US-China contest for supremacy

By S.P.SETH

The recent China visit of the North Korean leader, Kim Jong-il, is an important development. This is the second of his two recent trips, the first one around the time of the sinking of the South Korean warship, believed to be Pyongyang’s doing.

During that visit, Kim obviously gave his own version of the incident, apparently absolving his country of any wrongdoing. China maintained neutrality on the issue, counseling both sides to maintain calm.

Which disappointed South Korea and the United States, as they believed, on the basis of an investigation into the issue, that North Korea was responsible.

When the United States and South Korea subsequently conducted joint military exercises to emphasize their preparedness and resolve, Beijing was not impressed. It sought to bar the United States from conducting joint naval exercises in the Yellow Sea, because it constituted a threat to China’s security. (South China Sea is already being billed as China’s territorial lake.)

Apart from warning the United States, China was also implicitly cautioning Seoul against involving foreign vessels in Yellow Sea.

Another message is that the Korean peninsula is China’s security zone and the US involvement could trigger a Chinese response, like in the Korean war of the early fifties.

Indeed, the Xinhua news agency report of Kim Jong-il’s visit, not so subtly, pointed out the link, with the North Korean leader having said, “Through this visit the [North Korean] side had yet another in-depth experience of the preciousness…of the friendship created by older generations of revolutionaries of both countries.”

The spirit of the Korean War was thus invoked, when China halted the US military advance toward the Yalu river.

Against this backdrop of such fraternal ties going back many years, the Chinese press ran a flurry of editorials defending a stable relationship with North Korea.

What it means is that China is veering toward more assured support for North Korea and the Kim Jong-il dynasty.

The reinforcing of the 1950s fraternal ties, forged during the Korean War, is not a good portent.

The Korean War had also intensified the Cold War.

This time, it will be China, and not the former Soviet Union, that would hold the opposing flag.

The US is aware of the new danger China is posing to its naval dominance in the Asia-Pacific region. To counter China’s challenge, it is cultivating and expanding political and military ties with regional countries, like Indonesia and Vietnam.

China, for instance, is not pleased with an impending agreement between Washington and Hanoi to share nuclear fuel and technology for Vietnam’s plans to build 14 nuclear power stations over the next 20 years.

The two countries reportedly signed a memorandum of understanding in April about co-operation on nuclear power, including access to “reliable sources of nuclear fuel.”

China has accused the United States of “double standards” when simultaneously pushing its non-proliferation campaign, and disturbing “the preset international order.”

The US obviously is activating regional resistance to thwart China’s moves to declare Asia-Pacific region as its own bailiwick, as it has done with South China Sea, Yellow Sea and the Korean peninsula.

Although the regional countries are careful not to antagonize China, they are unlikely to be enthused about a sudden chorus from China of its regional primacy.

And why is China ignoring its neighbors’ sensitivities and concerns? Wang Hanling, a maritime expert at the Chinese Academy of Social Sciences, has an explanation.

According to him, Beijing used to be concerned that the South-East Asian states might gang up against China to promote their own competing claims.

But not any more. Because: “We found our neighbors had territorial-water disputes to wrangle over and national interests to defend, which makes it very difficult for them to build a unified front against China.”

Moreover: “Even if they succeed in joining together, they are still not strong enough to defeat China.” In other words, they are easy to ignore.

It is in this overall context of China’s virtual declaration of its own Monroe Doctrine that the renewal of the Chinese-North Korean friendship (harking back to the fifties) appears part of a pattern to assert China’s security parameters.

China seems determined to drive out the US navy from regional waters. Robert D. Kaplan argues in a recent issue of Foreign Affairs: “China’s strategy to deny the U.S. Navy entry into certain waters is designed not only to keep U.S. forces away generally but also, specifically, to foster its dominance over Taiwan.”

China’s Taiwan strategy is two-fold. First, it is seeking the economic integration of Taiwan with the mainland to a point where its existence as a separate sovereign entity will be difficult to sustain.

The present Taiwanese government, wittingly or unwittingly, is helping the process.

Second: simultaneously, the military pressure on Taiwan is steadily built up by targeting increasing number of missiles.

At the same time, China’s own military build up is designed to deter the United States from weighing in significantly.

Kaplan highlights the seriousness of China’s military build up by pointing out, among other things, that it is “… constructing a major naval base on the southern tip of Hainan Island, smack in the heart of the South China Sea, with underground facilities that could accommodate up to 20 nuclear and diesel-electric submarines…”

China is also developing anti-ship missiles to target US aircraft carriers and other surface vessels.

Some China scholars have felt over the years that China’s transition to great power status need not lead to conflict, like it happened during the two World Wars.

The main argument has been that China is a beneficiary of the existing global system as facilitating its rapid economic growth.

Professor G. John Ikenberry, a proponent of this argument, put it this way in an article in Foreign Affairs: “Technology and the global economic revolution have created a logic of economic relations that is different from the past--- making the political and institutional logic of current order all the more powerful.”

But things are changing too fast, even in the last two years since Ikenberry wrote his article. China’s military build up continues apace, and it has started to assert sovereign claims over important waterways.

While Western economies (including that of the United States) are struggling to recover, China seems to grow increasingly confident about its new place in the world.

In this state of affairs, Professor John Mearsheimer is closer to truth than Sinologists like Ikenberry.

According to the former, “If China continues its impressive economic growth over the next few decades, the United States and China are likely to engage in an intense security competition with considerable potential for war.”

We are already witnessing a trial run of this in the Asia-Pacific region.

Politics in the midst of natural disaster

By S.P.SETH

The Muttahida Quami Movement leader in self-exile, Altaf Hussain’s, call for a military coup to depose the country’s civilian government, is another nail into the country’s political culture— that is to say, what is left of it. Indeed, Pakistan’s enormous tragedy is highlighting the poor state of its institutions and leadership. Only in Pakistan you had the spectacle of its President undertaking a foreign trip when the country was drowning, so to speak. President Asif Ali Zardari’s European trip seemed to breathe new life into the old proverb of Nero fiddling when Rome was burning.

For President Asif Ali Zardari to leave the country at such a time to tread foreign pastures was not only an act of political stupidity but also showed total lack of empathy for the plight of his suffering countrymen. He was in the United Kingdom to talk about the adequacy or otherwise of Pakistan’s efforts to combat terrorism, when he was needed to set an example for his administration by being on the frontline of this natural disaster.

On the other hand, as his critics have pointed out, Zardari was in the United Kingdom to promote his son’s political prospects back home by making party-political speeches in Birmingham. If so, it simply beggars belief.

Zardari is an accidental President, when his wife, Benazir Bhutto, was tragically gunned down in 2007. Having become President (following elections) against the backdrop of such national and personal tragedy, it was hoped that he would rise to the occasion to prove all his critics wrong who called him Mr Ten Per Cent when he was a minister in his wife’s cabinet.

After long army rule, only in the last few years Pakistan is under a democratic dispensation with an elected President and Prime Minister. Since Pakistan’s civil institutions have tended to be weak, the proper functioning of its nascent democracy is very important. Without it, the army will continue to dominate national affairs. Some politicians, like Altaf Hussain, will always seek political advantage in courting the generals. Judging by reports, the army still continues to have a controlling role. For instance, it has been reported that the government ministers often make house calls on the army chief when so summoned.

There was widespread skepticism when the tenure of the army chief was extended for three years, supposedly by the country’s civilian government. Apparently, they were told what was required of them.

With such deep-rooted popular cynicism in the country’s institutions, restoring faith in the supremacy of the civilian political order is a tall task, as it is. But it gets even harder when President Zardari decided to go on a foreign trip in the midst of the country’s worst floods. It is important to stress that the President of a country symbolizes the nation. And if he tends to function betraying lack of empathy for his people, it brings into question the entire edifice of a nation.

In its present predicament of probably the worst floods in the country, it is quite natural that Pakistan should seek international help. And the aid is now starting to flow, though it would have to be on a larger scale. And it is quite natural that Pakistan’s leaders should be canvassing the global community for more generous aid.

But it is jarring to see President Zardari overplaying the terrorist card and reportedly saying that if aid wasn’t forthcoming adequately militants will exploit the situation to further destabilize the country, even to the point of taking away orphaned babies and putting them in terrorist camps. This is the kind of rhetoric that makes Pakistan look like a failed state.

Pakistan’s human tragedy requires international help as a human gesture, and not as part of an anti-terrorist strategy. It is the duty of the government in Pakistan to requisition all internal and external resources to deal with the situation, without making it another front against terrorism.

Human disasters of the kind Pakistan is facing are also an opportunity to do some soul searching. If Pakistan were to have an effective government committed to provide economic and physical security for its people, the terrorists wouldn’t find a fertile ground for creating mayhem here and there. In other words, the rise of Pakistani Taliban is, to a large degree, an indictment of the Pakistani establishment’s (both military and civilian) failure to govern in the interests of its people.

The military establishment, for instance, has taken a disproportionate share of the country’s financial resources, which might otherwise have gone into developing the country’s woefully neglected education, health sectors and other nation-building activities. In addition, it has devoured a large share of the foreign aid Pakistan has been receiving for the last 30 years, first to beef up the Mujahideen in Afghanistan against the Soviets and, second, to help US fight the Taliban in Afghanistan and in Pakistan’s border areas.

This never-ending Pakistani involvement with US strategic objectives has not only eaten into foreign aid Pakistan has received over many years (much of it pocketed by corrupt military and political elements), but also brought its governing establishment into disrepute with its own people by making the country look like a US puppet.

In an article entitled, Pakistan on the Brink, Ahmed Rashid wrote in the New York Review of Books last year: “Under [President] Bush, the US poured $11.9 billion into Pakistan, 80 per cent of which went to the army.” And where did all that money go? According to Rashid, “Instead of revamping Pakistan’s capacity for counterinsurgency, the army bought $8 billion worth of weapons for use against India---funds that are still unaccounted for…”

No wonder many people in Pakistan do not trust their government with the aid now filtering into Pakistan for relief and recovery programs. As one victim of the floods reportedly said, “They [the government] are taking all the aid for themselves. They are pocketing it. There is nothing coming to the people.” Even if this is an exaggeration, Pakistan’s suffering people cannot be blamed for dumping on their government when they hardly see any real improvement in their lives. And no wonder either that sometimes the Taliban look a better alternative than their corruption-ridden government. When people are suffering even the bad alternative sometimes appears appealing.

Therefore, the Pakistani government has a lot of work to do to establish their credibility and legitimacy with the people. And the country’s present calamity is the time to prove that Pakistani state is up to its task when it comes to helping its people from the country’s flood-ravaged disaster.

Note: This article was originally published in Daily Time

US-China showdown looming

By S.P.SETH

China is no longer squeamish about throwing its weight around. It even seems willing to take on the United States to protect/promote its perceived national interests. And since its core national interests are expanding all the time, the US has a serious security problem on its hands. Which explains the rapid deterioration in their relations.

The dive in US-China relations started with Washington’s decision early in the year to sell defensive weapons to Taiwan. China responded by cutting off defense talks with the United States.

Why is China so hypersensitive to such weapons’ sales when the Ma Ying-jeou administration in Taiwan has been falling over backward to please Beijing? Because China simply wants to overwhelm Taiwan with its superior political and military reach, leaving it with no option but to do China’s bidding.

Only with US arms supplies and commitment, Taipei might be able to counter/deter China’s political and military plans to incorporate Taiwan.

It is a bizarre situation that even when relations between China and Taiwan are the most peaceful it has ever been, the former is still reportedly deploying between 1050 and 1150 short-range ballistic missiles targeting Taiwan. The so-called mother country (mainland China) is prepared to devastate Taiwan to have its own way.

The US worry over China’s hawkish posture is reflected in the Pentagon’s annual report on its expanding military capability. According to the report, China is developing a “carrier killer” anti-ship ballistic missile; it has “the most active land-based ballistic missile and cruise missile program in the world”; it also has “one of the world’s largest forces of surface-to-air missiles”, as well as nuclear-powered submarines.

China is also said to be pouring money into space warfare systems and cyber-warfare capabilities. All in all it is developing an well-rounded military force to project and exercise power way beyond its coastline.

Indeed, there is a certain correlation between its growing economy and military build up. China is reported to have overtaken Japan as the world’s second largest economy (after the United States) based on the second quarter growth figures; though, in terms of per capita income, China is still way behind.

What it means is that China is feeling increasingly confident about its strength, especially when the US’ military power is over-stretched and its economy is struggling to recover. It would seem that China has concluded that the present is the right time to challenge US primacy in the region.

China’s confidence (misplaced or otherwise) is reflected in its strong reaction to the recent joint US-South Korean naval exercises against the backdrop of Pyongyang’s sinking of a South Korean warship.

A foreign ministry spokesman said at the time that China “firmly” opposed any foreign warships or aircraft conducting activities that undermined China’s security in the Yellow Sea and China’s coastal waters.

At about the same time, Pyongyang threatened US with “physical response” if it went ahead with new sanctions. Its official mouthpiece, Rodong Sinmun, was even more colorful in its warning. It said, “If the US provokes another war, it will only be corpses and graves that it will be presented with.”

Beijing might not be as blunt as Pyongyang, but the intent is clear. Which is that it will not take lying down the activities of the US navy in, what it regards as, its waters.

Rear Admiral Yang Yi, of the National Defense University, told an Australian journalist based in Beijing that, “It is some kind of challenge and humiliation to China’s national interest and the feelings of the Chinese people”, when the US decides to “hold this kind of military drill” in its coastal waters.

South China Sea is emerging as another problem area. In the 1990s, China passed domestic legislation proclaiming sovereignty over South China Sea. However, a number of other regional countries have competing claims to islands in these waters.

Under a 2002 proposal China had agreed to resolve these issues peacefully through diplomacy. But that is no longer the case because China has declared South China Sea as its “core national interest” and hence beyond any negotiation.

In other words, China might undertake to restrict or control, in its “national interest”, the passage of foreign ships through this important highway. For instance, one-third of all commercial shipping in the world is said to pass through these waters.

In a way China is challenging the dominance of the US navy on grounds of its national security. With the overhang of the “century of humiliation”, China’s rage over the activities of the American navy is reflected in this recent comment (reported in the Economist): “A retired Chinese admiral likened the American navy to a man with a criminal record ‘wandering just outside the gate of a family home.’’’

In other words, trouble is brewing in Asia-Pacific region, with China ramming up the pressure on the United States to force it out of the region as a dominant power.

There is a strong belief among many Chinese that it is their destiny to once again become the centre of power. As a retired general, Xu Guangyu, recently told South China Morning Post: “China’s long absence from its exclusive economic waters over the past decades was an abnormal historical accident and now it is just advancing to normal operations.”

China seems engaged in a concerted campaign to whip up national hysteria, spearheaded by serving and retired generals. Major General Luo Yuan of the Academy of Military Sciences, for instance, recently threatened to use the US aircraft carrier in the exercises as a “live target”.

He has also suggested the withdrawal of US Treasury bonds to destabilize US economy.

The US is obviously concerned. To quote Admiral Robert Willard of the US Pacific Command, “ …of particular concern is that elements of China’s military modernization appear designed to challenge our freedom of action in the region.”

How will the United States respond to it? Obviously, it is not itching to pick up a fight. But, over time, the choice will be to either recede or confront China.

China appears supremely confident of reaching the top. The US, on the other hand, is keen to accommodate China as a strategic partner but without much success. China has its own independent agenda.

One doesn’t need to be a strategic genius to opine that the US-Chinese strategic rivalry is heading toward a showdown of some sort over a period of time. Its scope and intensity, of course, will depend on a host of factors that might emerge with time.

US-China strategic competition and its dangers

By S P SETH

The reported military exercises by Chinese forces to defend against a possible US attack have raised tensions between China and the United States. The question is: why has China raised the stakes in its relations with the United States?

It is important to realize that this is not a sudden phenomenon. There is a history of antagonism between the two countries, following the communist victory in 1949 in China’s civil war. Indeed, with their long historical memory China hasn’t forgotten the humiliation of Western domination in the 19^th century, including the United States’ advocacy of “Open Door” policy in 1899.

But with the ascension to power of Deng Xiaoping in the late-seventies, China sought to concentrate on building up its economy to create a modern and strong nation. Deng’s advise for his people was to bide their time until China was ready to play its role as a great power.

Apparently, his successors believe that China’s time has come, with its increased political, economic and military strength. Against a backdrop of its “century of humiliation”, China’s reaction to any perceived threat to its sovereignty has a tinge of bitterness with a new resolve not to allow any power to trample on China’s homeland.

Two recent incidents have highlighted this sensitivity. First: The holding of joint US-South Korean naval exercises in regional waters, against China’s stated opposition, has angered Beijing. It regards such activities by foreign warships and aircraft as a threat to China’s security.

By holding its own exercises, China has expressed its anger concretely. As the People’s Liberation Army (PLA), Military Weekly, newspaper said, “…they send a message… If other people threaten our interests, we have enough military means and technological methods to keep them in check.”

Second: North Korea is increasingly emerging as another flashpoint between China and the United States. The United States and its Western allies seem determined to reverse North Korea’s nuclear path. But Pyongyang is equally determined to use that as a tool to extract as much political and economic advantage from it.

With a view to achieve its goal of de-nuclearization in North Korea, the United States has actively sought China’s help, with its considerable leverage with Pyongyang that relies heavily on Chinese supplies of essential goods. In this respect, the United States did have some success, with Beijing hosting six-nation talks (including North Korea, South Korea, Japan, China, Russia and the United States) on non-proliferation until North Korea walked away from the talks.

Pyongyang wouldn’t agree to abandon its nuclear program without a sequential link between its various stages and the provision of political legitimacy, aid, trade and other related advantages. Since it wouldn’t agree to dismantle its nuclear weapons as a starting point, the entire negotiating process has collapsed. And Pyongyang is now refusing to return to the China-hosted six-nation talks. It is threatening a “physical response” to new US sanctions and has condemned US-South Korean naval exercises as “gunboat diplomacy.”

China’s response basically has been to counsel restraint. It has refused to take sides between North Korea and South Korea on the sinking of the South Korean warship, Cheonan, blamed on North Korea. But it hasn’t taken kindly to the US-South Korean exercises in seas that it regards as its security zone. Which accounts for China’s counter move to stage its own comprehensive exercises around Beijing and surrounding areas. According to General Zongqi of the PLA, “The aim is to raise fighting capabilities in this military region and make effective preparations for military combat.” This warning is as serious as they come.

North Korea is, therefore, a serious flashpoint. China has obviously decided to detach itself from the US-coordinated continuous pressure on Pyongyang. The US-South Korean joint naval exercises have obviously hardened China’s position. A serious flare up in the Korean peninsula is likely to send a flood of refugees from North Korea into China’s neighboring region.

At the same time, China regards Korean peninsula and seas surrounding it as its security zone. Therefore, the US participation in military exercises is regarded as a threat to China’s security. China seems to suffer from the Fifties’ Korean War syndrome when American armies pushed closer to its border with North Korea, inviting Chinese entry into the Korean War. Broadly, though, they want the US naval forces out of Asia-Pacific. If that were to eventuate, China will have no real challenge to its regional primacy.

In this tug of war for regional primacy, another important contentious issue is the South China Sea. In the nineties, China declared South China Sea as its territorial waters, thus overriding the rival claims of some of its neighbors to a clutch islands in these waters. However, it agreed to resolve these issues through diplomacy. But now it regards South China Sea as its “core national interest”, which puts it beyond any negotiation.

Even though some of China’s South East Asian neighbors might grumble about its high-handedness, most, however, are getting resigned to China’s growing power. The US, though, is not resigned to it because, among other things, China could restrict or control commercial and naval traffic through South China Sea through its exercise of sovereignty. For instance, one-third of global commercial shipping is said to pass through the waters that China claims its own.

In other words, the strategic competition between China and the United States is likely to intensify in Asia-Pacific region. Considering China’s “century of humiliation” by the West (in which the United States was a late entrant), it is seething with anger, just below the surface, to exclude foreigners from “its” region. Such anger is reflected in the comment of a retired Chinese admiral (reported in the Economist) who likened “the American navy to a man with a criminal record ‘wandering just outside the gate of a family home’.”

It would appear that even though neither the United States nor China is itching for military confrontation, there is always the danger of some miscalculation in a charged atmosphere. Over time, the strategic competition is likely to increase and intensify. And if the history of the two World Wars is any guide, there is always the danger of such competition sliding into confrontation and, eventually, leading to conflagration.

Note: This article was first printed in Daily Times

China’s push to oust US from Asia-Pacific

By S.P.SETH

China is flexing its muscles to assert its power on a range of issues. An interesting recent development of considerable significance over a period of time is the downgrading, by China’s Dagong Global Credit Rating agency, of US Treasury bonds from the top AAA rating to AA rating, with negative outlook.

This is China’s first entry into the world of rating credit worthiness of different countries. China believes that the existing international credit rating system (involving agencies like Moody’s, Standard and Poor’s and Fitch) hasn’t worked well.

The Dagong chairman, Guan Jianzhong, reportedly said, “The essential reason for the global financial crisis and the Greek crisis is that the current international rating system cannot truly reflect repayment ability.”

By downgrading the US Treasury bonds and assessing other countries’ economic credentials (for instance, Japan, Britain and France have low AA- ratings), China is setting itself up as the alternative, if not the only, economic powerhouse.

If China were to follow the logic of its own Dagong agency, it would stop investing in US Treasury bonds and might even start winding down its considerable investments in the US bonds. Which could be very de-stabilizing for global economy, and damage China’s US-denominated investments.

The important question is: what leads China (Dagong obviously is a government approved credit agency, because nothing of this significance happens in China without its authorization) to believe that it can do a better job of credit rating than the existing agencies?

The assumption here is that China has a strong economy, with virtually no sovereign credit risk. But, if China were an open and transparent country, it would have to be concerned about its economic vulnerability on two counts. First, China’s total debt (to include central, regional and local authorities as well as other government instrumentalities) is estimated by some experts as close to 100 per cent of its GDP. If the hundred percent figure is true or close to reality, China’s credit worthiness is as flaky as the most indebted countries in the world.

Any country that rates its debt at 20 per cent, when the real figure is so much higher, cannot be trusted with rating the sovereign credit risk of other countries.

It should also apply to Western credit agencies because their track record in predicting the recent global economic crisis, as well as the Asian crisis of 1997 and 1998 and the bursting of the dot.com bubble of year 2000, was pretty terrible.

In their case, though, one might be able to say that they didn’t speak for their governments. In China’s case, despite the Dagong’s claim of independence, it is not believable. For instance, its report was launched at the headquarters of China’s official Xinhua News Agency.

At the second level: in the last year China experienced a phenomenal growth in lending by its banks and other agencies. According to one estimate, in the first half of 2009, Chinese bank lending was 28 per cent higher than official figures.

More and more loans have been repackaged into investment products, not unlike the subprime mortgage products. As William Pesek writes in Bloomberg, “Repackaging loans and moving them off balance sheet is exactly what got corporate America into trouble and almost killed Wall Street.” He adds, “Such practices raise the odds that China is paving the way for a wave of bad debts.”

China’s economy seems to combine the elements of both American and Japanese economic malaise of phenomenal credit growth, and emerging bubbles in real estate and stock markets.

In other words, setting up a credit rating agency doesn’t make China a superpower.

But China is not only challenging the US on the economic front, but also in regard to issues of territorial and maritime sovereignty. For instance, in the nineties, it had passed domestic legislation claiming South China Sea as its territorial waters.

However, at that time, it looked like an ambit claim still subject to peaceful negotiations with its Asian neighbors, with rival claims. China has now proclaimed the South China Sea into its “core national interest” beyond any negotiation.

Which means that China could restrict and control traffic through South China Sea, with one-third of all global commercial shipping passing through it.

In this way, China is not only claiming sovereignty, but also challenging the dominance of the US navy.

But the US response is as timid as it could be, with its Assistant Secretary of State, Kurt Campbell, emphasizing the importance of dialogue “not just with China but with our friends in south-east Asia, to ensure that we fully support the 2002 process between China and south-east Asian states to deal with any outstanding issues through diplomacy.”

China certainly doesn’t have any intention of doing it through diplomacy when it has nominated South China Sea as its “core national interest.”

At the same time, China has reacted strongly to the joint US-South Korea naval exercises in waters around South Korea. Coming as these exercises do after the sinking of the South Korean naval ship, Cheonan, by North Korea, these are a warning to Pyongyang that the US remains committed to the defense of South Korea.

China’s foreign ministry spokesman, Qin Gang, had earlier warned that China “firmly” opposed any foreign warships or aircraft conducting activities undermining China’s security in the Yellow Sea and China’s coastal waters.

China, though, is unwilling to exercise its leverage on Pyongyang to draw it back from its brinkmanship.

Indeed, North Korea is ratcheting up its rhetoric by warning of a “physical response” to new US sanctions—whatever that means.

The US Secretary of State, Hillary Clinton, said at the recent ASEAN Regional Forum gathering in Hanoi that ”… Peaceful resolution of the issues on Korean peninsula will be possible only if North Korea fundamentally changes its behavior”.

That doesn’t look like happening soon, if at all, while China looks the other way.

North Korea’s belligerence, as well as China’s assertive claims to maritime areas in South China Sea and elsewhere, is causing great concern in Japan. The US is also worried about China’s expansive claims to regional waters, now backed up with its blue-water fleet.

A Japanese government panel has reportedly recommended deploying more armed forces in coastal areas where Chinese naval traffic has increased.

The panel also recommends a more activist role for Japan in its alliance with the US. The report, as quoted in Yomiuri Shimbun, says: “From the viewpoint of strengthening the Japan-US alliance, there should be political will…to allow [Japanese forces] to attack missiles bound for the United States.”

In other words, the recommendation is for further strengthening and tightening of US-Japan security relationship.

China is pursuing a policy of laying claim to as much of Asia-Pacific (whether as sovereign territory or sphere of influence) as it can get away with it.

Most of its neighbors, even where they contest China’s claims, are not inclined to stand up to Beijing because of its growing power.

As for the US, it seems to have lost its puff. China obviously wants to push the US out of the Asia-Pacific region. And if the US doesn’t take a stand on issues like South China Sea, the US might find itself pushed out of Asia-Pacific region.

At present the US has two loyal allies in the region—Japan and Australia. In the case of Japan, unless the United States asserts its regional role and presence, Tokyo might feel abandoned and start adjusting itself to a China-dominated region.

As for Australia, its medium and long-term prospect looks like being China’s quarry, with Beijing eventually able to dictate its policies.

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US decline is China’s opportunity

By S.P.SETH

While terrorism continues to hog the limelight as an international issue, there is much more happening in the world that is not receiving due attention. One is the progressive decline of the US’ power in global affairs. Indeed, there is a correlation between the two. The 9/11 tragedy in 2001 was also the beginning of the US war on terrorism, leading to its invasion of Afghanistan.

As if Afghanistan was not enough, the United States opened another front in Iraq in 2003 to rid it of Saddam Hussein, and foster democracy in that country. Indeed, the “shock and awe” military campaign announced the practical workings of President Bush’s pre-emptive war strategy, with Iraq as a demonstration model of what might be in store for other regimes in the Middle East (like Iran, Syria and others) if they stood in the way of the US “vision” of the world. But, as we know, things didn’t work out quite like that and the US is seeking to extricate itself from these disasters.

The new Bush administration, at the turn of the new century, was keen to remake much of the world to suit its strategic priorities. There was a sense that the previous Clinton administration had squandered US power and opportunities to remake the world. The leading figures of the Bush administration already had a blueprint ready to make up for the lost time under Clinton. This was an administration in a hurry and convinced that the US should behave and act like the sovereign of the world. Because, in the ultimate analysis, what was good for America was good for the world.

The 9/11 tragedy, horrible as it was, simply spurred the new Bush administration to fix up the world. Their invasion of Afghanistan, against the backdrop of 9/11 and the Taliban and al-Qaeda link, seemed understandable to many countries. And the follow up in Iraq was an opportunity to solve the US’ Middle Eastern headaches by making an example of Iraq.

But its long involvement in these two wars, particularly in Afghanistan, with no satisfactory conclusion in sight, has damaged its global image as well as the reality of its power. It has overstretched its resources, both militarily and economically. That a superpower, with all its military muscle, has failed to produce a successful outcome against the Taliban insurgents in Afghanistan is an invitation to all the ragtag irregular militias anywhere in the world to pinprick the US and its allies.

The Somali insurgents of al-Shabab are an example in point. They recently struck in Uganda killing 75 people watching a World Cup Soccer match. The al-Shabab sees Uganda as a US proxy in Somalia. And by killing Ugandans they were in a way challenging the US power. The US, at times, appears like a giant groaning under its own weight and unable to turn around to reposition itself to its changing situation.

At the economic level, the war has seriously drained the US treasury. The cost of these two wars varies from $1 trillion to 3 trillion. The latter estimate tends to include all the societal, medical and related expenses resulting from the war operations.

Aside from the two wars, the Bush administration’s free market fundamentalism has also contributed to the US decline. For instance, it has brought the US economy to its lowest point since the 1930s depression. And infected most Western economies that bought into subprime US housing loan packages of dubious value. The merry-go round of almost limitless cheap credit seemed to have created the illusion of a new economy where all the assets (secured or unsecured) seemed to have only an upward trajectory.

And when the bubble burst, as it was bound to at some point, the American economy (and other Western economies) found themselves without any shock absorbers. With no rational solutions in sight, they all took recourse to huge borrowings to stimulate their downbeat economies to prevent a precipitous fall in unemployment, to revive failing and failed banks and so on. By socializing private losses of banks, financial institutions and insurance companies, the crisis is now assuming the form of sovereign debts. Greece is the leading example of this, with others to follow.

The United States is struggling with all these economic issues, while still mired in Afghanistan and, in a limited way, in Iraq. How this will all end is anybody’s guess! But it certainly has created an image of an America that is struggling to find its feet, while still acting as the global sheriff.

CHINA’S RISE

While the US has been busy in Afghanistan and Iraq, and the war against terrorism in general, China has steadily built up its image as an emerging superpower. In a sense, terrorism created a shared concern between the two countries with China eager to brand the Uighur separatists in Xinjiang as terrorists. It won an important concession from the US on this by labeling the East Turkistan movement as a terrorist organization.

The Uighur separatism, alongside Tibet, were major issues of human rights violations that the US had often raised with China to its discomfiture, and as an exercise (Beijing believed) in encouraging separatism in China. After the US declared war on terrorism, it softened on the human rights question in China, as well as on trade and political issues.

The trade between the two countries expanded, and the general tone of exchanges between them was marked by cordiality. China appeared to have gained certain respectability, buttressed further by its rapid rate of economic growth of about 10 per cent annually. China was becoming the factory of the world, with its exports of manufactured goods rising and creating sizeable trade surpluses in its favor. For instance, China’s trade surplus with the US is reportedly at about $200 billion a year, and another $100 billion with the rest of the world. It has amassed around $2.5 trillion of foreign currency reserves and rising.

Although China was hit by the global financial crisis with a significant fall in its exports, the situation has largely been retrieved. Even though Western economies are in bad shape, they have no real options except to buy cheap goods from China. Therefore, the US and European countries have been pressing China to revalue its currency to (1) regain the competiveness of their manufactures and (2) to reduce their respective trade deficits with China.

China has lately responded with some small appreciation of its currency but, unless the Chinese currency appreciates significantly, it will not make any dent in China’s trade surpluses with much of the world. And there is no sign that China will significantly appreciate its currency to the satisfaction of the US and its other Western trading partners.

However, China wants to reduce its dependence on exports and has taken some steps to stimulate its domestic economy. But there are dangers that this could create inflationary pressures. This has been evident in the real estate market where prices have simply ballooned to make it unaffordable for most Chinese people except the very rich.

As part of its large stimulation package, the government had leaned on banks to lend indiscriminately, resulting in upward pressure on real estate and stock markets. This has created serious economic distortions. In the industrial and construction sectors (like steel industry, infrastructure development, spending by local and regional governments) there has been a lot of wasteful spending and overproduction. The Chinese government is aware of some of these problems and has taken some remedial measures, like tightening the credit market.

Notwithstanding its counter-measures to rein in the economy, the hybrid nature of China’s capitalist economy and the Communist Party’s monopoly power is creating serious contradictions. It is difficult to reconcile the two irreconcilable elements. For instance, an uncomfortable nexus has developed between the Party and the new economic class spawned and controlled by the Party. Some of the major strategic industries, like power, transportation etc., are either owned or controlled by the children (dubbed ‘princelings’) of the top former and present Party leadership.

A similar picture is replicated at the lower rungs of the power structures in regions, local areas and so on. Which has led to widespread nepotism and corruption nationally causing great resentment among the people, even though dissemination of such information defaming China’s power elite is prohibited; except in cases where the defamed Party leaders have fallen foul of the dominant power group at different levels.

Which brings up the question of lack or absence of accountability, leading to the perpetuation of the same old rot for want of remedial avenues through open airing of corruption in relevant political and judicial structures.

Another serious problem arises from a relatively depressed rural sector of the economy. Indeed, the first sector to gain from a relatively open economy in China was the agricultural sector where communes and collectives were dismantled, with peasants energized to work on their farms (though, still, owned by the state) with increased production and improved earnings. However, from the nineties the emphasis shifted to industrial economy, with the rural sector providing a supportive role. In other words, the farming sector increasingly came to subsidize the urban economy.

The primary shift to industrial economy affected the rural sector in a number of ways: First, there was the relative neglect from the state, with very little new investments in the rural sector, (2) leading to depressed economic conditions with no new employment opportunities, (3) the influx into urban areas of rural migrant labor with no legal status and hence denied whatever state benefits accruing to those with legal urban residency, (4) cheap migrant labor, with staggered and delayed wages, and (5) the perpetuation of urban tales of rising crimes attributed to the new rural work force.

China is believed to have a floating rural migrant workforce of anywhere between 120 to 150 million and always on the move. Worst still, because of the needs of urban construction of housing and industrial plants, more and more rural land has been acquired legally (with grossly insufficient compensation) or illegally depriving its occupants of their living and occupations. In other words, there is a wide chasm between rural and urban China in terms of incomes and socially, creating a lot of resentment and protests in different parts of China. There are reportedly more than 100,000 cases of protests and demonstrations in China annually.

Out of China’s total population of 1.3 billion, its rural proportion is estimated at around 800 million. And these are the people who have either missed out or only partly gained from China’s industrial transformation, and are not terribly happy about the glaring inequalities and inequities of new China.

While China has opened up economically and socially in so many ways, its political system remains tightly controlled. The Party has largely co-opted the urban middle class into the glitter of moneymaking and upward mobility, thereby neutralizing its political aspirations and thus leaving the Party to exercise its political monopoly.

But the gap between the middle and rich classes (with Party connections) is growing fast, creating widespread resentment. And almost all Chinese people hate the systemic and ever-growing corruption involving the Party bureaucracy and political elites. Since China’s political system is largely closed, people do not have valid and legal channels of letting off steam. There is, therefore, always the danger of a spontaneous combustion of popular anger at some point in time.

However, as things stand today, China is increasingly emerging as a new superpower, though the United States still remains the world’s most powerful military power, with the world’s largest economy. The US economy, though, is plagued with all sorts of problems, with China emerging as a major creditor by investing close to 1 trillion in US securities. Indeed, China is emerging as a creditor to a number of countries, including some European countries. It has recently entered into a number of deals with Greece to invest in different sectors of its economy, thus propping up its hopeless economic situation. Greece is likely to be the stepping-stone for similar deals with other European countries in difficult economic situation.

China is investing and making deals all over the world (Africa, Middle East, Asia, Latin America) to secure the supply of oil, gas, metals and other resources to keep up the momentum of its growing economy. These deals sometimes reek of a neo-colonial pattern. For instance, these countries will not receive any share of profits until all the Chinese loans have been paid off with newly discovered resources. At the same time, China is developing new markets in these countries for its manufactures, with damaging effects on local industry.

Such dependent relationships, where even labor is exported from China to work on Chinese-funded projects, is already creating resentment in some countries. But China has the ready money, and is not concerned about the nature of the political regimes it is cultivating. Which gives Beijing an edge over the US and other Western countries, enabling it to expand its economic presence and political influence at the expense of the United States and Western Europe.

China’s imperial rise

By S.P.SETH

It rightly made news when China suddenly emerged as Greece’s economic savior of sorts. It happened around the time when credit ratings agency, Moody’s, had downgraded the country’s rating to junk level. Which means that investing in Greece or lending it money was a high-risk proposition.

Even though the European Union and IMF had thrown it a credit line to bolster up its credit worthiness, the markets weren’t convinced.

In Germany, the European Union’s biggest economy, the move to bail out Greece wasn’t popular at all. Greece was not only facing economic ruin but also political and social instability.

The austerity regime imposed on Greece by the European Union and IMF was creating turbulence. And the Greece’s socialist government was (and still is) at wit’s end.

It was against this backdrop that China entered into a series of bilateral agreements with Greece to further broaden China’s economic horizon that, in turn, will help Greece at a very difficult time.

It must be noted that China is not doing these economic deals out of the goodness of its heart. These deals make important political and economic sense. The Chinese vice premier, Zhang Dejiang, made two visits to Athens during a one month period to make deals worth billions of dollars in shipping, tourism, telecommunications and more.

It is reported that the 14 deals with Greece amounted to the biggest single investment by China in Europe, though no figure has been put on it.

As for Greece, it bolsters its economic situation at a critical time. By investing in Greece in such a public and dramatic way, China has expressed its confidence in Athens’ capacity to successfully deal with its debt situation.

Zhang Dejiang said, “ I am convinced that Greece can overcome its current economic difficulties.” And such a vote of confidence was very sorely needed by Greece in its current economic travails.

Of course, it will provide China a useful conduit to expand its economic and political tentacles into other countries in the European Union, especially Portugal, Spain, Ireland, and the Balkan region.

Even the United Kingdom is not looking good, with its budget deficit at around 11 percent of GDP, close to that of Greece. Its total debt is believed to be the second biggest in the European Union after Ireland.

Though China’s economy is not in sterling shape, it does have large foreign currency reserves from its trade surpluses, particularly with the United States. It is estimated to have over $2 trillion worth of foreign currency reserves, and rising.

Its annual trade surplus with the United States is rising at over $200 billion a year, and another $100 billion with rest of the world. Which means that its reserves are growing at the rate of over $300 billion a year.

China, therefore, can play politics with its money to expand its political and economic reach into Europe.

Although China has large foreign exchange reserves, it still has a fairly serious problem of indebtedness. China’s official figure of its debt at 20 per cent of GDP is simply, like its other statistics, not believable. Victor Shih of Northwestern University in Illinois, reportedly puts it at about 96 per cent of China’s GDP by next year—to include the debts of local instrumentalities and state-funded debts.

But, like in Japan, China’s debt is mostly internally funded, with low interest-bearing savings of its hard working and thrifty people. It is still debt, though. If there were to be a loss of faith in the government, this could lead to a run on government banks and other related agencies.

Be that as it may, China’s large foreign exchange reserves are an important part of its wide reach. And unless the European Union puts its house in order, China will have ample opportunities to use its financial power to create serious mischief.

For instance, in many African countries, China is already virtually pillaging their resources’ through investment in mining, oil, gas and other extractive industries. In return, these countries pledge their commodities to China over many years to pay for the Chinese debt.

In other words, these African countries will remain poor and destitute for many years to come even after their mines and oil fields become operational and profitable.

This was once called colonialism, and still is even if the perpetrator, China, once suffered and railed against such inequities.

Europe might not suffer in the same way as China’s African targets. But exchanging one kind of debt with another (even if it is called investment) from China doesn’t alter the fact that such relationships entrench economic dependency and hence exploitation.

With its long historical memories of how China was done in by the colonial powers in the past, it might not be averse to doing the same to European countries.

Europe apart, China is everywhere in the United States’ backyard of Latin America. For instance, China is now Brazil’s biggest trading partner, having supplanted the United States. Its trade with Brazil has reportedly risen from $10 billion a year in 2000 to over 100 billion today.

Like in Africa, Latin American exports to China are commodities and minerals. And they are increasingly becoming an important source of their revenues. With such growing economic dependence on China, these countries are losing the ability to develop an equitable relationship.

And China is exploiting its economic power to push exports of manufactured goods into these countries, with its artificially depressed wages aided by its undervalued currency.

In the circumstances, these countries will have no prospect of developing a manufacturing base. And where it does exist in a small way, that too will be destroyed in the face of China’s onslaught.

China is developing into a neocolonial power. And its entrenchment in the US’ backyard has all sorts of pitfalls for the United States and the region.

Sometimes, it would seem that China is seeking to contain or encircle the United States. The only thing missing is that it doesn’t yet have the military power to enforce its writ.

But they are working on it, conscious that China will need a much bigger military machine to enforce compliance on their economic dependencies.

But there are two important constraints here. First: they have too many internal problems to reckon with. Therefore, a large and disproportionate diversion of national resources to the PLA might further upset the internal imbalance.

As it is, China’s spending on health, education and social welfare are hopelessly inadequate.

Second: by elevating the armed forces to a higher level of guarding and expanding China’s imperial interests, the PLA might become a threat to the Party’s political supremacy.

Therefore, there are inbuilt internal constraints on China’s emerging imperial overstretch. At the same time, the promotion of national chauvinism would appear to be a calculated move by the Party to underpin its legitimacy.