China’s imperial rise

By S.P.SETH

It rightly made news when China suddenly emerged as Greece’s economic savior of sorts. It happened around the time when credit ratings agency, Moody’s, had downgraded the country’s rating to junk level. Which means that investing in Greece or lending it money was a high-risk proposition.

Even though the European Union and IMF had thrown it a credit line to bolster up its credit worthiness, the markets weren’t convinced.

In Germany, the European Union’s biggest economy, the move to bail out Greece wasn’t popular at all. Greece was not only facing economic ruin but also political and social instability.

The austerity regime imposed on Greece by the European Union and IMF was creating turbulence. And the Greece’s socialist government was (and still is) at wit’s end.

It was against this backdrop that China entered into a series of bilateral agreements with Greece to further broaden China’s economic horizon that, in turn, will help Greece at a very difficult time.

It must be noted that China is not doing these economic deals out of the goodness of its heart. These deals make important political and economic sense. The Chinese vice premier, Zhang Dejiang, made two visits to Athens during a one month period to make deals worth billions of dollars in shipping, tourism, telecommunications and more.

It is reported that the 14 deals with Greece amounted to the biggest single investment by China in Europe, though no figure has been put on it.

As for Greece, it bolsters its economic situation at a critical time. By investing in Greece in such a public and dramatic way, China has expressed its confidence in Athens’ capacity to successfully deal with its debt situation.

Zhang Dejiang said, “ I am convinced that Greece can overcome its current economic difficulties.” And such a vote of confidence was very sorely needed by Greece in its current economic travails.

Of course, it will provide China a useful conduit to expand its economic and political tentacles into other countries in the European Union, especially Portugal, Spain, Ireland, and the Balkan region.

Even the United Kingdom is not looking good, with its budget deficit at around 11 percent of GDP, close to that of Greece. Its total debt is believed to be the second biggest in the European Union after Ireland.

Though China’s economy is not in sterling shape, it does have large foreign currency reserves from its trade surpluses, particularly with the United States. It is estimated to have over $2 trillion worth of foreign currency reserves, and rising.

Its annual trade surplus with the United States is rising at over $200 billion a year, and another $100 billion with rest of the world. Which means that its reserves are growing at the rate of over $300 billion a year.

China, therefore, can play politics with its money to expand its political and economic reach into Europe.

Although China has large foreign exchange reserves, it still has a fairly serious problem of indebtedness. China’s official figure of its debt at 20 per cent of GDP is simply, like its other statistics, not believable. Victor Shih of Northwestern University in Illinois, reportedly puts it at about 96 per cent of China’s GDP by next year—to include the debts of local instrumentalities and state-funded debts.

But, like in Japan, China’s debt is mostly internally funded, with low interest-bearing savings of its hard working and thrifty people. It is still debt, though. If there were to be a loss of faith in the government, this could lead to a run on government banks and other related agencies.

Be that as it may, China’s large foreign exchange reserves are an important part of its wide reach. And unless the European Union puts its house in order, China will have ample opportunities to use its financial power to create serious mischief.

For instance, in many African countries, China is already virtually pillaging their resources’ through investment in mining, oil, gas and other extractive industries. In return, these countries pledge their commodities to China over many years to pay for the Chinese debt.

In other words, these African countries will remain poor and destitute for many years to come even after their mines and oil fields become operational and profitable.

This was once called colonialism, and still is even if the perpetrator, China, once suffered and railed against such inequities.

Europe might not suffer in the same way as China’s African targets. But exchanging one kind of debt with another (even if it is called investment) from China doesn’t alter the fact that such relationships entrench economic dependency and hence exploitation.

With its long historical memories of how China was done in by the colonial powers in the past, it might not be averse to doing the same to European countries.

Europe apart, China is everywhere in the United States’ backyard of Latin America. For instance, China is now Brazil’s biggest trading partner, having supplanted the United States. Its trade with Brazil has reportedly risen from $10 billion a year in 2000 to over 100 billion today.

Like in Africa, Latin American exports to China are commodities and minerals. And they are increasingly becoming an important source of their revenues. With such growing economic dependence on China, these countries are losing the ability to develop an equitable relationship.

And China is exploiting its economic power to push exports of manufactured goods into these countries, with its artificially depressed wages aided by its undervalued currency.

In the circumstances, these countries will have no prospect of developing a manufacturing base. And where it does exist in a small way, that too will be destroyed in the face of China’s onslaught.

China is developing into a neocolonial power. And its entrenchment in the US’ backyard has all sorts of pitfalls for the United States and the region.

Sometimes, it would seem that China is seeking to contain or encircle the United States. The only thing missing is that it doesn’t yet have the military power to enforce its writ.

But they are working on it, conscious that China will need a much bigger military machine to enforce compliance on their economic dependencies.

But there are two important constraints here. First: they have too many internal problems to reckon with. Therefore, a large and disproportionate diversion of national resources to the PLA might further upset the internal imbalance.

As it is, China’s spending on health, education and social welfare are hopelessly inadequate.

Second: by elevating the armed forces to a higher level of guarding and expanding China’s imperial interests, the PLA might become a threat to the Party’s political supremacy.

Therefore, there are inbuilt internal constraints on China’s emerging imperial overstretch. At the same time, the promotion of national chauvinism would appear to be a calculated move by the Party to underpin its legitimacy.