Petro-Yuan matrix: Engine for Chinese dominance in 21st century

Dr. Mayengbam Lalit Singh *

It is said that 20th century is century for U.S.A whereas 21st century will be for China. During 18th and 19th centuries, European colonisers such UK, Portugal, Spain, France, Netherland were the key players in the world in every spheres. They framed political, economic and social institutions in their colonies in order to make them global powers.

These institutions helped them to shift property rights of indigenous people to these colonisers. There was high growth of economies in those colonisers which led them to cut throat competition in order to gain supremacy. Such competition yielded in physical wars not only among colonisers but also among colonies across the world. Finally UK became victorious and it emerged as global power with its sets of policies across world.

In economic policies, it framed trade laws wherein its colonies should trade exclusively with UK. These colonies were compelled to supply raw materials to feed industries in UK. The final products were sold at colonies at the price not determined by market but monopoly price. This led to high growth in profit and global manufacturing power. In terms of politics also, it framed laws on democracy and forcibly implemented it suppressing traditional method of governance.

In the beginning of the 20th century, USA and Germany slowly raise their economic growths. UK accommodated the rise of USA, whereas the raise of Germany was challenge to the former. It was the outbreak of Second World War which led to paradigm shifts of countries in their respective position in the global race for dominance.

Owing to severe war between Germany and UK, manufacturing of goods were shifted to USA from UK. This was the beginning of Raise of USA whereas the downfall of UK. After war, there was situation where UK could not control its colonies in Asia and Africa politically. Many countries got independence from rule of UK which fuelled further decline of dominance of UK.

USA chose different strategies which are characteristically political, economic and institutions. During UK’s dominance, it was physical colonism which was followed by economic and institutions. However, for the case of dominance of USA, it was institutions to be followed by economics and politics. Precisely, after Second World War, USA initiated many institutes in the name of restoring peace in the world.

Among the institutes, UNO, IMF, GATT, WDB, Security Council are the main institutions where USA took leading role. Frameworks of these institutions were set so that all the policies should be USA centric. UNO was established in order to restore peace in the world and not break out further world war.

However, working nature of this institute was set in such way that all the frameworks should be set by the USA and it should be ratified by its member countries. IMF was established to ensure currencies to avoid economic chaos such as inflations and deflations across the member countries. However, distribution of quota systems was so lopsided where USA and developed western countries had been holding maximum quota.

Developing countries had not been conferred with increase in it despite the economic development of these countries. These higher quota countries set US Dollar as main currency to smoothen flows of import and export among countries. This made US Dollar a highly demanded currency and USA benefits itself using dollar as engine of growth.

Similarly in GATT also, USA and its allies set all rules of export and import in order to yield in maximum gains irrespective of the voice of developing countries. WDB had been witnessed to deliver development loans to mainly the countries which were found loyal to USA. This causes dissatisfaction grossly over many decades to developing countries.

Among the developing countries China has been witnessed to manoeuvre on its development path since it globalised its economy in 1978. It allowed foreign firms to invest various manufacturing plants. Cheap labour and favourable manufacturing environment leads to establishment of foreign firms. In order to feed various manufacturing plants, China started searching for raw materials across the countries especially in Africa and Latin America.

It installed mining firms in these countries with exchange of consumers’ goods manufactured in it. Such development posed imminent threat to American dominance and the former president, George W. Bush administration considered waging policies against China. However, bombing of Twin Tower by terrorist group, Al-Kaida in 2001 diverted American attention from China to Middle East and Afganistan where USA conducted war against terrorist groups. China deepened its economic relation in Africa and Latin America.

It signed many agreements with wide ranged sectors. Unlike USA, Chinese philosophy in the race dominance is an economic policy which is followed by political policy. As part of economic policy, it built many infrastructural projects in the countries in the above mentioned continents. In order to protect those projects, it employed its troops in these countries. This ensured China for free flow of raw materials from these countries.

In return, China had been allowed to set up vast market for its gigantic manufacturing firms in these countries. China is not happy with the hegemony of American dominance in oil sector since it has been the largest importer of oil from abroad. American dominance became degrading since 2008 when financial chaos took place in its economy which resulted in degradation of dominance Petro-Dollar dominance.

Degradation of dollar was further deepened by sanctions of USA and EU on Russia over Ukrainian crisis. Now Russia brought up galvanised trade bonds among BRICS rather than its economic ties with the West. During the last decades, China has grossly increases it’s GDP by trillion $14 after USA with trillion $20 in 2018. It has recorded trade surplus worthy of trillion $4 mainly from its exports.

According to World Development Bank, it has improved many developmental indicators such Purchasing Power Parity (PPP), rural economy, infrastructures, transport infrastructures, life expectancy, availability of electricity, drinking water, health care, etc. It has constructed road connectivity as well as rail across Asia (commonly known “Silk Road” as past centuries). Recently, China initiated to set up institutions which bestow it as global main player.

Both China and Russia have set up BRICS bank wherein China has 50 percent of the total share. It is considered as parallel to the working World Development Bank and Asian Development Bank funded by Japan. In order to invest in infrastructural sector, it also set up Asian Infrastructure Investment Bank (AIIB). Many countries including from EU are members of this bank to invest infrastructural projects in Asia, Africa and Latin America.

Owing to repeated recessions in USA and its hegemony, countries across the world lose confidence on valuation of goods based on USA dollar. China after consultation with Russia, Iran, India and oil producing countries of Africa and Latin America, has launched Petro-Yuan to replace the former for smooth determination of values of goods and services.

This yields in dominance of China in economic platform of the world whereas it is appeared as Achille point for USA. Former Iraqi president, Sadam Hussain and Libiyan president, Md. Gadafi lost their lives in the hands of USA when they tried to replace USA dollar with other currency in trading of oil.

Developing countries including India are expected to get benefits from this multi polar world. These countries had been underscored in quota systems under USA led institutions despite high growth and developmental rates. BRICS and AIIB will invest in the areas where former institutions declined to invest. Moreover, Petro-Yuan is expected to remove the WTO imposed policies which favour only developed countries of the West in world trade platform.

From the regional perspective, developmental economists also look forward to infrastructural changes. North East region has been backward many sectors especially in infrastructure. Indian policymakers focus on centrifugal law of development (development should be wave out from central states of India). However, pragmatic development shows still infrastructural developments are lacking in this region which is at periphery.

In this globalised world, developmental frameworks are found centripetal (from periphery to the centre). If China builds infrastructural projects through North East region, it is expected to flourish boom in many sectors in this region.