Is US hegemony under threat from the rise of China and the BRICs?
Assessing whether the United States’ hegemonic decline has made way for the rise of China and the BRICS should be looked at within the context of globalisation. Four areas within the context of globalisation then need to be assessed. We will first look at the role of China in their challenges towards supposedly transforming global governance. Secondly, we will look at views of the US’s declining share of the global economy and whether China’s rise is indicative of an emerging new leader of the global economy. Finally, we will look at the phenomenon of ‘state-capitalism’ and whether the Beijing Consensus poses an expansionist threat to the US’s hegemony on global capitalism. I argue the US’s fundamental role of ushering in the era of international liberal capitalism since 1945 and the building of global institutions of governance we live under today has not faced a substantial enough challenge from China or the BRICS. Therefore, it is not a case of China and the BRICS explicitly transforming the existing international order and bending it towards their will, but more so advancing themselves in the existing global economic hierarchy.
Within the context of globalisation, challenges to global governance, particularly multilateral development banks (MDB), such as the World Bank and IMF, are seen as attacks on US hegemony - as the US were most profoundly the architects of such institutions of global governance. I argue China’s attempts in creating a revisionist global international order are misguided for now, as their current MDBs are collaborative and exist within the status-quo or are not potent enough to challenge US hegemonic designs of global governance.
Firstly, the Asian Infrastructure Investment Bank (AIIB) is a topic of debate on the rise of China and its challenge towards global governance within the sphere of multilateral banks. Founded and headed by China in 2014, it has been a competitor and challenger to incumbent international institutions such as the World Bank and regionally the Asian Development Bank (ADB) who aim to reduce poverty through regional integration and economic growth. Since the AIIB's inception, it has stoked up claims that it is a vehicle for China to undergo its challenge to US hegemony, especially in their foreign policy. The United States exacerbated these claims through lobbying against the AIIB and calling upon its allies to refuse to join, which was to no avail as Great Britain, France, Canada, and Australia all joined. It marked a profound moment within the rise of China, as the AIIB reflected the shift as China from an aid receiving country to a patron state (Hameiri & Jones, 2018: 574), but also the changing attitudes of the West towards China, which left a question mark over the strength of US hegemony (Starrs, 2019: 177).
The supposed role of the AIIB in challenging US hegemony has not materialised and has played a distinct role as a collaborative MDB, rather than a revisionist role. For instance, although grand claims made of a planned $10-15 billion per year dispersion plan over five years, according to the AIIB, from 2016 to December 2020 only $9.13 billion has been disbursed (AIIB, 2020), the original plans have not come to fruition. Moreover, it is a far cry from the pledged capitalization of $100 billion, seen as a challenge towards the capital of the ADB and World Bank, which stoked fears of rapid Chinese expansionism in the Asia-Pacific region. What is most indicative of the lack of revisionist intent by the AIIB is simply the use of US dollars in the dispersion of their loans and contracts (Starrs, 2018: 178). This choice only strengthens the incumbent position the US holds over the global reserve currency, which maintains the status-quo of American global governance. China is also the recipient of large World Bank loans, which the bank proudly claims the economic liberalisation and integration of China in the global economy has led to “GDP growth of almost 10% a year, and more than 800 million people have been lifted out of poverty” (World Bank, 2021). In collaboration with the World Bank and ADB, the AIIB undertook projects such as improvements to the operations of Indonesian dams and the construction of Azerbaijani natural gas pipelines towards Europe. Contention also arose from the supposed 'master plan' the AIIB had in funding the expansionist foreign policy of the "One Belt One Road Initiative" (OBOR). Starrs’ (2018) research has highlighted that China is attempting to use OBOR as a vehicle to transfer slowing domestic growth onto neighbouring countries, emphasised further by their property slowdown (The Economist, 2021). Therefore, if China struggles to drive growth domestically, projects within Asia and Africa will likely only burden SOEs, with sustainable long-term growth seeming slim in such projects.
Therefore, in terms of China’s supposed challenge to global governance through the vehicle of the AIIB and OBOR, US hegemony is not under threat, as China in this area is conforming and nor currently have the structural capacity to mount such a campaign. The collaborative nature of China in global governance in a globalised world extensively highlights China’s interdependence within the liberal international order and most notably partially explains China’s rise being dependent on foreign capital and significantly on US direct foreign investment.
I will now assess whether China and the BRICS growing national share of the global GDP pose a threat to US hegemony, specifically the role of the US as the leader of global capitalism. I argue with the rise of transnational corporations within global production networks, a nation's share of global GDP is a reductionist measure of global power, so we must factor in globalisation.
Deng Xiaoping’s economic reforms beginning in 1979, would preside over the Chinese paradox of an authoritarian one-party state which also coexisted with a dynamic economy (Kroeber, 2016: 5). The Chinese economy was and is still, however, protectionist and largely state-centric, but the creation of “special economic zones” set a precedent in the scope of staggering liberalization in favoured sectors to attract foreign direct investment and create growth enabling incentives for domestic enterprises in the form of tax breaks and controls on trade unions (Kiely, 2015: 45). Moreover, China’s use of industrial policies and state interventionism to protect their young industries was similar in scope to Japan and South Korea. Where it differed was China’s economic rise during the 1990s was primarily driven by established foreign firms and transnational corporations (TNCs), wherein contrast Japan and South Korea’s rise was a patient wait in protecting their industries and utilizing the Bretton Woods era of the 1970s (Kiely, 2015: 46) to foster some of the world’s most renowned firms we see today, especially in technology and automobiles. China’s ‘long boom’ from 1992 to 2007 was promoted by vast inflows of foreign direct investment, which sat at $5.2 billion in 2002 (Harvey, 2005: 124) and culminated in 4.4% as a percentage of China’s GDP in 2007 (World Bank, 2019). Aspects of China’s rise were down to established and mostly western TNCs shifting their low-value production and intensive work towards China, which coincided with an era of multiple high barriers to entry in the realm of successful TNCs and high-value production. Sean Kenji Starrs’ (2018) research on China’s Customs Statistics from 1995 to 2017 helps represent the distinct role foreign-invested enterprises (FIEs) played in achieving China’s economic growth. Even though China was selective in what sectors they opened to foreign direct investment, throughout the 1990s, FIEs are what came to drive China’s export boom due to the failing prospects of state-owned enterprises. Walmart’s overseas expansion of their operations and production is a clear case of this. Walmart is the largest retailer in the US and most significantly the world, and their specialization relates to how affordable their products are for the average consumer. Therefore, to continue their marketable trend even further and keep up their profit margins, Walmart imported $15 billion worth of products from China in 2003 and operated in nine countries (Kaplinsky, 2005: 176), today this number has increased to 24 countries under 48 banners (Walmart, 2021).
China plays a role in assembling production modules of low value-added exports that have been off-shored by Western TNCs and firms. One common misconception is although China is the biggest exporter of finished technology, this does not mean they are exporting a majority of Chinese-owned technology, but rather they are the site of Taiwanese subcontractors working on behalf of Western TNCs (Starrs, 2013: 819). Therefore, although China holds a monopoly on the export of Apple products, the Taiwanese firms that outsourced this labour gain a larger share of the profit, and it is Apple who ultimately inherits the largest profit share for their ownership of the intellectual rights of the designs and brand (Starrs, 2014: para 12). "Designed in California, Assembled in China," is indicative of the US economic hegemony within global production networks, where the distinction between low-value and high value-added production is visible between the assembly of technology and the research and development (R&D) of such products (Kroeber, 2016: 238). Although this does not mean China is subordinate to the US, it certainly does not picture a decline of American economic might as it emphasises the economic power of the US having globalized through the vehicle of TNCs. Moreover, due to Chinese industrial policies for their state-owned enterprises, they dominate in domestic sectors of mobile payments and online retail (Starrs, 2018: 190), however, these firms have yet to see success in foreign markets other than the few exceptions of Lenovo and Huawei – even so in recent years, Huawei has faced with allegations of intellectual property theft and corporate espionage. Therefore, US firms still reign supreme in many sectors within China, namely, Coca Cola and Pepsi hold 93% of the market share of carbonated drinks in China, Nike leads with 19% of the market share in sportswear despite China being the leading exporter of clothes in the world and Western fast-food chains such as KFC, McDonald's and Starbucks also boast a sizeable market share within China (Starrs, 2018: 193).
We can argue there is a case for interdependency between China and the US within global production networks and despite China dominating aspects of their domestic market, foreign firms still dominate in sophisticated high value-added sectors. Although we can recognise the exponential rise of China, we need to move away from national accounts of global GDP share and emphasize the significance of TNCs and global production networks. Therefore, we recognise the United States are still persistent in their economic hegemony, their underpinning of global capitalism, and their underscoring of China’s constrained capacity to challenge their hegemony.
A third argument that is potent in discussing a decline of US hegemony is the economic phenomenon of ‘state-capitalism’ in China and its increasing characterisation of the BRICs and the challenge it presents to the liberal capitalism norm.
The 2008 Financial Crash halted the era of neoliberal and free-market triumphalism after a prolonged period of rolling back the state within the economy since the 1970s. Free-market warriors such as Ronald Reagan and Margret Thatcher, who proudly stated “there is no alternative” to liberal capitalism, were mavericks in playing a role in standardizing global capitalism, however, the increasing rise of state-capitalism not only in China but also in the Global South as a whole, may be seen as the alternative to the crises of liberal capitalism.
State capitalism is certainly not a new phenomenon within the developments of capitalism, with industrial policies and state interventionism featuring within the rise of several developing countries. The Beijing Consensus emphasizes the direct challenge China is taking towards the alternative Washington Consensus in expanding the scope of the state and capitalist powers on market forces. In the perspective of the CCP, through state capitalism, private conglomerates are kept in line through patronage and close monitoring by the state. For example, Lenovo has been viewed as a successful national champion since the early 2010s, both in domestic and foreign markets. Seen in the context of globalisation, in 2014, the personal computer giant knocked off the American firm, HP, to claim a top spot within the global market share of personal computers, in 2020, Lenovo has maintained this feat with a market share of 23.9% with HP trailing at a close second at 22.2% (IDC, 2021). However, along with China’s “Great Firewall,” (Starrs, 2018: 190) the balance of innovation has not shifted dramatically in favour of China, with China’s national share of R&D spending amongst global firms sitting at 2.7% and low creation of triadic patents (Starrs, 2014: para 15). Therefore, commentary on China’s attempt to transform the international order is misplaced, as China is not divorced from its role as an assembler in global production networks in Southeast Asia and its reliance on global commodity supply chains (Kiely, 2015: 86). Xi Jinping’s “Made in China 2025” campaign endeavours to improve China’s capacity for competitiveness within innovative areas of production. China has begun targeting supply-chain chokepoints in important technological sectors and building its self-sufficiency in areas such as AI, biotechnology, and quantum computing (The Economist, 2020: para 8). To further fuse state and capitalist powers, state investment into private companies, or ‘golden shares,’ has soared (especially in technology sectors) from $9.4bn in 2016 to $125bn in 2020 (The Economist, 2021). The opening of a new IMF research centre in 2018 (Starrs, 2018: 194) is a telling sign of China’s willingness to adapt and play by the neoliberal rulebook set by the US.
The case of the Beijing Consensus promoting South-South trade through increased trade solidarity is seen as a further attempt to challenge US hegemony and promote a “state capitalist axis” (The Economist, 2012: 16) to influence market forces. However, central to these signs of solidarity are often just the role of China in galvanising global commodity chains and other favourable economic influences. Indeed, there has been substantial growth in South-South trade, as South-South trade accounted for 42% of world trade in 2008 compared to 9% in 1960. However, central to this growth, alongside foreign direct investment, has been the effect of Chinese demand on commodity prices. For example, Brazil and other parts of Latin America have been historically dependent on exporting soybeans and iron ore to China, with China experiencing a consumption growth of iron as a 224.9% increase from 2002 and 2007 compared to 19.5% increase of the rest of the world (Kiely, 2015: 160). Brazil’s dependence on global commodity chains has led to de-industrialization on a large scale, which highlights a skewed perception of solidarity in the South. Pro-industrialisation tactics such as ISI in manufacturing declined due to structural adjustment programmes and the commodity boom, and a favouring of state-owned and state-subsidised companies to create national champions (Kiely, 2015: 54). Manufacturing only increased in places in Southeast Asia which highlights the role of China in global production networks (Kiely, 2016: 63), whilst countries like Brazil remain dependent on the export of commodities to China and their consistent growth (Kiely, 2016: 74). However, the slowdown of growth in China since 2010 and the missed opportunity of Brazil to boost productivity in infrastructure during the boom years have only exacerbated causes for concern (The Economist, 2021: para 5). Furthermore, the commodity market today is sporadic, with Chinese investment decline in fixed assets (such as offices and apartments) (Balding, 2019) and the default of SOE, Evergrande, leading to a decrease in iron ore market prices, from $163 in 2021Q3 to $90.10 in November 2021 (IMF, 2021), which has affected Latin America, as well as pandemic induced productivity lags. As evidenced, claims of solidarity in the Global South can be put into some doubt, as many of the economies are centred around production networks that include China or are reliant on the export of commodities towards China.
In the case of Russia, their turn to state-capitalism was partly due to the financial turmoil shock therapy caused through rapid economic liberalizing policies (Kiely, 2015: 55). Similarly, the Kremlin, therefore, returned to a form of centralised power that developed national champions through large state-owned stakes in lucrative companies (The Economist, 2012). Within the GDP of Russia, experts estimate the share of SOEs neared 30% in 2015 (Abramov et al, 2017: 2), however, this is obscured just like in China, where supposed private companies are now organs of the state using subordinate oligarchs. Russia is also reliant on commodity supply chains, as its integration within global capitalism is through the export of hydrocarbons, which account for 60% of exports and 40% of government revenues (The Economist, 2021). In the face of Western sanctions since 2014, Vladimir Putin has utilized state capitalism almost akin to a fortress, which stresses stability in favour of development, a longstanding trait of Putin who was politically traumatized by the collapse of the Soviet Union. In the face of this threat, Russia aims to accumulate high reserves in their National Wealth Fund, lower its debt and seek to challenge the dollar through greater use of the Euro and Chinese in trade (The Economist, 2021: para 4). However, this challenge may prove futile as Russia’s growth has slowed tremendously since the oil boom, averaging a GDP growth of around 1% per year from 2012 to 2019 (The Economist, 2021: para 14).
Contrary to the IMF's reluctant admittance and the foundational underpinnings of neoliberalism itself, the state has always played a role in the varying developments of capitalism, whether small or big. State capitalism is unique in its large stakes in private and public business compared to past developments of capitalism, but it is not necessarily a threat to the West, because as evidence by Brazil and Russia there are limitations in their structural capacity and productivity (IMF, 2021: 25), which in turn causes a reliance on favourable economic situations such as high commodity prices, consistent capital flows and above all the growth of China which was unlikely to maintain its exponential growth year on year.
To conclude, the assessment of whether US hegemony is under threat by China and the BRICs is misguided. Although China's growth may appear at a slower rate, we can indicate that their focus on global supply-chain chokepoints and its determination to boost innovative national champions that will deliver on a global scale have highlighted the long-term vision. Out of the BRICs, China is the only current competitor with the US, with the rest of the world limited in their structural capacity. From my assessment, the US will continue to lead the international order through the liberal capitalist underpinnings they instated and not through a supposed Chinese endgame of transforming the international order.
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