Is China Really Ready to Take the Leading Role in the Next World Order?

Modern society, particularly since the the dawn of social media platforms bolstered by the rise and shine of smartphones and targeted advertising, lives a lot at present tense. Things are happening now, you have to hurry to not miss out, and before you finish a sentence here comes a new notification to distract you...

Hold on a second to check this!... What was I saying? Crap, I forgot! Probably not important, right? 😅

Probably happened to you. It certainly happened to me. Not necessarily checking notifications during a conversation, but being distracted and then forgetting the idea I was talking about...

In such a society, where a 4-year cycle for Bitcoin seems long and people become anxious if nothing exciting happens for a few months, it's hard to even imagine cycles that last hundreds of years. And even more difficult to comprehend how long it takes for such a cycle to top before it sharply moves onto a descending trajectory.

It is clearly documented throughout history that empires rise (usually through conflict), consolidate their power (impose a new world order), enjoy peace(?) and prosperity, make enemies, defend their position, lose competitiveness, a potential contender to their position rises, make more enemies, defend their position even harder, their contender gets closer and passes by, the contender wants the leading role, the current leader doesn't want to let go, resolution through major conflict (usually). Repeat.

The shortest phases of such a cycle is the conflict and the following peace treaties that impose the new world order.

Can you imagine that if WW2 ended the other way around, Hitler's Germany would have imposed the new world order after WW2?

The empire which establishes and protects a certain world order usually has several key points in its favor, or the majority of them:

• the world reserve currency status for its own national currency
• economy strength
• military might to protect its status, including friendly trade and trade routes
• technological superiority
• the most well-developed financial markets
• better education system, which leads to
• better research and innovation than competition

Since BRICS started to be promoted as a sort of a counter-part to both NATO and the Western established economies (+Japan, Australia, etc.), talk about the downfall of the US Dollar as a world reserve currency and China leading a new world order has been intensified.

Word orders do change... That's a fact! Proven without exception throughout history. And it happens cyclically. The question is should we talk about it as it is an imminent thing or even something that will happen this decade?

Yes, I know, there is this speculation that the Middle East conflict will be the catalyst that will trigger the change in the world order, once all parties will be sucked into the conflict... But this may be a bit... premature.

Let's examine some facts.

World Reserve Currency Status

The table below shows the composition of official foreign exchange reserves, up until the end of 2023.

Source

Yes, the USD was at 65% in 2016, and is at 58% now, but it has lost mostly to "friendly" currencies, like the JPY, GBP, CAD, or AUD.

Moreover, the Chinese YUAN is at 2.29% in 2023 and the highest percentage was reached in 2021, at 2.80%. Quite a difference to 58%, right? There is no member of BRICS with a strong enough currency at the moment to challenge the USD as reserve currency.

The closest competitor for USD is Euro (at around 20%), but it isn't trending up either.

Economy Strength

Both the US and China's economies showed signs of weakness post lockdowns.

What I want to remark here is that China has a major trade deficit against the US and has no alternative to replace it with something else in the short term (years). That pretty much makes the Chinese economy dependent on the US. You can't really contest someone's lead role in the world order as long as your economy depends on them, can you?

Military Might

Well, I'd rather not speculate who's guns are longer or deadlier. I think both sides (here the other side is mostly Russia, China is more calculated and less advanced militarily) have itchy fingers at this point and have had them for a while now.

If we will have a world war this decade probably depends on luck or misfortune as much as on strategic decisions. The latter would take into consideration the end result of the war. What the side that starts it tries to accomplish. Does it have the upper cards to play besides the military card?

Technological Superiority

For a good while, China was known for reverse-engineering and copying technologies from the West. This is not the case anymore. They started becoming innovators and builders of their own technology.

I don't know how things stand between the two countries, but my impression is the US still has some leverage in the military and space tech, but overall, the Chinese society (cities) is more technological advanced and is on the uptrend. I might be wrong, since I never visited either countries, so I have no direct contact impressions.

Financial Markets

I think in this case we have a clear winner: Wall Street. It's not even disputed, unlike the supremacy of USD as a reserve currency. Not much else to say. Everyone else, particularly countries that might contest the supremacy of the US, are light years away in terms of financial markets. Have you ever heard of the Chinese Stock Exchange or something similar? Yeah, neither have I, although mostly likely there is one with some regional impact.

Disruption will come not from TradFi markets but from global tech-based markets, like cryptocurrencies. It will be interesting to see the next US administration's stance on the crypto space. They'd better learn, embrace, and allow TradFi to upgrade, if they want to keep their competitive edge in this domain.

Better Education System

I don't know what to say here... To me, from afar, the US high education system seems more like a money-making machine than one focused on excellence. But maybe it's a combination of both.

I know nothing about the education system in China, other than they are usually very good at math.

Better Research and Innovation than Competition

Here the US seems to continue to have the upper hand (thinking about the top tech companies), but China comes very strongly from behind.

Conclusion

I remember during the initial phases of the war in Ukraine, China started to have a more aggressive discourse. At some point there was a high-level meeting between the US and Chinese officials, and their positions started to become more "nuanced", unless they were challenged directly.

China is major geopolitical and economic player in the world. But I don't think they will confront the US directly if they aren't almost sure they will have the upper hand after the conflict. And right now and for the following years they have the lower hand, being dependent economically from exports to the US.

This policy might change after a leadership change, which is always impredictable...

Posted Using InLeo Alpha