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It’s time for the world to adjust to China’s global ambition

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What’s the longest bridge in the world? It’s
not San Francisco’s Golden Gate, or Saudi Arabia’s King Fahd Causeway
(as a friend insisted when I asked him) or even one of those really long
“over the horizon” ones in Scandinavia.

The world’s longest bridge in the world – by far – is theDanyang-Kunshan Grand Bridge on
the Beijing-to-Shanghai high-speed rail link. Stretching across the
Yangtze delta, and completed in 2010, the Danyang-Kunshan is no less
than 102 miles long. That’s over 29 times the length of Bromford Viaduct
near Birmingham, the UK’s longest bridge. And it’s 116 times longer
than the Humber Bridge, our widest single-span crossing.

The world’s second-longest bridge is also in China. The Tianjin Grand
stretches over 70 miles long, part of the Beijing-to-Shanghai rail link
and also completed in 2010. The third-longest bridge is Chinese too. But
the Weinan Weihe Grand Bridge is on the Zhengzhou-Xi’an railway and
spans just under 50 miles.

No less
than nine of the world’s 12 longest bridges are in China, all of them
built over the last decade or so. The longest bridge in America, the
24-mile Lake Pontchartrain Causeway in Louisiana, was opened in 1956.

It’s easy to cite superlatives about China’s development. But the pace
at which the People’s Republic is now building bridges, and the
record-smashing scale of its ambition, is quite astonishing.

Since adopting market-based reforms in the late-1970s, China has grown on average by 9.8pc a year,
compared with 2.5pc in America. Back in 1980, the economy was just one
10th that of the US – and still just half, as recently as 2004.

Last October, though, the International Monetary Fund quietly published
estimates showing China’s annual GDP at $17.6 trillion (£11.8 trillion),
compared with $17.4 trillion in America.

The US remains far
richer per head, of course, with the average American commanding an
income four times that of their Chinese counterpart. And the IMF’s
estimates were on a “purchasing power parity” basis, including
cross-border variations in living costs. Despite these qualifications,
the symbolism remains enormous. While America had been the world’s
largest economy since 1872, when it overtook Britain, the US no longer
holds an unequivocal claim to top spot.

It’s fashionable to talk down China.

Certainly, its Communist leaders are grappling with a sagging property
market, unsteady exports and cooling domestic investment. China expanded
by 7.4pc in 2014, the slowest rate for 24 years. Growth this year could
fall below 7pc, amidst rising labour costs.

Yet the growth gulf
between China and the West remains vast. Despite enormous “recovery”
fanfare, America grew just 2.4pc during the last quarter, only a touch
above the sluggish six-year average since the 2008 collapse. The
eurozone remains close to recession. And while UK growth could reach 3pc
this year, our expansion is far too reliant on rising personal and
government debt.

As the Chinese economy keeps out-pacing the
West, the country commands ever more geopolitical power – and I’d
highlight three very different illustrations of this. Just before his
recent Budget, George Osborne, the Chancellor, announced that the UK
will become a founder member of the Asian Infrastructure Development
Bank (AIIB) – a China-led financial institution that could one day rival the World Bank.
This drew an extremely barbed response from the US, with a White House
official accusing Britain of “constantly accommodating” China.

While this public diplomatic spat between close allies was unusual, what
has since happened has been extraordinary. Since Beijing launched the
$50bn AIIB last October, US officials have insisted Western countries
“could help shape the standards and rules” this institution will adopt
“by staying on the outside”.

America is concerned the AIIB will
act as an instrument of Chinese foreign policy, as has the US-led World
Bank since it was founded in the aftermath of the Second World War.

After the UK defiantly decided to join AIIB, France, Italy and Germany
then followed – leaving the US looking isolated. While America views
China as a geo-political rival, the two powers now vying for supremacy
in the Pacific basin, West European nations are more mindful of its
importance as a future trading partner.

These divergent views
burst into the open last week, presenting America with a tough dilemma –
remain alone outside the AIIB, or be seen to accept the will of the
rest of the world. The answer seems to be acceptance. The
Washington-based IMF just announced it would, despite earlier
opposition, be “delighted” to co-operate with the AIIB. And Japan,
America’s staunchest Asian ally, has also indicated it’s now “happy” to
work with the Beijing-based institution too. No matter that Japan
currently controls the US-backed Asian Development Bank, the precise
body the AIIB is hoping to usurp.

The developed nations, whether
they like it or not, must significantly increase their trade with
China. The UK, with an external deficit now equal to 6pc of GDP, the
second-largest in half a century, has lately become far less vocal about
Beijing “human rights abuses”. The AIIB, meanwhile, is part of a
concerted Chinese attempt to build a Sino-centric global financial
system, as an alternative to America’s hegemony.

Along with
AIIB, there’s also the New Development Bank – widely known as the “Brics
Bank” – jointly founded with Russia, India, Brazil and South Africa and
located in Shanghai. Then there’s a planned IMF-style contingent
reserve facility, together with a further development bank linked to the
Shanghai Co-operation Organisation, a six-country Eurasian political,
economic and military grouping dominated by China and Russia.

At
last November’s Asia-Pacific Economic Co-operation (APEC) summit,
hosted in Beijing, the Chinese also unveiled a $40bn “Silk Road Fund”,
to finance a network of railways and airports linking China with Central
Asia – another area where the US has long asserted political and
military influence.

That Beijing should seek to exercise power
across Asia, and beyond, is hardly surprising. China isn’t only the
world’s growth engine but also bankroller-in-chief to the US government.
The Chinese central bank holds an estimated $1,270bn of US Treasuries,
up from just $50bn back in 2001.

Anyone who doubts China’s
ambition should look beyond the country’s domestic infrastructure
development and witness what’s happening in Central America. In 1914,
having completed a task abandoned by the French, the US proudly opened
the Panama canal. Representing the biggest engineering project on earth,
and securing control of a high share of global trade flows, the 48-mile
waterway – linking the Atlantic and Pacific and saving a 9,000-mile
detour around South America – marked the start of the US world
domination.

Well, with their domestic bridge-building record
behind them, the Chinese have now started work on a 170-mile canal that
will cut through Lake Nicaragua. This is a direct rival to the Panama
transit, and one that will be able to accommodate even larger ships
(despite the recent Panama canal upgrade). While there’s scepticism
Beijing will hit its 2019 opening target, the chances are high this
game-changing canal will be built.

Then, in the background,
there’s ongoing Chinese pressure to dilute the reserve currency status
of the dollar – an “exorbitant privilege” which allows the US to print
“hard currency” to pay back its debts.

Last week Premier Li
Keqiang quietly asked the IMF to include the yuan in its “special
drawing rights” basket – an act that would make it easier for other
countries to store their reserves in the Chinese currency. Mindful of
the dollar’s unique “reserve currency” status, Washington is likely to
resist.

Yet the shape of the global economy is rapidly changing,
a multi-currency reserve system is inevitable and this is a change
America must embrace.

2016-06-24

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