Platt Perspective on Business and Technology

China and its transition imperatives 20: Xi Jinping’s emerging China, and the challenge of his country’s emerging future 3

Posted in macroeconomics by Timothy Platt on July 3, 2015

This is my 22nd installment to a new series on China and its most recent Party and government leadership transition, looking back over the past two years and more since that formally and officially took place and to now and China’s current situation, and forward. See Macroeconomics and Business, postings 154 and loosely following for Parts 1-12 and for a supplemental posting: Part 12.5. And see Page 2 to that directory for a second, continuation supplement Part 12.6 and for Parts 13-19.)

I focused in large part in Part 19 of this series on international development funding, starting with the founding of the International Monetary Fund (IMF) and the World Bank, and with the founding of the next generation (1966) establishment of the regional Asian Development Bank (ADB) as a part of that larger international system. I began this discussion with a brief historical narrative on that in order to more fully delve into the issues underlying China’s new international development funding initiative that is being formed as an alternative to these more established institutions: its Asian Infrastructure Investment Bank (AIIB).

I ended Part 19 by noting that this new initiative: the newly forming AIIB raises some fundamental issues and challenges that China and its leadership will have to address, moving forward:

• China is very actively reaching outside of its borders and both regionally and globally, as it seeks to become the leading power in Asia, and as it seeks to become a principle leading power globally. And that raises some fundamental questions that both China and every other country that has to deal with it, have to address.
• What do responsibilities of global national citizenship demand of China and its leadership as it builds this new international organization, particularly when that building effort is considered from the perspective of our ubiquitously interconnected 21st century world?
• And how do China’s current policies and the politically and personality driven pressures behind them measure up to the challenges of that country stably realizing these goals?

I began addressing those points and their accompanying questions in Part 19 with a brief and selective discussion of China’s new AIIB. And for orienting context, I continue that discussion here by reiterating that the IMF and the World Bank both date back in their founding to the Bretton Woods Conference of 1944: a United Nations sponsored event that took place as the direct conflict of World War II was ending, at least in the European theatre. And I begin this posting’s discussion here by posing a fundamental question that still holds vital relevance today, as I write this. Twenty Nine nations came together at this conference with a shared goal of limiting if not preventing a new recurrence of the types and levels of international challenge that had so recently brought about world war. Essentially every single country involved in this conflict had just expended both blood and treasure in fighting that war and many of them themselves faced immediate need for massive essential rebuilding, and both for their own national infrastructures and if their own private sectors were to recover too.

• Why did these nations and their representatives set international redevelopment as one of their primary goals there, and why did they see that as one of their primary accomplishments too: the creation of an international organizational system for enabling international development funding – and even where that meant helping to rebuild nations that had been their bitterest enemies in that so recent a global conflict?

The answer to that lies in large part in how World War I began and ended, and how the aftermath of that conflict so significantly contributed to a World War II happening, with all of its losses and costs.

If you were to ask most people familiar with the general history of World War I how and why it began, it is likely that you would hear at least a brief and partial accounting of how Archduke Franz Ferdinand of Austria was assassinated in Sarajevo by a Yugoslav nationalist named Gavrilo Princip on June 28, 1914. On the surface of things, this assassination, with the killing of both the Archduke and his wife: Sophie, Duchess of Hohenberg did trigger this soon to become global war. But the reason why this one politically motivated act of murder drew all of the world’s great powers into this conflict was that they were all tied together through mutual defense and related treaty obligations. And this war broke out and spread and seemingly without limits, and it continued until one of the two sides of this conflict was completely defeated. And Germany, at the heart of the defeated side of this war, and in ruin from its conflict, was saddled with both the challenge of rebuilding itself and the additional burden of paying punitive reparations to nations that saw themselves has having been invaded in this war. While I grossly oversimplify here, it can be stated that World War II happened because Germany’s attempt at rebuilding as a democracy after World War I under its abortive Weimar Republic, was crushed by the thirst for vengeance of France and by its then Prime Minister Georges Benjamin Clemenceau, and by the actions and inactions of other involved nations.

The crushing reparations claimed by France and others from what had been the Allied side of that war gave a struggling Weimar leadership no room in which they could succeed, and the seething resentment and anger against foreign enemies that rose from what many Germans saw as this ongoing humiliation made for fertile ground for a Nazi Party (Nationalsozialistische Deutsche Arbeiterpartei) and an Adolph Hitler to rise to power. And this progression of events raises a haunting question. If the winning nations of the Allied powers, coming out of their Great War against the Axis Powers had found the prescience of mind to see the value in actively supporting Germany’s attempt at democratic government, and if they had actively sought to help it to both survive and thrive, could Hitler have ever advanced past being a failed artist and discontent, and could his Nazi Party have ever taken hold or have even formed? If Europe has found a more stable and lasting peace out of that conflict in the early years of the 20th century would the world have seen a new global conflict, and one on a vastly larger scale and in just a single generation’s time?

The Japanese government that brought the world a new war in the Pacific might or might not have done so anyway, and even if Europe and the West were politically stable and prosperously so. But a more organized world would have been much more able to limit the scope and reach of any such conflict even if one might have erupted anyway. And here I set aside in this discussion the economic factors that led Japan to take military action, and simply allow for the fact that economic support alone cannot always prevent any and every possible conflict from arising. Would economic support in rebuilding Germany’s and the Axis Power’s national infrastructure, as an exercise in promoting and aiding democratic reform have prevented World War II as a global conflict? We will never know but the possibilities of that opportunity lost and the consequences of that loss led 29 nations that had just suffered through World War II, to meet in 1944 at Bretton Woods, New Hampshire in the United States to, among other things lay out a framework agreement that would create the IMF and World Bank.

These international financial institutions were developed and built, and with time were expanded upon to prevent a new global war, and as mechanisms for reducing the types of stress and discontent within nations that might lead to it. They most definitely have not prevented all war as a whole, but they were founded and funded to help nations develop and to help them interact and work together more peacefully.

No, that does not mean that more powerful nation members of these organizations have never sought to use them for their own nationalistic purposes. But when that type of misuse of these financial organizations has happened, it has been in defiance of their organizational charters and not because of them and it has been resisted by other nation members for that. And such misuse and such attempt at that have been self-limiting.

And this brings me to China and its AIIB and to today’s world. And it brings me to the question of what China is doing internationally, and certainly within its immediate Asian sphere of interest and concern. And this brings me to the specific question of what China sees their new AIIB as accomplishing, and for whom and under what terms.

As noted above, China is very actively reaching outside of its borders and both regionally and globally, as it seeks to become the leading power in Asia, and as it seeks to become a principle leading power globally. And it can certainly be argued that at least one of China’s principle reasons for advancing the creation of its new Asian Infrastructure Investment Bank is that this would be a major force in international development funding in its core geographic region of concern, where it seeks to achieve unchallenged leadership and hegemony. For all of their strengths and all of their limitations and flaws, the IMF and World Bank, and the ADB were established and have been run with primarily international goals and not primarily as tools for establishing leveraged control for any particular member nations. Can China make that same claim as to why and how it is developing its AIIB, where it is explicitly deciding as a single nation member which nations are and which are not going to allowed to join? Or is this an internationally facing tool of nationalistically motivated international influence and control? Is this alternative to the international development funding system already in place intended to broaden access to funding and related support? Is it being offered with a primary goal of enabling and strengthening other nations in the region, or is this being built primarily for China’s benefit?

I am sure that I will come back to this set of issues and to the questions that I have been raising here, in future postings and as events unfold. Right now, any answers that I would offer here are more a matter of how the stakeholders in this emerging effort perceive what is being formed in the more immediate here and now that prevails as of this writing: today’s perceptions and understandings as to what this new organization will do and for who and under what terms and at what costs. And I cite here in that context, two seemingly unrelated events in the news that might at least potentially shed some light on what China’s leadership is currently thinking:

• China has continued apace in its race to take controlling ownership over the South and East China Seas, and along with claiming ownership over a diverse range of islands in those waters, already historically claimed by other nations, it is actively building new islands on top of ecologically fragile coral reefs and atolls, complete with runways for staging their military aircraft. So they are both maintaining and expanding their regional ownership and oversight claims in this large area within Asia. (See earlier installments in this series for further details and references related to this point.)
• And Vietnam: one of China’s smaller nation neighbors that has been directly challenged in this way through claims made upon their off-shore islands, has asked to join the new AIIB as one of its charter members. But at the same time Vietnam has actively sought membership in a new economic development force that is at least potentially emerging in the Pacific: the Trans-Pacific Partnership (TPP) with its national economy strengthening free trade opportunities.

Both of these sets of issues are very complex and I note here in that regard, that while countries such as Vietnam avidly seek membership in the TPP, the United States: potentially the linchpin member in making that treaty work, is very conflicted on what this treaty would do and whether it should be joined or not. I raise this here because of Vietnam’s response to this treaty, and with at least some brief thoughts on the why of that. For more on Vietnam’s business and infrastructure development see my recently completed series: Vietnam, Đổi Mới and the Search for Business and Economic Strength and Global Relevance (at United Nations Global Alliance for ICT and Development (UN-GAID), postings 34 and following for its Parts 1-10.)

I am going to end this series at this point, at least for now, though I am certain to return to this complex set of issues in future postings and series at a later date. Meanwhile, you can find this and related postings at Macroeconomics and Business and its Page 2 continuation.

Postscript Note of May 17, 2015: I finished writing this posting a few days ago and then saw two new news pieces that I thought I should add in here, to further support my concern as to China’s intentions in building and offering its new AIIB. Like my other references in this series, I offer these two as circumstantial evidence in seeking to discern China’s more confidentially held strategic goals and intentions in this international financial institutional effort. But I do see them as telling, as China continues to flex its muscles for its own parochial nationalistic purposes:

China Stands by Its Claims Over South China Sea Reefs, and
China Making Some Missiles More Powerful.

The first of these New York Times news pieces simply reinforces and updates an ongoing news story of encroachment and domination that I have already been writing about in this series, and I add elsewhere as well. The second of these stories represents what at least long-term can only be seen as a much more ominous turn of events. China has had the technical know-how and capability to miniaturize its ballistic missile-launched nuclear and thermonuclear weapons for quite a few years now – for decades. But up until now, their senior government and Party leadership have chosen not to pursue that path and not to deploy missiles that carry multiple warheads and multiple independently targetable reentry vehicle (MIRV) technology. This change in policy both confirms Xi Jinping’s willingness to pursue brinksmanship politics and his sense of entitlement at the expense of other nations and peoples, and his willingness to break with any restraint shown by his Party leadership predecessors as he pursues his own chosen leadership career. If one of his less confrontational predecessors had offered Asia and the world an Asian Infrastructure Investment Bank, and if they had done so in the context of building bridges rather than securing bridgeheads, I might have felt more confidence in their intentions and goals. As I said above, I am finishing this series here and for now, but I am certain to return to its general areas of discussion in future postings and series.

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