The passage of history is often marked by milestones whose significance lies less in the events they commemorate then it does in the underlying trends that they confirm and validate. These last weeks, were punctuated by a series of such milestones. By themselves, these events mark noteworthy developments in China's contemporary history. Collectively, they underscore the far reaching changes that are transforming China and its growing role on the international stage.
Last week, the collective valuation of China's publicly traded equity exceeded 10 trillion dollars for the first time in its history. Considering that forty odd years ago China's equity markets were moribund, the benchmark is astonishing.
The Amsterdam, now part of the Euronext, and London stock exchanges, the world's oldest, both of which have been around since the seventeenth centuries, are well below this level. The combined European exchanges, at 15 trillion dollars in valuation, and the combined value of the U.S. stock exchanges at 20 trillion, however, still, at least for now, exceed the capitalization of China's public equity market by a considerable margin.
No doubt the "loose" monetary policies pursued by the major central banks has facilitated the rise in the value of China's stock markets. Since the introduction of "quantitative easing" by the U.S. Federal reserve Bank in 2008 and similar policies by other central banks, the value of the world's stock markets have doubled. China's markets have more than quadrupled. Collectively, the world's stock markets now represent about a quarter of the world's combined financial assets.
In one sense the fact that China, the world's second largest economy, should also have the world's second highest valued equity market should not come as a big surprise. The two, while not inexorably linked, do tend to proceed in tandem. The rise in China's economic power, which the rise in its stock markets underscore, however, has also fuelled a concomitant rise in China's international military and political ambitions. Those ambitions and their consequences were driven home last week by a number of other events.
On June 6, Hungary became the first European nation to formally sign a cooperation agreement for China's new "Silk Road" initiative to develop trade and transport infrastructure across Asia. The historic "silk road" was a system of overland caravan routes across central Asia that linked China, via the Black Sea and the Caspian Sea, with the Middle East, Russia and Europe. The trade route flourished in particular during the 13th and 14th century as a result of the Mongol conquest of much of Central Asia and China and resulted in the first significant and sustained contact between Medieval Europe and China.
This new initiative, first unveiled in 2014, represents a far more ambitious undertaking and consists of a number of far ranging infrastructure projects including a network of railways, highways, oil and gas pipelines, power grids, Internet networks, maritime and other infrastructure links across Central, West and South Asia extending from the coastal cities of the South and East China Seas as far as Greece, Russia and Oman,
This multi-trillion dollar investment program would represent an unprecedented expansion of Chinese political and economic influence across Central Asia resulting in trillions of dollars in trade and facilitate the expansion of Chinese exports to Europe. It would allow China to further cement its economic and trade relationships in the oil and mineral rich countries of Central Asia. Many of these nations, former Soviet Republics, are also being heavily wooed by Moscow to become part of Russia's Eurasian Economic Union.
In the meantime along the South China Sea littoral, two other developments underscore the far reaching ripples of China's ambitions. In recent months, Beijing has undertaken a massive land reclamation project designed to increase the surface area of a number of contested shoals in the South China Sea and allow the construction of air fields and permanent military facilities. The shoals are part of two island groups, the Paracel and the Spratly Islands.
Control of these islands has been disputed by the nations surrounding the South China Sea since at least the 3rd century BC. At stake, are fishing rights and the potential for vast untapped hydrocarbon reserves below the seafloor. The region also contains key maritime transit routes that are vital to the countries that border the South China Sea or its peripheral areas.
Ironically, the practice of building up the shoals to allow permanent facilities was a practice that began with the Philippine and Vietnamese governments. China was late to the party but is now making up for its tardiness with an unprecedented program of land reclamation. Should Beijing succeed in enforcing its claims, the South China Sea would become a virtual Chinese lake and allow China to project military force from a string of newly created islands along its periphery.
China's ambitions to control the South China Sea and its potential resources has raised concerns among the other countries that border the region. Two events in recent weeks, marking unprecedented cooperation among former enemies, underscore the gravity of those concerns.
On June 5, Japanese and Philippine media disclosed that from June 22 through the 26th Japan and the Philippines planned to hold a joint maritime drill in the South China Sea. This was the second such drill in as many months although Philippine government sources described this drill as the first "official" joint exercise between the two countries since the end of the Second World War.
More significantly, in addition to pledging to strengthening security cooperation between the two countries and to concluding an agreement for the transfer of "defense equipment and technology and expanding bilateral and multilateral trainings and exercises", the two countries also agreed to open discussions on a visiting forces agreement that would allow Tokyo access to Philippine military bases.
This is the first time that Japanese forces would have ongoing access to Philippine military facilities since the end of WW II. While the agreement stops short of a permanent Japanese military presence in the Philippines it does allow for a continuous rotation of Japanese Military Self Defense Forces (JMSDF) that would result in much the same thing.
The presence of Japanese military forces on the Philippines is not without some controversy. Eighty years of Philippine-Japanese cooperation have not entirely healed the scars of Japan's brutal occupation of the Philippines during the Second World War.
In the meantime, on the opposite end of the South China Sea, two other historic enemies, Vietnam and the United States, announced that in July, Nguyen Phu Trong, the General Secretary of the Communist Party of Vietnam was expected to visit the United States.
The visit caps a process of reconciliation between the two former combatants that began in 1995 when Washington finally opened diplomatic relations with Hanoi and which has seen the execution of a broad range of agreements between the two countries including, significantly, in 2014, the lifting of the U.S. embargo against supplying military hardware to Vietnam.
More significantly, Vietnam's growing cooperation with the United States heralds a profound realignment of Hanoi's foreign policy from an "unofficial" strategic partnership with China to a defacto strategic alignment with the United States. The fact that Hanoi is prepared to undertake such a realignment, notwithstanding its still broad ideological differences with Washington, underscores how significantly its attitude towards its former "strategic protector" and "big brother has changed.
Three events, none of which elicited more than a ripple of interest in the western media and which individually are unlikely to merit much more than a footnote in the broad sweep of China's history. Collectively however, they underscore the profound, far reaching changes that are realigning the political and strategic landscape of East Asia.