How the collapse of ‘Chimerica’ will affect South Asia
China's aim of advancing its economy is likely to delink its economy from that of the US
The writer is a former caretaker finance minister and served as vice-president at the World Bank
There is no doubt that the momentous change that is taking place in the global political and economic structures will profoundly affect the countries of the South Asian subcontinent, in particular Pakistan. The most significant aspect of this change is the collapse of the marriage between the United States and China — a union, the historian Niall Ferguson and the economist Moritz Schluarick once called “Chimerica”.They saw the two countries with interests so intertwined that a new term was needed to refer to them. Chimerica was the term they coined.
For more than two decades, Beijing and Washington enjoyed an almost perfect symbiosis. China used its enormous foreign exchange savings to bankroll consumption in the United States. The firms in China produced items of consumption for the American markets at prices that would not have been possible had they been manufactured in America. ‘Made in the United States’, most often was not a viable option. Also, China’s inward-looking foreign policy did not fundamentally undermine American hegemony. Beijing was more interested in pursuing abroad the policies its citizenry wanted — such as settling old scores with Japan — than pursuing those the leadership considered to be in the nation’s long-term strategic interest.
The Beijing-Washington marriage was made in heaven. Together, the two countries accounted for around 13 per cent of the world’s land surface, a quarter of its population, more than a third of global domestic product and about two-fifths of the global economic growth in the 10-year period before the beginning of the Great Recession of 2007-09. The association also had positive externalities for the rest of the world. Global trade boomed and nearly all asset prices surged. But not all marriages remain happy and that, Ferguson and Schularick suggested in a 2009 article, was also happening to Chimerca.
Two years after they wrote the original study, they revised their view of the marriage. “While the temptation to continue business as usual might be great, it is ultimately no longer in the American interest to remain in such a dysfunctional marriage,” they wrote. China was also not prepared to play second fiddle. For instance, rather than using its cheap labour to produce lucrative products such as the iPhone and the iPad for Apple, whose profits soared while the wages of Chinese workers increased only modestly, Beijing sought to encourage its ownenterprises to step in. China gave full support to the Guangdong-based firm Huawei, which was extremely successful making and selling smartphones that mimic the iPhone, to expand its production and increase its exports. It did, and the profits it made stayed home in China rather than fatten those of the Seattle-based Apple. With the marriage dissolved, the two major powers struck out on their own.
What is of great concern for the large global powers is how China will use its economic strength on the world stage. Under the new leadership that assumed power in the spring of 2013, Beijing has become more assertive. President Xi Jinping has begun to talk of the “Chinese dream” by which he means recapturing some of the glories of old China. But that interpretation is too abstract by which to judge the intentions of the new leaders. The basic aim appears to be that the country must continue to advance its economy and reach the point where its citizens have comfortable lives. And that approach is likely to delink its economy from that of the United States. For instance, on August 11 and again on August 12, Beijing surprised the world by devaluing its currency with respect to the American dollar. Relations between China and the United States will have enormous consequences for the world’s future. It could be argued that there will not be a repeat of the Cold War. Although the marriage has dissolved, China and the United States continue to have many common interests.
China has begun to move aggressively and decisively in asserting itself in the regions of great interest to it — Central and Western Asia, the Middle East and Europe. One big part of this effort was the $46 billion investment in Pakistan as a part of the China-Pakistan Economic Corridor. The announcement that Beijing would invest on this scale was made by President Xi Jinping during his visit to Islamabad in April. “The decision to make such a high-profile investment in its long-time partner is indicative not only of the enduring regional dynamics that have compelled the two countries’ alliance but also of China’s increasingly global ambitions,” wrote Louis Ritzinger in an assessment published by the National Bureau of Asian Research. “The motivations behind China’s promised investment in Pakistan are primarily three-fold in order of global relevance: providing economic support to a long-term ally and strategic hedge, facilitating trade, and building linkages to the West by which China can expand its influence.” While the United States has come up with its ‘pivot to Asia’ approach, China is developing its ‘look west’ policy. The west for China includes Pakistan, Afghanistan and the Central Asian republics.
Published in The Express Tribune, August 17th, 2015.
For more than two decades, Beijing and Washington enjoyed an almost perfect symbiosis. China used its enormous foreign exchange savings to bankroll consumption in the United States. The firms in China produced items of consumption for the American markets at prices that would not have been possible had they been manufactured in America. ‘Made in the United States’, most often was not a viable option. Also, China’s inward-looking foreign policy did not fundamentally undermine American hegemony. Beijing was more interested in pursuing abroad the policies its citizenry wanted — such as settling old scores with Japan — than pursuing those the leadership considered to be in the nation’s long-term strategic interest.
The Beijing-Washington marriage was made in heaven. Together, the two countries accounted for around 13 per cent of the world’s land surface, a quarter of its population, more than a third of global domestic product and about two-fifths of the global economic growth in the 10-year period before the beginning of the Great Recession of 2007-09. The association also had positive externalities for the rest of the world. Global trade boomed and nearly all asset prices surged. But not all marriages remain happy and that, Ferguson and Schularick suggested in a 2009 article, was also happening to Chimerca.
Two years after they wrote the original study, they revised their view of the marriage. “While the temptation to continue business as usual might be great, it is ultimately no longer in the American interest to remain in such a dysfunctional marriage,” they wrote. China was also not prepared to play second fiddle. For instance, rather than using its cheap labour to produce lucrative products such as the iPhone and the iPad for Apple, whose profits soared while the wages of Chinese workers increased only modestly, Beijing sought to encourage its ownenterprises to step in. China gave full support to the Guangdong-based firm Huawei, which was extremely successful making and selling smartphones that mimic the iPhone, to expand its production and increase its exports. It did, and the profits it made stayed home in China rather than fatten those of the Seattle-based Apple. With the marriage dissolved, the two major powers struck out on their own.
What is of great concern for the large global powers is how China will use its economic strength on the world stage. Under the new leadership that assumed power in the spring of 2013, Beijing has become more assertive. President Xi Jinping has begun to talk of the “Chinese dream” by which he means recapturing some of the glories of old China. But that interpretation is too abstract by which to judge the intentions of the new leaders. The basic aim appears to be that the country must continue to advance its economy and reach the point where its citizens have comfortable lives. And that approach is likely to delink its economy from that of the United States. For instance, on August 11 and again on August 12, Beijing surprised the world by devaluing its currency with respect to the American dollar. Relations between China and the United States will have enormous consequences for the world’s future. It could be argued that there will not be a repeat of the Cold War. Although the marriage has dissolved, China and the United States continue to have many common interests.
China has begun to move aggressively and decisively in asserting itself in the regions of great interest to it — Central and Western Asia, the Middle East and Europe. One big part of this effort was the $46 billion investment in Pakistan as a part of the China-Pakistan Economic Corridor. The announcement that Beijing would invest on this scale was made by President Xi Jinping during his visit to Islamabad in April. “The decision to make such a high-profile investment in its long-time partner is indicative not only of the enduring regional dynamics that have compelled the two countries’ alliance but also of China’s increasingly global ambitions,” wrote Louis Ritzinger in an assessment published by the National Bureau of Asian Research. “The motivations behind China’s promised investment in Pakistan are primarily three-fold in order of global relevance: providing economic support to a long-term ally and strategic hedge, facilitating trade, and building linkages to the West by which China can expand its influence.” While the United States has come up with its ‘pivot to Asia’ approach, China is developing its ‘look west’ policy. The west for China includes Pakistan, Afghanistan and the Central Asian republics.
Published in The Express Tribune, August 17th, 2015.