When China Rules the World (2 page)

The Pinyin system of transliteration, adopted in the People’s Republic of China in the 1950s and now generally used worldwide, has been employed in this book, with the exception of some names which are most familiar in the older Wade-Giles system (for example, Sun Yat-sen and Chiang Kai-shek).

Chinese names are generally written in English style, with the family name first, except in those few cases where they are usually written in Western form with the family name second. Japanese names vary, with the family name sometimes written first (as in Japan), but where they are usually written in English with the family name second, as is often the practice, the same approach has been followed.

The Chinese currency, often known as the yuan, is referred to in this book as the renminbi.

1

The Changing of the Guard

Since 1945 the United States has been the world’s dominant power. Even during the Cold War its economy was far more advanced than, and more than twice as large as, that of the Soviet Union, while its military capability and technological sophistication were much superior.
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Following the Second World War, the US was the prime mover in the creation of a range of multinational and global institutions, such as the United Nations, the International Monetary Fund and NATO, which were testament to its new-found global power and authority. The collapse of the Soviet Union in 1991 greatly enhanced America’s pre-eminent position, eliminating its main adversary and resulting in the territories and countries of the former Soviet bloc opening their markets and turning in many cases to the US for aid and support. Never before, not even in the heyday of the British Empire, had a nation’s power enjoyed such a wide reach. The dollar became the world’s preferred currency, with most trade being conducted in it and most reserves held in it. The US dominated all the key global institutions bar the UN, and enjoyed a military presence in every part of the world. Its global position seemed unassailable, and at the turn of the millennium terms like ‘hyperpower’ and ‘unipolarity’ were coined to describe what appeared to be a new and unique form of power.

The baton of pre-eminence, before being passed to the United States, had been held by Europe, especially the major European nations like Britain, France and Germany, and previously, to a much lesser extent, Spain, Portugal and the Netherlands. From the beginning of Britain’s Industrial Revolution in the late eighteenth century until the mid twentieth century, Europe was to shape global history in a most profound manner. The engine of Europe’s dynamism was industrialization and its mode of expansion colonial conquest. Even as Europe’s position began to decline after the First World War, and precipitously after 1945, the fact that America, the new rising power, was a product of European civilization served as a source of empathy and affinity between the Old World and the New World, giving rise to ties which found expression in the idea of the West
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while serving to mitigate the effects of latent imperial rivalry between Britain and the United States. For over two centuries the West, first in the form of Europe and subsequently the United States, has dominated the world.

We are now witnessing an historic change which, though still relatively in its infancy, is destined to transform the world. The developed world - which for over a century has meant the West (namely, the United States, Canada, Western Europe, Australia and New Zealand) plus Japan - is rapidly being overhauled in terms of economic size by the developing world.
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In 2001 the developed countries accounted for just over half the world’s GDP, compared with around 60 per cent in 1973. It will be a long time, of course, before even the most advanced of the developing countries acquires the economic and technological sophistication of the developed, but because they collectively account for the overwhelming majority of the world’s population and their economic growth rate has been rather greater than that of the developed world, their rise has already resulted in a significant shift in the balance of global economic power. There have been several contemporary illustrations of this realignment. After declining for over two decades, commodity prices began to increase around the turn of the century, driven by buoyant economic growth in the developing world, above all from China, until the onset of a global recession reversed this trend, at least in the short run.
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Meanwhile, the stellar economic performance of the East Asian economies, with their resulting huge trade surpluses, has enormously swollen their foreign exchange reserves. A proportion of these have been invested, notably in the case of China and Singapore, in state-controlled sovereign wealth funds whose purpose is to seek profitable investments in other countries, including the West. Commodity-producing countries, notably the oil-rich states in the Middle East, have similarly invested part of their newly expanded income in such funds. Sovereign wealth funds acquired powerful new leverage as a result of the credit crunch, commanding resources which the major Western financial institutions palpably lacked.
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The meltdown of some of Wall Street’s largest financial institutions in September 2008 underlined the shift in economic power from the West, with some of the fallen giants seeking support from sovereign wealth funds and the US government stepping in to save the mortgage titans Freddie Mac and Fannie Mae partly in order to reassure countries like China, which had invested huge sums of money in them: if they had withdrawn these, it would almost certainly have precipitated a collapse in the value of the dollar. The financial crisis has graphically illustrated the disparity between an East Asia cash-rich from decades of surpluses and a United States cash-poor following many years of deficits.

According to projections by Goldman Sachs, as shown in Figure 1, the three largest economies in the world by 2050 will be China, followed by a closely matched America and India some way behind, and then Brazil, Mexico, Russia and Indonesia.
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Only two European countries feature in the top ten, namely the UK and Germany in ninth and tenth place respectively. Of the present G7, only four appear in the top ten. In similar forecasts, PricewaterhouseCoopers suggest that the Brazilian economy could be larger than Japan’s, and that the Russian, Mexican and Indonesian economies could each be bigger than the German, French and UK economies by 2050.
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If these projections, or something similar, are borne out in practice, then during the next four decades the world will come to look like a very different place indeed.

Such a scenario was far from people’s minds in 2001. Following 9/11, the United States not only saw itself as the sole superpower but attempted to establish a new global role which reflected that pre-eminence. The neo-conservative think-tank Project for the New American Century, established in 1997 by, amongst others, Dick Cheney, Donald Rumsfeld and Paul Wolfowitz, adopted a statement of principles which articulated the new doctrine and helped prepare the ground for the Bush administration:

As the 20th century draws to a close, the United States stands as the world’s pre-eminent power. Having led the West to victory in the Cold War, America faces an opportunity and a challenge: Does the United States have the vision to build upon the achievements of past decades? Does the United States have the resolve to shape a new century favorable to American principles and interests?
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In 2004 the influential neo-conservative Charles Krauthammer wrote:

On December 26, 1991, the Soviet Union died and something new was born, something utterly new - a unipolar world dominated by a single superpower unchecked by any rival and with decisive reach in every corner of the globe. This is a staggering development in history, not seen since the fall of Rome.
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The new century dawned with the world deeply aware of and preoccupied by the prospect of what appeared to be overwhelming American power. The neo-conservatives chose to interpret the world through the prism of the defeat of the Soviet Union and the overwhelming military superiority enjoyed by the United States, rather than in terms of the underlying trend towards economic multipolarity, which was downplayed. The new doctrine placed a premium on the importance of the United States maintaining a huge military lead over other countries in order to deter potential rivals, and on the US pursuing its own interests rather than being constrained either by its allies or international agreements.
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In the post-Cold War era, US military expenditure was almost as great as that of all the other nations of the world combined: never in the history of the human race has the military inequality between one nation and all others been so great.
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The Bush presidency’s foreign policy marked an important shift compared with that of previous administrations: the war on terror became the new imperative, America’s relations with Western Europe were accorded reduced significance, the principle of national sovereignty was denigrated and that of regime-change affirmed,
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culminating in the invasion of Iraq. Far from the United States presiding over a reshaping of global affairs, however, it rapidly found itself beleaguered in Iraq and enjoying less global support than at any time since 1945.
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The exercise of overwhelming military power proved of little effect in Iraq but served to squander the reserves of soft power - in Joseph S. Nye’s words, ‘the attractiveness of a country’s culture, political ideals and policies’
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- that the United States had accumulated since 1945.
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Failing to comprehend the significance of deeper economic trends, as well as misreading the situation in Iraq, the Bush administration overestimated American power and thereby overplayed its hand, with the consequence that its policies had exactly the opposite effect to that which had been intended: instead of enhancing the US’s position in the world, Bush’s foreign policy seriously weakened it. The neo-conservative position represented a catastrophic misreading of history.