The Third Industrial Revolution, The New Great Game between China and the US

The Third Industrial Revolution

Thomas J. Christensen observes that post-1978 China has achieved economic progress that is unprecedented in world history and has registered equally dramatic advances in its economic and diplomatic ties abroad. It was perhaps inevitable that such a dramatic rise would elicit exaggerated analysis especially in the United States, to whose preeminence that phenomenon poses a singular challenge. Although the American are taught that a stronger relationship between China and the United States will benefit not just the two countries, not just the Asia Pacific, but the whole world, yet how the US and China perceive each other’s strategic intentions will directly affect their policies and relations.

The US is transfixed by its multibillion-dollar electoral circus. The European Union is paralyzed by austerity, fear of refugees and now all-out jihad in the streets of Paris. But the new Chinese dream comes with a road map that is the ambitious, recently unveiled 13th Five-Year Plan or ‘the Shisanwu’. After years of explosive economic expansion, it sanctifies the country’s lower “new normal” GDP growth rate of 6.5% a year through at least 2020. It also sanctifies an updated economic formula for the country: out with a model based on low-wage manufacturing of export goods and in with the shock of the new, namely, a Chinese version of the third industrial revolution.
While China’s leadership is focused on creating a middle-class future powered by a consumer economy, President Xi Jinping is telling the world that there’s no reason for war ever to be on the agenda for the US and China.

Given the alarm in Washington about Beijing’s expansionism in the South China Sea, Xi has been blunt on the subject of late. Neither Beijing nor Washington, he insists, should be caught in the Thucydides trap; the belief that a rising power and the ruling imperial power of the planet are condemned to go to war with each other sooner or later.

Earlier talking to a group of digital economy heavyweights in Seattle, President Xi said, “There is no such thing as the so-called Thucydides trap in the world. But should major countries time and again make the mistakes of strategic miscalculation, they might create such traps for themselves.”

The Third Industrial Revolution 1A case can be made that Washington, which, from Afghanistan to Iraq, Libya to Syria, has gained something of a reputation for “strategic miscalculation” in the twenty-first century, might be doing it again. After all, US military strategy documents and top Pentagon figures have quite publicly started to label China (like Russia) as an official “threat.”

To grasp why Washington is starting to think of China that way, you need to take your eyes off the South China Sea for a moment, and consider the real game-changer — or “threat” — that’s rattling Beltway nerves in Washington when it comes to the new Great Game in Eurasia.

Xi’s Bedside Reading

Swarms of Chinese tourists iPhoning away and buying everything in sight in major Western capitals already prefigure a Eurasian future closely tied to and anchored by a Chinese economy turbo-charging toward that third industrial revolution. If all goes according to plan, it will harness everything from total connectivity and efficient high-tech infrastructure to the expansion of green, clean energy hubs. Solar plants in the Gobi desert, anyone?

Yes, Xi is a reader of economic and social theorist Jeremy Rifkin, who first conceived of a possible third industrial revolution powered by both the Internet and renewable energy sources.

In fact, the Chinese leadership seems convinced that no possible tool should be overlooked when it comes to moving the country on to the next stage in the process that China’s former leader Deng Xiaoping, decades ago designated as the era in which “to get rich is glorious.”

It helps when you have $4 trillion in foreign currency reserves and massive surpluses of steel and cement. That’s the sort of thing that allows you to go “nation-building” on a pan-Eurasian scale. Hence, Xi’s idea of creating the kind of infrastructure that could, in the end, connect China to Central Asia, the Middle East, and Western Europe. It’s what the Chinese call “One Belt, One Road”.

Since Xi announced ‘One Belt, One Road’ policy in Kazakhstan in 2013, the state has ploughed more than $250 billion into Silk-Road-oriented projects ranging from railways to power plants. Meanwhile, every significant Chinese business player, from telecom equipment giant Huawei to e-commerce monster Alibaba is on board. The Bank of China has already provided a $50 billion credit line for these projects. China’s top cement-maker Anhui Conch is building at least six monster cement plants in Indonesia, Vietnam and Laos. Work aimed at tying the Asian part of Eurasia together is proceeding at a striking pace. For instance, the China-Laos, China-Thailand and Jakarta-Bandung railways — contracts worth over $20 billion — are to be completed by Chinese companies before 2020.

With business booming, right now the third industrial revolution in China looks ever more like a mad scramble toward a new form of modernity.

A Eurasian “War on Terror”

The ‘One Belt, One Road’ plan for Eurasia reaches far beyond the Rudyard Kipling-coined phrase “the Great Game,” which in its day was meant to describe the British-Russian tournament of shadows for the control of Central Asia. At the heart of the twenty-first century’s Great Game lies China’s currency, the yuan, which recently joined the IMF’s Special Drawing Rights reserve-currency basket. This means the total integration of the yuan, and so of Beijing, into global financial markets, as an extra basket of countries will add it to their foreign exchange holdings and subsequent currency shifts may amount to the equivalent of trillions of US dollars.

The Third Industrial Revolution 2Couple the ‘One Belt, One Road’ project with the China-led Asian Infrastructure Investment Bank (AIIB) and Beijing’s Silk Road Infrastructure Fund. Mix in an internationalized yuan and you have the groundwork for Chinese companies to turbo-charge their way into a pan-Eurasian (and even African) building spree of roads, high-speed rail lines, fibre-optic networks, ports, pipelines and power grids.

And don’t forget about the bonuses that could conceivably follow such developments. After all, in China’s stunningly ambitious plans, at least, its Eurasian project will end up covering no less than 65 countries on three continents, potentially affecting 4.4 billion people. If it succeeds even in part, it could take the gloss off al-Qaeda- and ISIS-style jihadism not only in China’s Xinjiang Province, but also in Pakistan, Afghanistan and Central Asia. Imagine it as a new kind of Eurasian war on terror whose “weapons” would be trade and development.

At the same time, another kind of binding geography — the Pipelineistan, the vast network of energy pipelines crisscrossing the region, bringing its oil and natural gas supplies to China — is coming into being. It’s already spreading across Pakistan and Myanmar, and China is planning to double down on this attempt to reinforce its escape-from-the-Strait-of-Malacca strategy. Beijing prefers a world in which most of those energy imports are not water-borne and so at the mercy of the US Navy. More than 50% of China’s natural gas already comes overland from two Central Asian “stans” (Kazakhstan and Turkmenistan) and that percentage will only increase once pipelines to bring Siberian natural gas to China come online before the end of the decade.

Of course, the concept behind all this, which might be sloganized as “to go west (and south) is glorious” could induce a tectonic shift in Eurasian relations at every level, but that depends on how it comes to be viewed by the nations involved and by Washington.

All Aboard the Night Train

The Silk Road revival started out as a modest idea floated in China’s Ministry of Commerce. The initial goal was getting extra “contracts for Chinese construction companies overseas.” How far the country has travelled since then? Starting from zero in 2003, China has ended up building no less than 16,000 kilometres of high-speed rail tracks in these years — more than the rest of the planet combined.

And that’s just the beginning. Beijing is now negotiating with 30 countries to build another 5,000 kilometres of high-speed rail at a total investment of $157 billion. Cost is, of course, king; a made-in-China high-speed network (top speed: 350 kilometres an hour) costs around $17 million to $21 million per kilometre. Comparable European costs: $25 million to $39 million per kilometre. So no wonder the Chinese are bidding for an $18 billion project linking London with northern England, and another linking Los Angeles to Las Vegas, while outbidding German companies to lay tracks in Russia.

However, don’t forget about the Iran-India-Afghanistan Agreement on Transit and International Transportation Cooperation. This India-Iran project to develop roads, railways, and ports is particularly focused on the Iranian port of Chabahar, which is to be linked by new roads and railways to the Afghan capital Kabul and then to parts of Central Asia.

Built by Iran, the transit corridor from Chabahar to Milak on the Iran-Afghanistan border is now ready. By rail, Chabahar will then be connected to the Uzbek border at Termez, which translates into Indian products reaching Central Asia and Russia.

Think of this as the Southern Silk Road, linking South Asia with Central Asia, and in the end, West Asia with China. It is part of a wildly ambitious plan for a North-South Transport Corridor, an India-Iran-Russia joint project launched in 2002 and focused on the development of inter-Asian trade.

Of course, you won’t be surprised to know that, even here, China is deeply involved. Chinese companies have already built a high-speed rail line from the Iranian capital Tehran to Mashhad, near the Afghan border. China also financed a metro rail line from Imam Khomeini Airport to downtown Tehran. And it wants to use Chabahar as part of the so-called Iron Silk Road that is someday slated to cross Iran and extend all the way to Turkey. To top it off, China is already investing in the upgrading of Turkish ports.

Who Lost Eurasia?

For Chinese leaders, the ‘One Belt, One Road’ plan is seen as an escape route from the Washington Consensus and the dollar-centred global financial system that goes with it. And while “guns” are being drawn, the “battlefield” of the future, as the Chinese see it, is essentially a global economic one.

On one side are the mega-economic pacts being touted by Washington — the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership — that would split Eurasia in two. On the other, there is the urge for a new pan-Eurasian integration programme that would be focused on China, and feature Russia, Kazakhstan, Iran, and India as major players. Last May, Russia and China closed a deal to coordinate the Russian-led Eurasian Economic Union (EEU) with new Silk Road projects. As part of their developing strategic partnership, Russia is already China’s number one oil supplier.

There is, at present, little room for the sort of serious business dialogue between the European Union (EU) and the EEU that might someday fuse Europe and Russia into the Chinese vision of full-scale, continent-wide Eurasian integration. And yet German business types, in particular, remain focused on and fascinated by the limitless possibilities of the New Silk Road concept and the way it might profitably link the continent.

If you’re looking for a future first sign of détente on this score, keep an eye on any EU moves to engage economically with the Shanghai Cooperation Organization. A monster second step would be for this dialogue to become the springboard for the building of a trans-European “one-belt” zone. That could only happen after there was a genuine settlement in Ukraine and EU sanctions on Russia had been lifted. Think of it as the long and winding road towards what Russian President Vladimir Putin tried to sell the Germans in 2010: a Eurasian free-trade zone extending from Vladivostok to Lisbon.

Any such moves will, of course, only happen over Washington’s dead body. At the moment, inside the Beltway, sentiment ranges from gloating over the economic “death” of the BRICS nations, most of which are facing daunting economic dislocations.

No one in Washington wants to “lose” Eurasia to China and its new Silk Roads. On what former National Security Adviser Zbigniew Brzezinski calls “the grand chessboard,” Beltway elites and the punditocracy that follows them will never resign themselves to seeing the US relegated to the role of “offshore balancer,” while China dominates an integrating Eurasia. Hence, those two trade pacts and that “pivot,” the heightened US naval presence in Asian waters, the new urge to “contain” China, and the demonization of both Putin’s Russia and the Chinese military threat.

Thucydides, Eat Your Heart Out!

It brings us full circle to Xi’s crush on Jeremy Rifkin. Make no mistake about it: whatever Washington may want, China is indeed the rising power in Eurasia and a larger-than-life economic magnet. From London to Berlin, there are signs in the EU that, despite so many decades of trans-Atlantic allegiance, there is also something too attractive to ignore about what China has to offer. There is already a push towards the configuration of a European-wide digital economy closely linked with China. The aim would be a Rifkin-esque digitally integrated economic space spanning Eurasia, which, in turn, would be an essential building block for that post-carbon third industrial revolution.

The G-20 this year was in Antalya, Turkey, and it was a fractious affair dominated by Islamic State jihadism in the streets of Paris. The G-20 in 2016 will be in Hangzhou, China, which also happens to be the hometown of Jack Ma and the headquarters for Alibaba. You can’t get more third industrial revolution than that.

One year is an eternity in geopolitics. But what if, in 2016, Hangzhou did indeed offer a vision of the future, of silk roads galore and night trains from Central Asia to Duisburg, Germany, a future arguably dominated by Xi’s vision. He is, at least, keen on enshrining the G-20 as a multipolar global mechanism for coordinating a common development framework. Within it, Washington and Beijing might sometimes actually work together in a world in which chess, not Battleship, would be the game of the century.

Thucydides, eat your heart out!

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