The world may be reaching another inflection point in the next few years. Instability (political, economic, social, financial) and upheaval may be reaching alarming levels. Consequently, the global balance of power may be shifting. The act of rebalancing the international order may exacerbate instability before or after the rebalancing is completed, in a manner similar to the developments prior to the Westphalian Treaty (1648), the Vienna Congress (1814), the Paris Treaty (1919), the Bretton Woods Agreement (1944), or the Camp David decisions (1971). In that spirit, we will be offering our readers a bi-weekly summary of 4-5 articles related to the geopolitical unfolding and the implications they may have for our lives.  

China curtails overseas lending in face of geopolitical backlash

Jonathan Wheatley and James Kynge, Financial Times 
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Over the last two years, China has dramatically reduced the lending of the China Development Bank (CDB) and Export-Import Bank of China (EIBC), its two largest policy banks. In 2016, the two banks invested $75 billion, whereas in 2019 the number dropped to only $4 billion. The shift comes as Beijing rethinks the country’s infamous Belt and Road Initiative (BRI) which has been Xi Jinping’s “signature scheme” to finance and build infrastructure projects in primarily developing countries. There were a few factors that scholars believe have led to the retrenchment. First of all, the BRI has drawn sharp criticism around the world for lending to low-income countries with shaky finances and for a lack of social and environmental impact studies on the projects. Similarly, the poor governance standards associated with the lending to the BRI projects have led to a series of scandals and complaints from debtor countries who feel taken advantage of. Another point made by the authors is that the uncertainty created by the US-China trade war could have been a strong reason for Beijing to keep more dollar assets at home. Over the last couple of years, partially due to the trade war, Beijing has changed its economic policy from one of export-led growth to one focused on domestic investment and consumption. Public opinion has also influenced this position, as the public has pushed for more investment in health services following the coronavirus pandemic. Yu Jie, senior research fellow on China at Chatham House, said “In the past it was more about using financial resources to extend China’s political influence. Now it will be more about commercial gains…Its expansive nature has alarmed the rest of the world and the government has been unable to come up with a transparent plan and explain its debt diplomacy.” 

EU Identity Crisis: Poland, Hungary and the Fight Over Brussels’ Values

Sam Fleming and Michael Peel, Financial Times
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As the EU looks to expand its ability to block funds to member states that do not meet its rule of law principles, Poland and Hungary have crafted a blockade against these measures. As certain members have moved toward more illiberal regimes, the bloc has been accused of hypocrisy, damaging its social capital.  Cross-border partisanship has complicated negotiations, and the EU’s institutions are largely powerless to enforce its ideals. Even the aforementioned legislation is primarily a check on misuse of EU funding rather than leverage against illiberal governments. Under this de facto permissive structure, autocratic leanings in some eastern states have gone unchecked, and the executive overreach is spreading to the judiciary backbone of the coalition. With the European Council EU summit beginning today and a 750-billion-euro Covid-19 recovery package on the line, strategists are concerned that Poland and Hungary’s lack of cooperation may exclude them from the relief funds if they continue to block the EU’s 7-year budget on the basis of rule-of-law stipulations. With democracy increasingly under siege, the survival of the cooperation of European countries is critical to the protection of liberty.

China’s Coming Upheaval

Minxin Pei, Foreign Affairs
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While the Chinese Communist Party (CCP) has taken great precaution in avoiding the USSR’s pitfalls in its analogous struggle with the US, several key historical dangers leading to the Soviet collapse are ironically at play in the Chinese case. The foremost of these is rigidity, solidified by President Xi Jinping’s increasingly hard-line autocratic approach. Xi has consolidated political and economic power into his office, and the abolition of presidential term limits in 2018 indicates that he intends to hold onto this power as long as possible. In contrast to the politically pragmatic and flexible approach of his predecessors, Xi has exposed his party to a slew of risks as cooperative decision-making gives way to unilateral edict. With these policies so closely tied to the president’s person, broad reform is difficult, if not impossible.  The US has shifted its policy from cautious cooperation to competition as China’s imperial goals become clearer, a transition which came to a head in the Trump administration’s trade war. Despite a truce in that conflict, hawkishness on China has become a widespread bipartisan concern. While China has seen significant economic growth, heightened tensions with the US and its allies combined with an inefficient state-run economy could create an adverse economic environment that galvanizes China’s traditionally quiet middle class to take exception to the CCP regime.  Social tensions, already high in Tibet, Xinjiang, and Hong Kong due to human rights violations and illiberal policies, could further loosen the CCP’s grip on the nation. In any case, it seems unlikely that Xi’s brand of strongman policy will endure beyond his tenure, despite powerful nationalistic sentiments, international goodwill from developing economies in its Belt and Road Initiative, and an impressive security apparatus. One need only look to the coronavirus pandemic for evidence of this: in a rare failure of the Great Firewall, Xi’s administration took heat for spinning its wheels while Wuhan deteriorated in the throes of the virus. While the CCP is far from breaking down any time soon, the winds of change have begun to blow; as Washington pursues a more oppositional approach to China, cracks are appearing in the dragon’s armor.

What Comes Next in the Standoff Between the U.S. and Iran?

World Politics Review 
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The last couple of years have been a period of heightened tensions between the US and Iran. In 2018, US President Donald Trump withdrew the US from the multilateral 2015 nuclear deal, which limited Iran’s uranium enrichment program, and reimposed sanctions on Iran’s regime and economy. Though Iran first reacted with a posture of strategic patience, it soon shifted its stance amid “increasingly bellicose rhetoric” from the White House. In 2019, Iran began gradually increasing its uranium stockpile from the cap of 300 kilograms under the nuclear deal, to 1,000 kilograms – enough material for a nuclear warhead. Furthermore, Iran increased military tensions, shooting down US drones and attacking oil tankers in the Gulf of Oman. US-Iran tensions came to a head in early January of this year when the White House authorized a drone strike which killed Iran’s top military general, Qassem Soleiman. In response, Iran launched ballistic missiles targeting US troops based in Iraq, which did not result in any further deaths. The two countries backed away from escalation into an all-out war but did not address their issues.  

The sanctions from Washington have had a severe impact on Iran’s oil exports and have heightened political tensions in the country, but the pressure also seems to have strengthened hardliners in Tehran. Those in Europe and the US who support the 2015 Iran nuclear deal hope the incoming Biden administration will quickly return to compliance with the agreement and will remove unilateral sanctions, facilitating an environment for negotiations to address Iran’s missile program and regional behavior. However, the Trump administration, as well as Israel, seems intent on further complicating relations with Iran before Biden can enter office. Just last week, a top Iranian nuclear scientist was assassinated allegedly by a covert Israeli operation. Iran’s response to this provocation and any others could hurt President-elect Joe Biden’s diplomatic efforts.