World vs China in AC (after Corona) era

Institutions in their current form, be it the UN or WHO or the WTO, have failed in discharging their duties efficiently and diligently, which is an understatement.

Entire humanity has been put to risk by the irresponsible actions of one country – China. As of today, over 3 million people have been infected by the Coronavirus with more than 2,20,000 deaths worldwide. In the U.S. alone over 60,000 people have died (surpassing the number of Americans killed in the Vietnam war) and over 1,30,000 in Europe, and expected to rise further in days to come. The global economy has entered into a severe recession with more than half of humanity under lockdown. According to World Trade Organization (WTO), global trade is expected to fall by 13% to 32% in 2020 as the pandemic disrupts normal economic activity around the world and according to International Labour Organization (ILO), about 1.6 billion people risk losing jobs. Over 26 million jobs have been lost in the United States alone and the UK’s economy is expected to shrink by over 13%, the steepest fall in the past 300 years. Like all other countries, India too has been severely impacted by the pandemic leading to a sharp deceleration in all spheres of economic activity.

Irrespective of what-ever China says an overwhelming majority of the world’s population is convinced beyond doubt that the Coronavirus originated in Wuhan, capital of Hubei province in Central China. The cause of its origin, either from a lab in Wuhan or from its wet markets or some other source is still being debated, the truth will eventually be known. Understandably in many parts of the world, the virus is referred to as the Wuhan Virus or China Virus. It is now apparent that China deliberately hid news about the outbreak of the virus in December 2019 from the rest of the world, thereby enabling the virus to spread across the globe and develop into a pandemic. The impact of this pandemic, which has emerged as a global humanitarian challenge, is such that the period before its onset is being referred to as before Corona (BC) and the period after humanity survives it will be known as after Corona (AC).

A Chinese company will receive most of the proceeds of these loans lent by Chinese financial institutions and the partner country where the project is being implemented is left with the debt.

How will the world relate to or deal with China hereafter in the AC era?

China’s rise has been rapid in the past 4+ decades, needless to say, it has made a lasting impact on the global economy. It has emerged as a manufacturing base for the entire world for everything, from pins to plates to phones, even planes. But has the rise of China been beneficial to the rest of the world?

Take the case of it’s ambitious Belt & Road Initiative (BRI). The brainchild of China’s President for life Xi Jinping it proposes to connect Asia with Europe and Africa through rail and maritime links with the slated objectives of stimulating economic growth and increasing trade. Inspiration for this project was drawn from the Silk Road, an ancient network of trade routes that connected China to the Mediterranean via Europe and Asia during the Han Dynasty about 2,000 years ago. Under BRI, China envisaged an investment of $1 trillion to establish several projects including power plants and grids, highways, ports, oil, and gas pipelines, in more than 70 countries across Asia, Europe, and Africa. This was expected to create demand for Chinese products as its economy was slowing down and facing multiple challenges, including a trade war with the United States. On the contrary, instead of expanding overseas markets for Chinese exports, the BRI turned out to be a debt trap for the participating countries.

BRI was conceived as an investment by China with a provision for Return On Investment (ROI). Funding for BRI projects is lent by Chinese financial institutions to recipient countries and the construction contracts are awarded to Chinese firms. A Chinese company will receive most of the proceeds of these loans lent by Chinese financial institutions and the partner country where the project is being implemented is left with the debt. China did not have the intention of aiding the development of recipient countries, its idea was to acquire its strategic assets through a cleverly crafted plan with several strings attached to the loans given for these projects. If the ROI is not enough to repay the debt, then China has the right to repossess the project under a debt-for-equity swap formula. Several countries have learned this the hard way.

An example is the Hambantota port in Sri Lanka. China lent about $8 billion for construction of the port under BRI which was undertaken by Chinese firms. However, expected ROI from the port was not realized which forced Sri Lanka into a debt trap, and subsequently, it had no other option but to lease the facility to China for 99-years in order to meet debt servicing obligations. Malaysia renegotiated a rail project under BRI for connecting its east and west coasts as the estimated price of $20 billion was found unacceptable by its finance ministry. Prime Minister Mahathir Mohamed wanted to cancel the project altogether but found the cost of cancellation to be prohibitive. Myanmar forced China to reduce the cost for a port project under BRI from an estimated US$ 7.5 billion to $1.3 billion as it did not want to repeat what other countries faced by building infrastructure for which there was no sufficient demand. Djibouti in East Africa is set to lose control of its container terminal built under BRI with loans taken from China as it is saddled with debt equal to 88% of its GDP. China’s all-weather friend Pakistan is also facing severe challenges under BRI and is slowing the implementation of several projects. China has cleverly camouflaged BRI projects to act as a conduit to achieve its sinister geopolitical ambitions and extend its military presence in areas beyond its traditional spheres of influence, which is bound to upset and undermine the established international economic and security architecture. A combination of these factors has alerted other countries about how BRI projects could harm their economies and impinge on their sovereignty.

Such actions by world powers against nations which endangered humanity largely ensured global peace and progress for the past 75 years. These two examples probably give clues to how the world can deal with China in the AC era.

It is apparent that China’s rise has not been beneficial for the rest of the world, in fact, its growth has been at the cost of other nation’s sovereignty. It exploited the situation in economically weak countries with the lure of investments which were in fact designed to push recipient countries into a debt trap and enable it to acquire strategic assets to fuel its global power ambitions at least cost. The root cause lies in China’s governance model and the role of the Chinese Communist Party (CCP), which maintains absolute power and an iron grip on all facets of activity in China.

How can the world ensure China’s rise in the future is not detrimental to or at the cost of the rest of other nations? History offers some answers.

About 80 years ago the world was facing the ruthless might of the German army under Adolf Hitler, rampaging through Europe and seemingly unstoppable due to its economic and military might. The Allied Powers comprising Britain, France, the Soviet Union, and the United States came together to defeat Germany and cause the fall of the 3rd Reich. Thereafter, the Allied Forces removed Nazi influence in Germany through a process of denazification. Subsequently in a post-war industrial disarmament plan, Germany’s capability to wage war was substantially reduced by de-industrialization by destroying its manufacturing capability and heavy industry which was its core strength. The U.S., Britain, and France together established the Federal Republic of Germany (West Germany) which was made a member of NATO in 1955 to guarantee its security. Lead by the United States, the European Recovery Plan, also known as the Marshall Plan was initiated providing economic and technical assistance to Germany and other European countries devasted by war. This helped recipient countries to improve their economic recovery, the standard of living, exports, increased agricultural production, and reduced unemployment.

In the far east, after the surrender of Japan subsequent to the dropping of nuclear bombs by the United States, a period known as Occupied Japan followed lead by General Douglas MacArthur. The allies provided Japan with economic and political assistance, the Meiji Constitution was abolished and replaced by a new constitution, the Empire of Japan was renamed as Japan and de-militarized. Japan adopted a parliamentary-based political system and the Japanese Emperor became a symbolic head. Over the next few decades, Japan would emerge as one of the most developed economies and advanced nations in the world.

Such actions by world powers against nations which endangered humanity largely ensured global peace and progress for the past 75 years. These two examples probably give clues to how the world can deal with China in the AC era.

For any meaningful outcome from global efforts in containing China, the Chinese Communist Party (CCP) must be held accountable for its actions. Preferably it must be disbanded and the Chinese people should embrace democracy under a new constitution which will lead to free speech and transparency in governance. The CCP will not easily give up its power and unopposed sway over the country, it must be coerced into doing so by the rest of the international community. The CCP derives its strength from the economic might of China and this is where it must the targeted. Some countries have started taking steps in this direction. Japan has announced $2.2 billion to underwrite costs for Japanese companies to relocate from China, it’s the largest trading partner, to other locations. South Korean giants Samsung, Hyundai Motors, Kia Motors, and LG are moving their production facilities from China and shifting to other locations, including India. American companies were already considering moving their production lines from China due to the U.S. – China trade war, which will now be fast-forwarded due to the pandemic. Many European companies are also re-thinking their reliance on China as a manufacturing hub. If this initial trickle turns into a flood of exits over the next few years, China would be weakened immensely as it would significantly reduce its economic muscle power, thereby also impacting its military might. Compounded with an aging population this would deal a deadly blow to the CCP and unshackle China from its grip. The international community, especially the major powers, must ensure a smooth transition in China in case the CCP is unable to adjust to the new global normal in the AC era and goes berserk in trying to retain power at any cost.

India, on the other hand, from time immemorial pursued its ideology known as “Vasudaiva Kutumbakam” – the world is one family and has always worked for the benefit of humanity. Its philosophy has been to grow together, for we are all inter-dependent and belong to one family – humanity. Even while dealing with China, India always maintained that both countries can rise peacefully together, not by competing or undercutting each other, but by cooperation based on mutual respect and benefit.

The aftermath of World War II saw the decline of colonial powers and founding of the United Nations to usher in international cooperation and diplomacy, with members agreeing to prevent wars and aggression to avoid a 3rd world war.

The aftermath of the pandemic must enable the reorganization of the international security and economic framework to make multilateral institutions more board based and reflect changed global reality. To say that these institutions in their current form, be it the UN or WHO or the WTO, have failed in discharging their duties efficiently and diligently, which is an understatement. The comity of nations must seize the opportunities brought about by the pandemic to address long pending global challenges and ensure humanity’s continued survival and progress in a balanced manner so that humans can live in peace and harmony amongst themselves and with the rest of the creation. Never in the future, a country must be allowed to jeopardize the lives and livelihood of millions of people and hold humanity to ransom by its reckless actions that result from the blind pursuit of global power ambitions and world dominance.

Note:
1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.