Geopolitics, globalisation

US economic power is crumbling, but China is not yet ready to take over the reins

The G20 meeting on 2 April will deliver little but, like the first G20 meeting in Washington last November, its symbolism will be enormous. The very fact that it is taking place at all is an admission of the momentous shift in the global balance of economic power from the rich countries to the developing world.

If the western countries plus Japan could have sorted out this crisis through the G8, that would certainly have been their preferred route. The cosiness of eight nations (or preferably seven, excluding Russia) with rather similar interests would have made agreement rather easier and, more importantly, would not have implied that in future power would have to be shared with countries possessed of very different interests and histories.

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Salvation does not lie in demagogic attacks. Beijing must be treated as an equal – or another Great Depression beckons

The key relationship for any global recovery is between the US and China. By the same token, any serious deterioration in their relationship would propel the world towards a second Great Depression. The Chinese citizen has funded the credit-driven American consumer boom: or, to put it another way, China’s government has enabled the US to run an enormous current account deficit by buying huge quantities of US treasury bills. If China stops this, the value of the US dollar would plunge, and a bitter trade war, engulfing the rest of the world, would ensue.

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The west can no longer impose its will on the increasingly powerful and self-confident nations of the developing world

We are but halfway through 2008 yet it has already born witness to a sizeable shift in global power. The default western mindset remains that the western writ rules. That is hardly surprising; it has been true for so long there has been little reason for anyone to question it, least of all the west. The assumption is that might and right are invariably on its side, that it always knows best and that if necessary it will enforce its political wisdom and moral rectitude on others. There is, however, a hitch: the authority of the self-appointed global sheriff is remorselessly eroding.

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Foreign policy is often dressed up in moral rhetoric, but ultimately might is stronger than right

You may remember that Robin Cook, newly appointed as Britain’s foreign secretary back in 1997, promised to introduce an “ethical foreign policy”. Such talk disappeared long ago, brought to an abrupt end by the illegalities and immorality of the invasion of Iraq.

I was reminded of Cook’s efforts by Gordon Brown’s address yesterday to the Israeli Knesset, where he uttered barely any criticisms of Israel and fulminated long and hard against Iran and its alleged nuclear policy. I have a serious problem with western hypocrisy over Iran and the bomb. We are against nuclear proliferation and yet no one breathes a word about the fact that Israel has many nuclear weapons, and has had them for a long time. So, why not Iran? One might add that Israel has always lived by the sword in the Middle East but the same cannot be said of Iran.

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To judge by the preoccupations of western, and especially American, politics, the defining event of this decade was, without a shadow of doubt, 9/11. Which only goes to show how leaders and societies alike can fail to see the wood for the trees. 9/11 was a hugely overblown event that only assumed its overarching importance a) because it was done to the United States and b) because of the way the US reacted.

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Governments and the media need to wake up to the fact that east Asia can increasingly look after itself and doesn’t need or want western help

The mood music has changed. David Miliband has fallen silent. The railing of John Humphrys on the Today programme has subsided. The agenda has changed. A week ago it was all blood and thunder, western righteousness and the imperative of some kind of military action.

Then suddenly, on Monday, the penny finally dropped and the bubble of bluster burst. The idea of helicopters from assorted western warships moored off the southern coast of Myanmar (Burma to the Foreign Office and the British media, but few others in the world) dropping aid from a great height over the Irrawaddy delta – dismissed by aid organisations as counter-productive and even dangerous to the local population – died a quiet death.

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A key appointment at the World Bank shows the importance of Beijing to the institutions it will soon come to dwarf

In June Justin Lin Yifu, a Beijing professor, will take up the post of chief economist at the World Bank. Nothing could be a clearer sign of the times. This is the number two job in one of the two major international economic institutions, the other being the International Monetary Fund. Earlier incumbents have included the Nobel prize winner Joseph Stiglitz, the former US treasury secretary Lawrence Summers and the UK’s Nicholas Stern. Previously the top jobs in these two outfits have always been shared between Americans and Europeans. Lin’s appointment thus marks a major break with political tradition. Hitherto there have been hardly any appointments of Chinese to senior positions in the major international organisations. China’s burgeoning importance, however, is set to change this state of affairs, with Lin’s appointment likely to set the tone for the future.

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Tata’s purchase of Jaguar and Land Rover signals that India and China are turning the old hierarchy of global trade on its head

The cost to Tata of purchasing Land Rover and Jaguar may have been small, but its wider symbolic significance is enormous. Western societies are slowly becoming used to the idea that India and China are set to emerge as major economic powers, but there remains an underlying assumption that the process starts in the economic and technological foothills and only much later reaches the summit.

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Around a decade ago, Bernie Ecclestone, the guy who runs Formula One, began to make ominous noises about the prospects for F1 in Europe, suggesting that the sport’s future instead lay in the East. Now Bernie is no mug – you don’t become as rich as he is without being very smart. Not least, he is perceptive at spotting new trends. He recognised the potential of TV broadcasting and its associated rights before virtually anyone else in Europe. And he was right about the growing importance of East Asia (though hardly the first to notice it).

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The source of the current tension between Moscow and the west is US and Nato military provocation

Those who feel a certain sense of deja vu about the deteriorating relationship between Russia and the west can be forgiven. But this is no simple return to the cold war. Russia is far weaker than even the atrophied superpower of the late 80s. Its population has been more than halved, its gross domestic product halved, and living standards diminished. It simply does not have the capacity to be what it once was.

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Updated and expanded new Chinese edition just released.

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Turkish edition just published!

When China Rules the World is the first book to fully conceive of and explain the upheaval that China’s ascendance will cause and the realigned global power structure it will create.

New edition available now from:

Amazon UK
and all good booksellers.

US second edition is available now via: 

Amazon US