Tension continues to simmer over China’s newly-declared ADIZ (Air Defence Identification Zone). America has encouraged its civilian aircraft to comply in the interest of passenger safety but refuses to recognize the zone’s validity, stating that American military surveillance flights will continue to operate as normal. Japan has taken the matter to the International Civil Aviation Organization and has vowed to rally the support of the international community to put pressure on China to rescind the zone.
China's neighbours including Korea are getting anxious. The United States, as the status quo guarantor of regional security, is rightfully alarmed. Vice President Joe Biden is to raise US concern and seek clarification during his forthcoming visit to Beijing.
What game is China playing?
First,many countries have such identification zones. The United States was the first to set them up many years ago. Japan's version likewise covers the disputed islands with China. Now China announces her own zone so that she can have a legal basis to be treated equally.
Second, China hopes that her zones will be accepted as a norm as in the case of other countries. If so, they will strengthen China's continuing territorial claims in the region, including the Diaoyu (or Senkaku) Islands under dispute with Japan. They will also boost China's air defenses following America's Asian Pivot military strategy.
Third, none of the three parties involved wants a war. Japan needs to re-jig her economy. Rising nationalism notwithstanding, her people do not relish a repeat of aggressive militarism leading to Japan's inglorious end in the Second World War. American constituencies are more concerned about jobs and the economy. They have grown tired of wars and are unlikely to risk blood and treasure over some rocks in the East China Sea. As for China, the new leadership has just unveiled a massive reform package. Peace rather than war is necessary to deliver the goods.
Fourth,most of China’s neighbours have China as the largest trading partner, providing them with jobs and investment. However, they also rely on the American pivot, re-worded as ""re-balancing", as a military hedge against a rising China. On her part, China feels that this is a trap to embroil her in a regional conflict while she is trying to double her economy to become a middle-income country. So, in a power play, China is likely to prefee a much stronger hand of economic prowess rather than confronting a far superior military adversary.
Fifth,the biggest prize for China is not the tiny Diaoyu/Senkaku islands but Taiwan. Strait-relations are now on a more peaceful course, economically, socially, and financially. While formal unification may well remain a pipe-dream, the prospect of Taiwan coming back to China’s fold in one form or another in the not-so-distant future is becoming less illusive (*). Time is on China’s side. If China is involved in a regional war now, no matter what the outcome would be, this would dash the hope of any peaceful "unification" by another name, perhaps indefinitely, in view of Taiwan’s special relationship with America.
Sixth, according to Trefor Moss, formerly Asia-Pacific Editor at Jane’s Defence Weekly, there are seven reasons why China won't go to war with Japan (**). These are (a) a nightmare possibility for China of an ignominious defeat (b) mutual economic dependence (c) doubts about China’s military readiness (d) unsettled politics in China (e) unknown quantity of U.S. intervention (f) China’s consistent policy of avoiding military confrontation and (g) China’s hard-earned peaceful development image. So Moss suggests that "Abe should be able to push back against China – so long as he doesn’t go too far", and "It is also timely for Japan to push back now, while its military is still a match for China’s. Five or ten years down the line this may no longer be the case, even if Abe finally grows the stagnant defense budget".
Seventh, notwithstanding many valid constraints on China's military option, there is the burning issue of mounting nationalism of the Chinese people, especially against an old foe who is popularly perceived as not showing any genuine atonement for atrocious war crimes in China. Coupled with China's centuries of national humiliation at the hands of foreign aggressors, this is an overwhelming historical baggage no Chinese leaders could afford to treat with less than the full might of the nation if things are pushed too far, Japan's US defense treaty notwithstanding. This is buttressed by China’s vastly modernised military, including a full range of “anti-access/area denial” (A2/AD), cyber and other asymmetric warfare capabilities as well as survivable long-range nuclear missile and submarine deterrence. It is no surprise that China decides to demonstrate her resolve on territorial integrity by dispatching her newly-fitted aircraft carrier battle-group to a military exercise in the South China Sea.
Eighth, neither China nor Japan with the U.S. can afford to appear weak to their respective political constituents. Hence, a game of chicken is being played. What is more, China wishes to normalize treatment of her status as a great power. President Xi, ahead of his earlier historic tête-à-tête with President Obama at a holiday retreat at Sunnylands, said that he wished to create "a new type of relations between major powers". He wanted to debunk the popular thinking that rising powers inevitably come to a crash with existing major powers, as in the case of the two World Wars. Click here But first, he opted to start from a position of strength.
However, over the Diaoyu/Senkaku Islands, all parties are well advised to put in place cooling-off mechanisms to prevent unintended consequences whereby any one side has no choice but to respond militarily. This would trigger a “security spiral” escalating into a full-blown catastrophic regional and possibly global war. Such mechanisms could include, for example, arrangements for a narrowly-defined "no-fly zone" and "de-militarized sensitive waters" near these disputed islands to prevent direct air or sea clashes. These should be supported by emergency hot-lines at the highest levels between China, Japan and the United States, coupled with pre-determined mediation procedures through the United Nations where necessary.
Regardless of geopolitical calculations, the last thing the world wants is a regional war of unpredictable proportions. The Rubicon must not be crossed.
(*) In “Strategic Vision: America and the Crisis of Global Power”(Basic Books 2012), Zbigniew Brzezinski, a doyen of American foreign policy, sees as historically inevitable that Taiwan may form some sort of a more formal re-association with Mainland China, subject to satisfactory arrangements to preserve its distinctive political, social, and military identity.
Following the release of the Third Plenum’s 60-point decisions here there is now less disbelief that the Xi leadership really wanted fundamental reforms. The question is to what extent these reforms may deliver a substantially transformed China by 2020.
Much recent scepticism misses how the Communist Party collectively works. There was considerable political gestation leading up to Xi’s installation as President. Any serious differences in direction had largely been ironed out. The Bo Xilai affair helped to concentrate the mind. There is now consensus in the top leadership that without urgent systemic reform, the whole Party boat would sink.
This reality was borne out in an earlier 468-page World Bank Report co-authored with the State Council’s Development Research Centre. The report, “China 2030: Building a Modern, Harmonious, and Creative High-Income Society” Click here recognizes that the country’s 30-year-old growth model has now reached a dead-end. Drastic structural changes are imperative to transit to a higher-income economy. The report was unveiled and discussed at a high-level national conference in February 2012 hosted by Li Keqiang as Executive Vice Premier. Many recommendations of the report are now embodied in the final decisions of the Third Plenum. Let’s now consider their practicability and impact.
First, modification to the One Child Policy is likely to ameliorate, if not immediately reverse, China’s looming aging demographics. Subsequent modification, perhaps even abolition, of the Policy cannot be ruled out. This should inject more young blood to enhance China’s productivity drive towards innovation and skilled services. This is supported by findings Click herethat China now tops the world in filings of patents, trademarks and industrial designs. The Royal Society also predicts that China is likely to overtake the United States in the number of scientific citations this year Click here.
Second, as long-expected, the “hukou” (household registration) system will be reformed. This has created a massive urban under-class of rural migrant workers deprived of any social protection. To help break down the inequitable social divide is a bold rural land reform. This will enable peasants to mortgage, rent or transfer their land, of which they have so far enjoyed only user rights. The Plenum decisions also pledge to ensure a universal, if basic, access to healthcare, old-age pension and education. These measures will help and financially empower the massive number of rural migrants to integrate into the urban social fabric. They will in due course become part of a burgeoning middle class of consumers to help balance the economy’s over dependence on investment and exports.
Third, it is easy to be confused by the opening statement that “public ownership” would remain the “main body of China’s economy” here . While some of China’s giant state-owned enterprises have risen to the world’s top league by market capitalization, their productivity and global competitiveness leave a lot to be desired. Included changes are mixed ownership between public and private capital, transformation into state-owned investment companies (similar to Singapore’s Temasek), increasing state-owned sector’s tribute from 15% to 30% by 2020 for improving people’s livelihood, freeing up the pricing of water, electricity, oil, gas, transport and telecommunications, and allowing the formation of private banks. As noted in the Financial Times here, state-owned enterprises’ monopolistic privileges will be gradually “chipped away”.
Fourth, the Plenum decided to open further the finance, education, culture and medical sectors, while easing investment restrictions for nursery, pension, architecture, design, accounting, trade, logistics, and e-commerce. This is to be supported by free trade zones and investment facilitation policies. The RMB, the Chinese yuan, is to become a globally-traded currency by 2015 and to achieve capital account convertibility by 2020. This will be accompanied by interest rate liberalization. If realized, this is likely to make the RMB the world’s most traded currency. This is no surprise as China is the largest trading partner of 126 countries compared with 76 in the case of the United States. Six of the world’s top eight container ports are located on China’s eastern seaboard, a testimony to China’s pivotal position as the centre of the global trading and logistics hub. Indeed, there are already more currencies moving in tandem with the RMB instead of the dollar. Click here
Fifth, there is a consistent imperative to improve governance, including the enhancement of judiciary independence in lower courts by unifying authority over their staff and property at the provincial level, upholding the Constitution, protecting ethnic minorities’ rights, enhancing the power of people’s congresses (China’s parliaments) at all levels, promoting “consultative” and “grass-root” democracy including elections, abolishing the “labour re-education” system, reducing death penalty charges, empowering the Central Commission for Discipline Inspection in fighting corruption, reining in local government finances, and promoting the role of public monitoring and grass-root social organizations.
Sixth, a whole section of the Plenum’s decisions is devoted to the development of an “ecological civilization”. This features the strictest possible rules to enhance the conservation of natural resources, holding officials to account for a natural resources balance sheet, enforcing a polluter-pay system, and promoting the use of environmental tax, pricing and emission trading systems. This should help to achieve ambitious green energy targets tabled in the Chinese Academy of Science’s Roadmap to 2050 *, where fossil fuel usage is to decline from 92.7 % of total in 2007 to 45%, on par with renewable fuels rising from 6.5% to 45% by 2050, leaving 10% to be met by rising use of nuclear energy.
Like Deng Xiaoping’s initial Open Door Policy in 1978, what is being unleashed is a torrent of productivity of the nation’s vast human capital. The rural masses, nearly half of China’s 1.3 billion souls, will be financially and institutionally empowered to pursue their urban dreams. The expected total of 195 million university graduates by 2020, expected to outnumber the entire workforce of the United States, will have more room to play in both the state and the private sectors. The reform should enhance quality, innovation, market efficiency, governance, transparency, equity, social participation, and ecological sustainability, improving the Party’s legitimacy and political stability.
It would be ideal, as the Party has avowed to achieve, that entrenched ties are loosened between bureaucracy and enterprise, and power is put “under the sun” and “inside the cage of law". Should the Party be able to accomplish this Herculean task, a new torrent of productivity and economic dynamism may be unleasshed to carry the Party boat to a new milestone.
The test of the pudding, however, remains in the eating. It is likely that the boat ride would be much less smooth as described in the famous Chinese poem ** by renowned Tang Dynasty poet, Li Bai. Disturbing chatter may arise on both banks of the river while treacherous rocks in the water may pervert the torrent of productivity.
Nevertheless, China remains a one-party state noted for executive efficiency. Moreover, the whole reform package, ambitious as it is, is no iconoclasm, let alone regime change. Vested interests are not so much broken but co-opted and channelled into a new direction. Party secretaries will in future be judged not so much on GDP growth as on other "balance sheets" of local financial and ecological health. It is to be hoped that when the political mind is seized, an unstoppable momentum would be created to push the boat to its desired destination sooner than people think.
Amid sunrise aurora, White Emperor City, fare thee well! Across a thousand miles to Jiangling in a day! Chattering cliff monkeys on both banks, no end to their bawling. A light heart and boat are leaving all the serried mountains behind.
(A translation of a poem by Li Bai (701-762 CE), Tang Dynasty)
My appearance on a TV discussion panel on Inside Story with Aljazeera English on 3 November 2013, with co-panelists Gordon Chang (author of "The Coming Collapse of China"") in New York and Tina Burrett, a professor of political science at Temple University, Japan Campus. Click here
The Inside Story posting on the Aljazeera English website highlighted my following observations on the show regarding the tension in the East and South China Seas -
"There is a rising nationalism on both sides and also rising national strength in the case of China and the attempt to recover its national strength in case of Japan. But what is more I think is because of America’s ‘pivot to Asia’ ... America now is trying to reposition its worldwide military assets towards Asia. And then also this policy takes the form of closer military ties with China’s neighbours and also strengthening various bases in case of Japan. And of course the South China Sea to China is more than a territorial dispute. It’s a very important conduit for natural resources … it’s China’s life blood … Also, Japan has never really attuned for its war crimes. Japan has never admitted the crimes over the 'comfort women’ [women who were forced into a prostitution corps created by Japan during World War II] issue and it also continues to pay homage to Yasukuni shrines –a housing of various class-A war criminals. Now just imagine if Germany continues to pay homage to a shrine honouring Hitler, what would its neighbours think?"
My interview on Inside Story with Aljazeera English dated 22 October 2013 Click here
(N.B. The first two references to my career credentials on the screen by Aljazeera are erroneous. There is a confusion of indentity with another Andrew Leung in Hong Kong. My full profile can be accessed here)
The Aljazeera English website quotes my interview remarks in the following tagline to their article "Choking China" of 22 October 2013 -
"It's the existential threat to the stability of the government ... of the Communist Party, because it's not just air pollution, it's water and also soil pollution. Almost a hundred years of industrialisation has been compressed in about 30 years. So the situation is now reminiscent of the dark days of Victorian England. The reference to 'dark satanic mills' is very much alive nowadays in many [Chinese] cities and not just Harbin." Click here
As Putin stole a march
on the United States over Syria and as Obama saw his much-vaulted participation
at the APEC Summit in Bali derailed by domestic squabbles, the unspoken
question is whether this may signal a global tilt away from sole American
To be sure, U.S.
military strength remains supreme. But this is not as decisive as it appears in
influencing which way the geopolitical wind blows. Short of an all-out war, leaders
across the globe, while welcoming an American military umbrella, tend to be
more concerned with economics and employment. The question that follows is what
would be the resultant power dynamics and what role is China capable of
Policy, an authoritative U.S foreign relations journal, doubts have been
expressed by such scholars as Minxin Pei,
senior associate at the Carnegie Endowment for International Peace. In
July/August 2009, he cautioned, “Don't believe the hype about the decline of America
and the dawn of a new Asian age. It will be many decades before China, India,
and the rest of the region take over the world, if they ever do.” (1).
This was contradicted
six months later in the same journal by the late Robert Fogel, winner of the 1993 Nobel Memorial Prize in Economics and Professor of
the University of Chicago Booth School of Business. He reckoned that “China’s
economy would grow to $123 trillion by 2040, or nearly three times the
economic output of the entire globe in 2000. China's per capita income will hit
$85,000, more than double the forecast for the European Union, and also much
higher than that of India and Japan.” (2).
So now, three years on, who seemed to be
According to the CIA World Fact Book
(2003-12), China’s GDP per capita was $6,100 (estimated) by 2012, compared with
Japan’s $46,000 and the United States’ $50,000. China has vowed to quadruple
its GDP in two decades so as to attain the status of a moderately well-off
nation by 2020. If China’s past economic feat is repeated, catching up with
Japan if not the United States in per capita terms in 30 years seems not
However, China, along with the
rest of Asia, is now growing at a much slower rate. Indeed, instead of a
super-charged growth strategy, the nation is changing course towards a slower
and hopefully more sustainable pace. Moreover, huge obstacles remain. Professor
David Shambaugh, a Senior Fellow at the Brookings
Institution, doubts if China under authoritarianism can achieve breakthrough innovation.
The spectre of collapse, like that of the former USSR, serves to reinforce
political inertia, entrenched by powerful vested interests including the
military and large state-owned enterprises. An assertive nationalism born of
centuries of victimhood feeds into belligerence towards neighbours (3).
the familiar litany of ills including corruption and pollution, the reality
remains that the productivity of a fifth of mankind is now being unleashed,
albeit starting from a relatively low base. The following facts are
First, China is churning out some 7 million
university graduates a year. By 2020, the country will have 195 million
graduates, more than the entire workforce of the United States. Already, China
has become the world's top filer of patents and trademarks, according to the
World Intellectual Property Organization (WIPO) 2012 Report. The Royal Society
expects China to surpass the U.S in scientific citations this year.
Second, China is witnessing the fastest and largest
urbanization drive the world has ever seen. 221 new cities each with a
population of over one million will be added by 2025, compared with only 35 of
such cities in Europe at present. This will serve to grow China's massive
consumers. According to the Brookings Institution (4), the global
consumption share of the top ten countries by 2020 would be China (13%), US
(12%), India (11%), Japan (6%), Germany (4%), Russia (3%), France (3%),
Indonesia (3%), Mexico (3%) and the UK (3%). Likewise,
the McKinsey Quarterly (5) shows that urban consumers (those with $9,000
- $34,000 household income in Purchasing Power Parity termsequivalent to those in Brazil and Italy) are expected to
grow from 4% (2000), 68% (2012), to
75% (2022) of urban population.
Third, notwithstanding rising wages, China remains the hub of a global supply
and production chain thanks to its massive economy of scale and excellent global
transportation links. Five of the world's top eight container ports are in
China. A Working Paper (6) by Arvind Subramanian
and Martin Kessler of the Petersen Institute for International Economics highlights
the epochal shifts in globalization and economic power in the 21st century, in
which a rising China plays an increasing powerful role as a “mega-trader”,
reinforced by a multiplicity of regional free trade areas and agreements.
Fourth, China is quietly developing global
transportation infrastructure of epic proportions linking vast continents and
distant shores to the Middle Kingdom. A monumental railway project is being
planned linking the Port of Shenzhen to Kunming in Western China and onwards to
Myanmar, Bangladesh, India, Pakistan, and Iran, and then across Turkey into
Rotterdam in the Netherlands (7). Known as the “Third Eurasian Land Bridge”
(8), the proposed high-speed rail network will cross 20 countries and measure
15,000 kilometres, a much shorter and less geopolitically-vulnerable distance
than by sea via the Indian Ocean through the Malacca Straits. A branch line
would begin in Turkey, crossing Syria and Palestine and end in Egypt, providing
a rail link from China into Africa. In addition, a project with a
50-year concession has recently been approved by Nicaragua's
Congress to build a 286-km canal connecting the Caribbean with the Pacific via
Lake Nicaragua, at a cost of $40 billion, to be completed in 6 years (9). The
canal can serve the largest container vessels which can only be accommodated at
Shanghai’s Lianyungang as the world’s deepest container port. Notably, the
latter is planned to be the starting point of the Second (or New) Eurasian Land
Bridge which runs across the whole of China to Kazakhstan and via Russia and
Belarus over Poland to the markets of the European Union.
Finally, while America is weighed down with debt and
continues to resort to the money-printing machine, faith in the greenback is quietly
seeping away. The G20 is supporting the Special Drawing Rights to shore up the
world’s financial order as the RMB (the Chinese yuan) is speeding up its trajectory
to becoming one of the world’s leading reserve currencies. The days of dollar dominance
appear numbered (10).
with an aging population profile, China is likely to grow old before getting rich
in per capita terms. Assuming that China is able to overcome the so-called
"Middle Income Trap" (by no means a foregone conclusion), her per
capita GDP may well not reach beyond that of a moderately well-off country like
Turkey even by 2050. But then, if the per capita income of Turkey is multiplied
by a fifth of mankind, the economy would be larger than the United States by a
measuring a country's overall strength, per capita income alone could be a
misleading yardstick. Few know that Macao, a Special Administrative Region next
to Hong Kong, has the world's third largest per capita income (due to its mega-casino
economy). That doesn't make Macao a world power. But when China's economy with
overwhelming global connectivity grows to be the world's largest, the whole
world should be well advised to sit up and ponder.
The “First Eurasian Land Bridge”
runs through Russia, connecting Rotterdam to Russia’s Trans-Siberian Railway
across 13,000 kilometres The “Second (or New) Eurasian Land Bridge”
runs 10,900 kilometres including 4,100 kilometres in China, which is parallel
to one of the ancient routes of the Silk Road, linking the Port of Lianyungang
(near Shanghai) across the whole of China to Kazakhstan and onwards via Russia
and Belarus over Poland to the markets of the European Union.
proposed canal, The Economist (5 October, 2013)
James Richards, “Currency Wars – The Making of the Next Global Crisis”, Portfolio/Penguin,
New York, 2011, Chapter 11 – Endgame – Paper, Gold or Chaos – Special Drawing
Rights, pp. 229-234.
The Economist (5 October 2013) tagline opines that "a new enterprise zone could spark wider market reforms—but only if bureaucrats ease their grip". Click here
The initial announcement refers to a negative list of 1000 banned areas, which begs the question how free is the SFTZ. In balance, the article rightly quotes Chen Bo of the Shanghai
University of Finance and Economics, who has advised the government on
the SFTZ. ""Do not be fooled by the earky caution". However, even much more liberalization is to comne, this negative list means that the pilot Shanghai Free Trade Zone is not supposed to be another Shenzhen.
It is in reality a carefully-control experiment of epic proportions. No less important reforms than China's currency regime and the rapidly rising services sector are at stake, along with the political commitment and reputation of China's new Premier.
I should add, "Don't be fooled by the lack of absolute clarity or details". This is what an experiment is really about. If something works, then more will be tried. But if it dosn't, other ways will be examined.
Specifically, the pilot is given a three-year timeline, before a decision is taken to roll out a final package nationwide. This underlines the political and strategic urgency.
Specifically, in the light of global uncertainties and opportunities facing China and at a critical time of China's transformation into a service-oriented economy, the SFTZ is a palpable move to see how various targetted service areas can be liberalized and how the eventual full convertibility of the RMB can be speeded up so that it can play a significant role as one of the world's leading reserve currencies, possibly by 2020, as oultined in my recent Op-ed in the South China Morning Post here
"Bo Xilai's cries of defiance after he is sentenced to life in prison for corruption", reports the South China Morning Post on 23 September here
If it were a mere case of corruption, embezzlement and abuse of power, the sentence appears a little harsh as there are no doubt many worse perpetrators who, so far, remain scot-free.
But then, much, much more is at stake. If someone has dared to scuttle the entire ship for his own gain, it is little wonder that all, whether friend or foe, would agree that the fellow should best be under lock and key for a little while.
Make no mistake. Bo's sudden denial of all charges at the eleventh hour was not an indication that a relatively lenient sentence was likely, as some pundits had surmised. Hence the surprise in some quarters at the verdict as it turned out.
Bo's about-turn in detention was an indication that he had probably got wind of the likely harsh sentence and decided he might as well deny the main charges and try to divert attention by harping on his "love triangle" story. That way, he would be able to create an image of political persecution which may serve him well.
This is the stuff of Hollywood high drama, Chinese-style. You may wish to access the following for the political intrigue that went behind the scene -
"The Curious Case of Bo Xilai - Part II" here and "Trial of Bo Xilai - what is it all about?" here
Be that as it may, the Bo Xilai affair has now focused the mind of the entire leadership, that unless corruption of power and money is rooted out, the Party would be in great peril. Hence, Alexis de Tocquerville's "French Revolution" has been rumored to be doing the rounds in the top leadership. Indeed, the Chinese translation has become a national best-seller.
But Tocquerville's tome was also about how lofty ideals of the Revolution became forgotten and corrupted over time. President's Xi's appeal to the Party's old revolutionary roots of caring and working for the masses is no attempt to turn the clock back, but to explore a way forward, as the country is rapidly changing with a rising and more educated and enlightened middle-class.
Hence, the top leadership's launch of an across-the-board "Long March" against corruption, including recent cases involving a numebr of high-profile global companies. Click hereRead "Could this be the political reform Xi would kick-start?" here