How China Is Transforming the World
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November 18, 2014: it’s a day that should live forever in history. On that day, in the city of Yiwu in China’s Zhejiang province, 300 kilometers south of Shanghai, the first train carrying 82 containers of export goods weighing more than 1,000 tons left a massive warehouse complex heading for Madrid. It arrived on December 9th.
Welcome to the new trans-Eurasia choo-choo train. At over 13,000 kilometers, it will regularly traverse the longest freight train route in the world, 40% farther than the legendary Trans-Siberian Railway. Its cargo will cross China from East to West, then Kazakhstan, Russia, Belarus, Poland, Germany, France, and finally Spain.
You may not have the faintest idea where Yiwu is, but businessmen plying their trades across Eurasia, especially from the Arab world, are already hooked on the city “where amazing happens!” We're talking about the largest wholesale center for small-sized consumer goods -- from clothes to toys -- possibly anywhere on Earth.
The Yiwu-Madrid route across Eurasia represents the beginning of a set of game-changing developments. It will be an efficient logistics channel of incredible length. It will represent geopolitics with a human touch, knitting together small traders and huge markets across a vast landmass. It’s already a graphic example of Eurasian integration on the go. And most of all, it’s the first building block on China’s “New Silk Road,” conceivably the project of the new century and undoubtedly the greatest trade story in the world for the next decade.
Go west, young Han. One day, if everything happens according to plan (and according to the dreams of China’s leaders), all this will be yours -- via high-speed rail, no less. The trip from China to Europe will be a two-day affair, not the 21 days of the present moment. In fact, as that freight train left Yiwu, the D8602 bullet train was leaving Urumqi in Xinjiang Province, heading for Hami in China’s far west. That’s the first high-speed railway built in Xinjiang, and more like it will be coming soon across China at what is likely to prove dizzying speed.
Today, 90% of the global container trade still travels by ocean, and that’s what Beijing plans to change. Its embryonic, still relatively slow New Silk Road represents its first breakthrough in what is bound to be an overland trans-continental container trade revolution.
And with it will go a basket of future “win-win” deals, including lower transportation costs, the expansion of Chinese construction companies ever further into the Central Asian “stans,” as well as into Europe, an easier and faster way to move uranium and rare metals from Central Asia elsewhere, and the opening of myriad new markets harboring hundreds of millions of people.
So if Washington is intent on “pivoting to Asia,” China has its own plan in mind. Think of it as a pirouette to Europe across Eurasia.
Defecting to the East?
The speed with which all of this is happening is staggering. Chinese President Xi Jinping launched the New Silk Road Economic Belt in Astana, Kazakhstan, in September 2013. One month later, while in Indonesia’s capital, Jakarta, he announced a twenty-first-century Maritime Silk Road. Beijing defines the overall concept behind its planning as “one road and one belt,” when what it’s actually thinking about is a boggling maze of prospective roads, rail lines, sea lanes, and belts.
We’re talking about a national strategy that aims to draw on the historical aura of the ancient Silk Road, which bridged and connected civilizations, east and west, while creating the basis for a vast set of interlocked pan-Eurasian economic cooperation zones. Already the Chinese leadership has green-lighted a $40 billion infrastructure fund, overseen by the China Development Bank, to build roads, high-speed rail lines, and energy pipelines in assorted Chinese provinces. The fund will sooner or later expand to cover projects in South Asia, Southeast Asia, the Middle East, and parts of Europe. But Central Asia is the key immediate target.
Chinese companies will be investing in, and bidding for contracts in, dozens of countries along those planned silk roads. After three decades of development while sucking up foreign investment at breakneck speed, China’s strategy is now to let its own capital flow to its neighbors. It’s already clinched $30 billion in contracts with Kazakhstan and $15 billion with Uzbekistan. It has provided Turkmenistan with $8 billion in loans and a billion more has gone to Tajikistan.
In 2013, relations with Kyrgyzstan were upgraded to what the Chinese term “strategic level.” China is already the largest trading partner for all of them except Uzbekistan and, though the former Central Asian socialist republics of the Soviet Union are still tied to Russia’s network of energy pipelines, China is at work there, too, creating its own version of Pipelineistan, including anew gas pipeline to Turkmenistan, with more to come.
The competition among Chinese provinces for much of this business and the infrastructure that goes with it will be fierce. Xinjiang is already being reconfigured by Beijing as a key hub in its new Eurasian network. In early November 2014, Guangdong -- the “factory of the world” -- hosted the first international expo for the country’s Maritime Silk Road and representatives of no less than 42 countries attended the party.
President Xi himself is now enthusiastically selling his home province, Shaanxi, which once harbored the start of the historic Silk Road in Xian, as a twenty-first-century transportation hub. He’s made his New Silk Road pitch for it to, among others, Tajikistan, the Maldives, Sri Lanka, India, and Afghanistan.
Just like the historic Silk Road, the new one has to be thought of in the plural. Imagine it as a future branching maze of roads, rail lines, and pipelines. A key stretch is going to run through Central Asia, Iran, and Turkey, with Istanbul as a crossroads site. Iran and Central Asia are alreadyactively promoting their own connections to it. Another key stretch will follow the Trans-Siberian Railway with Moscow as a key node. Once that trans-Siberian high-speed rail remix is completed, travel time between Beijing and Moscow will plunge from the current six and a half days to only 33 hours. In the end, Rotterdam, Duisburg, and Berlin could all be nodes on this future “highway” and German business execs are enthusiastic about the prospect.
The Maritime Silk Road will start in Guangdong province en route to the Malacca Strait, the Indian Ocean, the Horn of Africa, the Red Sea and the Mediterranean, ending essentially in Venice, which would be poetic justice indeed. Think of it as Marco Polo in reverse.
All of this is slated to be completed by 2025, providing China with the kind of future “soft power” that it now sorely lacks. When President Xi hails the push to “break the connectivity bottleneck” across Asia, he’s also promising Chinese credit to a wide range of countries.
Now, mix the Silk Road strategy with heightened cooperation among the BRICS countries (Brazil, Russia, India, China, and South Africa), with accelerated cooperation among the members of the Shanghai Cooperation Organization (SCO), with a more influential Chinese role over the 120-member Non-Aligned Movement (NAM) -- no wonder there's the perception across the Global South that, while the U.S. remains embroiled in its endless wars, the world is defecting to the East.
New Banks and New Dreams
The recent Asia-Pacific Economic Cooperation (APEC) summit in Beijing was certainly a Chinese success story, but the bigger APEC story went virtually unreported in the United States. Twenty-two Asian countries approved the creation of an Asian Infrastructure Investment Bank (AIIB) only one year after Xi initially proposed it. This is to be yet another bank, like the BRICS Development Bank, that will help finance projects in energy, telecommunications, and transportation. Its initial capital will be $50 billion and China and India will be its main shareholders.
Consider its establishment a Sino-Indian response to the Asian Development Bank (ADB), founded in 1966 under the aegis of the World Bank and considered by most of the world as a stalking horse for the Washington consensus. When China and India insist that the new bank’s loans will be made on the basis of “justice, equity, and transparency,” they mean that to be in stark contrast to the ADB (which remains a U.S.-Japan affair with those two countries contributing 31% of its capital and holding 25% of its voting power) -- and a sign of a coming new order in Asia. In addition, at a purely practical level, the ADB won’t finance the real needs of the Asian infrastructure push that the Chinese leadership is dreaming about, which is why the AIIB is going to come in so handy.
Keep in mind that China is already the top trading partner for India, Pakistan, and Bangladesh. It’s in second place when it comes to Sri Lanka and Nepal. It’s number one again when it comes to virtually all the members of the Association of Southeast Asian Nations (ASEAN), despite China’s recent well-publicized conflicts over who controls waters rich in energy deposits in the region. We’re talking here about the compelling dream of a convergence of 600 million people in Southeast Asia, 1.3 billion in China, and 1.5 billion on the Indian subcontinent.
Only three APEC members -- apart from the U.S. -- did not vote to approve the new bank: Japan, South Korea, and Australia, all under immense pressure from the Obama administration. (Indonesia signed on a few days late.) And Australia is finding it increasingly difficult to resist the lure of what, these days, is being called “yuan diplomacy.”
In fact, whatever the overwhelming majority of Asian nations may think about China’s self-described “peaceful rise,” most are already shying away from or turning their backs on a Washington-and-NATO-dominated trade and commercial world and the set of pacts -- from the Transatlantic Trade and Investment Partnership (TTIP) for Europe to the Trans-Pacific Partnership (TPP) for Asia -- that would go with it.
When Dragon Embraces Bear
Russian President Vladimir Putin had a fabulous APEC. After his country and China clinched a massive $400 billion natural gas deal in May -- around the Power of Siberia pipeline, whose construction began this year -- they added a second agreement worth $325 billion around the Altai pipeline originating in western Siberia.
These two mega-energy deals don’t mean that Beijing will become Moscow-dependent when it comes to energy, though it’s estimated that they will provide 17% of China's natural gas needs by 2020. (Gas, however, makes up only 10% per cent of China's energy mix at present.) But these deals signal where the wind is blowing in the heart of Eurasia. Though Chinese banks can’t replace those affected by Washington and EU sanctions against Russia, they are offering a Moscow battered by recent plummeting oil prices some relief in the form of access to Chinese credit.
On the military front, Russia and China are now committed to large-scale joint military exercises, while Russia’s advanced S-400 air defense missile system will soon enough be heading for Beijing. In addition, for the first time in the post-Cold War era, Putin recently raised the old Soviet-era doctrine of “collective security” in Asia as a possible pillar for a new Sino-Russian strategic partnership.
Chinese President Xi has taken to calling all this the “evergreen tree of Chinese-Russian friendship” -- or you could think of it as Putin’s strategic “pivot” to China. In either case, Washington is not exactly thrilled to see Russia and China beginning to mesh their strengths: Russian excellence in aerospace, defense technology, and heavy equipment manufacturing matching Chinese excellence in agriculture, light industry, and information technology.
It’s also been clear for years that, across Eurasia, Russian, not Western, pipelines are likely to prevail. The latest spectacular Pipelineistan opera -- Gazprom’s cancellation of the prospective South Stream pipeline that was to bring yet more Russian natural gas to Europe -- will, in the end, only guarantee an even greater energy integration of both Turkey and Russia into the new Eurasia.
So Long to the Unipolar Moment
All these interlocked developments suggest a geopolitical tectonic shift in Eurasia that the American media simply hasn’t begun to grasp. Which doesn’t mean that no one notices anything. You can smell the incipient panic in the air in the Washington establishment. The Council on Foreign Relations is already publishing laments about the possibility that the former sole superpower’s exceptionalist moment is “unraveling.” The U.S.-China Economic and Security Review Commission can only blame the Chinese leadership for being “disloyal,” adverse to “reform,” and an enemy of the “liberalization” of their own economy.
The usual suspects carp that upstart China is upsetting the "international order," will doom “peace and prosperity” in Asia for all eternity, and may becreating a "new kind of Cold War" in the region. From Washington’s perspective, a rising China, of course, remains the major “threat” in Asia, if not the world, even as the Pentagon spends gigantic sums to keep its sprawling global empire of bases intact. Those Washington-based stories about the new China threat in the Pacific and Southeast Asia, however, never mention that China remains encircled by U.S. bases, while lacking a base of its own outside its territory.
Of course, China does face titanic problems, including the pressures being applied by the globe’s “sole superpower.” Among other things, Beijing fears threats to the security of its sea-borne energy supply from abroad, which helps explain its massive investment in helping create a welcoming Eurasian Pipelineistan from Central Asia to Siberia. Fears for its energy future also explain its urge to “escape from Malacca” by reaching for energy supplies in Africa and South America, and its much-discussed offensive to claim energy-rich areas of the East and South China seas, which Beijing is betting could become a “second Persian Gulf,” ultimately yielding 130 billion barrels of oil.
On the internal front, President Xi has outlined in detail his vision of a “results-oriented” path for his country over the next decade. As road maps go, China’s “must-do” list of reforms is nothing short of impressive. And worrying about keeping China’s economy, already the world’s number one by size, rolling along at a feverish pitch, Xi is also turbo-charging the fight against corruption, graft, and waste, especially within the Communist Party itself.
Economic efficiency is another crucial problem. Chinese state-owned enterprises are now investing a staggering $2.3 trillion a year -- 43% of the country’s total investment -- in infrastructure. Yet studies at Tsinghua University’s School of Management have shown that an array of investments in facilities ranging from steel mills to cement factories have only added to overcapacity and so actually undercut China’s productivity.
Xiaolu Wang and Yixiao Zhou, authors of the academic paper “Deepening Reform for China's Long-term Growth and Development,” contend that it will be difficult for China to jump from middle-income to high-income status -- a key requirement for a truly global power. For this, an avalanche of extra government funds would have to go into areas like social security/unemployment benefits and healthcare, which take up at present 9.8% and 15.1% of the 2014 budget -- high for some Western countries but not high enough for China’s needs.
Still, anyone who has closely followed what China has accomplished over these past three decades knows that, whatever its problems, whatever the threats, it won’t fall apart. As a measure of the country’s ambitions for economically reconfiguring the commercial and power maps of the world, China’s leaders are also thinking about how, in the near future, relations with Europe, too, could be reshaped in ways that would be historic.
What About That “Harmonious Community”?
At the same moment that China is proposing a new Eurasian integration, Washington has opted for an “empire of chaos,” a dysfunctional global system now breeding mayhem and blowback across the Greater Middle East into Africa and even to the peripheries of Europe.
In this context, a “new Cold War” paranoia is on the rise in the U.S., Europe, and Russia. Former Soviet leader Mikhail Gorbachev, who knows a thing or two about Cold Wars (having ended one), couldn’t be more alarmed. Washington’s agenda of “isolating” and arguably crippling Russia is ultimately dangerous, even if in the long run it may also be doomed to failure.
At the moment, whatever its weaknesses, Moscow remains the only power capable of negotiating a global strategic balance with Washington and putting some limits on its empire of chaos. NATO nations still follow meekly in Washington’s wake and China as yet lacks the strategic clout.
Russia, like China, is betting on Eurasian integration. No one, of course, knows how all this will end. Only four years ago, Vladimir Putin was proposing “a harmonious economic community stretching from Lisbon to Vladivostok,” involving a trans-Eurasian free trade agreement. Yet today, with the U.S., NATO, and Russia locked in a Cold War-like battle in the shadows over Ukraine, and with the European Union incapable of disentangling itself from NATO, the most immediate new paradigm seems to be less total integration than war hysteria and fear of future chaos spreading to other parts of Eurasia.
Don’t rule out a change in the dynamics of the situation, however. In the long run, it seems to be in the cards. One day, Germany may lead parts of Europe away from NATO’s “logic,” since German business leaders and industrialists have an eye on their potentially lucrative commercial future in a new Eurasia. Strange as it might seem amid today’s war of words over Ukraine, the endgame could still prove to involve a Berlin-Moscow-Beijing alliance.
At present, the choice between the two available models on the planet seems stark indeed: Eurasian integration or a spreading empire of chaos. China and Russia know what they want, and so, it seems, does Washington. The question is: What will the other moving parts of Eurasia choose to do?
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Copyright 2014 Pepe Escobar