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AB 2000 studies

Alain Boublil Blog


Globalization : the new Silk Road

Major international meetings held from November 10 to November 17 (APEC summits, ASEAN and G20) were characterized by the now predominant place occupied by China. The Chinese President stepped in each time from a position of strength. He has certainly benefited from the weakening of his interlocutors. Vladimir Putin faces the Ukrainian crisis. Barack Obama has been affected by the loss of the Senate. The Japanese Prime Minister remained discreet because of the economic difficulties of his country and was waiting to be received by Xi Jinping, despite the persisting disagreements about the East China Sea. As for Europeans, they appeared, at the G20, divided and weakened by the stagnation of their economies. But the rise of China has not only resulted in the weakening of its partners. It derives from the will expressed by its leaders to play a new role on the world economic stage, by leading multilateral negotiations and developing their partnerships through state-to-state agreements.

Thus, China launched the negotiations for a free trade agreement between the Pacific countries, while excluding from it the United States and Japan, whereas the United States specifically tried in vain to make progress on the Trans-Pacific Treaty (TPP). Chinese leaders had no trouble explaining, defying logic, that these agreements were not at all mutually exclusive. Beijing then signed a bilateral agreement with the United States in order to reduce CO2 emissions in preparation for the Paris Conference. This agreement is greatly significant since it acknowledges the fact, for the first time, that the volume of Chinese emissions will be capped in absolute value. Formerly, they were limited per unit of GDP. Nonetheless, the Chinese leaders did not deem necessary to associate France – which will be hosting the conference – to the discussions. Finally, at the meeting of ASEAN leaders, who took place between APEC and the G20, Prime Minister Li Keqiang launched a series of multilateral initiatives to strengthen the ties between the countries of South East Asia. Outside these meetings, bilateral strategic partnerships have been concluded at an impressive pace.

A new giant agreement with Russia on oil purchases and gas was concluded. The two countries were initiating at the same time procedures to settle trade without using the US dollar. China agreed with Thailand on a  railway line connecting the country to Yunnan and massive rice purchases have been made.  A military cooperation agreement was renewed and extended with Singapore. Very significant currency swap agreements have been concluded with Canada, Malaysia and Korea in order to facilitate trade and Yuan transactions. A free trade agreement has been renewed with Korea. Finally, the launch of a market platform between Shanghai and Hong Kong became effective. Individuals on both sides of the border will be able to purchase securities on the two markets, without having to go through the "Qualified Investors" procedure. Their sole obligation will be to repatriate funds to their countries of origin when they sell them. 

This intense activity needed to be summarized by a formula, an image that strikes the public opinion: this is the new "Silk Road". If this image appears frequently in our tourist guides, it actually refers in China to a major historical experience: the country first opening to the West, 2000 years ago. It is no coincidence if the National Museum in Beijing holds currently an exhibition showing testimonies of that time, including terracotta statues of foreign merchants and their caravans purchasing spices and silk so popular among European Courts. Chinese traders were also sent across the oceans to India and Africa. The Silk Road was the “First Globalization”. But it was acceptable to the Emperors because China was on top of the game and networks were structured according to its production and opportunities.

The Chinese authorities use this remote historical precedent in order to show that China will be at the center again of the new phase of globalization. So far, China was the “world factory”. Thanks to cheap labor, its workshops were providing with products Western customers, including supermarkets, and its companies worked as subcontractors for American, Japanese or European firms. This was particularly the case for electronics, from televisions to mobile phones and more recently tablets. Those days are gone for two reasons: wages have increased to the point that it is not worth it anymore for Western companies to offshore in China. Chinese companies, in many areas, have now, alone or in partnership, acquire the skills to produce and sell their own products worldwide. Their reputation and the quality of their products are now good enough to let them impose their brands.

That being said, the integration of China into the global economy is taking a new turn. Beijing is able to compete with the West by offering to its neighbors the products and technologies they need, particularly in terms of infrastructures. Beijing speaks with them directly and signs agreements allowing Chinese companies to acquire raw materials in exchange for investing money into projects necessary to their neighbors’ development. China facilitates thereby the circulation of its products first intended for the West and soon addressed to its neighbors, as the income of their populations will reach some levels enabling them to acquire these goods.Thus, China gradually turns its companies – which used to be “low-cost” subcontractors – into worldwide competitive stakeholders, employing a highly skilled workforce.

This transformation is supported by a very active economic diplomacy that aims to support the development of its neighbors, while positioning itself as a privileged partner. It has been the case for several years, particularly in Central Asia. What is new is that all of South Asia and the Pacific region are now affected. The Chinese president made a long State visit to Australia right after the G20. He negotiated a free trade agreement that is quite significant despite its limited scope. The relationships between the two countries have indeed been strained by the restrictions made on Australian coal imports and the concerns raised by Australia with regards to the massive number of Chinese immigrants in recent years. But these days are over now.