Crouching Tiger, Warrior Wolf
Will wolf diplomacy really work for China?
Hide your strength, bide your time — Deng Xiaoping
For decades this was the underlying foreign policy doctrine followed by the Chinese Communist Party (CCP). Even when their economy was growing at a runaway rate, they always seemed nonchalant towards the rest of the world. They joined the World Trade Organization (WTO) 20 years ago and watched their share in global trade rise. But still, they never looked at expanding their sphere of influence so noticeably outwards.
But then something happened in 2013, and everything changed.
The Wolf Struts In
When Xi Jinping took over the reins of China in 2012 as party president, he did so with the belief that his nation had hidden its strength for far too long and the time had come for China to step out of the shadows.
Within a few years of him coming to the helm, there were unprovoked border clashes with India, there was the Hong Kong controversial bill that caused months of street protests, tension over a Taiwanese invasion and Chinese shipping vessels crossing the line of control in Islands close to Japan and even the Philippines. Was this business as usual for the CCP or was this a strategic play? As a result of this, China’s army is on constant heightened alert on multiple fronts, for it has now secured its periphery from nations that it deems to be future threats.
The Forces March Out
Once the fortress was secure, China then launched its biggest ever public spending program since its inception — the BRI (Belt and Road Initiative) backed by an ambitious home-born Asian Infrastructure Investment Bank(AIIB). There were at least 2 strong business reasons to affirm this multi-billion dollar initiative at the Communist Party’s Plenary in 2013.
Firstly, China had already created large excessive capacities and built up enormous infrastructure domestically which was underutilized. Secondly and more importantly, the infrastructure in Asia needed to be beefed up, (if this was to be called the Asian Century) and sadly most IMF/World Bank funds to developing nations always came with strings attached.
So, here was China’s moment in the sun, to launch a Region-wide Infrastructure Initiative that would boost connectivity, create assets across the region and shore up its leadership in Asia when America was seen as half-interested and later under Trump, pulling away.
7 years down the line and this whole story has actually...gone as per plan. The number of nation states that are indebted to China has just piled up and China seems more happy than otherwise to seize assets in these foreign countries rather than waiting for payback of its debt(proof of the above). In fact, there is a name for this — Debt Trap Diplomacy.
Then there’s the whole question of Trade. Trade with China has just grown manifold between countries in Asia, Africa, Europe…hell almost everywhere except the US (see graph below). Even during the pandemic with all the talk of broken supply chains, trade with China still showed a positive upward trend, howbeit gradual.
Now, club these 2 factors together and you can clearly see a pattern emerging. First China fortifies its borders and keeps its troops on high alert. Then it pumps funds into Infrastructure projects to nations that need it while trade with other countries is on an upward spiral. These are not random shots in the dark but the blueprint of the creation of an Empire. An Empire that has 2 types of Allies, the ones that depend upon China for their economic growth and those for their economic survival.
Don’t get me wrong, when I say Empire — I don’t believe (for a moment) that China is going to start invading countries like the colonial powers did in order to build their empires (although I’m not so sure about Taiwan). An Empire for China gives it more leverage to conduct its affairs (internally or externally) with impunity.
Take for Example — China’s ill-treatment against the Uighur community which has been going on for years now right under everyone’s nose. The US (Biden Administration) is about the only country that has imposed sanctions on China and NOT the UN since it is now padded with nations who benefit from China’s rise and the most they can do it issue threatening statements with little or no action.
Another instance — COVID-19. The investigative team that the WHO flew in to China to determine the cause of the outbreak wanted to ascertain whether it was caused by a leak from the Wuhan Institute of Virology lab. The report which came out didn’t really rule it out completely and now there is talk of sending a second team in to do further fact-finding. Australia smelt a rat here and asked for an independent probe, what did it get? Sanctions slapped on it by China, again with impunity. This type of diplomacy has now been termed as Wolf Warrior Diplomacy.
Reassuring Its Allies
Having gathered allies, China had to reassure them that it has a game plan and was indeed acting in everyone’s (not just its own) best interests. For this, it has been been making a few strategic moves over the last few years:
In late Oct 2020, one of the household names in China, Jack Ma’s — Ant Group IPO listing on the Shanghai and Hong Kong Stock Indexes was thwarted in the eleventh hour by the Chinese government. The government stated that there were regulatory concerns in micro-lending practices which resulted in this pause. What they didn‘t tell you was that this was probably a result of Jack Ma’s critical comments made about China’s financial system a week earlier.
The irony is that this IPO would have probably been one of the biggest on the planet (even bigger than Amazon), but the Chinese government didn’t even bat an eyelid before squashing it.
A few months later, almost like a familiar pattern now, they threw a spanner in the works of the another Chinese tech giant, Didi Global’s listing on the NYSE. Didi is now considering delisting from the NYSE before listing on Hong Kong just to keep Chinese regulators happy.
Shortly afterwards China imposed a ban on profitable ed-tech companies, in short saying that private homegrown companies providing educational Massive Open Online Courses (MOOCs) online in China should not be chargeable — but free !!
These steps were not taken in isolation. China needed to show the world that in its world, capitalists do not determine or influence economic policy no matter how much money they put on the table. This is in stark contrast to the multiple year long congressional hearings about big tech monopolies and data privacy that one too often sees in the west nowadays.
Next, China banned all types of cryptocurrencies. In one sweep it had outlawed all bitcoin mining farms operating out of China. The figure below shows how over just 2 years there has been a flight of crypto miners from China to other countries. Incidentally, China has added its own special spin on this. It claimed that this ban was due to the negative effects that crypto-farms have on the environment!!
However it had no qualms developing its own Central Bank Digital Currency (CBDC) based on blockchain.
This CBDC is the final piece in the Empire puzzle.
With a Chinese CBDC in Asia, China could encourage economies doing business with it to trade in this currency instead of using the dollar. It could soon link trade with all its allies to some level of acceptance of the CBDT and would therefore strive to make it the dominant currency in ASEAN. It is therefore not surprising that China has been racing ahead with its Central Bank Digital Currency (CBDC) implementation.
So if you’re an Ally of China and you’re looking at China, what do you actually see?
Here’s a country that keeps capitalists at check, reins in money making corporations, has committed to carbon neutrality by 2060 (a big ask being the biggest polluter), has deep pockets to shore up its allies whenever they need funds (no questions asked). Suddenly State capitalism isn’t so bad after all. The communist system — does actually work!!
And this is how the Empire spreads.