An economist and this newspaper’s columnist, Arvind Subramanian, has written a provocative book announcing the potential arrival of China as the world’s “dominant” economic power sooner than widely imagined. Eclipse: Living in the Shadow of China’s Economic Dominance (Peterson Institute of International Economics, 2011) warns a complacent West (a distracted India must also pay attention) that “Chinese economic dominance is more imminent and more broad-based – encompassing output, trade, and currency – than is currently recognised”.
The nineties saw many books predicting the “coming collapse of China”, while more recently there has been a spate of books recognising China’s rise but adding the caveat that the United States is going to remain on the top for the foreseeable future.
Much has, of course, been written about the “power shift” from the West to the East, the decline of the G7 economies, and the rise of China. Till 2008, and well into 2009, many in the United States, led by Fred Bergsten, had assumed that China and the US could create a G2 and run a bipolar condominium.
The Chinese pooh-poohed the G2 idea, seeking to retain their status as a voice of the developing world and preferred the French view of a “multi-polar” or “polycentric” world, perhaps partly to assuage fears in Asia about the rise of an “assertive” China.
Forget about G2 and forget about multi-polarity, says Dr Subramanian, a new unipolar world is in the making with China at the top. “Underlying economic trends suggest,” he says, “that one should not rule out the future possibility of a G-1, with that one not being the United States of America. China in solitary dominance is a possible, sobering, and not-too-distant reality.”
Those in India who still worry about the “unipolarity” of the post-Cold War period have much to learn from this guide to a new “Sinopolar” world!
Dr Subramanian’s concept of “economic dominance” is derived from a conceptualisation of economic power enunciated by Richard Cooper in a 2003 essay which says: “Economic power . . . involves the capability decisively to punish [or to reward] another party, according to whether that party responds in the desired way, combined with a perception that the possessor has the will or political ability to use it if necessary.”
Dr Subramanian has quantified the notion of “economic dominance” with his “index of economic dominance” (IED). The IED is a weighted average of three of the six “potential determinants of economic dominance”. The six are: overall resources, military resources, fiscal resources, trade, external finance and currency. These are elements of what Chinese strategists have long defined as “comprehensive national power” (CNP). Attempts have been made in India, too, to construct an Index of National Security.
Of the six, Dr Subramanian picks three variables for his index: overall resources as quantified by a country’s gross domestic product, measured partly in dollar terms and partly in purchasing power parity terms; trade is measured as share of total trade (export and imports) in world trade; and, finance as represented by a country’s cumulative current account balance over a decade. He regards gross domestic product as a good proxy for fiscal and military strength. The larger the economy, the more likely it is to have the fiscal and military capability to project power.
Having defined his new index, Dr Subramanian measures the value for the United States, European Union, Japan, Russia, China and other major economies and concludes that “China’s economy will be larger than that of all its rivals and its trade could be nearly twice as that of the United States. By 2030, this dominance could resemble that of the United States in the 1970s and the United Kingdom around 1870.
And this economic dominance will in turn elevate the renminbi to premier reserve currency status much sooner than currently expected.”
Based on this central conclusion, Dr Subramanian issues his wake-up call: “The economic dominance of China relative to the United States is more imminent. It may already have begun, will be more broad-based (covering wealth, trade, external finance, and currency), and could be as large in magnitude in the next 20 years as that of the United Kingdom in the halcyon days of empire or the United States in the aftermath of World War II.”
The argument attaches great importance to the role of the renminbi. If the British empire was associated with “sterling dominance” and Pax Americana was associated with “dollar dominance”, does “renminbi dominance” await the world? He thinks so, and suggests that the “route to renminbi internationalisation will be via its increasing use as a currency within Asia because trade links between China and Asia are increasing especially rapidly”.
This is neither a simplistic thesis nor an economic deterministic one. There is recognition in the book of all the sceptical views and of the fact that history does not unfold as an extrapolation of past trends. China can get stuck in a “middle income trap”, as the Asian Development Bank has recently warned. But given that many in the West, and even more in India, tend to underestimate the significance of China’s rise, this book offers a useful corrective.
There is no reason to assume that China is immune to Murphy’s Law, as the recent train collision showed. And the sentiments of an educated and empowered people cannot be forecast. “Politics, prices and people” – the three Ps that Dr Subramanian notes – can still derail the Chinese juggernaut. But it is useful to know that a juggernaut is on the move!
While I like the importance the IED attaches to economic performance, and that contemporary strategic policy attaches great significance to “comprehensive national power”, the rise to economic dominance does not automatically grant a country the status of G1. A global power must also symbolise and espouse global values.