Trump’s latest visit to China on Nov 9, 2017, can be regarded as the most important event in current geopolitics. It concludes the final agreement between two competitive global powers, rising China and falling USA financial empire. It seems US President Donald Trump thinks empire a liability and not asset. (For details one can read the author’s article). He has worked as a mediator between Chinese ruling class and US financial masters. From all the deals it seems Trump has encouraged US financial masters to accept Belt Road Initiative (BRI) while got permission for their active participation in Chinese financial market. In this way, a deal is reached which will definitely have many far-reaching geopolitical consequences.
A Glance at the Deals
Thirty-seven trade deals, worth $253 billion, were either signed or committed to in Memorandums of Understanding, between U.S. companies and Chinese companies or state entities. Six nuclear plants in China to be built as well: two at Haiyang; two at Sanmen; and two new plants at an apparently additional site Lufeng. There was also a $38 billion agreement between Boeing and China Aviation Supplies Holding for 300 aircrafts. As many as $83 billion projects between the state of West Virginia and China’s Shenhua Corporation for development of shale gas; the $43 billion project between the state of Alaska and several Chinese entities to develop Alaskan liquefied natural gas. General Electric signed an agreement with the Silk Road Fund, one of China’s state funds for the Belt and Road Initiative, to jointly invest in electric power grids, new energy and oil and gas, in countries and regions along the Belt and Road. China’s State Administration of Foreign Exchange (SAFE) said in a statement: “The cooperation between the Silk Road Fund and GE will not only boost cooperation between high-end manufacturing industries from China and the U.S. but also promote economic and trade development in the regions where investment will occur”.
The Silk Road Fund is backed by China’s foreign exchange reserves, Export-Import Bank of China, China Development Bank and China Investment Corporation. Chinese smartphone makers in Vivo, Oppo, Xiaomi signed the deal to buy products from the US mobile cheap maker Qualcomm. Then came Chinese announcement which lifted foreign ownership cap to 51% in life insurance, security ventures, fund management companies and would have their ownership limits scrapped in 3-5 years. Banks have their foreign ownership limits scrapped completely. So it is clear that while the USA allows China to play more freely in its energy sector, high tech, and nuclear fields, China allowed the USA more access in its financial sector.
Chinese Rationale for Cooperation
China knows foreign share in total bank assets in China has fallen to historic low level in 2016. From 2.4% in 2007, it has fallen to 1.16% in 2016. FDI in China is also falling every year. A global economy is not as good as before 2008 financial crisis. The Chinese economy is slowing down too. There is little room left to attract capital in Chinese production. So China is longing to have more foreign capital in its asset market. China also wants to reject its currency Yuan an international currency. For this purpose, China has added Yuan in IMF’s Special Drawing Rights (SDR) basket of currencies. It has also come up with gold backed Yuan securities for oil importing countries. China has also offered to buy Saudi state-owned oil company ARAMCO’s 5% share with USD 100 billion which directly challenges petrodollar arrangement under which Saudi decided to sell oil only in USD only. So it is clear that China with the intention to internationalise Yuan is opening up its own asset market.
The USA in return is sharing its Silicon Valley technology, nuclear technology as well energy technology with China. Trump has finally understood that as long as US finance is strong, US asset market will attract huge capital resulting in high demand for USD and hence USD value will remain high. Thus US production will remain uncompetitive and so will continue to have huge trade deficits with China, Japan, South Korea and Germany. Thus it is better for the USA to offer its financial infrastructure to China and help Yuan to internationalise. If Yuan can reduce USD’s dominance as a reserve currency by even 10% that would help US production to become competitive in the global market and help to reduce its trade deficit in a big way.
China also tried to link BRI and increase in US exports. Chinese Professor Yifu has given the formula that for every one USD investment in infrastructure in developing economies, imports in it rise by 0.70 USD and 0.35 USD imports of it come from developed countries. This theory clearly points out two things. Firstly, BRI will help all developed countries to increase exports and secondly, helping Yuan to internationalise along with BRI will especially help the USA to increase exports. Global Times reported while the USA has the edge in finance and global security, China has upper hand in infrastructure development and poverty reduction. Global Times even offered to use the idle capacity of US military across the globe. Defence Secretary Mattis previously reported that 19% of US military infrastructure across the globe remains idle. Clearly, Chinese think thank wants co-operation between BRI and US finance.
The US Rationale for Cooperation
During Obama’s period, US finance tried to create hindrances in Chinese infrastructure development across the globe. Arab Spring, chaos in Lybia, Syria, Iraq, and political manipulation in Sudan, Sri Lanka, etc. was continuously arranged against Chinese interests by US finance paid social engineering networks. But the success of US financial masters against China was limited. There are several causes of this failure. Firstly, the Chinese economy is growing at least three times faster than the USA and so China is determining the commodity prices and hence attracting the ruling class of commodity selling countries in a big way. Secondly, political destabilization across different countries made the ruling class of all countries afraid of US intentions.
Previously, all countries viewed US hegemony a pillar of stability in global geopolitics. But since Arab Spring, all countries started to view US hegemony as a source of chaos. Thirdly, US-China rivalry helped other powers like Russia and Iran to assert their own domination against US hegemony. Lastly, 2008 financial crisis destroyed China’s export market in developed economies including the USA in a big way. So China started facing excess capacity and over-accumulation.
China tried to counter its over-accumulation by investing abroad. These external investments are not that much for profit as it is for creating demand for Chinese industries facing excess capacity. Thus evicting Chinese investments out and making them nonprofitable did not deter China from investing in new destinations across the globe. US financial elites also thought China a capitalist country which always invests in profit. In reality, the Chinese economy is socialist where surplus appropriation from wage labor goes on just like Western economies. But the allocation of surplus decision lies in hands of Communist Party in China unlike in the West where capitalist-banker class decides where to allocate surplus.
Thus, US financial rulers failed to understand the capacity of the Chinese economy to endure losses in face of over-accumulation in the domestic economy. Thus destroyed Syria is still getting Chinese investments, Myanmar-Lanka government change only elongate the process of Chinese investments. No matter how much chaos is made, China can wait for a long time. Chaos after Arab Spring in the Arab world, failure to dispose of Assad, the rise of Trump and anti-empire sentiments within the USA, Trump’s cancel of Trans-Pacific Partnership clearly put US bankers on the back foot. They have understood that it is better to make a deal with Chinese rulers where they both will accept each other.
The social engineering tools and networks that were working against BRI may now be used by US bankers to favour Chinese geopolitics. They may not only end up stop acting against BRI but also can help China to have upper hand in different countries across the globe. Events like Rohingyas and Zimbabwe may be just the beginning. Soon more pro-Chinese politicians may be in power across different countries. US bankers know by offering their social engineering tools and infrastructure, they can bargain more place within Chinese economy which is destined to become three times bigger than USA’s in Purchasing Power Parity by 2035. This trend is not at all surprising but most likely outcome of the rise of China.
DISCLAIMER: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy and position of Regional Rapport.