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Chinese Hegemony in Asia: An Economic Revolution

Throughout most of its history, China has been relatively cut-off from the rest of the world due to a centrally planned command system of governance that resulted in an inefficient, stagnant, and poor economy.

In 1979, Deng Xiaoping, the paramount leader of the People’s Republic of China made a very bold and decisive shift towards a Free Market Economy and called on the country to combine the ideology of the current socialist regime with pragmatic aspects of a Capitalist Economy. After the ratification of Trade Liberalization and various economic reforms, the country opened up to foreign investment and trade in a way that transitioned it into an economic powerhouse in just 3 decades. In contrast, it took the whole of Europe an entire century to match up to the same growth prospects during the Industrial Revolution

The growth witnessed by China during this period was unprecedented and explosive with the real GDP rising each year in double digits. At an average rate of 9.5% for nearly 3 decades until 2010, this success story is one of the greatest. The by-products of such a staggering rise in economic activity only helped the cause. Currently, China is the world’s largest holder of foreign reserves ($3.34 trillion – Much more than the GDP of India), largest merchandise trader by volume, largest economy on a PPP basis, and world’s largest manufacturer. It was a combination of all these factors that allowed China to lift more than 800 million people out of poverty.

After 2010, China fell into what most economists call the Middle-Income Trap, wherein a major economy makes significant progress in poverty reduction and achieves exceptional growth rates but is unable to sustain a similar level of development and experiences decline in growth (similar to the rest of the middle-income countries). This is evident from the fact that China’s real GDP growth plummeted from 14.2% in 2007 to 6.6% in 2017 thereby creating a major hurdle in its dream to become a fully-developed high-income country.

Recognizing the new reality and its implications in the global economic environment, the Chinese government sought to change the fuel that accelerated China’s engine of development. From being a primarily export-driven machine powered by massive government spending on rapid industrialization, it started to shift towards modernization by focusing on consumption, privatization, and services.

A key factor that would be integral in this model of growth was: innovation. China was well aware that if it had to maintain its international competitiveness, it could no longer associate itself with the image of being the World’s Factory. To achieve this endeavour, the Chinese Government announced its most ambitious and bold initiative in 2015, the Made in China 2025. It was envisaged as the move that would transform China’s global image and accelerate growth rates back to the pre-2010 era.

Made in China did not merely aim for higher production within the country as can be misinterpreted from the name. It has been designed to completely upgrade what it used to produce. It aims to make China a high-end manufacturer of goods in order to cater to the wealthy consumer base around the world and distance itself from the cheap, low-quality Chinese items notion. The government plans to invest more than $300 billion dollars as per estimates in 10 key sectors like artificial intelligence, information technology, pharmaceutical, robotics etc. in order to modernize the supply chain and make its labour force increasingly specialized to produce top-notch goods that surpass quality standards of countries like Japan and Germany. Technological innovation and R&D Investments are now driving the country’s entrepreneurial and corporate sector forward.

Major concerns regarding this policy have surfaced and it is partly responsible for the US-China trade war. The United States officials have reason to believe that China wants to completely end reliance on foreign technology and is crafting its industrial policies (based on mandatory technology transfer by foreign firms) as such that they acquire the technical “know-how” to manufacture extremely high- tech & intricate equipment like semiconductors and integrated chips to become 100% self-sufficient.

Back to the Age of Expansionism

China’s expansionist policies and how it’s succeeding in the long game-

1. South China Sea: This is perhaps the most obvious testament to China’s grand ambition of being Asia’s sole hegemonic leader. The South China Sea is incredibly rich in natural resources and controls more than 30% of the world’s shipping trade to some of the most important consumer markets. About 5 countries lay claim to some part of this region based on the United Nations Law of the Seas which says any country’s territorial waters extend up to 200 nautical miles from their shore (called the Exclusive Economic Zone or EEZ). Within this zone, the country has exclusive rights to all the resources and trade. But any area that does not fall in the EEZ is International Waters which comes under UN Maritime Law meaning it should be mutually shared. China has argued that it has a historical claim to the South China sea based on its Naval expedition back in the 15th century. An interesting strategy it adopts is to build artificial islands off its coasts and then measure the 200 nautical miles threshold from there so that it’s a part of their sovereign territory. This cycle goes on and China now controls almost 90% of the sea encompassed in what they call the 9-dash line.

2. Belt and Road Initiative: China’s grand plan to develop road, rail, and sea routes across 65 countries will essentially reroute global trade. Experts describe it as the most ambitious infrastructure project of the 21st century. It’s a multi-trillion-dollar project that comprises of an overland Economic Belt and Maritime Silk road. The maritime network will have shipping lanes from China to Asia, Africa and Europe while the Belt will have land routes to get goods in and out of China through Central Asia all the way to Western Europe (rail-roads from China to London, gas pipelines to the Caspian Sea and a chain of seaports from the South China Sea to Africa) . China Pakistan Economic Corridor ($60 Billion worth) is a flagship project of BRI for infrastructure development in Pakistan. Further, China has built a 3-billion-dollar railway in Kenya, a 200 million-dollar bridge in the Maldives, and a 1.5-billion-dollar deep water port (a key point on the maritime silk road) in Sri Lanka. When Sri Lanka was unable to repay the debt, it was forced to give up control of the port on a 99-year lease to China. Similarly, China also controls a strategic port in Pakistan on a 40-year lease and has opened an actual Chinese naval base in Djibouti.

China lends huge amounts of money to poor vulnerable countries along strategic routes to develop their infrastructure and they eventually fall into a debt trap. Experts relate this strategy to the String of Pearls Theory wherein China is essentially trying to establish a string of naval bases around the Indian Ocean that will permit it to station ships, guard shipping routes across the region and secure crucial communication lines.

Apart from this, the infamous Salami Slice Strategy to surreptitiously expand its boundaries is responsible for China’s conflicts with Taiwan, Bhutan, Nepal, and even Russia. The introduction of the national security law in Hong Kong which virtually ended its autonomy was a clear breach of the Hong Kong Treaty which the British Government signed in 1984.

The recent bout of aggression at the LAC with India proved that China won’t care for maintaining a peaceful, civil image. For a country that was on the receiving end of the world’s indignation for the mismanagement of COVID-19, engaging in territorial disputes with all its neighbours when the pandemic is at its peak severely dents its credibility but apparently most countries have failed to hold China accountable for its actions.

It is quite clear now what China’s strategy pertaining to geopolitics in Asia is. It’s an utter disregard for numerous treaties and peace accords coupled with discarding 50 years of restraint by threatening India’s sovereignty has obliterated any diplomatic efforts to ensure the survival of competition with co-operation. In the aftermath of the deadly clash at Galwan Valley which saw dozens of Indian troops being martyred, it is time for India to face a new reality.

A reality that will be led by a policy of permanent conflict with China rather than co-existence and strategic resistance to all its encroachment tactics without aggressively provoking a war-like situation. Though it should be noted that in order to fearlessly stand up to China, we need to shed our qualms and neutral stance and prepare ourselves for matching their military might and economic prowess.

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