No other country can use state-directed economic power to extend its influence so well
SINCE 1980, there has been just one constant in international politics: China is rising. But the expansion of its economic influence is quite different from the expansion of its military role.
President Xi Jinping will not challenge American military supremacy for the foreseeable future. Outside East Asia, conventional United States military dominance suits China well, because it limits the risk of global conflict that might undermine China’s economic development.
Where Washington has avoided conflict, particularly in the Middle East, China’s leaders remain reluctant to accept new costs and risks. Moscow likes to flex its muscles, but Beijing prefers to quietly build its strength on a firm foundation provided by an increasingly dynamic economy.
Even in Asia, President Xi sees that a more assertive China has encouraged its neighbours, including India, to tighten bonds with Washington.
And as reform in China slows its economy, Beijing will work to avoid unnecessary damage to trade relations with Japan, still the world’s third-largest economy. China will pick more fights with smaller neighbours, particularly those like Vietnam that are not US allies.
It will develop new cyber capabilities, in part because they benefit Chinese companies. Beijing will get tough with Taiwan later this year, but China’s leaders consider that a matter of domestic, not foreign, policy.
In short, Beijing will not deliberately provoke a security crisis anywhere that might prove bad for business at a delicate moment for growth and economic reform.
Yet, China’s growing economic influence is another story.
Beijing has launched a full frontal assault on the Washington-led global economic order by offering the world new institutions and new alternatives to US investment and technological standards. (China’s currency is also becoming more broadly available.)
In fact, no other country in the world can use state-directed economic power to extend its influence to greater effect.
Seventy years ago, the United States invested billions – some 4 per cent of its GDP – in a bid to rebuild Europe’s post-war economies. The Marshall Plan was hardly altruistic. It was a strategically designed investment plan to revive growth inside America’s largest trade partners and to construct a US-led global order to halt the potential westward advance of communism. Institutions like the International Monetary Fund and World Bank followed.
After the long, costly wars in Iraq and Afghanistan, the US public wants its money spent at home and will not support another foreign-policy expense on anything close to that scale.
Instead, the Obama administration will increasingly resort to the “weaponisation of finance”, the use of access to capital markets (carrots) and carefully targeted sanctions (sticks) to force action without sending US troops and taxpayer dollars to new trouble spots. But far from extending US influence, this strategy complicates relations with allies who often see their own companies, banks and investors caught in the crossfire.
China has urgent domestic spending needs too. It must build the world’s largest social safety net, invest in state-of-the-art infrastructure to create new jobs and sustain growth, and clean the country’s toxic air and water. But state investment in China is not subject to democratic checks and balances – or even to domestic public awareness. President Xi appears to believe that rivalries within the party are manageable and that reform enjoys broad public support. China’s enormous foreign exchange reserves can still be invested with minimal political resistance.
The implication for the “Washington consensus” is increasingly obvious.
Unlike the Marshall Plan, China is not investing in the expansion of liberal democracy and free- market economic reforms, conditions required of those who received US post-war aid.
China’s deals are almost always negotiated with individual governments to maximise Beijing’s negotiating leverage, and they are no longer designed mainly to secure long-term commodity supplies and create opportunities for Chinese companies and workers in foreign countries.
Today, Beijing invests to promote alignment of as many foreign governments as possible with Chinese industrial policy in strategic sectors, telecom and Internet standards, financial architecture and regulation, and to promote wider use of the yuan.
Beijing’s recent successes in drawing US allies like Britain (and perhaps Japan) into membership in the China-led Asian Infrastructure Investment Bank marks a sea change in China’s international influence.
The inclusion of so many developed economies ensures Chinese decision-making authority will remain limited. But it also signals that China has now become a globally recognised “lender of first resort” for a lengthening list of needy governments.
That legitimacy will enhance Chinese dominance of other plans, like its Silk Road Overland and Maritime investment initiatives to extend China’s commercial influence across Eurasia and Europe to the Mediterranean.
Many Americans have long assumed that China will one day adapt to Western political and economic standards or risk Soviet-style implosion.
That assumption has never looked so short-sighted.
More likely is a US-Chinese global competition for economic leverage that will force every country between them to make hard economic choices.
Ian Bremmer is president of Eurasia Group and author of Superpower: Three Choices For America’s Role In The World (Portfolio, May 2015).