The rise of Eurasia: Genuine growth potential for Europe

English2021. feb. 5.Marcell Horváth – Eszter Boros

Asia’s emergence as the world’s geopolitical and economic centre has lent global prestige to a new paradigm for achieving sustainable growth alongside social solidarity. With many other countries already studying the Asian playbook, the United States and Europe could benefit from doing the same.’

Parag Khanna, founder of FutureMap, a strategic advisory firm
and author of ‘Connectography’ and other bestsellers (2019)

Since the 2000s, the rise of the Eurasian supercontinent has been increasingly discussed around the world, including in the West. This issue has come to the forefront again due to Covid19, as the various impacts of the pandemic and its potential long-term effects may change how we think about the world.

The 21st century can truly be the century of a joint Europe and Asia, if the megatrends underpinning the future generate unique synergies in the four key areas of sustainability, technology, finance and geopolitics.

Some view Asia’s rapid economic growth in recent decades simply as a natural part of the ‘convergence to the West’. However, many signs now suggest that there is more to this than ‘simple’ (extensive) growth triggered by industrialisation and the adoption of Western technologies.

The latest examples of economic restructuring, in particular the efforts to tap into domestic innovation potential, also entail the possibility of an independent growth model and a head start for Asia. A historical parallel can be drawn between this and the First Industrial Revolution, when developments in the West triggered a paradigm shift over the course of just two or three decades.

The IMF, and lately Bloomberg Economics as well, forecast that – similar to the period prior to the Industrial Revolution – Asia will once again take centre stage in the world economy by 2050.

By the middle of the decade, the continent – which already accounts for more than half of the global population – may produce 50% of global GDP, while North America and Europe will decline. Largely owing to the rise of China and India, emerging countries’ share in global GDP will skyrocket, advancing from around one-fifth of global output in 2000 to close to 60% by 2050.

This will also affect countries’ relative power: by 2033, India will surpass Japan to become the third largest economy in the world, and by 2035, China will overtake the USA. By 2050, Indonesia is also predicted to be among the world’s top 10 economies.

The more effective action against the pandemic in Asia might also affect how the balance of global power shifts.

In the long run, the relatively better growth position may translate into a sustained competitive advantage in technological developments and sustainable investments. In this context, it is definitely worth noting that despite the global crisis, China reported positive growth in 2020 (2.3% according to the latest estimates).

The first decade of the 21st century marked the beginning of a new era. Having learnt from the examples in the West, the emerging countries in the East set out on a new, Asian path, pursuing new economic models that target long-term sustainable growth. One of the main pillars of this is innovation that boosts competitiveness, especially widespread digitalisation, which has been further accelerated by the coronavirus pandemic.

Nowadays, Asian economies are increasingly striving to set the pace in technological change, rather than settling for the role of technology followers.

These socio-economic developments are acting as a catalyst for Eurasia’s rise as a new power centre. Contrary to some interpretations, this does not hinder globalisation. In fact, it points to renewed activity in global economic relations.

Sustainable growth

One commonly-heard buzzword in the post-Covid19 recovery has been sustainability, and the dominant Asian economies were among the first to recognise this. The climate-friendly, broad-based social policies being pursued in the Asian countries are on par with the European recovery fund to be adopted as well as the plans of the incoming administration in the USA.

The dramatic shift towards a long-term, sustainable growth paradigm reinforces Eurasia’s future role. Related schemes include the Korean New Deal in South Korea, the 14th Five-Year Plan in China and Japan’s climate protection announcements.

Two of the three pillars underpinning the Korean New Deal (KND) – the carbon-neutral transition and strengthening the social safety net – are intended to promote steady economic growth. Partly with the involvement of the private sector, the Korean government has allocated a total of more than USD  85 billion for these goals through to 2025, intending to create 1 million jobs with the related measures.

The strategic objective is to reverse the slowdown in growth with a new, sustainable model that is more socially equitable.

Similar intentions can be deduced from China’s Five-Year Plan for 2021–2025 and the long-term development plan until 2035. The latest catchword in Beijing’s policy is dual circulation, which focuses primarily on the domestic value chain. This could turn the Chinese economy into a driver of Eurasian growth, with its expansion coming mostly from consumption and high value added generation within the country’s borders.

In other words, the Chinese giant’s growth reserves are partly derived from internal transformation capabilities. In this spirit, large-scale developments are being implemented, for example in the field of renewable energy:

according to an August 2020 report by the Global Wind Energy Council, China will advance to become a world leader in wind energy production by 2030, producing 25% of global output.

At last year’s UN General Assembly, President Xi Jinping also announced that the country officially aims to be carbon-neutral (by 2060). The green transition and the ‘moderately prosperous society’ are guiding principles that may pave the way for a sustained rise in the growth rate.

Other notable examples for sustainable development efforts include the plans of the new Japanese premier, Yoshihide Suga, to achieve carbon-neutrality by 2050 (along with the funds allocated for this purpose in the draft stimulus package), as well as Singapore’s green developments. The city state stands out with its ground-breaking membrane technology for eliminating CO2 emissions and various solutions for innovative agriculture (e.g. vertical farming).

Technology, digitalisation

Sustainable development is clearly closely linked to technological progress, in particular accelerating digitalisation. Even before Covid19, the West witnessed the impressive pace of digitalisation in Asia. For instance, the Chinese telecommunications giant Huawei doubled its revenues between 2014 and 2018 (USD 108 billion), taking over the lead from Apple in mobile phone sales in 2018.

This is just one of countless examples for the expansion of Asian internet platforms (web shops) and various applications in the Asian, and even the European market. To mention but a few: AliExpress is among the top three online marketplaces in 13 EU Member States; and Alibaba and other Chinese internet firms have invested in several popular local applications, such as the Indian Paytm payment service provider, or Lazada, an online shopping platform from the Philippines.

These connections are among the most obvious signs of how the Eurasian bloc operates, partly shaped by the active digitalisation strategies of China, South Korea and others.

The key to Eurasia’s rise ultimately lies in the innovation capabilities inherent in these countries. This is precisely what Beijing aims to strengthen: the 14th FiveYear Plan focuses on domestic high-tech developments and technological independence.

This may considerably reduce reliance on Western technologies over the medium term, which continues to be a significant source of vulnerability in certain segments, especially when it comes to microchips (for instance, the Chinese smartphone manufacturer ZTE found itself in a critical situation in 2018, when American restrictions jeopardised chip supplies).

China’s research and development potential mainly comes from the characteristic atmosphere, in which innovation is fostered by the unique cooperation between the state and the private sector.

The government’s typical attitude is to ‘innovate first, regulate later’. Central to this model are China’s national high-tech development zones (HIDZ) and other high-tech zones operated by local governments that specifically seek out new, original solutions for the future. Having started out from Zhongguancun Science Park in Beijing, there are now 170 HIDZs in China. Their companies enjoy special financial incentives, and these zones have produced global success stories such Xiaomi’s smart devices and the TikTok video-sharing app.

Another good example of the major achievements in Chinese technological progress is the rapid expansion in supercomputing capacities, the next-generation internet and the results in space technology.

Between 2007 and 2017, the East Asian giant achieved a tenfold increase in its share on the list of the top 500 high-performance computers (HPCs), thus challenging the American Silicon Valley’s previous complete dominance.

Chinese hightech companies, especially Huawei, are also actively engaged in deploying the latest 5G infrastructure all over the world (it is no coincidence that they became the main targets of US government intervention). In addition, Beijing is also gradually expanding the alternatives to Western navigation systems with its own satellites (BeiDou Navigation Satellite System) and recently also launched a Mars probe.

From the perspective of Eurasia, these achievements should be emphasised due to their network effects. The increasing use of Chinese technology in Asia (and even in Europe) results in a sort of path dependence. In other words, it is unlikely that the systems will be replaced in the future, due to the enormous associated costs. The growing networks can provide grounds for China and the entire region to demand the right to shape international standards.

South Korea’s Digital New Deal strategy is also telling. The goal of the third pillar of the KND is to transform the country from ‘a fast follower into a leader’ in technological developments.

A total of USD 49 billion will be spent on this large-scale project by 2025, on developing core infrastructure for data systems and digitalising education, healthcare, transport and public administration. This pillar may also lend sustained impetus to growth, as it contributes to the creation of 903,000 new jobs, and its effects will definitely be felt outside the country’s borders as well.

Asia’s innovation capacities are also reflected in the increasingly dominant performance of the region’s universities. According to the Quacquarelli Symonds (QS) World University Rankings from June 2020, the top American and British institutions are closely followed by the National University of Singapore (11th) and the Tsinghua University in China (15th), while the best performer in the European Union – the Technical University of Munich in Germany – is ranked 50th.

More Asian universities than ever before (293) made it into the top 1,000. Furthermore, a large portion of talented Chinese students attend Western universities and gain experience at American hightech firms.

For them, returning home is expected to become more attractive as their countries can offer more and more in terms of the innovation environment and living standards.

Finance

Nowadays, the future of money is increasingly influenced by initiatives in central bank digital currencies (CBDC). This new type of money may be a crucial component in the operation of Eurasian networks. Among other things, the digital currencies replacing cash and/or increasing the efficiency of interbank transactions may help to enhance financial inclusion, stimulate consumption and save huge investment costs at the same time.

Skipping the traditional and expensive banking infrastructures is a classic example of technological leapfrogging. For instance, Cambodia introduced its (quasi-) CBDC solution (Bakong) in October 2020. Meanwhile, Singapore is also working to develop an interbank digital currency.

China leads the way in CBDC development, not only on its own continent but around the world. Acceptance of the digital renminbi (e-RMB), which has been widely tested in real payments, is expected to proceed quite rapidly, as economic actors have become accustomed to mobile payment solutions in recent years.

In the spirit of the ‘reform and opening up’, which remains a central element in the 14th Five-Year Plan, the eRMB may even function as a rival to the USD in relation to the New Silk Road in Eurasia over the long run, as the international integration of Chinese financial markets continues. This may entail even closer financial cooperation among the countries in the bloc, giving added impetus to the emergence of the Eurasian power centre.

Geopolitics

Although China’s new focus on internal circulation was emphasised above, this does not mean that Beijing has abandoned its plans related to the Belt and Road Initiative (New Silk Road, BRI). ‘External circulation’ remains key for the country, and therefore the BRI is still a major driver of Eurasian cooperation. The pandemic is expected to accelerate the shifts related to the BRI.

In the wake of the Covid19 crisis, China put the focus on new dimensions of the project: the Digital and the Health Silk Road. These initiatives respond to modern-day challenges and may help handle the existing constraints of the BRI (e.g. adjustment of the economic and political difficulties arising from the oversized infrastructure projects) and thus speed up the project overall.

The coronavirus crisis has underlined the process of geopolitical transformation and the fading of the unilateral world order (centred around the USA). The significance of China’s assertive engagement has become obvious.

Beijing has introduced a new kind of solidarity in the global arena: it played a key role in supplying the international community, in particular Eurasia, with personal protective equipment for medical uses, and in parallel it pursued a foreign policy that substantially increased its influence (‘mask diplomacy’).

The more efficient management of the Covid19 crisis may have lasting implications in the power of balance. The advantages of successful containment are complemented by the fact that China seems to have become the leading vaccine supplier to developing countries, while it also is carrying out massive military developments.

This supports the spread of the Chinese vision of international relations. However, the rise of China and Eurasia does not entail elimination of the current UN-centred global order. The East Asian giant is an advocate of maintaining the existing institutional framework and strengthening multilateral platforms (e.g. WHO).

In other words, the ‘Eurasian era’ represents a unique type of multilateralism.

This is reflected in the BRI’s characteristic, intricate network of various trade and investment agreements and private contracts, as well as Russo–Chinese cooperation. Another example of multilateral cooperation is the Regional Comprehensive Economic Partnership (RCEP) signed last November as one of the largest free trade agreements in the world, with the participation of China and the ASEAN countries, and even traditional Western allies, such as Japan, South Korea and Australia (but not the USA).

The 15 countries in the RCEP account for almost one-third of the world’s GDP in total.

The future may be Eurasian

Based on the developments discussed above, there can hardly be any doubt about the birth of a new power centre on the Eurasian supercontinent. The region’s rise may continue to be mainly fostered by its special (intensive) growth model based on innovation. This is built on the efforts to achieve long-term sustainability, technological progress hinging on the internal knowledge capital and the possibility of a new digital currency revolutionising international transactions.

This also foreshadows a geopolitical paradigm shift. In the spirit of Asian thinking, a leitmotif of the process may be stability and balance arising from seeking mutual benefits, while respecting countries’ national values and promoting sustainable growth.

The ‘Eurasian era’ does not mean that today’s dominant Atlantic centre of power will vanish. It is more about the end of total dominance and the rise of an alternative worldview founded on multilateral cooperation. In this new situation, the Atlantic bloc’s best interest and the key to its future success is that it should strive to cooperate with Eurasia.

Therefore, the continued competitiveness of the European Union may depend on how much it opens up to the other parts of the supercontinent.