China and Russia: the locomotives of the new world order

Raúl Zibechi

01/12/2014

Opinión

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The epicentre of the new world order is to be found in the strategic alliance between China and Russia. Between them they are proving capable of engaging Eurasia, which is the foremost sign of the decline of the West, and in particular, of the United States.

“Asia for the Asians” is the title of an article published in the prestigious journal Foreign Affairs, in which Gilbert Rozman explains that the China-Russia friendship is here to stay. This is not just an ordinary article, written by a journalist from the pack in a second class media outlet. Rozman is a professor of sociology at Princeton University, author of numerous essays and books on Asia, including his last book: Chinese Strategic Thought toward Asia (Macmillan, 2010).

Both powers share outlooks that Rozman spells out: “they have challenged the international order, by giving each other diplomatic backing to confront Ukraine and Hong Kong, respectively”; they share a sense of “national identity that defines itself in opposition to the West”, and perhaps even more relevant, they “agree that the geopolitical order of the East should be in opposition to that of the West—and that has led to significantly closer bilateral relations”, (Foreign Affairs, October 29, 2014).

The majority of Western analysts, a good part of the public and even some political elites, overestimate the tensions between the Chinese and the Soviets during the cold war and fail to take into account that “since the 1990s, officials in China and Russia have deeply regretted the Cold War tensions”. Now things have changed considerably, since Russia neither wants nor can be the dominant partner in the relationship. “Both states have accused the United States of following an aggressive Cold War mentality by trying to contain their rightful ambitions in their regions”, Rozman notes.

The writer considers six reasons for affirming that the Russian-Chinese alliance will endure. First, they both feel “pride in the socialist era”. Second, they underscore “their historical differences with the West”, since both nations were victims of the various imperialisms. Third, they reject the economic model that led to the crisis of 2008, which they consider to be “inferior to their own models”. Fourth, their relations are tighter due to the need to face present external threats. Fifth, they are on the same side in the main global disputes. Sixth, there are “official campaigns under way in both countries to promote national identity”.

Two Summits, one winner

The Asia-Pacific Summit, or the Asia-Pacific Economic Cooperation Forum (APEC), in which the Western media emphasized the gesture of Vladimir Putin in helping the wife of Xi Jinping with her overcoat, was a Chinese walkabout. The 21 countries of APEC, during their 8-10 September meeting, supported the creation of a Free Trade Area of the Asia-Pacific (FTAAP) that Xi Jinping defined as “a decision to be written in history” (South China Morning Post, November 11, 2014).

According to the newspaper, Washington had pressured Beijing to downplay the FTAAP, but Xi raised the odds, defined a “road map” for the Asian Free Trade Area and dealt a mortal blow to the Transpacific Partnership promoted by the United States, which involves only twelve countries and excludes China. The fact is that the 21 economies that make up APEC represent more than half of international trade. In addition, some decisive allies of Washington, such as Japan and Malaysia, reject the Transpacific Partnership because they are not willing to open up their agricultural sectors.

As Pepe Escobar notes, China has moved forward in “a multi-pronged strategy” that includes not only trade but also energy, finance and military technology. Xi’s proposal of “all-round connectivity” for the Asia-Pacific countries presupposes heavy investment in infrastructure. To this end, the creation of the Asian Infrastructure Investment Bank, based in Beijing (established in October by 22 countries of the region), meant a first step, with the application of fifty billion dollars to lubricate the connectivity. “That's China's response to Washington refusing to give it a more representative voice at the International Monetary Fund than the current, paltry 3.8% of votes”, recalls Escobar (Asia Times, November 14, 2014).

That the first economy of the world (according to a recent IMF report, based on purchasing-power parity) has only a marginal representation in the principal financial organisations of the world, not only appears as an insult, but it also pushes all the so-called “emerging” countries to look for alternatives outside of the present global financial architecture.

The APEC summit brought other news items that were equally important. China announced a contribution of 40 billion dollars to begin building of the Silk Road Economic Belt, both the land-based and the maritime route. This involves a network of high speed trains, ports, gas and oil pipelines, fibre-optic and telecommunications cables that Chinese businesses are already building to connect them with Russia, Iran, Turkey and the Indian Ocean, reaching the main European commercial cities, such as Berlin, Rotterdam, Duisburg and Venice.

China and Russia signed a second energy mega-agreement for the arrival of Siberian natural gas, following that already established in May 2014. The trade will not be conducted in dollars but in roubles and yuans. Financial cooperation between both powers is growing. The Russian Bank VTB has spoken of the possibility of abandoning the City of London Stock Exchange and moving to Shanghai, even as Russian energy giants begin to operate in Hong Kong (Asia Times, November 14, 2014).

G-20 down in the dumps

In addition, China has signed a Free Trade Agreement with South Korea, one of the most important allies of the United States in Asia. Bilateral trade has reached the fabulous sum of 228 billion dollars and continues to climb. A recent report from the Peterson Institute of International Economy, based in the United States, maintains that “The currencies of South Korea, Indonesia, Malaysia, Singapore and Thailand are more tightly linked to the Chinese yuan than to the US dollar” (Diario del Pueblo, October 21, 2014).

The second Summit, that of the G-20 in Brisbane (Australia), November 15-16, 2014, a few days after the Beijing meeting, was a failure. The main challenge was to begin a reform of international organizations, but the US Congress (dominated by the Republicans) continues to block any reform of the IMF that would grant greater power to emerging countries.

The result has been that “BRICS have taken control of the agenda of the G-20”, looking for technical solutions to the US parliamentary blockade (Geab Nº 89, November 17, 2014). The summit had some stormy moments. While the five BRICS countries celebrated their own mini-summit, in which they demanded changes in global financial institutions, the allies of Washington staged a critique of President Vladimir Putin, who abandoned the meeting somewhat early.

According to analyst Alfredo Jalife, citing the Russian Embassy in Canberra, the withdrawal of Putin “was due to death threats against him, leading to Russia sending two warships – the guided missile cruiser Varyag and the destroyer Marshall Shaposhnikov – close to the Australian coast” (La Jornada, November 19, 2014).

What is certain is that the success of the Beijing Summit is in marked contrast to the prickly behaviours and the failure in Brisbane, where rhetoric was substituted for agreements and, above all for the requested advances in unblocking the financial system. The reasons must be sought in the consistent advance of the Chinese economy and Chinese diplomacy, which offers more and better free trade, in contrast with the stubbornness of Washington, as a power that, since the congressional elections, remains trapped between a Democratic government and a Republican majority in Congress, that defend policies that in many aspects are openly conflicting.

The official Chinese organ Diario del Pueblo maintains that the Asia-Pacific free trade area, created in the APEC summit, stands in contrast to the “multinational trade negotiations bogged down in the World Trade Organization (WTO)”. They are betting on the region becoming “a paradigm of global free trade, which could change the economic landscape not only of the Asia-Pacific region, but of the rest of the world”. The paper adds: “As an important regional cooperation block, APEC has advantages over the WTO for a more creative and flexible establishment of standards” (Diario del Pueblo, November 13, 2014).

In a word, the Asia-Pacific is not only the motor of the world economy and the centre of global trade, but the most attractive and innovative region in the world.

Currency and arms

In practice, “the globalization agenda has resumed, led by China”, according to the Global Europe Anticipation Bulletin (Geab Nº 89, November 17, 2014). One of the less visible aspects of this leadership consists in the constant growth of the yuan, a currency that tends to become more international, gaining ground on the dollar.

The problem, as economists Ariel Noyola and Oscar Ugarteche, members of the Economic Observatory of Latin America, have pointed out, is that the internationalization of the yuan and the global retreat of the dollar are one-and-the-same process, and are inevitably in conflict. Perhaps because of this, China is moving through a slow step by step process, avoiding confrontations.

Some forty central banks in the world now have yuan reserves in addition to traditional currencies. The People’s Bank of China has signed bilateral swaps with 25 central banks. “Outside of the Asian continent the yuan has obtained significant support in Europe”, as Noyola and Ugarteche point out (Alai, October 21, 2014). The City of London, Frankfort, Paris and Luxembourg all have accounts open for the yuan. London created the first emission of sovereign bonds in yuans outside of China. The European Central Bank reached an agreement on currency swaps in yuans to the tune of 57 billion dollars.

With China, Russia has found not only an ally but “a strategic partner as a consequence of the economic sanctions imposed by the West”, the economists note. In Latin America, Brazil and Argentina already have currency swaps in yuans for more than 40 billion dollars.

In addition, China created the Currency Exchange Platform that allows for the establishment of direct liquidation centres in order to facilitate the use of the yuan. Employing national currencies reduces the costs of conversion, which allows Beijing, in the words of Noyola, “to reduce the negative effects of the right of seigniorage of the dollar on global capital flows”, in addition to moving towards the creation of “a multipolar monetary system” (Alai, October 7, 2014).

Following in the steps of Russia and London, now Canada has reached an agreement with China for interchange in yuans, this in a country that borders on and is allied with the United States. The difference with the cases previously cited is nonetheless great: “This time the Chinese have not needed to go to them, rather they (the Canadians) are the ones who moved” (Geab Nº 89).

Finally, there is the military question, an area in which Russian-Chinese cooperation is rapidly increasing. The Russian Minister of Defence, Serguei Shoigú, in his visit to China, pointed out that military cooperation between the two countries has reached “a strategic character”. The Russian Defence Minister said that Russia and China had agreed to conduct joint naval exercises in 2015, both in the Pacific and in the Mediterranean (Russia Today, November 18, 2014).

Moscow will sell S-400 defence systems to China and later S-500 systems as well, capable of shielding the defence of the Asian country. Meanwhile, Beijing has developed anti-ship missiles, capable of destroying aircraft carriers and challenging the US Navy, something that will allow for mutual exchanges in the highly sensitive area of military technology (Asia Times, November 14, 2014).

The Thai newspaper The Nation assures us that Obama “has lost impetus in his ‘pivot to Asia’ policy”, at a time when the Russian President Putin and his Chinese counterpart Xi are causing a greater impact in world affairs. One of the consequences of this weakened posture on the part of the president has led, as the journal points out, to an “awkward” presence in the summits in the Far East. Meanwhile, his Russian counterpart has been designated as the most powerful person in the world by the review Forbes, for the second time in two consecutive years, “eclipsing Obama in almost all aspects of global leadership” (The Nation, November 14, 2014).

Beyond Obama, the problem is the way in which the superpower is responding to its decline. The summits of Peking and Brisbane had barely finished when members of the Pentagon emphasized the need to intensify the modernization of their armed forces. Procurement of new weapons has slowed, even as escalating demands around the world make it difficult to restore the military's readiness for new missions, warned Vice-chairman of the Joint Chiefs of Staff, Admiral James Winnefeld, in a speech pronounced at a meeting with legislators and representatives of the military industrial sector at the Reagan Presidential Library near Los Angeles (Reuters, November 15, 2014).

Other defence officials pointed in the same direction. The problem is that the economy leaves no margin to follow the rhythm of investments maintained by their competition. The military feel that they are being bypassed in electronic and antisubmarine warfare, to cite but two examples, in which “we will become obsolete in the future simply because we have not invested in them”.

(Translated for ALAI by Jordan Bishop)

- Raúl Zibechi, Uruguayan journalist, writes in Brecha and La Jornada. He is a member of the Council of ALAI.

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