After U.S. President Donald Trump signed an executive order last week withdrawing from the Trans-Pacific Partnership (TPP), many analysts concluded that China would come to dominate Asia, and possibly the world. This is because the TPP was viewed by many to be a strategy for the U.S. to “contain” China’s trading power as it incorporated many other nations along the Pacific coast into the pact, and excluded China. Now that the U.S. has receded from its role in shaping the TPP and even declared that protectionist strategies would be implemented, China’s role as a dominant trading power has come into focus. And by contrast to the U.S., China is not shying away from globalization and engagement with the rest of the world.
China has embraced globalization not only in its proposed trade deals, like the anticipated Regional Comprehensive Economic Partnership (RCEP), but through the One Belt One Road policy, which seeks to build up infrastructure in Asia and elsewhere. These policies promote China’s trade and economic prowess, and act as a means to spread China’s “soft power.” China has also started the Asian Infrastructure Investment Bank and Silk Road Fund to finance its elevated role on the global economic stage, which further underscores the nation’s resourcefulness.
Does all of this mean that China is headed for superpower status? No. It takes more than a power vacuum and rising economic status to establish a global hegemony.
Even though China has been in the spotlight for years–first as the “factory of the world” and then as “bridge builder of the world”–its capacity for economic reform is in question, and its financial sector remains far less developed than that of the Western world. Growth is slowing, and economic inefficiencies abound, as reform of the services sector has been monumentally slow.
China’s financial sector also fails to provide investors with consistently profitable real returns. Serious constraints associated with deeply embedded government involvement in the economy threaten the future of the country.
In addition, the spread of soft power alone does not guarantee the rise to superpower status. For one, we still have yet to witness the long-term viability of China’s recent economic partnerships. Second, the presence of soft power abroad without strong domestic institutions threatens to undermine China’s global presence. For example, China’s own lack of legal enforcement may not play out well along OBOR, resulting in corruption or project non-viability, particularly since many of the nations in which it will invest have poor legal frameworks themselves. Also China’s ongoing capital controls and lack of financial liberalization hinder internationalization of the RMB, which makes RMB financing of global projects less attractive.
The U.S. example
First, it should be mentioned that hegemon status is not automatically granted to nations that trade the most or grow the fastest. If that were the case, Japan would have been granted world superpower status by 1970 and Taiwan would have gained superpower status by 1980.
Second, to some extent, it was chance that allowed the United States to become a global power after World War II. The rest of the developed world, including Europe and Japan, was in disarray. At the Bretton Woods meeting in 1944, world leaders agreed to anchor their exchange rates in gold, which would then be tied to the U.S. dollar. As a result, the U.S. dollar became the most important currency in the world, and the United States rose to superpower status.
Certainly, the United States had been on par with or above Europe in terms of living standards and level of industrialization before World War II, and was therefore seen as an economic equal. It was the restructuring of global currencies at Bretton Woods, however, that boosted the United States to center country status.
What this means for China
China lacks the kind of global support that the U.S. received after World War II, which provided tacit agreement for the U.S. to become the world’s anchor of economic stability. While China does enjoy this type of backing in Asia, allowing it to act as a center country within the continent, Western nations are wary of China, as evidenced by the creation of the TPP. Further, China’s living standards are not close to those in the West, and its currency is not considered international yet, as preconditions for becoming a global superpower.
It is possible that these conditions will change over time, but in the short run, we will not see China become the “next United States” in global power. Until then, a global power vacuum may arise–as long as the political-economic mindset of Western nations remains inward-looking, and that of non-Western nations remains weak.
