Geopolitics by 2020
Chinese Interest Projection Following the Financial Crisis
Outline: Following the financial crisis most governments find themselves in a position where they are heavily reliant on financing their fiscal deficits via the bond markets. Over the last few years China has turned into a major player which is evidenced by its role as being the United States' largest creditor. With the collapse of the price for natural resources and Japan struggling to hold up its current account surplus the only government capable of acting as 'lender of last resort’ is China, especially since the IMF seems to be underfunded for the upcoming rescue operations it will have to undertake throughout the world. With Britain and the United States already posting budget deficits in excess of ten percent of GDP and nations like Spain on the verge of an unemployment rate of twenty percent there will be demand in years to come for Chinese savings. In contrast to the bond market China is in a position where it can shore up confidence by showing commitment to its debtors.
Some nations have already accessed the IMFs credit lines and following the G20 summit there has been a promise to increase its funds but the so-called 'rich' nations of the developed world are not in a position where they can contribute. Nations like China will want to increase their voting shares and standing in those institutions to fully reflect their new standing the economic order if they are to chip in.
Slightly more than ten years ago the Chinese government was fully embarrassed in front of the world public when things heated up around Taiwan and a group of American aircraft carriers successfully deterred the Chinese and demonstrated that even thousands of miles from its home shores the Americans where in a dominant position.
However it has been argued that as of today China finds itself in a position of relative strength where thanks to its large US asset holdings it can now counter any military move by the US with an economic one. Not long ago the British newspaper 'Daily Telegraph' reported that Chinese officials had already started making noises that in case of emergency China could liquidate its US asset holdings by using them as a political weapon and thus cause considerable damage to the US Dollar and the governments' finances. Taking into account that economic strength, a diplomatic offensive and a military build-up by the Chinese it is to be estimated that by 2020 China will be in an ever better position to project its national interests despite a divergence of interests on some key issues around the globe. Taiwan now looks increasingly unlikely to receive US aid should it come to a confrontation with China for the simple reason that the balance of power has shifted and the US is no longer able to fully project its interests and values so close to China's sphere of influence. Japan and South Korea as US-allies need to carefully monitor this situation as US weakness on Taiwan could easily spread to US weakness in East Asia.
This thesis will analyze the following points:
• Situation in 1996 in the build-up to the Third Taiwan Strait Crisis and how the balance of power used to be back then
• What caused the changes in the balance of power we are witnessing today by having a look at the developments in economy, diplomacy and military
• Implications of an economic depression in the Western World for the geopolitical setup by 2020
