Will China be the future hegemonic power?

Recall that this article I wrote in 2015 and by revising it; I publish it on my blog.

Will China be the future hegemonic power?

After the collapse of the Eastern Bloc and the US-led hegemony, many Western analysts acknowledged that the unipolar world power was aligned with the power, unity, and integrity of the United States, so that liberal thinker Fukuyama raised the question of the end of history and the victory of the liberal system and values. But soon after the US invasion of Iraq in 2003 and the huge costs of the war the US debt and deficit raised and subsequently crises in the world economy, caused the US debt grew dramatically. After the banking and financial institution crisis in 2008, US economic woes peaked. Thus, the question arised among political philosophers: Are we closing to the end of the US leadership, in other words is it the end of the unipolar order led by the US after the collapse the Soviet Union?

Meanwhile, a new economic giant i.e., China is emerged. China has emerged as a world-class economic power with sustained economic growth, with high export volumes, followed by developed countries in terms of economic volume and investment in developing countries and participation in financial institutions. China is participating in economic and political treaties, including membership of the G20, establishment and membership of the Shanghai Group, membership in Brics. The establishment of the Asian Investment Bank in Infrastructure Development (AIIB) that China has a dominant role in the bank is going to challenge for the first time Western and Japanese-led lending institutions, namely the World Bank, the International Monetary Fund (IMF), and the Asian Development Bank (ADB), mirroring the broader tussle for power and influence between the developed and developing world.

This article seeks to show whether China can restructure international power and play a strategic role in the international arena itself. Can China consolidate its strategic role by expanding its all-encompassing political, economic, military and cultural dimensions? Does China is capable to reform and create a progressive economic, political, military and the most importantly a dynamic cultural soft power as an alternative to the existing world order led by USA?

China and economy

Chinese economy has been one of the most powerful economies in 30 years with an average of over 10% economic growth. It surpassed the United States by $ 17617.3 billion in gross domestic product in the year 2015, ranking at the first place in terms of GDP and the size of its economy. In recent years, China has invested heavily in developing countries as well as buying companies in developed countries. Most of investments are in the raw material industries of developing countries. In addition, by exporting cheap goods to these countries, caused the collapse of the agricultural sector as well as small industries in developing countries. But China is cleverly (vigilantly) trying to avoid tensions and direct confrontation with the West, and to compete more closely with the West in the economic field. On the other hand, following the severe crisis and recession in the western world due to the structural crisis of capitalism and the entrance of emerging market economies, we have witnessed the US attempt to contain China and Russia as global players and limit these two countries only as regional players.

Before the economic reforms of 1978, when its economic system changed from a plan economy to a market economy, China’s economy mostly was agricultural. In 1985, 63 percent of the workforce was in the agricultural sector, while 17 percent of the workforce was in the industrial sector. But a major vital shift in the Chinese economy began in the early 1990s. The change was accompanied by economic reforms in various sectors of the economy. Deng Xiaoping was the architect of these economic changes and reforms. By reforming in various economic sector, China’s rapid economic growth began. China’s average economic growth in the 1990s was 10.46 percent and in the 2000s it averaged 9.89 percent. Because of the slowdown in the global economy, China´s economic growth continued, and the economic growth was 6.8% in 2014. Meanwhile, China’s economic growth has been accompanied by low inflation due to the government’s contractionary monetary policy.
China with a population of $ 1.25 billion had a gross national income of $ 850 in 1999. Gross national income per capita in 2014 increased to $ 7380. This reflects the growth of GDP per capita over the past 15 years. China’s economic growth has continued for years, and China ranked in the second place in terms of economic size after the United States in 2010. The unemployment rate has fallen to 3.62 percent in 2019 compared to the early years of economic reform in 1980s.
Despite fast economic growth, China suffers from a large economic inequality between the rural and urban area. In 2012, the urban population surpassed the rural population for the first time. Most of the villagers emigrated to eastern China, where the construction industry enjoyed unprecedented growth, as well as other large cities such as Beijing and Shanghai. On the other hand, due to the migration of the labor force from the villages to cities, the number of unemployment rate grew and consequently, the number of the poor in big cities.

High disguised unemployment rates as well as a lower wage rate and migration from the countryside to the city have widened class divisions in China. We have been occasionally witnessed the social uprisings and protests by both workers and farmers in China. Other factors that have contributed to the creation of class divisions are structural changes i.e., reforms in the labor market and privatization of the health care (60% of the cost is borne by the patient). Thousands of people come to Beijing each year to protest the bribery and confiscation of their land, both by the local governments and the state-owned firms. Although the number of deprived and poor has fallen by 300 million over the past 15 years to 200 million, but the class gap has widened.

So income, meanwhile the bottom 20 percent of the population owns only five percent of the total income. To reduce the income gap, no fundamental measures have been taken by the government to reduce the class gap. The growth of industries, high energy consumption (second only to China in terms of energy consumption), high consumption of coal, increased urban traffic, and the development of infrastructure have caused environmental waste. Climate pollution, soil erosion and large land depletion are major environmental problems in China. 20 percent of the farmland, 16 percent of the soil, and 60 percent of the groundwater was contaminated in 2015. But no serious action has been taken so far due to corruption in the administration and the negligence by the officials.

Meanwhile, an environmental legislation has passed by the government in 2018 to tackle the environmental problems, China enacted two new environmental protection laws at the start of 2018 . The one  is about formalizing the emissions discharge fee into a tax collected from industrial polluters, and the other to combat water pollution more effectively.

According to the Environmental Protection Tax Law of China — which goes into effect. The law covers the air pollution, water pollution, solid wastes and noise are the four major categories of taxable emissions. While the levied items are to remain the same as the previous fee system, the law designates the local tax bureaus as collators of the new environmental protection tax. Besides, the use of solar energy, the improvement of coal production techniques, and the enforcement of laws to limit carbon dioxide emissions. But these environmental measures are still inadequate and nearly 90 per cent of the 200 cities beset by the world’s higest level of deadly mico-pollution are in China and India, with most of the rest in Pakistan and Indonesia, researchers reported on 2020.

Economy and the role of state

Since the economic reforms began in 1978, state-owned enterprises (SEO) have been undergoing gradual reforms. But in recent years small-scale state-owned enterprises have also been declining and many small enterprises were shut down, merged, or sold both to reduce the reliance on government funding and borrowing from the public banks. These industrial structural reforms were resulted into unemployment and poverty. But the economic growth and the existence of public social security system have reduced some of the problems stemming from structural changes. The decline in state ownership of corporations has continued gradually. The government owned 196 enterprises in 2003 but fell to 115 in 2013.

There are still many smaller companies are state-owned and run by the provincial governments. It is important to know that many state-owned corporations are not active in highly labor-intensive sectors such as the garment, rubber and pharmaceutical industries. Even state-owned corporations in the fields of energy, machinery, and telecommunications are progressed in using or innovating new technology and, with the technological changes, have acquired foreign companies and expanded into global markets. The co-operative sector had a share of 22.4 percent of the economy’s total volume in 1978, but gradually shrunk and accounts for a small share of total economic output now. A few cooperatives pharmaceutical industry have advanced and expanded to the global markets. By declining the share of state-owned companies in the economy, the private sector has gradually expanded. State-owned industrial production accounted for 24 percent of total industrial production in 2012 and 18 percent of the total workforce.

In rural areas most of the private sector workers were employed due to either the shutdown of the rural-communes’ corporations in 1978 or the privatization of the rural-communes corporations. State-owned corporations accounted for 11% of exports in 2013, while foreign-owned and domestic private companies accounted for 47 and 39% of the export, respectively. The same year, state-owned corporations invested 34 percent, while private corporations invested 48 percent, and another 11 percent were invested by government and government agencies in the provinces.

The private sector contributes 60% of China’s GDP, and are responsible for 70% of innovation, 80% of urban employment and provide 90% of new jobs in 2019. Private wealth is also responsible for 70% of investment and 90% of exports. The portion of exports from private enterprises might diminish as SOEs undertake more infrastructure projects in countries involved in the Belt and Road Initiative (BRI), increasing their public stakes in China’s exports. The share of SOEs in China’s GDP should be twenty-three to twenty-eight percent and their share in employment can be anywhere between five and sixteen percent in 2017.

The Chinese government is still keen on supporting SOEs and is committed to making them bigger, stronger and more efficient. This is particularly relevant to certain strategic sectors where government oversight is essential – specifically in defense, energy, telecom, aviation and railway systems. Conversely the state is encouraged to divest from other industries by decreasing its ownership.

The government has also backed state-owned corporations and compensated their losses and implemented a discriminatory competition policy between these corporations and domestic and foreign private ones, to prevent the loss of these corporations. In recent years because of both the losses of these corporations and the high level of corruption in some of the SEO. But the government has made managerial changes and implemented the private management but further obliged them to pay 20% of their profits to government.

Financial market and politics

The dependency of China on dollar in global trade and the weakness of RMB caused that China rethink the international financial system. China began to globalize its currency by creating a bond market in 2009. Russia and Japan, Australia, Singapore, the United Kingdom and Canada used Renminbi (RMB) in their bilateral trade with China, in 2010. The globalization of the Chinese currency and its use in bilateral transactions has made the RMB one of the eight most common currencies in world trade in 2013. The RMB going-global trend picked up pace in 2016 when the IMF added the currency to its basket of the Special Drawing Right, making it the fifth major currency following the U.S. dollar, euro, Japanese yen and British pound.Thereafter, China expanded its banking relationships with Asian and European nations, heading the establishment of a monetary bloc in Asia, and China’s bid to promote the renminbi as a global currency in order that the RMB will be able to compete with dollar in future.

The establishment of the Asian Infrastructure, Investment Bank (AIIB), by $ 100 billion capital by Chinese-led investment of $ 50 billion in 2014, has led to speculation that China intends to compete with the World Bank in which the United States holds the upper hand and the Asian Development Bank controlled by Japan. What angered Washington even more was that the most important US allies in Asia Pacific, i.e., Australia and South Korea joined the bank in 2015. In addition, BRICS member states, including China, have created a reserve fund that could help developing countries in the event of a crisis and will play a parallel role with the IMF. The bank’s main priorities are projects that promote sustainable Infrastructure and to support countries that are striving to meet environmental and development goals. The bank funds projects linking countries in the region and cross-border infrastructure projects for roads, rail, ports, energy pipelines and telecoms across Central Asia and maritime routes in South East and South Asia and the Middle East.

The bank’s priorities also include private capital mobilization and encouraging partnerships that stimulate private capital investment such as those with other multilateral development banks, governments, and private financiers. To understand the competition between China and United states, we can refer to the hasty behavior of the United States in the creation of the Asia-Pacific Free Trade Agreement (TPP) in 2016. The treaty was created to compete with China and prevent, or delay, the integration of Southeast Asian and Pacific nations into the Chinese economic system. Thus, fierce competition between China and the United States has begun in the economic realm and the economic hegemony of the US and even other Western countries is threatened by China.

Sino-American and future geopolitics

China’s strategy so far has been to avoid tension and direct confrontation with the United States. And China is engaged in economic development and progress and has become a significant force in the global arena by increasing its economic capacity and establishing gradually economic treaties. However, it has taken a long time for China to challenge the power of the United States. But the United States cannot accept that a country in the world is threatening its undisputed domination and hegemony. So, the United States seems to wage war even if necessary to maintain its dominance. What has transformed the United States into undisputed power is geographic location, abundant natural resources, educated and low-skilled labor migration, export of capital and technology from Europe at the beginning, and more importantly, the ability of its popular culture to conquer the minds of people around the world. The US popular culture captures the popular mentality and the popular individuality worldwide.

The United States realizes that China is competing and threatening the world order created by the US. As we know that the seas are playing a major role in the world trade, and China’s exports as well as China’s imports of energy and raw materials are driven more by the seas, so the United States seeks to consolidate its control over the sea routes. Meanwhile, control of the three strategic straits is of paramount importance. The US created either military base or military pacts to control three important Straits. By establishing and expanding military bases in the Persian Gulf states Us controls the Strait of Hurmuz and Us has built a strategic military base in Djibouti to control the Bab El Mandeb Strait (recall that China built a military base in Djibouti too). The third important Strait is Malacca in Indonesia in which US take initiative and built the Asia-Pacific pacts to siege China in the South China Sea.

The purpose of Asian-Pacific pact is to prevent both China’s energy supply trade in the event of a future US-Chinese conflict. In addition, the control of raw materials, which play a major role in industrial and technological development, is also becoming increasingly important. The United States has expanded military power with economic goals as well, with the establishment of a US military center in Stuttgart, Germany in 2007 (U.S. AFRICOM), which is the command center for defense and operations in Africa. Because there is an asymmetric balance between China’s economic development and its military capability. Although China has expanded its military production and attempting the modernize its military weapon and constructing the hangars and military sea ships. China and Russia, are key players in the Shanghai Cooperation Organization and they are potentially long-term strategic economic and military partners in opposing the US hegemony.

China and culture

Since the Chinese economy is undergoing the same dynamics as other capitalist economies, hence, the Chinese economy could not avoid the economic crisis. If China has long-term military and economic power and surpass the US and Europe, the question is whether China will have a new cultural instrument that will seek to influence and capture the minds of the people in global level. In order to be a hegemon power China needs to invest in the soft power pillar as culture. If the answer to the China´s ability to produce a popular culture opn the global level, though, what kind of dynamic culture will be presented and invented by China, and whether China will transform this culture from the Confucian-Buddhist tradition and incorporate into it the cornerstone of modern culture and bring about the a global dynamic culture. Will this new culture presented by China as an aggressive-conceivable culture cross the world as Western culture did in the past? Or, because the Chinese state capitalist economy, which is the foundation of capital accumulation and the basis for economic growth, will continue to operate in the same cultural paradigm. Although the answer to this question is complex and difficult, China will have no choice but to innovate in the field of culture to be a superpower. Cultural innovation must take place in the field of political culture as well as in other areas of software power i.e., the culture, otherwise China will continue its path in the existing global order and will hardly play the role of superpower in the global level.

Iran and the future geopolitics

Because in the long-run we are moving towards a multipolar-regional order in the future. Now we are in the era of transition period. Internationally, on any continent, any country with greater economic, political, and demographic capacity will assume the leadership of its regional bloc. These regional poles include the European Union led by Germany, the Shanghai Cooperation Organization led by China, in the south and the Latin American center in Brazil, in South Africa led by South Africa and other small poles. In the meantime, it is natural that the different poles will interact based on cultural, economic, political and military coordinates. But in the short run, Iran must increase its economic capability by economic alliance and development before taking any step toward incorporation and entering into regional and trans-regional political-military pacts. The closest regional ally is the Shanghai Cooperation Organization. But since the treaty exists and Russia has historically competed with Iran in Central Asia and today is its rival in the field of energy exports, early proximity into this pact could leave Iran in the side of the Shanghai cooperation organization. This is also true about any hesitation to enter into the other major pacts or alliance with the EU or US.

In my view, in the short term, Iran should pursue the policy of balanced-neutral doctrine to all poles of organization and multipolar-powers in the world. But Iran could play a strategic role in the Middle East by partnering with Egypt. Iran and Egypt, with their human-population, cultural, historical, and energy-rich capacities and large market resources, can help each other militarily and economically, organize a powerful regional polarity, and bring political, economic, and military stability to the Middle East by encouraging other countries in the middle-East to join the alliance. Once the alliance between Iran and Egypt is formed, then the cooperation with the closest poles such as the Shanghai Cooperation Organization is in the interest of the Iran-Egypt pact.