Has the world finally tilted towards China?

As Putin stole a march on the United States over Syria and as Obama saw his much-vaulted participation at the APEC Summit in Bali derailed by domestic squabbles, the unspoken question is whether this may signal a global tilt away from sole American leadership.

To be sure, U.S. military strength remains supreme. But this is not as decisive as it appears in influencing which way the geopolitical wind blows. Short of an all-out war, leaders across the globe, while welcoming an American military umbrella, tend to be more concerned with economics and employment. The question that follows is what would be the resultant power dynamics and what role is China capable of playing.

In Foreign Policy, an authoritative U.S foreign relations journal, doubts have been expressed by such scholars as Minxin Pei, senior associate at the Carnegie Endowment for International Peace. In July/August 2009, he cautioned, “Don't believe the hype about the decline of America and the dawn of a new Asian age. It will be many decades before China, India, and the rest of the region take over the world, if they ever do.”  (1).

This was contradicted six months later in the same journal by the late Robert Fogel, winner of the 1993 Nobel Memorial Prize in Economics and Professor of the University of Chicago Booth School of Business. He reckoned that “China’s economy would grow to $123 trillion by 2040, or nearly three times the economic output of the entire globe in 2000. China's per capita income will hit $85,000, more than double the forecast for the European Union, and also much higher than that of India and Japan.” (2).

So now, three years on, who seemed to be right?

According to the CIA World Fact Book (2003-12), China’s GDP per capita was $6,100 (estimated) by 2012, compared with Japan’s $46,000 and the United States’ $50,000. China has vowed to quadruple its GDP in two decades so as to attain the status of a moderately well-off nation by 2020. If China’s past economic feat is repeated, catching up with Japan if not the United States in per capita terms in 30 years seems not improbable.

However, China, along with the rest of Asia, is now growing at a much slower rate. Indeed, instead of a super-charged growth strategy, the nation is changing course towards a slower and hopefully more sustainable pace. Moreover, huge obstacles remain. Professor David Shambaugh, a Senior Fellow at the Brookings Institution, doubts if China under authoritarianism can achieve breakthrough innovation. The spectre of collapse, like that of the former USSR, serves to reinforce political inertia, entrenched by powerful vested interests including the military and large state-owned enterprises. An assertive nationalism born of centuries of victimhood feeds into belligerence towards neighbours (3).

Nevertheless, notwithstanding the familiar litany of ills including corruption and pollution, the reality remains that the productivity of a fifth of mankind is now being unleashed, albeit starting from a relatively low base. The following facts are instructive.

First, China is churning out some 7 million university graduates a year. By 2020, the country will have 195 million graduates, more than the entire workforce of the United States. Already, China has become the world's top filer of patents and trademarks, according to the World Intellectual Property Organization (WIPO) 2012 Report. The Royal Society expects China to surpass the U.S in scientific citations this year.

Second, China is witnessing the fastest and largest urbanization drive the world has ever seen. 221 new cities each with a population of over one million will be added by 2025, compared with only 35 of such cities in Europe at present. This will serve to grow China's massive consumers. According to the Brookings Institution (4), the global consumption share of the top ten countries by 2020 would be China (13%), US (12%), India (11%), Japan (6%), Germany (4%), Russia (3%), France (3%), Indonesia (3%), Mexico (3%) and the UK (3%). Likewise, the McKinsey Quarterly (5) shows that urban consumers (those with $9,000 - $34,000 household income in Purchasing Power Parity terms equivalent to those in Brazil and Italy) are expected to grow from 4% (2000), 68% (2012), to 75% (2022) of urban population.

Third, notwithstanding rising wages, China remains the hub of a global supply and production chain thanks to its massive economy of scale and excellent global transportation links. Five of the world's top eight container ports are in China. A Working Paper (6) by Arvind Subramanian and Martin Kessler of the Petersen Institute for International Economics highlights the epochal shifts in globalization and economic power in the 21st century, in which a rising China plays an increasing powerful role as a “mega-trader”, reinforced by a multiplicity of regional free trade areas and agreements.

Fourth, China is quietly developing global transportation infrastructure of epic proportions linking vast continents and distant shores to the Middle Kingdom. A monumental railway project is being planned linking the Port of Shenzhen to Kunming in Western China and onwards to Myanmar, Bangladesh, India, Pakistan, and Iran, and then across Turkey into Rotterdam in the Netherlands (7). Known as the “Third Eurasian Land Bridge” (8), the proposed high-speed rail network will cross 20 countries and measure 15,000 kilometres, a much shorter and less geopolitically-vulnerable distance than by sea via the Indian Ocean through the Malacca Straits. A branch line would begin in Turkey, crossing Syria and Palestine and end in Egypt, providing a rail link from China into Africa. In addition, a project with a 50-year concession has recently been approved by Nicaragua's Congress to build a 286-km canal connecting the Caribbean with the Pacific via Lake Nicaragua, at a cost of $40 billion, to be completed in 6 years (9). The canal can serve the largest container vessels which can only be accommodated at Shanghai’s Lianyungang as the world’s deepest container port. Notably, the latter is planned to be the starting point of the Second (or New) Eurasian Land Bridge which runs across the whole of China to Kazakhstan and via Russia and Belarus over Poland to the markets of the European Union.

Finally, while America is weighed down with debt and continues to resort to the money-printing machine, faith in the greenback is quietly seeping away. The G20 is supporting the Special Drawing Rights to shore up the world’s financial order as the RMB (the Chinese yuan) is speeding up its trajectory to becoming one of the world’s leading reserve currencies. The days of dollar dominance appear numbered (10).

Naturally, with an aging population profile, China is likely to grow old before getting rich in per capita terms. Assuming that China is able to overcome the so-called "Middle Income Trap" (by no means a foregone conclusion), her per capita GDP may well not reach beyond that of a moderately well-off country like Turkey even by 2050. But then, if the per capita income of Turkey is multiplied by a fifth of mankind, the economy would be larger than the United States by a wide margin.

In measuring a country's overall strength, per capita income alone could be a misleading yardstick. Few know that Macao, a Special Administrative Region next to Hong Kong, has the world's third largest per capita income (due to its mega-casino economy). That doesn't make Macao a world power. But when China's economy with overwhelming global connectivity grows to be the world's largest, the whole world should be well advised to sit up and ponder.

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 (1)    “Think Again: Asia’s Rise”, Minxin Pei, Foreign Policy, July/August 2009         http://www.foreignpolicy.com/articles/2009/06/22/think_again_asias_rise (accessed on 5 October, 2013)

(2)   “$123,000,000,000,000* China’s estimated economy by the year 2040. Be warned”, Robert Fogel, Foreign Policy, January/February, 2010

(3)    David Shambaugh, China Goes Global: The Partial Power,New York: Oxford University Press, 2013

(4)         Homi Kharas, “The Emerging Middle Class in Emerging Countries,” Brookings Institution, 20 June 2011   .

(5)         Mapping China’s Middle Class, McKinsey Quarterly, June, 2013

(6)         Arvind Subramanian and Martin Kessler, Working Paper 13-6, Petersen Institute for International Economics, Washington D.C., June 2013 http://www.iie.com/publications/interstitial.cfm?ResearchID=2443 (accessed on 5 October, 2013)

(7)         F.William Engdahl, “Eurasian Economic Boom and Geopolitics: China’s Land Bridge to Europe: The China-Turkey High Speed Railway,” Centre for Research on Globalization (27 April 2012), http://www.globalresearch.ca/eurasian-economic-boom-and-geopolitics-china-s-land-bridge-to-europe-the-china-turkey-high-speed-railway/30575 (accessed on 5 October, 2013)

(8)         The “First Eurasian Land Bridge” runs through Russia, connecting Rotterdam to Russia’s Trans-Siberian Railway across 13,000 kilometres The “Second (or New) Eurasian Land Bridge” runs 10,900 kilometres including 4,100 kilometres in China, which is parallel to one of the ancient routes of the Silk Road, linking the Port of Lianyungang (near Shanghai) across the whole of China to Kazakhstan and onwards via Russia and Belarus over Poland to the markets of the European Union.

(9)         Nicaragua’s proposed canal, The Economist (5 October, 2013)

(10)     James Richards, “Currency Wars – The Making of the Next Global Crisis”, Portfolio/Penguin, New York, 2011, Chapter 11 – Endgame – Paper, Gold or Chaos – Special Drawing Rights, pp. 229-234.