China Challenges Economic Order
By Keith Barnes
After decades of double-digit GDP growth, China firmly surpassed Japan as the world’s second-largest economy in August 2010. Economists have used this to spur a debate about which nation the 21st century will belong to. As American influence wanes in the world, more and more nations are looking at the Chinese for big ideas and to see what they will do with their massive trade surplus in the years to come.
Still, critics cite a recent slowdown in Chinese GDP growth as evidence that the hype over China may only amount to what it’s called: hype.
China has recently unveiled two proposals for expansion on a massive scale – the 21st Century Silk Road Economic Belt and the Asian Infrastructure Investment Bank (AIIB).
Introduced in September 2013 by Chinese President Xi Jinping in Kazakhstan, the 21st Century Silk Road Economic Belt will link China’s eastern seaboard to Europe, East Africa, the Middle East, India, and the Asian South Pacific nations by utilizing modern forms of transport over the ancient Silk Road, stopping in key nations such as Iran, Turkey, and Russia by land, as well as Ethiopia, the Arabian Gulf, India, and Sri Lanka by sea.
The plan is to upgrade existing transport wherever possible and to create necessary infrastructure. The expansive nature of these planned investments, such as a new rail linking the Kenyan cities of Nairobi and Mombasa, has led to comparisons between the initiative and the 1948 Marshall Plan. Chinese Foreign Minister Wang Yi dismissed this comparison on March 8, saying that the initiative is “the product of inclusive cooperation, not a tool of geopolitics, and must not be viewed with an outdated Cold War mentality.”
The implications of this plan are vast: the land connection traversing central Asia and Turkey known as “the belt” will also have the effect of reorienting many of the bypassed nations towards China, a country already investing heavily across continents with special interest in Africa.
These investments will be a boom to many of the economies involved, with China already contributing $40 billion to set up a Silk Road Infrastructure fund, according to Reuters. Many of the countries profiting from this endeavor are also members of the new Asian Infrastructure Investment Bank, which will further assist in funding the Silk Road project.
The AIIB is a new initiative led by China to create a regional financial institution performing infrastructure development funding, which is the World Bank’s mandate, but outside of Washington’s purview.
While originally slated to consist of only Eastern Pacific nations, many Western nations have recently broken with tradition and resisted Washington’s calls not to join the AIIB. The United Kingdom, which is often at the forefront of issues regarding the financial world, was eager to join the new institution and expand their influence in the booming East Asian market. The U.K. was the first Western nation to do so, followed by Germany, France, and Italy.
According to the Wall Street Journal, British Prime Minister David Cameron stated that he “wants to get in on the ground floor to help shape governance of the new institution and also make sure it plays a complementary role to the World Bank.” According to The Guardian, the World Bank President Jim Yong Kim has not resisted the China-led project, saying, “If the World Bank Group, other multilateral banks, and these new development banks form alliances, work together and support development, we all will benefit.”