It is the rise of China. Even wars cannot stop this. The cycle of economic power is infinite. When new powerful institutions emerge, old ones get withered. So is power and its values. Economic power has a shifting method and is swinging to China gradually from the United States, Japan and some of European contenders.
Historically, China has always been an important economic player in world’s history and it is regaining that status again. It was the Indian Sub-continent, which used to be another economic power in the region in the course of history along with China. By 1820 more than 70 percent of world’s GDP was produced by only China and the Indian Subcontinent. European powers gained economic power only through exploitation of natural and human resources. Colonial exploitation of both China and the Indian Sub-continent reduced them to poverty-ridden nations.
A number of big and small wars diluted American and European financial supremacy after 1945. American economic climax reached all time high in 1950s but then steadily declined following its preoccupation in Vietnam, Afghanistan, Iraq, and elsewhere. On the other hand, in the past 35 years, China remained occupied in trade, investment, and transfer of technology to boost its economy. After 1978, Chinese GDP made a leap forward and surpassed the American Purchasing Power Parity (PPP) by the end of previous year.
Japan is the third largest economy in the world after China replaced its ranking five years ago. Are both nations drifting away or getting closer? Since the last year, they have been moving to pick up an olive branch in their bilateral relations. Asian economies are enlarging at a rapid pace. These economies need to accommodate each other for political and geo-strategic reasons – something achieved by European powers in the past. China and Japan rightfully realize not to miss the opportunities in this regard.
They need stability. Harmony in bilateral relations is the lesson they have learnt through historical realities. The Chinese-sponsored Asian Infrastructure Investment Bank (AIIB) could bridge their differences even more than any other platform available at this hour of time. Japan is however still reluctant to join the AIIB although 57 countries including Britain, Germany, France, Italy, Australia, and India have joined the AIIB.
It may be a setback to the United States and Japan as the G-20 and Trans-Pacific Partnership (TPP) have already joined the AIIB. In this backdrop the US and Japan cannot hold the newly emerging world economic order any longer. Japan has been yielding to pressure from the US in its reluctance to join AIIB. Japan does not want to embarrass the United States and take risks at present.
Japan is shocked by the rise of China and its effective shaking of the postwar financial system. Japan has been the beneficiary of this system. Japan may be avoiding a subordinate position under the Chinese leadership due to domestic political pressures. The Japanese-led Asian Development Bank (ADB) is also likely to lose its standing and preeminence in the region since 1966.
The AIIB indicates a relative departure and decline of US and Japanese financial power and its shifting to China. It is pertinent to note that with the exception of USA, all of Japan’s allies have joined the AIIB. This has put Japan into a more critical situation with reference to its role as an economic power in future. Prime Minister Shinzo Abe is of the view that the ADB should be strengthened to provide funds for infrastructure and investment. Japan has a strong presence in World Bank and IMF etc. The Japan Bank of International Cooperation (JBIC) also extends loans for the same purpose. On the contrary, Japanese media has been pushing the Government to join the AIIB instead of losing the opportunity. It is expected that Japan will join the AIIB in near future. If Japan prefers to stay out, it will just be isolated and deprive itself of multi-billion dollars infrastructure opportunities in Asia. The AIIB shakes the Bretton Woods system, which is based upon gold and foreign reserves in American dollars and established at the end of World War to maintain American hegemony in financial and economic institutions.
The Bretton Woods system was an exploitative system of financial governance, which mainly served the interests of the capitalist countries and used southern or developing countries for their neo-colonial objectives to continuously exploit their resources and strengths. After 70 years of the Bretton Woods dominated system and its dismal achievements in the third world, new financial institutions are needed to address the economic problems of these countries.
AIIB visualizes that the WB, IMF, and ADB system of loans extensions etc is not workable in Asia any longer. Asia needs massive funds to upgrade its existing infrastructure on terms and conditions which positively take care of mutual interests. China has established the US$ 40 billion Silk Road Fund. This would create opportunities to assist development of physical infrastructure under the One Belt One Road – a Chinese dream for the 21 Century. A parallel system of financing is being established. The recent ADB Baku moot has decided to cooperate with the AIIB. AIIB is going to be a soft victory for Chinese financial diplomacy in Asia.
Views expressed are of the author and do not necessarily reflect the views of ISS or of the Government of Pakistan.