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Five ways China is powering up again

China is facing a growth dilemma today. For decades, it has been the engine of the world economy. It buys up all key commodities. It exports just about every type of manufactured good all over the globe. Hundreds of millions have been lifted out of poverty and China has the largest middle class on earth. This is a development miracle unrivaled in human history.

But it can’t go on forever. The Chinese economy is already going through fundamental structural adjustments.

Its export-led growth has slowed due to a global economic downturn, leading to a reduction in demand for raw materials. Its labour cost is on the rise, causing an outflow of manufacturing jobs. Its industrial, infrastructural and housing expansions, plus the government stimulus packages delivered in wake of the 2008 world financial crisis, have resulted in over-capacity and swelling inventory that may take years to clear. Environmental damages, after many years of neglect in pursuit of higher GDP numbers, are now haunting China’s cities, air, water and soil.

Beijing’s aggressive global outreach in the past two years is part of a five-pronged strategy — over and above domestic reform measures — to overcome these challenges and keep the Chinese economy thriving. The goal is to generate new international opportunities for its domestic capacities, which include surplus capital, leftover inventory and underutilized manufacturing power, while beefing up its military capabilities to protect its gains.

First, there is its push for more free-trade agreements (FTAs). China’s entry into the World Trade Organization in the beginning of the century boosted China’s international trade, making the country increasingly dominant. China now is the largest trading partner of 120 countries in the world. Beijing regards free-trade deals (which recognize China’s market status) as a key driver to keep the momentum going. It has signed FTAs with 14 countries including Australia, New Zealand, Switzerland and South Korea while negotiating and developing over a dozen more. China has expressed a strong interest in an FTA with Canada.

Second, China is focusing on its “One Belt, One Road” (OBOR) geo-economic outreach. OBOR intends to capture an economic land belt along the ancient Silk Road by connecting Central Asia, West Asia, the Middle East and Europe. It also involves a maritime route linking China’s coastal cities with the Indian Ocean via the South China Sea. The route would then extend to the East African coast and move up through the Suez Canal into the Mediterranean. Encompassing over 60 countries, 63 per cent of the world’s population, US$2.1 trillion in economic size and over US$1 trillion in trading volume, OBOR aims to redirect China’s domestic overcapacity and capital to external infrastructure and trade development.

Third, Beijing is weaving closer ties with Africa and Latin America. Chinese President Xi Jinping visited Africa last December, bringing 10 investment and trade proposals totaling US$60 billion in loans and assistance. Xi also hosted all of Latin America’s presidents in Beijing for the first time last year, pledging US$250 billion in investment in the region in the next decade. This is on top of China’s US$30 billion loan to the continent in 2015 and another US$35 billion for Latin American countries to access infrastructure projects.

Fourth, China is putting its money where its mouth is. To finance all these initiatives, Beijing launched a US$40 billion Silk Road Infrastructure Fund, a US$50 billion New Development Bank with BRICS countries, and the Asian Infrastructure Investment Bank with US$100 billion and 57 founding members, all in the past two years.

Finally, China is strengthening military deployment to counter U.S. containment. While its leadership emphasizes economic over gunboat diplomacy, China is well aware of U.S. policies to contain its rise. Washington’s “Pivot to Asia” strategy — its support of Japan, Vietnam and the Philippines in both the East China Sea and the South China Sea — has alarmed Beijing. As a response, China is rapidly building up its military forces on all fronts, especially deployments in the South China Sea. It is clear that in its pursuit of superpower status, China plans to put its military muscle where its money is.

Wenran Jiang is a political science professor at the University of Alberta and Director of the Canada-China Energy & Environment Forum.

News source: http://business.financialpost.com/fp-comment/five-ways-china-is-powering-up-again