By M Saad
The world is witnessing the sheer disregard for the global rules-based order on part of the aggressor in the ongoing, unprovoked war in Europe as Russian armies continue to destroy Ukrainian cities and towns unhindered. The way President Vladimir Putin is whitewashing basic rules of international law to achieve his war objectives is a warning sign for the world as Russia’s biggest ally China can resort to similar tactics for its imperial endeavours in Asia.
Russia’s main justification for the war is its national security and Putin’s obstinate desire to prevent Ukraine from joining NATO. Ukraine is no match for the Russian sophistication in warfare. No country including the US has intervened in the war so far. The war has negatively affected the global economy. The soaring fuel and food prices have been a huge concern for many countries. As the West continues to impose sanctions on Moscow, it would be interesting to see what the long term consequences of this war will be for Russia. At present, however, things are not as bleak as it was expected for the Russian economy due to American threats of economic sanctions. Despite the collapse of the Russian stock market, restriction on access to assets such as Russian gold and forex held abroad and governments in the UK and elsewhere going after businesses and properties of Russian oligarchs, the value of ruble hasn’t fallen substantially and the Russian economy is still up and running.
The US has so far failed to persuade neutral countries and those still doing business with Russia to break ties and impose economic sanctions. While Russian oil is losing demand in some parts of Europe, the consumption of China and India has increased substantially in the past months. In May, China’s imports of Russian oil rose by 28% from the previous month, exceeding the quantity it used to import from Saudi Arabia — an important ally of the US. And India is reportedly importing 760,000 barrels a day from Russia. Despite the call for banning import of natural gas from Russia in Europe, the European Union has done little to limit or prevent business transactions.
There would be an energy crisis in Europe in the coming winter if countries went ahead and imposed sanctions on Russia. It goes without saying that Russia is no stranger to the American policy of financially constraining its adversaries through sanctions. Iran’s influence has been kept in check in the Middle East due to American sanctions. The US has managed to ensure that Iran is shunned by its allies. Those countries which buy Russian weapons are prohibited from buying US arms sales. The US and Russia have been competing in many domains such as arms exports, space exploration et al. In the past, Russia has kept American tech companies in check by limiting their operational control on Russian soil. When Facebook, now known as Meta, began its operations in Russia, it was told that it would only be allowed to function in the country if it allows personal data of users to be stored on Russian servers.
Despite the ripples of war spreading far and wide across the globe, Russia has been successful in carving out a counter narrative to the narrative of its western adversaries. The war was on the cards since the West made its intentions clear about including Ukraine in the NATO folds. Several experts had given caveats against testing Russia with the threat of erecting a new NATO member along its borders. Those familiar with aggressive policies of the authoritarian Russian regime that thrives on sophisticated propaganda and Putin’s desire to restore the glory of fallen USSR feared his wrath due to his past actions. Some expected Putin to show reluctance in launching a war due to its would-be negative impact on Russian exports, particularly in the domain of energy and arms sales. Putin, however, showed the world that his warnings are not meant to be taken lightly and that he does not fear the American threat of economic isolation.
As the war rages on — now in its fifth month — recent reports suggest that Russia’s economy is steadily getting back on track despite economic sanctions. The war has enhanced geopolitical tensions a notch or two higher with the US urging countries to join hands in hurting Russia financially. The war has also brought a long lingering threat to the fore: what if China does the same in Asia what Russia is doing in Europe.
China’s Danger and its Asian Adventures
In Asia, the growing influence of China is the greatest threat to peace and prosperity. Despite its phenomenal economic growth, China is seemingly opposed to the idea of freedom and openness in the region. China has muscled its way to the most formidable position in Asia in the past three decades or so by largely keeping itself unaligned to the western model of modernisation and by pursuing its policy of reducing foreign dependence. Take for instance, China’s goal of increasing semiconductor manufacturing to 80% by 2030 so as to reduce dependence on external sources such as Taiwanese firm TSMC. This policy has been outlined in Made in China 2025.
Over the years, Chinese companies such as e-commerce giant Alibaba, semiconductor giant Tencent and others have been dominating the global market. Plus, the list of Chinese millionaires is getting longer each year. In the pre-pandemic days, Chinese globe-trotters were spending their wealth by thronging the most popular holiday destinations of the world — a testimony to the phenomenal rise of the nation which was grappling with poverty during the 70s’.
Today, Chinese funds form a significant chunk of foreign investments in developing countries. According to an estimate, Chinese investments under the Belt and Road Initiative (BRI) are valued at a trillion dollars. President Xi had termed the BRI “project of the century” in 2017 but the US and its allies see the initiative as a “debt trap” for developing countries. At the recently concluded G7 summit in Germany, the member countries led by the US launched a $600 billion plan — the Partnership for Global Infrastructure and Investment — for infrastructure projects in developing and middle-income countries.
China has found an important ally in its neighbour Pakistan — a friend for all seasons — which obliges to all its tactics and policies. Pakistan’s public outcry for ill treatment of Indian Muslims by the Bhartiya Janata Party led government, and human rights violations in Kashmir has been the loudest, while other Muslim nations looked away. It has been a policy of the country to speak against every supposed injustice and political issue related to Indian Muslims. The Pakistani government’s hypocrisy lies in the fact that it attempts to corner India on international platforms with a range of issues related to Indian Muslims but remains quiet on China’s institutional injustices and ill-treatment of Uyghur Muslims.
Pakistan’s geopolitics, especially since the rise of recently ousted Prime Minister Imran Khan, has been shaped by China’s choices of allies. It was not surprising to many when Prime Minister Khan landed in Russia to show support to Putin on the eve Russia armies began an assault on Ukraine. Pakistan sees its advantage in remaining friends with China as it comes with rewards. More so, Pakistan’s relations with the US have become strained in the past decade or so. The US had stopped all funding to Pakistan due to the country’s alleged support to terror activities in the region.
This is an advantage for China as it tries to befriend any country not on good terms with the US. As for rewards, China Pakistan Economic Corridor (CPEC) has resulted in Chinese investments in multiple completed and ongoing infrastructure-related projects in Pakistan. These projects include development of energy plants, building of roads and an ambitious $700 million smart port city project in Gwadar on the coasts of Balochistan. According to some reports, the total value of investments pledged by China in these projects is estimated to be around $62 billion, many of which are in the form of low-interest loans. This number is expected to reach the $100 billion mark by 2030. However, some reports suggest that China has spent only $25 billion by the mid-2020. China has taken several other major infrastructure development projects along the Silk Route and in African countries. Much like Russia, China sees any sort of security alliance in Asian continent as a threat to its national security and the rise of Japan and Taiwan as a threat to its economic interests.
The US-China Rivalry
Apart from infrastructure development, China has also carved a niche for itself in the highly competitive domain of technology. The future of the world is expected to be shaped by artificial intelligence (AI). The next technological revolution in this domain will be the advent of sentient artificial intelligence and its large-scale adoption, which will give a whole new meaning to machines. China has announced its intention of becoming the primary AI innovation centre of the world by 2030, which would topple the US from its top position.
The US is still the foremost destination for AI focused funding with investments worth over $23 billion in 2020, according to a report by Stanford University. However, China is catching up by scaling up its investments. A report suggests that in 2016, China accounted for 11.3% of global funding in AI and the following year, the country’s investments in AI-related startups rose to 50%. A research by Global Data shows that out of the total 45 AI unicorns globally 19 unicorns are headquartered in China that are collectively valued at $43.5 billion.
The US President Joseph Biden’s visit to Asia in May came at a time when the threat of economic instability was looming large in the Indo Pacific region. For several countries in the region including India, finding ways to counter China’s belligerent tactics and its trade dominance is the greatest problem. Interestingly, most countries opposed to China’s dominance are its trade partners. The biggest critic of Chinese policies in the world is the US, who is interestingly also one of its largest trade partners. With everything up in the air at present due to turmoil and financial losses, many nations are now looking up to the US for aiding them in recovering from the prolonged economic distress.
The lingering effects of the pandemic on emerging markets are now creating hurdles, which are dampening economic growth of many developing nations. National debts are on the rise and so is inflation in many countries. This should be more of a concern for India as its path to economic recovery after the pandemic-induced restrictions plunged its economy into debacle was laden with hurdles due to the global slowdown that is now seemingly heading towards recession. There has been a domestic outcry in the country over steadily rising fuel prices and that of essential commodities. Adding to the woes, the Indian rupee has fallen 4% against the US dollar since the beginning of this year.
One way of looking at the fall of the rupee is decline in foreign direct investments by 15% as they are one of the key drivers of increasing the supply of dollars that can aid the rise of rupee’s value against the US dollar. By April this year, India’s forex reserves plunged by about $38 billion since September 2021, when reserves reached an all-time high of $642 billion. This is a tough beginning to the financial year for the country, whose economy according to the forecast of World Economic Outlook (WEO) of the International Monetary Fund (IMF) would be the fastest growing at 8.2% among major countries in the year 2022-23. But to make this possible, India is still in need of an efficient monetary and fiscal policy to restrain the rising inflation rate as the country continues to recover from the economic shock of 2020.
This will be an uphill task considering the unfavourable economic environment pervading emerging markets. In the past two years, the steady recovery has become increasingly difficult for economies across the world as several countries are still in recovery mode. More so, the slowdown is likely to remain for another year. The rising inflation in the US market is bound to negatively impact other markets across the globe. Since March this year, the Federal Reserve has raised its benchmark interest rates to control the rising inflation rates and the rates are expected to rise further in the future.
This move of the Federal Reserve in return compelled a great many US investors to disinvest from emerging markets to bring capital back into the US market. The approach resulted in the value of currencies of emerging markets to fall further against the US dollar. The WEO has also forecasted that the growth of global output is likely to decline from last year’s figure of 6.1% to 3.6% this year — with inflation for developed economies forecasted to be 5.7% and 8.7% for emerging market economies, which is far higher than the historical average. This can act as an opportunity for China to consolidate its political and economic influence in Asia and further intensify its rivalry with the US.
(The author is an independent journalist based in Delhi. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).