Bonds, Currencies, Emerging Markets, Geopolitics, Stocks

Geopolitical Sleepwalking: The System’s Bipolarity Everyone Is Currently Overlooking

By Velina Tchakarova

Globe ChessWe seem to be on the verge of a global system transformation, be it in the field of economy, finance, markets, institutions or international relations. Everyone is asking the same question: “What is going on right now?” To put it simply, as Seinfeld once said: “The whole system is breaking down!” The system’s transformation is shaking the fundamentals of the only remaining geopolitical bloc of the Trans-Atlantic community, still being based on alliances, partnerships, institutions and organisations that have continued existing since the end of the Cold War. As it seems presently, major geopolitical changes are about to happen. Not only will the Trans-Atlantic community seek to preserve its dominance in global affairs but also an emerging China-led bloc, aimed at establishing alternative structures, institutions and alliances, will start challenging its dominance. Therefore, it is of utmost importance to figure out the geopolitical dynamics as well as the systematic character of current developments in order to analyse their long-term impact and to draw correct conclusions for the future.

It should be pointed out that the process of the system transformation has already become irreversible, and thus its final destination – most likely too. No matter how long it will take, whether the next 15 or 50 years, we will end up with a new bipolar world order. Hence, it is very dangerous to neglect the emerging system’s bipolarity. Understanding intertwined complex structures and processes demands notably a system approach and therefore strategic thinking is required. In particular, with a view to the vastly changing geopolitical environment, where diverse actors are currently pursuing conflicting goals and agendas.

The most irritating issue here is that distinguished decision-makers, experts and scholars have mainly misunderstood the global system transformation. Their widespread assumption is that the world has moved away from a US-led unipolar system while entering a phase of multipolarity. The main argument, put forward by various notable actors of the international community in support of multipolarity, is that no single nation can tackle current economic, financial, trade, security or military issues on its own, and thus all nations are currently interdependent in terms of global interactions. Just to give a few examples, the IMF’s managing director Christine Lagarde has announced the emergence of a “new multilateralism” (link https://www.imf.org/external/np/speeches/2014/020314.htm). Moreover, the EU has been stressing since the launch of its European Security Strategy (2003) the importance of an “effective multilateralism” as well (link http://www.consilium.europa.eu/uedocs/cmsUpload/78367.pdf). Furthermore, Obama has recently outlined the US doctrine of multilateralism in his foreign policy speech (https://www.whitehouse.gov/the-press-office/2014/05/28/remarks-president-united-states-military-academy-commencement-ceremony). Finally yet importantly, Russia’s president Vladimir Putin has signed an executive order back in 2012, which points out “a multiple-vector approach in forming a new, polycentric system of international relations”. (link http://en.kremlin.ru/events/president/news/15256#sel=1:29,1:40).

Why Did They All Get it Wrong?

While there can be no doubt that multilateralism is intensively evolving, it is to be found at the so-called Meta level, which exists between the system level and the level of states, and thus it is the level, where various regional actors are participating in concurring regional integration projects. If one looks at the painting Circles in a Circle by Kandinsky, one can clearly recognize the state level as the various circles within the big circle, which is the system of international relations, while the crossing lines constitute the Meta level of interaction. (1923, link: http://upload.wikimedia.org/wikipedia/commons/f/f0/Vassily_Kandinsky,_1923_-_Circles_in_a_Circle.jpg)

Just to give a few examples of the so-called multilateralism at Meta level, China and the US have already launched regional economic integration projects in Asia – such as the Regional Comprehensive Economic Partnership (RCEP) respectively the Trans-Pacific Partnership (TTP). Furthermore, the US and the European Union are currently negotiating on Transatlantic Trade and Investment Partnership (TTIP), while Russia is being focused on its regional integration project called the Eurasian Economic Union (EEU), which is aimed at integrating the countries in the near abroad. Moreover, the EU has also decided to expand its influence through an association with three Eastern European neighbours (Moldova, Ukraine and Georgia). Consequently, the multilateral interactions of the actors at the Meta level have created the wrong impression that the global system has been heading towards multipolarity, where each participant has a saying in global affairs. However, I argue that there is already an emerging system’s bipolarity everyone is simply overlooking. In fact, we are moving slowly but steadily towards a bipolar confrontation between an US-led transatlantic bloc and an emerging new China-led bloc, whereas all major regional powers will have to align with the one or another bloc at some point in the future.

Why the System’s Bipolarity Instead of Multilateralism?

If we look at polarity as a natural state of the system, duality seems to be the most stable form. A bipolar system has two poles, which are most likely a pair of opposites such as the magnetic forces. Magnets actually do not just attract and repel each other but they also can impart a twisting moment on each other, depending on their position. Hence, the emerging system’s bipolarity can be seen as a future dual relationship between the two system powers – the US and China. There are many indications that China is already reflecting on its future role in a new geopolitical context in order to come up with a comprehensive policy covering all issues of economy, trade, currency, gold, new international institutions, military and defence as well as new alliances and partnerships.

One of the main arguments in support of China as an emerging second pole in the system of the international relations refers to economy. The projected growth in GDP by 2030 clearly points to almost equally large economies of US and China according to the US Department of Agriculture, meaning that there will be two system powers in terms of their share of the global economy. (link: http://www.bloomberg.com/news/articles/2015-04-10/the-world-s-20-largest-economies-in-2030).

World's Largest  Economies in 2030

Moreover, an OECD report on the GDP projection by 2060 claims that not only China but also India will exceed the US economy. Also, the combined economic output of both economies will exceed the one of all G7 countries by around 2025 as well as the whole OECD bloc by 2060 (link: http://www.oecd.org/eco/outlook/2060%20policy%20paper%20FINAL.pdf p. 22).

Another OECD report from 2014 further confirms that the “composition of global output will continue to shift towards emerging economies as well as towards Asia; the combined GDP of China and India was 33% of that of the OECD in 2010 (on a PPP basis), but is expected to rise to 73% by 2060” (http://www.oecd.org/eco/outlook/Long-term-growth-prospects-and-fiscal-requirements.pdf p.214)

These projected realities create a realistic picture, where a duality of systematic character is evolving with regard to the global economy shares. No other single country will be capable of overtaking the dominant position in the global economy, except the US and China (and India to some extent). To conclude, the final shift of the global economic and political power has already begun, meaning a steady rise of China in Asia and beyond, coupled with a steady decline of US influence and power projection worldwide.

It’s Geopolitics, Stupid!

The emergence of China as a second system pole has already started shaping Beijing’s long-term foreign policy strategy. Primarily, geoeconomic and geopolitical considerations will determine China’s comprehensive approach that eventually will result in building a new bloc of alliances, partnerships, a whole framework of new institutions and organisations with the aim of expanding and protecting Chinese economic, financial, trade, diplomatic, and military interests worldwide. China’s grand strategy will basically aim to create alternatives to each single institution, organisation or structure of the so-called developed world in the long run.

BRICS op-ed

(source: Mercator Institute for China Studies https://cdn.urbantimes.co/wp-content/uploads/2014/12/pic-3502c4.png)

To summarize, the China-led bloc will encompass alternative structures in the field of regional integration projects, financial and economic issues, military and defence-related topics as well as special relations, partnerships and alliances.

US-led bloc China-led bloc
TTIP/TTP RCEP/BRICS Regional integration
EU EEU Special relations, trade, investment, infrastructure, logistics
IMF/WB BRICS Bank/AIIB Financial institutions
NATO SCOcooperation and possible merge with CSTO Military, security and defence issues
EU, Israel, Japan, GCC countries, NAFTA, South Korea, NATO partners, Latin American and South East Asian partners Russia,BRICS,Pakistan & Afghanistan

Latin American countries (Venezuela, Argentina, Brazil etc.)

African countries

Special partnerships & alliances

The proposed new Silk Road routes, including the Economic Belt and the 21st Century Silk Road, aim to connect China via the Eurasian land space or via the Indian ocean (maritime connections) with Europe and Africa in order to promote and expand Chinese trade, investment and influence. Furthermore, crude oil and natural gas pipelines as well as railroads are being under construction within these projects.

 From a geopolitical perspective, China seeks to protect its vital energy supplying interests covering also the Straits of Hormuz, Malacca, Sonda and Lombok as well as the South China Sea. In addition, the planned Gwadar-Karachi Highway and the Gwadar port as a starting point of a Chinese-Pakistani economic corridor will let Chinese economic and trade interests advance in Pakistan and Afghanistan with access to the Arabic sea and the straights.

 China sees Russia as the main (but not the only) pillar in its Euro/Asian geopolitical/geoeconomic game and the reasons are quite rational. The strategic partnership is based on comprehensive interests, common strategic objectives and shared risks and threats perceptions. It will evolve with unprecedented speed in various key fields such as energy, defence, military, trade, economy, infrastructure etc. Russia will become a main gas and oil supplier to the energy hungry China. The Chinese Silk Road will go through Eurasian land (particularly Russia) to Europe and will seek access to the Black Sea (and Mediterranean Sea). Moreover, China has started intensifying its relations with the other BRICS countries, with Iran, Pakistan and Afghanistan as well as Latin American and African countries.

To sum up, China’s willingness to build up a new system pole is obvious. Chinese strategy consists of a set of measures, tools and instruments, just to name few:

  • Beijing will contribute along with the four BRICS members with $10 billion to the initial capital of $50 billion, added to another $41 billion for the contingency reserve of the $100 billion reserve of the BRICS Development bank.
  • China will provide 50% of the $100 billion initial capital of the newly launched Asian Infrastructure Investment Bank.
  • The New Silk Road Fund will demand initially $40 billion.
  • Beijing will provide Africa with $1 trillion in financing, investments and loans in the next twelve years.
  • China will boost investment in Latin American countries with initially planned $250 billion for the next five years, but will most likely jump to $500 billion in a ten years’ framework.
  • Chinese Regional Comprehensive Economic Partnership will encompass countries that currently have 24% of world GDP (NAFTA with 21%; EU with 19%).
  • Various currency swap deals signed with various countries during the period from 2008 to 2014 amount to 3,113.2 billion yuan altogether.
  • China has accumulated direct foreign investment (FDI) in the Eurasian Economic Union countries (Russia, Kazakhstan, Belarus), which increased to almost $25 billion alone in 2013.
  • Beijing enhanced the cooperation within the SCO members and partners in security, defence and military-related issues, including military drills.
  • China seeks to integrate the Chinese yuan in the SDR basket of the IMF.
  • Bejing is intensively producing, buying and stockpiling Gold.

If the 20th century was named the American century due to the rise of the US as a global power, the 21st century will be definitely named the Asian century due to the imminent rise of China as a global power. Not only will China become a second system pole but it will also start challenging the existent structures of the world order by creating new alternative ones. None of the blocs will be satisfied with the status quo in a system’s bipolarity. While the Transatlantic community will seek to preserve the institutional heritage and the geopolitical as well as geoeconomic dominance inherited from the Cold war, China will clearly aim to promote alternative structures and processes in support of its comprehensive approach. It is obvious that the outcome of these contradicting strategies cannot be a win-win situation. Eventually, a new bloc confrontation between the US and China will evolve in a much more interdependent and globalised world than the one during the Cold War, which might unleash centrifugal forces of bipolarity, encompassing the whole spectrum of interactions in the international relations. Thus, all regional actors will be eventually confronted with an either/or choice. It is only a question of time until it happens. In the meanwhile, we can still pretend that we live in multipolarity.

Velina Tchakarova studied Political Science and International Relations at the Ruprecht-Karls-University Heidelberg in Germany and at the University of National and World Economy in Bulgaria. She holds a Master of Arts Degree in political science and a Bachelor Degree in International Relations. Since March 2010 Velina is a Research Fellow at the Austrian Institute for European and Security policy (AIES).

The statements, views, and opinions expressed in this article are solely those of the author and do not necessarily represent those of EMerging Equity.

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