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Going Out
Deng Xiaoping, ruler of China from 1978 to 1989, famously advised his country to “hide your strength, bide your time.” China’s great goal of the last four decades—development, development, development—was to happen quietly, with fingers crossed that the U.S., Japan and Western Europe wouldn’t get too frightened.
The hiding and biding is over. Xi’s 2017 Davos speech, replete with all the platitudes about smiling outreach, set the template for an acceleration of “Going Out,” Beijing’s euphemistically named colonialism in central Asia, Africa and client states as far as Latin America.
Recall that the big issue for about two minutes in 2015 was Britain’s fence-sitting on joining the Asian Infrastructure Investment Bank (AIIB), China’s answer to the IMF, World Bank and other such supranational bodies. The U.K. held strong for a bit, until fear of missing out caused it to relent and join the infrastructure bank. Development banks have metastasized through the years, and the AIIB is the new kid on the block, so the IMF will try to keep up.
And while U.S. politics splinters into ever-more-hostile factions, Europe is distracted by its own fragile fabric. Britain? Tied up with Brexit. Meanwhile, the Asian hegemon flexes muscle. Look at the three votes against Syrian air strikes: China, Russia and Bolivia, the latter being one one of several South American puppet governments. China is going to do what China wants to do.
Spreading its influence across the world’s largest land mass—and beyond—is the new goal for China, and the IMF is going to help the cause, adding resources for the Belt and Road, as if China needs money. This is the new Marshall Plan, and with the U.S. “donation” to the IMF three times larger than China’s,2 the West is paying for its own relative decline.
Beijing is sitting on a $3.1 trillion foreign exchange reserve fortress, is the global leader in mobile payments, is home of Amazon-esque Alibaba and Tencent, is number two in international patent applications, and on and on.3 And the U.S., Japan, France—all of the usual suspects—are funding the IMF, thus training the Chinese in their industrialization efforts.
Allocate accordingly.
Xi, ruler for life, intends to plant a figurative flag as the global leader of the 21st century. Again, China’s current weight in MSCI ACWI is 3.5%, the same amount as France.4 If the future China looks anything like the U.S. in the 20th century or Britain in the 19th, 3.5% of the pie is off the mark.
This article has been republished with permission from Wisdom Tree.