Trump’s protectionism leaves the world open to Chinese global expansion
by Toh Han Shih / global-is-asian.nus.edu.sg
Since taking the helm, Trump has pulled the U.S. out of the Trans-Pacific Partnership, leaving the world open to further Chinese economic expansion. China’s rise on the international stage is also buttressed by the blistering growth of its investments and infrastructure projects around the world.
The changing China story
The year 2015 was a momentous one. For the first time, Chinese overseas investments overtook foreign investments flowing into China. This switched the China story from foreign investors flocking to invest in China to Chinese investors going out to invest in various countries including Singapore.
This upward trajectory was maintained last year. Chinese overseas investments rose to US$170.1 billion in 2016, up 44.1 per cent from 2015 and more than double the US$68.8 billion of Chinese overseas investments in 2010, according to official Chinese data.
Many of the Chinese overseas investments involve infrastructure projects around the world, such as railway, ports and roads, built by Chinese contractors. This is exemplified by One Belt, One Road, the vision of Chinese President Xi Jinping to connect China with Southeast Asia, Europe and Africa through a network of infrastructure.
Chinese railway projects bring to mind 19th century Britain
The sharp rise of Chinese overseas investments and infrastructure projects is not simply a matter of throwing money and pouring concrete to build railways, as I argue in my book, Is China an Empire?. Instead, it will have a geopolitical impact. To understand the future of China’s influence on the world, it is instructive to look back at the history of the British empire.
Britain was the first country to industrialise in the 18th century, which led to Britain being the pioneer in building railways in the 19th century. From 1830 to 1850, some 6,000 miles of railways were laid in Britain, according to the book, Industry and Empire: The Birth of the Industrial Revolution, by British historian Eric Hobsbawm. In the latter half of the 19th century, British financing was responsible for a boom in railway construction around the world, largely built by British contractors, according to Hobsbawm’s book.
Like Britain, China became the world’s biggest manufacturing nation, then undertook a massive expansion of railway and other infrastructure projects in the 21st century, within China as well as in Southeast Asia, Latin America, Europe, the U.S. and Africa. In 2008, China launched its high-speed rail project, which cost billions of dollars to build. By the end of 2013, China had the world’s longest high-speed rail network at over 12,000 km, according to official Chinese data.
China’s growing lending power
China has a winning combination of being able to build infrastructure while providing the huge amounts of financing required for these projects, John Garver, Emeritus Professor at the Georgia Institute of Technology, said in a seminar in Shanghai in November 2015. China’s offer of cheap loans while building infrastructure projects is an offer that is difficult for even poor countries to refuse. A common Chinese model is found in Angola, where the African nation supplies China with oil to pay for infrastructure projects built by Chinese firms.
Virtually no other country can match China’s ability to offer billions of dollars to finance infrastructure projects. Although the U.S. is the world’s richest nation, U.S. banks are answerable to their shareholders and cannot simply dish out billions of dollars to infrastructure projects that do not promise short-term returns, while Chinese state-owned banks serve the geopolitical agenda of Beijing. China is surpassing even multilateral lenders such as the Asian Development Bank (ADB) in the ability to offer huge amounts of financing for projects around the world. This is seen in the creation of the Asian Infrastructure Investment Bank (AIIB), which was proposed by Chinese President Xi Jinping in 2013.
AIIB will help meet Asia’s enormous infrastructure need, which is well beyond the capacity of multilateral lenders, my book quotes U.S. Economics Nobel Laureate Joseph Stiglitz saying. For instance, ADB lent only US$13 billion in 2014, but an ADB report in 2010 estimated Asia needs to spend US$8 trillion on infrastructure in the next decade. This is where China’s financial muscle comes in, with over US$3 trillion in foreign reserves, more than any other country.
In March 2015, the UK joined AIIB against the objections of then U.S. President Barack Obama. The UK’s membership of AIIB sparked a rush of other European nations to join AIIB, which now boasts more than 50 member countries including Singapore.
On his website on 5 April 2015, Lawrence Summers, former U.S. Treasury Secretary, wrote, “This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system… But I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the U.S. to persuade dozens of its traditional allies, starting with Britain, to stay out of it.”
Summers, a former World Bank chief economist, faulted U.S. political infighting for preventing the U.S. government from approving reforms at the International Monetary Fund and preventing U.S.-backed development banks such as the World Bank from extending more financing to infrastructure projects in developing countries.
“With U.S. commitments unhonoured and U.S.-backed policies blocking the kinds of finance other countries want to provide or receive through the existing institutions, the way was clear for China to establish the Asian Infrastructure Investment Bank,” he wrote. In other words, Summers, a former economic advisor to U.S. President Obama, blamed his government for the rise of AIIB.
Since becoming president, Trump has expressed no interest in the U.S. joining AIIB, which will only further increase the global influence of Chinese capital.
The U.S. sees a partner in China
Moving forward, the U.S. will be constrained in opposing China’s international rise because the U.S., like much of the world, will receive increasing investment and job creation from China.
Although Trump has made protectionist calls against China, the rise of Chinese investments in the U.S. is likely to make him treat China as more of a partner than an enemy. Before 2008, annual Chinese investment in the U.S. was less than US$1 billion. In 2016, however, Chinese investments in the U.S. tripled to US$46 billion from 2015, according to the Rhodium Group, a U.S. consultancy. Read more…