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China's unrivaled economic power will define Asia's political future

Fading external ties will not matter all that much

William Bratton

June 23, 2021 17:00 JST

A staff member looks at a robot at the World Artificial Intelligence Conference in Shanghai in July 2020: China is emerging as the primary technological innovator and supplier.   © Reuters

William Bratton is author of "China's Rise, Asia's Decline." He was previously head of equity research, Asia-Pacific, at HSBC.

Much of the current Western debate on the future of Asian geopolitics suffers from three major limitations.

The first is that it is often framed within the great power struggle between China and the U.S., with the other Asian nations seen as mere pawns within the broader game. This results in the persistent idea that the region's countries will need to choose sides in an emerging Cold War between the two superpowers, even if such an action results in punitive economic consequences.

The second is the tendency to view the region's current allegiances as fixed and to be maintained by virtue of their existence rather than the reality of the evolving situation. Such a dogmatic view, however, fails to recognize the dynamism of relationships between countries. Allegiances and animosities are rarely permanent but wax and wane depending on the relative strength of influencing factors, as demonstrated by the U.S.'s complicated history in Asia.

This leads to the third limitation, which is perhaps the most significant.

Geopolitical outcomes are determined by relative balances of power. These are frequently expressed in terms of hard or soft power capabilities, but are ultimately determined by relative economic, financial and technological strengths and interdependencies. Asia's geopolitical outlook, therefore, will be determined not by what exists today, but by how the region's various economic geographies will evolve over future decades.

This is the challenge for the West's efforts to contain China's rise. The emerging Asian economic system, which will be at the heart of the future global economy, is dominated by China with the Western powers becoming evermore marginal. And given that money and wealth often leads political influence, it is China's growing economic and financial regional dominance which will define Asia's future geopolitics, not what external powers with declining influence may want or wish.

China's rise has already dramatically reshaped Asia. For much of the 1990s, for example, it accounted for less than 10% of the region's gross domestic product with Japan the dominant economy by a substantial margin. But while Japan is today a much-diminished economic and political force, China now singularly accounts for nearly half of the region's total GDP -- a share which is expected to further increase.

This has resulted in substantial-scale asymmetries which would not matter if China was an insular economy. But it is not, as seen in the extent to which the regional economy is centralized around it. Its importance as a trading partner, for example, has steadily increased over recent decades. More than a quarter of the region's 2020 trade involved China, a record high and significantly larger than the 12% it accounted for in 2000.

This central role is being reinforced by the large-scale shifts in Asia's industrial geographies. Across numerous more advanced sectors -- including space exploration, quantum computing, artificial intelligence or complex materials -- China is emerging as the primary technological innovator and supplier. The region's financial geography is also being comprehensively rewritten with Shanghai now seen as a more important financial center than Hong Kong, Tokyo or Singapore, while China has become the largest provider of development capital for much of the region.

Skyscrapers at the Pudong Lujiazui financial district, pictured in December 2020: Shanghai now seen as a more important financial center than Hong Kong, Tokyo or Singapore.   © VCG/Getty Images

But these changes are only the beginning with China's central role set to become more entrenched as a result of persistent economic forces. Companies and industries located within the country will benefit from substantial and non-replicable advantages not just from its relative scale but also from agglomeration benefits which, once started, are difficult to break or disrupt. These advantages will be transmitted across the region through trade gains and greater financial dependencies which, in turn, will embed the region's emerging core-periphery dynamic.

Most industrial and financial activities naturally tend toward geographic concentration within the core of any defined system, and Asia will be no different. The region's economic imbalances will become more pronounced as China's economy becomes more complex, innovative and competitive, while those of its neighbors become increasingly domestically-orientated and reliant on the regional superpower for advanced goods and technologies, as well as much-needed capital.

Such core-periphery dynamics are self-reinforcing except in the most extreme scenarios. It is no surprise, therefore, that the International Monetary Fund forecasts China's share of Asian GDP to grow further over the next five years. But more importantly, it is this economic dynamic that will define the region's geopolitical future, not the fading historic, cultural, political or economic relationships with external powers.

This is why much of the debate about Asia's geopolitical future is frustrating. It frequently overlooks China's central role in the region's rapidly evolving economic geography, the link between industrial capabilities, financial strength and geopolitical power, and the reality of distance. It may be an uncomfortable reality for many but it is China's status at the core of Asia's economic system that will define the nature of future Asian geopolitics, not legacy relationships and declining influences.

The final irony is that those curious as to what this future may look like have to look no further than the impact of the U.S.'s regional hegemony across the Americas, which included frequent political interventions after the displacement of European powers from Central and South America, or the European Union's core-periphery dynamic and the resulting economic and political challenges faced by many of its outermost countries.

For better or worse, Asia is very much set to follow such examples.