Friday, September 12, 2014

China ascendant ? ( September 12 - 14 , 2014 ) -- With all eyes on Russia ( tensions with EU and US over Ukraine situation ) , China is slowly and quietly becoming the next global economic superpower ...... and without occupying any foreign lands......

http://www.zerohedge.com/news/2014-09-12/end-empire-de-dollarization-chart-china-and-russia-are-banking



End Of Empire - The 'De-Dollarization' Chart That China And Russia Are Banking On

Tyler Durden's picture




History did not end with the Cold War and, as Mark Twain put it, whilsthistory doesn’t repeat it often rhymes. As Alexander, Rome and Britain fell from their positions of absolute global dominance, so too has the US begun to slip. America’s global economic dominance has been declining since 1998, well before the Global Financial Crisis. A large part of this decline has actually had little to do with the actions of the US but rather with the unraveling of a century’s long economic anomaly. China has begun to return to the position in the global economy it occupied for millenia before the industrial revolution. Just as the dollar emerged to global reserve currency status as its economic might grew, so the chart below suggests the increasing push for de-dollarization across the 'rest of the isolated world' may be a smart bet...


As Deutsche Bank's Jim Reid explains,
In 1950 China’s share of the world’s population was 29%, its share of world economic output (on a PPP basis) was about 5% (Figure 98). By contrast the US was almost the reverse, with 8% of the world’s population the US commanded 28% of its economic output.

By 2008, China’s huge, centuries-long economic underperformance was well down the path of being overcome (Figure 97).

Based on current trends China’s economy will overtake America’s in purchasing power terms within the next few years. The US is now no longer the world’s sole economic superpower and indeed its share of world output (on a PPP basis) has slipped below the 20% level which we have seen was a useful sign historically of a single dominant economic superpower. In economic terms we already live in a bipolar world. Between them the US and China today control over a third of world output (on a PPP basis).
However as we have already highlighted, the relative size of a nation’s economy is not the only determinant of superpower status. There is a “geopolitical” multiplier that must be accounted for which can allow nations to outperform or underperform their economic power on the global geopolitical stage. We have discussed already how first the unwillingness of the US to engage with the rest of the world before WWII meant that on the world stage the US was not a superpower inspite of its huge economic advantage, and second how the ability and willingness of the USSR to sacrifice other goals in an effort to secure its superpower status allowed it to compete with the US for geopolitical power despite its much smaller economy. Looking at the world today it could be argued that the US continues to enjoy an outsized influence compared to the relative size of its economy, whilst geopolitically China underperforms its economy. To use the term we have developed through this piece, the US has a geopolitical multiplier greater then 1, whilst China’s is less than 1. Why?


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Why do we suggest that the USA’s geopolitical multiplier, its ability to turn relative economic strength into geopolitical power, might be falling? Whilst there are many reasons why this might be the case, three stand out. First, since the GFC the US (and the West in general) has lost confidence. The apparent failure of laissez faire economics that the GFC represented combined with the USA’s weak economic recovery has left America less sure then it has been in at least a generation of its free market, democratic national model. As this uncertainty has grown, so America’s willingness to argue that the rest of the world should follow America’s model has waned. Second the Afghanistan and in particular the Iraq War have left the US far less willing to intervene across the world. One of the major lessons that the US seems to have taken away from the Iraq war is that it cannot solve all of the world’s problems and in fact will often make them worse. Third, the rise of intractable partisan politics in the US has left the American people with ever less faith in their government.
The net result of these changes in sentiment of the US people and its government has been the diminishment of its global geopolitical dominance. The events of the past 5+ years have underlined this. Looking at the four major geopolitical issues of this period we raised earlier – the outcome of the Arab Spring (most notably in Syria), the rise of the Islamic State, Russia’s actions in Ukraine and China’s regional maritime muscle flexing – the US has to a large extent been shown to be ineffective. President Obama walked away from his “red line” over the Syrian government’s use of chemical weapons. The US has ruled out significant intervention in Northern Iraq against the Islamic State.
America has been unable to restrain Pro-Russian action in Ukraine and took a long time (and the impetus of a tragic civilian airplane disaster) to persuade her allies to bring in what would generally be considered a “first response” to such a situation - economic sanctions. And so far the US has had no strategic response to China’s actions in the East and South China seas. Importantly these policy choices don’t necessarily just reflect the choice of the current Administration but rather they reflect the mood of the US people. In Pew’s 2013 poll on America’s Place in the World, a majority (52%) agreed that “the US should mind its own business internationally and let other countries get along the best they can on their own”. This percentage compares to a read of 20% in 1964, 41% in 1995 and 30% in 2002.
The geopolitical consequences of the diminishment of US global dominance
Each of these events has shown America’s unwillingness to take strong foreign policy action and certainly underlined its unwillingness to use force. America’s allies and enemies have looked on and taken note. America’s geopolitical multiplier has declined even as its relative economic strength has waned and the US has slipped backwards towards the rest of the pack of major world powers in terms of relative geopolitical power.
Throughout this piece we have looked to see what we can learn from history in trying to understand changes in the level of structural geopolitical tension in the world. We have in general argued that the broad sweep of world history suggests that the major driver of significant structural change in global levels of geopolitical tension has been the relative rise and fall of the world’s leading power. We have also suggested a number of important caveats to this view – chiefly that a dominant superpower only provides for structurally lower geopolitical tensions when it is itself internally stable. We have also sought to distinguish between a nation being an “economic” superpower (which we can broadly measure directly) and being a genuine “geopolitical” superpower (which we can’t). On this subject we have hypothesised that the level of a nations geopolitical power can roughly be estimated multiplying its relative economic power by a “geopolitical multiplier” which reflects that nations ability to amass and project force, its willingness to intervene in the affairs of the world and the extent of its “soft power”.
Given this analysis it strikes us that today we are in the midst of an extremely rare historical event – the relative decline of a world superpower. US global geopolitical dominance is on the wane – driven on the one hand by the historic rise of China from its disproportionate lows and on the other to a host of internal US issues, from a crisis of American confidence in the core of the US economic model to general war weariness. This is not to say that America’s position in the global system is on the brink of collapse. Far from it. The US will remain the greater of just two great powers for the foreseeable future as its “geopolitical multiplier”, boosted by its deeply embedded soft power and continuing commitment to the “free world” order, allows it to outperform its relative economic power. As America’s current Defence Secretary, Chuck Hagel, said earlier this year, “We (the USA) do not engage in the world because we are a great nation. Rather, we are a great nation because we engage in the world.” Nevertheless the US is losing its place as the sole dominant geopolitical superpower and history suggests that during such shifts geopolitical tensions structurally increase. If this analysis is correct then the rise in the past five years, and most notably in the past year, of global geopolitical tensions may well prove not temporary but structural to the current world system and the world may continue to experience more frequent, longer lasting and more far reaching geopolitical stresses than it has in at least two decades. If this is indeed the case then markets might have to price in a higher degree of geopolitical risk in the years ahead.




http://www.zerohedge.com/news/2014-09-12/china-daily-western-sanctions-will-make-moscow-back-chinese-yuan-against-dollar


China Daily: "Western Sanctions Will Make Moscow Back The Chinese Yuan Against The Dollar"

Tyler Durden's picture




Op-Ed posted in China Daily
West's Antics Pushing Russia closer to China
The recent NATO summit in Wales, held against the background of the armed conflict in Ukraine, has brought back the Cold War atmosphere to Europe. NATO's partnership with Russia remains formally suspended. In fact, NATO is treating Russia more as an adversary than a partner.
The alliance is setting up a "Rapid Reaction Force" to deal with emergencies on Europe's eastern flank. The alliance's military infrastructure is moving toward that exposed flank, and closer to Russia's borders. NATO forces will now spend more time exercising in the east, and their presence there will visibly grow. NATO-leaning Ukraine, which the alliance alleges is an object of "Russian aggression", has been promised financial and military support.
The Ukraine crisis is not just about Eastern Europe, it is also about the world order. The Kremlin is seeking Washington's recognition of what it regards as its core national security interest: keeping Ukraine as a buffer zone between Russia and the West, particularly NATO. Washington, on principle, denies Moscow this "imperial privilege", and insists on the freedom of all countries, including Ukraine, to choose alliances and affiliations.
The stakes are high. Should Russia be rolled back in Ukraine, not only will its international position materially suffer, but also the power of the Kremlin inside the country might be dangerously undermined. On the other hand, if the US were to eventually accept Russia's demand for a "zone of comfort" along its borders, Washington's credibility as the global dominant power, the norm-setter and arbiter will suffer.
The Shanghai Cooperation Organization, of course, is no military alliance, and even less a rival of NATO. Its member states, however, are closely watching the US-Russian match being played out at the western end on the great Eurasian continent. Some, like the Central Asian states, are essentially ducking, hedging, or running for cover. China, which seeks to defend its own core interests in East Asia and the Western Pacific, looks at the current Russian-American competition through the prism of its own relations with Washington and Moscow.
China has a very important relationship to keep with the US. Playing a long game, Beijing usually avoids direct collisions with Washington, and means to profit from the US-initiated globalization to the fullest extent possible. Like Russia, however, China would also want to carve out a comfort zone for itself along its eastern borders and shores, and, like Russia again, it faces the reality of the US' physical presence and US-led alliances there. What Washington is now doing in an effort to contain Moscow in Eastern Europe provides important information to Beijing in East Asia.
There is more to Beijing's reaction than just watching and drawing conclusions. The apparently long-term rupture of Russia's relations with the West offers an opportunity to the Chinese leadership to enhance its already close relationship with the Kremlin and thus turn the global geopolitical balance in its favor - not unlike former US president Richard Nixon and former secretary of state Henry Kissinger who reached out to Chairman Mao Zedong in 1972The Russians, angry with Washington, are now more amenable to giving China wider access to their energy riches and their advanced military technology. The Western sanctions pushing Russia out of the international financial system are also making Moscow more ready and willing to back the Chinese yuan against the US dollar.
A Sino-Russian military alliance against the US is still a rather long shot. Yet the two countries' political, economic and military alignment is getting thicker. An expellee from the G8, which is now back to G7, Russia is now eagerly embracing the non-West, particularly in Asia and Latin America. Within the non-West, China is unquestionably the premier power. Managing Russia will not be easy for anyone, but the country is a precious resource for ChinaSo far, Beijing has displayed more tact in dealing with Moscow than any other major player in the world. Building on this success, it can now set its bar higher.
To a China which is rising and raising its global profile, BRICS is an asymmetrical equivalent of the G7, albeit in a very different shape and form. The SCO, to use a similar analogy, is an asymmetrical analogue to NATO, but as a political organization of continental Asia (including Russia), rather than a military bloc. The inclusion of India and Pakistan into the SCO is a logical next step. Iran, currently an observer, can follow later. Turkey, an SCO dialogue partner and a member of NATO, can become a useful link to the North Atlantic alliance.
Enhancing the SCO's security credentials and extending its reach requires a major qualitative upgrade of China's strategic thinking and diplomacy, and an even closer partnership with Russia. The SCO summit in Dushanbe, Tajikistan, will probably not see this yet, but it might become a point when the balance of Eurasia has decisively turned in China's favor. Beijing would need to thank Washington for it.
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Indeed, "thanks Obama" for firmly cementing the anti-western military, monetary and political alliance.




http://rt.com/op-edge/187360-sco-economic-humanitarian-cooperation/



The Shanghai Cooperation Organization: Allies of a New Type

Dr Alexander Yakovenko, Russian Ambassador to the United Kingdom of Great Britain and Northern Ireland, Deputy foreign minister (2005-2011).
Published time: September 12, 2014 14:23
From left: Kyrgyz President Almazbek Atambayev, Kazakh President Nursultan Nazarbayev, Chinese President Xi Jinping, Tajik President Emomali Rakhmon, Russian President Vladimir Putin and Uzbek President Islam Karimov during the signing of joint agreements following the Shanghai Cooperation Organization summit at Navruz Palace, Dushanbe. (RIA Novosti)
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The SCO has become an influential organization and an important factor in the emergence of a new polycentric world order.
The organization has worked to bring about tangible improvements in the security and multilateral political, economic and humanitarian cooperation.
As a result, the role of the SCO in international and regional affairs is on the rise, attracting the attention of many countries and international organizations. Pakistan, India, and Iran want to become full members of the SCO, while more and more countries are seeking observer or dialogue partner status.
What is the secret to the success and appeal of the SCO? The answer is simple: its steadfast commitment to the UN Charter and fundamental international law; to the principles of equality, mutual respect, consideration of each other's interests, resolving conflicts and disputes by political and diplomatic means, and the right of nations to choose their own path of development. The SCO is fully in tune with the realities and requirements of the 21st century, unlike the rigid discipline that exists within old-fashioned, cumbersome alliances of the previous era, which imposed serious constraints on the sovereignty and freedom of their member states.
Regional security remains the SCO’s top priority. Other priorities include building up joint capabilities to combat terrorism, extremism, and drug trafficking, especially amid the worsening situation in Afghanistan. The SCO has been clear that it does not seek to turn into a military-political alliance. However, its core principles include preventing unlawful acts that harm the interests of member states. At the same time, the SCO is rapidly shaping a common research, educational, cultural and humanitarian space.
During Russia’s SCO presidency, which will begin right after the Dushanbe Summit (11-12 September), we plan to focus on better equipping the SCO to handle the many challenges facing the world today and on working together to adequately respond to events in the region, and the world.
In the face of complex and interrelated challenges, Russia will use its presidency of the SCO to advocate for coordinated steps on the economy, financial sector, energy, and food security. The continuing instability of the global economy and the risks of another wave of crises demands greater economic cooperation. Plans are being outlined to make broader use of national currencies in settlements. Prospects are good for launching large multilateral projects in transport, energy, innovative research and technology, agriculture, and the peaceful use of outer space, though the optimal funding mechanism for such projects remains to be determined. The SCO Business Council, Interbank Consortium, and Energy Club are at the forefront of expanding practical cooperation among member states.
Coordinated approaches to common challenges will be reflected in the Strategy for the SCO’s Development to 2025, which will be finalized in time for the meeting of the Council of Heads of the SCO Member States in Ufa in 2015. The document is designed to deepen cooperation within the SCO while expanding cooperation with leading multilateral institutions such as the UN and its specialized agencies. It also contains provisions on establishing relations with the Eurasian Economic Union.
The Dushanbe Summit will formalize the legal, administrative and financial requirements for admitting new SCO members, making it possible to start expanding the organization during the Russian presidency. So, the SCO is actively networking, in line with the general global trend of networked diplomacy, replacing dinosaur structures of international relations of the Cold War past.




http://thediplomat.com/2014/09/the-new-improved-shanghai-cooperation-organization/



The New, Improved Shanghai Cooperation Organization

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The annual Shanghai Cooperation Organization summit convened in Dushanbe, Tajikistan on September 11 and 12. As befitting its origin as a regional security organization, the SCO mainly focused on security issues, from counterterrorism to Afghan stability, but also touched on economic cooperation. And in a major step forward in expanding its regional clout, the SCO finalized procedures for taking in new members, with India, Pakistan, and Iran first on the list.
Security issues are at the top of the SCO agenda, and terrorism continues to be the major security concern. Anti-terrorism is, not coincidentally, also a huge point of emphasis for China, the SCO’s de facto leader. In his speech at the summit, Chinese President Xi Jinping called for the SCO to “focus on combating religion-involved extremism and internet terrorism.” Xi also said SCO members should set up consultations regarding an eventual “anti-extremism” treaty. Ultimately, Xi wants to see regional players, led by the SCO, handling regional security, thus eliminating the need for extra-regional actors (especially the U.S.) As Xi put it, the SCO members “should take it as our own responsibility to safeguard regional security and stability, enhance our ability to maintain stability, continue to boost cooperation on law enforcement and security, and improve the existing cooperation mechanisms.”
Against the larger backdrop of counterterrorism, Afghanistan’s stability remains a major concern for SCO members. Of all the countries bordering Afghanistan, only one (Turkmenistan) is not an SCO member or observer state (and Afghanistan is an SCO observer itself). Thus, should Afghanistan’s security fall apart in the post-NATO era, the SCO would be on the front lines of the disaster.

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Amidst all these ambitious goals — ensuring regional stability, especially preventing terrorist activities; promoting Afghan security; furthering economic integration — the imperative for expanding the SCO becomes clear.  Teng Jianqun of the China Institute of International Studies told CCTV in an interview that “enlargement has become absolutely necessary” for the SCO. The current membership is limited to six: China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Given that, it’s easy to dismiss the SCO as a playground for China and Russia’s foreign policy initiatives, but one that doesn’t carry any real clout. However, should the SCO expand, as it is now primed to do, the organization would see a corresponding jump in prestige and influence. As Xinhua put it, SCO expansion would “infuse fresh vigor into the group’s future development and boost its influence and appeal on the international arena.”
The SCO has not expanded since it was officially founded in 2001. Before it can add new members, it must first create a legal framework for doing so — exactly the task before the SCO at this week’s summit. The current requirements for joining require potential members to have observer status in the SCO, which would limit the list of candidates to Afghanistan, India, Iran, Mongolia, and Pakistan (Belarus, Turkey, and Sri Lanka are currently “dialogue partners”). Of these, India, Iran, and Pakistan have been tapped for membership; the full process is expected to be complete before the 2015 SCO summit, to be held in Russia.  Despite the new membership, Global Times notes that the SCO’s primary focus will remain on Central Asia.

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