Xi envisions China-centric world order

WITH the conclusion of the 20th Congress of the Communist Party of China (CPC), it is clear that President Xi Jinping’s grasp over the party and power in China is complete. He has vanquished all domestic competitors and brought in his own clique, even at the risk of dismantling CPC’s traditions.

Xi’s speech on the occasion indicates Chinese willingness to throw its weight about internationally more robustly. The references to local wars and the lack of coyness on the possibility of the use of force to achieve its objectives show that it is not a status-quo power, but wants to change the world order to its own liking. This is a success story of how China has used the international system by joining various global bodies and agreements and then selectively adhering to the pacts.

In this hurry for dominance, questions do arise on Chinese capability and assessments, though not about their intentions. Is China’s assessment of the US a correct one? Since the financial crisis in 2008, Chinese leaders believe that the West, in general, and the US, particularly, are declining powers; their recovery is not considered likely in Chinese thought. Certainly, Chinese growth figures since 2008 have been impressive, unlike those of many Western countries, including the US.

To presume that the West and the US are in terminal decline is to overlook that this is relative to China’s rise, and not an absolute regression. The current rise of the US dollar vis-à-vis other currencies, including the yuan, is an indicator of this contrast. The yuan is at historic lows.

Former US President Donald Trump asserted that the Chinese were currency manipulators; this is pursued by the US Fed in raising the value of the dollar to the detriment of the yuan. How China will get out of this is unclear, because its ability to make the yuan an alternative currency is only partially fulfilled, mainly due to the Ukraine crisis. Its earlier efforts with ASEAN through the Chiang Mai Initiative were not as successful. Therefore, the Chinese assessment that the US lacks the ability and the will to confront China is perhaps misplaced. The dominance that the US has established over all its friends and allies since the Ukraine crisis is visible.

China developed relationships with Europe, Japan, Australia and ASEAN, besides Africa and Latin America, which led to its rise globally. The US pulled many of these countries towards its line of thinking to the point that seven ASEAN nations, which otherwise have close economic relationship with China, joined the Indo-Pacific Economic Framework in 2022. China’s sway is certainly not absolute over areas that it believes are on its periphery.

Did China come out of “hiding your capability and biding your time”, as laid out by Deng Xiaoping, too early? The global financial crisis of 2008 was an opportunity for it to reassess the US and West. Should it have bided its time longer or gone for the domination of the international order that it desired since then? This led to contention with the US, closer engagement with Japan and Europe economically and aggressive aggrandisement over the South China Sea, defying the goodwill that ASEAN countries had for it.

Now, China has set an unlimited partnership with Russia. This is in the midst of Russian aggression in Ukraine, which is overturning the stable economic matrix, which both Russia and China had separately established with Europe and Japan. Europe now sees that their Russian engagement has eroded and are reassessing China. At the European Council and EU leaders’ meeting on October 20-21, they were clear that the lessons from Russia needed to be imbibed. While the EU is not cohesive on action against China, the transition from seeing China as a “systemic rival” to doing something about it is evident.

Therefore, Russian actions have turned back the clock for China in terms of its ties with the US, and now with G7 nations. Its separate, aggressive actions with regard to India, Japan and Australia strengthened the Quad.

Evidently, China is not reluctant to open many fronts simultaneously, whether strategically or economically. Grappling with the Covid-19 crisis domestically has stretched its resources. Projecting itself as the new dominant power, China’s Belt and Road Initiative (BRI), announced in 2013, now encounters economic headwinds. It was an effort to provide funds to countries which required capital infusion without International Monetary Fund oversight. However, the lack of business planning for projects, slow pace of implementation and using projects in friendly countries to provide an economic impetus at home rather than building capabilities in borrowing countries have tarnished the BRI’s image. China’s economic constraints since the pandemic reduced BRI funding.

Today, China’s economic aggression is less visible. Strategic aggression is more notable. Xi’s speech manifests this tendency. Among the consequences is that decoupling from China in economic terms is now taking place more steadily, if not as intensively than earlier imagined.

Western and Japanese companies are deeply enmeshed in China and the trend of building supply chains not dependent on China alone is growing. Companies are restructuring their plans to reduce dependence on Chinese components. Companies, however, will not leave China in a hurry, whether Japanese or German. Japanese imports from China are worth $166 billion. Disruptions even for a few months will reduce Japan’s productivity by about $360 billion, according to estimates by a team at Waseda University. Such disruptions could reduce Japan’s GDP by up to 10 per cent, according to the team led by Prof Todo Yasuyuki, who used the Fugaku supercomputer for his estimations.

With Hong Kong now more firmly authoritarian, it diminishes investor interest. Similarly, the Taiwanese investment into China is impacted as the US and Japan show the will to counter Chinese aggressive intent on Taiwan. Has China correctly calculated the economic costs it will face by acting against the open system of Hong Kong and threatening to take over Taiwan by force?

Decoupling from China or reducing its influence has no quick-fix solutions. China’s continuing rise, unlike the initial period, is seeing reactions by different countries and groupings. The transition of China from a contributor to globalisation to the source of aggressive instability is the change which the world is now reacting to. This needs greater understanding and cohesive action than seen so far.