A new world dawns, with the East and West as equal partners

Cary Huang says the establishment of new institutions powered by developing nations, led by China, is shaking up the current global order

PUBLISHED : Tuesday, 16 June, 2015, 1:50pm
UPDATED : Tuesday, 16 June, 2015, 3:55pm

The start of the Age of Discovery in the early 15th century also ushered in the rise of the superpower. Before the United States became the world's dominant economic power a century ago, the baton of pre-eminence was held variously by major European nations like Britain, France and Germany, and, to a much lesser extent, Spain, Portugal and the Netherlands.

But a string of events in the past year not only marked a further phase in the waning of America's global economic hegemony since the end of the second world war, but also the end of the long history of the Western-dominated global order.

These include the recent successful launch of the China-initiated Asian Infrastructure Investment Bank; the International Monetary Fund's review this year of whether to include the renminbi as a global reserve currency alongside the dollar, yen, euro and sterling; and the launch of the New Development Bank by the world's five largest emerging economies - the BRICS grouping of China, India, Russia, Brazil and South Africa. Both the infrastructure and development banks are seen as rivals to the Bretton Woods institutions, the World Bank and IMF, and regional institutions such as the Asian Development Bank.

An IMF decision to include the renminbi in its special drawing rights basket would be a milestone for the Chinese currency's internationalisation. The currency would become more widely used in trade and investment, and renminbi-denominated assets held by central banks and other financial institutions would become a major store of value.

That, in turn, should lower the transaction costs, currency exchange risks and borrowing costs for China and its companies. With China's growing economic clout, the renminbi will no doubt challenge the dollar's dominance in the global monetary system. The global currency market will usher in an era of competition between the "redback" and the greenback.

These developments reflect the significant tilting of gravity in the global economy from the developed economies towards the developing ones. Last year, the five BRICS nations had a combined nominal gross domestic product of some US$16 trillion, about 20 per cent of the global output, compared with about US$3 trillion and just over 8 per cent of the global output a decade ago.

During the same period, the G7 industrialised nations' share of the global economic output dropped to less than 50 per cent from 65 per cent.

There is a consensus that it will only be a matter of years before the BRICS overtake the G7 in the share of global economic output. The BRICS economies are a true driver of global growth today, accounting for over 30 per cent of the global total. Twenty years ago, the BRICS accounted for less than 10 per cent of global growth.

Further, the BRICS bloc has an estimated US$4 trillion in combined foreign reserves, accounting for more than half of the global total, while the G7 nations control only 20 per cent - and less than 8 per cent if Japan is excluded.

With the BRICS countries as pioneers, emerging economies as a whole, which account for half of the world's economic output, have grown to be a crucial driving force behind the global trend of diversification of influence. Increasingly, we live in a multipolar world.

The 21st century will see prosperity and power become more dispersed in terms of geography, human race, culture and history. A new world to be shared and governed jointly by the East and West for the first time in history is on the horizon, and such changes will create challenges as well as opportunities for development for all economies.

Cary Huang is the Post's Beijing bureau chief