In his last major work, Giovanni Arrighi (2008, p. 22) argued that US’ gradual disengagement from East Asia, during the context of “abysmal failure” of the American project in Iraq, was one of the causes of an economic integration process among Asian nations, having China as the main driving force. This process would have overshadowed the main geopolitical tensions in favor of economic development in East Asia. For Arrighi (2008, p. 308), there would be no reason for an arms race in Asia. That would “undermine the creditor position which is the main source of power of the Asian states” and it would only benefit America’s defense industry and its economy.
During the War on Terror years, the financial crisis in US and the bilateral and multilateral rapprochement between China and its neighbors in the 1990s and 2000s, the conformation of an “archipelago” of market economies less worried about security dilemmas in East Asia seemed a real possibility. But America’s “return” to East Asia with Obama’s strategic pivot and China’s more assertive position with regard to security, defense and trade and investment issues, has put the region back on the “normal” way of inter-capitalist and inter-state competition that characterizes the modern world-system.
In order to place these changes in long-term perspective, we apply Arrighi and Silver (2008, 2011) bifurcation of systemic capabilities concept. For them, the current US hegemonic crisis, which began with the “signaling crisis” of the 1970s, concentrated global military capacities in the hands of the West (especially the United States itself). On the other hand, the global financial capabilities gradually shifted to East Asia (especially to China), where we could witness the formation of an archipelago of market economies whose political units, although strengthened vis-à-vis the West, would be motivated by the pursuit of wealth in value chains under the umbrella of US military regime.
We understand that Arrighi and Silver (2011) are correct in pointing to China as the main actor of recycling world liquidity to the Global South. However, the scenarios highlighted from this process are uncertain and leave some gaps. For the authors (2011), a new hegemony (one state, a coalition of states or a world-state) would have to accommodate and promote greater equality between the North and the Global South. Our criticism is that there is no room for the hegemony concept used in the systemic cycles of accumulation because in the context of fission of systemic capabilities, the trend would be a hybrid model of political power in the West and economic power in Asia.
But this hybrid model also seems unlikely because even if the US centralizes global military capabilities, regionally China tends to be its geopolitical counterweight. Moreover, competitive pressures by Russia and China on the Rimland of Eurasia (from Eastern Europe, throughout the Middle East, Caucasus, Central Asia and East Asia) threaten the geopolitical arrangements built by the United States during and after the Cold War. Thus, centralization of global military capabilities in the hands of US has secured less and less power returns when regional dynamics involving Russia and China are at stake.
From our perspective, Southeast (SE) Asia appears to be a testing ground for this hypothesis precisely because it is highly influenced by the global liquidity recycling process promoted by China and its dynamics of regional power are strongly affected by US and China projections. Thus, by crossing economic factors with political-strategic issues, we intend to demonstrate that SE Asia faces a different kind of bifurcation: it can either move toward a “capitalist archipelago” centered around China or it can move toward a “normal” Westphalian system. In the former, China succeeds to disseminate the internalization of reproduction costs by promoting economic development and minimizes the threat perception among its neighbors on the “rising China” issue. On the latter, China externalizes the reproduction costs to insure its own needs at the expense of the neighboring countries and stages a geopolitical interstate rivalry with US for allies, strategic maritime accesses and political leverage.
The hypothesis of a “capitalist archipelago” in East Asia is valid as long as Asian nations do not perceive the Chinese advance as a threat to their economic autonomy and their national interests, and perceive the centralization of global military capabilities in “US hands” as beneficial. However, both processes seem unclear and many SE Asian countries tend to head for a squeezing middle way, where they get less and less economic and geopolitical returns from China’s rise and do not recognize or trust entirely on US military supremacy to deal with China.
Based on the data presented, we argue that China – SE Asia relations after 2008 divert from the following statement of Arrighi and Silver: “Since the East Asian economies owe their fortunes to a strict specialization in the pursuit of wealth, and not of power, one cannot expect that any of them (…) come to change direction, trying to turn into a military power of more than local importance “(ARRIGHI, SILVER, 2001, p 288). Chinese projection on East Asia (and specifically on SE Asia) gives clear signs that the country seeks to become a regional power in every way, including military, anchored to increasingly asymmetrical economic pillars with regard to its neighbors and seeking the externalization of reproduction costs. And the impacts of this process are the object of this study.
The diagram below illustrates our methodology to cross economic and political indicators in order to understand whether SE Asia moves toward a capitalist archipelago or toward a system of interstate and intercapitalist rivalry. Naturally, if we take each country separately, their location within the diagram would vary tremendously. Singapore, for example, would be located in the lower right quadrant, for its economy moved upwards in the value chains due to China’s rise, but politically, the island remains very close to US and the West. Nevertheless, as economic ties with China get more robust, Singapore tends to move to the upper right quadrant, being the clearest example of a capitalist archipelago member.
At the other end of the diagram (lower left quadrant) would be the Philippines, whose economy becomes ever more vulnerable to Chinese competition and whose strategists perceive China’s military rise as a growing threat to national security. Vietnam would be somewhere between the extremes due to its relative economic gains under China’s value chains and investments, and the move to a political equidistance between China and US, although its policymakers also fear China’s military rise.
Therefore, our effort should be to identify the location of SE Asian countries in the diagram but, even more important, to map the forces that push them to one or other direction. Thus, we need to look for the most relevant indicators that represent the economic and political forces at stake.
The “Chinese Dream” and the externalization of reproduction costs
Based on the conception of systemic cycles of accumulation, Arrighi and Silver suggest that the Long Twenty-First Century will be marked by the internalization of reproduction costs as a replacement of the economic paradigm that characterized the previous cycles. According to the authors, all hegemonies and their accumulation models were based on the externalization of reproduction costs of natural resources and labor force. Thus, the profitability of companies in the past cycles was induced to consider the natural and social elements as a productive input close to zero cost – due to the abundance (or at least the prospect of not extinction) of natural resources, and was not concerned about the waste resulting from this process (2011, p. 67). The externalization of these costs was accentuated in the Long Twentieth Century with the model of intensive production, the spread of the society of mass consumption and the unprecedented level of fossil fuels use.
The great challenge for both US, as a declining hegemony, and emerging powers such as China is to internalize the reproduction costs to their capitalist logic. So a deeper research should examine whether the economic projection of China on SE Asia tends to internalize or externalize these costs.
China’s interaction with SE Asia has been under deep transformations since the 2008 crisis and the rise of Xi Jinping under the slogan of the Chinese Dream. The new supreme leader adopted a much more assertive and nationalistic foreign policy, migrating from a pattern which sought to avoid world attention (keeping low profile) to a quest for pragmatic results (striving for achievement). Thus, many Chinese businesses and state operations in SE Asia are not only profit oriented, but also respond to a geopolitical logic of power projection, which is part of a wider strategy guided by pragmatic results in foreign policy.
The first trace of this change appears in trade flows. Trade between China and the ASEAN countries was essential for the economic integration of East Asia and the region’s development since the 1990’s. China-ASEAN interdependence had emerged as the state of the art reference on global value chains, as the bloc provided parts, components and raw materials for assembled goods in mainland China. Not coincidentally, a positive-sum game came up in which SE Asia got significant trade surplus with China by exporting low and mid value-added manufacture goods and China, in turn, operated as a double pole by exporting finished manufactured goods to rich countries. Chinese reaction to the Asian crisis of 1997 only accentuated this process, with the Yuan’s valuation to boost exports from its neighbors.
But due to the signing of China-ASEAN Free Trade Agreement (CAFTA) in 2010, the slowdown of the export-led and investment-led model in China, and the fall in international commodity prices, the asymmetry between the economies was clear and the balance of trade was reversed. The trade balance changed abruptly after 2012, breaking with the historical pattern of Chinese deficit. This process highlights the importance of peripheral regional markets to diversify China’s dependence on demand from rich countries, notably US and Europe (LI, 2009, p. 20). Furthermore, highlights the competitive challenge that Chinese industry represents to its Asian periphery, especially as it moves away from the position of “factory floor” of global manufacturing to become also a promoter of an industry with its own brands and with more value added in the whole chain.
Therefore, the formation of alternative markets in SE Asia after 2010 is an evidence of externalization of reproduction costs, as the invasion of Chinese products of medium and high added value destroyed (in the Schumpeterian sense) local industries, pressing down the working class wages, and reprimarizing the region’s economies. Moreover, this process emphasizes the aforementioned asymmetry between the economies, making it not only an economic issue, but also an interstate power issue.
On the other hand, foreign direct investment from China has created (also in the Schumpeterian sense) new industries and formed new working classes. However, the value chains created by this process are part of a hierarchy defined not only by capitalists, but also by Chinese strategists. That is, private Chinese companies invest in search of lower production costs, but state owned enterprises (SOE’s), mainly on construction and energy sectors, have built roads, bridges, power plants and ports under a Chinese strategy of power projection, co-opting local elites and getting access to geopolitical strategic points. The new Silk Road is China’s clearest example of this effort by connecting the outermost points of Asia by companies that receive generous funding from government banks and serve a purpose of power, beyond the search for immediate profits.
A further research should examine Chinese investments to understand whether they tend to internalize or externalize the costs of reproduction. Thus, we seek to evaluate whether the insertion of SE Asia in the new value chains centered in China tends to generate development, income distribution and sustainable use of natural resources, both in the logic of private capital and in the SOE’s, or to externalize these costs in order to maximize China’s gains. Furthermore, we intend to find possible causalities between these economic data and the diplomatic and geopolitical alignments of SE Asian countries to China, to US or to a convenient equidistance.
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Bruno Hendler é Doutorando em Economia Política Internacional pelo PEPI-UFRJ. Bolsista Capes