Cognizant of the regional pushback, the Xi administration has launched the so-called “peripheral diplomacy” strategy, which is essentially aimed at leveraging China’s massive economic resources to buy off the goodwill of neighbors and, if needed, fully divide-and-conquer the region. In the last two years, China has pledged more than $100 billion to various regional economic initiatives, from the Asian Infrastructure Investment Bank (AIIB) to the “One Belt, One Road” Strategy, with another $1.25 trillion allocated for a global investment splurge by 2025. China is estimated to have roughly $4 trillion in currency reserves. To further boost its soft power, China spends as much as $10 billion annually on external propaganda, which is powered by a plethora of state-dominated global media outlets under the supervision of the State Council Information Office (SCIO).

But as China’s economy enters a “new normal,” it will have to reassess its soft-power spending splurge. China’s earlier decision to devalue its currency is more indicative of its growing panic over the country’s economic prospects than its attempt to make the renminbi an international currency and part of the IMF’s Special Drawing Rights (SDR) currency basket. 

With respect to the AIIB, China was initially planning a primarily China-dominated Asian bank, but concerns over the new institution’s commercial viability encouraged it to welcome membership and contributions from Europe and other continents even if it meant that China would have to forego an absolute veto power in favor of a more latent one, which will be applicable only in cases that demand supermajority vote.

China’s stock-market reversals, slowing growth and desperate currency devaluation are, however, only tip of the iceberg, with even larger bubbles building up in the real estate and (over-leveraged) financial sectors. The more fundamental concerns are structural and institutional, ranging from China’s impending demographic winter to the rigidity of its regulatory framework and growing fiscal woes. As China specialists such as Salvatore Babones of the University of Sydney have noted, these long-term economic challenges will inevitably also chip away at China’s ability to sustain its defense-spending splurge. With all low-hanging fruits of growth exhausted, flagging confidence in China has led to an even more dramatic stock-market reversal in recent days.

In the short run, China’s image as a preponderant economic juggernaut is under assault, and many commodity-exporting countries have also come to resent Beijing’s opportunistic currency-devaluation maneuver, which has made imports more expensive and its exports more competitive—adversely affecting the currencies and trade balance of other emerging markets. The Beijing Consensus may have hit the wall, necessitating some fundamental rethinking if China wants to maintain its commercially driven power of attraction and persuasion.

Richard Javad Heydarian is an Assistant Professor in international affairs and political science at De La Salle University, and previously served as a policy advisor at the Philippine House of Representatives. As a specialist on Asian geopolitics and economic affairs, he has written for or interviewed byAl Jazeera, Asia Times, BBC, Bloomberg, Foreign Affairs, The New York Times, Wall Street Journal, The Huffington Post, The Diplomat, The Financial Times, and USA TODAY, among other leading international publications. He is the author of How Capitalism Failed the Arab World: The Economic Roots and Precarious Future of the Middle East Uprisings (Zed, London), and the forthcoming book Asia’s New Battlefield: US, China, and the Struggle for Western Pacific (Zed, 2015). You can follow him on Twitter: @Richeydarian.

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