China’s evolving international economic engagement: China threat or a new pole in an equitable multipolar world order?

ABSTRACT

Many regional and national development questions involve the interaction of external and internal evolutions and can be conceived macroeconomically in balance-of-payments terms. In this light, China’s engagement in international trade, outward and inward foreign direct investment, accumulation of reserves, development cooperation, aid and international finance initiatives are examined and related to evolving domestic and international conditions. After joining the Western-centred international economic and political order, while protecting its economic and political sovereignty and defining itself as part of the Global South, China emerged as a very large semi-peripheral upper-middle-income country. In the new millennium China and other emerging economies started to upgrade into higher value-added sectors and to reshape international governance arrangements in ways that reflect the civilisational values and colonial and semi-colonial experience of the Global South. Although these steps do challenge the unequal and unfair ‘liberal rules-based order’ and US hegemony, they also help create a more equitable and peaceful multipolar world system.

摘要

中国的国际经济参与的演变:中国威胁还是公平的多极世界秩序中的新一极? Area Development and Policy. 许多区域和国家的发展问题涉及到外部和内部演变的相互作用, 这可以从国际收支的宏观经济角度来考虑。有鉴于此, 我们对中国参与国际贸易、对外直接投资和外商直接投资、外汇储备积累、发展合作、援助和国际金融倡议进行了研究, 并将其与不断变化的国内和国际条件联系起来。在加入以西方为中心的国际经济和政治秩序的同时保护其经济和政治主权, 并将自己定位为全球南方国家的一部分之后, 中国成为一个非常庞大的半边缘的中高收入国家。在新的千年里, 中国和其他新兴经济体开始向具有更高附加值的行业部门升级, 并以反映全球南方国家的文明价值观以及殖民地和半殖民地经历的方式重塑国际治理秩序。尽管这些措施确实挑战了不平等和不公平的’基于规则的自由秩序’和美国霸权, 但它们也有助于建立一个更加公平与和平的多极世界体系。

Resumen

Participación económica internacional de China en evolución: ¿Amenaza china o un nuevo polo en un orden mundial multipolar y justo? Area Development and Policy. Muchas de las cuestiones de desarrollo de ámbito regional y nacional tienen que ver con la interacción de evoluciones externas e internas y se pueden concebir desde una perspectiva macroeconómica en cuanto a la balanza de pagos. En este contexto, en este estudio analizamos la participación de China en el comercio internacional, la inversión extranjera directa interior y exterior, la acumulación de reservas, la cooperación de desarrollo, la ayuda y las iniciativas de financiación, y la relacionamos con las condiciones cambiantes tanto nacionales como internacionales. Tras integrarse en el orden económico y político internacional centrado en los países occidentales, protegiendo a la vez su soberanía económica y política y autodefiniéndose como parte del hemisferio sur, China ha surgido como un gran país semiperiférico con renta media alta. En el nuevo milenio, China y otras economías emergentes han empezado a modernizarse en sectores con un mayor valor añadido y remodelar los acuerdos de gobernanza internacional de maneras que reflejan los valores de la civilización y las experiencias coloniales y semicoloniales del hemisferio sur. Aunque estas medidas desafían el ‘orden liberal basado en normas’ desigual e injusto y la hegemonía de los Estados Unidos, también permiten crear un sistema mundial multipolar más justo y pacífico.

Аннотация

Развивающееся международное экономическое участие Китая: китайская угроза или новый полюс в справедливом многополярном мировом порядке? Area Development and Policy. Многие вопросы регионального и национального развития связаны с взаимодействием внешней и внутренней эволюции и могут быть рассмотрены с макроэкономической точки зрения в терминах платежного баланса. В этом свете рассматриваются участие Китая в международной торговле, внешние и внутренние прямые иностранные инвестиции, накопление резервов, сотрудничество в целях развития, помощь и международные финансовые инициативы, связанные с меняющимися внутренними и международными условиями. Присоединившись к ориентированному на Запад международному экономическому и политическому порядку, защищая свой экономический и политический суверенитет и определяя себя как часть Глобального Юга, Китай превратился в очень крупную полупериферийную страну с доходом выше среднего. В новом тысячелетии Китай и другие страны с формирующейся экономикой начали переходить к секторам с более высокой добавленной стоимостью и перестраивать международные механизмы управления таким образом, чтобы они отражали цивилизационные ценности и колониальный и полуколониальный опыт Глобального Юга. Хотя эти шаги действительно бросают вызов неравноправному и несправедливому ‘либеральному порядку, основанному на правилах’, и гегемонии Соединенных Штатов, они также помогают создать более справедливую и мирную многополярную мировую систему.

KEYWORDS:

• foreign direct investment
• Belt and Road Initiative (BRI)
• currency swaps
• development cooperation
• development finance
• balance of payments
• debt
• financial instability
• China threat
• South–South relations
• South–North relations

关键词:

• 外商直接投资
• ‘一带一路’倡议
• 货币互换
• 发展合作
• 发展金融
• 国际收支
• 债务
• 金融不稳定
• 中国威胁
• 南南关系
• 南北关系

Palabras clave:

• inversión directa extranjera
• Nueva Ruta de la Seda
• permutas de divisas
• cooperación de desarrollo
• financiación del desarrollo
• balance de pagos
• deuda
• inestabilidad financiera
• amenaza china
• relaciones sur–sur
• relaciones sur–norte

Ключевые слова:

• прямые иностранные инвестиции
• инициатива ‘Один пояс – один путь
• ’
• валютные свопы
• сотрудничество в целях развития
• финансирование развития
• платежный баланс
• долг
• финансовая нестабильность
• угроза со стороны Китая
• отношения Юг–Юг
• отношения Юг–Север

1. INTRODUCTION

After the mid-1950s China’s relationship with the former Soviet Union deteriorated. At the same time China was embargoed and isolated by the US and its allies. In 1971–72 ping-pong diplomacy, diplomatic exchanges and the visit of US President Richard Nixon opened the way to lifting the longstanding US blockade on China and deepened US containment of the Soviet Union. These changes in the international context permitted China’s entry into a Western-dominated international economic and political order and played an important role in shaping China’s subsequent development path, although the transition to ‘liberal democracy’ and a capitalist market economy anticipated in the Western world did not occur.

As tensions eased and an economic crisis in Western counties led corporations to seek new markets, Mao Zedong, Zhou Enlai and Hua Guofeng embarked on a new modernisation drive. In 1973 the Four-Three Scheme (sì sān fāngàn) or the 43 Plan saw the Chinese government secure loans worth US$4.3 billion that permitted China to import complete sets of technical equipment for Chinese-owned industries from the US, the Federal Republic of Germany, France, Japan, the Netherlands, Switzerland, Italy and other Western countries. These imported capital goods enabled China to develop coastal industries producing petroleum, metallurgical and electronic products, precision instruments, chemical fertilisers and synthetic fibres. In 1978 agreements were signed with foreign countries for 22 large projects expected to require US$13 billion in foreign exchange (39 billion Yuan; Wang, 1998, pp. 498–499). In the last days of the same year China decided to embark on ‘reform and opening up’. As in the case of other developing countries, export and export-surplus orientations were necessary to fund investment and service debt.

From 1980 to 2021 the West grew slowly (2.1% per year), the world grew more quickly (3.1%), the Global South excluding China grew less than average (3.0%), while China grew on average at 9.2% per year (The Conference Board, 2022). As a result China emerged as an upper-middle income country. Moreover, due to the size of its population, it became the world’s second-largest economy. By 2021 China was also the world’s manufacturing workshop, its largest exporter, second largest importer and second largest exporter of capital. China held huge foreign currency reserves, owned a currency that is increasingly used to settle international payments (reaching 7% in 2022 and up 85% on 2019 according to the Bank for International Settlements) and was a country playing increasingly important foreign aid and development finance roles.

By the early years of the new millennium, however, China came to be perceived as a challenge to US political, military and economic leadership in the North Atlantic and Indo-Pacific. This perception derived from China’s economic size, development of cutting-edge technologies, role in setting and spreading standards (as a result of recent industrial upgrading and gains in market share), construction of infrastructure and trade and investment corridors, effective governance, use of currencies other than the US dollar, and engagement in global integration projects and in international diplomacy (Diesen, 2021, p. 19). Of the latter, the most striking was China’s early 2023 mediation in an agreement between Saudi Arabia and the Islamic Republic of Iran.

At the same time the relative strength of the US and its allies was in decline (Dunford, 2021). Concerned about China’s increasing economic and political weight, and its continuing choice of a socialist rather than a liberal–capitalist path (Dunford, 2023), in 2011 the Barack Obama administration announced a ‘pivot’ to Asia. This pivot involved increased diplomatic, economic, strategic and other US investment in the Asia–Pacific region. In 2018–19 the Donald Trump administration imposed sweeping tariffs on Chinese imports and measures to restrict Chinese technology companies. In 2021 the Joe Biden administration claimed that China is ‘autocratic’ as opposed to ‘democratic’ and that Chinese governance, values and interests challenged the US-led liberal international order (US The White House, 2017) and US ability to set ‘the rules and the norms and the institutions through which countries relate to one another … in a way that advances our own interests and values’ (Blinken, 2020). In 2022 it introduced a ‘Chip and Science Act’, and joined forces with Japan, South Korea and Taiwan to establish a ‘four-party chip alliance’ designed to isolate China’s integrated circuit industry from global supply chains (Zhu, 2022). In the same year a US$738 billion Inflation Reduction Act providing massive subsidies to green projects and technologies was designed to relocate and develop industries in the US. In response China adopted a five-year 1 trillion yuan (US$143 billion) support package to help its semiconductor industry end dependence on the US. Other US initiatives such as Build Back Better World (B3W), the Indo-Pacific Strategy and the Indo-Pacific Economic Framework were advanced to contain China. At stake is the maintenance of US economic and political leadership and US-led planetary security and economic arrangements which are, on the one hand, out of the reach of other sovereign states and, on the other, protect private property rights, economic liberty, capitalist competition and predation (Slobodian, 2018).

In this changing context China’s growth and increasing international engagement was construed in terms of a China threat thesis (Grydehøj et al., 2021; Mearsheimer, 2018). China’s rise started to alter the distribution of power in Asia in the last millennium. More recently, it has increasingly been argued that it does not play by the rules set by Western elites to serve their interests and the interests of rich mainly Western countries. China also has not adopted the neo-liberal economic policies and multi-party political systems that Western powers consider they have the right to expect.

China is, however, the first part of the Global South with an experience of Western and Japanese colonialism and imperialism (setting aside some of the small Asian Tigers) to exploit effectively latecomer advantage, avoid dependence and close significantly the development gap with economically advanced countries. China insists that all countries have the right to choose their own development paths rather than ones chosen for them by past and present colonial and neo-imperial powers. Similar measures were adopted by other latecomers (Chang, 2002). Moreover, countries that adopted liberal economic agendas prescribed by Western powers (such as the states emerging from the break-up of the Soviet Union in the early 1990s) suffered catastrophic economic decline, while US leadership has seen the eruption of a succession of wars and international conflicts, leading to deficits of peace, trust, development and governance (Xi, 2017a, p. 77).

China’s rise significantly contributed to the decline since 1990 in world inequality and indicates that formerly colonised countries can catch-up. Some authors have asked whether the recent differentiation of the Global South should lead one to question the ‘clear spatial demarcation’ between First and Third Worlds, and between ‘developed’ and ‘developing’ and rich and poor countries (Horner & Hulme, 2019a). To question this stance, China’s international engagement is conceived as predominantly involving South–North and South–South relationships where China remains a part of the Global South. This characterisation enables China to adhere in terms of its development path (even as it approaches the World Bank’s high-income category) and its cultural and political stance to a status as a developing country, a civilisation whole values differ from those of Western civilisation and a part of the Global South (Grydehøj & Su, 2022; Guo, 2022).

The aim of this article is to provide a macro-level account of the way in which China’s international engagement evolved since the 1970s and of the steps that led to a situation in which the US and its developed country allies seek to encircle and contain China. China’s engagement was shaped by changing internal and external conditions. At first to close an immense development gap, China sought to join existing multilateral institutions on terms acceptable to itself, and to enter the liberal global economic order in ways in which it benefitted and developed countries also benefitted. In the new millennium China started to shape actively the architecture of the global order. To do so, it established with others new institutions alongside existing ones, and it advanced its vision and that of other emerging powers of a more equitable world economic and political order conducive to the rise of the rest of the Global South (Xi, 2017b).

In developing this argument this research draws on balance-of-payments data. These data are rarely examined (exceptions include Kohler, 2022; and McCombie, 2016), yet are of considerable value in documenting in this case China’s evolving role. More specifically, the next section will deal with some theoretical and methodological questions, although other concepts and ideas will be introduced as corresponding issues arise in subsequent sections. These sections analyse the evolution of China’s overall balance of payments from a phase of exporting low-value goods, manufactured principally by coastal industries of which many were established by and with international capital, and accumulating foreign reserves, to phases of going out and investing overseas, emerging as a major provider of international aid and development finance, seeking to help stabilise volatile international capital flows after the Asian and Western financial crises, addressing intellectual property (IP) protection, and establishing new institutions and governance arrangements.

An aim is to point to the multiplicity and scope of China’s engagement and to argue that the designation of China as part of the Global South continues to make sense notwithstanding significant development differentials within the Global South. It makes sense due first to a shared experience of colonialism and imperialism and China’s insistence on the establishment of a non-hegemonic international order that recognises the sovereign equality of all nation-states and all civilisations. In joining the international economic system, China with its low-wage and often unskilled labour experienced significant South–North value transfers. China subsequently joined a new international division of labour in which IP, finance and a range of critical services were concentrated in the Global North and more advanced manufacturing in China and other countries. As China sought to enter the industries of the next industrial revolution, however, it encountered zero-sum resistance. China is also actively involved in South–South trade and investment (where it does compete with industries in other developing countries). China’s engagement is, however, to some extent distinctive in that it recognises the important role of public finance and infrastructure in enabling other parts of the Global South to set out on a path of catch-up development. Although critics point to negative impacts of Chinese-funded projects, the terms of China’s development finance are often relatively favourable, and China gives more support to the least developed countries. In a world in which the US dollar has been weaponised (in sanctions regimes) and in which large increases in liquidity and volatile flows of financial capital destabilise developing countries, China has helped establish swaps, is increasingly using the renminbi (RMB) to settle its international transactions (most strikingly in recent agreements to purchase oil from the Persian Gulf and Middle East countries in RMB) and is exploring a de-dollarised regional trade system.

The aim is to provide a narrative that is deliberately wide-ranging to capture the scope of China’s international engagement and present an empirical narrative that supports these claims, while recognising that the scope makes detailed engagement with counter-arguments difficult.

As it has developed China has of course encountered many difficulties along the way, including domestically problems of corruption, increasing inequality, environmental damage, a succession of economic crises and phases of economic instability, and disorderly expansion of capital, of which some are outlined (Dunford, 2022). In order to address them, in 2013 China embarked on a ‘New Era’ involving a new modernisation path and a new international order. China’s vision of a Community of Shared Destiny for Humankind (rénlèi mìngyùn gòngtóngtǐ) is a part of this new vision.

2. INTERNATIONAL AND REGIONAL DEVELOPMENT AND THE BALANCE OF PAYMENTS

In the 1970s China started to join in a managed way an international system and an international division of labour associated with an internationalisation of commodity exchange, of capital and of the production process. The internationalisation of production (establishment of global value chains) occurred as communications technologies permitted the extension of technical and social divisions of labour within and between multinational actors across national boundaries and served to counteract declining profitability in core countries. As a result, high-wage labour in rich countries had to compete with similarly skilled, low-wage workers in the Global South, while reduced prices increased real incomes in the Global North.

The arena in which a coherent regime of accumulation unfolds was extended to include much of the world with each national economy occupying different and changing roles (sectors, occupations, remunerations) in this world system and different and changing positions in a hierarchy of economic blocs, nation-states, cities and regions largely according to the extent to which they specialised in economic activities conferring control over the norms of international competition (Dunford & Perrons, 1983, pp. 244–6).

The movement of material production to parts of the Global South was accompanied by dematerialisation of developed country economies and increases in intangible assets. These assets are considered as value-creating resources: as money that creates money in the shape of streams of future earnings, as in the circuit of money capital, M-M´. Blomberg (2022) has interpreted this phenomenon as a consumption role of high incomes in rich countries underpinned by direct and indirect imperialist transfers of labour and ecological value. Transfers are a result of several mechanisms: (1) unequal exchange deriving from the unequal remuneration for labour of equal productivity, and the equalisation of rates of profit where the capital intensity of production differs; (2) the plundering of resources and associated capital flows; (3) debt repayment; (4) unfair terms of trade; (5) exorbitant trade-related IP rights; (6) increasing returns; and (7) skilled labour migration. As Dunn (2022) argues, however, trade experiences shape and are shaped by political economic circumstances, asymmetrical state, corporate and financial power, and many more specific factors such as transfer pricing and trade and investment barriers.

In economic geography important insights into these mechanisms associated with earlier structuralist, political economy and Keynesian perspectives have recently received relatively little recent attention (however, see Kay, 1989/2013; Kohler, 2022; McCombie, 2016). These and similar studies indicate that the development depends on capital investment in real production activities, while income derives from the distribution of national and international money flows where the size of the latter depends in part on export and import values, cost competitiveness (wages and productivity), demand elasticities and exchange rates (Figure 1). These activities are ultimately balance of payments constrained due to the impacts of trade deficits and shortages of foreign exchange. These constraints can be relaxed through capital flows (Kohler, 2022), although net capital inflows increase net overseas debt that may constrain further international borrowing to finance deficits and investment. Growth itself stimulates investment, competitiveness, and processes of circular and cumulative causation (Kaldor, 1970). Although enterprises are central actors, many of these issues can also be examined in balance-of-payments terms (Figure 1) (Dow, 1986; Thirlwall, 1980).

Figure 1. Cumulative causation: conditions of production and exchange, specialisation, trade and investment.

Source: Elaborated from Dunford et al. (2020).

A country’s balance of payments provides an overall macroeconomic picture of its international economic relationships (Figure 1). The main functional categories are depicted in Table 1. Jenkins (2019) has provided an important application of these concepts to China’s role in Africa.

Table 1. Balance of payments.

A Current account

A1 Net exports/imports of goods and services (balance of trade)

A2 Net primary income (investment income from direct and portfolio investment plus employee compensation

A3 Net transfers (migrants’ remittances)

B Capital account

B1 Capital transfers related to purchase and sale of fixed assets such as real estate

C Financial account

C1 Net direct investment

C2 Net portfolio investment

C3 Other financial flows

D Net errors and omissions

D1 Missing data such as illegal transfers

E Reserves and related items

E1 Changes in official monetary reserves including gold and foreign exchange reserves

Overall balance of payments = A + B + C + D + E

Balance-of-payments data are published for the world by the International Monetary Fund (IMF) and reported by the World Bank in its World Development Indicators (WDI) database. In the case of China, data are published by the State Administration of Foreign Exchange (SAFE) and the National Bureau of Statistics (NBS), while details of China’s outward foreign direct investment (OFDI) are published by the Ministry of Commerce (MOFCOM). This article draws principally on these sources.

The overall framework derives from the flows reported in the IMF’s Balance of Payments and in particular the current (net exports, net primary income and net transfers) and financial accounts. In the IMF’s Manual 6 framework the financial account covers all transactions associated with changes of ownership of the foreign financial assets and liabilities of an economy and is disaggregated into five basic functional categories: direct investment, portfolio investment, financial derivatives and employee stock options, other investment and official reserve assets. Net investment is calculated as the difference between the ‘net acquisition of assets’ and ‘net incurrence of liabilities’ under the first four headings (excluding net acquisition of reserve assets by the monetary authority). In the BMP5 financial account, item headings and signs were for ‘credit’ and ‘debit’, generating the reverse of the BMP6 sign for net investment: in BMP5 a net inflow carried a positive sign, whereas in BMP6 it carries a negative sign. The data currently reported by SAFE employ the BMP5 methodology. The BMP6 methodology for the balance of payments financial account is consistent with the International Investment Position methodology: a positive sign for net values represents an increase, and a negative sign represents a decrease, in the corresponding asset or liability. These data provide an overall account of China’s changing economic engagement with the rest of the world.

3. CHINA AND THE INTERNATIONAL ORDER THROUGH A BALANCE-OF-PAYMENTS PERSPECTIVE

As Figure 2 shows, in 1990 China started to generate small surpluses on its trade in goods and services, along with a net inflow of foreign direct investment (FDI), enabling it to acquire foreign currency, accumulate foreign reserves (a stock of US$155 billion by 1999) and increase investment in modern plant and equipment. These surpluses increased up to 2008, rose again in 2015 and increased strongly from 2020 when the COVID-19 virus, first identified in China, spread around the world, as economic activity collapsed, yet the net demand for Chinese goods and services soared.

Figure 2. China’s balance of payments, 1982–2020.

Note: An increase in net financial assets is reported by the State Administration of Foreign Exchange (SAFE) as negative indicating a net outflow of foreign exchange. For the International Monetary Fund (IMF) (in IMF BMP6 methodology) and the World Bank the corresponding sign is positive indicating a net acquisition of assets (IMF, 2023a). Source: Elaborated from PRC SAFE (The State Administration of Foreign Exchange, 2023).

With the exception of a few years, China’s net primary income was negative, reflecting net payments (investment income in the shape of profits, interest and dividends and employment compensation) to non-residents, and indicating the overall predominance of South–North relationships. Net secondary income (comprising mostly overseas Chinese and other international migrant remittances) was conversely positive except in most years from 2013 to 2018. These flows are a reflection of net inward transfers by overseas and migrant communities characteristic also of many parts of the Global South, but were relatively small.

As Figure 3 shows, by 2021 China had reached upper middle-income status. Figure 3 plots per capita real gross domestic product (GDP) in 1952 and in 2021 on the vertical axes and cumulative population on the horizontal axes, so that surface areas correspond to real GDP in 1952 and 2021. The 1952 data are plotted twice: once at the same scale as for 2021 and then with 2021 axis lengths. In 1952 China was almost the poorest country in the world. By 2021 it had become richer than many less developed countries, and due to the size of its population was one of the largest economies in the world. And yet it remained engaged in unequal South–North relationships, and still considers itself a part of the Global South. This designation is supported by other theoretical and empirical considerations.

Figure 3. Comparative world development, 1952 and 2021.

Source: Elaborated from The Conference Board (2022).

In an era of globalisation trade increased between low- and high-income countries. As logistic costs declined, good infrastructure and access to overseas markets played increasing roles in world trade (Figure 1). This trade principally reflected an internationalisation of production driven by wide differences in wage costs (held down by the existence of a large industrial rural reserve army) and cost and indirect exchange rate measures that preserved international competitiveness. This wave of developed country investment was designed to counter a decline in profitability in core capitalist countries and served also to reduce prices by substituting cheap imports for more expensive domestically produced goods for the ‘golden billion’ in rich countries. Combined with waves of immigration and adoption of new technologies and management practices this transformation occurred, however, at the expense of many well-paid jobs for relatively unskilled developed country workers, increased inequality and increased precarity.

This new international division of labour was superimposed on a division between countries that specialised in the export of primary commodities (as in the 1970s was the case with China) and those that specialised in manufacturing industries. In this case between-country inequalities derived from movements in the terms of trade against commodities (Kay, 1989/2013, pp. 5–7) and from the way manufactures were subject to stronger increasing returns to scale and productivity growth (Figure 1). The new international division of labour was, however, also associated with a distinctive functional division of labour (Boschma, 2022): unskilled low-value added activities involving the use of modern methods of production and levels of productivity comparable with those in developed countries were delocalised, and apparently high-value added research, design and technical occupations performed by what Reich (1991) called ‘symbolic analysts’ remained in core economies. An important consequence was unequal South–North exchange relations: goods of equal value exchanged by low- and high-income countries included much larger amounts of southern labour where productivities were the same (Amin, 1974, pp. 44–63). In the case of South–South trade this type of unequal exchange relationship is much smaller.¹

Over time China pursued a path that involved insertion into the world trade system with the strategic aim of a gradual growth in the level of scientific and technical sophistication and appropriation of a higher share of value added (in part through a strategic use of exchange rate and industrial policies). In the new millennium, wages increased, and South–North trade inequality was reduced. Estimates suggest, however, that the transfer of value from China to the US rose with the growth in trade from US$395.9 billion in 1995 to US$1541.8 billion in 2014 (Macheda & Nadalini, 2021, p. 125). In 2019 the global transfer to advanced Western economies from non-G7 countries reached US$1.6 trillion through the price system, excluding repatriated profits and royalties. This transfer is a consequence of the control of developed country corporations of the commanding heights of value chains and helps explain Western attempts to restrict the development of advanced technologies in countries such as China (Green, 2021; see also Carchedi & Roberts, 2021).

In Figure 2 increases in net investment (net financial account) and reserves are recorded with negative signs because they represent outflows of expenditure (the balance of payments account records flows and not stocks) on overseas assets. As already mentioned, this sign convention was adopted by SAFE in its data but it differs from the current IMF methodology. As Figure 2 shows, China saw net increases in assets, including reserve assets. These flows saw the stock of reserves reach nearly US$3.8 trillion in 2014 dropping up to 2018 and standing at US$3.3 trillion in 2022 (PRC SAFE (The State Administration of Foreign Exchange), 2023).

China’s net investment income was substantial and indicative of an excess of savings over investment and net lending to the rest of the world. In a situation where China’s ability to use its foreign exchange to purchase modern plant and equipment from developed countries was limited, it lent its savings at very low rates of interest to the US and other developed countries, whose governments’ and citizens’ consumption and investment exceeded their own savings. China’s foreign currency reserves and holdings of low yielding US Treasury Bills accordingly increased, instead of driving faster domestic industrial upgrading, again reflecting a dependent relationship favourable to developed countries. These reserves did, however, afford China with a greater degree of security in the case of a sharp decline in the exchange value of the RMB. As the relationship with the US deteriorated, however, China has reduced its US Treasury Bill holdings: these holdings peaked at US$1314.9 million in July 2011 before declining to reach US$869.3 million in March 2023 (US Department of the Treasury, Bureau of the Fiscal Service, 2023).

China’s entry into the Western liberal world order occurred shortly after the US ended the convertibility of the US dollar into gold, due to pressure on the dollar as a result of persistent US trade deficits and adverse effects on US competitiveness. A new fiat currency system laid new foundations for international seigniorage and ‘exorbitant privilege’ (Eichengreen, 2011, pp. 3–4), where, as Triffin (1960) noted, the international economy needs dollars for liquidity purposes and to meet the demand for reserve assets. In the wave of globalisation up to 2007–08 the fiat currency system was sustained, however, by the willingness of trade surplus countries (net exporters of oil and natural resources and manufactured goods) to purchase US Treasury debt and use the US dollar in international transactions. The US has, however abused the dollar’s status as the main international reserve currency and oscillations in its value and US economic sanctions have adversely affected other countries. More and more countries are consequently adopting countermeasures, changing the composition of their reserves, using their domestic currencies to settle trade payments and triggering a degree of de-dollarisation of the global economy.

4. CHINESE TRADE IN GOODS AND SERVICES

China emerged as the largest exporter from 2009 (followed by Germany, the US and Japan) and the second largest importer from 2010 (usually followed by Germany and Japan). From 3.6% and 3.2% of world exports and imports in 1996, respectively, China reached 16.8% and 12.8%, respectively, in 2020. With the exception of five occasions in 2005–15 China’s goods and services surpluses have, however, not exceeded 5% of GDP (World Bank, 2023a), as China imports resources, equipment and intermediate goods to produce exports.

China’s rise as a great commercial power was a consequence of a combination of opening up and export orientation with effective protection and low real costs, once longstanding US embargoes ended. This strategy involved massive infrastructure investment, attracting inward foreign direct investment (IFDI), designation of special economic zones (SEZs), a dual-track strategy to protect indigenous industries as they adapted to international competition, a migrant labour force of agricultural Hukou holders with contracted land that helped reduce wage costs, and market and property rights reform, along with capital account controls and a slow accumulation of reserves that drove down the exchange rate (Dunford, 2017).

Whereas in 1992 trade with Hong Kong and Macao were especially important, by 1996 trade with developed country markets in East Asia (27.6% of exports and imports), Europe (15.2% of exports and imports) and North America (16.2% of exports and imports) accounted for the largest shares (Table 2). In the new millennium trade increased, however, with Southeast Asia, Africa, Latin America and the Caribbean, reflecting trends towards macro-regionalisation, and an increasing role of South–South trade relationships between countries with smaller development differentials.

Table 2. China’s trading partners: exports plus imports by region as a share (%) of total, 1992–2022.

	1992	1996	2002	2008	2016	2020	2022
Hong Kong and Macao	35.5	14.3	11.6	8.4	8.6	6.2	5.0
Japan and South Korea	18.4	27.6	24.1	18.3	14.8	13.3	11.6
Southeast Asia	1.1	1.4	2.0	3.8	4.0	3.1	3.4
South Asia	1.1	1.4	2.0	3.8	4.0	3.1	3.4
Central Eurasia	4.0	2.7	2.4	3.7	3.0	3.5	4.5
West Asia	1.5	2.0	2.8	5.0	4.8	5.4	7.3
Oceania	1.7	2.0	2.0	2.7	3.6	4.4	4.2
Africa	1.1	1.4	2.2	4.6	4.1	4.1	4.5
Europe	12.8	15.2	16.2	18.4	17.0	17.5	16.7
Latin America and Caribbean	1.8	2.3	2.9	5.8	6.1	7.0	7.8
North America	12.1	16.2	17.4	14.9	15.9	14.4	13.9
RCEP	61.0	51.2	46.7	38.6	39.6	38.8	36.4

Note: RCEP, Regional Comprehensive Economic Partnership.

Source: Elaborated from World Trade Organization (WTO, 2023).

To some extent the strength of Asian relationships is overstated in the data due to the role of Hong Kong. By the early 1990s four-fifths of Hong Kong manufacturing had been relocated to mainland China, mainly with Chinese enterprises acting as subcontractors under special customs export processing regimes. These regimes accounted for 56.8% of exports and 49.3% of imports at the processing regime peaks in 1999 and 1997, respectively (NBS, 2021, tab. 17.4). Many of the goods processed in China and sent to Hong Kong were subsequently re-exported from Hong Kong, just as many of the materials imported by Hong Kong were sent to China for processing (The Government of Hong Kong Special Administrative Region, 2020). Once Chinese OFDI increased, mainland Chinese companies were established in Hong Kong which acted as an entrepot.

Chinese merchandise trade reveals an underlying change from an economic structure dominated by assembly and processing of a wide variety of low-technology, light consumer goods to higher technology products, although in these industries China often remains dependent on imports of technology-intensive components: in machinery and electrical industries, China was a net importer in 1996, yet by 2008 it was a large net exporter (Figure 4), mainly at that stage due to the role of IFDI by companies headquartered in more developed countries. These companies owned IP rights, concentrated on product development, design and marketing and appropriated most of the value added (Rikap, 2022). In these industries complex US, European, and East and Southeast Asian cross-border production systems were established, with China importing advanced intermediate goods, assembling them, increasingly in non-coastal provinces and shipping finished goods to export markets. In intermediate goods sectors such as electronic integrated circuits, China has a growing deficit (Figure 4), with Chinese import substitution measures designed to eliminate it impeded by the US trade and technology restrictions.

Figure 4. China’s trade surpluses and deficits by industry (selected two- and four-digit 1996 Harmonized System (HS) codes), 1996–2020.

Source: Elaborated from World Trade Organization (WTO, 2023).

Value added in China was sometimes very limited: in 2007 the retail value of the 30-gigabyte video iPod was US$299, with high payments for professional, engineering and retail operations in the US. The most expensive component was the hard drive manufactured by Toshiba (about US$73), followed by the display module (about US$20), the video/multimedia processor chip (US$8) and the controller chip (US$5). All were imported. Final assembly in China cost only about US$4 a unit (Dedrick et al., 2010).

China, however, placed restrictions on foreign capital: in strategic sectors companies had to establish joint ventures with Chinese companies to facilitate the transfer of technology and expertise, and in sectors vital to China’s national development and security foreign capital was excluded. Overseas companies were also subject to strict Chinese state regulation, preventing the exercise of political control. More recently, China has also started to emerge as a source of indigenous innovation in, for example, transmission apparatus. China still depends, however, on critical imported intermediate goods and components whose supply the US seeks to prevent or limit, while its access to markets is also restricted on security and other grounds. In labour-intensive industries such as textiles, clothing and footwear, China has retained a competitive edge, although their relative importance has declined, with some movement offshore in line with a flying geese model (Ozawa, 2011).

The net import side of Figure 4 reveals China’s growing dependence on imported minerals and fuels and animal and vegetable products (such as soya imported from Brazil and the US). Growing net imports of critical energy and other resources have resulted in initiatives designed to increase supplies and the security of supplies.

China’s resource imports have contributed to growth, but have also raised concerns about re-primarisation in commodity exporting economies (Gorenstein & Ortiz, 2018), while Chinese manufactures may compete with domestic production in less developed countries in the absence of effective adjustment measures. In other areas China’s arrival has had positive consequences for the developing world. Economic development depends on the diffusion of knowledge and know-how. In IP negotiations the rise of China has reduced European Union (EU) and US regulatory hegemony. The US and EU have, for example, imposed rules that protect high-value patented pharmaceutical drugs developed by Western companies, preventing developing countries from supplying affordable generic alternatives. After the World Trade Organization (WTO) Doha declaration, governments were allowed to overrule IP regulations in relation to major public health issues, including the HIV/AIDS pandemic. As a result, the price of a course of anti-retroviral drugs dropped from US$10,000 to US$700. After Doha, the US and EU chose sanctions and narrower trade agreements to extinguish Doha-permitted flexibilities. The US Trans-Pacific Partnership would have increased IP protection, while the US Anti-Counterfeiting Agreement would have permitted seizure in transit of generic drugs suspected of IP infringements. Not only did China use its WTO membership to support the Doha declaration and assist developing counties, but also the Regional Comprehensive Economic Partnership (RCEP) has development-friendly IP regulations. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) negotiated without the US eliminated all but one of the IP regulations. As a result, Thailand expressed an interest in joining, citing a reduced threat to access to medicines, and China has also expressed a wish to join. These weaker provisions give generics manufacturers the opportunity to produce affordable medicines. At the same time China (and India, Japan, Korea and Thailand) are emerging as vaccine developers, eroding the West’s vaccine monopoly. Clearly, an important question is whether these countries in future will themselves impose stringent IP regulations as they develop high tech sectors (Sworn, 2021).

5. INWARD AND OUTWARD OVERSEAS DIRECT INVESTMENT

As a developing country confronting a shortage of capital and foreign exchange, China has served more as a destination for foreign investment than as a source (a South–North relationship). In the 1950s China acquired loans and industrial equipment, plans and expertise from the Soviet Union. With the early 1970s transformation of diplomatic and economic relationships with the US and other developed capitalist countries, it took Western and Japanese loans to purchase plant and equipment and develop infrastructure. After reform and opening up, China started to permit IFDI in designated SEZs again to acquire capital, technology and expertise and accelerate its development, while insisting on political autonomy and non-interference in its domestic affairs.

Until the late 1990s a shortage of foreign exchange had led China to discourage OFDI. In 1999 it changed course, adopting a Go Out strategy. Chinese OFDI accelerated (Figure 5) from just under US$1 billion in 2000 to US$56.7 billion in 2008. After a decline in 2009, it rose to US$216.4 billion in 2016. In 2015–16 OFDI briefly overtook IFDI before dropping to US$149.7 billion in 2022,² following a sharp decline in China’s overseas foreign reserves: US$3.3 trillion in 2022 down from nearly US$3.8 trillion in 2014 (PRC SAFE (The State Administration of Foreign Exchange), 2023). In most years since 2015, China’s flow of OFDI has ranked second in the world (Organisation for Economic Co-operation and Development (OECD), 2023b). In 2016 its share of global OFDI flows reached 13.6% of the United Nations Conference on Trade and Development (UNCTAD, 2023) reported total. In 2020 it ranked first with 20.0%, dropping to third with 10.5% in 2021 (UNCTAD, 2023).

Figure 5. Chinese foreign direct investment and foreign exchange reserve flows, 1982–2020.

Source: Elaborated from PRC SAFE (The State Administration of Foreign Exchange, 2023).

The Go Out strategy was formalised in 2001 at the Third Plenum of the Ninth People’s Congress and in the 10th Five Year Plan for Economic and Social Development. In 2006 guiding OFDI principles were set out in the State Council’s ‘Opinions on Encouraging and Guiding Foreign Investment and Cooperation by Chinese Enterprises’. These principles included effective use of domestic and overseas resources (natural, strategic and technological) and markets, through the agency of increasingly competitive Chinese enterprises and cooperation with OFDI partners, structural adjustment of the domestic economy, and economic development of China and host countries. These aims were elaborated in subsequent planning documents. The 12th Five Year Plan, for example, suggested outsourcing to places where domestic technologies were established and demand was high, establishment of overseas industrial parks, cooperation in energy and natural resource exploration and exploitation (reflecting China’s resource needs), establishment of overseas research and development (R&D) centres and R&D collaboration, overseas engineering projects, marketing and sales networks, and value chain integration (Sauvant & Chen, 2014).

Chinese OFDI is subject to a system of regulation (enterprise qualification, project permission and foreign exchange certification) set out initially in a State Council ‘Decision on Reforming the Investment System’ which called for a move from a strict and complicated approval system to an authorisation and recording system (Figure 6 reflects the situation after a 2017 reform). In 2004 interim National Development and Reform Commission (NDRC) verification and approval measures were announced, as were MOFCOM examination and approval procedures. Earlier in 2003 the NDRC and China Export-Import Bank (CHEXIM) had issued credit support guidelines. In 2007 MOFCOM, the Ministry of Foreign Affairs (MFA) and the NDRC proposed a classification of industries into three categories in which Chinese OFDI is forbidden, permitted and encouraged. In 2008 global OFDI declined, but Chinese OFDI doubled in spite of turmoil in world markets, due to China’s strong countercyclical measures. In 2009 MOFCOM published revised administrative measures for overseas investment. Amongst other things, some decisions were decentralised, approval procedures were simplified and clarified, and supporting measures were strengthened. In 2014 regulation was further relaxed: only investments in sensitive industries or countries, or in excess of US$1 billion, required official approval. Other projects involved a registration system. These reforms partly reflected questions of manageability of review and approval procedures in the context of an enormous increase in the number of investments and overseas affiliates (Bernasconi-Osterwalder et al., 2012; MOFCOM, 2014; Sauvant & Chen, 2014; Wang & Gao, 2019), but saw some undesirable outcomes.

Figure 6. Outward foreign direct investment (OFDI) approval in China, 2017.

Source: Elaborated by the authors.

The result at this stage was a system in which all non-financial companies required approval or registration of OFDI (greenfield investments or acquisitions and mergers) by the national or local NDRC and of MOFCOM, with large investments also needing State Council approval, while central state-owned enterprises (SOEs) were also subject to State- Owned Assets Supervision and Administration Commission (SASAC) management and approval. On obtaining NDRC and MOFCOM approval, foreign exchange was transferred offshore through SAFE, which had to examine the source of funds for investments overseas. OFDI of Chinese financial firms and several specific SOEs was supervised by the Ministry of Finance (MOF) or the People’s Bank of China (PBOC) and the corresponding regulatory authority (the China Banking Regulatory Commission (CBRC), the Insurance Regulatory Commission (CIRC) and the Securities Regulatory Commission (CSRC)).

OFDI was encouraged and supported through financial measures including cheap loans from CHEXIM and state-owned commercial banks, development assistance including the development of overseas economic and trade cooperation zones (ETCZs), tax concessions provided by the State Administration of Taxation, SINOSURE insurance, government provision of information, and government negotiation of international investment and trade agreements. In addition, MOFCOM, SAFE and, in the case of central SOEs, SASAC monitor and evaluate investments in economic, financial, social, environmental and ethical terms.

In 2017, however, a new phase was opened. New measures significantly tightened and centralised the regulatory regime (Figure 6). Change was designed to stem capital outflows and the rapid depletion of China’s foreign reserves (Figure 2). In 2015 and 2016 in a world awash with liquidity as a result of quantitative easing (QE) by developed country central banks, and in the context of a degree of financial and capital account deregulation, decentralisation and insufficiently strict government control, China was adversely affected by stock and foreign exchange market instability that required expensive government rescue operations. In the same years OFDI served as one means of capital flight.

At the times of the 1998 Asian Financial Crisis, the 2007–08 Chinese stock market crash, and of the 2013 capital flight that afflicted other emerging economies, China’s capital controls enabled it to manage the resulting difficulties. China had, however, joined the WTO in 2001: membership involved opening up all sectors except capital and currency markets, where controls were allowed for another 15 years, in which it did not have the legal market economy status. At the end of this period, China was expected to open up these sectors. To start to meet these demands, in 2013 China established the Shanghai China (Shanghai) Pilot Free-Trade Zone. Chinese interest rates were relatively high to combat QE-induced inflation. Chinese companies and local governments wanted to access the vast amounts of cheap international finance that QE created, at the risk of increasing dollar denominated debt. Also, the Chinese government slowly acceded to World Bank demands that it expand the Qualified Foreign Institutional Investor programme, introduced in 2002 to give certain foreign institutions direct access to Chinese stock markets. After the Third Plenary of the 18th Communist Party of China (CPC) in 2013, new trading tools permitted increased derivatives trading, while in November 2014 the Shanghai–Hong Kong Stock Connect was established, with plans to establish a Shenzhen–Hong Kong Stock Connect. By starting to open its capital account, overseas financial capital was able to enter Chinese markets. At the same time China’s trade surpluses generated significant domestic foreign exchange earnings. Once converted into yuan these earnings increased domestic money supply (Global University for Sustainability, 2015). Money flowed into real estate and equity markets, where prices rose sharply.

In mid-2015 these steps in the direction of financial liberalisation and relaxed capital account controls, along with short selling by international and domestic financial capital, saw a stock market crash, that wiped RMB 7 trillion off stock values. As much of the financial sector and investment companies such as Central Huijin remained in public hands, the government managed, after 10 extraordinary interventions, to stop the rout, but at the cost of some RMB 1.7 trillion (Instant China, 2015). In the second half of the year the RMB came under pressure and was devalued. Although exchange rate decline offset the impact of wage increases on international competitiveness, and raised the costs of overseas assets, exchange rate stabilisation in the face of short selling and capital flight forced the PBOC to sell reserve assets. In 2016 China’s reserves declined sharply (Figures 2 and 5).

OFDI and capital flight were associated with a wave of irrational overseas investment in real estate, hotels, entertainment and sports. Interim measures designed to stem these outflows identified closely scrutinised sectors, with weak connections with the real economy or the core activities of the companies involved. In these sectors OFDI applications were rejected. Other problems included ‘a low awareness of legal compliance and a weak sense of social responsibility’ on the part of some companies, damaging China’s reputation (Brautigam, as cited in Wang & Gao, 2019, p. 11),³ the relocation of headquarters to shell companies in tax havens, and Chinese company engagement in transfer pricing to minimise tax contributions (p. 11).

Given these outcomes, the problems of exchange rate stability and the loss of a large share of China’s foreign currency reserves, the aforementioned November 2016 interim measures and new August 2017 guidelines centralised and tightened OFDI regulation, and extended it to cover Chinese controlled overseas entities (Figure 6). Companies were encouraged to undertake investments that are market-oriented and generate mutual benefit for overseas partners. Administration was streamlined. All stages of OFDI operations were subject to new regulations to improve supervision and monitoring, and disciplinary measures were strengthened. These events showed that much outbound investment had escaped central control and conflicted with government goals and principles. The new measures were designed to reinforce them and stem this instance of what was later called the ‘disorderly expansion of capital’ (Dunford, 2022).

In the new guidelines OFDI was classified as ‘encouraged’, ‘restricted’ and ‘prohibited’. The first group included infrastructure projects relevant to the Belt and Road Initiative (BRI); export of advantageous high-quality and technologically advanced industries; cooperation with high-tech overseas companies and research centres; natural resource exploration and exploitation; and a variety of sectors relating to agriculture, food, logistics, and financial and other services. The aim was to ‘improve the quality of China’s OFDI, support qualified and capable enterprises investing abroad and promote OFDI projects that are conducive to China’s economic transformation and upgrading’ (Wang & Gao, 2019, p. 13).

In 2021 China’s OFDI stock reached US$2.79 trillion (6.7% of the global stock, coming third after the US with 23.5% and the Netherlands with 8.0%). China’s OFDI stock had increased from US$29.9 billion in 2002. In 2021, 4.0 million people were employed, of whom 2.4 million were not Chinese (60.6%).

Identifying the destination and industrial composition of Chinese OFDI is very difficult, as MOFCOM statistics of registered OFDI only record the initial destination and sector. These data identify as the top three destinations for Chinese OFDI Hong Kong (55.6% of OFDI stock in 2021 compared with 74.2% in 2003), the Cayman Islands (8.2% in 2021 and 11.1%) and the British Virgin Islands (16.1% in 2021 and 1.6%) followed by the US (2.8% in 2021 and 1.5%) and Singapore (2.4% in 2021 and 0.5%). A number of these destinations serve largely as transit and/or tax avoidance investment platforms, whence capital flows to other countries.

As for the composition of investment, MOFCOM data are again not especially informative. The data show leasing and business services (40.0%) was the largest category (Table 3), although these investments may again serve as investment vehicles for manufacturing and mining companies. High-tech industries (information transmission, computer services and software) increased from 1.6% in 2006 to 5.8% in 2021 dropping from 9.2% in 2019), and the share of scientific research and technical services also increased to 2019 and the declined. The upward path reflected Chinese industrial upgrading and entry into industries where it challenges G7 economic leadership and ownership of critical IP, while the recent decline may reflect US imposed trade and technology restrictions to contain China. According, however, to American Enterprise Institute (2023) data, 54.1% of China’s investment and construction OFDI in 2005–22 was in energy and power and transport, with 39.6% in construction (of which 69.9% was in energy and power and transport).

Table 3. Industry profile of China’s foreign direct investment (OFDI) stocks (%).

Industry	2006	2016	2019	2021
Leasing and business services	21.5	34.9	33.4	40.0
Wholesale and retail trade	14.3	12.5	13.4	13.3
Financial services	17.2	13.1	11.6	10.8
Information transmission, software and information technology services	1.6	4.8	9.2	5.8
Manufacturing	8.3	8.0	9.1	9.5
Mining	19.8	11.2	8.0	6.5
Real estate	2.2	3.4	3.5	3.3
Transport, storage and postal services	8.4	3.1	3.5	3.3
Scientific research and technical services	1.2	1.5	2.1	1.6
Construction	1.7	2.4	1.9	2.0
Production and supply of electricity, heat, gas and water	0.5	1.7	1.5	1.8
Agriculture, forestry, animal husbandry and fisheries	0.9	1.1	0.9	0.7
Other	2.4	2.5	1.9	1.5
Total (US$ billions)	90.6	1357.4	2198.9	2785.15

Source: Elaborated from Ministry of Commerce (MOFCOM) et al. (2003–present), various years.

Of outward investors up to 2021, just 5.7% were central and local SOEs. However, SOEs accounted for some 50% of overall non-financial OFDI stocks (compared with over 81% in 2006). Central SOEs played an important role in resource sectors and infrastructure projects, while the offshoring of other enterprises was driven by a variety of factors including increased domestic production costs and the intensity of competition on domestic markets: Gu (2009) found, for example, that the offshoring of many Chinese private companies to Africa was driven by an inability to compete on the Chinese domestic market.

In short, the evolution of China’s OFDI reflects serious government efforts to channel flows into productive sectors and into projects that are mutually beneficial to China and its partners. However, liberalisation, and a volume of investment that exceeded the capacity of the government to manage it, saw a wave of irrational investment, capital flight and a serious depletion of reserves. These outcomes led the government to reverse the relaxation of the degree of control over the disorderly international expansion of capital.

6. CHINA AND PROBLEMS OF FINANCIAL INSTABILITY IN A WORLD OF RAPID CAPITAL FLOWS

The rise of China as a regional and global power that is independent of the US and the Western ‘rules based order’ is also significant in that it offers the prospect of regional cooperation to address financial vulnerability and instability of the kind that erupted with the 1997 Asian Financial Crisis.⁴ Similar problems resurfaced with the North Atlantic financial crisis in 2007–08 and the adoption of QE, and the recession that followed and the outbreak of the COVID-19 pandemic, as all saw further dramatic increases in global liquidity and surges of money into emerging economies (including China once capital controls were relaxed) in a quest for yield.

Although China’s neighbours are anxious about potential Chinese dominance, in an era of large and volatile flows of international capital, China plays a significant and increasing role in addressing financial instability through participation in numerous bilateral swap arrangements,⁵ the financial cooperation axis of the BRI and China’s membership of the RCEP.⁶ All contribute in different ways to financial stability.

Although the Asian Financial Crisis was a balance-of-payments crisis, the epicentres in Southeast Asia (and South Korea) had relatively small overall deficits and subsequently ran small current balance-of-payments account surpluses.⁷ In East Asia large surpluses were recorded (mainly by China and Japan, but also by South Korea since 1988, potentially allowing these countries to play stabilising roles).

The crisis was a reflection of capital flight and an inability to meet capital account liabilities. The countries affected had attracted short-term debt from metropolitan economies. On the supply side this debt was driven by self-reinforcing investor expectations of profits and speculative gains made more attractive by implicit host government repayment guarantees, while its withdrawal in part reflected the attraction of investment in the dotcom bubble in developed economies. On the demand side the depth of the crisis was reinforced by the way domestic debtors sometimes used new credit to meet or roll over existing liabilities.

The dramatic outflow of capital is revealed in data for Association of Southeast Asian Nations (ASEAN) countries excluding Singapore in Figure 8 (in which the BMP6 signs are reversed): the net financial account turned negative from a surplus of US$41.0 billion in 1996 to a deficit of US$28.8 billion in 1998 (a surplus and a deficit in the same years of US$23.5 and a deficit of US$46.9 when Singapore is included) and remained negative until 2012. In 2003 cheap credit (with near-zero interest rates) and monetary expansion in metropolitan economies saw a new upward wave, interrupted by the North Atlantic financial crisis. In 2011 a sharp upturn occurred, reflecting massive liquidity injections and low interest rates after the adoption of QE, followed by significant outflows, oscillations and a renewed upward wave in 2017, as investors exploited differences in interest rates and investment returns in different markets. The direct investment component of the financial account (comprising longer term commitments involving control of 10% or more of the equity and knowhow, technology and management relationships) was much less volatile (Figure 7). It increased relatively steadily from the financial crisis until the COVID-19 pandemic, reflected increasing long-term East Asian IFDI.

Figure 7. Association of Southeast Asian Nations (ASEAN) less Singapore net current account, net financial account and net direct investment, 1990–2022.

Note: BPM6 methodology. Source: Elaborated from International Monetary Fund (IMF) (2023b).

In 1997 the financial account outflows were accompanied by a currency collapse: from an index of 100 to the US dollar in 1996, the currency of Indonesia reached 427.5 in 1998, South Korea 174.4, Laos 358.1, Malaysia 156.0, the Philippines 156.0, Thailand 163.2 and Vietnam 120.3, while the Chinese and the China-supported Hong Kong rates remained stable (World Bank, 2022). This collapse raised the domestic cost of debt denominated in foreign currencies and significantly cheapened acquisitions of distressed assets by foreign investors who had earlier engaged in speculative short-selling precisely to facilitate such cheap acquisitions (predation).

This wave of currency and financial market instability was a result of financial liberalisation: the increasing acquisition of private foreign currency denominated loans rather than reliance on reserves, development assistance, World Bank loans and bank swaps was permitted, and the presence of foreign investors in national financial markets surged. In this situation capital flight or a significant reduction in dollar liquidity jeopardises foreign debt service and results in capital and financial account related balance-of-payments crises. In 1997, in Thailand, Indonesia and South Korea, short-term debt exceeded reserves. To restore solvency and provide guarantees for foreign creditors, governments were forced to turn to the IMF (Chandrasekhar, 2021). IMF conditionalities saw the imposition of pro-cyclical austerity measures, increased financial sector liberalisation and protection of creditors, and a reinforced distressed asset sales as well as the privatisation of SOEs, cheapened by the decline in exchange rates.

As already mentioned, in 1999 capital controls had prevented financial destabilisation in China, while Malaysia adopted short-term capital controls, indicating the dependence of economic performance on regulatory capacity. After the immediate crisis, countries in East and Southeast Asia principally sought to insulate themselves from currency flight by accumulating trade surpluses and acquiring low-yielding assets to augment reserves (Chandrasekhar, 2021). A second solution was increased use of currency swaps.

After 1998 swaps served to provide (mainly dollar) liquidity and stabilise financial markets. US Federal Reserve swaps were confined to a few developed economies until the addition of a couple of developing countries, namely Brazil and Mexico, after the financial crisis. This step reduced their dependence on the IMF and its conditionalities. In Asia, Japan provided swap lines. By 2018 China had established around 100 swap lines with 40 countries, with limits in excess of US$1 trillion. Japan and China are, however, constrained as only the US Federal Reserve can engrave dollars.

After the Asian Financial Crisis in East and Southeast Asia, the 1999 Japanese New Miyazawa Initiative, the 2000 and 2009 ASEAN plus three (Japan, South Korea and China) Chiang Mai Initiatives (CMIs), and Chinese and Japanese bilateral swap arrangements were all designed to address balance of payments and short-term liquidity difficulties in a world of volatile capital flows.⁸ However, at the time of the financial and COVID-19 crises regional countries made little use of most of them. The Chinese and Japanese bilateral swap arrangements are, however, important as they permit short-term bilateral flows of regional surplus dollar or regional currency reserves to countries confronting balance-of-payments crises, without subjecting them to IMF conditionalities. Of particular significance are bilateral swap arrangements, denominated in RMB and the currency of the relevant partner central bank, established since the financial crisis by the PBOC. Arrangements have been made with many countries, including countries left out of earlier swap arrangements and confronted with balance-of-payments stress, despite associated repayment risks for China. These swaps enable recipient countries confronting financial stress to finance current, capital and financial account transactions with China and are also beneficial to China itself, as they encourage trade with China and the use of Chinese credit, strengthen their relationships with China and encourage RMB internationalisation. As such they are indicative of a very important win–win South–South dimension of Chinese conduct.

As China runs a balance-of-payments surplus, undertakes substantial OFDI yet is a net recipient of FDI, it has significant foreign exchange reserves. As crises in its neighbourhood are mutually disruptive, China may play an increasing role in establishing new regional safety nets that are independent of the US and IMF.

7. CHINA, INTERNATIONAL DEVELOPMENT AND INTERNATIONAL DEVELOPMENT FINANCE

At first the new China was a net recipient of aid and a net borrower of capital (a South–North relationship), but, as it embarked on going out, it emerged as a net provider of aid and one of the world’s largest suppliers of bi- and multilateral development finance, as well as the initiator of important international development initiatives.

China assumed its rightful seat at the United Nations in 1971, joined the World Bank and IMF in 1980, and, after major concessions, joined the WTO in 2001. China also strongly supports the United Nations and the multilateral system (which is not the same as the ‘Western rules-based order’). In the new millennium China has sought to establish itself as a responsible global power, advocated the creation of a global community with a shared future for mankind and called for joint efforts to address global problems (climate change, pandemics, biodiversity protection, debt, etc.).

More recently, China has adopted a number of important initiatives, seeking, on the one hand, a stronger presence in established international institutions and, on the other, marking out an agenda that is more independent and consistent with its own vision. In a world in which governments in capitalist countries had largely withdrawn from lumpy infrastructure investment with long turnover times due to fiscal consolidation and concerns about financial instability, and where the private sector will not invest without direct or indirect government support (public–private partnerships), China has emphasised the developmental importance of infrastructure, the role of public finance in catalysing it and, reflecting the Global South’s shared experience of colonialism, respect for the priorities of the countries in receipt of development finance.

Of particular importance was the announcement in 2013 of the BRI, founded on the Five Principles of Peaceful Coexistence.⁹ Essentially the BRI comprises a set of bi- and multilateral deals between China and partner countries, designed to improve connectivity, trade, investment and industrial cooperation, people-to-people relations and peoples’ livelihoods, financial integration and policy coordination. Aimed at peaceful economic cooperation and development, and dovetailing with the development strategies of participants, it initially targeted Asia, Europe and Africa, but it was extended to embrace the Pacific and Latin America. All countries can join, while the underlying principles are peace and cooperation, openness and inclusiveness, extensive consultation, joint contribution, mutual learning and mutual shared benefit.

China is pursuing gains (its interests): Chinese companies undertake infrastructure investments and sell related goods and services, the infrastructure will improve access to markets, raw materials and cost-competitive production sites, and economic growth will create new and larger markets, while China will garner strategic gains as an emerging global power in a multi-polar world. China therefore gains. The goal is, however, to establish cooperation arrangements that are win–win, with gains also for China’s partners. The distribution of benefits (and costs) within each country depends, however, on equitable negotiations and also the choices of China’s partners.

In 2015 initial steps were taken to connect the BRI and the Eurasian Economic Union established in that year to provide for freedom of movement of goods, services, capital and labour between Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia (Chubarov, 2018; Yarashevich, 2020). In 2021 at the 20th Shanghai Cooperation Organization (SCO) summit almost all members concurred on cooperation between these two initiatives. In 2021 US departure saw Afghanistan pivot towards an axis including SCO countries,¹⁰ while the inclusion of the Islamic Republic of Iran and several other observer and dialogue partners in the SCO pointed to a consolidation of Eurasian political and economic space that may also subsume parts of the Middle East.

These initiatives help ground development finance, where China is emerging as a leader, and aid, where China is an increasingly important provider. Between 2013 and 2018 China allocated a total of RMB 270.2 billion for foreign assistance in three categories: grants, interest-free loans and concessional loans (Figure 8). In 2019 its foreign aid reached US$6.8 billion, amounting, with CHEXIM preferential buyer’s credits (Figure 8), to 0.11% of China’s gross national income (GNI). According to the OECD (2023a) in 2016 US aid stood at 0.186% of GNI, well short of the OECD target of 0.7%.

Figure 8. Chinese foreign aid and preferential buyer’s credits.

Note: 2020 figures are estimates.Source: Elaborated from Kitano and Miyabayashi (2020).

Grants and concessional loans are funded from tax revenues and managed by the China International Development Cooperation Agency (CIDCA) established in 2018 (whereas most OECD Development Assistance Committee (DAC) members merged aid into Ministries of Foreign Affairs). China also provides COVID-19 pandemic assistance and concessional RMB and US dollar loans from CHEXIM. Grants and interest free loans have increased as a share of total aid in recent years. China also gives priority to the least developed countries in Asia and Africa, whereas developed counties orient themselves more towards middle-income countries (Figure 9).

Figure 9. Chinese and Development Assistance Committee (DAC) aid by income of recipient, 2009, 2013–18.

Note: DAC shares are expressed as percentages of the aid to developing countries (about 70% of the total) and not to all disbursements.Sources: Elaborated from Information Office of the State Council of The People’s Republic of China (2011); Organisation for Economic Co-operation and Development (OECD, 2023a); and The State Council Information Office of the People’s Republic of China (2021).

China also provides non-concessional dollar denominated policy bank loans from two enormous bilateral institutions, namely the CHEXIM and China Development Bank (CDB), established in 1994 and the Agricultural Development Bank of China (themselves funded by bond issues and international capital market operations) along with SINOSURE-insured Chinese commercial bank loans. The assets of CHEXIM and CDB exceed those of the World Bank and all the other multilateral development banks put together. These loans play an important role in addressing acute shortages of finance for infrastructure, development and poverty related projects and, moreover, are not subject to Western-style conditionalities.

In 2014 China (with CHEXIM and CDB) established a new Silk Road Fund with a capital of US$40 billion and RMB 100 billion to support BRI trade and economic cooperation and connectivity. Often with an emphasis on mutual benefit, CHEXIM and CDB have, as mentioned, provided concessional and other financial resources, sometimes in combination with foreign aid, for projects often involving Chinese SOEs in Africa, Latin America, Eurasia and Southeast Asia.

According to the Boston University Global Development Policy Center (2021) Chinese policy banks provided close to US$0.5 trillion in development finance to foreign governments from 2008 to 2019. As Figure 10 shows, in 2021 Chinese projects were predominantly in the Global South: Southeast Asia (19.7% of fulfilled turnover), Sub-Saharan Africa (17.6%), West Asia (14.8%) and South Asia (10.7%).

Figure 10. Fulfilled turnover of contracted projects, 2012 and 2021.

Sources: Elaborated from National Bureau of Statistics (NBS, 2023) (economic cooperation with foreign countries and regions).

In 2021 a White Paper identified China’s model of ‘international development cooperation’ as bilateral and multilateral aid, humanitarian assistance and other means of promoting economic and social development (including the provision of public goods) implemented in a context of South–South cooperation and the BRI.¹¹ China insists, however, on ‘common but differentiated responsibilities’, where South–South cooperation complements the main channel of North–South cooperation, and on the ‘controlling voice of recipients in tripartite collaboration’, marking itself out from DAC.

As China’s economic size and global significance increased, attempts were made to contribute more financial resources to existing multilateral financial institutions. China did make important contributions to multilateral funds and the United Nations (Kitano & Miyabayashi, 2020, p. 2), but these attempts generally made little progress due to the resistance of Western incumbents (at the expense of limiting the resources at these institutions’ disposition).

The dominant role of established great powers possibly made sense when the Bretton Woods institutions were established and some G7 countries were the main sources of trade surpluses, recycled to less developed countries, although they also used their power to shape the world in accordance with their interests. The world has, however, changed. The US is the world’s largest debtor, and while QE and the role of the dollar have permitted Western countries to increase liquidity, many of the financial flows ultimately originate in trade surplus countries such as China. G7 countries have, however, retained the most important financial centres and still largely control the financial institutions that manage international capital flows.¹²

In this situation China has adopted a number of strategies as channels for its diplomacy, with a view to establishing itself as a responsible global power and addressing global deficits, while acquiring knowledge and expertise, and finding outlets for foreign exchange and capital exports. In 2013 it started to create co-financing funds at the Inter-American Development Bank (US$2 billion), the African Development Bank (US$2 billion) and the International Finance Corporation (US$4 billion), as well as several smaller trust funds with the ADB and the World Bank. In these ways China could invest securely its sovereign wealth fund, generate greater returns than on US Treasuries and increase its soft power. The disadvantage of a co-financing formula compared with additional share capital is that the funds cannot be leveraged to create four to five times as much finance for projects. However, G7 shareholders considered increased Chinese share capital and voting rights unacceptable (Humphrey & Chen, 2021, pp. 11–16).

A second course of action dates from the mid-1990s when China–US relations were strained after the failure of an attempted colour revolution in 1989 and continued into the early 2000s. This step involved the provision of non-borrowing share capital and credit lines through CHEXIM and CDB to subregional multilateral development banks in Africa and Latin America and the Caribbean. These initiatives reduced developing country funding costs, afforded a credible cooperation platform for China, aligned with Chinese infrastructure and trade investments in the Global South, and have been extended into Eurasia (Black Sea and Kazakhstan) to secure BRI project funding (Humphrey & Chen, 2021, pp. 18–23).

China also played a major role in establishing two new multilateral development banks, announced in 2013, and operational by 2016, namely, the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB). These new institutions provide loans, equity and loan guarantees for economic development projects. Through contributions to their paid-in capital, China increased its provision of funds to international organisations along with its shareholding power and roles in governance and priority setting.

The NDB was established by the five BRICS countries (Brazil, Russia, India, China and South Africa). An example of South–South solidarity, the NDB has an authorised capital of US$100 billion and an initial subscribed capital of US$50 billion. The five founders have equal shares in the paid-in capital (US$10 billion) and guarantees (US$40 billion) and will remain dominant in perpetuity. At the end of 2020 it had approved loans worth US$25.5 billion.

The AIIB aims to help address a shortfall of Asian infrastructure finance, subsequently put at US$26 trillion over the 15 years from 2016 to 2030 (Asian Development Bank (ADB), 2017). In March 2021, it had 96 members and 17 prospective members. The members include five G7 countries which joined, along with Australia and Brazil, in spite of strong US resistance on the grounds that the AIIB would not meet high environmental, social safeguard and governance standards. China and Hong Kong control 27.4% of the shares, its registered capital stands at US$100 billion and paid-in capital is equal to US$20 billion (second only to the International Bank for Reconstruction and Development). By the end of 2020 it had approved loans worth US$21.7 billion.

To date the two are similar in that almost all project approvals are for energy, transport and other infrastructure projects and loans are principally to government borrowers (95.5% and 82.5% of approvals in value, respectively). Another similarity is that the two organisations are more streamlined (leaner, faster and less bureaucratic in project approval and oversight) than existing institutions. Yet they also differ in a number of ways. The NDB uses national regulatory and legal frameworks, while the AIIB has adopted environmental and social safeguards. The NDB engages in minimal co-financing, whereas the AIIB co-finances with other multilateral development banks (Humphrey & Chen, 2021). The two institutions also provide patient capital, while government guarantees raise ratings and reduce borrowing costs. However, a need for commercial viability will in each case put a floor under the costs of loans.

A consequence of China’s development finance initiatives is inevitably an increase in debt owed to China (see Figure 11), especially by low- and middle-income countries that China helps, in contrast to developed countries that paid them relatively little attention.¹³ China is of course itself a recipient of external financial flows from external creditors and investors (flows of equity and debt in the shape of foreign direct and portfolio investment). In a world in which debt has risen and is a source of widespread concern, debt owed to China has been a subject of particular attention and indeed of criticism, especially in Western government-funded reports and media which claim that China deliberately sets debt traps (Brautigam, 2019).

Figure 11. Chinese debt of developing countries, 2004–21 and 2021 debt statistics.

Note: Country groups exclude high-income countries. Source: Elaborated from World Bank (2023b).

In 2020 the debt situation was exacerbated as a result of fiscal and monetary packages adopted by governments to stem the health and economic consequences of the COVID-19 pandemic (a contraction of world GDP of 4.3% and of low- and middle-income country GDP of 2.5%). In 2021 the debt of low- and middle-income countries reached US$9.3 trillion (26.5% of GNI),¹⁴ while debt to China stood at nearly US$180 billion, having risen rapidly in 2009–17 (Figure 11).

As Figure 11 shows, however, China accounts for just a small share of the overall debt of East Asian and other developing countries. China does, however, lend substantial sums to the least developed and low-income countries and especially to Sub-Saharan Africa: in these three cases, in 2021, 12.8%, 9.8% and 10.1% of total debt was owed to China. In these three groups, debt was equal to large shares of GNI. In the case of individual countries China accounted for relatively large shares of overall debt (45.1% in Djibouti, 36.5% in the Maldives, 32.7% in Angola, 34.4% in the Congo Republic, 30.4% in the Lao PDR and 27.1% in the Democratic Republic of Congo), and relatively large amounts of debt in Pakistan (21% of the total), Angola (32.7% of the total), Ethiopia (24.8% of the total), Kenya (17.9% of the total) and Sri Lanka (12.8% of the total).

China has, however, sought to help countries that face debt servicing problems because of their participation in Chinese-funded projects, and, in cases where debt-stressed countries are on the verge of default, it has restructured debt in order to make it more manageable (Kratz et al., 2020). China participated in the G20 Debt Service Suspension Initiative negotiating debt treatments with the Paris Club in the context of IMF balance-of-payments assistance. In the 46 countries that participated Chinese creditors accounted for 30% of claims yet contributed 63% of debt service suspensions (Brautigam & Huang, 2023; NBS, 2020). Although it reflects China’ South–South commitments, it also shows how the rich world sought to take advantage of China: instead of sharing debt relief equitably, rich countries sought to protect rich country creditors at the expense of a developing country and to prepare the ground for new IMF loans and conditionalities serving rich country interests. China has also renegotiated projects. In June 2018, a new Malaysian government suspended the 688 km BRI East Coast Rail Link project, along with two planned gas pipelines backed by China on the grounds that the terms were unfavourable to Malaysia. The deal was, however, renegotiated, with the cost of the US$16.4 billion rail link cut by US$5 billion by shortening it to 640 km, avoiding the construction of a tunnel and agreeing on joint operation.

8. CONCLUSIONS

To ground commerce and cooperation, China has joined existing international institutions, sometimes agreeing to hard to accept conditions as in the case of the WTO. In the case of specialisation and trade, China’s experience is that of a developing country occupying lowly smile curve positions and experiencing significant transfers of value to developed countries. Over the years China has moved up the value chain. A hope is that, as it does, interactions with the developed world will remain important. Certainly, China remains a critical supplier of intermediate goods to regional hubs in Western Europe and North America, and these countries remain advanced in many technological areas. Trade relationships with its Asian neighbours and developing countries have increased. South–South trade is, however, at least not yet characterised by the degree of inequality of exchange that characterises South–North relationships.

China remains a net recipient of FDI. These investments are driven not just by cost considerations but also the attractiveness of China’s domestic market. In the new millennium Chinese OFDI has increased. A detailed study of China’s individual outward investments will undoubtedly reveal mixed results, as noted in this article: what marks it out is the role of SOEs and the way objectives are set by the state. As for the composition of investment, MOFCOM data are not especially informative. American Enterprise Institute (2023) data point to a strong emphasis on energy and power and transport construction and on industrial investments. Infrastructure investment reduces the impedance of distance and/or removes bottlenecks, increasing national export market potential, access to imported capital equipment and intermediate goods, and export market supply capacity and, through them, income per head (Dunford et al., 2020).

China’s path, international engagement and that of its developed East Asian neighbours do point to a potential development path for other less developed countries. Alongside China’s accumulation of foreign exchange reserves, this experience undoubtedly shapes China’s more recent quest for a stronger presence in established international institutions and advocacy of more independent initiatives consistent with its own global vision. These initiatives include the BRI, its integration with the Eurasian Economic Union (EAEU), the establishment of the BRICS, the enlargement of SCO, the establishment of RCEP, the NDB and the AIIB. In a world of open capital accounts and volatile financial capital flows, advocated by Western powers as it enables them to gain control of overseas assets, China has set up RMB swap lines to assist developing countries in Southeast Asia address consequent financial instability. China also advocates more sharing of IP (where deeds will count more than words).

China provides aid and development finance. Aid and credit are given more readily to the least developed countries, are provided where it is refused and on terms that are more attractive than those offered by Western countries, are concentrated on infrastructure and economic development in the light of China’s own success in coming from behind in a world in which Washington Consensus conditions saw little developing country progress, are not associated with macro conditionalities, and are presented as a relationship between equals in which China gains and its partners also gain.

These choices are indicative of a preparedness to take significant risks to support the development of other parts of the Global South and especially of the least developed countries (no doubt in the expectation that their development will also create more opportunities for Chinese development). Whether it does erode the significance of North–South and Third World concepts (Horner & Hulme, 2019b) depends on whether or not a new non-neo-imperial world order emerges and catch-up development extends to the rest of the Global South.

China’s international engagement reflects a combination and the reciprocal interaction of international geopolitical and geoeconomic regulation and trajectories (including China’s changing relationship with the US) and changing circumstances in China itself. China’s accumulation of reserves, resource needs, excess capacity and increasing wage costs shaped Going Out. The sheer magnitude of relations with the rest of the world was such, however, that many activities escaped central government control. Confronted with capital flight and the loss of foreign reserves, once capital account controls and OFDI regulation were relaxed and decentralised, attempts were made to establish more control over the ‘disorderly expansion of capital’. The financial crisis, slow world economic growth, US containment, common prosperity, and ecological and spiritual civilisation agendas saw more emphasis on the domestic market and dual circulation, although its international side requires the development of a more closely integrated and de-dollarised regional trade system, especially in its immediate neighbourhood and with the Global South.

China’s international engagement reflects distinctive values and principles deriving from several sources. One is the experience of colonialism and imperialism. Another is associated with the anti-imperialist principles of peaceful economic and political cooperation and sovereignty reflected in the Five Principles of Peaceful Coexistence (including equality of all nations, mutual respect, non-interference and win–win cooperation) that have shaped South–South cooperation. Another is the existence of different and in particular of East Asian national traditions, ideas, experiences and political and philosophical discourses. In the past the East Asian world system differed in significant ways from Western-centred arrangements (An et al., 2021; Arrighi, 2007), In the case of China civilisational values and hybrid characteristics resulting from its engagement with other civilisations and with Marxism have led to the emergence of a distinctive vision of an international order that Western civilisation finds it difficult to understand. In a recent study Grydehøj and Su (2022) indicate how Chinese visons are of a harmonious international order and are rooted in Chinese concepts of All under heaven (天下 – tiān xià) most clearly represented in the work of Zhao (2021 [2016]), relationality (关系 – guānxi), and symbiosis (共生 – gòngsheng). In this light the BRI is described by Li et al. (2020, p. 178) as ‘a vision of the world in which the success of one country can only be guaranteed by the success of all. The BRI is only a success if all its member states develop and prosper in tandem’.

At a December 1972 Central Committee of the Communist Party of China (CCCPC) discussion of China’s relationship with the world, Mao Zedong (Mao, 1972/2020) updated three stratagems recommended by Zhu Sheng to the first Ming Emperor in the late Yuan dynasty: ‘dig deep caves, store grain everywhere and never seek hegemony’. Mao drew on a traditional distinction between a king who rules by benevolence and righteousness (王权力 – wáng quánlì) and a hegemon who rules by power (霸权 – bàquán). Just as Mao said China should never seek hegemony (不称霸 – bù chēng bà), so repeatedly does Xi Jinping say it never will, although Mao did not preclude benevolent or virtuous rule (王道天下 – wáng dào tiān xià) (Zhu, 2011, p. 114).

This distinctive vision of the world order does indeed clash with the vision associated with Western civilisation and especially with Western interests. China remains a semi-peripheral upper middle-income country, but it is also an economic and political giant. As such it must exercise considerable caution, avoid the exercise of preponderant power and seek to gain trust and maintain good relationships with as many countries as it can. As the initiatives outlined in this article suggest, however, China is not a threat other than to continuing Western political, military, economic, technological and cultural hegemony.

China’s developmental and governance successes and its vision of a more equitable multipolar order (Global Civilisation, Global Security and Global Development Initiatives and a Community of a Shared Future for Humanity) along with its role in creating a new energy and a new financial world order do challenge the Western liberal ‘rules-based order’ and US and US dollar hegemony which confer zero-sum advantages on developed countries. The present response of the US, in particular, is to surround and contain China militarily and economically with trade and technology restrictions and politically and culturally with alliances and information wars. As long, however, as China and the rest of the Global South continue to cooperate and develop in sustainable ways, and as China and its partners are not defeated (a near impossible task even if conflict and confrontation prove impossible to avoid) current trends suggest that the arrival of new multipolar world will remain nigh on impossible to arrest.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1. Differences in development derive from differential circular and cumulative processes of investment and productivity growth along with command and control over the resources of other territories (acquisition of their wealth, currency seigniorage, and unequal exchange through trade and investment). Theories of unequal exchange are concerned with what one country’s goods and services, labour or environmental resources earn in terms of those of other countries. Monetary transfers of value from developing to developed countries can derive from specialisation in industries associated with different terms of trade or degrees of capital intensity (after equalisation of rates of profit), differences in productivity-adjusted wage rates and in profit rates, exchange rates and prices (profit on alienation as a result of discounts and buying cheap and selling dear) (Carchedi & Roberts, 2021).

2. These balance-of-payments figures for Chinese OFDI differ (not by much) from those published in the MOFCOM series published in the Statistical Bulletins of Chinese Outward Foreign Investment.

3. In 2021 the Chinese government demanded that six private Chinese mining firms stop work and leave the Democratic Republic of Congo after they ignored local government demands to suspend operations due to illegal mining and destruction of the environment (Nyabiage, 2021).

4. The crisis initially erupted in Thailand and quickly spread to the Philippines, Malaysia, Indonesia and South Korea as well as a number of smaller economies.

5. A swap is a sale of a specified amount of domestic currency for foreign currency at the prevailing spot exchange rate, and a commitment to buy it back at the same rate at a specified future date (plus interest). Swaps were used, first, to manage exchange rates, and, since 1998, to deal with financial instability by addressing insufficient liquidity (in particular US dollar liquidity) to meet bank and bank customer commitments.

6. The 15-country RCEP agreement integrated existing trade agreements, further reduced tariffs, harmonised agreements relating to rules of origin to facilitate manufacturing relocation and supply chain integration, and increased market access in an area of relatively rapid growth, accounting for nearly one-third of the world population, output and trade. In contrast to many trade agreements, the RCEP does not significantly address investment and employment regulation, environmental standards, IP rights, state subsidies, and public procurement, although China has recently expressed an interest in joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) that does.

7. Deficits were recorded in larger Association of Southeast Asian Nations (ASEAN) countries until 1998 and then surpluses with greater volatility for small countries such as Laos, Myanmar and Vietnam up to the North Atlantic financial crisis.

8. In 1997 a Japanese proposal for a US$100 billion Asian Monetary Fund (AMF) was designed to serve as a (supplementary) regional financial safety net independent of the US and the IMF for the Asian region. When this proposal failed due to US opposition and regional concern about Japan’s imperial past, Japan adopted the New Miyazawa Initiative (US$30 billion to meet short- and long-term capital needs) (Ministry of Foreign Affairs of Japan, 2000). In 2000 the CMI was established by ASEAN countries plus Japan, South Korea and China (ASEAN plus 3). The CMI was an ASEAN currency swap arrangement plus a series of bilateral swap arrangements with the three larger economies designed to address balance-of-payments difficulties and short-term liquidity problems in a world of volatile liberalised finance. In 2007 the Chiang Mai Initiative Multilateralization (CMIM) was designed to merge bilateral arrangements. In 2012 the scheme was doubled in size. To date these schemes have been limited by geopolitical considerations and their results have proved modest for two reasons: the relatively small volume of resources mobilised; and IMF conditionality and surveillance introduced to ‘appease the US and the IMF and … use the IMF as a foil against the dominance of a regional power like Japan’ (Chandrasekhar, 2021), though it may serve to ensure repayment. Accordingly when the Western financial crisis and the COVID-19 pandemic struck, countries in need of help relied not on the CMI/CMIM but on existing multilateral institutions such as the Asian Development Bank (ADB), World Bank and IMF or on bilateral dollar and regional currency liquidity arrangements with the US (in the case of Japan, South Korea and Singapore) and with Japan and China (Chandrasekhar, 2021).

9. To compete with the BRI in late 2021 the EU launched a €300 billion (US$339 billion) connectivity initiative called the Global Gateway (digital, energy and transport as well as health, education and research systems) following the US-led G7 US$40 trillion (by 2035) Build Back Better World (B3W) initiative to seize the moral high ground in terms of ‘values’ and ‘standards’. In the words of the EU: ‘We will support smart investments in quality infrastructure respecting the highest social and environmental standards, in line with the EU’s democratic values and international norms and standards.’ The erosion of the governance credentials of Western countries and their economic stagnation undermine the credibility of these initiatives, as does the near invisibility of a 2018 €300 billion international transport, energy and digital infrastructure plan (GT Staff Reporters, 2021).

10. China has provided the new Taliban government with US$31 million of humanitarian assistance, and has emerged as one of Afghanistan’s main trade partners. China can provide infrastructure and industrial investment and open up untapped deposits of lithium, iron, copper and cobalt, while infrastructure links from Peshawar via Kabul to the Middle East would open up trade routes.

11. The mission is ‘a global community of shared future for humankind’, underlying principles include the Five Principles of Peaceful Coexistence, the underlying guideline is ‘the greater good and shared interests, with higher priority given the former’, the focus is on South–South cooperation, the major platform is the BRI, and the goal is to help ‘other developing countries to pursue the UN 2030 Agenda for Sustainable Development’, jointly address ‘global humanitarian challenges’ and support ‘endogenous growth’. The White Paper calls for a strengthening of ‘international exchanges and tripartite cooperation’ and improved management rules, regulation and procedures.

12. In the aftermath of the financial crisis the Governor of the People’s Bank of China, Zhou Xiaochuan, argued that ‘the desirable goal of reforming the international monetary system  . . . is to create an international reserve currency that is disconnected from individual nations’ Zhou (2009).

13. Dreher et al. (2022) argue that China does not provide more aid or credit to natural resource-rich countries, and that its distinctive use of debt rather than aid to finance expensive infrastructure projects and its non-interference principles (which differ from the practices of Western creditors) create new opportunities for developing countries to achieve rapid socio-economic gains, but at the expense of major governance risks (such as the dangers of ‘corruption’ and ‘autocracy’ one-sidedly emphasised in representations of ‘Western values’).

14. World Bank data include public and publicly guaranteed debt and lending to the private sector that is not publicly guaranteed. Some countries exclude SOE debt that is not publicly guaranteed. These figures are not commitments nor do they include non-disbursed sums.