OF SUBSTANCE AND SPIRIT

It was the American political scientist Hans Morgenthau who proposed that the word “equilibrium” is equivalent to “balance.” Nothing is more important than ensuring the stability of the whole while preserving the independence of its components. In its global application, we have an equilibrium when nations are not only independent, but they are also entitled to exist.

From its perspective, China believes regional stability may be preserved despite the assertion of its territorial claims over parts of the South China Sea that belong to and are within the exclusive economic zones of Brunei, Indonesia, Malaysia, the Philippines, Taiwan and Vietnam. That is not just bullying, it is also an outright violation of the UN Charter that prohibits “the threat or use of force against the territorial integrity or political independence of any state.”

Ironically, the UN Security Council can play double standard, or engage in doublespeak, by a unilateral veto of any intervention even against their own belligerent action. We saw this type of violations by the United States’ invasion of Iraq, Russia’s annexation of Crimea and its war against Ukraine, and of course, China’s hostile presence in the South China Sea. National sovereignty was without question violated without any obvious consequence. As a permanent member of the Security Council, China can seem to get away with its territorial adventurism.

As proof, China dismissed the 2016 arbitral ruling in favor of the Philippines “null and void.” In fact, China continues to deal with maritime visitors in the South China Sea with lasers and water cannons. It has standing regulation authorizing the China Coast Guard to detain “trespassers” to its claimed territories including the traditional fishing ground of Filipino fishermen.

What is pathetic is China’s argument that it is the Philippines that is compromising regional stability by involving another great power. China badly needs shadows and mirrors to realize it is arguing on technicality. When a big power like China can afford to ignore rules-based arbitral ruling and insist on its own definition of what falls under its own territorial jurisdiction, the only way to prevent territorial adventurism is precisely to establish international alliances. Without such a counterweight, China could very well secure a wholesale title over practically the whole of South China Sea.

China could afford to throw its weight around the world because since 1978 when it started to open up to the world, its GDP growth has averaged more than nine percent every year. Over 800 million Chinese people have literally escaped absolute poverty. China is now the largest exporter in the world, a global factory no less.

At the conclusion of China’s Article IV consultation a week ago, First Deputy Managing Director Gita Gopinath could not have been clearer in describing China’s economic development over the past few decades as remarkable.

With a country of over 1.4 billion people, China is the world’s second biggest market. Its land area covers five time zones and occupies borders with some 14 countries. The world’s third largest country in land area, China is now the second largest economy in nominal output and the largest economy based on purchasing power parity. China is credited with having grown its nominal gross output from just over $150 billion in 1978 to around$18 trillion in 2023.

It's no puzzle then if China should nurture some ambition to challenge the US’ global leadership. In naval power, China between 2014 and 2018 alone succeeded in launching more vessels than the total number of ships in the German, Indian, Spanish and British navies combined, as Foreign Policy wrote in 2020.

Xi Jinping’s announcement of a “new era” in 2017 meant that China must “take center stage in the world.” Establishing regional hegemony is a crucial step and this implies that China must assert itself as the dominant player in the Western Pacific. We now see China exerting strong influence in security and economic affairs in the region and neutralizing US alliances. The South China Sea is an excellent showcase of its growing weight in the region and its aspiration in the larger global stage.

But there is one thing that could go wrong for China.

It is their ability to manage the strong headwinds of aging population, weaker investment, and geo-economic fragmentation. These big picture issues translate into slow growth, weak exports and currency, and a deepening property sector crisis. Governance remains an existential issue. With growth dynamics strongly entrenched in China with its extensive and deepening capital markets, China should be able to overcome these risks.

But if China fails the economic test, its global posture may be considered to be nothing more than a paper tiger.

But there is another thing that could go well for China.

It is the US and its western allies themselves. Recently, former IMF Economic Counsellor Raghuram Rajan correctly observed that “the Western alliance itself is fraying.” Self-interest is driving the weakening consensus on economic direction. The US itself, while demanding openness in trade and finance, is doing so based on its own definition of openness. Doublespeak can be easily discerned and it could undermine the US and its Western allies including those in the Asia Pacific.

If this shift in economic power is to be reflected in the IMF and World Bank governance through an appropriate adjustment in country quotas, China may ultimately end up with the largest quota and of course, more extensive influence. Rajan pointed out that under the IMF’s Articles of Agreement, the Fund’s headquarters may have to move from Washington, DC to Beijing.

If the Fund persists in its tradition of reforming itself incrementally through modest adjustment in quotas without fundamental changes in governance and management structure, then Beijing would have another platform to pursue its global ambition.

Whether this is going to lead to better political equilibrium will be an open question for some years to come.