The Bretton Woods system of financial institutions and rules, set up at the behest of Washington with the participation of the victorious European nations has defined the path world commerce, finance and trade took for the past 60 years. The International Monetary Fund (IMF) and the World Bank have had a near monopoly on setting the rules of international finance and development. But Beijing’s inexorable rise to the status of hegemon risks throwing a “made in China” spanner in the works.
Washington registered a major international setback earlier this week when the UK, joined by Germany, France and Italy decided to join China’s alternative solution to the World Bank, which is in the process of getting its operations off the ground. A defiant UK braved the White House’s anger, suggesting that London wants to be in at “the ground floor” and position itself as the primary offshore financial center for Chinese investment and as the main trading point for the renminbi.
Observers were skeptical at first whether the Asian Infrastructure Investment Bank (AIIB) would be a success – such endeavors rely on the widest international participation possible. With Washington firmly opposed to any initiative that would question its global clout, few expected the rich Western countries to go against the grain. But after the UK perfidiously went back on its original opposition to the AIIB, even stalwart US allies like Australia, South Korea and Japan are now considering signing on the dotted line. Were the AIIB a success, it would provide perhaps the clearest indication of the disruptive heft the Chinese economy now has on the world stage and will pave the way for a new world order in which Western powers will no longer be in the driver’s seat but will ride shotgun.
However, Beijing’s ambitions are not solely focused on the economic realm. Since the notoriously secretive Middle Kingdom rarely airs its strategic goals in a public manner, analysts are forced to do a lot of guesswork in figuring out Beijing’s true intentions. So far, China has sought to create an alliance of like-minded governments or govenments that wish to distance themselves from the West. The best example for this trend can be found in Africa, a continent where China’s footprint has expanded dramatically over the past few decades.
A mere two decades ago, China’s presence in Africa was nothing more than a statistical error. But its growing appetite for natural resources and foodstuffs has transformed Beijing in the continent’s first trade partner, eclipsing the US and the European Union alike. Under the guise of an ambitious development agenda called “One Belt, One Road”, China wishes to integrate itself in the world economy through the construction of a wide array of infrastructure projects. On January 27, Beijing signed a Memorandum of Understanding (MOU) with the African Union to connect all 54 African countries through transportation projects, which include highways, airports, ports and high speed railways. The agreement comes against the backdrop of a $1 trillion pledge to finance the continent in the years to 2025 and the plans of its $653 billion sovereign wealth fund to invest more in emerging markets, “particularly South Africa, Tanzania, Kenya and Djibouti”.
As it most often happens, economic development goes hand in hand with a proportional investment in the security sector. There are more than one million Chinese nationals operating across the continent, which have made Beijing transform its economic ties to military ones. China is now discussing the construction of several military bases across Africa and has signed defense agreements with Egypt, Zimbabwe, Djibouti, Kenya, Madagascar, and Mozambique. Over the medium term, the conjunction of sprawling Chinese investments and strengthening security ties in Africa will significantly reduce Washington’s appeal and will increase tensions between the world’s two biggest economies.
Djibouti, a small country in the Horn of Africa overlooking the Gulf of Aden which hosts the most important American military base on the continent, has snubbed Washington recently in favor of deepened bilateral ties with China. Having major interests in the ports and the country’s strategic position, Beijing is paying special attention to the authoritarian government of Ismail Omar Guelleh.
The strongman has signed a set of loans with Chinese banks, in spite of criticism from the IMF and the World Bank. The IMF expressed concerns that the Chinese loans risk bankrupting the country in the next 5 years because of their severe conditions, and offered a better deal that included much lower interest rates. Guelleh refused, ostensibly weary of the rule of law reforms that accompany western-backed financing. His government has been strongly criticized by Washington, which decried its habit of “harassing, abusing, and detaining government critics”.
The example of Djibouti is symptomatic to a wider pattern of Chinese investments. Whereas the West embraces the “carrot and stick” method, Beijing has no qualms with the company it keeps. A strong undercurrent in international relations argues that hegemony stems from a country’s capacity to define international rules and institutions. By Swiss-cheesing the World Bank and sidestepping Washington in Africa, China is already making the first forays towards writing a new, less liberal rulebook for international trade and finance.
Whether Beijing will achieve in the coming decades the sway on global affairs Washington has had for the past decades is still an open question. But what is clear though is that sabotaging China will not lead to better world governance. Washington should smooth the transition and make sure its legacy of freedom and liberalism will not give way to an era of illiberalism.
