China Redux

In recent years, China’s policies towards Africa have generated major trade and resource gains on that continent. China’s love affair with Africa has, at the same time, earned the scorn of the international community and MSM (see here). But what about the Middle East? Roughly 55 percent of all of China’s oil comes from the Middle East, yet China’s interest in the Middle East is far less widely reported.

Jon Alterman, Director of the Middle East Program at CSIS, has published a fascinating note on “China’s unease” with the Middle East that provides a window into China’s current and future role in the region. In Alterman’s view, the Middle East “is a place where China can really get hurt.” Beijing views the Middle East as “the graveyard of great powers” — a phrase once reserved for Afghanistan. More importantly, China lacks any real capability to project power in the region; no Chinese naval vessel has ever made a call in a Middle Eastern port (which I still find more than a little surprising).

Thus, China must rely on the United States to ensure safe passage for its oil imports. Alterman believes this situation is likely to persist for a very long time — decades, at the least. In the event of a confrontation, the US could easily cut off Chinese energy imports from the region. But China also benefits from the very vulnerability it concedes: China “is happy to piggyback on the security the United States provides them for free,” Alterman writes. Chinese businesses have made significant inroads in the Middle East without parallel investments (in security and diplomacy, for example) from the Chinese government.

As Alterman explains, it is this confluence of factors that has led China to generally support US policies in the region, including economic sanctions on Iran. It turns out China does not have much of a choice in the Middle East.

For the full note, Middle East Notes and Comment: China’s Unease, click here.

China’s stock of foreign exchange reserves soared to $1.2 trillion in the first quarter of the year (China already was the largest holder of foreign reserves). Two things worth noting about this:

1. The rate of foreign reserves growth: the first quarter increase of $135.7 billion is equal to more than half of China’s total foreign growth reserve in all of 2006 ($247.3 billion).

2. The reason behind a substantial portion of the first quarter increase is still unexplained. About $60 billion of the $135.7 billion increase can be attributed to the first quarter trade surplus and to foreign direct investment. The source of the remaining $75 billion is unknown. Some obervers believe that Chinese financial institutions are bringing funds back home after storing them offshore, which is certainly plausible.

But that’s not the point.  Thomas Barnett explains why the case of the mysterious reserves is cause for concern:

Bigger point: the lack of transparency overall on Chinese monetary regulation and general reporting. China’s getting too big to be that opaque. Bad for us, bad for them, bad for business.

A good example of reality that’s China freedom deficit is less dangerous to us than its rules deficit. Too many rules on politics, not enough sensible ones on markets.

Lack of transparency is even more dangerous when the size of China’s foreign reserves is so great — and growing at a rapid rate. The silver lining is that China and the US share a mutual interest in a stable dollar. The problem is that without better information, there’s no telling how the markets will react. And as China’s reserves rise, the greater impact any glitch, misstep, or miscommunication might have.

Yesterday I had a chance to speak with an aide to Richard Lawless, Deputy Undersecretary of Defense for Asia and Pacific Security Affairs at the Pentagon (who surely warrants inclusion on my list of Who’s Who in US-China policymaking). The bright, thoughtful man with whom I talked was marvelling at the breadth of joint activities and communication undertaken between the US and Japan on a daily basis. I won’t go into too much detail, but it’s no secret that nearly all US policy decisions in East Asia are coordinated with our Japanese friends. And that’s only on the security side; this cooperation extends, to a great extent, to economic issues as well.

The US relationship with Japan is the embodiment of a trusted, important alliance. And it got me thinking: can the US and China ever succeed in forging a security alliance of this kind? There are a great number of factors working against it. For one, the historical bases of the US-Japan alliance were (and are) highly unique, providing numerous shared interests and concerns and thus creating a powerful foundation for long-term cooperation. The US-Chinese relations does not offer this.

Another powerful factor working against a US-Chinese alliance is strong suspicions of the other’s strategic intent. In the US, distrust of China among top policymakers is widespread, although by no means unanimous. Still, it would prove very difficult to overcome domestic opposition to a US-Chinese alliance.

The volatility of US-Chinese trade and economic relations further dims the prospect of a security alliance. Economic prosperity is arguably both country’s top security issue, and the spectre of protectionism rising in the US means that both sides will likely feel more threatened by the other’s economic posture. Economic relations must regain a measure of stability before substantial bilateral security alliances can be achieved.

But even if the US and China are unable or unready to reach a more intensive bilateral alliance, there are growing indications that East Asia could be on the path to a regional security agreement. China’s productive, facilitating role in the Six Party talks, and the thawing of Japanese-Chinese relations (which I wrote about here), have led some to suggest that a pact — once thought impossible — could be attainable in the near future. Such an agreement would include, at the least, Japan, China, and Korea, and could be modeled after the North Atlantic Treaty Organization (NATO).

Given what’s at stake in the US-Chinese relationship, a security alliance could go a long way towards making the world more secure and safe.

It looks as if Chinese-Japanese relations have reached new heights. On Wednesday, Chinese Premier Wen Jiabao and Japanese PM Shinzo Abe met to discuss opportunities for strategic cooperation between the two countries. Great quote from the AP (via the Guardian):

The Japanese were eager to stifle talk of disagreements. When asked about reports that Wen considered the visit an ‘ice-melting trip,’ Chief Cabinet Secretary Yasuhisa Shiozaki said: ‘We’re not aware of any remaining ice.’

It’s nice to see Japan and China playing nice. But it’s not as if the issues which caused the long-running spat have been solved: Japan has refused to offer a full apology for crimes committed during World War II (although it has taken some half-measures, discussed in more depth here), and neither side is jumping to offer concessions on claims to natural gas reserves in the East China Sea.

It’s the former problem, that question of history, that poses the greatest concern. At the moment, tensions have subsided while both sides attempt to “face up to history,” as the Kyodo News agency termed it. But no one’s really budging in this dispute. It’s a political game-changer in both countries, and neither Abe nor Wen can afford to shut the door on a return to ugliness.

Will politicans on both sides be able to resist the temptation to stoke populist passions at home with ahistorical, xenophobic nonsense? I’m not overly optimistic. Which is why it’s important to have these kinds of meetings when relations are calm — because it won’t always be that way.

UPDATE: There’s a nice post on this topic at Newsweek.com by Susan Shirk, a former senior official at the State Department and China expert. Well worth reading to gain a deeper understanding of how Chinese-Japanese relations are a hot-button domestic political issue countries for both countries, and why the tension won’t go away any time soon.

Fascinating analysis of the US-China trade rift by Charles Hugh Smith at the Of Two Minds Blog.

The post offers convincing arguments for why the US is actually benefiting more than China from the two countries’ trading relationship, in spite of substantial US trade deficits and some manufacturing job losses.

The protectionist hysteria gaining mindshare in Congress may be good politics to some, but it overlooks one simple fact about U.S.-China trade: the U.S. is making out like a bandit.

Here’s one to add to State Department’s annual list.  NYT’s Joseph Khan reporting:

Gao Zhisheng, one of China’s most outspoken dissidents until his conviction on sedition charges late last year, said in a recorded statement made available over the week end that while his confession had resulted in a light sentence, it had been made under mental and physical duress.

Better late than never. The AP reports that China is urging Sudan to accept the deployment of UN peacekeepers to Darfur.

Sudan and the UN agreed in November 2006 on the deployment of a joint African Union-U.N. force of 20,000 peacekeepers in Darfur. But Sudanese President Omar al-Bashir has since backed off from the deal.

Now China is throwing its weight around. China’s assistant foreign minister, Zhai Jun, offered this view after meeting with President al-Bashir on Monday: “Our position toward Darfur is clear. We have exercised all possible efforts, political, economic and others and advised our Sudanese brothers to accept Annan’s plan.”

Zhai’s statement comes off as a bit self-congratulatory, but China has certainly pulled off a significant volte-face on Sudan. In addition to demonstrating public support for the UN peacekeeping plan and pressuring Sudanese leaders in private talks, China is putting its money where its mouth is. In testimony before the House Committee on Financial Services, Stephen J. Morrison, an Africa expert at the Center for Strategic and International Studies, said that China has taken steps to stop incentivizing investment in Sudan:

The Chinese National Development and Reform Commission, the main economic planning agency in Beijing, released a public document in conjunction with the Ministry of Foreign Affairs and the Ministry of Commerce, that Sudan has been removed from the latest list of countries with preferred trade status. According to the announcement, Beijing will no longer provide financial incentives to Chinese companies to invest in Sudan (full testimony available here).

None of this will soften the impact of China’s long delay in righting its Sudan policy. But these moves should be taken as a welcome sign that China is committed to becoming a more responsible member of the international community. Sudan will continue to be important lesson for China as it seeks to balance important diplomatic issues with its critical resource needs. In the future, this should lead to speedier, more effective response.

Great summary of efforts by authoritarian regimes to block blogging and other free speech with lots of links to important documents (by Andrew Hansen of CFR.org). Here are some of the key resources:

- “China’s Hu vows to ‘purify’ the Internet” (via Reuters)

- China’s crackdown on Internet cafes (via BusinessWeek)

- “Handbook for Bloggers and Cyber-Dissidents” (via Reporters Without Borders)

- China tightens control on Internet news content (via OpenNet Initiative)

- “Internet fuels rise in number of jailed journalists” (via Committee to Protect Journalists)

There are, of course, a number of bloggers among us dealing with this issue (and writing about it) all the time: Chris at Eyes East, Jeremiah at Granite Studio, Richard at Peking Duck, among many others.

The lesson in all of this: try as you may, bloggers and non-blogging citizens will continue to find ways to be heard in the age of digital information distribution.

This blog frequently looks at the security implications of China’s rise, which are potent and diffuse. But there’s no doubt that the real skirmishes between the US and China are being fought on economic terrain. Friday’s announcement of CVD duties, which are a first step towards greater American protectionism, is one example. The greatest threat for the 21st century is that these economic flare-ups between the US and China will not be contained, but might spill over into the realm of military aggression between these two world powers.

Economic conflict breeds military conflict. The stakes of trade override the ideological power of the Taiwan issue. China’s ability to continue growing at a rapid rate takes precedence, since there can be no sovereignty for China without economic growth. The United States’ role as the world’s superpower is dependent on its ability to lead economically.

As many of you will know from reading this blog, I do not believe that war between the US and China is imminent, or a foregone conclusion in the future. I certainly do not hope for war. But I have little doubt that protectionist policies on both sides greatly increase the likelihood of conflict–far more than increases in military budgets and anti-satellite tests.

With the announcement of this change in trade policy, the Bush Administration has opened the floodgates, and it will be very difficult to turn back the tide. That’s the real concern with this move. Sure, the CVD duties only apply to glossy paper, and things may even stay that way for some time (i.e. wider enforcement by the administration may not follow immediately). But the politics of trade are such that greater protectionism now appears inevitable.

All this points to the fact that Friday’s announcement was merely the opening salvo in a delicate, dangerous dance with China.

A couple years ago I listened to a senior US intelligence analyst talk about the intel community’s views on China. She said that there was a large contingency at the agency that simply assumed that war with China was inevitable at some point. The reason: the sheer number of high-stakes issues meant that not all could be solved by dialogue and cooperation.

I refuse to take such a fatalistic approach. But protectionist trade policies contribute to a rapidly expanding list of incredibly challenging issues, which bodes poorly for the US-China relationship, and for all of us.

Ridiculous Headline of the Day (via People’s Daily):

China, Sudan vow to boost military exchange

“Military relations between China and Sudan have developed smoothly,” said Chinese Defense Minister Cao Gangchuan at a meeting with Chief of Joint Staff of Sudanese armed forces Haj Ahmed El Gaili.

China and Sudan have enjoyed profound friendship though the two countries are far apart, said Cao, who is also vice chairman of the Chinese Central Military Commission and state councilor.

China cherished the traditional friendship with Sudan and would like to further promote bilateral cooperation in various fields, said Cao.