(soft music) - [narrator] china is the second largest economy in the world, and it's expected to replace the us as the top economy in less than a decade. beijing is increasingly looking beyond its borders toward investments in asia and across the world. their ambitious plans could make china the epicenter of global trade. washington must find new ways to adjust to china's global expansion. china: the new silk road. next on great decisions. (soft music) - [announcer] great decisions is produced by the foreign policy association in association with thomson reuters. funding for great decisions is provided by

pricewaterhousecoopers llp. (soft music) - [narrator] chinese history for the past 30 years has been a story of economic growth. - there's never really be an economic revolution quite like china's. the most populous country in the world also enjoying the most rapid economic growth in history. an industrial revolution is far more rapid than in britain or america, for example. - we've never seen so many people come out of poverty so quickly. we've never seen so many people go from the rural countryside into the city so quickly. what had took europe 150 years to do in the industrial revolution, china has done in 30 years. - [narrator] in 1979, chinese leader deng xiaoping called on the country to combine socialist ideology with elements of a pragmatic market economy, under the banner of socialism

with chinese characteristics, reportedly telling the chinese people, to get rich is glorious. - after mao died and deng xiaoping rose to power, that was one of the great events, i think, of the 20th century. what he did was, if you will, de-communize or de-centralize much of the economy of china. - there are some economists who think that this year, china's gonna contribute more real gdp growth to the global economy than the us, europe, and japan combined. - we can think of china as one big factory, and this factory has to keep churning in order to keep up economic growth. there's still a lot of unlocked resources or idle resources. - [narrator] but in recent years, growth has begun to slow. - the double digit gdp growth that we saw in the 1990s and the early 2000s was an exceptional era. it will never be repeated again because that was this extraordinary export led economy matched by a demographic dividend of

very low young age moving up to a middle age working population. - the annual growth rates 10 years ago were nine, 10, 11%. now about 6.5%. the question is, what's the reason for this slow down compared with earlier upgrades? i think it's just natural. - even though there is a headline growth slowdown, china's economy is still growing at a much bigger rate than it has before, in terms of real output. just because it's so much bigger now. - it is a function of the need to reign in some of the economic development channels that were getting out of control. china has severe air pollution issues, environmental degradation that pervades almost every corner of the country. that's a function of unbridled economic development. - [narrator] beijing now wants to shift away from manufacturing towards a service oriented economy. - it initially was focusing on manufacturing. it also focused on trying to bring in foreign companies who would use

china's low cost labor along the coastline and assemble things for export, but as this developed and as they've realized there's a need to start transitioning their economy into something more sustainable, they realize they have to build up its services. - and that is hard because you have to do it in a way that's sustainable, that creates as few social dislocations as possible, while at the same time, delivering for people on a certain level of economic growth to which they've been accustomed. - what you see in their data is the service sector is growing rapidly, consumption is growing rapidly. that's great. re out in restaurants and cafes and they're buying cars. - chinese consumption, as a portion of china's gdp has certainly grown, and that transition is happening, but interestingly, the roads are still being built. the high speed rails are still being built. and this investment led system is kind of still moving on. not at the same pace as it was, say, 10 years ago, but i would argue it hasn't slowed enough

to bolster the meaningful transition to a consumer based economy. - [narrator] china's leaders say future growth lies beyond its borders. their go out policy, as its known, encourages chinese companies, including state owned enterprises, to invest overseas. - the go out policy was first termed or coined in china during the hu jintao years in the early aughts. there was a push to get the major national oil and resource companies to go scour the earth for resources. and that was the origins of it. - money, like water, tries to find its own level and it pursues returns. so, there's a lot of money in china. and it's looking for places to go. - [narrator] chinese president, xi jinping, has stressed innovation to bolster china's economy. - innovation is the right word.

that it is driving much of the economic growth. there are those out there that say someday, alibaba itself could be worth more than some of the largest economies in the world. - healthcare services and technology. these are the sectors in the future that are growing. if you look at any of the stock market indices in china by sector, those are the sectors that continue to enjoy the greatest returns. - they're not just assembling things for other people, but inventing more at home, or at least moving higher up in terms of the types of products that they make. - [narrator] china is investing abroad on a massive scale. its overseas foreign direct investment or ofdi rates now outpace those of the world bank. - it wasn't until there was such a large buffer, such a large reserve of dollars and euro and yen and other people's currency that beijing was finally comfortable with the idea of letting its firms take that foreign currency and use it to make investments abroad. - in this course of making china

an export platform for companies from all over the world by keeping its currency low. when they exported those goods, they received dollars in exchange, and it led to this enormous increase in china's reserves. so you see it move from the days first went in, when it was virtually zero, to almost four trillion dollars. - nobody's even close. japan is number two with about 1.2 trillion. there's some commentary saying their reserves are going down, they can't keep this up, but they can keep up $200 billion a year of net outflow which is a very significant amount of capital in the world economy. - [narrator] president xi's legacy may be written in massive infrastructure projects around the world. - what they're trying to do is recreate the silk road and try and create a special economic zone around the silk route. and i wouldn't underestimate china.

they've done special economic zones very successfully in the past. - they need to look for places that can create more growth in china. when you have a lot of steel, cement and construction equipment, when you can build not far and use that equipment, it's good for china. - it's a massive project built on, in some ways, replicating that trade block of the european union, replicating it in a different way in central asia. - [narrator] estimated to cost over a trillion dollars, the one belt, one road initiative or obor will connect china to 60 asian and european countries through the construction of road and rail links through six different corridors. they will loosely trace ancient trading routes. - the belt and road initiative is a much larger and much more augmented approach than the going out strategy to access these inputs from the far reaches of the world and to build rail networks, highway networks,

port systems all over the world. they've reached to africa, the african coast, to europe, latin america. they keep these inputs coming in. - its trade really was east. was to the united states, was to japan, was to korea, was to southeast asia. but this whole area to the west is undeveloped, is potential market for china, that historically has been part of where china sent its goods. (xi jinping speaking in chinese) - [translator] since the belt and road initiative was put forward over three years ago, over 100 countries and international organizations have given warm responses and support to the initiative. more than 40 countries and international organizations have signed cooperation agreements with china, and our circle of friends along the

belt and road is growing bigger. - [narrator] the plan includes a maritime silk road, which aims to connect asian, african, and middle eastern nations through the construction of ports, naval bases, and canals to revitalize sea trade. - when you leave china and you go and then you go around southeast asia and then you go to the indian ocean, then you go around the tip of india and ultimately go through the middle east and to europe. that also is something which historically the chinese used as a trading route. they believe that these places, many of these places on the route where they were trading with hundreds of years ago need to be lifted out of poverty. - last year, there were 20,000 containers that went from china to europe by rail. you can put 20,000 containers on one ship. so basically, sea movement of goods is just so much cheaper, more efficient. (muffled announcement)

(clapping) - [narrator] to help finance obor, china launched the asian infrastructure investment bank, the aiib, to attract more investors. - it exists because the chinese believe that the world bank and the asian development bank, which is run by a japanese, the world bank generally run by an american, were not doing the job in these areas of the belt and road. - in a lot of way, aiib is going back to the original mandate of the world bank. emphasizing financing infrastructure to support the growth of developing countries. there are lots of developing countries who agree that the world bank had kind of lost its way. the most likely scenario is they're supporting the existing system with reform,

but they've left themselves an opening if they don't like the way that certain things go. - when the united states decided to establish the imf and the world bank under bretton woods, they wanted to make sure that their fingerprints were all over the project, and china has tried to do the same by at least initially creating a framework and a structure where they would play an outsized role. (light music) - [narrator] the belt and road initiative is a mammoth undertaking, one that analysts say washington is all but ignoring. - the initial american response to china's belt and road initiative has been somewhat skeptical. while we are definitely just seeing not just in the us, but globally right now, a little bit of a pushback against the most liberal free trade attitudes that have prevailed in the past, i think we have a long way to go before we would say that china's in the league of the us

in terms of openness to trade, and goods, and especially in services. - i'm going to renegotiate nafta, one of the worst trade deals ever signed in the history of our country, perhaps the worst ever signed in the history, frankly, of the world. - the new administration has made it very clear that they have a different approach to trade. the us pulled out of the trans-pacific partnership, and i think that was a great opportunity for the us to really cement its position in the asian economy and promote the kind of development that we think is win-win and healthy for the global economy. so i think we've really left a huge opening that china, which talks the free trade talk but does not necessarily walk the free trade walk. - it's not a reaction against trump and addressing of his power vacuum. it has its roots much earlier, and that's just to meet the resource needs of the chinese population.

(light music) - [narrator] beijing faces a number of challenges to its lofty ambitions. china is not immune to global economic turbulence. - when you want to invest in politically unstable countries, there's always the risk that chinese banks end up with more non-performing loans on their books. already, that's a tremendous problem in china. you could see large banks, systemically important banks, potentially, being exposed to non-performing loans. and you could have a financial crisis. - [narrator] china's population is aging, meaning the number of people entering the workforce has slowed, placing a burden on the government's ability to look after a huge swathe of the population. - china's demographics represent a major challenge to chinese economic growth as well as potentially to social stability and to the political system.

this is something that china's leaders are well aware of. they have made very profound adjustments to the longstanding one child policy. - if they get old before they get rich, they're not going to be able to support their aging population that it used to be you had so many children who were supporting the retirees. it was no problem. but it's now dropped down to two workers for one retiree. and obviously, the one child policy has had an enormous impact on that. - [narrator] far more than just an economic plan, the belt and road initiative may be driven by beijing's geostrategic goals. - there is a fairly strong perception in the united states and in the west that china seeks to create a new replacement set of economic and political arrangements to supercede the post-war arrangements.

china is flouting the systems and norms that in aggregate have been painstakingly developed through consensual processes in the aftermath of the second world war. - it will represent a change in the global order as the chinese economy and the other economies that are connected to it by maritime and landborne infrastructure become a larger and larger share of the world economy. that's a political aspiration. whether all that investment and the trade that would follow it will actually come into being and practice is another question. - it's a brilliant branding exercise on the part of the chinese. you might have the impression from the name that there's this chinese plan, you know, infrastructure plan, the chinese have mapped it all out, and now they're going to build it. and that's not the case at all. so you've got really important countries along the way like india just not interested for geostrategic reasons.

- longer term, there is a question about what their agenda is. and i just think that the truth is we don't know at this stage. i think that they're incredibly focused in making sure that they can create improved living standards and continue to move hundreds of millions of people out of poverty within the country. - [narrator] some are questioning how much the project will benefit the local communities and not just china. - right now, there's a popular saying in laos that kind of reflects the sentiment and the confusion and the anxiety over belt and road initiative projects. these projects are made by china and made for china. it's a play on the made in china slogan. so again, they're questioning how will this benefit us? and how are we not just giving away our resources? - in the target countries, there's a considerable amount of suspicion about the intent and the effect of the belt and road initiative. the questions includeng's d relationship with taiwan

presents another potential destabilizing force in the unlikely event that it escalates into conflict. - since neither taiwan nor china really want an escalation, they would each have to make terrible miscalculations to create a situation in which there is an escalation. it's always possible. people can blunder into it. - china has actually shown a great deal of nuance, strategic patience, wisdom here. i would be very surprised, and very disappointed, in chinese statecraft, which has generally been careful if chinese statecraft decided they had to go overly dramatic with regard to taiwan's status right now. (man shouting in foreign language) - [narrator] there's also potential for domestic turbulence. - the folks in the, so to speak, hinterlands are putting a lot of pressure on we want to share in these benefits. now, how do they get to share in those benefits?

by making the people who have become prosperous subsidize a shift in resources towards the folks who have not. so now you create a tug of war. - when you enrich people and educate people and expose them to the world, they also want more autonomy, more voice over their lives, and china, to its great credit, has created this enormous middle class. it hasn't given them meaningful ballot boxes. - they believe that without institutions and education, you can't have democracy. the intellectuals in china look at it and say, we're 1.4 billion? a lot of the folks are not really educated? you want them to choose the leaders? no thank you. - china is a much more combustible country than many people realize. its economy is a giant bubble, probably the biggest bubble in the history of mankind.

- [narrator] critics charge that washington places too much emphasis on confronting china militarily. - we are mindful in taking account of the growing chinese military capabilities. the united states has been the major naval power in the pacific since world war ii, and we recognize in the united states that china has to play a role in the security framework there. - and china was, as napoleon said, was sleeping, and it went through a number of upheavals. their back is the middle kingdom now, and in every regard, they're flexing their muscle. once a nation gets additional capability, it's been almost axiomatic in history that it starts to reach out more. so i think that we don't want to contain china. but at the same time, we don't want china to do more than a safe and stable world would expect to want. - all of us who have dealt with the chinese government over the years have bumped up

against a deeply held suspicion that the west, led by the united states, seeks to contain china, to isolate china. - graham allison just wrote a book about this. graham says in the last 500 years, we've seen this emerging status quo thing about 20 times. he says, you know, we always manage to get from the old equilibrium, re-emergence, to the new equilibrium, post-emergence. that's good. the dark blot is that in about three out of four cases, the way we get from the old to the new equilibrium is through a process that goes by the popular name global war. (guns firing) - [narrator] there is concern in the asian pacific that the us is stepping back its engagement with the region and asean, southeast asian's regional trade bloc.

- i had an opportunity to go to a regional security conference in singapore and was struck at how many of our longstanding vital allies in the asia pacific are gravely concerned about what they see as a withdrawal of american investment and american primacy in the asia pacific. - in an ideal world, we would be moving more of our resources and our attention away from the middle east and in the direction of the pacific for these long term inexorable trends that we see. - and the reason is pretty simple. southeast asia is the most youthful and dynamic part of a hugely strong economic corner of the earth. - [narrator] it is unclear how an america first approach will impact the market for us goods and services in southeast asia. - we have about 5% of the world's people who live in the united states. there's only so much we can make here

and sell to each other. for our own growth, we've got to figure out ways to sell to the other 95% of the people in the world. and that's what trade is all about. - if the countries in southeast asia conclude that america's disengaging, that we've lost interest, that we're selfish, that we're putting america first and everybody else has to fend for themselves, then suddenly, china's the only game in town. - [narrator] washington has said it recognizes the importance of the new silk road to china, tacitly supporting beijing's push for free trade. - the united states, over the course of its most recent history, has really tried to take into account what other countries need in order for them to rise. i don't believe that trade and international economics is a finite pie and zero sum. - i don't think that there is a sense of support. however, i think that there is a growing acknowledgement

that china is a major player in the global economy and that the only way to influence those institutions will be by working with them. - what we should be doing is supporting it to the extent that we can and making sure that the chinese terms for these projects let ge, let beckdale, let halliburton, let other big us companies that are capable of adding lots of value to those projects participate. and that's the dog that we have in the fight. - [narrator] as the chinese proverb goes, when you are riding a tiger, it is hard to get off. it seems that while beijing is pursuing its policy of expansion, washington is redefining american interests, leaving the world's two most powerful nations at a crossroads which may shift global power dynamics for decades to come.

- [announcer] great decisions is america's largest discussion program on global affairs. discussion groups meet in community centers, libraries, places of worship, and homes across the country to discuss global issues with their community. participants read the eight topic briefing book, meet to discuss each topic, and complete a ballot, which shares their views with congress. to start or join a discussion group in your community, visit greatdecisions.org or call 1-800-477-5836. great decisions is produced by the foreign policy association in association with thomson reuters. funding for great decisions is provided by pricewaterhousecoopers llp. - [narrator] next time on great decisions. the us has thrived on its vibrant free press

since the founding fathers first put the concept into law in the bill of rights. now, social media is proving to be a double edged sword. it's an important means of free expression around the world, but it also allows for the proliferation of misinformation. the media and foreign policy. next time on great decisions. (light music)

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