Year of the Sheep, Century
of the Dragon?
New Silk Roads and the Chinese Vision of a
Brave New (Trade) World
By Pepe Escobar
February 25, 2015 "ICH"
- "Tom
Dispatch" -
BEIJING -- Seen from the Chinese capital as
the Year of the Sheep starts, the malaise
affecting the West seems like a mirage in a
galaxy far, far away. On the other hand, the
China that surrounds you looks all too solid
and nothing like the embattled nation you
hear about in the Western media, with its
falling industrial figures, its real estate
bubble, and its looming environmental
disasters. Prophecies of doom
notwithstanding, as the dogs of austerity
and war bark madly in the distance, the
Chinese caravan passes by in what President
Xi Jinping calls “new normal” mode.
“Slower” economic activity
still means a staggeringly impressive annual
growth rate of 7% in what is now the globe’s
leading economy. Internally, an
immensely complex economic restructuring is
underway as consumption overtakes investment
as the main driver of economic development.
At 46.7% of the gross domestic product
(GDP), the service economy has pulled ahead
of manufacturing, which stands at 44%.
Geopolitically, Russia,
India, and China have just
sent a powerful message westward: they
are busy fine-tuning a complex trilateral
strategy for setting up a network of
economic corridors the Chinese
call “new silk roads” across Eurasia.
Beijing is also organizing a
maritime version of the same, modeled on
the feats of Admiral Zheng He who, in the
Ming dynasty, sailed the “western seas”
seven times, commanding fleets of more than
200 vessels.
Meanwhile, Moscow and
Beijing are at work
planning a new high-speed rail
remix of the fabled Trans-Siberian
Railroad. And Beijing is committed to
translating its growing strategic
partnership with Russia into crucial
financial and economic help, if a
sanctions-besieged Moscow, facing a
disastrous oil price war, asks for it.
To China’s south,
Afghanistan, despite the 13-year American
war still being fought there, is fast moving
into
its economic orbit, while a planned
China-Myanmar
oil pipeline is seen as a game-changing
reconfiguration of the flow of Eurasian
energy across what I’ve long called
Pipelineistan.
And this is just part of
the frenetic action shaping what the Beijing
leadership defines as the New Silk Road
Economic Belt and the Maritime Silk Road
of the twenty-first century. We’re talking
about a
vision of creating a potentially
mind-boggling infrastructure, much of it
from scratch, that will connect China
to Central Asia, the Middle East, and
Western Europe. Such a development will
include projects that range from upgrading
the ancient silk road via Central Asia to
developing a Bangladesh-China-India-Myanmar
economic corridor; a China-Pakistan corridor
through Kashmir; and a new maritime silk
road that will extend from southern China
all the way, in reverse Marco Polo fashion,
to Venice.
Don’t think of this as the
twenty-first-century Chinese equivalent of
America’s post-World War II Marshall Plan
for Europe, but as something far more
ambitious and potentially with a far
vaster reach.
China as a
Mega-City
If you are following this
frenzy of economic planning from Beijing,
you end up with a perspective not available
in Europe or the U.S. Here, red-and-gold
billboards promote President Xi Jinping’s
much ballyhooed new tagline for the country
and the century, “the Chinese Dream” (which
brings to mind “the American Dream” of
another era). No subway station is without
them. They are a reminder of why
40,000 miles of brand new high-speed
rail is considered so essential to the
country’s future. After all, no less than
300 million Chinese have, in the last three
decades, made a paradigm-breaking migration
from the countryside to exploding urban
areas in search of that dream.
Another 350 million are
expected to be on the way, according to a
McKinsey Global Institute study. From
1980 to 2010, China’s urban population grew
by 400 million, leaving the country with at
least 700 million urban dwellers. This
figure is expected to hit one billion by
2030, which means tremendous stress on
cities, infrastructure, resources, and the
economy as a whole, as well as
near-apocalyptic air pollution levels in
some major cities.
Already 160 Chinese cities
boast populations of more than one million.
(Europe has only 35.) No less than 250
Chinese cities have tripled their GDP per
capita since 1990, while disposable income
per capita is up by 300%.
These days, China should
be thought of not in terms of individual
cities but urban clusters -- groupings of
cities with more than 60 million people. The
Beijing-Tianjin area, for example, is
actually a cluster of 28 cities. Shenzhen,
the ultimate migrant megacity in the
southern province of Guangdong, is now a key
hub in a cluster as well. China, in fact,
has more than 20 such clusters, each the
size of a European country. Pretty soon, the
main clusters will account for 80% of
China’s GDP and 60% of its population. So
the country’s high-speed rail frenzy and its
head-spinning
infrastructure projects -- part of a
$1.1 trillion investment in 300 public works
-- are all about managing those clusters.
Not surprisingly, this
process is intimately linked to what in the
West is considered a notorious “housing
bubble,” which in 1998 couldn’t have even
existed. Until then all housing was still
owned by the state. Once liberalized, that
housing market sent a surging Chinese middle
class into paroxysms of investment. Yet with
rare exceptions, middle-class Chinese can
still afford their mortgages because both
rural and urban incomes have also surged.
The Chinese Communist
Party (CCP) is, in fact, paying careful
attention to this process, allowing farmers
to lease or mortgage their land, among other
things, and so finance their urban migration
and new housing. Since we’re talking about
hundreds of millions of people, however,
there are bound to be distortions in the
housing market, even the creation of whole
disastrous
ghost towns with associated eerie, empty
malls.
The Chinese infrastructure
frenzy is being financed by a pool of
investments from central and local
government sources, state-owned enterprises,
and the private sector. The construction
business, one of the country’s biggest
employers, involves more than 100 million
people, directly or indirectly. Real estate
accounts for as much as 22% of total
national investment in fixed assets and all
of this is tied to the sale of consumer
appliances, furnishings, and an annual
turnover of 25% of China’s steel production,
70% of its cement, 70% of its plate glass,
and 25% of its plastics.
So no wonder, on my recent
stay in Beijing, businessmen kept assuring
me that the ever-impending “popping” of the
“housing bubble” is, in fact, a myth in a
country where, for the average citizen, the
ultimate investment is property. In
addition, the vast urbanization drive
ensures, as Premier Li Keqiang stressed at
the recent World Economic Forum in Davos, a
“long-term demand for housing.”
Markets, Markets,
Markets
China is also modifying
its manufacturing base, which increased by a
multiple of 18 in the last three decades.
The country still produces 80% of the
world’s air conditioners, 90% of its
personal computers, 75% of its solar panels,
70% of its cell phones, and 63% of its
shoes. Manufacturing accounts for 44% of
Chinese GDP, directly employing more than
130 million people. In addition, the country
already accounts for 12.8% of global
research and development, well ahead of
England and most of Western Europe.
Yet the emphasis is now
switching to a fast-growing domestic market,
which will mean yet more major
infrastructural investment, the need for an
influx of further engineering talent, and a
fast-developing supplier base. Globally, as
China starts to face new challenges --
rising labor costs, an increasingly
complicated global supply chain, and market
volatility -- it is also making an
aggressive push to move low-tech assembly to
high-tech manufacturing. Already, the
majority of Chinese exports are smartphones,
engine systems, and cars (with planes on
their way). In the process, a geographic
shift in manufacturing is underway from the
southern seaboard to Central and Western
China. The city of Chengdu in the
southwestern province of Sichuan, for
instance, is now becoming a high-tech urban
cluster as it expands around firms like
Intel and HP.
So China is boldly
attempting to upgrade in manufacturing
terms, both internally and globally at the
same time. In the past, Chinese companies
have excelled in delivering the basics of
life at cheap prices and acceptable quality
levels. Now, many companies are fast
upgrading their technology and moving up
into second- and first-tier cities, while
foreign firms, trying to lessen costs, are
moving down to second- and third-tier
cities. Meanwhile, globally, Chinese CEOs
want their companies to become true
multinationals in the next decade. The
country already has 73 companies in the
Fortune Global 500, leaving it in the number
two spot behind the U.S.
In terms of Chinese
advantages, keep in mind that the future of
the global economy clearly lies in Asia with
its record rise in middle-class incomes. In
2009, the Asia-Pacific region had just 18%
of the world’s middle class; by 2030,
according to the Development Center of the
Organization for Economic Cooperation and
Development, that figure will rise to an
astounding 66%. North America and Europe had
54% of the global middle class in 2009; in
2030, it will only be 21%.
Follow the money, and the
value you get for that money, too. For
instance, no less than 200,000 Chinese
workers were involved in the production of
the first iPhone, overseen by 8,700 Chinese
industrial engineers. They were recruited in
only two weeks. In the U.S., that process
might have taken more than nine months. The
Chinese manufacturing ecosystem is indeed
fast, flexible, and smart -- and it’s backed
by an ever more impressive education system.
Since 1998, the percentage of GDP dedicated
to education has almost tripled; the number
of colleges has doubled; and in only a
decade, China has built the largest higher
education system in the world.
Strengths and
Weaknesses
China holds more than $15
trillion in bank deposits, which are growing
by a whopping $2 trillion a year. Foreign
exchange reserves are nearing $4 trillion. A
definitive study of how this torrent of
funds circulates within China among
projects, companies, financial institutions,
and the state still does not exist. No one
really knows, for instance, how many loans
the Agricultural Bank of China actually
makes. High finance, state capitalism, and
one-party rule all mix and meld in the realm
of Chinese financial services where
realpolitik meets real big money.
The big four state-owned
banks -- the Bank of China, the Industrial
and Commercial Bank of China, the China
Construction Bank, and the Agricultural Bank
of China -- have all evolved from government
organizations into semi-corporate
state-owned entities. They benefit
handsomely both from legacy assets and
government connections, or guanxi,
and operate with a mix of commercial and
government objectives in mind. They are the
drivers to watch when it comes to the
formidable process of reshaping the Chinese
economic model.
As for China’s debt-to-GDP
ratio, it’s not yet a big deal. In a list of
17 countries, it lies well below those of
Japan and the U.S., according to Standard
Chartered Bank, and unlike in the West,
consumer credit is only a small fraction of
total debt. True, the West exhibits a
particular fascination with China’s shadow
banking industry: wealth management
products, underground finance,
off-the-balance-sheet lending. But such
operations only add up to around 28% of GDP,
whereas,
according to the International Monetary
Fund, it's a much higher percentage in the
U.S.
China’s problems may turn
out to come from non-economic areas where
the Beijing leadership has proven far more
prone to false moves. It is, for instance,
on the offensive on three fronts, each of
which may prove to have its own form of
blowback: tightening
ideological control over the country
under the rubric of sidelining “Western
values”; tightening control over
online information and social media
networks, including reinforcing “the Great
Firewall of China” to police the Internet;
and tightening further its control over
restive ethnic minorities, especially
over the Uighurs in the key western province
of Xinjiang.
On two of these fronts --
the “Western values” controversy and
Internet control -- the leadership in
Beijing might reap far more benefits,
especially among the vast numbers of
younger, well educated, globally connected
citizens, by promoting debate, but that’s
not how the hyper-centralized Chinese
Communist Party machinery works.
When it comes to those
minorities in Xinjiang, the essential
problem may not be with the new guiding
principles of President Xi’s ethnic policy.
According to Beijing-based analyst Gabriele
Battaglia, Xi wants to manage ethnic
conflict there by applying the “three Js”:
jiaowang, jiaoliu, jiaorong
(“inter-ethnic contact,” “exchange,” and
“mixage”). Yet what adds up to a push from
Beijing for Han/Uighur assimilation may mean
little in practice when day-to-day policy in
Xinjiang is conducted by unprepared Han
cadres who tend to view most Uighurs as
“terrorists.”
If Beijing botches the
handling of its Far West, Xinjiang won’t, as
expected, become the peaceful, stable, new
hub of a crucial part of the silk-road
strategy. Yet it is already considered an
essential communication link in Xi’s vision
of Eurasian integration, as well as a
crucial conduit for the massive flow of
energy supplies from Central Asia and
Russia. The Central Asia-China pipeline, for
instance, which brings natural gas from the
Turkmen-Uzbek border through Uzbekistan and
southern Kazakhstan, is already adding a
fourth line to Xinjiang. And one of the two
newly agreed upon Russia-China pipelines
will also arrive in Xinjiang.
The Book of Xi
The extent and complexity
of China’s myriad transformations barely
filter into the American media. Stories in
the U.S. tend to emphasize the country’s “shrinking”
economy and nervousness about its future
global role, the way it has “duped”
the U.S. about its designs, and its nature
as a military “threat”
to Washington and the world.
The U.S. media has a China
fever, which results in typically feverish
reports that don’t take the pulse of the
country or its leader. In the process, so
much is missed. One prescription might be
for them to read The Governance of
China, a compilation of President Xi’s
major speeches, talks, interviews, and
correspondence. It’s already a
three-million-copy bestseller in its
Mandarin edition and offers a remarkably
digestible vision of what Xi’s highly
proclaimed “China Dream” will mean in the
new Chinese century.
Xi Dada
(“Xi Big Bang” as he’s nicknamed here) is no
post-Mao deity. He’s more like a pop
phenomenon and that’s hardly surprising. In
this “to get rich is glorious” remix, you
couldn’t launch the superhuman task of
reshaping the Chinese model by being a
cold-as-a-cucumber bureaucrat. Xi has
instead struck a collective nerve by
stressing that the country’s governance must
be based on competence, not insider trading
and Party corruption, and he’s cleverly
packaged the transformation he has in mind
as an American-style “dream.”
Behind the pop star
clearly lies a man of substance that the
Western media should come to grips with. You
don’t, after all, manage such an economic
success story by accident. It may be
particularly important to take his measure
since he’s taken the measure of Washington
and the West and decided that China’s fate
and fortune lie elsewhere.
As a result, last November
he made official an earthshaking
geopolitical shift. From now on, Beijing
would stop treating the U.S. or the European
Union as its main strategic priority and
refocus instead on China’s Asian neighbors
and fellow BRICS countries (Brazil, Russia,
India, and South Africa, with a special
focus on Russia), also known here as the
“major developing powers” (kuoda
fazhanzhong de guojia). And just for
the record, China does not consider itself a
“developing country” anymore.
No wonder there’s been
such a blitz of Chinese mega-deals and
mega-dealings
across Pipelineistan recently. Under Xi,
Beijing is fast closing the gap on
Washington in terms of intellectual and
economic firepower and yet its global
investment offensive has barely begun,
new silk roads included.
Singapore’s former foreign
minister George Yeo sees the newly emerging
world order as a solar system with two suns,
the United States and China. The Obama
administration’s new National Security
Strategy affirms that “the United States has
been and will remain a Pacific power” and
states that “while there will be
competition, we reject the inevitability of
confrontation” with Beijing. The “major
developing powers,” intrigued as they are by
China’s extraordinary infrastructural push,
both internally and across those New Silk
Roads, wonder whether a solar system with
two suns might not be a non-starter. The
question then is: Which “sun” will shine on
Planet Earth? Might this, in fact, be the
century of the dragon?
Pepe Escobar is the
roving correspondent for
Asia Times, an analyst
for RT and Sputnik, and a
TomDispatch regular. His
latest book is
Empire of Chaos. Follow him on
Facebook by clicking
here.
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Copyright 2015 Pepe
Escobar