BNE INVISIBLE HAND: Summits that matter, summits that don’t
I’m struggling to identify any agreement of real political or commercial significance that was struck during the 2-day Brisbane G20 summit in mid-November. Yes – a chunky 800-page communiqué was released as the various Heads of Government flew from Australia’s east coast. It consisted, though, of little apart from grand words and vague aspirations, with almost no costings, let alone information on sources of actual finance.
The leaders of the G20 nations – accounting for around four-fifths of the world economy – want an additional 2pc of growth by 2018, we were told. Beyond the simple mention of “investment, trade and competition”, there were few details on how this extra growth would be achieved.
Much discussion took place on whether climate change and the tragic West African Ebola outbreak should be in the communiqué. Both eventually were, even though Australian Prime Minister Tony Abbott let his concerns be known that climate change might “clutter” the document.
Again, though, for all the thousands of officials and diplomats who travelled to Brisbane, and the assembled world leaders, there were no specifics on resources, timeframes or targets. The entire summit seemed an exercise in public relations, specifically benign headline generation, rather than ironing out differences on issues of genuine urgency and substance.
Perhaps it’s unsurprising little happened at the ninth G20 meeting in Brisbane, seeing as the main event – the 26th annual APEC summit – had taken place earlier the same week in Beijing.
The G20 gathering and the summit for Asia-Pacific Economic Co-operation look quite similar. One comprises 20 of the world’s largest economies. The other is made up of 21 nations – large and small, from Indonesia to New Zealand, from Mexico to Thailand – that skirt the world’s largest ocean, the so-called Pacific Rim. Nine countries are in both groups, including the US, China and Russia. It’s quite clear, though, which is now the meeting where the genuine business takes place.
The last time China hosted the APEC summit was in Shanghai in 2001. Back then, the People’s Republic was a fragile emerging market and still rather cautious in its diplomatic and geopolitical dealings. Today, China is the world’s second-largest economy, a major global growth engine and bankroller-in-chief to the American government. Beijing now holds $1,270bn of US Treasuries, some 27 times more than in 2001.
So China now looks the US in the eye – as this APEC summit showed. Since World War Two, the US Navy’s Pacific Fleet has guaranteed Asia’s security. While Beijing used to accept that, those days are gone. China is asserting itself against American dominance, but at APEC President Xi Jinping said his country would now “make our due share of contribution” to regional peace and stability. America may aim to protect Taiwan, while upholding its military bases in South Korea and Japan. But in case Beijing’s message wasn’t clear enough, Xi spelt it out. “It is for the people of Asia to … uphold the security of Asia,” he told the rather thin Western press corps at APEC.
At the heart of this summit was an almighty Sino-US struggle not just for military influence in Asia, but commercial hegemony too, as Washington and Beijing hawked competing trade agreements. America pushed the Trans-Pacific Partnership, a 12-country deal that excludes both China and Russia, while Beijing promoted its own Free Trade Area of the Asia Pacific – with itself and Russia and the heart.
Prior to APEC, the US blocked China’s efforts to include the approval of an FTAAP feasibility study on the summit agenda. By the closing ceremony, though, it was officially announced that despite “blockages and conflicts”, Beijing’s trade deal was now supported “by all 21 APEC members”.
Determined not to be isolated from markets across its own region, China is fiercely rebuffing American efforts to box it in. While the US has legitimate grievances over intellectual property rights, particularly concerning IT, it was absurd to think China’s massive commercial influence could ever be usurped. America remains the main military ally of economies like Japan and South Korea. But the biggest trading partner of both these export-dependent nations is now China.
It was interesting, then, that along with tectonic Sino-US trade battles, the Beijing APEC summit also saw a significant thaw in relations between Japan and China. President Xi and Japanese Prime Minister Shinzo Abe held the first formal talks between leaders of their respective countries in almost three years.
Relations soured badly in 2011 after Japan pressed claims to the disputed Senkaku Islands in the East China Sea. These uninhabited rocky outcrops matter not only due to fishing rights and potential energy reserves, but also because of their strategic position on vital shipping lines, as the US and China vie for military supremacy.
For now, Japan accepts US backing for its position on Senkaku, so upholding the US Navy’s access. Abe’s willingness to meet Xi, though, and publicly shake hands, points to a lowering of tensions regarding the islands, and perhaps even some kind of deal that eventually calls into question the free passage of American military vessels.
Throughout the APEC summit, China delivered a barrage of deals, spreading its influence across the region. Beijing is spending $50bn to set up a new Asian Infrastructure Investment Bank and another $40bn was allocated to infrastructure development along “The New Silk Road” – a network of railways and airports across Central Asia. By far the most important event at APEC, though, was the signing of another major gas supply deal – the second in six months – between China and Russia.
Back in May, at the St. Petersburg International Economic Forum, these two countries announced a $400bn agreement, under which Russia supplies 38bn cubic metres (bcm) of gas to China over 30 years from 2018 along the new “Power of Siberia” pipeline, stretching from Eastern Siberia to China’s populous north-east, with Beijing and Moscow sharing the building costs. Ten years in the making, this deal seemed specifically timed to counter the Western narrative that Russia was “isolated” as a result of events in Ukraine.
This latest APEC summit saw another Sino-Russian mega-deal – again signed despite on-going Western sanctions against Moscow – to build a second major supply route to the Western Provinces of the People’s Republic, expanding the annual Chinese purchase of Russian gas to 61bcm. Exploiting the huge synergy between China’s fast-growing population and Russia’s natural resources, these two countries are now building serious commercial ties across their 2,700-mile land border.
In 2009, Rosneft secured a $25bn oil swap contract with China. Last year, the state-run Russian oil giant signed an additional $270bn deal, agreeing to send an extra 300,000 barrels a day eastward for 25 years, doubling its crude supplies to China. Russia now sells 750,000 barrels daily to Asia as a whole, a fifth of its oil exports. Having previously relied on cumbersome freight rail, Sino-Russian oil trade now benefits from a direct link – the ESPO (East-Siberia-Pacific-Ocean) pipeline, which opened in 2010. These eastward energy flows from Russia pose questions for West European energy security. The newly-agreed “Western route”, in particular, while it will take years to build, will allow fields that have traditionally pumped gas towards Europe to be easily diverted to China.
Moscow and Beijing signed no fewer than 17 major bi-lateral business deals at APEC. The contrast with the G-20 could hardly be more stark. Beijing bought additional stakes in several Russian electricity-generation facilities and Russia’s largest lender Sberbank and Export-Import Bank of China meanwhile announced agreements on insurance and credit lines.
These Sino-Russian tie-ups aren’t only about commerce. Both powers have a mutual interest in demonstrating they reject any notion of a US-dominated “unipolar” world, dealing with each other on their own terms. In that sense, it was telling that Beijing and Moscow confirmed their future energy trades would be conducted in yuan and rubles, circumventing the dollar.
When world’s biggest exporter of hydrocarbons and the soon-to-be largest economy conduct their business in their own currencies, the dollar’s petrocurrency role will be seriously undermined. That, in turn, questions the reserve currency status that allows Washington the “exorbitant privilege” of printing money to pay off foreign creditors.
At APEC, Vladimir Putin railed against “the dictatorship of the dollar”. Just after, Beijing launched Shanghai Stock-Connect, finally providing a convenient link between Chinese markets and international investors, so removing a major obstacle to the yuan’s reserve currency claims. While the G20 summit need not have happened, APEC is rapidly becoming the most important summit of the year.