05 Jul 2013

The rise of China has left an indelible mark on the world. Even as opportunities for greater cooperation among developing nations emerge, there will be costs in the adjustment to the new distribution of global power. In his new book The World Turned Upside Down, Venezuelan Ambassador to Singapore Alfredo Toro Hardy makes an intriguing observation – that the “Arc of History is bending to the emerging economies of the South” and the World has been turned “upside down” with the emergence of China.

In geopolitical terms, the growing integration between China and Latin America at the expense of the developed West, power is shifting from the North to the South. This is a process that has its origins in the reform and opening up of China’s economy in the late 1970s. Yet, the road ahead for China and other emerging economies will not be easy. The process of development has been accompanied by growing pains such as poverty, social inequality, and environmental issues.

With China’s rise bringing forth both challenges and opportunities, the LKY School has been integral in providing cutting- edge policy research and analysis on the rise of China. In particular, it has focused on the rise of China vis-a-vis the rise of other powers such as India and the preponderance of existing powers like the US. A key insight arising from the School’s work is that China-India cooperation is possible despite conflicting interests and geopolitical realities. In particular, growing interdependency between China and India can foster greater cooperation and stability.

Sino-Indian relations thus represent the most successful South-South cooperation of our times, and it is an issue which the LKY School has committed itself to studying, whether in the Centre on Asia and Globalisation’s (CAG) research on ‘China-India Relations: Cooperation between the Two Asian Giants’ or the faculty’s China-related research, which spans a whole range of policy issues including health sector reforms (M. Ramesh and Wu Xun), public administration research (Wu Xun), security and diplomatic relations (Huang Jing), economic policy and reform (Chan Kang and Gu Qingyang), fertility and saving rates (Chen Jie, Yvonne).

Insights drawn from studying China-India relations are no doubt invaluable to the study of cooperation between China and other emerging markets such as Latin America, with China- India relations representing the axis around which all other South-South cooperation will coalesce.

A World Turned Upside Down

As Hardy has noted in his book, a key consequence of China’s rise is that “the pendulum of economic influence in Latin America is swinging from the United States to China” (p. 144). With emerging economies such as China and Latin America becoming increasingly integrated, Hardy expects China to displace the US as the largest trade destination for Latin America in the near future. While such a view is not new in existing analyses of China’s rise, Hardy displays a deep understanding of the nuances in China’s expanding influence that have thus far eluded other analysts.

Specifically, China’s economic partnership with Latin American is inherently complex and imbued with considerations of costs and benefits. While commodity-importing “Mexicantype” economies dependent on trade with developed nations face increasing costs of Chinese competition, commodity-exporting “Brazilian-type” economies that are less dependent on developed nations stand to gain from greater access to Chinese markets. Economic integration between China and Latin America is also evolving to include cooperation across various areas within both economic and political spheres. Chinese investment and financing to Latin America is rapidly expanding in both scale and scope, while closer Sino-Latin American ties have allowed China to flex some of its soft power capabilities.

However, this complexity in Sino-Latin American relations poses significant challenges for Latin American nations as well. In particular, Latin American industries face a precipitous decline as a result of direct competition from Chinese exports. China’s increasing share of exports to developed countries such as the US come at the expense of a decline in exports to these same countries by Latin American firms. Furthermore, Chinese exports also pose stiff competition to Latin American firms in domestic markets. The influx of cheaper Chinese imports has resulted in a decline in Latin American manufacturing business for domestic markets.

Given these challenges, a reinvention of Latin American economies is required. Hardy suggests that this can be done either by regional economic integration to protect existing industries or moving up the value chain into higher value-added industries through the development of human capital, infrastructure, and exportable services.

And turning what could be a competitive threat into a strategic advantage, this economic reinvention can be significantly aided by China’s presence in the region, in terms of greater Chinese investments, access to Chinese markets, joint ventures and opportunities for technological transfers between Chinese and Latin American firms.

In sum, Hardy has provided a rigorous analysis of how China’s rise is fostering an increasingly integrated Global South. What may be lacking in Hardy’s book is a Western perspective, as he does not mention how the West should respond to China’s rise and increasing integration with Latin America. But perhaps, that is his intent. Reading his book here, situated at the heart of rising Asia, one finds that the World is, in fact, on the upside of down.

Woo Jun Jie is a PhD candidate at the LKY School with research interests in financial sector policy and regional trade.