Forget G-Zero, it’s China that’s leading the world

By Aldo Musacchio
May 3, 2012

This is the third in a series of responses to Ian Bremmer’s excerpt of Every Nation for Itself: Winners and Losers in a G-Zero World. The first response can be read here and the second here.

Ian Bremmer is launching his new book with an eye-opening observation above the uncertain future of global order. This time he is warning us of the dangers of having a world with no clear leader. In his view, the United States and Europe are in a weak position to sustain any hegemonic position. In particular, their focus on austerity measures can complicate their role as military leaders of the world (e.g., NATO’s role). Moreover, multilateral organizations, such as the G7 or the G20, will not do the trick either. The G7 is in the middle of the worst crisis in almost a century, and the G20 has members with preferences that are hard to aggregate. BRICS, the organization supposedly coordinating the efforts of Brazil, Russia, India, China and South Africa, is too young and preoccupied with other issues to act as the new hegemon. What, then? Where is the world going? Who will emerge as the new leader?

The obvious candidate is China. I have not read the entire book, so I do not know precisely what Bremmer’s position is on China. But because the book’s argument is that there is no real global leader now, I assume he believes China will not be taking that role in the future either. I want to argue, in contrast, that China has begun to play that role and has the potential to become a hegemon. Yet, if China rises to be the global leader, there will be major tensions in the institutional foundations of global capitalism as we know them today. As China’s leadership role grows, the global institutions that have ruled the world in the last 20 or so years will have to change.

Bremmer argues that the most important tools for establishing global power and leadership today are the traditional economic levers and the cyber-capacity to conduct industrial espionage and protect or control information and communication across borders. I would argue that China’s proven track record in both of these areas makes it an ideal candidate for world leader. It is the champion of cyber-censorship and the only country that has tamed large global corporations, compelling them to share user information with the government. Moreover, any major company doing business in China already has bent over backwards to share information and intellectual property with its “forced” local partners (i.e., partners that are the product of mandatory joint ventures dictated by the government of Beijing or any of the Chinese provinces).

China is champion when it comes to using economic tools to impose global discipline, induce countries to do what it wants, and change global conditions. China indirectly determined interest rates in the United States for years, acting as the largest buyers of Treasury bonds. It also uses conditional loans to get African governments to do what it wants, including favoring Chinese companies over locals or Western companies. Furthermore, China has increased its power within the IMF and other multilateral organizations and has been sought after by the EU to participate in its bailout fund.

In addition, China has already been challenging the power of Western countries and organizations for years. It is emerging as a superpower on the sidelines, securing access to natural resources and exercising soft as well as military power in its backyard and beyond. In Africa, China has filled the void left by international organizations, acting as a development agency and as a soft (sometimes hard) imperial power. Many criticize the means, but nobody questions the results, e.g., new roads, bridges, buildings, ports, railways, etc. A similar phenomenon is beginning in Latin America, especially in natural resources. In particular, Chinese investments in oil exploration in Cuba are part of this trend and show another important dynamic as well: China likes to play in the U.S.’s backyard. In fact, China, more often than not, works against U.S. wishes, whether by not supporting efforts to impose tight sanctions on Iran, or pushing the boundaries of the South China Sea, or not being as active as it could be when it comes to North Korea.

So, what if China does become the next global hegemon? There will be three major changes in the global diplomatic and economic equilibrium. First, multilateral organizations, as well as the United States and Europe, have been exporting democracy and human rights as universal values. Many times they have imposed democracy or human rights provisions as part of conditional agreements tied to loans or foreign aid. China does not believe in those values and does not play by those rules. Chinese interference in Sudan, basically promoting its own investments, weakened Western efforts to impose sanctions on the Sudanese government for its human rights violations and support for terrorism. In 2004 China also rescued Angola and its autocratic leaders with a credit line when the IMF was about to impose tough conditions, mostly focused on opening the books of the country and its oil company, tied to a loan package.

Second, China’s system of state capitalism, especially after the resilience it showed during the financial crisis of 2008-2009, is questioning the American model of economic liberalism – the paradigm that has been almost universally accepted since the creation of the so-called Washington Consensus in the 1990s. Now, state capitalism has come of age (as Bremmer highlighted in his previous work) and is threatening many of the global institutions we take for granted. How is the WTO going to deal with state-owned enterprises? Can the world regulate sovereign wealth funds and their actions? Perhaps some of the rules, as we know them, will have to change.

Finally, China will have a hard time establishing its own reserve currency, but in practice the People’s Bank of China has become an important monetary authority in the world. The capacity it has to control inflation in China allows it to manipulate global currency markets, lower interest rates worldwide and determine the cost of debt for the richest countries. In a nutshell, the world will eventually have to understand that the PBOC is as important as the Federal Reserve, and we will learn to live with it. Still, people in the West will not trust the PBOC, or the Chinese government for that matter, because they do not understand its objectives and values.

PHOTO: Chinese special forces personnel stand on the deck of the Chinese naval guided missile frigate Yuncheng during a welcome ceremony as the ship docks at the Ngong Shuen Chau Naval Base in Hong Kong, April 30, 2012. REUTERS/Tyrone Siu

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