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China Economy

5 Geopolitical Trends to watch in 2019

In today’s globalised world, many geopolitical events take place every year, and they have a long-lasting effects in time. So, considering what happened on the international scene in the year that has just ended, what are the top five global trends to watch in 2019?

1 – “America first”, America alone?

President Trump’s “America First” policy was put into practice various times in 2018. He introduced new tariffs to protect the US economy; he abandoned those agreements that he deemed contrary to America’s national interest; he criticised allies for free-riding on the US in security issues.

This is a trend that will continue as long as Trump remains in the White House, and that will have an important impact on the global order. For decades, the international system was centred on the US and its commitment to sustain its rules and provide security; albeit with limitations and largely for its self-advantage. But now, Washington prefers pursuing a narrow definition of its own national interest. This has already raised concerns with traditional partners; most notably with the European members of NATO to whom he demanded to spend more on defence. This divergence between the two sides of the Atlantic has cast doubts over the tenure of the Alliance. All this happens in a moment of renewed tensions with Russia, who in turn is taking benefit from the situation because in case of a confrontation, it will have to face a more divided and therefore weaker NATO. This uncertainty over the future of the Alliance damages European but also American interests: alienating its traditional allies risks to isolate the US and to reduce its international influence.

All this happens in a delicate moment for the US economy. While its GDP grew of almost 3% in 2018, its monetary policy is object of political debate as Trump accuses the Federal Reserve of being the “only problem” of America’s economy. If the Fed keeps on raising the interest rates to contain inflation, the US growth will slow down. This will also combine with the effects of tariffs plus the considerable public and private debt. Moreover, American stock markets have lost much value in the past year: the price of shares according to the Dow Jones index dropped of around 9.5% in 2018. And if the US economy slows, the rest of the world will follow.

2 – China’s economic slowdown

The world’s second-largest economy is also facing troubles. While it is predicted to grow of about 6.6% this year, which is still extraordinary given its size, the rate is no longer a double-digit figure as in the past. The Chinese economy is also slowing down, and this will inevitable have repercussions on the global scale. As economic prosperity is considered fundamental for social stability and for the rule of the Communist Party, the government is taking measures to maintain a steady growth. This explains various initiatives like “Made in China 2025” aimed at upgrading its industry, the huge investments in high-tech, or the far-reaching “One Belt, One Road” project.

Apart from purely economic issues, this will also have geopolitical consequences. Beijing has been increasing its worldwide presence in the past decade, notably through economic means; but if its growth slows down, its ability to sustain its greater plans in the Asia-Pacific and beyond will suffer. In this sense, the very plans it is implementing to boost its economy may result counterproductive: they are certainly ambitious projects with a great potential, but they are also very challenging. The enormous investments they require will result in a waste of resources if they do not translate into economic growth, and this will hamper China’s economy. As such, observing Beijing’s economic policies and its performance through 2019 will be an indicator of its future global role.

3 – The European (dis)Union

The EU will cross troubled waters in 2019. Anti-EU movements have risen everywhere, its economic recovery remains sluggish and each of its four most important members is not in the position to lead a reform of the common institutions. The United Kingdom will finally leave, but the exact terms are still undefined and a “No Deal” Brexit seems probable. This is the worst scenario, because it means uncertainty for economic and political actors alike. Italy is now ruled by a Eurosceptic coalition that has already clashed with the EU over immigration and economic policy. Germany continues opposing more economic integration in the form of a common fiscal policy, and Angela Merkel’s leadership has been weakened. In France, President Macron is calling for a reform of the EU and promotes further integration, but his popularity is at a record low and the country has first to deal with domestic issues.

Other members are also unable or unwilling to move the integration project ahead. The emerging countries of Central-Eastern Europe, notably Poland and Hungary, want to preserve their sovereignty and therefore oppose devolving more powers to the EU. Moreover, the Union has even initiated the infraction procedure for violation of core values against these two countries, thus leading to an open diatribe. Spain is focused on problems at home; while Greece is heading towards elections in 2019, and any change in its government could make the markets nervous and result in a renewed standoff with the EU.

As such, no state is in the condition to take the lead and move forward the much-needed reform of the Union. However, what is more worrisome is that the divergences do not simply concern the policies to implement, but the basic values of the EU and its very legitimacy are questioned and openly criticised. Considering also its complex institutional procedures, it is unlikely that the stalemate will be solved in 2019. On the contrary, it is likely that the EU will be even more divided at the end of the year.

4 – Sanctions on Iranian oil

Following President Trump’s decision to scrap the nuclear deal, a boycott on Iranian oil will be reintroduced in 2019. Given that it is largely dependent on oil revenues, the Islamic Republic will certainly suffer. The effects will not be only economic, but they will extend to the social sphere as well. Signs of discontent already appeared in late 2017 – early 2018, when mass protests erupted all over the country. As pressure increases on Iran’s economy, similar episodes may repeat in 2019 with destabilising effects on the region. Moreover, this means that Iran will have much less resources to sustain its goals abroad; notably in Iraq and Syria. As a result, it will have to reduce its international commitment and focus on domestic issues.

But this will also affect other countries who used to buy oil from Iran. China and India were its main customers, followed by Japan, South Korea and European countries. As sanctions come back into effect in 2019, such states will comply and change their import sources to avoid angering the US. This will impact the global oil market by putting an upward pressure on its price; even though many effects such as a less than expected demand may nullify this effect at least in part. Finally, while the intended effect of the boycott is to put pressure on the country and force it to negotiate another deal deemed more compatible with America’s interest, it is possible that the result will be the opposite. If Iran feels threatened enough by the US, it may decide to resume its nuclear programme after concluding that is the only way to ensure its national security. This is not likely, because Teheran would be even more isolated, but if this happens the whole region will be further destabilized.

5 – Tension with Russia

Relations between Russia and the US have not improved through 2018. Many important issues continue dividing them, like the war in Syria or Ukraine’s issue. The situation remains volatile in both cases, and the recent Kerch Strait incident has revived tensions between Moscow and Kiev. Additionally, there is another country to watch: Georgia. The new President Salome Zurabishvili has pro-EU Western views and openly calls for Georgia to join the EU and NATO. Russia will hardly accept such a scenario and may launch a military operation to prevent it, thus sparking another crisis in the post-Soviet space.

Moreover, a pillar of the longstanding strategic equilibrium between Russia and NATO has fallen: the Intermediate-Range Nuclear Forces Treaty, or INF. This agreement, dating back to the Cold War, prohibited the deployment of intermediate-range ballistic missiles in Europe, as they risked compromising the nuclear balance in the region: due to their limited range, such weapons enabled the Soviets to strike NATO in Europe without threatening the US territory, thus casting doubts among Europeans that in such an eventuality the Americans would have exposed themselves to retaliation by launching nuclear weapons on the USSR just to protect Europe.

Now that the Treaty is gone, a new arms race is likely to take place, and in fact this is already happening. Russia has tested several nuclear-capable ballistic missiles in 2018, and is rapidly working to deploy new hypersonic missiles capable of travelling at five times the speed of sound or more. The US is doing the same, and both powers are developing new weapon systems and doctrines to prevail on the other. But to pursue these objectives, Russia needs economic resources. Since oil is one of its main sources of revenues, Moscow will seek to coordinate with other producers to keep its price high enough to sustain its economy. This will largely determine the evolution of Russia’s role in 2019, but one thing is sure: Moscow will do its best to pursue its interests abroad, and as the Russian-American rivalry continues, the international scene will remain tense.

Will China take over Europe?

For over a decade, Chinese political and corporate leaders have been hunting for investment opportunities around the globe with bottomless wallets. From Asia, to Africa, the U.S and Latin America, China has asserted itself as an emerging world power. The multi-billion dollar belt and road initiative which some have called as the “Chinese Marshall Plan,” is designed to encourage economic connectivity and integration to the Eurasia strategic landscape, by linking Europe and Asia by land.

Europe is a key piece in China’s grand ambitions and China has been significantly expanding its economic footprint in Europe. So much so that it has led the EU to devise a counter-strategy in order to prevent the creation of political and financial dependencies. I’m Kasim, welcome to KJ Vids and in this video we take a look at China’s investments in Europe.

Since 2008, the landscape of Chinese foreign direct investments in the European Union has changed dramatically. From $840 million invested in 2008, China’s annual FDI in Europe grew to $42 billion in 2017. According to a recent compilation by Bloomberg, total Chinese investments in Europe, including both mergers and acquisitions (M&A) and greenfield investments, amount to $318 billion, 45 percent more than Chinese investment in the U.S. between 2008 and 2017.

China has taken over approximately 360 European companies. In the first six months of 2018, research by global law firm Baker McKenzie found that the value of newly announced Chinese merger and acquisitions in Europe hit $22 billion by the mid-point of the year, nine times higher than in North America where it was just $2.5 billion.

China’s investments are broadly spread geographically, although the largest European economies – the United Kingdom ($70 billion in cumulative Chinese investment), Italy ($31 billion), Germany ($20 billion), and France ($13 billion) – attract the largest share of Chinese capital. Among China’s iconic investments in Europe is the Hinkley Point nuclear plant in southern England, which is one third funded by China.

For over a decade now, the City of London has been a magnet for Chinese cash as Beijing tries to build its currency, the Yuan, into a world currency. By and large, Chinese money has been going into real estate and finance, with Chinese state banks well represented and active in the bond market and the international exchange market. Chinese citizens represent almost half of the investor visas the UK granted in 2017, outnumbering Russians, the next largest group of investor visa recipients, by 250 percent. Despite the largely uncertain future of the UK as a market once it exits the EU, China is betting on the British capital as an emerging hub of Chinese finance.

In Germany, China’s investments started with the purchase of family-run industrial companies, such as machine-tool maker Putzmeister in 2010, and continued with the Chinese company Midea’s acquisition of robotics company Kuka AG in 2016 for $5.2 billion. More recently, a Chinese investor’s $1 billion acquisition made it became the top shareholder of Daimler AG. German debate over Chinese FDI has intensified since the launch in 2015 of China’s Made in China 2025 strategy, a national plan that aims to make the country a champion in key high-tech industries such as aerospace, robotics, and artificial intelligence. Many Chinese companies have eyed German companies with the goal of acquiring technologies and orchestrating transfers of these technologies.

In Italy, China’s Silk Road Fund helped China National Chemical Corporation, also known as ChemChina, buy tire maker Pirelli in 2015 for $7.7billion. ChemChina has also acquired a string of industrial and energy related companies.

In the EU’s immediate neighbourhood, Switzerland has captured the lion’s share of Chinese FDI with ChemChina’s acquisition of Syngenta, one of the world’s largest agri-business conglomerates. The deal was finalized in 2018 for $46 billion, making it the world’s single largest acquisition by a Chinese company.

The islands of Cyprus and Malta, both full EU member-states, are throwing open the gates to Chinese investors, especially in finance and real estate. Both have also become strong supporters of China. Then there are the cases of Greece and Portugal, two Southern European countries that together account for a modest 2.5 percent of the EU’s GDP in 2017.

China has become a key-investor in Greece, mainly through a central investment project. In 2016, a Chinese state-owned corporation, China Ocean Shipping Company (Cosco), took over 67 per cent of Athens’ Piraeus harbour. China has signalled that it intends to use this port as the main platform for its maritime Silk Road, part of Beijing’s “Belt and Road” Initiative. Most Chinese companies are now using Piraeus as their principal port of entry in Southern Europe. Visiting China in 2016, Prime Minister Alexis Tsipras declared that Greece intends to “serve as China’s gateway into Europe”.

To the west, Portugal has become a key recipient of Chinese investment. Per capita, it is one of the largest in Europe. During a Euro region’s crisis in 2011, the Lisbon government was under pressure from the European Commission, the European Central Bank, and the International Monetary Fund (IMF), the so-called “troika,” to sell state assets. China stepped forward to offer foreign investment. As part of the bailout, China Three Gorges bought 26 per cent of EDP, and State Grid Corp. of China bought a stake in Portugal’s power distributor, REN-Redes Energeticas Nacionais SA. Fosun Group, a privately-owned Shanghai-based company, controls the Portugal’s largest insurer, Fidelidade, and a group of private hospitals. The list of Chinese investments seem endless, but does any of this translate into political influence?

According to Thomas Wright, the Director of the Centre on the United States and Europe at Brookings, the Chinese leadership’s seeking of political influence in the EU is driven by two interlocking motivations: ensuring regime stability at home and presenting its political concepts as a competitive way of political and economic governance to a growing number of third countries.

Unlike the current Russian government, Beijing is interested in a stable — but pliant and fragmented —EU and the large and integrated European single market that underpins it. Properly managed, the Chinese leadership has concluded, parts of Europe can be a useful conduit to further its interests. Politically, it is seen as a potential counterweight to the U.S. – one that is even more easily mobilized in the era of the Trump administration’s “America First” approach. Beijing is also acutely aware that Europe has many assets like technology and intellectual property, which China needs for its industrial upgrading, at least in those domains in which it has not yet established its own technological leadership. The EU is also useful as a ‘legitimizer’ of Chinese global political and economic activities, such as the Belt and Road Initiative (BRI).

Beijing pursues three related goals. The first is aimed at building support among third countries like EU member states on specific issues and policy agendas, such as gaining market economy status from the EU or recognition of territorial claims in the South China Sea. A part of this short-term goal is to build solid networks among European politicians, businesses, media, think tanks, and universities, thereby creating layers of active support for Chinese interests. Recent Chinese attempts to discourage individual EU countries from taking measures that run against Chinese interests, such as supporting a coordinated EU response to China’s territorial claims in the South China Sea, meeting with the Dalai Lama, or criticizing Beijing’s human rights record, are cases in point.

According to Thomas Wright, the second related goal is to weaken Western unity, both within Europe and across the Atlantic. Beijing realized early on that dividing the U.S. and the EU would be crucial to isolating the U.S., countering Western influence more broadly, and expanding its own global reach. China senses that a window of opportunity to pursue its goals has opened, with the Trump administration seen as withdrawing from the role as guardian of the liberal international order that the U.S. has long played. This comes in addition to the challenges Western liberal democracies face from the rise of illiberal-authoritarian political movements.

The third goal is broader in terms sense of “making the world safe more China’s autocratic model.” This means creating a more positive global perception of China and presenting its political as well as economic system as a viable alternative to liberal democracies. In large part, this is motivated by China’s continued fear of the appeal of so-called Western ideas like liberal and democratic values. From the vantage point of Beijing, European and Western ‘soft power’ has always had a sharp, aggressive edge, threatening the Chinese regime. At the same time, this goal is based on the idea that as China rises in economic and military terms, it should command more respect in the court of global public opinion. Activities geared towards long-term shifts in global perceptions include improving China’s global image through measures like media cooperation, making liberal democracy less popular globally by pointing out real or alleged inefficiencies in democratic decision-making processes, and supporting illiberal tendencies in European countries.

Given the rapidity of China’s economic development in the past 30 years it has taken the EU some time to acknowledge the growing power and influence of Beijing. Not only has China become a trading giant, it sits on the world’s largest currency reserves and is an increasingly important provider of foreign investment including in Europe.

Recently, however, a number of developments have generated a sense of caution among European politicians and policymakers. On 19th September 2017, the EU published its much-anticipated strategy to counter China’s increasing economic influence in Europe.

China’s refusal to tackle the dominant position of its state-owned enterprises led the EU to refuse to grant China market economy status. Beijing’s targeting of European technology has also led to plans for screening of Chinese investments in Europe. But it was the massive infrastructure investments under BRI that raised concerns in Brussels, as well as Washington, Delhi and other capitals about the implications of China’s approach.

In the spring of 2018 EU ambassadors in China penned a report critical of the BRI for being economically, environmentally, socially and financially unsustainable. It also criticised China for discriminating against foreign businesses, the lack of transparent bidding processes and the limited market access for European businesses in China.

China’s involvement in the EU and its neighbourhood also rang warning bells. In 2014, Montenegro concluded an agreement with China Exim Bank on the financing for 85% of a highway construction project, with the estimated cost equalling 25% of the country’s GDP.

The IMF has repeatedly stated that construction should only continue on the basis of concessional funds. Many believe that a debt default is likely, which may result in the involuntary handover of critical infrastructure to China.

Likewise, China’s entire or partial acquisition of ports in Belgium, the Netherlands, Spain, Italy and most notably Greece has not gone unnoticed. Without serious hindrance, China is buying up critical infrastructure in Europe, whereas European foreign direct investment in China is decreasing.

China has already reaped some political benefit from these investments with some member states blocking resolutions critical of human rights in China or condemning Beijing’s conduct in the South China Sea.

Similarly, European officials have also questioned the environmental and economic sustainability of various Chinese connectivity projects. The planned construction of six coal-based power plants in Pakistan whose joint output capacity equals 27% of the country’s current capacity has been criticised as environmentally unsustainable.

Sri Lanka has been unable to repay Chinese loans for the construction of the Hambantota port. As a result, the port and surrounding acres of land, strategically located at the crossroads of the Indian Ocean, the Bay of Bengal and the Arabian Sea, will now be under Chinese control until the year 2114.

Malaysia and Myanmar are also seeking to renegotiate loans taken out under the BRI.

These examples have increased EU concerns as China has expanded its influence in Asia, Central Asia and Europe. But the EU was well aware that mere peer pressure would not drive China to reconsider its strategy. To secure its own political and economic interests, the EU had to put forward an ambitious and comprehensive response, which was to strengthen its own links with the host countries and to present them with a credible and sustainable alternative offer for connectivity financing.

The new strategy will give Asian and European states a much clearer idea on the basis of which the EU wishes to engage with them, and what they can expect. Although some financing is mentioned in the EU paper, we will have to wait and see how the ongoing negotiations for the next EU budget will be in allocating sufficient EU funds to connectivity financing in order to mobilise additional investment from private and multilateral investors. The EU strategy will also need united support from member states, a solid public communications strategy, and broad bi- and multilateral outreach programmes to the EU’s partners.

Geopolitical competition in Eurasia will undoubtedly increase with China, Russia, the US and the EU competing for influence. The connectivity strategy of the EU has set down a marker that the EU is part of the Great Game.

Thanks for watching another KJ Vid, see you next time.

The South China Sea Dispute | The Rise of China Mini Documentary | Episode 4

The South China Sea Dispute | The Rise of China Mini Documentary | Episode 4

KJ Vids is pleased to have launched the fourth episode in our Rise of China 2017 documentary series. In this episode you will learn more about the Sino-American conflict in the South China Sea.

Once both China’s dominant economic market and its physical infrastructure have integrated its neighbours into China’s greater co-prosperity area, the United States’ post–World War II position in Asia will become untenable.

The attempt to persuade the United States to accept the new reality has recently become most intense in the South China Sea. An area approximately the size of the Caribbean and bordered by China, Taiwan, Vietnam, Philippines and others of Southeast Asia, the sea includes several hundred islands, reefs, and other features, many of which are under water at high tide.

In 2012, China took control of Scarborough Shoal from the Philippines. Since then, it has enlarged its claims, asserting exclusive ownership of the entire South China Sea and redefining the area by redrawing the map with a “nine-dash line” that encompasses 90 percent of the territory. If accepted by others, its neighbouring countries have observed that this would create a “South China Lake.”

China has also undertaken major construction projects building ports, airstrips, radar facilities, lighthouses, and support buildings, all of which expand the reach of its ships and military aircraft and allow Beijing to blanket the region with radar and surveillance assets.

The United States has no doubt about what is driving this undertaking. As a recent Defense Department report notes, China’s “latest land reclamation and construction will also allow it to berth deeper draft ships at outposts; expand its law enforcement and naval presence farther south into the South China Sea; and potentially operate aircraft that could enable China to conduct sustained operations with aircraft carriers in the area.”

China’s longer-term objective is also clear. For decades it has chafed at the operation of US spy ships in waters adjacent to its borders.

While Chinese military planners are not forecasting war, the war for which they are preparing pits China against the US at sea. The powers that dominated China during the century of humiliation all relied on naval supremacy to do so.

Xi is determined to not make the same mistake, strengthening the navy, air, and missile forces of the PLA crucial to controlling the seas, while cutting 300,000 army troops and reducing the ground forces’ traditional dominance within the military.

Chinese military strategists, meanwhile, are preparing for maritime conflict with a “forward defense” strategy based on controlling the seas near China within the “first island chain,” which runs from Japan, through Taiwan, to the Philippines and the South China Sea. A third world war is not inevitable, but if there is to be WW3, it will certainly begin here.

Previous Episodes

Link to Episode 1 | https://youtu.be/MJLpGiHhr8E

In the first episode we had a look at the scale of China’s Economy today and China’s economic development, to understand why China has become a favourite by analysts around the world to become the great power of the 21st century.

Link to Episode 2 | https://youtu.be/73k3v-AxJvM

In the second episode we took a look at the challenges that China will have to overcome in order to assert its influence over the world. Is there a China economic bubble? Will China’s Economy collapse? This video will hopefully develop your understanding of the Chinese Economy.

Link to Episode 3 | https://youtu.be/nvm0V95yjeA

In the third episode we took a look at the Chinese President, Xi Jinping. What are his ambitions? Can he achieve them? In 2012, China’s President, Xi Jinping, said “The greatest Chinese dream is the great rejuvenation of the Chinese nation.”

The research for this video was based on an excellent book by Graham Allison called “Destined for War”. If you wish to buy it, using the link below will allow KJ Vids to generate a small commission which would help our YouTube Channel. Thank you.

Amazon Buy Book Link – http://amzn.to/2nGp1Cb

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China’s Risks and Challenges | The Rise of China Mini Documentary | Episode 2

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The “Rise of China” Mini Documentary | Episode 2 | China’s Economic Risks and Challenges

KJ Vids is pleased to have launched the second episode in our Rise of China 2017 documentary series. In this episode we will have a critical look on China Economy.

In the previous episode (https://youtu.be/MJLpGiHhr8E) we had a look at the scale of China’s Economy today and China’s economic development, to understand why China has become a favourite by analysts around the world to become the great power of the 21st century. In this episode we will take a look at the challenges that China will have to overcome in order to assert its influence over the world. Is there a China economic bubble? Will China’s Economy collapse? This video will hopefully develop your understanding of the Chinese Economy.

In May 2017, the Credit rating agency Moody’s cut China’s debt rating for the first time since 1989 and warned that the country’s financial health is suffering from rising debt and that China’s Economy is showing a slowing economic growth. More recently S&P Global Ratings downgraded China’s sovereign rating for the first time since 1999, citing the country’s greater economic and financial risks. Many other analysts also argue that there is a China debt crisis.

These Fears about debt levels in the world’s second-largest economy have reignited debate over the fundamentals of China’s future – whether the country is leaping over the middle-income trap with a leaner and more sustainable growth model or whether it is on a debt-fuelled path to disaster.

In this episode we will explain China’s economy and take a look into China’s Debt Bubble, China’s State Enterprise, China’s Employment, China’s Competition, China’s Fiscal System, China’s Real Estate, China’s Domestic Consumption and China’s Greatest Fear.

Watch Previous Episode of China Documentary | China’s Economic Miracle

The research for this video was based on an excellent book by Graham Allison called “Destined for War”. If you wish to buy it, using the link below will allow KJ Vids to generate a small commission which would help our YouTube Channel. Thank you.

Amazon Buy Book Link – http://amzn.to/2nGp1Cb

Don’t forget to subscribe to our YouTube Channel

We’re also currently running a crowdfunding campaign to help our operation produce more and better videos. You may donate what you towards our project here – http://www.crowdfunder.co.uk/kj-vids

Support our content by becoming a KJ Patreon
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China’s Economic Miracle | The Rise of China Mini-Documentary | Episode 1

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The Rise of China Mini-Documentary | Episode 1 | China’s Economic Miracle

Two centuries ago, Napoleon warned, “Let China sleep: when she wakes, she will shake the world.”

The rise of China will undoubtedly be one of the great dramas of the twenty-first century. China’s extraordinary economic growth and active diplomacy are already transforming East Asia, and future decades will see even greater increases in Chinese power and influence.

In this episode we will look only at the sheer size of China today. We will then look at it’s threats, challenges and confrontations with America in future episodes.

In 1980, China’s gross domestic product (GDP) was less than 300 billion dollars; by 2015, it was 11 trillion dollars—making it the world’s second-largest economy by market exchange rates. China’s trade with the outside world in 1980 amounted to less than 40 billion dollars; by 2015, it had increased one hundredfold, to a whopping 4 trillion dollars.

Even at its lower growth rate in 2015, China’s economy created a Greece every sixteen weeks and an Israel every twenty-five weeks.

Measured by purchasing power parity, which measures how many aircraft, missiles, ships, sailors, pilots, drones, bases, and other military- related items a state can buy and the prices it has to pay in its own national currency, China has not only surpassed the US, but also now accounts for roughly 18 percent of world GDP, compared to just 2 percent in 1980.

By 2005, the country was building the square-foot equivalent of today’s Rome every two weeks.

Between 2011 and 2013, China both produced and used more cement than US did in the entire twentieth century.

On its current path, China will surpass the US to become the world leader in research-and-development spending by 2019.

Since June 2013, the world’s fastest supercomputer has been located not in Silicon Valley but in China. Indeed, in the rankings of the world’s 500 fastest supercomputers—a list from which China was absent in 2001—today it has 167, two more than the United States. Moreover, China’s top supercomputer is five times faster than the closest American competitor. And while China’s supercomputers previously relied heavily on American processors, its top computer in 2016 was built entirely with domestic processors.

As China’s economy has gotten bigger, its guns and tanks—and their twenty-first-century equivalents—have gotten better, and allowed for a new level of competition with other great powers, especially the United States. Just as technology start-ups like Facebook and Uber have used the concept of disruptive innovation to upend previously dominant firms, the Chinese military is developing new technologies that can counter ships, planes, and satellites that the US has developed over decades—and for a fraction of the cost.

China has increased its defense spending nearly fivefold over the last decade. China currently spends more on defense than Japan, South Korea, the Philippines, and Vietnam combined, and China’s military spending is second only to the United States.

China is now building a Blue Water navy. A Blue Water navy patrols the oceans. It will take another thirty years (assuming economic progression) for China to build naval capacity to seriously challenge the most powerful seaborne force the world has ever seen – the US navy. But in the medium to short term, as it builds, and trains, and learns, the Chinese navy will bump up against its rivals in the seas; and how those bumps are managed will define great power politics in this century.

China intends to become a two-ocean power (Pacific and Indian). To achieve this China is investing in deep-water ports in Burma, Bangladesh, Pakistan and Sri Lanka – an investment which buys it good relations, the potential for its future navy to have friendly bases to visit or reside in, and trade links back home.

In 2014, China inaugurated a major international economic development program by financing infrastructure projects in the historical silk route countries. It is engaged in financing economic infrastructure projects in the silk route countries with positive ROI for China and the recipient countries.

The Chinese are also building ports in Kenya, railway lines in Angola, and a hydroelectric dam in Ethiopia. They are scouring the length and breadth of the whole of Africa for minerals and precious metals.

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