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20 June 2024

Playing Catch-up? West-China Competition in the Global South

Nicola Stoev

China decided to instrumentalize its overseas reserves in 2013 by announcing the Belt and Road Initiative (BRI) and putting its overseas assets to sharper geopolitical application, shifting the mix from foreign exchange reserves to overseas lending and direct investment. The economic cost has been high because the yield from China’s overseas assets has not increased to match the new assets mix’s higher financial and liquidity risk. The opportunity cost of this re-orientated overseas balance sheet is now running at about 1.5% of China’s gross domestic product.

Although China has managed to increase its soft power among ruling elites in many countries, especially in the Global South, this can prove fleeting, as the Philippines demonstrates when underlying national interests are not aligned.

China has reoriented its trade toward less geopolitically distant countries, such as Russia, but at the expense of augmenting its geopolitical distance from liberal democracies. However, it remains dependent on liberal democracies as export destinations and for the supply of some critical goods, including technology, food, and iron ore.

Meanwhile, the European Union announced its Global Gateway in 2021 and the United States announced its Build Back Better World and Indo-Pacific Economic Partnership, as well as the G7’s Partnership for Global Infrastructure and Investment and Blue Dot Network, as responses and attempts to emulate China’s BRI.

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