Flashpoints in Asia-Pacific

S P SETH

While Mao Zedong was the founder of communist China, Deng Xiaoping was the architect of its economic miracle and great power resurgence. Even as China was going through spectacular economic growth during the eighties and nineties, Deng cautioned the country’s leaders to “bide your time and hide your capabilities.” The first part of his advice was spot on as China was navigating the difficult task of building and modernizing in an international environment not entirely favorable to the country. By concentrating on economic growth while maintaining relatively low international political profile right up to the beginning of the new century, China is now the world’s second largest economy with its high international political and military profile on display for any country or countries doubting its resolve and strength.

While China’s leaders did bide their time as suggested by Deng, there is some argument if they are a bit hasty in projecting and asserting their power. The argument arises in the context of China’s increasingly tense relationship with some of its regional neighbors on the question of contested sovereignty over the island chains in the South China Sea that it claims in entirety. China’s parliament passed a law to this effect in 1992, thus excluding any regional claimant(s) from what it regards as its internal jurisdiction. In other words, any external interference to thwart Chinese sovereignty will be resisted and excluded. But China was still lacking in political and military muscle to enforce its sovereign control. Therefore, while continuing to insist that South China Sea was its territorial sea, Beijing also let it be known that it was willing to sort out issues through negotiations and/or through some sort of joint exploration mechanism for its rich underwater resources.

But nothing came of it as Beijing continued to claim exclusive sovereignty over the island chains of Spratly and Paracel islands. This island chain(s) is also contested by Vietnam, as well as the Philippines, among other regional countries.  And this has led to some naval incidents between China and Vietnam, as well as between China and the Philippines. Like China in the early nineties, Vietnam has recently passed legislation enshrining its sovereignty over these islands. Which, in turn, has led China to deploy a garrison on the islands to assert and safeguard its territoriality. It has also founded Sansha city in the South China Sea to cement its control over 2 million square kilometers of territorial waters. How all this will play out is difficult to say, but South China Sea is becoming a regional flashpoint with unpredictable consequences.

Vietnam and the Philippines are obviously no match for a resurgent and powerful China. But their growing security ties with the United States will raise the stakes. While the US maintains a neutral position on the sovereignty issue, it favors a code of conduct between China and the 10-member Association of South East Asian Nations (ASEAN) for dealing with disputes in the South China Sea. China, on the other hand, is not willing to formalize the issue to give it the character of a territorial dispute. China had a victory of sorts when a recent ASEAN foreign ministers’ meeting in Cambodia failed to issue an agreed communiqué to avoid any mention of the South China Sea issue. Being considerably beholden to China for economic aid and political support, the host of the meeting, Cambodia’s foreign affairs minister, ruled out a communiqué because “ I have told my colleagues that the meeting of the ASEAN foreign ministers is not a court, a place to give a verdict about the dispute.” With its growing power and considerable economic leverage, China is seeking to shape the regional agenda to its advantage.

Will it prevail? It will obviously be a tough fight, as the United States is not wiling to be edged out of the region. The US regards itself as a Pacific power with its considerable economic and strategic interests. It is still the dominant military power, with a large naval fleet deployed in the region and a nexus of security ties with a number of regional countries, including Japan, South Korea and Australia. In expounding the US interest to see a peaceful South China Sea, the US Secretary of State, Hillary Clinton, has maintained that, “No nation can fail to be concerned by the increase in tensions, the uptick in confrontational rhetoric and disagreement over resource exploitation.” And she has urged that the disputes between China and its regional neighbors be resolved “without coercion, without intimidation, without threats and without use of force.” China’s message for the United States basically is to butt out of the region. But that is where the issue has the potential of starting an accidental military clash or, even, something bigger. For instance, China’s shadowing of US naval movements through South China Sea might create an ugly situation, as there have recently been some naval incidents.

China is a rising power. And it is determined to make it to the top. The United States and its regional allies in Asia-Pacific are determined to check and counter-balance it. China appears confident. There is a sense that China might have to tough it out for some years until the United States is too tired from its financial woes and military overreach to pick up a fight. Even if this analysis is true, the transitional period of 5 to 10 years that China might need to establish its primacy will be hazardous, as the United States and its regional allies seek to confront China. The situation remains tense both with the Philippines and Vietnam. There have already been some naval incidents. In the midst of it all an arms race is going on, with countries in the region buying the latest in weaponry. China’s own defense expenditure has been rising at double digit figures in the last few years. The South China Sea ownership issue is also tied up with freedom of navigation, as a significant part of international trade, including oil, passes through these strategically important waters.

At the same time, there are problems between China and Japan in the East China Sea over ownership of Senkaku islands, resulting in some unpleasant naval incidents. And Japan happens to be an important security ally of the United States. North Korea’s nuclear ambitions and the unresolved issue of Korean unification is another live issue, with China committed to protect North Korea. The status of Taiwan is also a flashpoint, with China regarding it as a renegade province and determined to use force to bring about unification if Taipei were to declare independence.

The immediate flashpoint is likely to be South China Sea centered on the status of the Spratly and Paracel islands, and the passage through it of US naval ships that China might seek to impede or intercept at some point. In other words, the great game in the Asia-Pacific is starting in earnest and there is no knowing how it will end.

Note: This article was first published in the Daily Times.

Asia-Pacific’s great power game

By S.P.SETH

While China continues to have problems with some of its Southeast Asian neighbors over competing claims of sovereignty over the South China Sea waters, the United States is going ahead with strengthening its naval presence in the Pacific.

The backdrop to this is a threat from a rising China to edge out the United States from the region and assert its dominance. The US is not taking it lying down as it regards Asia-Pacific region strategically and economically important to its national interests.

Some recent developments highlight the dangers. When Barack Obama visited Australia last November, the two countries agreed to upgrade their defense ties with Australia providing facilities in its north for the basing and rotation of US troops.

The US will also have naval and air facilities in Australia’s north and west, apparently to deal with any threat from China. At the same time, there are reports that the Australian territory of Cocos Island in the Indian Ocean might be readied for surveillance of China’s growing military presence in the region.

China has reacted angrily, as pointed out in an earlier article, conveying its displeasure strongly to Australia’s Foreign Minister Bob Carr, when he recently visited China, calling it a throw back to the Cold War era.

The reaction was even more pointed when Australia’s Defense Minister followed his ministerial colleague on a China visit.   Defense Minister Stephen Smith and his entourage reportedly left their mobile phones and laptops in Hong Kong before proceeding on their official China visit.

This precaution was considered necessary because such devices were believed to have been compromised during previous ministerial visits to China.  

If China were engaging in spying on visiting Australian dignitaries, its main reason would be to access important information about its defense ties with the United States and to what extent these are directed against China.

 It caused quite a flutter here when a new book by a an Australian journalist reportedly revealed that Australia’s 2009 defense white paper contained a secret unpublished section that contained alarming war scenarios with China.

Stephen Smith has, of course, dismissed these claims. But the point is that there is a lot of distrust and misunderstanding on both sides.

 Australia is engaged in a delicate balancing act between China and the USA. China is now Australia’s biggest trading partner with much of its export income from exports to China.

Concurrently, the United States is its closest strategic partner, viewed as underwriting its security from a regional threat, apparently from China. Australia’s upgraded security ties with the US are a form of insurance.

It is feared that China might at some point be tempted to do to Australia what Japan did to China and other regional countries before and during WW11. Which is to attack and occupy the country to access steady and adequate supplies of raw materials for its economic growth.

This is reflected in growing popular opposition in Australia to Chinese investments in resource industry (like mining), and agricultural land.

Peter Hartcher, international editor of the Sydney Morning Herald, cautioned in a recent column that such opposition to Chinese investments was dangerous, revoking “Japan’s policy of occupying its nearest neighbors in the 1930s [that] was transformed into an all-out war after the US imposed a trade embargo on it. The Pacific War followed and Japan threatened Australia with invasion until the US defeated it…”

This caution, by itself, is indicative of the deep fear in Australia of China’s growing power and the consequent rationale of an even stronger security connection with the US.

Another important development is the growing warmth in US-Vietnam relations. Although the two countries were bitter enemies not long ago, the turn around in their relations is an extraordinary development. 

An important reason is their shared concern about China’s assertive role in the region, especially its sovereignty claim over the South China Sea.

The US Defense Secretary Leon Panetta’s recent visit to the Cam Ranh Bay base in Vietnam, once a US naval base during the Vietnam War, is a testimony to the new warmth in their relationship. 

During his Vietnam visit, he didn’t mince his words about the US’s desire to make Cam Ranh Bay once again into a US base, but this time against China, if need be.

He declared that, “It will be particularly important to be able to work with partners like Vietnam; to be able to use harbors like this as we move our ships from our ports on the [US] West Coast, [and] our stations here in the Pacific.”  

Though Vietnam is playing down any US military connection, it is significant that the two countries, last year, signed an agreement on defense cooperation.

It is pertinent to point out that Cam Ranh Bay is one of the South China Sea’s best natural harbors, and hence an ideal spot to watch and impede China’s moves in these contested waters.

Not surprisingly, the deputy chief of general staff of China’s People’s Liberation Army (PLA) believes that, “The South China Sea is not America’s business… It is between China and its neighbors.”

This is precisely the problem because there are multiple regional claimants to South China Sea islands, Vietnam among them. There was recently a naval spat when Vietnam accused Chinese ships of cutting the cables of a survey ship it was deploying in its (claimed also by China) waters.

It is therefore easy to see the shared strategic ground between the US and Vietnam in regard to South China Sea sovereignty issue.

As South China Sea is a busy shipping lane for trade and passage of naval ships, it is feared that China might interfere with such passage claiming it as its national highway.

In the midst of all these regional tensions (as also between China and the Philippines) the US has announced that it would be increasing the size of its naval deployment in the Pacific from 50 to 60 per cent.

Panetta has reportedly said the US would maintain six aircraft carriers in the region, complemented by the arrival of Joint Strike Fighters and the Virginia-class fast-attack submarines. China too is modernizing and expanding its naval forces, including “carrier killer” anti-ship missiles and submarines.

 Apart from China and the USA, some of the regional countries too are engaged in building up their navies. All in all, there is enough happening in terms of naval acquisition and deployment to cause real concern for regional stability. And if one add to it Taiwan and North Korea, the picture looks even more depressing.

In this great game of power re-alignment in the Asia-Pacific region, Panetta has emphasized: “Make no mistake—in a steady, deliberate and sustainable way---the United States military is rebalancing and brings enhanced capabilities to this vital region.”

A Chinese strategist doesn’t share Panetta’s enthusiasm. His take is that, “Even though the US has a wonderful plan of pivoting, rebalancing or whatever into Asia-Pacific affairs…I really doubt they can find the trillions of dollars that is needed.”

Whatever the future, and it doesn’t seem terribly inviting, the great power game in the Asia-Pacific region is truly begun.

China not happy with Australia’s upgraded US ties

By S.P.SETH

During his first China visit recently, Australia’s new foreign minister, Bob Carr, received an earful of Chinese reprimand over the country’s enhanced strategic ties with the United States. With President Barack Obama’s increased focus on Asia-Pacific in the US foreign and strategic priorities, Australia has become even more important in the US scheme of things. As part of this the US will have base facilities in the country’s north and west for deployment of US troops and other assets.

There are also reports that Australia’s Cocos Island in the Indian Ocean might be developed into a base for US surveillance and other activities. There is no doubt that all these developments are designed against a perceived Chinese threat, even though this is formally denied.

China obviously is not happy, believing that Australia is becoming part of the US strategy to contain China. And Bob Car was told unmistakably that China was not impressed with such an outdated throwback to the Cold War era.

Australia’s foreign minister had to do some explaining, not only to China’s foreign minister, Yang Jiechi, but also to Lieutenant General Wei Fenghe, deputy chief of general staff of the Chinese People’s Liberation Army, as well as to Wang Jiarui,  director of the International Department of the Communist Party. This was a way of conveying the intensity of China’s concern at government, military and the party levels.

In Bob Carr’s words, “The most objective way of saying it is my three Chinese partners today invited me to talk about enhanced Australian defense co-operation with the United States.”

He added, “ I think their view can be expressed that the time for Cold War alliances have long since past.”

Putting forth Canberra’s viewpoint, Carr explained, “ … that an American presence in the Asia-Pacific has helped underpin stability there and created a climate in which the peaceful economic development ---including that of China, has been able to occur.”

Obviously, Bob Carr’s explanations didn’t cut much ice with his Chinese partners. Australia will now be viewed with even greater suspicion as part of a containment ring, including Japan.

Even though China is now Australia’s largest trading partner, their relationship leaves much to be desired. Ironically, the relationship started to deteriorate sharply under Australia’s then newly elected mandarin-speaking Prime Minister, Kevin Rudd, who described himself as “a brutal realist on China.”

He offended the Chinese leadership by publicly advising them to hold dialogue with the Dalai Lama. And it was under him, as  Prime Minister, that Australia’s 2009 White Paper on defense saw China as an increasing threat to regional stability, recommending a significant increase in Australia’s defense profile, including doubling of its submarine fleet.

The tensions increased when Australia granted a visa to the exiled Uighur leader, Rebiya Kadeer, to visit Australia in 2009.

 On top of it all, China was unhappy because its concerted efforts to invest in Australian resource companies were denied, in some cases, on grounds of national interest. The same argument has prevailed more recently against the Chinese communications giant, Huawei’s, seeking to build Australia’s National Broadband Network (NBN).

In its worldwide search to secure resource materials for its economic development, Australia is for China a huge and tempting quarry, not to speak of its vast agricultural lands. China is hungry to get a hold on it for two reasons.

First, of course, is the need for uninterrupted access to needed raw materials. Australia is a stable political and social entity that makes it an attractive proposition.

Second: with its control of Australian resources China will also be able to keep a lid on price rises of these materials, such as iron ore and coal.

As an analogy, Japan’s quest, during WW11, to impose a Greater East Asia Co-prosperity Sphere among its neighbors, comes into mind. Though the two situations are different but the goal is identical.

Which is to have access to natural resources and materials to make China into an economically and politically powerful nation. And Australia has plenty of them.

This is where economic and strategic factors converge for China, creating fears in Australia and other regional countries about its intentions.

China looks like creating its own version of the Japanese East Asia Co-prosperity Sphere, kind of a new Middle Kingdom. And the regional countries are not looking forward to it.

 It is not just Australia that is seeking insurance against a Chinese threat through enhanced defense ties with the United States; other regional countries are doing it too.

The Philippines, for instance, is presently in a tense military stand off with China over the Scarborough Shoal, with China claiming the whole of South China Sea as its territorial lake. Even though some of the South China Sea Islands are closer to neighboring Southeast Asian countries, as is Scarborough Shoal to the Philippines, China claims everything by virtue of its sovereign claim of the Sea. And it is not prepared to countenance negotiations and/or mediation.

And with its presumed sovereign claim of the South China Sea, Beijing might one day interfere with or impede the freedom of navigation through one of the world’s busiest shipping lanes.

As Peter Hartcher, international editor of the Sydney Morning Herald wrote in a recent column, “ Its [China’s] willfulness troubles other countries. Australia is only one of many Asia-Pacific states that looks to US for reassurance in the face of doubts about China’s intentions.”

He adds, “If it angers China, it is within its power to ease those doubts…”

But don’t count on it. On the other hand, China seems intent on going its own way.

US-China tussle for power

By S P SETH

The recent China visit of the US Secretary of State, Hillary Clinton, and  Secretary of the Treasury, Timothy Geithner, was overshadowed by the furore caused following the escape to the US embassy in Beijing of the blind Chinese human rights activist, Chen Guangcheng, to seek asylum. Chen has been a prickly thorn on the government’s side, having internationally embarrassed China by exposing cases of forced abortions and sterilization in the rural areas as part of China’s one-child policy. After serving a 4-year prison term on charges of “sedition”, he was under house arrest when he made a risky escape for asylum to the US embassy. Not surprisingly it caused a crisis of sorts in US-China relations, with Clinton and Geithner right in the middle of it during their visit.

Which only shows the fragility of US-China relations, with Beijing accusing the US of interfering in its internal affairs. However, according to some recent reports, this latest conundrum might be managed, with the Chinese government allowing Chen to go to the US for studies with his wife and two children. It might be a convenient end to a difficult diplomatic crisis. But it would be highly embarrassing for China to allow this, being tantamount to admitting that Chen’s earlier imprisonment on “sedition” charges was a political act.

Even though Beijing is averse to admitting that it has a human rights problem, it does at times say that its human rights situation is improving. Which, by implication, means that there has been a problem in this area. The US obviously pushes this button to promote democracy in China, with tolerance for dissent and freedom. With its economic success, China, however, has increasingly taken a more assertive position, even promoting its path as an alternative model for the world. As the US and China increasingly take opposite positions on a whole host of issues, their disagreement is likely to become shriller, with less scope for peaceful management of their relations.

If diplomacy is the art of managing relations between nations, the US and China will need to work harder. With both keen to assert their primacy in the Asia-Pacific region, the scope for managing their ambitions is likely to become tougher. China has sovereignty claims on South China Sea, it contests maritime boundaries with Japan in the East China Sea, and is having problems with Vietnam, the Philippines and other regional countries over their competing claims in the South China Sea island chains. Which has led to naval incidents between China and some of its Asian neighbors.

Presently, the relations between China and the Philippines are quite tense over the disputed Scarborough shoal, a chain of reefs and uninhabited islands in the South China Sea. The South China Sea is rich in oil, gas and fishery. A Le Monde report has quoted a Chinese study which says that the area could contain the equivalent of 213 billion barrels of oil: 80 per cent of Saudi Arabia’s established reserves. No wonder there are a number of claimants to such potential wealth. China and the Philippines have done some show of military muscles, and the public opinion in the Philippines is quite exercised over China’s blanket sovereignty claim. And it is a US ally.

Although the US is ostensibly not taking sides on these issues, it has further strengthened its strategic ties with the Philippines, Vietnam and other regional countries. Now that the US is disengaging from Afghanistan, it has signaled its intention to become more focused on the Asia-Pacific region. Which hasn’t gone well with China.

Apart from its problematic relations with some of its regional neighbors, China is lately having more than its usual internal tensions; the most recent being the Chen affair. Chen was helped in his escapade to the US embassy by some of his activist friends who are now in trouble with the authorities. The sensitivity of the internal situation was graphically demonstrated following the Arab Spring when the Chinese authorities blocked access on the internet to material regarding popular upsurge in Tunisia and Egypt, fearing a contagion effect in China.

And recently, there was the Bo Xilai affair, when the Chongqing Party boss was removed from all his posts and his wife arrested on suspected murder of a British resident of that city. Bo was starting to threaten the Party hierarchy by raising the banner of revolutionary spirit of the Mao Zedong era. And the embers of the fire, lit by Bo, are not completely extinguished.

It is such sensitivity and resistance to political reform by relaxing the Party’s monopoly over power that gives the US a certain moral and political advantage over China. But this only makes China even more resolute on maintaining and asserting the Party’s control within the country. The Party leadership fears that the US is using democracy and human rights as an attempt to foment internal trouble in their country to the point of destabilizing China. This is another problematic issue in China-US relationship among a number of other issues clouding their relationship.

The core issue is the contest for primacy in the Asia-Pacific region between the US and China. Until now, the US has ruled the waves in Asia-Pacific, as in much in the rest of the world. Militarily, the US is still the most powerful country in the world. In the Asia-Pacific region, though, China is seeking to displace it through a mix of its economic, political and military muscle. Indeed, China believes it is none of the US’ business to be poking around in its neighborhood where, in Beijing’s view, China’s primacy, historically and geo-strategically, is well enshrined. Indeed, from this viewpoint, China’s loss of regional primacy during the last over 150 years was simply an aberration. Therefore, a new and stronger China feels justified to reclaim its old domain… so to say.  Which would explain their sovereignty claims over South China Sea and parts of East China Sea and other bits.

But in a world of nation states, historical claims of dominance by old or new empires are more an obstacle than a solution of contentious issues. This brings China into conflict with some of its regional neighbors, and with the United States as the established dominant power as well as an ally of some of China’s Asian neighbors. One way out of this complex web of relations between China and the United States might be to work out some sort of a mechanism to share power over the head of regional countries. But there are problems here because the regional countries might not like the idea of being a pawn in US-China relations. These countries are not inconsequential, like Indonesia, Vietnam, the Philippines, Malaysia and so on--- not to speak of Japan. They can forge their own alliances/partnerships to sabotage such plans, if they were ever contemplated.

In any case, China or, for that matter, the United States does not look like sharing power except on its own terms. Which essentially would mean that China or the United States will have to make way for the other. China, as the rising power, would certainly not like to give ground on any of its “core” strategic interests. The US, on the other hand, wants China to be a responsible stakeholder, which essentially means that Beijing shouldn’t rock the boat. These are irreconcilable positions, and spell trouble for the region.

Note: This article was first published in the Daily Times. 

China’s internal power play

By S P SETH

The recent meeting of China’s National People’s Congress (NPC) brought to surface the internal turmoil at the highest levels of the Communist Party of China (CPC). The powerful Chongqing party chief and the mega city’s boss, Bo Xilai, was removed from power. He had become the magnet and motivator for those unhappy with the rising tide of crime and corruption, using his city as a trendsetter in leading a strong, often brutal, campaign against alleged mafia and gang leaders. His chief instrument in this campaign was his police chief, Wang Lijun. In the process, Wang came close to finding some skeletons in his boss’ cupboard linking him/his wife to the death of Neil Heywood, a British citizen living in Chongqing. Heywood reportedly became the victim of a business relationship gone sour with Bo’s wife.

Fearing for his life, Wang made a dash to the US consulate in Chengdu seeking asylum with a treasure trove of information on his boss and more. The Americans apparently refused to buy into this internal Chinese power play and the Chinese security people took him away. He has not been seen since. Earlier, in Beijing to attend the NPC meeting, Bo fronted a press gathering and was quite unrepentant about his crusade against crime and defended his wife’s affairs. His only regret was that he trusted Wang too much. Now that his wife Gu Kailai has been detained by the police to investigate Heywood’s death, the power play is becoming more like a murder mystery.

Why was Bo so important and, by the same token, so dangerous to warrant his removal right in the middle of the NPC session? One reason, as sketched above, was that he seemed to attract people unhappy with the country’s state of affairs in terms of corruption and crime. His anti-mafia crusade at times appeared like a political witch-hunt. He was stoking the Maoist nostalgia of going after those who had usurped the party leadership. Which would explain why premier Wen Jiabao openly raised the specter of another Cultural Revolution like the one Mao Zedong engineered in 1966 lasting a decade. The seriousness of the situation created rumors of a coup, with the authorities clamping down on internet sites.

Indeed, the main website, Utopia, of the Bo Xilai-aligned hard-left, was ordered offline for publishing articles that “violated the constitution, maliciously attacked state leaders, and speculated widely” about the country’s leadership. Founded in 2003, Utopia became the vehicle for China’s resurgent left, opposing Western style economic reforms and, at times, criticized the party leadership against the backdrop of Maoist nostalgia. In his espousal of the Maoist past, Bo was reportedly winning support in the upper echelons of the party, and making a bid for a spot on the 9-member Standing Committee, the top governing arm of the CPC, at the next Party meeting in autumn where China’s new leadership for the next 10 years would be consecrated. But all his best-laid plans were sabotaged by the betrayal of his police chief when he made a dash to the US consulate in Chengdu.

China’s Communist Party broadly has three groups. First is the party’s hard-left that veered around Bo, and challenged the party leadership over its market friendly economic policies. That seems to have been badly damaged with the sacking and, what looks like, Bo’s purge. The second is the relatively liberal group with their advocacy of political reforms and further liberalization of the economy. Premier Wen Jiabao has been urging this for some years but without much success. Wen has highlighted the danger of a possible replay of another Cultural Revolution, against the backdrop of Bo’s purge, if nothing is done. According to him, “Without political restructuring, economic restructuring will not succeed….[Because] If we are to address the people’s grievances we must allow the people to supervise and criticize the government.”

Will he succeed? It seems unlikely in any significant way, simply because any meaningful change will upset the entrenched interests of so many at all levels of government and the party—local, regional and at the centre. And they will seek to thwart it.

At this point it is important to point out that the factional divisions in the CPC are not watertight. Even Bo was using his hard-left rhetoric as a convenient strategy to capture power. Like other CPC leaders, he and his family were beneficiaries of the system of patronage that went with power. His son, for instance, received much of his education in top British and American schools/universities, and was said to move around in his flashy Ferrari. His wife was engaged in profitable business--- one of its unfortunate victims being Neil Heywood, a British citizen.

The third group (which includes most of the party functionaries), even when they are generally supportive of the government, favor continued exercise of monopoly power by the CPC. With entrenched power and vested interests, any dilution of political control to introduce some sort of popular accountability and supervision will make them vulnerable. Like the late-Deng Xiaoping, architect of China’s economic miracle based on state-controlled capitalism, they would rather keep both economic and political power with the party. Deng was completely set against political liberalization fearing that it would plunge China into chaos thus undoing the process of China’s economic growth and its rise as a strong and modern nation. He, therefore, believed that the party’s exclusive control of power was not up for discussion. And in 1989 he ordered the army to crush the student-led democracy movement to prevent China’s relapse, in his view, into chaos.

Not only did Deng crush the students’-led movement, he also purged the political liberals in the party led by his own appointee as general secretary, Zhao Ziyang. Wen Jiabao, now China’s premier, was then working for Zhao. Wen is not only a great survivor but also has made his way up the party hierarchy to become China’s premier. And now he has smashed the Bo Xilai’s clique, for the time being at least. Another casualty appears to be the Zhou Yongkang, head of China’s huge internal security apparatus, who, according to the rumors, might have been planning a coup.

Because of China’s closed political system, rumor mills grind on despite the government’s firewalls, censoring and shutdown of websites and social media. Therefore, it is difficult to be sure of what is really going on. But one thing is for sure that China is entering uncharted waters where political succession might not be managed smoothly in future; though the next crop of president/party general secretary, and premier, Xi Jinping and Li Keqiang respectively, would most likely be confirmed at the next party meeting. And even as China becomes a superpower, its internal power play will continue to test its future.

Note: This article was first published in the Daily Times

How to fix China's economy?

By S.P.SETH

In the midst of global economic doom and gloom, China has attracted much attention and admiration for its impressive growth. Not long ago, China’s annual GDP was growing by over 10 per cent. Things are now slowing down but the pace is still healthy. In his speech at the recent National People’s Congress in Beijing, Premier Wen Jiabao revised down the GDP growth rate to 7.5 per cent, the lowest for a long time. In his address to China’s 3000 delegates, he detailed the problems facing the economy. He said: “Domestically, it has become more urgent but also more difficult to solve institutional and structural problems and alleviate the problem of unbalanced, uncoordinated, and unsustainable development.”

And: “Internationally the road to global economic recovery will be tortuous, the global financial crisis is still evolving, and some countries will find it hard to ease the sovereign debt crisis any time soon.”

The main reason for China’s relatively slower growth rate is a contraction of its major export markets in Europe and the United States. The US and Europe are trying to deal with their debt and deficit problems. They were, the US in particular, running large trade deficits with China. A good chunk of China’s trade surplus with the US was invested in US bonds and treasury notes. It seemed a convenient exercise for both countries with China continuing to expand its exports, while the US had access to easy credit. In the process, with cheap Chinese goods flooding into US and Europe, the inflation remained under control. An important contribution of China’s export economy was to keep inflation under wraps in the West.

With inflation under control and easy credit available domestically and internationally through all sorts of complex and phony credit instruments, the Western economies went on a spending spree like there was no tomorrow. But the time and their profligacy eventually caught up, leading to the global financial crisis of 2008 that is still working its way. Not surprisingly, China too got caught up in all this, with a sudden drop in its exports and rising unemployment. This was potentially dangerous for China’s social stability, when millions of unemployed migrant workers from rural areas returned to their villages with not much employment prospects back home.

The Chinese government sought to deal with this situation with a massive economic stimulation package of about $600 billion. This did salvage the situation temporarily with banks (under state direction and funding) making credit available to fund all sorts of construction projects at local, regional and central levels. While this massive expenditure did halt the slow down and improved employment, it has also created a housing bubble, inflationary pressures and a huge internal debt from easy credit availability. For instance, there are vast empty housing estates built in the last few years without people to live in them, as most people can’t afford to buy these places.

In some ways it is like the Japanese bubble of the nineties that is still plaguing the Japanese economy. In other words, the Chinese economy, with its inbuilt imbalances of rural and urban development and growing income disparities all around has become even more distorted. And this sort of “unbalanced, uncoordinated, and unsustainable development” cannot continue, as Premier Wen Jiabao told the assembled 3,000 delegates of the National People’s Congress.

The breakneck speed of China’s economic development has not only created structural imbalances but also social dislocation. From a predominantly agricultural economy, China is now 50 per cent urbanized. Nearly 300 million rural people (and rising) constitute its floating migrant population working on urban industrial and construction sites. And they are not entitled to urban residency entitlements because of their rural residency registration. A whole way of life, going back thousands of years, is in search of a new sense of belonging that eludes them.

No wonder, China is in the midst of widespread social unrest. According to the last official estimate, China experienced in one-year 90,000 cases of social unrest, big and small. The government has stopped compiling and issuing statistics on this. Corruption is now endemic and getting institutionalized, affecting even the higher level of bureaucracy and government. The Bloomberg columnist William Pesek has quoted a report to the effect that: “The wealthiest 70 members of China’s legislature added almost $90 billion to their bank accounts last year....”

The big question is: how do you restructure an economy geared to high rates of growth fuelled by ever increasing exports? China is planning to address this question by expanding domestic consumption to increase its internal market. For this to happen people’s incomes would need to rise alongside increased employment. As regards the first, there has lately been some increase in wages due to workers’ protests, especially in the coastal industrial zones. Another way is to give people greater return on their savings with the government banks, which currently have very low interests. People have no options but to accept what is offered. Being essentially government institutions, people also feel safe about their money.

China has a very high rate of savings, mostly at the government’s disposal with very little cost involved. If people were to save less and get more return on what they save, their disposable income will rise thus enabling them to spend more and stimulate demand. Of course, China’s industrial enterprises will need to invest more in producing consumer goods for domestic economy, thus diverting funds from fixed investment in construction projects that is creating a bit of a bubble economy. But to transform the country’s economy in such a radical way is a tall order, especially because the existing system has spawned vested interests and in the midst of entrenched corruption.

Another way to diversify China’s economy is to spend more on education, health, and social welfare sectors. China’s preoccupation with statistical growth has seriously neglected these sectors, even though it is now the second biggest economy. Besides, there is also need to invest more in the rural sector that has seen relative neglect in the last two decades from the nineties. That explains the increasing migration of rural people to cities in search of jobs. China could also do with developing ancillary small and medium scale rural industries to provide employment for people closer to farming communities. This is important not only to stem the outflow of rural population to cities but also to foster social harmony by keeping people within their familiar social and cultural environment. But unfortunately the government instrumentalities at the local and regional level, in particular, have been busy acquiring rural land for urban development and industrial construction without much consultation and compensation. Which is an important reason for rural unrest.

The overhaul of the economy will be a slow and a long process, requiring public accounting and transparency. In other words, it is time for China to link up economic transformation with political reform. As Premier Wen Jiabao said at his press conference, “ … Without successful political structural reform it is impossible for us to institute economic structural reform and the gains we have made in this area may be lost.” He has said before that, “… if we are to address the people’s grievances we must allow the people to supervise and criticize the government.

China will soon undergo a change of top leadership, with a new President and Prime Minister. That might lead to a concerted effort to transit China into a more sustainable development path, though it is not going to be easy and painless.

China’s race to become superpower

By S.P.SETH

China is in a hurry to become the world’s superpower. It is now the world’s second largest economy and might overtake the US in a decade or two. It will, however, still lag behind the US in terms of per capita GDP for a long while yet. In other words, many of its people will still struggle to make a decent living.

China is now also a major military power, with enough deterrence to discourage any threat to its national security. But it still finds its ambition to do what it likes constrained for a number of reasons.

The main obstacle being that the US is not facilitating its unilateral claims over South China Sea and its island chains. Washington is also not terribly keen on conceding Asia-Pacific region as China’s strategic space.

Beijing realizes that without US understanding, if not support, of its “core” interests and strategic concerns, China will feel thwarted in its primacy over the region. Not surprisingly then, China’s vice-president and leader-in-waiting, Xi Jinping, said in Beijing, just before his US visit, that he hoped “the US can view China’s strategic intentions… in a sensible and objective way…”

And he emphasized that: “Ultimate caution should be given to major and sensitive issues that concern each country’s core interests to avoid any distraction and setbacks in China-US relations.” Apparently, he didn’t succeed in this respect during his recent US visit.

Beijing is angry that the US is increasing its military muscle in the region. Reacting to President Obama’s recent announcement that the US would be prioritizing Asia-Pacific as part of its new strategic direction, Xinhua warned that, “If the US indiscreetly applies militarism in the region, it will be like a bull in a china shop [literally and figuratively], and endanger peace instead of enhancing regional stability.”

Another problem is that China’s neighbors, though duly impressed with its growing power, are not willing to give up their core interests. For instance, China’s sovereignty claims over regional waters and island chains are strongly contested by several South East countries, as well as Japan in the East China Sea.

And some of these neighbors have close strategic ties with the United States. Australia, for instance, feels that China’s growing power will destabilize the region, thus posing a security threat.

There are two ways for China to deal with these constraints. The first is to persuade the US to let China sort out its problems with its neighbors, without Washington’s overt or covert backing for them. If this were to happen, Beijing might not have much problem “persuading” its neighbors to see things China’s way.

However, this is unlikely. Therefore, there is no way for China to test this hypothesis since the US is not vacating the region for China’s power games.

The second way is to tell its neighbors, in no uncertain terms, that contesting China’s sovereignty claims might mean exclusion from beneficial economic relations with China. Their strategic tilt against China, as part of closer ties and/or security alliance with the US might, therefore, cost them dearly.

Australia has clearly received this message. In a recent editorial, the Sydney Morning Herald wrote: “Cui Liru, the head of the Institute of Contemporary International Relations in Beijing, warned that the economic relationship could not mask the strategic divide with China.”

It opined, “The underlying message was that Australia would have to catch up with the reality of growing Chinese power.”

No doubt, similar messages are being conveyed overtly and covertly to other regional countries that are cozying up to the United States.

Will it work? It is hard to say. But so far it is having the opposite effect. China’s flexing of muscles lately has had the effect of pushing some of these countries into a tighter US embrace, as well as creating bilateral and regional linkages.

Xi Jinping’s visit was intended to soften China’s image regarding its regional ambitions. But the differences with the US remain, because it refuses to acknowledge China’s privileged position in the Pacific.

For instance, on Taiwan, the US is continuing to sell defensive weapons despite China’s insistent pressure against it.

And that applies to the Korean peninsula too, with the US committed to its alliance with South Korea.

In a sense, China wants to enforce its own Monroe doctrine in the Pacific area.

If the US were to concede China’s sphere of influence in the region, China’s neighbors would feel vulnerable.

Obviously this is not going to happen, with all signs pointing to the US determination to become more active in the Asia-Pacific region.

According to Aaron L. Friedberg, in his book A Contest for Supremacy… , China’s goal is “to displace the United States as the dominant player in East Asia, and perhaps to extrude it from the region altogether.”

As for any common ground on international issues, the currently hot issues of Iran and Syria are a matter of contention. While supportive of nuclear non-proliferation, China is not keen on becoming part of the US-sponsored strict regime of comprehensive economic sanctions.

On Syria, China, along with Russia, has vetoed the UN Security Council resolution to condemn the regime’s bloodbath of its own people.

Another issue clouding their relationship is North Korea’s nuclear ambitions. There is some hope that Pyongyang might put a moratorium on its nuclear program in exchange for US food aid.

China has been playing a helpful role with its Beijing-sponsored on–off six-party talks on the North Korean nuclear issue but has resisted putting decisive pressure on its North Korean ally.

At the global level, China lacks commensurate clout in the existing international order designed and shaped, after WW11, by the United States and its western allies.

However, over the last few years, due to global financial crisis, the United States is starting to appear a bit wobbly giving China, as its major creditor, a lift in its global ranking.

At the same time, Europe is limping with the euro zone racked with debts.

With US and Europe in economic difficulties, China will seek to change international economic institutions to its advantage, with its financial power.

But it is still a long way to go for China.

For instance, even with all US’ economic problems, the US dollar still remains the world’s reserve currency. And when the economic news is bad, there is still a rush on US dollar as a dependable asset.

Even China is heavily invested in US bonds and treasury notes.

Therefore, it is too early to say that China will replace the US as the world’s superpower.

And considering the rising social unrest and other domestic problems, including its slowing economy, it might take a long time for China, if at all, to become the world’s top dog.