawn the support of 57 countries, including allies of USA. The unprecedented assent came despite attempts by the US to forestall such moves by kindling doubts about the loosening of lending standards.
Although the Eastern neighbors, Philippines and Japan refused to join the bank citing it as a plan to buy the loyalty of friends and working on “questionable” principles of governance and transparency, the bank is projected to grow to almost twice its size-from $ 50 billion to $100 billion.
The launch of the AIIB follows the establishment of the New Development Bank, popularly known as BRICS Bank– jointly funded by India, Brazil, India, China and Russia to counter IMF as a contingent reserve facility in 2010.
Declining western dominance?
American approach to the meteoric rise of China has been defensive, as a natural reaction to hold on to its fast slipping hegemonic power. It had castigated Britain for siding with the AIIB, saying that the bank would give China unilateral powers (26 per cent voting share).
While stating such an argument America innocuously forgets that under the Bretton Woods system, it possesses sweeping powers over the appointment of heads of World Bank while under the IMF quota it has almost four times as much power as China in its funding programs.
Europeans have pursued largely the same course, with the IMF being a puppet body in their hands. Back in 2010, almost every emerging market economy which was member of the IMF had opposed the Troika plan to bailout Greece through loans (a plan which would make it more indebted) and had instead argued for debt relief. The suggestions were ignored and have landed Greece to the brink of economic collapse.
Keeping in mind, the economic bullying that the world has seen through the domination of international financial bodies led by the US and EU, isn’t it appropriate for the world to side-line itself from the monopoly of US dollar and the Euro and instead settle financial exchanges in local currency?
In line with China’s ambition for breaking the monopoly of the west in global financial transactions, Russia has made clear its plans for achieving economic independence by 2030.
Under the Shanghai Cooperation Organization (SCO), Russia and China are vying for merging China’s Silk Road plan with Russia’s Eurasian Economic Union. The fine-print of the plan is to fulfil Russia’s demand for capital, in light of the tighter western sanctions imposed against it while at the same time allow China the leeway to reach the west by crossing a single unified tariff zone.
Moreover, the membership to the SCO, which includes Central Asian nations such as Tajikistan, Kazakhstan, Kyrgystan, Russia, China and is expanding by the day. During the Ufa talks, Russian premier Vladimir Putin said that he will invite Iran to join the SCO while Azerbaijan, Armenia, Cambodia and Nepal will join the SCO as dialogue partners. Meanwhile, India and Pakistan will become full time members.
While critics view the rise of China with much suspicion, raising concerns that “American imperialism would now be replaced by Chinese imperialism”, a more correct assertion, will be that the rise of the dominant unipolar world after the cold war is being trampled over and replaced by a flourishing multi-polar realpolitik.
A multi-currency global financial structure spells doom for the American hijacking of the global economy. A new evolutionary phase in geopolitics is brewing, a welcome change indeed.