Venezuela has signed a new agreement with China worth $16 billion to invest in its oil fields in exchange for future rights to purchase the oil at what will have to be below market prices. With Russia having signed a similar agreement with Hugo Chavez earlier this year worth about $20 billion, these actions must be raising some questions in Washington. More information on this specific agreement can be found from Reuters. However, to continue our discussion, is there a new "axis of evil" being created? Or is Russia joining forces to try to reclaim its glory from the Cold War days? I say perhaps a bit of both.
It can no longer be doubted that China will soon become, if you do not already consider it so, a global economic superpower. Its enormous physical capital as well as continued growth in financial capital allows it to continue to grow while becoming more important to nations, namely the United States, as a lender. Who would have ever imagined that a nation that was a primary antagonizer for both the Korean War and Vietnam would now be one that the United States greatly depends upon? There is no doubt about it, China's economy is not only growing but it is also maturing. Beyond only creating lead paint filled child toys, China is now becoming a source for outsourcing of white collar jobs such as professors, doctors, lawyers, and many more. China and the United States could potentially be great allies, much like the US and the EU are today, but their desire to continue to achieve may push them away from such a situation and towards one where they can dominate. An alliance of weaker nations under China's flag would do much to stoke the Chinese egos while also allow it to blantantly push its policies upon those under its influence instead of doing so in a more subtle manner today.
Russia is also having a bit of an ego trip. Whether it is a group of "excursions" into Georgia, stopping gas pipelines from supplying the EU, or cyber attacks upon Estonia, Russia has steadily been working to prove it is still a global power. With its abundance of oil and gas, Russia undoubtedly has great power over nations without this blessing. However, it is also at the whim of the capital markets which its history has so much hatred for. If the prices for oil and gas drop as they did recently, income estimated throughout Russia are greatly overstated and the economy is in great trouble. Rarely have any nations become truly great while relying upon natural resources as the basis for their economies, and we will see if Russia will become and exception or if it can diversity its economy before it becomes too late.
Back to the previous point, these investments in Venezuela seem to be a point in the direction of a new type of alliance. None of these governments are particularly fond of the great power the United States has enjoyed since the collapse of the Soviet Union. Russia has little to gain from investing in Venezuelan oil, it has much for itself. However, creating a friendship with a close neighbor who is not afraid to openly criticize the United States can be a powerful international sign. Russia is ready to be the enemy once again, or at least an annoyance that will need to be considered before the United States acts in the future. China does have a great need for oil with its booming economy, but it could also venture elsewhere to get it. Instead, by investing in Venezuela, it is making a similar statement. Instead of openly opposing the United States, who is the most important trading partner for China, it will fund Venezuela who will then be able to criticize the United States for them. This move may simply seem like an investment decision at first glance, but by looking at the political situations of the nations involved, it soon becomes obvious that there are other ideas bouncing around in the background. Is this the beginning of a new Cold War? Or is it simply a push for acceptance of the power that China and Russia have been building up recently? Is it even possible for China to ever become an enemy of the United States without absolutely devastating its own economy? Could Russia survive without the sales of its oil and gas to the EU? More thoughts about these questions coming soon but feel free to ponder them for yourself. Your ideas may become reality soon enough.
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There is much to say here. But I think the most important observations may come with your questions at the end. Keep in mind (as we can discuss further) that American "dependence" on China as a source of imports is complemented by Chinese dependence on America as a destination for exports. There are signs that China's economy is "maturing" as you note, with increasing domestic demand, but its global economic power continues to be derived in large part from its interdependence with industrialized markets.
ReplyDeleteAs for energy markets (Venezuela, e.g.), note that China is also investing HEAVILY in Africa. It has diversified its energy portfolio to include investments in Angola, Gabon, and others (Sudan, tragically). Creating a counterweight to American economic power in the Western Hemisphere may be a nice fringe benefit, but I think the Chinese are primarily concerned with their own sources of energy as inputs to production (which you seem to note). We will discuss.