What is...China’s Role in the Global Economy?

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00:00:09: The space for cutting edge research in the discipline of international relations and the audible companion to EISA – the European International Studies Association.

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00:00:29: as much it provides a room for critical engagement with key concepts on political and sociological thought.

00:01:16: What is China's role in the global economy?

00:01:19: To answer this question and more, I am joined this episode by Johannes Petrie to discuss China's economic power and what it means for how we think about global financial circuits, and growing economic contestation.

00:01:34: Johannes Petri is Senior Researcher at Goethe University Frankfurt and the Principal Investigator of the DFG-funded Financial Empire research project, which analyses China's growing financial footprint in a world of growing geoeconomic contestations as part of a larger process of empire building.

00:01:59: Welcome to The Voice's podcast Johannes!

00:02:02: Thank you for joining us today.

00:02:04: Now, we hosted an episode a few months ago on the waning financial hegemony of the

00:02:10: U.S.,

00:02:11: and this episode is something.

00:02:13: I will follow up to that discussion through focusing on the increasingly important role China plays in the global economy.

00:02:20: So with that in mind This is something Of A Softball Question To Start But what Is The Current State-of-play In Terms Of China's Rising Economic Power?

00:02:35: So I think for a long time, we talked about China as rising power.

00:02:39: And now there's a realization that China actually has risen and it is there... ...and probably won't leave that soon!

00:02:47: Now we're feeling the impact of China properly.

00:02:51: You felt another part in the world earlier but even in the West you could really feel full force when one point four billion people are starting to catch up technologically, and other areas as well.

00:03:06: And we saw the transition from China first being perceived as this kind of factory of the world where everything was made to becoming a very important consumer market for the largest consumer market forward.

00:03:18: I mean cars and mobile phones in what?

00:03:21: not any type of commodity really?

00:03:33: frightened western countries much more.

00:03:36: I think it was just yesterday that Zhejiang University in Hangzhou, which is a city close to Shanghai where Alibaba was founded or as headquartered.

00:03:45: they overtook Harvard in the nature sign Nature Index and now in The Nature Index nine of the top ten institutions are Chinese right?

00:03:55: It's only Harvard.

00:03:56: That's not even number one anymore.

00:04:00: You see that with patents as well.

00:04:02: You also see it with royalties in that now Western firms are increasingly paying for technology from Chinese firms, so It's not just kind of empty patterns actually stuff that western companies will pay to use.

00:04:23: In some areas they're kind of way ahead.

00:04:25: If you think anything on green technology, big batteries EVs solar wind turbines They are really leading by a distance.

00:04:36: This is this interesting thing we see in Germany which also causes a lot anxiety rightly so I guess in that Germany used to be the car manufacturing nation of the world.

00:04:50: and now German comment factors are closing down the plants in Germany.

00:04:55: Some of them actually being bought by Chinese EV companies like Xiaoping is actually considering buying one of the factories over think Volkswagen, but it's a bit dated which interesting.

00:05:09: and then the other side they're trying to determine firms actually doubling down on their China investment.

00:05:15: so if there producing EVs that might produce them only for the Chinese market.

00:05:19: because.

00:05:20: And now the notion is that if we're not in China, We've basically lost The car race for the future.

00:05:28: So I think this stuff That we see Increasingly and It's been making it a while but Now i'm feeling kind of full brunt Of that Especially with Western economies where we always thought We'd be technologically more advanced than China.

00:05:45: But In a lot of sectors there are no longer cases

00:05:49: Fantastic.

00:05:50: Now, I think many people by now are aware of China's Belt and Road Initiative focused on physical infrastructure but importantly in your work you've paid attention to financial infrastructures when researching China's economic statecraft.

00:06:08: can you tell us more about these financial infrastructures?

00:06:13: And why they matter?

00:06:16: Yes.

00:06:16: So I think it's important to keep in mind that when we talk about Belt and Road Initiative, the BRI there are actually five connectivities that a Chinese state formulated as goals right?

00:06:31: And I think its kind of policy people-to-people exchange trade infrastructure and finance.

00:06:38: so financial connectivity is one And partially it is because a lot of things that are being built have to be financed somehow.

00:06:49: So while we kind of often focus on the physical infrastructure, but as much more impressive what I've studied in the past is looking at the role of Chinese exchanges and creating capital market.

00:07:01: infrastructure has one subset or financial infrastructure.

00:07:05: There we saw that China's exchanges which themselves state owned entities belong to the regulatory apparatus.

00:07:12: You basically saw these ideas filtering down from state council, government level towards regulators that created a vision and action plan for how they should contribute to the exchanges actually doing it themselves?

00:07:28: And then investing in becoming the largest shareholders of the exchanges in Pakistan, Bangladesh or in Palestine with varying success over a while, but we could for instance see that now in Kazakhstan and the Astan International Exchange they have this kind of growing R&B market segment where companies list BRI bonds.

00:07:55: For instance Now The first Chinese company has listed actually on the AIX to raise capital for its local expansion which is linked to the BRI.

00:08:07: So it's one aspect types of getting trades investors to invest in certain companies who have matching platforms for investment.

00:08:17: There is kind of other capital market activity that's being introduced, let's go the capital market side.

00:08:25: then there's a whole kind of banking side to it where now we increasingly see Chinese state-owned banks like Bank Of China ICBC becoming more active in financing projects along the BRI.

00:08:40: So it's no longer just China Development Bank and China Ex-Im Bank, but a broader set of actors.

00:08:46: And we see this kind of internationalization of Chinese banks creating branches on subsidiaries In the rest of the world especially in the global south.

00:08:54: so there are certain countries where Very few Western exchanges, but quite a lot of Chinese exchanges.

00:09:04: So you see that kind of very different credit spaces emerging.

00:09:08: We have all payments layer to that.

00:09:10: so about the Sips Cross-border international payment system that China created as an alternative to Swift and chips.

00:09:20: basically Has grown quite a long in recent years.

00:09:26: It's still kind of small compared to the US counterpart, but it has been growing rapidly.

00:09:31: And now we have ever more international members that are part of SWIRT.

00:09:37: I think Standard Bank in South Africa for instance.

00:09:41: So you can all these different infrastructures eventually help and support physical aspects of BRI.

00:09:51: This becomes even more important now when BRI itself is changing.

00:09:56: BRI used to be about mega infrastructure projects, finance bodies.

00:10:01: Basically two development banks in large parts of the global south and it was US dollar denominated a lot of these loans.

00:10:14: also because It was a lot cheaper back then because of quantitative easing Was very cheap to lend in dollars And there was no need To do it otherwise.

00:10:24: and no demand as well because even if China wanted to loan an RMB, the counterpart had to accept that.

00:10:31: And they preferred dollars.

00:10:35: What we saw is these four dimensions have changed.

00:10:40: so what we increasingly see BRIs moving away from this big infrastructure projects towards there's more focus on productive capacity.

00:10:50: We've seen internationalization of Chinese companies Both SOEs but also private ones.

00:10:56: think of BYD or CATL expanding in Hungary, Thailand and Malaysia.

00:11:03: Big kind of nickel mining Indonesia for instance which is a joint venture between Indonesian and Chinese counterparts essentially bringing Chinese technology to process the nickel on site then export it afterwards.

00:11:23: So you see a lot of kind more technology intensive things happening along the BRI and with that comes very different need for different infrastructures.

00:11:34: Now, Chinese companies do operate in those countries.

00:11:38: basically utilizing infrastructure had been built before payments become much important cross-border settlement FX transactions also capital market financing maybe raising local bonds or currency bonds and so on.

00:12:00: The type of infrastructure is changing.

00:12:02: that we see, the financial infrastructure.

00:12:04: just because BRI itself has been kind of changing towards more driven by less infrastructure, a more productive capacity it's concentrated in different areas, so it's a lot more ASEAN Middle East Eastern Europe.

00:12:24: The sectors are quite different and we now have much more green technology or transition minerals that kind of part of that I think nickel copper etc.

00:12:35: And its much more based on R&B denominated partly because now cheaper to borrow an RMB than it is in dollar And also because we saw this increasing weaponization of the global financial system or US financial dollar, financial system by America that now increase.

00:12:58: We see these moves towards de-dollarization in a lot of countries around the world especially since twenty two and China's big beneficiary over that in those countries are converting their PRI bonds there were in dollar into RMB, like Kenya did that for instance just last year.

00:13:17: So I think yeah there is this kind of whole financial dimension of BRI becoming ever more important as BRI becomes more complex.

00:13:28: That leads me nicely on to my next question.

00:13:31: and so China's economic rise you have argued has led to contestation um and a new geoeconomic order.

00:13:40: Can you talk us through this contestation in more detail and how finance has been, is being weaponized by different actors?

00:13:49: Okay right so we saw China's rise within the kind of liberal economic order.

00:13:57: And it was probably one of countries that benefited most from that order even though they didn't quite play according to those rules.

00:14:08: We saw a lot of backlash against that in countries around the world, especially also countries in global south who actually increasingly wary of China's growing influence.

00:14:19: Because China is industrialization or to lead to deindustrialization in part of the Global South as well just because China became such a big economic actor.

00:14:31: now The US.

00:14:33: what we saw increasingly Especially with kind of the first Trump presidency, The US trying to push back against China basically in a way abandoning that liberal playbook and really imposing more restrictions.

00:14:49: We saw there was your first trade war In two thousand eighteen.

00:14:54: we increasingly also saw that in the area finance.

00:14:59: So from I think twenty-twenty onwards we had these kind of, or twenty nineteen, twenty twenty onwards.

00:15:04: We have the investment bans on a lot of Chinese companies and was always packaged along either human rights or national security.

00:15:15: but discourse in Washington is very often about you need to counter China essentially But they needed to find legitimation for that.

00:15:24: so first it was Xinjiang and Human Rights national security and companies linked to the People's Liberation Army.

00:15:35: And now a lot of companies are on that list, well whether they actually have close ties with China's military could be probably debatable but it is kind of used as vehicles by

00:15:48: U.S.,

00:15:50: we saw that with the CHIPS Act which was probably most incisive policy action along those lines, but now there's kind of thousands of Chinese companies that are blacklisted by the US.

00:16:09: Of course I mean sanctions were imposed on other countries often Chinese allies like Venezuela Iran Russia for various reasons as well.

00:16:18: But we especially see that a U.S.-China relation in that The u.s increasingly try to weaponize its centrality in global finance to counter China.

00:16:30: Another example for that is the de-list, forced delisting of Chinese SOEs on The New York Stock Exchange and NASDAQ as well because a lot of the Chinese SOE especially telecommunication companies.

00:16:45: they listed it in New York raised a lot money there.

00:16:49: I mean In two thousand fourteen.

00:16:51: Alibaba was back then the world's largest IPO And we kind of moved to a place where, A lot with the IPOs and Chinese companies are now being done in Shanghai or Hong Kong.

00:17:03: Because basically The American's government was really trying to restrict their access To US capital as well In that US Capital should not support this kind Of non-liberal economic system.

00:17:18: I had no idea about Alibaba but That is amazing.

00:17:24: You learn a lot doing this podcast, I have to say.

00:17:27: That's great quiz question actually!

00:17:30: Really nerdy quiz question but like in two thousand and fourteen which was the...

00:17:35: Before that was Petro China In

00:17:40: Two Thousand Seven.

00:17:40: So there you go.

00:17:41: Okay.

00:17:42: so Considering the current geopolitical context and we are recording this, The day after U.S & Iran supposedly have reached an agreement So things in a state of play may change but I still want us to focus on it.

00:18:00: so This current geopolitics with the US and Israel's war on Iran, under closure of the Strait of Hormuz.

00:18:08: If it is going to reopen or not still slightly unclear?

00:18:11: Of course we had a recent podcast on the geopolitical situation in DeGolf

00:18:16: but

00:18:17: what does our current global predicament mean for China role this very now very global economy.

00:18:30: so I think that developments are we saw are part of that longer trajectory we saw under the second Trump administration in China suddenly becomes a much more reasonable person, essentially.

00:18:50: We saw with Liberation Day last year where this kind tariff in position on everyone, essentially.

00:19:11: And the coup in Venezuela and now that war increasingly like can you actually rely onto US as a partner being political or be economic?

00:19:26: I mean we have all this discussion Europe about becoming more strategically autonomous also from the U S not just China Russia.

00:19:38: I think China actually benefits quite a lot from that.

00:19:43: So there's kind of saying, if your enemy destroys it itself you just lean back and don't do anything.

00:19:49: That is what we saw in China the last couple months.

00:19:54: Do You Think?

00:19:56: I know We Shouldn't Ask And It Is Terrible when we get asked, there's a social scientist about the future because we don't study to future right.

00:20:04: We're like not magic eight ball.

00:20:08: but do you think long term and also strategically this will have an impact on China's position in I mean Not just in the global economy But more strategically In terms of its place in political world order?

00:20:27: I think it will.

00:20:29: And we already saw with China has been leading all these different initiatives like the Global Sization Initiative, Global Defense Initiative portraying itself as a paragon of green transition expanding the bricks on which China was main driver in that process established from the AIIB, the Shanghai Cooperation Organization.

00:20:58: So I think we've already seen kind of China building institutions that as alternatives or complements are in parallel to existing more Western-dominated institutions globally.

00:21:14: AIB and New Development Bank you name it.

00:21:20: And what China was lacking for a long time is why should people use those alternatives if you have a functioning World Bank, etc.

00:21:35: But I think increasingly we see as the US becomes more unreliable internationally... ...I don't think China wants to take over that mantle of becoming a global hegemon but it i think its influence definitely has grown just because other countries relate towards China and U.S.. So I think what we saw around war, no matter how it ends now.

00:22:01: China will come out strengthened.

00:22:04: Sort of accidental hegemony because the US has dropped them back!

00:22:14: sort of.

00:22:14: maybe discuss this, finally your current research is looking at China's process of empire building.

00:22:22: Can you talk us through how thinking in terms of Empire is useful analytically for understanding Chinese economic and financial power?

00:22:32: And what this emerging Chinese empire looks like

00:22:37: Yes, I think that really connects nicely to what we just discussed.

00:22:42: This is part of a research unit funded by the German Research Foundation where there are eight different projects that adopt the same framework which we call The Learning Empire across different policy areas.

00:22:56: and the idea for this project was to say hegemony doesn't help us understand China or existing theories don't really help understanding China's role in a changing world.

00:23:08: I mean, conceptually right if we talk about the hegemon usually will only have one Hegemon per level of analysis.

00:23:16: We can have one global Hegemon One regional Hegeman but kind of two regional Hegemons.

00:23:22: that doesn't really make sense.

00:23:24: and A lot of debate about hegemony in IR discourse is about benevolent Hegemen provision public goods, and how far it's based in interstate order.

00:23:41: Multilateral institutions are created by the hegemon then used by everyone.

00:23:46: of course that actor benefits I mean has certain benefits from that right.

00:23:50: but there is kind of a how this.

00:23:53: theoretically we talk about hegemony and multilateralism or rules-based international liberal order.

00:24:01: And what we see in China is kind of two aspects.

00:24:05: One, as we see a capacity for adaptation and learning that China has risen so dramatically over within the generation, China was non-existent on global stage.

00:24:20: now it's going to have second largest economic power globally by distance.

00:24:26: some things really went horribly wrong.

00:24:32: Well, there was also a lot of feedback by the international system

00:24:37: i.e.,

00:24:37: US becoming more interventionist as a result of China's rise.

00:24:42: Yes.

00:24:43: So we have these kind of different developments that We argue trigger a process of adaptation within China in that maybe It's not a good idea to have all this policy bank lending on two balance sheets and then nobody can pay us back.

00:25:04: So now there's different mechanisms of how financing could function, along the BRI for instance.

00:25:11: or maybe it doesn't make sense to borrow in dollar because the dollar system is becoming weaponized.

00:25:17: so we have an incentive actually push Chinese banks to lend more in RMB for instances that went up from I think twenty percent eight to ten years.

00:25:30: So we have kind of this learning process because we have this literature also on China's political economy that focuses on policy experimentation and all of that, so this is nothing new.

00:25:45: what we argue is that in terms of the international practices that China adopts as a result of that ,we argue you have equality which would define us imperial .

00:25:55: What It's definitely a kind of power relation that we see emerging, but it's not really hegemony and works through different mechanisms.

00:26:05: We have these five different empirical practices that we look at And these are both accidental and deliberate Really depending on the different policy areas.

00:26:19: We see construction of economic centrality so be it through infrastructure global value chains or networks we see the cultivation of local intermediaries in that if BYD creates this mega-factory, and Thailand there's local politicians at help them do that or kind of local banks to help them into financing.

00:26:43: So a bit like this idea of compradoras from other literatures.

00:26:49: The third one is divide and rule practices, so heterogeneous contracting in that we don't have multilateralism where everyone follows the same rules.

00:27:00: But a lot of these bilateral dealings which gives more power to them or powerful actor-in-the rather asymmetric relationship there is hub and spoke system.

00:27:14: Importantly, this is not the concept of empire.

00:27:17: We use it to understand China but I mean if we look at deal-making under Trump that kind of exists exactly in that right?

00:27:23: We move away from multilateralism towards a more bilateral negotiation That can be much more easily used for advantage of them or powerful nation.

00:27:33: Then there's what we call ideological binding which essentially could have soft power element and as always a discursive legitimation of imperial project.

00:27:43: think of the global civilization initiative or shared future for humanity and so on, in a Chinese case.

00:27:50: And then there's a threatened use of force as kind of fifth element that we see in the case of China as well.

00:27:58: So these are different practices when you look at those Practices and what they do is meant to achieve autonomy before China especially in world becoming more hostile.

00:28:10: but they also create dependencies with the peripheries.

00:28:14: So now we might see what we see in Southeast Asia is essentially, we have tariffs on China right?

00:28:23: We see Chinese companies actually migrating to Vietnam and other ASEAN states And they become more central supply chains.

00:28:32: Now they dominate these supply chain.

00:28:34: so if you look at a lot of industrial structure in that unharmed change over the last ten years in ASEAN, we actually see this is becoming much more Chinese dominated for instance.

00:28:48: So it will be one example of economic centrality being established also as a result of push back.

00:28:56: and we say yes.

00:28:57: so how do you understand empire?

00:28:59: We think its useful concept to analyse economic order is changing over time and how to make sense of countries such as China because rising power, it's really kind of very empty analytically.

00:29:15: It doesn't help us understand what's happening or hegemony does not make sense either.

00:29:20: Brilliant!

00:29:21: Thank you very much.

00:29:22: I think that something for us take away that Hegemony don't makes sense when we think about China in its current position In the global order.

00:29:29: thank-you podcast of the academic year.

00:29:37: We will be taking a summer break.

00:29:39: after this, our listeners will hear us again in September so we would like to wish all of our listeners are lovely Summer holiday or not Summer holiday if you listen in The Global South I should NOT be so Eurocentric and global Northern Hemisphere hegemonic about this but we wish everybody a lovely break.

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