What the US ShoUld learn from China for a more BalanCed and PeaCefUl World

Fabio Massimo Parenti

Abstract The growing importance of China in the global economy affects the reconfiguration of the inter national geography of power. In this scenario, the geopolitical order will be significantly redefined by the evolution of relations between China and the U.S. Based on the outcome of previous studies, and on the extensive efforts made by some social scientists, this paper provides a systematic analysis of the complexity and strategic implications of ChinaUS relations. To make sense of these multivalent relations, after an initial introduction the paper is organized in three sections. The first section explores the structur ally asymmetrical nature of relations between China and the US, focusing on economic policy decisions made by national elites. The second section focuses on the deepening U.S. debt, also underscoring the latest transformation trends experienced by an international monetary system that is still dollarcentred, and which several parties deem to be unsustainable. Lastly, the third section tries to provide evidence that growing instability in the global geopolitical order is intimate ly related to the economic and financial unbalances between China and the U.S. Hence, promoting more effective cooperation between China and the United States seems to be a priority. As substantiated in this paper, cooperation should, however, make the most of the Chinese developmental path, compared to that adopted by the United States in terms of economic governance and geopolitical developmental path.

International Institute Lorenzo de Medici, Rome, Italy

Key words: China/US policies; monetary system; finance; geopolitics; developmental path Lo que Estados Unidos Debera Aprenden de China para tener un Mundo ms Balanceado y Pacfico Resumen La creciente importancia de China en la economa global afecta a la reconfiguracin de la geografa in ternacional del poder. En este contexto, el orden geo poltico estar fuertemente redefinido por la evolucin de las relaciones entre China y Estados Unidos. Basndose en los resultados de estudios previos y en los grandes esfuerzos de algunos cientistas sociales, este artculo brinda un anlisis sistemtico de las im plicaciones estratgicas y de la complejidad de las rela ciones ChinaEstado Unidos. El artculo est organizado en tres secciones. La primera estudia la naturaleza estructuralmente asim trica de las relaciones entre China y EU, enfatizando las decisiones de las elites nacionales en lo referente a poltica econmica. En la segunda parte se estudia la creciente deuda norteamericana, teniendo en cuenta tambin las ms recientes tendencias de un sistema monetario internacional que an est centrado en el dlar, y que muchos entienden como insostenible. Finalmente, en la tercera parte se aporta evidencia que indica que la creciente inestabilidad en el orden geopoltico global est ntimamente relacionada con los desbalances econmicos y financieros entre China

50

Fabio Massimo Parenti

y EU. Por lo tanto, promover una mayor cooper acin efectiva entre China y EU resultara prioritario. Como aqu se argumenta, esa cooperacin debera, no obstante, aprovechar el camino desarrollista chino comparado con el camino adoptado por EU (en trminos de gobernanza econmica y tendencia geo poltica desarrollista). Palabras clave: modelo de desarrollo chino, poltica econmica, geopoltica, gobernanza, deuda norteamericana Introduction Asymmetrical interdependence between China and the U.S. has several, fundamental implications. It generates multivalent competitive dynamics that, at times, lead to political tensions between a declining hegemonic state and another, ascending one. Un derstanding the intrinsic nature of these relations demands complex and detailed analysis. Based on the extensive efforts made by some social scientists (Jacques 2012; Arrighi 1994; Arrighi 2007; Clark 2005; Gilpin 1987; Littlefield 2010; Petras 2010), this paper provides a systematic analysis of the com plexity and strategic implications of ChinaUS relations (depending on the case, these may be defined as dependent, interdependent, cooperative, competi tive and, at times, clearly discordant). To make sense of these multivalent relations, the paper is organized in three sections. The first section explores the structurally asymmetrical nature of relations between China and the US, focusing on economic policy decisions made by national elites. The second section focuses on the processes that have increased the US debt, underscoring the latest trans formation trends experienced by an international monetary system that is still dollarcentred, and which several parties deem to be unsustainable.1 Lastly, the third section tries to provide evidence that the growing instability in the global geopolitical order is intimate ly related to the economic and financial unbalances between China and the US. Hence, promoting more
1 There are many concerns about the dollars vulnerability and weaknesses. See Section Two of this article for Russian standpoints and Chinese strategies. For a list of such concerns by Westerners scholars see Drezner, (2010: 397).

effective cooperation between China and the United States seems to be a priority. As substantiated in this paper, said cooperation should, however, make the most of the Chinese developmental path, compared to that adopted by the United States, in terms of economic governance and geopolitical developmental path. While Beijing has repeatedly called for a multipo lar world order (Bi 2005; Foot 2006; Holslag 2010), and has been implementing this trend in recent years (Parenti 2009),2 Washington plans on preserving its global hegemony by means of a great strategy that combines wartime and peacetime strategies (Ieri 2009: 29).3 These strategic divergences suggest that economic relations between China and the United States have created a less secure environment for both states, with the US suffering the greater vulnerability (Littlefield 2010: 90). My thesis is that China seems to provide the winning model in the current internation al order especially compared to the relative decline of the West (see, inter alias, Jacques 2012: chapters 15, 13; Arrighi 2007: chapters 67) from which we should, in some areas at least, start (re)learning. In general, the Chinese developmental path can be con sidered socioeconomically effective and geopolitically peaceful in comparison to the US extroverted capi talist developmental path. Asymmetrical interdependence The US and China are the regional poles of the greatest imbalance in the global economy, namely between debt/consumption and saving/investments, which can be clearly observed in their respective GDP.
2 The emphasis placed by Chinese authorities on multilateralism is functional toward gaining international recognition and consolidating the countrys role as a regional power. This explains the efforts focused on solving border related issues with neighbouring countries, on strengthening the Shanghai Cooperation Organization (sco) and the Chiang Mai Initiative Multilateralization (CMIM), and on forming the ChineseArab Forum and the ChineseAfrican Summit (just to mention a few examples). 3 The US expansion can be deduced from the eastward movement of NATO operations, the potentiating process of regional military headquarters (Centcom, Pacom, Africom, etc.), the unfaltering pursuit of antimissile shield projects, and energyrelated strategies.

Volume 5, Number 3, 2012

51

WHat tHe US SHoUld learn from CHina

In the first case, the US GDP is the result of a system based on a gigantic debt, both domestic and with the rest of the world. This means that the sum of con sumption, public and private investments and trade balance factors that form the total gross domestic product is less dependent on the autonomous capacity of generating domestic income/wealth, and increasingly dependent on an increase in the total debt.4 The Chinese GDP, instead, mirrors the gen eration of income which far exceeds the expenditure and investment levels of the countrysystem. This entails a further potential expansion of both public and private investment, and huge growth margins for domestic consumption, above all considering the new economic performance: such as logistic and trans portation development, research investments and outcomes (China has overtaken Japan as the worlds second higher spender on research and development in 2011), new privatepublic entrepreneurial networks and constant increase of wages/salaries (Jacques 2012: 118, 21517, 52122, 597). So it is not surpris ing that Gerard Lyons, chief economist of Standard Chartered Bank, says that on present trends the three most important words of this decade will be owned by China I would also add designed by and not only made in China (Financial Times Sept 6 2011: 9). More importantly for my thesis is that socioeconomic per formance has been efficiently promoted and governed by Chinese authorities through a careful process of political planning (e.g. FiveYears Plans, decentrali zation of power to local governments, social housing plans, new labour law and rural reform package).
4 This is the result of several combined factors such as an excessive use of the seigniorage privilege by the US Federal Government (see next paragraph), a constant increased of military spending (Shah 2012 http://www.globalissues.org/ article/75/worldmilitaryspending), a national economic strategy too much focused on private consumption (with the controversial effects related to the widespread of a credit card culture) to the detriment of industrial policies/job places creation (Jacques 2012; Engdahl 2010; Arrighi 2007) and, last but not least, the inherent hyperexpansion of the private financial sector, which debt level skyrocketed from 40 to 120% of the US GDP in the last 15 years it is a process that goes back to 1970s1980s, even though it has been exacerbated above all since the mid90s, with the securitization boom and the correlated easy mortgages emissions (see Engdahl 2010; Galimberti 2009).

In the past 20 years the U.S. has intensified its in clination to spend more than it earns, and to speculate more than it produces, thus accumulating an unprece dented total debt that verges on 400% of the countrys GDP.5 Conversely, China has become a global creditor (it is, for example, the largest state foreign creditor of the U.S. Treasury) and has maintained the highest savings rate in the world (44% of its GDP in 2010) (UNCTAD 2011: 37) without compromising economic growth. In most Asian economies family debt accounts for 50% of the GDP, in comparison to 100% in several old industrialized economies, whilst Chinas family debt records less than 15% of the GDP (The Economist June 27 2009: 8587; see also Lee 2012: 19). The extroversion of the US economic and pro ductive system, which has contributed to the devel opment of markets in China, is not the outcome of spontaneous developments in the framework of global capitalist dynamics, but rather the result of economic policies/strategies pursued by the national elites of the two countries. Granted that the yearly US trade deficit with China has increased almost fourfold from 1999 to 2010, rising from $69 to $273 billion (US Depart ment of Commerce June 9 2011: 18), we must also admit that the growth of this deficit coincided, as Petras notes (2010), with a massive shift of US investments from the manufacturing sector to speculative financial, real estate and insurance activities. In other words the United States have redirected their investment strate gies from producing useful, quality commodities for domestic consumption and exportation to importing manufactured goods from abroad, especially consider ing the higher profits steadily gained in China by US corporations (Petras 2010). Moreover, a point that is often omitted, and which partly dismisses accusations that the RMBUS$ exchange rate is manipulated, is that China remains the most promising export market for those U.S. products that are still competitive, such as agricultural and aerospace industry products and, to a lesser degree, electronic machinery and metallur gical products (which are targeted by the main pro
5 Elaboration of data from International Monetary Fund and Bureau of Economic Analysis of the US Department of Commerce. See also The Economist (June 24 2010) and McKinsey Global Institute (August 2011: 2426).

52

Human Geography

Fabio Massimo Parenti

tectionist measures). In the agricultural and aerospace sectors this higher level of competition is guaranteed, to a different extent, by historical advantages (the quasi monopoly condition of the aerospace industry, Jacques 2012: 341), protectionist measures (tariff and notariff barriers), federal subsidises (Farm Bill and Defence expenditure, respectively) and research in vestments. But these are exceptional cases rather than the rule. Despite the Obama administrations efforts to promote ecologically sustainable products, and restrain unregulated financial initiatives, no signifi cant reversals in the trend can be discerned at present. Recording an official unemployment rate of around 10%, and with financial speculation that instantly recommenced its frantic march after the enormous injections of public money into the private banking system, the structural situation of the U.S. remains extremely critical, because it is still penalized by the excessive and harmful financialization of its economy. These dynamics have also diffused neoliberal contagion into the economic and political security of the European Union, thus creating a dramatic vicious circle throughout the NorthAtlantic block.6 The Peoples Republic of China has pursued an entirely different course by maintaining the banking system under state control,7 limiting purely speculative investments on derivatives, increasing investments in fixed capital, providing incentives to support demand, especially in the poorest and most marginal areas, and decentralizing public expenditures to the provinces (WTO 2003; The Economist July 20 2009). Besides high savings rates and increasing productive capacity, it must be remembered that Chinese authorities have defined a systematic policy for public investments in infrastructures. Recent years have witnessed the con struction of more than 20 thousand km of highspeed railway lines (reaching a total of 91 thousand km)
6 On USEuropean financial integration through deregulation see LagneauYmonet and Riva 2011: 2223 and Warde 2011: 1, 2223; on USEuropean big banks interrelated interests see Brown 2012; Cooke 2012; Engdahl 2010). 7 Reaching this goal is not an easy task. Chinas authorities have constantly issued new regulations to improve the performances of State Owned Banks and govern the increasing number of new domestic and foreign private banks (Chiarlone and Amighini 2007; China Daily May 5 and 11 2012).

and 22 airports (Anderlini 2010; Dingding 2011). These examples outline how the investment strate gies of the Chinese elite are focused on consolidating domestic markets by constructing transport networks that link coastal regions, the hinterland, and border regions (the same method has been applied abroad). The Chinese government has thus merged an export led model with a model centred on import substitu tion, based on internal investments and consumption (which explains its performance during the current international crisis). Here too the notion that the outcome of Chinese growth depends on exports must be debunked. As a matter of fact, there is much more to it, as already mentioned, since exports only con tribute 20% to the GDP. In China, the contribution of net exports to GDP growth has declined, and fixed investment and private consumption are now the two major growth factors.8 Wage growth in China is an important element in reducing the reliance of the Chinese economy on exports (UNCTAD 2011: III). In parallel, China has successfully trimmed the role played by stateowned enterprises on the domestic market - their numbers have been cut and, in some cases, they have been partly privatized. The prolifera tion of small and mediumsized local enterprises that operate in competition with, and/or alongside foreign private companies has been encouraged. The Economists calculations reveal that small and medium sized companies in China totalled about 1 million in 1990, 8 million in 2001 and 60 million in 2009 (The Economist September 12 2009: 6869). With its constant and qualitatively significant rate of economic growth - suffice to mention its recent global leadership for the use of renewable energy sources and environmental technologies (Ernst &Young 2011) China presents a development model that hybridizes capitalist and socialist market elements based on territorial planning and long term strategizing (Jacques 2009; Arrighi 2007; Bi 2005; Young 2007). Ahead of all forecasts, in 2010 China exceeded Japan in GDP thus ranking as the second economy in the world and exceeded Germanys exports, hence rising to the position of
8 As I said at the beginning of the paragraph this new trend is structurally sustainable.

Volume 5, Number 3, 2012

53

WHat tHe US SHoUld learn from CHina

principal exporter in the world. As discussed below, Chinas leaderships are not only in trade and produc tive capacity but also involve the acquisition of greater financial importance in the geography of global power. This asymmetrical interdependence is the outcome of various political and economic strategies implemented by the ruling classes in both countries. The global consequences would demand a process of rebalancing between the two centres of power (each with the domestic resources at its disposal and the power acknowledged on the international arena).9 However, at the root of this disequilibrium is another basic process, closely interwoven with the dynamics analysed so far, that has been even more fundamental in the long term. Frictions in the monetary system What is the basic process that has allowed inter national asymmetry/unbalance to reach such gigantic proportions? It is the outcome of an international monetary architecture which, from Bretton Woods onwards, and in a less regulated manner since the 1970s, has sanctioned the predominance of the U.S. dollar in the international system. Ben Bernanke, Chairman of the Board of Governors, Federal Reserve System, explained how the U.S. could afford the luxury of generating the largest debt in history: the government has a technology, called the printing press (or today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at es sentially no cost (quoted in Chang 2009), and I would add without having to suffer from struc tural adjustment programmes. Since the close of
9 The US should drastically reduce its level of public and private debt, readdress domestic policies to create more productive activities, make a contribution for a more balanced monetary system (less dependent on its own currency), learn from its past and from the Chinese present (Lee 2012) and regulate effectively the financial activities. In the meanwhile China should keep supporting a multipolar and peaceful world, improving condition of living of its people, reducing wealth inequality and, among other thing, providing larger social safety nets for unemployment and elderly. On the geopolitical side, the current situation would require more cooperation in promoting disarmament, diplomatic resolution of potential or real conflicts and the like. For a critical understanding of the problems implicit in ChinaUS relations see Yan (2010: 263 292) and Jacques (2012: 464477, 629630).

the Second World War, the U.S. dollar has been the leading international currency as a unit of account, payment tool, and reserve currency. Specifically, part of the dollars spent by Americans on importing goods and on taking over foreign companies and real estate assets, and by the Pentagon on building and /main taining 750 military bases around the world and on funding military operations abroad (Dufour 2007; Center for Arms Control 2009, 2010), ends up in the central banks of foreign countries. A portion of these dollars is, in turn, partially reutilized by pur chasing American Treasury bonds10 and goods in order to prevent overvaluation of the local currency (with negative consequences for exportation and em ployment), and to acquire competitive products. As mentioned, this was possible thanks to U.S. seignior age privileges,11 which increased with the end of the fixed exchange rates regime and inconvertibility of the dollar into gold in the 1970s.12 The system of floating exchange rates eliminated any need for United States to control its own balance of payments deficit, no matter what its sources, because it was now possible to release unlimited quantities of nonconvert ible dollars into international circulation.13 Therefore,
10 Apart from China, Russia, Venezuela and Iran, the principal foreign buyers of US Treasury bonds are also the most important US military allies (e.g. Japan, UK, Canada, Taiwan, Germany, South Korea, Indonesia and Saudi Arabia in which US have invested, more o less consistently, in military infrastructures) and/or the main oil exporting countries in Middle East, North Africa and South America (Treasury government 2012 http://www.treasury.gov/resourcecenter/ datachartcenter/tic/Documents/mfh.txt; Shah 2012 http:// www.globalissues.org/article/75/worldmilitaryspending; Dufour 2007). 11 The production and issue of the principal international reserve currency and medium of exchange without particular restrictions. 12 On the transition from the golddollar exchange standard to a pure dollar standard see Arrighi 1994; Panizza 2004: 6367. 13 The expression nonconvertible dollars is referred to the end of the gold-dollar standard exchange system decided under Nixons presidency in 1971. US decided unilaterally to break down the Bretton Woods international monetary system. The crack occurred on August 15, 1971 when President Richard Nixon announced to the world that he had ordered the Gold Discount Window of the New York Federal Reserve to be permanently shut. Foreign holders of dollars had without warning been robbed of their right to gold by the

54

Human Geography

Fabio Massimo Parenti

while continuing to depreciate the dollar in an attempt to recover competitivity in the production of goods, the United States was no longer saddled with the problem of generating a current account surplus with which to finance its capital account deficit In practical terms, the problem of the settlement of the American balance of payments simply disap peared (Parboni 1981, quoted in Arrighi 1994: 308). However, in the longterm US seigniorage privileges were not as unlimited as they appeared in the mid 1970s (Arrighi 1994: 309). In general the U.S. mac roeconomic problems (deficit, debt, level of competi tion) emerging above all since the 1980s were the result of a complex process in which the monetary dynamics/transformations (neoliberal deregulation) have been intertwined with a constant extroversion of US private corporations, partly supported by military investments and operations in many worlds strategic regions (Arrighi 1994: 300324; Arrighi 2007: 9094, chap. 7; Gregory 2004; Peet 2007: 186194; see also Panizza 2004: 37106).14 Nowadays, as a consequence of progressive de valuation of the dollar, recurrent since the 1970s, and of the loss of competitiveness of many American products, recycling dollars in the U.S. does not indicate trust in the countrysystem anymore, but is merely the effect of a lack of alternatives, at least in terms of a
unilateral act of the US President, and in violation of a treaty obligation of the United States [] The United States was now free to create as many dollars as it wished, no longer bound by need to back the new dollars with gold [] By declaring to world dollar holders that their paper would no longer be redeemed for gold, however, Nixon set into motion a series of events that would rock the world (Engdahl 2010: 26364). 14 A consistent expansion of state indebtedness was initially associated with an escalation of the Cold War with the URSS and a whole series of military operations against select unfriendly regimes of the Third World Grenada in 1983, Libya in 1986, Panama in 1989, and Iraq in 1990 1991 (Arrighi 1994: 313317). With the collapse of the URSS, however, the US military activism did not cease. Under the cover of humanitarian missions and the War on Terror (on the wave of 9/11), the US military apparatus has been mobilized in the 1990s and the 2000s (Somalia in 1997; former Yugoslavia in 1995, 1999; Afghanistan 2001; Iraq 2003; Libya 2011). Moreover, another source of significant state expenditure has been the US nuclear weapons development (for an updated analysis see Engdahl 2011).

reserve currency (Clark 2005:1728; Hudson 2009).15 Therefore, new emerging nationstates want to be released from this bond. That intention is confirmed by the implemented diversification strategies for Chinese official reserves, by some cases of temporary drops in purchased volume of US bonds, by the conversion of dollars into gold on the part of emerging countries,16 and by the statements of leaders of the Shanghai Coop eration Organization (SCO), Brazil and India. At the International Economic Forum, held on 5 June 2009 in St. Petersburg, Medvedev claimed the need for China, Russia and India to build an increasingly multipolar world order because the artificially main tained unipolar system is based on one big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks what we need are financial institutions of a com pletely new type, where particular political issues and motives, and particular countries will not dominate (quoted in Hudson 2009). About two years after his speech, concrete signs of the new perspective hoped for by Medvedev can already be noticed. The protagonist of these changes is not, and cannot be, Russia, but China, which, besides building its financial and, hence, political weight in the World Bank and IMF, has increased capitalization of leading state banks (which now rank among the most important in the world) (Luo, Yao, Chen et al. 2011: 805825),17
15 The role of euro as international reserve currency is the only concrete exception in the current monetary system. However the US dollar as maintained its place as the dominant reserve currency, supported perhaps by the greater size of dollar financial markets as well as inertia in the use of international currencies (Galati and Wooldridge 2006: 1). 16 The Chinese State Administration for Foreign Exchange stated diversification is one of the main operating principles of our foreign exchange reserves. For details see Peoples Bank of China Annual Report (2010: 51-52, 64). On the Chinas purchased of hundreds of billions of European countries public debt (e.g. Greek, Spanish and Portuguese) see, inter alias, Wagner (2010) and Dick (2011). 17 Chinese banks attain the top two positions and have got four places amongst top seven. In 2009 and 2010 the China Development Bank and the ExportImport Bank issued, for instance, loans to developing countries for a sum exceeding the amount issued by the World Bank. See Dyer and Anderlini

Volume 5, Number 3, 2012

55

WHat tHe US SHoUld learn from CHina

extended the activities of the Chiang Mai Initiative Multilateralization (considered the precursor of an Asian Monetary Fund) by granting loans to countries in difficulty (thus creating an alternative to the IMF), and finetuned its assessment capacity of sovereign debts.18 These practical manifestations of the global shift merge with the broader intention of reforming the international financial and monetary architecture. In this regard, in March 2009 the governor of the Central Bank of China, Zhou Xiaochuan, suggested relaunching the global reserve currency Special Drawing Rights (SDRs) that was created within the IMF framework in 1969, and was never really developed (in 2011 the amount of allocated SDRs, equivalent to $328 billion, was a still marginal part of the global $5.6 trillion foreign reserves, prevalently allocated in dollars and euros)19. On that occasion the Chinese governor of PBoC claimed that a global currency that expresses a new economic geography could reduce dollar reserves without causing excessive devaluation.20 But this project was only supported by Brazil, Russia and India. China is, however, implementing an alternative strategy - mostly dictated by the inertia of the West in terms of reform - that focuses on promoting the RMB in international trade and finance. And the outcome is tangible. The government first author ized some companies to use the RMB for trade nego tiations with ASEAN countries (Association of South East Asian Nations) - today there are several such bilateral agreements, even with other regions of the
(Financial Times January 17 2011 and September 6 2011 ). 18 Said evaluations present considerable divergences from the American ones. The calculation and analysis method adopted by Dagong Global Chinese rating agency emphasizes the capacity to create wealth and the extent of official reserves, instead of making unilateral political and institutional considerations, as Standard&Poors, Moodys and Fitch do. 19 See http://www.imf.org/external/np/sta/cofer/ eng/cofer.pdf on Currency Composition of Official Foreign Exchange Reserves (COFER) and http://www.imf.org/external/ np/exr/facts/sdr.htm on SDRs role and characteristics. 20 The SDR was based on the weighted average of the principal international currencies. Today said value should express, always according to the governor, the average between euro, dollar, yen, pound and RMB. See The Economist (July 11 2009: 63).

world - and then accelerated the internationalization process of the national currency through a series of new measures designed to allow: (a) crossborder trading settlements for all the countrys administra tive units; (b) unlimited direct foreign investments; (c) issuance of international bonds also on the part of foreign companies operating in China (see the cases of McDonald and Caterpillar); (d) the City of London to be used as an offshore centre for RMB trading (which proves the Chinese intention to further develop services and products in RMB) (PBoC August 3 2011; Financial Times September 9 2011: 12). The HSBC, which already predicted these trends in 2009 (The Economist July 11 2009: 64), reports that about $2 billion in Chinese currency is daily exchanged today. It is a marginal value compared to global dollar exchanges, but it is a very large amount, if we consider that it was practically zero just one year ago (Financial Times September 9 2011: 12). Far surpassing all predictions, a possible reform of the international monetary system, with the sub sequent option of a more practical regulation of financial markets, will unfold through an ongoing process that establishes the RMB as a leading interna tional currency. But the situation is tense and charged with contradictions, since China is trying to defend its domestic interests (keep improving condition of living of Chinese people) and build international in tegration and influence,21 while the West is experienc ing a double recession that holds no hope for the near future. Geopolitical implications of economic and financial competition Another essential factor in the transformation dynamics of the current monetary system is the relative decline in the central role of the dollar in the current global energy system. As already mentioned, petrodol lars are traditionally recycled in the US as a result of geostrategic alliances with certain producer countries that are bound to purchase American goods, tech
21 To satisfy these objectives Chinas authorities should keep controlling over monetary policies, financial flows and investments. So it is not surprising that the planning process (the FiveYears Plans) plays a key role on the Chinese developmental path (Jacques 2012; Arrighi 2007).

56

Human Geography

Fabio Massimo Parenti

nologies and bonds in view of concurrently prevent ing overvaluation of local currencies. However, even the petrodollar cycle is undergoing changes (Clark 2005: chap. 5 and 7). On the one hand, the principal producers of hydrocarbons are cutting down imports from the US, while increasing these from China, which is becoming structurally more competitive for several products with diverse technological content (Arrighi 2007: 191210, 351378; Jen and StArnaud 2008) and, on the other hand, both oilexporting and tradesurplus countries set apart an increasing portion of foreign exchange reserves to establish special invest ments agencies known as sovereign wealth funds.22 In some instances, these funds are deemed more a geo strategic threat by Western political elites than as an economic opportunity (Cohen 2009: 713731; Xiang, Wang et al., 2009: 258262). A case in point is Libya, whose resources, at least partially, were promptly frozen (confiscated?) by the Obama administration before the military intervention was launched.23
22 These funds invest both in the US and, with increasing frequency, in the sectors of raw materials and infrastructures. The scale of SWFs are rather large [] and will increase rapidly in short time (see Xiang et al. 2009: 258). 23 The US$30 billion frozen by Mr Obama belong to the Libyan Central Bank and had been earmarked as the Libyan contribution to three key projects which would add the finishing touches to the African federation the African Investment Bank in Syrte, Libya, the establishment in 2011 of the African Monetary Fund to be based in Yaounde with a US$42 billion capital fund and the Abujabased African Central Bank in Nigeria [] If the idea to attack Libya originated with France, Obama moved swiftly to support French plans to frustrate Gaddafis African initiative with his unilateral declaration of a national emergency in order to freeze all of the Bank of Libyas $30 billion of funds to which America had access. This was misleadingly reported in the U.S. press as a freeze of the funds of Colonel Qaddafi, his children and family, and senior members of the Libyan government. But in fact the second section of Obamas decree explicitly targeted All property and interests of the Government of Libya, its agencies, instrumentalities, and controlled entities, and the Central Bank of Libya. While the U.S. has actively used financial weapons in recent years, the $30billion seizure, the largest amount ever to be frozen by a U.S. sanctions order, had one precedent, the arguably illegal and certainly conspiratorial seizure of Iranian assets in 1979 on behalf of the threatened Chase Manhattan Bank. Quotation from Scott (April 29 2011). For detailed analyses of the geopolitical and geoeconomic implications of the Libyan war see, inter alias, analyses published by the Centre for Research on Globalization

Moreover, the latest oil transactions in euros and RMB have been part of the energy exchange among Russia, Brazil, Venezuela, Iran and China in recent years. Until 2003 these countries also included Iraq, was one of the first to adopt this measure, but which was forced to cease negotiations in euro two months after the intervention of AngloAmerican troops. En forcement of a return to the US dollar was established by the Bush administration, and later confirmed by the Obama administration (Scott 2009). Libya itself had started distancing itself from the dollar or, rather, the country had begun to refuse both the dollar and the euro by proposing the use of the golden dinar in an attempt to create a single African currency (the idea was backed by the major part of Arab and African nations). The irony is that the country was attacked on 19 March 2011, the same day on which, eight years before, war was declared against Iraq. In practice, we cannot neglect the fact that the hunger for the sovereign wealth fund and energy resources of Libya form, along with the need to defend the petrodollar system and to contain Chinese expansion in Africa, some of the crucial systemic factors underlying the Libyan war. We are attempting to explain the more or less gradual dynamics that are deeply impacting the economic and financial foundations of the USled world geopolitical system. These dynamics reveal the highly unstable multipolarity that is developing along the links of asymmetrical interdependence between China and the US, involving many other state systems. The greater economic and financial vulnerabil ity of the United States, compared to China, also determines other strictly geopolitical repercussions. During President Obamas journey to China in 2010, the Beijing authorities were willing to appreciate the RMB against the dollar on condition that Washing ton cancelled the new wave of weapons transfers to Taiwan. In other words, they attempted to play an economic card to achieve a geopolitical and military goal. But the exchange was rejected, further aggravat ing bilateral tensions. This event is one of the many
(Scott April 29 2011; Nazemroaya April 26, May 2, May 16 2011; Petras and Abaya March 30 2011; Chossudovsky April 3 2011).

Volume 5, Number 3, 2012

57

WHat tHe US SHoUld learn from CHina

that have witnessed the use of economics and geopoli tics as the two pawns of the same game, namely that of power on a global scale. During the past year the Chinese, as major creditors, have repeatedly expressed serious concerns over the U.S. public debt and the new uncertainties regarding the solvency of the country. This concern has been confirmed by Standard & Poors (August 2011:7), which has lowered its longterm sovereign credit ratings on the U.S. to AA+ from AAA (with a negative outlook),24 and by the even more drastic downgrade decreed by the Chinese rating agency Dagong Global (from AA to A+ in November 2010 and from A+ to A in July 2011, always with a negative outlook). Instead of responding with economic reforms, the U.S. has still not been able to, or do not wish to, strike out at the excessive power of banks and financiers, with the subsequent highly negative outcome that the derivative exposures of US banks is, today, much worse than in 2007, and that the general macroeconomic situation seems to be worse than in the South European countries (Weiss Research September 28 2011). This is another reason why China is reasonably pressing for international rules and institutions to be deeply reshaped. This attitude can be noticed in the power relations underlying the international monetary system, but it also concerns several other related aspects such as, for instance, the sovereign debt evaluation system. We need to develop objective, fair, reasonable and uniform method and standard for sovereign credit ratings so that the rating results accurately reflect a countrys economic situation - declared President Hu Jintao (June 27 2010, G20 Summit in Toronto). According to the chairman of Dagong Global it is well known that three U.S. rating agencies assigned the U.S. government AAA credit rating regardless of its declining solvency, therefore the U.S. government could continuously borrow more money beyond its solvency, which led to the breakdown of its actual solvency and sharp decline of its intention of debt
24 We dont see under anything but the most optimistic forecast that the debt to GDP ratio of the US government at the general government level will stabilize in the forecast horizon (S&P August 17 2011:10).

service the wrong rating information distorted the relations between creditors and debtors and triggered an unreasonable capital flow. In Jianzhongs words it is clear that the current international credit rating system is corrupted to benefit the financial interests of the United States. As a result, U.S. will not give up the dominant role. It will become the obstacle rather than the supporter for the international rating system reform.25 Is a more balanced and peaceful world possible? Although the US seems to be passive when faced with the power of financial capital,26 their political activism is prevalently implemented through the military framework, by carrying out military campaigns in the Middle East, Central Asia and Africa, and by pursuing antimissile shield projects in Eastern Asia and Eastern Europe. These latter projects have long irritated both China and Russia. Thus the US military manoeuvres seem to have negative and controversial effects on international security. At a time when China has become the engine of the global economy, and an increasingly authori tative and influential geopolitical actor, the U.S. is unable to escape the grip of its distorted financiali zation, which seems to link with a costly and short sighted neocolonial military effort. Furthermore, instead of defining some sort of effective compro mise with Beijing, considering the extent of reper cussions resulting from the described unbalances, in August 2011 the Pentagon once again criticized Chinas military expenditure (China Daily, August 26 September 1 2011: 8), which is, however, significantly
25 See Dagong Global Credit Rating Corporation (July 2010). In this article Jianzhong also clarifies the link between the current economic and financial crisis and the war against Libya: military war is the extreme form manifested by credit crises and wrong rating information is the root of accumulated credit risk of the countries that launched the war. Had no high credit ratings been assigned to such countries, making it not so easy for them to raise debt, there would not have been the debt crises. 26 Bearing in mind that after the 2008 financial crisis we saw the United States resist reforms to international financial institutions, America is also likely in the foreseeable future to act as an obstacle to reforms of international norms in other fields (Yan 2011:262).

58

Human Geography

Fabio Massimo Parenti

lower than that of the U.S. and is solely intended to strengthen its defence and control systems. In fact, there is no Chinese military or diplomatic action that can give cause for fearing an actual military threat. Can anybody seriously say the same about the U.S., namely that the huge defence budget is solely allocated to defensive initiatives?27 As a consequence of U.S. geopolitical and military strategies (in 2011 the world share of U.S. military spending was 45.7%, IISS quoted in The Economist, April 7 2012: 28), China is pushed, at a certain extent, to further increase its military power,28 even though it does not correspond to its developmental path. In fact, according to Arrighi (2007: 9096, chap. 1012) and Trichur (2012:7274) the Chinese developmen tal path is significantly more peaceful in comparison to those adopted by the Europeans and the U.S. in their historical capitalist expansion. Namely, since the end of Second World War the ascent of the U.S. as hegemonic superpower was closely intertwined with the use of violence (along with soft power strategies), through a combination of covert operations and open wars (inter alias, Arrighi 1994; Arrighi 2007; Chos sudovsky 2002; Gregory 2004; Perkins 2004; see also note 14). By contrast, we can find nothing compa rable - in relative, not absolute terms - in Chinas reascent as a global power. The only relative exception, often used by critics, is represented by the occupa tion of Tibet, whose evaluation should, however, be
27 The presence of American troops in Afghanistan, Pakistan and Central Asian Republics fuels the concern of China, which objectively feels encircled also in the light of the fact that there are already 22 missile bases in Taiwan and an interceptor missile combat system (Aegis Combat System), which includes Japan, South Korea and Australia. See for example Rozoff (March 4 2010) and Lee (April 7 2010). 28 The US military encirclement of China is quite evident (see note 27 and Jacques 2012: 40305; 47074). Notwithstanding it is difficult to predict whether or not China will make greater use of force in the future. Until recently, the twin objectives of Chinas military modernization have been to ensure that it can respond by force if necessary to any declaration of independence by Taiwan, and to pose a sufficient deterrent to any external power that might otherwise contemplate attacking China. Both of these are longestablished concerns, the first a product of the civil war, the second a function of Chinas century of humiliation and its overriding concern for its national security (Jacques 2012: 473).

rooted in the proper geohistorical context. In fact, for a deep understanding of these past events we cannot avoid considering that these occurred after the Chinas century of humiliation and within the Cold War atmosphere (see Michael Parenti 2003 and Engdahl 2008 for a critical analysis on the U.S. intelligence services involvement and the former system of power in Tibet). From this perspective I agree with Buzan (2010: 1516): Despite all the obvious criticisms that might be mentioned, in the larger perspective Chinas leaders have played a difficult hand quite well. They have achieved transformations in Chinas internal economy that have generated huge increases in wealth and power. They have done this while for the most part maintaining internal stability and without (yet) raising really serious security fears among either their neighbours or the other great powers. Hence, in order to prevent a radical change in Chinas military approach to international affairs, the U.S.led forces should significantly reduce their in creasing military presence in Asia and Africa. Any potential improvement in ChinaU.S. relations depends especially on a radical transforma tion in the policies/strategies of U.S. elites to avoid large external deficit, balance the budget, and adapt to a global currency system less centered on the dollar (Bergsten 2009:20). Instead of resorting to intelligence tactics, war campaigns and financial subterfuges, the U.S. should accept scaling down their international role (as partly recognized, for example, by a U.S. National Intelligence Council Report in 2008),29 take into account the demands/proposals of China and Russia (the most powerful/influential nations of the BRICS countries), and acknowledge that the dawn of a new global economic and financial architecture should be managed multilaterally and peacefully.
29 The international systemas constructed following the Second World Warwill be almost unrecognizable by 2025 owing to the rise of emerging powers, an historic transfer of relative wealth and economic power from West to East, and the growing influence of nonstate actors [] Although the United States is likely to remain the single most powerful actor, the United States relative strengtheven in the military realm will decline and US leverage will become more constrained (NIC 2008: vi) http://www.dni.gov/nic/PDF_2025/2025_ Global_Trends_Final_Report.pdf

Volume 5, Number 3, 2012

59

WHat tHe US SHoUld learn from CHina

This analysis suggests that closer and more effective cooperation between China and the US would strengthen international security and partially solve the global economicfinancial crisis. Despite being a difficult goal that cannot be taken for granted (Yan 2010), I think that a prerequisite for establishing con structive forms of coopetition is to make the most of the Chinese statemarketdriven model and margina lize/deeply rethink the US militaryfinancialdriven one. Almost 70 years ago Karl Polanyi demonstrated that Liberalism collapsed, as a form of institutional, economic and social system, between the XIX and XX centuries. In the light of the current deep crises of (neo)liberal capitalist democracies, can Western (neo)liberalimperialcolonial policies be rethought, taking into account the peaceful Chinese develop mental path? (Arrighi 2007: chap. 2, 11, 12).30 I am persuaded that this can be achieved. After all, the term Krsis literally means choice, decision. References Anderlini, Jamil. 2010. China on track to be the worlds biggest network. Financial Times April 6. Arrighi, Giovanni. 1994. The Long Twenty Century. London: Verso . 2007. Adam Smith in Beijing. London: Verso. Bergsten, C. Fred. 2009. The Dollar and the Deficits. How Washington Can Prevent Next Crisis. Foreign Affairs NovemberDecember: 2038. Bi, Jiyao. 2005. Chinas New Concept for De velopment. China in a Globalizing World. New York: UNCTAD: 105124 Brown, Ellen. 2012. The European Stabiliza tion Mechanism, Or How Goldman Sachs Captured Europe. http://www.globalresearch.ca/index. php?context=va&aid=30403 April 19.
30 See also Barry Buzan (2010: 536). Writing about the concrete possibility for Chinese peaceful rise, Buzan states that: with the Washington consensus in tatters, there is more room, and more need, for experiments in alternative modes of international political economy (p. 34).

Bureau of Economic Analysis of the US Depart ment of Commerce. http://www.bea.gov/ Buzan, Barry. 2010. China in International Society: Is Peaceful Rise Possible?. The Chinese Journal of International Relations 3(1): 536. Center for Arms Control and NonProliferation. 2010. US vs Global Defense Spending. armscon trolcenter.org May 21 Clark, William R. 2005. Petrodollar Warfare. Canada: NSP. Cohen, Benjamin J. 2009. Sovereign wealth funds and national security: the Great Tradeoff. International Affairs 85(4): 713731. Chang, Matthias. 2009. The Second Wave of The Financial Tsunami. www.globalresearch.ca November 22. Chiarlone, Stefano and Amighini, Alessia. 2007. LEconomia della Cina. Roma: Carocci. China Daily. 2012. Foreign Stakes to increase May 5. . 2011. China threat again?. August 26 September 1: 8. Chossudovsky, Michel. 2002. War and Globalization. Global Outlook. . 2011. Our Man in Tripoli: USNATO Sponsored Islamic Terrorists Integrate Libyas ProDe mocracy Opposition. www.globalresearch.ca April 3. Cook, Shamus. 2012. Gloomy Economic Prospects: Why US Politicians Are Quiet About Europes Meltdown http://www.globalresearch.ca/ index.php?context=va&aid=30831 May 14. Dagong Global Credit Rating Corporation. July 2011. The Aurora of International Credit Rating System Reform. http://www.dagongcredit.com/ . August 2011. Announcement on Dagong Downgrading the Credit Rating of USA. (companys website). . July 2011. Dagong Puts Sovereign Credit Rating of USA. (companys website).

60

Human Geography

Fabio Massimo Parenti

Dingding, Xin. 2011. Fast Forward. China Daily July 814: 1618. Drezner, Daniel. 2010. Will currency follows the flag?. International Relations of Asia-Pacific 10(3): 389414. Dufour, Jules. 2007. The worldwide network of US military bases. www.globalresearch.ca July 1. Dyer, Geoff and Anderlini Jamil. 2011. Chinas lending hits new heights. Financial Times January 17. Engdahl, F. William. 2011. Why Moscow does not Trust Washington on Missile Defense. Toward a Preemptive Nuclear War? www.globalresearch.ca December 2. . 2010. Gods of Money: Wall Street and the End of the American Century. Wiesbaden: edition.engdahl. . 2008. Why Washington plays Tibet Roulette with China. China Daily April 16. Ernst &Young, Country focus and Renewable index, http://www.ey.com/ Financial Times. 2011. Chinas currency. September 9: 12. . 2011. The end of hegemony. September 6: 9. Foot, Rosemary. 2006. Chinese Strategies in a UShegemonic global order: accommodating and hedging. International Affairs 82(1): 7794. Galati, Gabriele and Wooldridge, Philip. 2006. The euro as reserve currency? A challenge to the pre eminence of the US dollar. BIS Working Papers No 218. Galimberti, Fabrizio. 2009. SOS Economia. Bari: Laterza. Gilpin, Robert. 1987. The Political Economy of International Relations. Princeton: University Press. Gregory, Derek. 2004. The Colonial Present. Oxford: Blackwell Publishing.

Holslag, Jonathan. 2010. China Learns to Play and Win, by the Rules. Financial Times December 13: 9. Hudson, Michael. 2009. DeDollarization: Dis mantling Americas FinancialMilitary Empire. The Yekaterinburg Turning Point. www.globalresearch.ca June 3. IMF. World Economic Outlook Databases. http:// www.imf.org/ . 2012. Currency Composition of Official Foreign Exchanges Reserves (COFER) http://www. imf.org/external/np/sta/cofer/eng/cofer.pdf . 2012. Special Drawing Rights. http://www. imf.org/external/np/exr/facts/sdr.htm Ieri, Emre. 2009. The US Grand Strategy and the Eurasian Heartland in the TwentyFirst Century. Geopolitics, 14: 2646. Jacques, Martin. 2012. When China Rules the World. London: Penguin. Jen, Stephen and StArnaud Charles. 2008. A Petrodollar Tsunami Warning. Morgan Stanley. http://www.morganstanley.com/ February 22. LagneauYmonet, Paul and Riva Angelo. 2011. Une directive europenne pour doper la speculation. Le Monde diplomatique September 2011: 2223. Lee, Ann. 2012. What the U.S. Can Learn from China. San Francisco: BerrettKoehler. Lee, Peter. 2010. China sees US as hedge for Taiwan, Tibet. www.atimes.com, April 7. Littlefield, Alexis. 2010. Exploring the Security Dimension of SinoUS Trade Asymmetry. Strategic Studies. spring 2010, pp. 90110. Luo, Dan et al. 2011. World Financial Crises and Efficiencies of Chinese Commercial Banks. The World Economy 34(5): 805825 McKinsey Global Institute. 2011. Mapping Global Capital Markets 2011. Updated research http://www. mckinsey.com/

Volume 5, Number 3, 2012

61

WHat tHe US SHoUld learn from CHina

Nazemroaya, Mahdi Darius. 2011. Libya and the Imperial ReDivision of Africa Part I. www.global research.ca April 26 2011. . 2011. The Media War on Libya: Justifying War through Lies and Fabrications Part II. www. globalresearch.ca May 2. . 2011. NATOs Secret Ground War in Libya Part III www.globalresearch May 16. Parenti, Fabio Massimo. 2009. Mutamento del sistema-mondo. Per una geografia dellascesa cinese. Rome: Aracne. Parenti, Michael. 2004. Friendly Feudalism: The Tibet Myth. http://www.michaelparenti.org Peet, Richard. 2007. Geography of Power. London: Zed Book. Peoples Bank of China. 2010. PBoC Annual Report 2010. http://www.pbc.gov.cn/publish . 2011. China Extends Geographical Coverage Crossborder Trade Settlement in RMB to Entire Nation August 23. Perkins, John. 2004. Confessions of an Economic Hit Man. San Francisco: BerrettKoehler Publishers. Petras, James. 2010. Strained USChina Relations: Chinas Crucial Role as Americans Creditor. www. globalresearch.ca March 8. Petras, James and Robin E. Abaya. 2011. The EuroUS War on Libya: Official Lies and Misconcep tions of Critics. www.globalresearch.ca March 30. Polanyi, Karl. 1977 (first edition 1944). The Great Transformation. Boston: Beacon Press. Rozoff, Rick. 2010. US Tightens Missile Shield Encirclement of China and Russia. www.global research.ca March 4. Scott, David. 2008. The Great Power Great Game between India and China: The Logic of Geography. Geopolitics 13(1): 126.

Scott, Peter Dale. 2009. Oil and Islam. Will America Shift Away from Its Past Unilateralist Policies?. www.globalresearch.ca June 10. . 2011. The Libyan War, American Power and the Decline of the Petrodollar System. www.global research.ca April 29. Shah, Anup. 2012. World Military Spending. http://www.globalissues.org/article/75/worldmili taryspending Standard&Poors. August 2011. Special Report On The US Rating Downgrade And Its Global Effects. 31(31) (companys website). Stiglitz, Joseph. 2006. Making Globalization Work. New York: Norton & Company. The Economist. 2009. Consumer spending in Asia. Shopaholics wanted. June 27: 8587. . 2009. Investment spending in China. Reap what you sow. June 20. . 2009. Chinas struggling smaller firms. Small fish in a big pond. September 12: 6869. . 2009. China and the dollar. Yuan small step. July 11: 6365. . 2010. World Debt. June 24 2010. http:// www.economist.com/blogs . 2012. Chinas Military Rise. April 7: 2528. Treasury Government. 2012. Major Foreign Holders of Treasury Security. http://www. treasury.gov/resourcecenter/datachartcenter/tic/ Documents/mfh.txt Trichur, Ganesh K.. 2012. East Asian Develop mental Path and LandUse Rights in China. Journal of World-Systems Research XVIII(1): 6989. UNCTAD. 2011. Trade and Development Report. New YorkGeneva: UN. US National Intelligence Council. 2008. Global trends 2025: a transformed world. Washington DC

62

Human Geography

Fabio Massimo Parenti

www.dni/gov/nic/PDF_2025/2025_Global_Trends_ Final_Report.pdf US Department of Commerce. 2011. US International Trade in Goods and Services, annual revision 2010. Washington, DC: US Government June 9. Wagner, Wieland. 2010. Capitalizing on Euro Crises. China expands its influence in Europe. Spiegel Online www.spiegel.de December 14. Wang, Xiaotian. 2012. Three Banks to Grow in US. China Daily May 11. Warde, Ibrahim. 2011. Trois ans aprs le krach financier. Indtrnables fauteurs de crise. Le Monde diplomatique September: 1, 2223 Weiss Research. 2011. Americas Financial Doomsday September 28 http://finance.money andmarkets.com/

WTO. 2003. World Trade Report. Geneva: WTO. Xiang, Jing, Wang, Susheng, et al. 2009. In vestment Analysis of Sovereign Wealth Funds in the world. International Journal of Economics and Finance 1(2): 258262. Yan, Xuetong. 2010. The Instability of ChinaUS Relations. The Chinese Journal of International Politics 3(3): 263292 . 2011. International Leadership and Norm Evolution. The Chinese Journal of International Politics, 4(3): 233264. Young, Nick. 2007. How Much Inequality Can China Stand? China Development Brief .

Graphic by: Gerardo Alonso (http://vibrararte.wordpress.com/)

Volume 5, Number 3, 2012

63