Doublewood: G20 – The Turning Point

G-20 Summit – The Turning Point

[September 3, 2016]

In the next few days, world leaders will gather in Hangzhou, China for the annual G-20 summit. Unlike previous gatherings, the international community is anticipating this summit to potentially mark an historic turning point.

In my closer proximity to what has been going on, I think there are three (3) dimensions to this anticipation. The turning point will mark:

(1) The emergence of a new approach to solving the world’s problems of growth and governance.
(2) The resumption of China’s long-term historical status.
(3) The rebalancing of relations between China and the US.

(1) New approach to global growth and governance

As this year’s G-20 host, China sets the theme and agenda of the meeting as “Toward an Innovative, Invigorated, Interconnected and Inclusive World Economy”, or the 4 “I”s.

China is ready to take the lead
For the first time, China will be willing to lead in the following ways:

(a) Share her developmental success methodology and approach with the rest of the world (and Hangzhou is as good a place to showcase that as any).
(b) Present her prognosis on the causes of the present stagnancy in global growth and her prescription of a strategy to reverse the trend. She will advocate a focus on invigorating infrastructure developments in the lesser developed parts of the world, while combating the unhealthy trend of protectionism.
(c) Explain China’s reforms and restructurings to revitalize her growth engine through innovation and intensified connectedness with the rest of the world (for example, the newly-formed international cross-border e-commerce platform, and many other new technology-driven businesses).
(d) Pursue a methodical approach to reform the global financial system and environment, including putting her money and creating mechanisms to facilitate more efficient trade flows and capital formation.
(e) Push for improved global financial governance and cooperative safety nets to guard against systemic instabilities in currency, liquidity and credit.

Actions, not just talks
Everyone knows that China is not just engaging in a rhetorical exercise here. Behind each of the endeavors are piles of specifics, with a multitude of actions and programs already well underway. They include those under her “One Belt One Road” initiative, the AIIB, the Silk Road fund, and bilateral and multilateral currency exchange agreements. What will emerge from this G-20 summit are numerous standing organizations that will operate on an ongoing basis to make tangible and timely progress on major issues and functional challenges. (This is designed along a similar pattern as the way China and the US have been conducting and building the two countries’ New Form Of Big Nations Relations through the creation of numerous working groups. Through the G-20 framework, this multi-track working approach will each involve many nations across the entire global constituencies. Within the two tiers, either an agreement between China and the US on a specific issue (such as climate change), or a consensus reached among the G-20+ constituents (such as financial regulatory safeguard) will spur progress and dramatic breakthroughs. The philosophy is to build mechanisms in increments, by leveraging off G-20 and focusing it on long-term goals, instead of merely reacting to periodic crises.)

The G-20 leverage
G-20 nations represent 80% of the world’s population and 86% of world GDP. Solutions to common challenges in the world can only be realized through the coordinated collective efforts of a body comprising both developed and developing nations. To achieve the UN’s Sustainable Growth Targets of 2030, the connection of the poor with the rich economically via developmental initiatives provides the best leverage. The exclusive club of rich nations, such as the G-7, acknowledges it can no longer sustain global growth under its direction and capabilities. Their economies are comprised predominantly of “virtual’ and “tertiary” sectors such as finance, consumption and services industries, which require higher returns to justify incremental investment. They are already strained to their debt-limits. They themselves are struggling to sustain their economies against steep financial odds, which are being aggravated by aging populations, high welfare expectations and low levels of savings.

It is in China’s interest
China is ready to undertake the major role because it is in her interest to do so. At this stage of her development, China needs the world as much as the world needs China. Structurally, China has the world’s largest “real” economy and what I call “primary” industries. (I like to compare China today to my client in the 1970s, General Motors Corporation. They used to say: when General Motors picks up, the whole of America picks up. That was because GM’s business was an industrial as well as commercial magnet, which dragged everybody along. Conversely, when GM sags, everybody chokes. Relative to the rest of the world today, China is like the GM of old). Increasingly, China also has the financial means and ingredients as well as the incentive to make that connection. That is why her “One Belt One Road” and AIIB initiatives are intuitively appealing to all (and why a country like Britain would jump the gun and try to get a head start with her).
Ever eager to shun attention on her growing strength and to evade the spotlight, China has nonetheless strategically chosen now to step onto center-stage
.
(2) China resumes historical status as a leading civilization-state
China will present her own narrative

In exercising her global influence and capabilities, China unavoidably raises angst around the world about the nature of her rising status. In the past, she had not had the power or the opportunity to tell her story herself. The stories about her had always been told to the world by others. These are typically laced with fundamental misconceptions and frequent devious imaginative figments that would serve the interests and agenda of the story-tellers, who typically retain their old Cold War propaganda lenses.

For China to either be thrust into the center-stage role or to voluntarily assume it, there must be solid numbers in material socio-economic terms to justify it. And indeed there are, which the IMF would vouch for. It would take me pages to describe the numbers and the underlying momentum (which I will not do here). At this stage I am confident in the sustainability of China’s strength and foresee further dramatic progress. China is, and will be, a blockbuster for a while yet. She has developed a massive and elaborate systems approach to manage processes and integratedly control and attain the desired objectives.
But it will also require cultural appeal. For that, China must tell her own story, instead of being “fair game” for demonization by Western think-tanks and editorially prefabricated media. China will soon begin to tell her own story.

Back to historical norm
Increasingly, astute historians in the West are pointing out that the rise of China today is a resumption of her “normal” status as a world-leading civilization, rather than an anomaly. With a history that can be documented over almost 6,000 years, China is one of only two civilizations that have continued unsevered to this day (the other being the Jewish civilization). Historical statisticians such as Angus Maddison presented that China had, for the past 2,500 years or so, led the world in aggregate GDP (often by substantial margins), until about 170 years ago. Recent history, commencing with the Opium War of 1840, of a China bludgeoned by Western imperialist powers and ravaged by militarist Japan was, as Henry Kissinger puts it, “an exception to the norm” and likely to be an “interlude”.

During those 2,500 years, China experienced two major renaissances from approximately 220 BC to 220 AD (the Qin and Han dynasties) and from approximately 581 AD to 907 AD (the Sui and Tang dynasties). They, as did the European Renaissance from approximately 1482 AD, propelled human civilization to unprecedented heights.

Arnold Toynbee, the celebrated scholar on world history, believed that China is best-equipped to provide world order over the long-term because of her unique cultural and philosophical precept of embracing universality and inclusiveness rather than religious absolutism and exclusivity. Being not learned enough, I defer to others to debate this issue.

China the revitalizing civilization-state
Living and working in China and studying her for decades, I would point out that China is not just a nation-state. On top of being a modern nation today, China is first and foremost an organic civilization, very much alive and kicking nowadays. This is in sharp contrast to the hierarchical kinship-matrix society that got formularised into neo-Confucian cycles of static order, from the middle of the Ming dynasty in early 15th century on. That not only postponed her modernization for almost 500 years, but also made her forfeit the opportunity to be the first civilization to embark upon the Age of Discovery. She was already navigating huge armadas across the high seas and ocean between Asia, Middle East and East Africa under Zheng He’s command from 1405-1433. By China foregoing seafaring exploration and kept herself landlocked, the eventual prize of sea power and modernity eluded her. It went instead first to Portugal around 1487, and eventually to other European colonizers.

China is now back to being a dynamic “melting-and-blending” civilization that was her root and core characteristics since the days of the contending philosophies originating from approximately fifth century B.C. (almost contemporaneously with similar phenomena in ancient Greece). That spanned almost two thousand years and produced two major renaissances, with each such phenomenon lasting between three to five hundred year. I believe that she is in the middle of another major renaissance today, which I am closely watching, experiencing and enthusiastically studying. In a limited way, I have also been fortunate enough to participate in the process first-hand.

(3) Recalibrating the relative balance of power
If Obama is to leave a legacy in foreign affairs, forging an enduring and overall peaceful US-China relations may be the only one he might achieve. He will probably owe that to his Chinese counterparts because, without their maturity, realism, skills, acumen, decisive action and resolve, even that potential legacy could also end up in a mess.
Too important to fail

At China’s suggestion, starting from the Annenberg Estate meeting in 2013, the two nations started the process of building a New Form of Big Nations Relations in order to prevent from falling into the so-called Thucydides Trap (referring to the period of Greek history when the rise of a new powerhouse city-state, Athens, collided with the presiding hegemony of Sparta, eventually leading to the all-out Peloponnesian War which left the entire region in wreckage, a “world war” as it were in the Greek universe).

The New Form of Big Nations Relations between China and the US today is grounded on realism. It recognizes that a hegemonic power like the US and a rising blockbuster like China will inevitably have many substantial contradictions and collisions of interests. So the first step is to engage each other in continuous dialogue as broadly and as deeply as feasible, flushing out as much of the potential issues and problems as possible onto the table for discussions and monitoring. Both sides will share three general slogans as the “umbrella” objectives underpinning the relations, namely: “No clashes”, “No confrontations” and “Actively manage all differences”. There is also an explicit understanding that neither side will step on the other side’s professed “Core interests”.

I am sure you can see that this thing is kind of shifty. One side’s core interest can also be the other side’s core interest, even if not professedly so until one side declares it to be so. South China Sea tension demonstrates that. But because of the Relations framework, the heated animosity and bellicose posturings and undertakings certainly got elevated to the level of “confrontation”, but not quite “eyeball-to-eyeball”. The confrontation(s) have become a new normal and, as such, need to be constantly “actively managed”, which they are, so that they do not result in armed “clashes” that keep escalating into an eventual messy war.

How do you get out of these mine-fields? Once again I remind people of the real predicament of China and the US as the Chain Gang, or partners in mutual potential jeopardy. When two people are chained together by reality, one side has to eventually go along with the other, no matter how grudgingly. That can be due to lack of a better alternative or it is the only choice, even if not very palatable, up against imminent peril to one or both individual. So what decides who backs down, when, and how?
The answer is relative strength, which can be real or perceived. And, something the Chinese are very skillful at, finding win-win alternatives and/or tradeoffs, both of which involve an ultimate contest of will and resolve, and relative threshold and willingness to endure pains and sufferings, or to pay a price.

Lately, there has been a marked shift in the relative balance in the above measures, with the US slipping and losing traction in geopolitical terms, at least temporarily. At the same time, the rise in Chinese apparent strength and resolve is real and substantial, bordering on shocking. It leads one to believe that there may be more in latency that have not met our eyes or caught by our ears.

Slipping and sliding
You only have to hold up a map of Europe and Asia to see vividly how the US has slipped geopolitically during the Obama administration. To blame it entirely on Obama is neither fair nor conclusive at this time. But using a chessboard as an analogy, some of the US’s supposedly firm pieces are not solidly placed while others are clearly misplaced or jeopardized. The overall game has deteriorated, particularly after the Turkey debacle. Its significance has yet to be adequately assessed.

The US blunder in the South China Sea is even more potentially costly. Her low-handed antics and orchestrations in the otherwise peaceful region enraged the Chinese. The result is they revved up their weaponry programs and rolled out a barrage of cutting-edge gadgets so huge that I do not need to enumerate. More damagingly, the Chinese brandished enough edgy technological advances to amply demonstrate, for the first time since the Cold War, perceived weakness of the US in a future potential arms race. The cost and efficiency gaps between the US and China, created by the latter’s shockingly efficient integrated weaponry development systems and super-scaled engineering capabilities, have become a real issue.

Just a small list of potentially strategic areas where the Chinese have probably surpassed America:

Ultrasonic flyers
Space rocketry missiles
Supercomputers
Basic & application research in quantum physics (communication, computing)
Beidou (the Chinese version of GPS)

There are definitely more, potentially much more that will keep rolling down the ramp.

Behavioral transformation
Sergey Lavrov, the Russian Foreign Minister, said this about the US foreign policy conduct in recent years:

“In fact, they (the US and some Western nations) pretend to have a monopoly on the truth and use a number of illegitimate coercive measures and unethical means to influence their partners, [such as] rewriting history or aggressive propagandist media campaigns, unilateral sanctions or sponsoring coups as well as fueling regional conflicts and direct military intervention,”

Regardless of whether that is true or not, China most certainly feels that way about US behavior. That has proven, in the case with China in the South China Sea, not to be “smart” power at all. In fact, it has back-fired severely. When there is no need for dirty tricks, honesty may indeed be the best policy, when combined with realism.

The positive side of US-China New Form of Big Nations Relations lies in what the Chinese call win-win cooperation. There are many areas in which that has already been happening. One of the biggest prizes in the Relations will be jointly building a monetary and currency cooperative framework. I am glad there has been some discussions going on, which need additional injection of creativity and removal of some practical misunderstandings and reconciliation of factual and technical matters.

China needs America and America needs China, and the world needs them to cooperate in framing the house under which nations and people will attain respectable livelihood. China does not need to be “number one”. What she needs is an effective and sincere partner. America is resourceful and multi-talented. What she needs is a different and more mature attitude and to see the wisdom in leveraging off China, rather than monger in fear of her, fight her or attempt to screw her. The matchup may no longer be so much in America’s favor at the moment.

-doublewood

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