5: 2014: China became the world’s largest economy
2014 was the year when China overtook the United States and became the world’s largest economy – at least measured by purchasing power. Measured in gross domestic product (GDP) per capita, China is still low compared with the western level. This means that China still has to deal with poverty, income inequality and corruption; and much remains to be done before the country can call itself a welfare state. China is also continuing to turn its enormous market power into new trade agreements and organizations. For more than two decades, the country has participated in Western-led financial institutions (the World Bank and the Monetary Fund) and accepted their rules, principles and working methods. And even today, it is unlikely that the country will disconnect from these organizations.
However, according to PLUS-SIZE-TIPS.COM, China has become more inclined to establish new economic agreements – both bilateral and multilateral – both of which have contributed to China’s economic progress. But this development also represents possible challenges for these financial institutions. They were established on American and European initiative and have since grown to dominate the intergovernmental global financial system.
We see this, among other things, when it comes to agreements on free trade. In 2014, such agreements entered into force with both Iceland and Switzerland; one agreement was signed with Australia and another with South Korea in early 2015. Negotiations on such an agreement were also started with Norway in 2008; after the awarding of the Nobel Peace Prize in 2010 (Liu Xiaobo), these were stopped. Until the turn of the millennium, China was on guard against the whole idea of free trade negotiations, not to mention entering into such agreements with advanced economies. They feared that the country’s economy was not yet ripe for such strains and commitments. Today, China is one of the most enthusiastic supporters of more open trade both in Asia and elsewhere in the world. Yes, the Chinese government has openly wanted more such agreements.
6: Very active Chinese leaders
The increased Chinese economic confidence – both regionally and globally – can be seen in several ways. In 2014, both Xi Jinping and Prime Minister Li Keqiang were active with diplomatic advances in Europe, Africa, Latin America, Oceania and South Asia. The goal was often to sign new agreements on economic cooperation and trade.
Far to the north, China has been active for a long time, ever since the country gained observer status in the Arctic Council in 2013 (HHD 13: 2013). The country has strengthened its economic ties with some “Arctic” economies, among them Russia, and it seeks to play a driving role in the economic development of the region. The Chinese see opportunities in the region’s raw materials and energy partners there, as well as in the opportunities that open up through a more ice-free and more accessible route through the Northeast Passage (sailing through this could reduce sailing time between Shanghai and Rotterdam by up to 40 percent during parts of the year) .
Such bilateral diplomacy is not new to China. What is new is that the country is far more interested in developing new international organizations in addition to participating in existing ones. China is a key player in Eurasian security organizations such as the Shanghai Cooperation Organization (SCO) and the Conference on Interaction and Confidence-Building Measures in Asia (CICA). The country is also at the forefront among the BRICS countries (emerging states) – Brazil, Russia, India and South Africa. From being a rather loose and unclear grouping, it has developed into the largest collection of large, forward-looking economies. In 2014, the BRIC countries announced that they would establish a separate development bank for developing countries; The bank is intended to be an alternative to the World Bank and the International Monetary Fund (IMF). The country’s plans for a separate Asian Infrastructure Investment Bank (AIIB) also came closer to being established in 2014 when several Asian and Eurasian states signed up for membership – much to the chagrin of the United States.
7: Alternative free trade area
At a major summit of the economic cooperation organization APEC in late autumn 2014, President Xi revived the idea of a free trade area for the entire Pacific ” Free Trade Area of the Asia-Pacific (FTAAP)”. In that case, it will be the largest of its kind in the whole world. An FTAAP could also be an alternative to the US-led Trans-Pacific Partnership (TPP), which experienced diplomatic obstacles in 2014. It was at the same APEC summit that Xi advocated an ” Asia-Pacific Dream ” for the whole region as a kind of parallel to “The Chinese Dream” (cf. HHD 7: 2015). As a result of China’s rising global economic power, several European countries – France, Germany and the United Kingdom, as well as the EU itself – have begun to consider how to approach the Chinese government and perhaps develop their own policy of redirecting their foreign policy attention to Asia.
8: Alternatives, but also risks
The Xi government has also developed the framework for a bilateral trade strategy – a one-belt and one-way policy in Eurasia and the Indian Ocean. The belt will consist of a series of transit routes over land to connect China and markets in Europe via Central Asia, Russia and the Caucasus. The “road” is something other than a road; by it is meant greater use of the Indian Ocean to facilitate Chinese trade with Africa, southern Asia, and southern Europe.
Parts of these ambitious plans are still in the planning stages. But the plans themselves are important – for several reasons:
- China has admittedly said it wants to change its economic policy by reducing its dependence on exports and stimulating the domestic economy. In this way, the country seeks to make itself less vulnerable to fluctuations in the global economy. The plans for new trade routes nevertheless suggest that exports will have a high priority in the coming years as well.
- With a positive outcome, these trade routes will further promote east-west trade between Europe and China, while at the same time stimulating economic development in the countries through which the routes pass. Some Western commentators have already welcomed these initiatives and see them as variants of the American Marshall Aid to Europe in the late 1940s (although there is a comparison the Chinese strongly dislike)
- These plans are the clearest signal so far that China feels more comfortable with its own great power status and more openly dares to promote alternatives to Western institutions.
China still faces major challenges at home, including a declining economic growth rate as demand for Chinese goods declines abroad (but the country had a record-high trade surplus in February 2015). It also remains to be seen the outcome of the politically risky anti-corruption campaign and any repercussions of the extensive demonstrations in Hong Kong in late autumn 2014.
Internationally, China must face the fact that it is embroiled in diplomatic conflicts over the demarcation of borders in the East and South China Seas and that elections in both the United States and Taiwan in 2016 will affect Chinese security policy thinking. In any case, it seems clear that China is pursuing a more active foreign policy than before and with more confidence than before. And it is a policy that will have dramatic effects for other countries as well .