CHINAwatch

Trade, People, and Money: Understanding China's Unique Capabilities

Stephen Olson, Hong Kong-based research fellow of the Hinrich Foundation, in an article of 24 October, 2018 in The American Prospect, a liberal magazine based in Washington D.C., suggests that the West, (particularly the United States), needs to  negotiate a modus vivendi with China's very different economic system and unique global capabilities in trade, peoples and money, "to pursue national objectives and shape it relations—economic, trade, strategic, and diplomatic—with other countries and multilateral institutions." This may well be pivotal in helping to shape a looming Chinese Century

Belt and Road is alive and kicking

A Standard Chartered Bank special report of 9 October, Belt and Road - Making its presence felt examines the latest developments on the ground in Asia, Africa and the Middle East, including what has happened after the US has declared a trade war against China. 

The report shows that -

"Trade and investment links between China and BRI countries continue to deepen, cementing alliances, improving competitiveness and shifting the global supply chain amid the US-China trade war. Rapid BRI expansion comes with challenges and risks – BRI partner countries face widening trade deficits and rising external debt. Bilateral debt relief offered by China should help to avoid systemic debt fallout. Increased transparency would likely improve project quality, address growing concerns and facilitate debt resolution. Commercial, environmental and social viability would help ensure project sustainability."

Download Standard Chartered - Belt and Road Report 9 October 2018  

According to a report dated 26 October, 2018 in the Asia Times, China's trade with Belt and Road countries exceeds US$860 billon over the first three quarters in 2018, a rise of 13.2% from a year earlier. Over the same period, Chinese enterprises have made a total US$10.78 billion of non-financial direct investment in these  countries, a rise of 12.3% from last year. They have helped establish 82 economic and trade cooperation zones, creating 244,000 local jobs and paying taxes and fees to host countries totalling US$2.01 billion.

During a historic visit to Beijing, the first in seven years, and accompanied by a 500-strong business delegation, Japan's Prime Minister Abe pledged to change course in relations with China, from confrontation to a "new era of cooperation", paving the way to Japanese participation in China's Belt and Road Initiative in some 30 joint infrastructural projects. Click here  Not only would this breakthrough reinvigorate interest in China's global Initiative, it would also help to shore up the corporate governance and credibility of both the projects concerned and the whole Initiative as well. 

China's 36,000-character White Paper on US trade war omits reference to an all-out New Cold War

The substantial White Paper, released on 24 September, expounds on the nature of China's trade relations with the US. Entitled "Facts about the China-US Trade Dispute and China's Stance", it tries to show that the two nations are at different stages of development with very different political-economic models. Yet, trade and investments between the two countries have grown by leaps and bounds, benefitting businesses and peoples in both countries as well as the world at large. Supporting this benign relationship is mutual economic complementarity and a multilateral rule-based order supported by the United States.

However, in recent months, the United States seems to want to upend this mutual relationship and global order by resorting to mercantilist bullying and economic nationalism under the banners of "national security" and "America First". While a trade war will hurt both countries, China will not sacrifice its national interests, which it is prepared to defend to the bitter end. China remains fully committed to economic reforms and opening up and continues to support a multilateral world order. It is not enthusiastic about a trade war and always keeps the door open for negotiations on the bases of mutual respect, mutual trust and win-win relationships.

Download The.Facts.and.Chinas.Position.on.China-US.Trade.Friction

The Paper contains a swathe of trade and economic data in support of the benign trading relations between the two countries, showing how much the US economy and American businesses and people have benefitted. It tries to showcase China's progress in foreign intellectual property protection and opening up of various sectors of China's economy. It explains that even the United States practises various trade discriminatory policies and subsidizes a host of industries including agricultural and high-end strategic businesses. Indeed, China's "Made in China 2025", which seems to alarm US policy makers in recent months, was inspired by the United States' "Strategy for American Innovation" (2011) and "National Strategic Plan for Advanced Manufacturing" (2012). 

What the Paper hasn't touched on, however, is the realization that the trade war is but a manifestation of an all-out bipartisan strategic pushback against China as a rapidly rising challenger to US global economic and geopolitical dominance. Click here Despite well-intentioned rhetoric of helping to bring China into the world's multilateral trading system (WTO), the reality has dawned on US strategists that instead of getting mainly the crumbs from the table (China makes only $8.46 from an i-phone), China is fast advancing to capabilities of eating America's lunch, at least in some areas. This is happening not only in trade, but in military projection  and geopolitics in theatres such as the South China Sea and China's Belt and Road Initiative extending to four corners of the globe.

These strategic worries do not bode well for early ending of the trade war, nor, for that matter, for early return to a more benign relationship between the world's sitting superpower and its perceived rising challenger. A Thucydides Trap has sprung in the form of All Measures Short of War. Welcome to a new US-China Cold War of the 21st century. 

China Reinvests Itself but is unlikely to displace American global leadership

A six-part China Central Television (CCTV) documentary (Chinese language), first aired nationwide in January 2018, features some of the nation's jaw-dropping breakthroughs in digitization, new energies, manufacturing technologies, life sciences, space and sea explorations, and a confluence of game-changing innovations suggestive of a Rising China. The commentary soundtrack was dubbed from the voice of a deceased famed broadcaster using artificial intelligence. 

Episode One -    Information Technology, New Energies, Manufacturing, Life Sciences, Aerospace and Ocean Exploration

Episode Two -    A far-reaching revolution to capture the immense possibilities of Nature's energies

Episode Three - Game-changing manufacturing technologies including bendable ultra-thin glass panels, wide-body aircraft, super-high-precision machine tools,  world's tallest cranes, individualized 3-D printing

Episode Four  - Overcoming the challenges of aging, deceases, and death, including super-agricultural products and innovative foodstuffs 

Episode Five  -  Exploring the depths of space and the oceans 

Episode Six   -  A rising tide of transformative technologies including the world's most powerful space telescope, micro-lighting, genetic sequencing, ultra-high speed rail, suggestive of the rise and reinvention of an ancient nation driven by the innovation of every team, every project and every city. 

A glimpse of China's prowess in applied innovation and technology is embedded in my January 2018 feature article (starting from middle of third column, p. 37) of The Global Analyst, an Indian business journal, drawing on Chinese Business - Landscapes and Strategies, London and New York: Routledge, 2018.

Examples include the world's first quantum science computer, most technologically-advanced ship elevator, world's largest gene pool, and most powerful astronomical radio telescope. These are driven by the world's largest R & D personnel, numbering 3.247 million in 2012, 29.2% of the world total, drawn from some 7 million university graduates with 30,000 doctorates a year. The number of engineering graduates is seven times higher than in the USA. Supported these projects are the rise of China's patent-filing to 928,177 in 2014, ahead of the United States at 578,802 and Japan at 325,989. 

Another dimension of Chian's global heft is its worldwide connectivity. My August 2017 PowerPoint presentation details how the Middle Kingdom manages to connect the world.

According to a South China Morning Post article of 15 April, 2018 by David Dodwell, compared with the United States, China has become by far the more important market for imports and exports for the world's top 20 economies. This relative dependence is even more pronounced in the case of APEC Members.  Download Importance of China's economy compared with US

The above startling developments have fed into a rising frenzy that China is set to displace America in leading a regional, if not global, order. They have also led to intellectual debate in the West struggling to make sense of President Xi's worldview that drives China's trajectory in a "New Era". Click here

China still faces many herculean obstacles both internally and externally. Why China will not usurp American leadership anytime soon is outlined by Harvard University Professor Joseph Nye, former US assistant secretary of defense and chairman of the US National Intelligence Council, in his Project Syndicate article of 9 April, 2018.

China will struggle to close the capability gaps with the United States, thanks to its declining and aging demographics, continuing dependence on imported energy, American cutting-edge technologies, preeminent universities, predominant role of the dollar, a rich landmass strategically guarded by two oceans, and American alliances with many advanced countries integrated with creative talents in the liberal world. Hence, according to Professor Nye, America's global leadership is likely to endure long after the Trump years.

With the rise of protectionism, would the economy be in trouble in China and rest of Asia in 2018?

A PowerPoint presentation to the Executives' Global Network (EGN) on 27 March, 2018. 

Download With the rise of protectionism would the economy be in trouble in China and rest of Asia in 2018

Why fixating on countering China’s Rise won’t keep America safer and more prosperous

Breaking with tradition, President Trump chose to personally launch a 55-page National Security Strategy on 18 December. He named China and Russia “revisionist powers” “attempting to erode American security and prosperity”. While conceding the need to cooperate with China, he vowed to make the United States more competitive and much stronger, including its military, always putting America first. 

This was shortly echoed by an 11-page summary of a 2018 National Defence Strategy. This asserts that henceforth, “great-power competition,” not terrorism, must be the primary focus of national security. A broad roadmap is unveiled, aiming at sharpening integrated military lethality, including nuclear weaponry, and expanding America’s military alliances.

Some American opinion-formers have regretted that the United States supported China’s entry into the World Trade Organization, which has helped China’s economic rise. There is bipartisan consensus that attempts to mold China into a “responsible stakeholder” of the US-led world order have been largely unsuccessful. A more robust anti-China mindset seems to have moved centre-stage, reminiscent of the “Offensive Realism” school of great-power rivalry.

Under a new “Indo-Pacific Strategy”, President Trump has re-energized a quadralateral strategic alliance of the United States, Japan, Australia and India, all not-so-friendly towards China. Various Chinese investments in the United States have recently been blocked. A 30% tariff has been imposed on Chinese solar panels, an ominous first salvo of what could escalate into a full-blown trade war. Secretary of State Rex Tillerson recently warned Latin America against dependency created by China’s Belt and Road Initiative Click here. A storm seems to be gathering in US-China relations. Click here

Amid growing sinophobia and Trumpist smoke and mirrors, it is easy to lose sight of the reality and paradox of China’s rise.

As China grows into a ten-thousand-ton panda, it can no longer follow Deng Xiaoping’s dictum of “hiding strength and biding time”. Even its own avowed benign behavior has not been sufficient to prevent smaller neighbors from hedging strategically.

Paradoxically, however, a stronger and more developed China may well offer greater opportunities to keep America safer and even more prosperous. President Trump once said the United States should have kept the oil in what turned out to be an unproductive War on Iraq (*). Nevertheless, even with geopolitical rivalry with China, there are ways for America to gain.

Examples abound.

First coming to mind is China’s capacity for stabilizing the dynamics of the Korean peninsula. With supreme leader Kim Jong-un’s new-found friendly Winter-Olympics overtures towards South Korea, China could be encouraged to broker a verifiable non-aggression deal between North Korea and the United States, perhaps backed by security guarantees by China along with other members of the six-party talks, including Russia.  

Second, the South China Sea is China’s artery of trade and resources. China is therefore unlikely to disrupt the normal flow of civilian and commercial navigation. But China’s “island building” with military installations diminishes America’s military flexibility. Nevertheless, apart from symbolic yet provocative “freedom of navigation operations”, the United States may select suitable sea routes for regular joint patrols with the Chinese navy. This would send a strong signal for regional peace and stability.

The United States could also explore the possibility of jointly developing with China and other countries the vast energy reserve in the South China Sea, subject to suitable environmental safeguards. Likewise, with depleting fishery resources, a US-China joint initiative for sustainable fisheries management would do wonders in minimizing regional conflict, while adding to the soft-power of both countries.

Third, a strong and prosperous China presents many opportunities for American investments and expertise. As an energy surplus nation, America can sell vast quantities of natural gas to China, the world’s biggest energy customer, to help reduce coal-fired pollution. China has recently removed foreign investment restrictions in a host of industries and services. These include rail transport equipment, automotive electronics, new energy batteries, electric vehicles, bio fuels, motor cycles, satellites, edible agricultural products and marine engineering.Click here According to a McKinsey report, China investment opportunities in 2018 include the middle-class consumer market, the digital economy, electric vehicles, the green economy, pharmaceuticals, wealth and asset management, and other financial services.

Last but not least, America’s strongest card of managing China’s rise is its  robust institutions and unmatched legacy of moral and ethical values, what makes for America as “a shining city on a hill”. Although much of this has been temporarily squandered by “America First” Trumpism, the reservoir of American soft power largely remains.

For example, instead of resisting China’s Belt and Road Initiative, the United States could participate in some much-needed regional infrastructural projects. This will enable it to set an example in good corporate governance including transparency, accountability and sustainability. An analogy is the China-initiated Asian Infrastructure Investment Bank (AIIB). Its diverse membership includes a host of American allies. Its more transparent and inclusive organization structure and its development of good governance along with the Word Bank are instructive.

However, all of the above opportunities would be compromised if US-China relations becomes strained.

China’s Ambassador to the US Cui Tiankai recently alluded to strategic misjudgment of China in some United States quarters Click here. Still beset with a mountain of economic, financial, social and environment obstacles, China has neither the global military capacity nor the geopolitical willingness to displace the United States’ role in world leadership any time soon.

In an ever-closely knit “global village” facing a host of common challenges including climate change, energy security and terrorism, China’s fate cannot be unbundled from the rest of the world, least of all the United States. Hence, President Xi Jinping’s clarion call for abandoning a binary cold-war mindset and forging a “new era for international politics” with a view to building a global “community of common destiny”.

With major historical, cultural, socio-economic and political differences, China’s choice of development path and its security and other core interests must be respected. As the country becomes much larger, its natural desire for more regional elbow room and international influence projection must be accommodated.

Fixating on confronting and thwarting China’s inevitable rise will not enrich the United States. On the contrary, engaging China more constructively would capture the “oil”, figuratively speaking, in China’s rapid development. It would keep America safer and more prosperous. It would also be a smart way of leveraging China’s rise to make America great again.

(*) Fire and Fury, Inside the Trump White House, Michael Wolff, Henry Holt & Co., New York, 2018, p.49.

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An edited version of the above article appeared as an Op-ed in the South China Morniong Post of 15 February, 2018 with a different title "How a Sino-US relationship reset would help make America great again". 

Avoiding War - Containment, Competition, and Cooperation in US-China Relations

Drawing from interviews with an impressive panel of distinguished Brookings scholars, this Brookings Report of November 2017 Avoiding War - Containment, Competition, and Cooperation in US-China Relations examines how the United States may respond to a dramatically-changed world where Pax Americana has given place to multi-polarity increasingly influenced by the shape of US-China relations. 

The Report highlights the emergence of a more confident and assertive China driven by increasing global economic clout and asymmetric capabilities which challenge US military dominance in the West Pacific. It delves into the nuances of a complex US-China relationship and calls for an unambiguous US strategy on China to manage and steer China's rise towards outcomes less inimical to US national interests. 

The interviews were conducted by Bruce Jones, Director of the Foreign Policy Program at Brookings and Senior Fellow of the Institution's Project on International Order and Strategy. 

Download Brookings Report November 2017 - Avoidng War - Containment Competition and Cooperation in US-China Relations

US misgivings with this emerging uncertain world are also captured in Bruce Jones's article of 28 November The New Geopolitics for the Order from Chaos Program. 

He concludes that "questions about the new geopolitics must inform a new debate about America’s role—and interests—in a much more competitive world. What choices we as a nation now make will reverberate through this new geopolitical landscape, leading us either to a situation of tense stability or to a more dramatic, and probably violent, re-ordering of international relations."

While accepting and perhaps welcoming China's economic ascendancy, both of these pieces set great store on the necessity of continuing US military hegemony in the West Pacific as a cast-iron guarantor of regional stability. According to both, this is perceived to be under threat from an increasingly assertive China. Click here

However, what have not been sufficiently addressed is whether China's rapid military modernization and assertiveness in the South China Sea are to a considerable degree the natural consequence of a rising global power wanting and able to defend its strategic sea lanes of communication and territorial integrity. Both objects are understandable from the perspective of safeguarding national security and restoring wounded national pride. In other words, China's military "assertiveness" may be largely defensive. 

Nevertheless, while accepting that it's in China's interest to maintain freedom of navigation in these vital sea lanes, the worry is that with growing economic and military clout, China may be able to marginalize or even push US influence away from the Western Pacific in favor of a revived China-centric "tributary system" involuntarily observed by China's neighbors, including US allies. 

In this regard, during the above-mentioned interviews, the following outburst by Robert Kagan, renowned author and contributing columnist at the Washington Post, says it all:

"My attitude towards China is, do well economically, but you cannot use your military to expand your power position in the region. Is that fair? No. Is there any justice to that? No. We get the Monroe Doctrine and you don't. That's just the way it is. I'm sorry. But we cannot allow China to use its military power to establish regional hegemony. There's nothing we can do about economic hegemony. That's just a reality. I would say, forget about that, cooperate, open the world to them, and wish them the best. The BRI (Belt and Road Initiative), we are not going to stop it anyway."

Chances are that China may achieve a good measure of economic hegemony in the Western Pacific not through military coercion but through driving regional economic growth while upholding international trade rules.What if, at the same time, China continues to modernize and enhance its defensive military capacities, including fortification of reclaimed physical features in the South China Sea, without inhibiting any maritime traffic?  How would US military hegemony alter this power re-balance without a Cold if not a Hot War? As pointed out in the Report, an arms race between the two is already happening in all but name.

From an American perspective, what is at stake is a "Contest for the 21st Century and the Future of American Power", as seen by Thomas J Wright in his latest tome, All Measures Short of War, Yale University Press, 2017. 

How to construct a mutually-acceptable relationship between these global rivals is becoming increasingly critical, as Professor Amitai Etzioni of George Washington University, points out in Avoiding War with China - Two Nations, One World, University of Virginia Press, 2017. 

China's Belt and Road Initiative: Opportunities for the Aegean Region

My PowerPoint presentation at the international Aegean Economic Forum on 26 October, 2017.

At the Forum, I highlighted key messages of President Xi's 30,000-word Speech at the 19th Party Congress, the nation's existential threats and epochal opportunities, the makings of the Belt and Road Initiative, and ways to leverage it for the benefit of the Aegean Region.

Download OBOR Economic Opportunities for Aegean Region

Download AEGEAN FORUM invitation

Download Aegean Forum Program

The Aegean Forum is a new conference series organized by the Özgencil Organization. For over 16 years, they organize the prestigious annual Forum Istanbul which are supported by the highest levels of the Turkish government, including Deputy Prime Minister. I was a sponsored Speaker at the Forum Istanbul for five years in a roll. See my last Forum Istanbul PowerPoint presentation in 2015 on Turkish-China Relations: New Silk Road in a Changing World. 

How China connects the world

Part Two of a 4-part special presentation to the top management of an European Union enterprise.

Download How China connects the world  

 

 

Military and Security Developments Involving the People’s Republic of China 2017

The above is the United States Annual Report to Congress dated 15 May 2017. It updates information on China's thoroughly-streamlined military command structures and capabilities to engage hostile forces in a wide range of theaters and environments.These include silo-based and mobile nuclear intercontinental ballistic missiles, strategic submarines, 4th and fifth generation bombers, anti-satellite, cyber and space warfare, anti-access/area denial (A2/AD) abilities, military features in the South China Sea, and military bases further afield such as Djibouti. It reflects China's much-boosted strategic nuclear deterrence as well as capabilities to fight short-duration, high-intensity regional conflicts at greater distances.

The Report perceives China's military objectives as to "perpetuate the rule of the Communist Party of China, maintain domestic stability, sustain economic growth and development, defend national sovereignty and territorial integrity, secure China’s status as a great power and, ultimately, reacquire regional preeminence; and safeguard China’s interests abroad". They necessitate power projection capabilities to safeguard national core interests such as Taiwan, and others consistent with the "China Dream" of national renaissance.

The Report notes that China's official military budget grew at an average of 8.5% annually from 2007-2016. In March 2016, China announced a 7% inflation-adjusted increase to $144.3 billion, continuing more than two decades of annual defense spending increases and sustaining its position as the second largest military spender in the world after the United States (about one-seventh of the latter in nominal terms but three-quarters in purchasing power terms). It expects that China has the ability to support defense spending growth for the foreseeable future. 

Clearly China is fast catching up with the United States militarily both in terms of quality, sophistication, integration and flexibility. Nevertheless, while China continues to pose an increasing challenge to American military dominance, such challenge is largely limited to a number of scenarios and is largely confined to the Asia Pacific as China is still far behind in global reach and efficiency.  

The Report doesn't sound overtly alarmed about China's military intentions which seem concomitant with China's dramatic economic rise. While warning caution and vigilance, it also highlights a range of ongoing peaceful military-to-military cooperation and exchanges between China and the United States as well as a host of other countries. There is no undue paranoia or fear in the Report of China usurping America's global dominance or leadership.