New heights of China’s rise

01 July 2017
Originally published in The Star Online

ONE of the striking features of the map in China’s Belt and Road initiative is that America is not on it.

This is not necessarily intentional, because the routes that are being revived predated the discovery of the Americas.

Nevertheless, as we look to the future today, we cannot but be struck by how America has gone AWOL, just as China takes more global responsibility – as over the issue of climate change – and makes its presence felt, particularly in South-East Asia.

Indeed, one of the most remarkable features of the last 30 years is China’s re-engagement with South-East Asia. We know China is Asean’s leading trading partner, coming to US$500bil and looking at US$1 trillion by 2020. Asean, in turn, is China’s third largest trading partner.

While America is by far the largest foreign investor in Asean – exceeding US investment in China, Japan and India put together – it is noteworthy China’s investment in the region has been growing very fast from its low base.

The total flow of US$14.6bil in 2015 was double that of the previous year and was well above the lowly US$156mil in 2005. For Asean 5 (the five founding members), investment flows from China exceeded those from Japan in 2015 for the first time.

These are significant trends of steady and consistent economic engagement, which should not be minimised by sometimes wishful thinking in the West which still predicts many setbacks to China’s rise.

China faces many challenges, of course. These however can be – wishfully – over-stated. The country, many Western commentators highlight, has uncontrolled bureaucratic political structures and the leadership therefore has to shore up legitimacy at home, at a time of increasing domestic stress, by performing well abroad.

Economic growth, it is further pointed out, has retreated from the perfect 10s of yesteryear to a now mundane 7%. Slowing growth, it is contended, presents a profound economic challenge which requires political reform to address it, by releasing individual energy and initiative from the present system of strong centralised control.

But 7% in nominal terms is not bad for the second largest economy in the world. And China is no mug in terms of creativity and innovation through the likes of Huawei, Alibaba, HNA and Tencent. Sometimes the overwhelming success of Microsoft, Amazon and Facebook obscures what is happening elsewhere – including in China, of course.

The “Belt and Road” is itself one of the boldest and most imaginative initiatives, with profound strategic implications. What more, it is being rolled out.

The TPP (Trans-Pacific Partnership) has been pulled back. The Tatip (Trans-Atlantic Trade and Investment Partnership) is as good as dead, with US President Donald Trump’s insults to and vilification of Europe.

Two American strategic initiatives which would have covered 38% and 45% of global output respectively (not mutually exclusively), and the prospect of the imprint of its value system in the global political economy, look pretty well consigned to the dustbin of world history.

As America looks inwards, China moves outwards. President Trump shoots from the hip to address problems or even relate with erstwhile allies; China’s Xi Jinping is magisterial and statesmanlike. As America talks, China quietly gets things done – and nowadays, not always so quietly.

By any realistic measure, the South China Sea really is China’s to lose. On the artificial Johnson Reef, China has emplaced anti-aircraft guns and close-in weapons systems. On artificial Fiery Cross Reef, an airbase has been created, causing a leading military commentator to note: “the island is essentially as powerful as an aircraft carrier”.

Artificial Hughes Reef is replete with guns and missiles. More weaponry such as surface-to-air missiles has been and will be moved to disputed islands in coming months.

As analysts have noted, organisational streamlining has taken place with three coastal military regions of Jinan, Nanjing and Guangzhou being merged into a single joint forces command (JFC) dealing with the maritime theatres of the Yellow, East China and South China Seas. A further two JFCs have been created from the existing Shenyang, Beijing, Lanzhou and Chengdu military regions.

What South-East Asia sees is China’s might and promise – both in a real sense. America has become conspicuous by its relative absence. Countries like Singapore, which believed in the American commitment to at least a balance in the region, are caught out.

It may be said Trump is an aberration. This would be incorrect. He is a symptom of the American malaise. It is a deeply divided country in conflict with itself, which its system of governance and economic management are not able to address or resolve.

The system of checks and balances became one of checkmate on the Obama administration, and now Republican hold on Congress as well as creeping change in the Supreme Court is opening the way for an authoritarian Trump administration.

Even more seriously, the deep division in American society is causing a conflict that cannot be resolved at the polls. One side or the other will be continually aggrieved. There are many dark expressions of this: racism, Islamophobia, police brutality, violent demonstrations – essentially tendencies towards the breakdown of law and order, of social safety and stability.

This deep division has been caused by wide economic disparity over a substantial period of time that is now causing the kind of schism perhaps last seen in the American civil war from 1861-65. C.P. Snow’s notion of “Two Cultures” now seems to be playing out between different categories: two socio-economic classes in America.

Between 1974 and 2015, real median household income for Americans without high school diplomas fell by 20%, and for those with high school diplomas but without college education it fell by 24%.

On the other hand, income for those with college degrees rose by 17%. Those with graduate degrees fared even better.

The underserved underclass have found their apparent champion. The well-heeled chattering classes who are well served in public intellectual discourse are now on the back foot.

It is a battle that is only now just beginning. It damages American credibility and undermines belief in American commitment, when it is so deeply preoccupied with intractable problems at home.

China, of course, will not escape these kinds of challenges. Income inequality in China is high, whichever Gini coefficient number is used, whether 0.5 or 0.61. This China has to watch, but the difference with the US is that all incomes are rising from a low base, which has lifted hundreds of millions of people out of poverty.

Still, there will be problems to come later. Centralised control seems to be able, for now, to manage differences – of which income disparity is only one and there are so many others – even if there might have to be adjustments in the future. It could well be that slow release would work better than an explosion of freedoms.

What governments and people in South-East Asia see are not only growth in trade with China, investments beginning to pour in, financing and contracts being rolled out, but also Chinese optimism, action, a derring-do not before associated with the former communist country. Perhaps associated with America in the past.

There is little doubt we have entered a new phase in China’s rise, with a lot of opportunities and some risks, which is accentuated by America’s relative decline.

Tan Sri Dr Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.