China’s rulers facing dangerous times

By Sushil Seth

At the height of the global financial crisis in 2008 and 2009, China won kudos for stimulating its economy to inject some fuel into the global economy. However, the injection of excess liquidity, with growth rate of 10 per cent plus, is creating serious problems for China.

First: there is growing inflation that is eroding people’s real incomes. Already, the divide between rural and urban incomes and between rich and poor is growing alarmingly. Official figures put rural incomes at less than one-third of urban areas.

As for the income disparity between the top and poorest 10 per cent, it favors the former to the tune of 23 times. And this official estimate is believed to be grossly understated.

The real disparity, according to a Chinese economist, is 65 times that of the poorest 10 per cent.

With such figures of rich-poor divide, inflation is not only an economic problem, it is also a seriously de-stabilizing social factor.

Even though the Chinese authorities have taken measures to mop up excessive liquidity by multiple interest rate rises and increasing the deposit requirements of banks, it remains a serious problem worrying the government.

At such times, there is always a tendency to blame others. And who better to blame than the United States.

It is all the fault of the United States because of its loose monetary policies.

Although, it might as well be argued that China is the real culprit both at home and abroad.

China’s breakneck rush to corner the market for crucial commodities, like iron ore, coal, oil, food etc, is pushing up prices of these and other items all over the world.

At the same time, by keeping its currency undervalued for export advantage, it is forcing competitive devaluation on other countries.

As Michael Spencer, chief economist for Asia at the Deutsche Bank, has reportedly said bluntly, “China’s loose monetary policy is imposing inflation on the rest of the world.”

He adds, “The rest of Asia feels squeezed because US interest rates are at a zero and China won’t appreciate.”

Spencer concludes, “I assume at the end of the day they’re not really interested in rebalancing [trade surpluses] because it’s a painful thing to do.”

And: “They’re hoping against hope that they’ll get a couple of years’ more [free] kick from the US.”

All these years, by subsidizing its exports through an undervalued currency, China has done well by doubling its economy about every 8 to 10 years.

The United States grumbled all through because of its increasing trade deficit.

But as China was buying its treasury notes and bonds with its trade surpluses, the US didn’t seem too bothered with easy and plentiful access to credit from China.

China’s mercantilist policy of creating a mound of trade surpluses (now around $2.4 trillion), helped with an undervalued currency, created global economic imbalances that are still playing havoc with global economy.

But China is keen to continue until it has rejigged its economy, over the years, to rely more on domestic demand.

For China the global financial crisis came at a wrong time. The recession in the US and elsewhere seriously affected its export industry, with initial job losses of about 20 million workers.

It was able to get over it largely by its economic stimulation program and the pick up in foreign orders for its export sector.

However, the stimulation program has created its own problems. It has created the twin (interrelated) problems of general inflation and asset price bubble.

China’s poor are the most affected, especially from a hike in food prices where they spend most of their income.

The economists quibble if it will be hard or soft landing for China’s overheated economy, even though most agree that the economy is having serious problems.

Despite all round concern about the economy, even within the government, there still is enough money going around. The banks keep on writing new loans. And much of it is going into real estate and construction.

As a senior executive of a property development company, Ni Yawei, has reportedly said, “People can either put their money in the bank, and get interest rates that are less than inflation, or they can put it in property and a ‘two-directional’ return from capital appreciation and rent.”

This thinking is very much reminiscent of what brought about the sub-prime housing market crisis in the United States. Which is that investment in property has only one way to go, and that is its upward trajectory.

This sort of thinking led people to overstretch beyond their means through unsustainable borrowings.

China appears to be going through the same process.

Another analogy is the Japanese bubble of the nineties brought about by steep price hikes in real estate and stock markets.

Will China go that way? It is quite possible, even though the Chinese government will do its utmost not to let things get out of control.

Because its sole claim to some popular legitimacy is based on economic growth.

If that falters, leading to stagflation and the bursting of the real estate and stock market bubble, China will be in for real trouble.

The ruling Communist Party is paranoid about social stability. And yet its economic policies might create the conditions for precisely what it fears--- social chaos and a threat to the Party’s monopoly power.

This is precisely the reason advanced by Premier Wen Jiabao against revaluation of Chinese currency. He fears that a revalued Yuan will cause large-scale unemployment in the country. Which, in turn, will lead to social instability, posing serious problems for China’s oligarchs.

The spontaneous eruption of people’s power in North Africa and the Middle East, seeking to remove its authoritarian and despotic rulers, should be an eye-opener for the communist rulers of China.

Indeed, according to the Guardian newspaper, Chinese authorities were “censoring references to the protests in Egypt as some internet users drew comparisons with China.”

Of course, the two situations (in China and the Middle East) are not identical.

But one important common thread is that in any society subject to authoritarian rule over a long time, people become frustrated with their unresponsive rulers addicted to feathering their own nests---be it political power or economic riches or both.

Such deep-rooted corruption, absence of transparency, intolerance of political opposition, and human rights abuses in China are fertile ground for a sudden social and political eruption, triggered by a small event like what happened in Tunisia.

In the case of Tunisia, for instance, it was the frustration of a young 26-year old fruit vendor not allowed to earn his living the only way he knew, that led him to set himself alight.

In the process, he also set alight the Tunisian regime, forcing the country’s president to escape to Saudi Arabia.

And the Tunisian uprising provided the trigger for Egyptian people and now people’s power is all over the Arab world.

The example of people overthrowing or seeking to overthrow their despotic rulers in one Arab country after the other can be quite contagious.

In China, for instance, Deng Xiaoping and his political progeny have now ruled for about 30 years. The frequent reports of small and big incidents of popular protests suggest that the regime is starting to weigh on people’s nerves.

And if the economy goes into a nosedive, such fragmented cases of unrest might easily coalesce into people’s power for a day of reckoning with their rulers.

You never know when people might pick up the courage to do just that.

Ask Tunisia’s deposed president, and Egypt’s Hosni Mubarak fighting for his political life.

How successful was Hu’s US visit?

By S.P.SETH

President Hu Jintao’s US visit has been called a success by some commentators. Judging by the pomp and ceremony extended to him by the Obama administration, the first of its kind to a visiting Chinese president, that should be the obvious conclusion.

And not surprisingly, the Chinese media was lapping it up treating it as a relationship between two equals. The state-run Xinhua news agency commented, “China and the United States agreed …to jointly establish co-operative partnership based on mutual respect and mutual benefit.”

For Hu personally and politically, whose lackluster personality and performance has been a serious drawback of his presidency, the larger-than-life ceremonial treatment in the United States certainly did some good back home.

As Professor David Shambaugh said in a television interview the other day, Hu has been a lame duck president from the time he took over as his country’s president.

Indeed, China’s collective presidency (after the death of the country’s supreme leader, Deng Xiaoping,) is becoming a bit of a liability for the country’s governance because its president, especially after Jiang Zemin, is a hostage to all sorts of competing and contending interests in the Party, and the military.

Therefore, Hu’s successor as president is not going to fare any better in this very politically incestuous environment. And this will be a serious problem for China from the viewpoint of social and economic stability.

But from the viewpoint of Hu, his US visit was the first and the last hurrah of his presidency. Things are not going to get any better than this. He will remain a lame duck president, even more so than before.

In the context of the his just completed US visit, some commentators point to things he said and acknowledged which make this an important visit for US-China relations.

He said, “…China still faces many challenges in economic and social development. And a lot still needs to be done in China in terms of human rights.”

He added, “We will continue our efforts to improve the lives of the Chinese people, and will continue our efforts to promote democracy and the rule of law in our country.”

It is considered important that Hu even acknowledged that there was need to do more in human rights, and that democracy and rule of law remains China’s goal.

But what does this abstract commitment mean? China’s leaders have said and acknowledged these things in the past, but have then gone on to do whatever it is to perpetuate the monopoly power of the party and the suppression of human rights.

Only the other day, they dispatched the democracy stalwart Liu Xiaobo, who is now a Nobel laureate, to eleven years jail for subversion, thus branding him a criminal.

And they threw tantrums to warn off the world against participating in the award ceremony in Norway for the absent Liu.

The world was, in effect, told to bugger off because this is the way they did things in China.

Obama obviously was not effective in pleading on Liu’s behalf, his immediate successor as Noble peace laureate. Which means that he is going to rot in China’s jails for a long time to come.

But President Obama is happy that China has undertaken to buy $45 billion worth of goods from the US, including a contract for 200 Boeing aircraft over 3 years. Some of these were old deals.

These commercial deals are expected to create more than 200, 000 jobs in the United States.

The Obama administration is making much of it with an unemployment rate of under 10 per cent.

Hu has also promised to ease restrictions and barriers to US investments in China. Furthermore, he has agreed to protect US intellectual property rights as well as to make fairer the awarding of domestic contracts to US companies.

All this too has been said before. Therefore, before we loudly celebrate these ‘new’ trends, one has to question what precisely has been achieved to further US-China relations.

Certainly, Hu’s visit, with his gala reception, has changed the atmospherics between the two countries; discounting, of course, his frosty reception from the US Congress across the political spectrum.

The Senate majority leader, Harry Reid, called him a dictator on a radio program.

On concrete issues like the US demand for currency revaluation to give the US a level playing field in trade, China will only do things at its own pace.

The US annual trade deficit of about $250 billion still remains. And there doesn’t seem much hope of improving jobs situation by revival of competitive manufacturing in the United States.

On strategic issues, China has rightly expressed concern on Pyongyang’s new uranium enrichment facility.

It has also come out in favor of military talks between North and South Korea.

Beijing has made similar gestures in the past, but is reluctant to pressure North Korea.

As Professor Pang Zhongying at Beijing’s Renmin University told The Australian newspaper on the direction of these relations, “Both sides are talking in their own language in the communiqué but not much freshness was expressed.”

And: “Though both sides are talking about a plan for the future, no new theory or approach was worked out.”

In other words, it is more a case of hope without “a longer-perspective plan redefining Sino-US relations…”

Take, for instance, their military relationship. In recent months, China has been quite aggressive about laying sovereign claim to seawaters and islands in the Asia-Pacific region.

It also warned the US against joint war exercises with South Korea in the Yellow Sea; effectively telling it to keep out of China’s sphere of influence.

But Hu still maintained that, “We do not engage in arms races, we are not a military threat to any country. China will never seek to dominate or pursue an expansionist policy.”

Such declarations have no meaning unless matched with peaceful action. And that has been lacking.

The recent China visit of the US Defense Secretary, Robert Gates, was even more illustrative of the problems in US-China military relationship.

China is continuing to play hardball, and its announcement of the testing of a J-20 stealth fighter during his visit fits into the bill.

If not for any other reason, the announcement to coincide with Robert Gates’ visit was in bad taste. What was Beijing trying to prove?

Were they telling the United States that their course was set to keep building a powerful military machine to eventually overtake the United States?

Of course, Robert Gates was assured by President Hu Jintao that the timing of the testing was not deliberate but coincidental. And when asked if he believed him, he gallantly said that he took the President at his word.

What else was he supposed to say? It would have been highly impolite and rude diplomatically to call President Hu Jintao a liar.

The Chinese announcement created a bit of a flutter in the region. Beijing might even hope that the stealth fighter plane, the killer missiles and a range of submarines will have a salutary effect on its small regional neighbors, unhappy with China’s extravagant claims on South China Sea and elsewhere in the region.

The US, therefore, must remain engaged in the Asia-Pacific region, partly to neutralize China’s aggressive behavior towards its neighbors.

Hu Jintao’s US visit was welcome as an exercise in taking the heat out of US-China relations.

But, without a concrete blueprint for its advancement, the heat in their relationship is bound to build up again, because China is bursting to create its dominance.

The danger is that these tensions might result in some unpleasant incident or two on the high seas, and worse.

The Chinese dragon bares its teeth

By Sushil Seth

In the year just passed, China loudly, if not rudely, declared its supremacy of the Asia-Pacific region. In March, for instance, it asserted its sovereignty over South China Sea by declaring it an area of “core national interest” on par with Tibet and Taiwan.

In this way Beijing simply brushed aside the claims of other regional countries to islands in these waters.

Indeed, a Chinese scientific submarine planted a Chinese flag deep down on the floor of the ocean to announce to all and sundry that it was China’s sea.

According to Professor Zhao Junhai, a key designer of the submarine, “It [planting the flag] might provoke some countries, but we’ll be all right.” In any case, he said, “The South China Sea belongs to China. Let’s see who dares to challenge that.”

China, therefore, overrode its own commitment to resolve the sovereignty issue peacefully and through diplomacy with its neighbors. To emphasize Beijing’s seriousness, Chinese ships reportedly seized dozens of Vietnamese fishing boats and arrested their crews.

Some months later, in September, China threatened Japan with reprisals when the Japanese coast guard arrested the captain of a Chinese fishing trawler after it collided with two Japanese ships around Senkaku Islands, administered by Japan but also claimed by Beijing and Taiwan as Diaoyu Islands.

It stopped export of rare earth metals to Japan, crucial for high-end electronic products. And it sought apology and compensation that Japan refused. But Japan caved in by releasing the captain of the Chinese fishing trawler when it had earlier announced that he would be put on trial.

The point is that through these pronouncements China was announcing to the world that it was the new boss around the region.

China was also furious with the US-South Korean naval exercises in the Yellow Sea, regarding it as an unwarranted intrusion into what it, more or less, regards as its own waters or regional sphere of influence.

In other words, through its actions and words, China is proclaiming its own version of the Monroe Doctrine for the 21 century.

Of course, this will be contested as it is creating a rethink in the region and bringing some of China’s neighbors into closer political and military ties with the United States. But that is a different story.

The question then is: why did China choose 2010 as the year to announce from the housetop, as if, that it is the master of the Asia-Pacific region.

An important reason is the psychological boost that it got from the sad state of Western economies in the wake of the global financial crisis.

Even though China was badly affected initially with many millions workers laid off in its export industries, it retrieved the situation with nearly $600 billion stimulus injection into its economy.

At the same time, its export sector too recovered rather well. The trade surplus with the US continued to increase around $200 billion a year.

Which doesn’t mean that China’s economy is without serious problems, but that is a story by itself.

Second: With the US economy in trouble and its military overstretched in Afghanistan and Iraq, China under-estimated the US resolve and capacity to hang in the Asia-Pacific region.

It would seem that the US determination to stand by its South Korean ally against Pyongyang’s provocations was a bit of a shock to Beijing, including sending aircraft carriers into the Yellow Sea to take part in their joint naval exercises. And the US did this against Beijing’s warning.

Third: China didn’t expect that its Asian neighbors would be unduly upset by its proclamation of a new Chinese version of the Monroe doctrine; believing that, by now, they were already attuned to Beijing’s regional primacy.

But it had the opposite effect of bringing countries like Japan, Vietnam, India, Indonesia, Singapore and others closer to the United States. In other words, China overestimated its regional role.

Xu Guangyu, a retired general reportedly put it, “We kept silent about territory disputes with our neighbors in the past [in South China Sea and elsewhere] because our navy was incapable of defending economic zones, but now the navy is able to carry out its task.”

Of course, these disputes had existed and China had pledged to solve them peacefully. But as Wang Hanling, a maritime expert, said, reflecting China’s new confidence, “Even if they [South East Asian neighbors] succeed in joining together [against China] they are still not strong enough to defeat China.”

Fourth: With its growing economy, China’s military budget, over the years, has grown annually by double-digit figures, now around $100 billion. Which is enabling China to build up a powerful military machine both for offensive operations, as well as creating a powerful deterrent against US naval supremacy.

According to recent reports, China is developing missiles to sink US aircraft carriers.

And in the tradition of imperial powers, China is building a strong navy to protect its economic interests across the world.

According to Rear Admiral Zhang Huachen, deputy commander of China’s East Sea Fleet, “With the expansion of the country’s economic interests, the navy wants to better protect the country’s transportation routes and the safety of our major sea-lanes.” (Including by purporting to annex the South China Sea.)

If China’s purpose in 2010 was to formally assert its regional supremacy, it hasn’t succeeded all that well.

Over the last few years, China sought to impress the world, especially its neighbors, that its rise would be peaceful and that it will never aspire for hegemony. But what it did and said in 2010 didn’t square with “peaceful rise”.

There is disturbing arrogance emanating from Chinese establishment. An example of this is recounted by the Sydney Morning Herald’s Beijing correspondent, John Garnaut, of an interview he did last month with the Global Times’ [a mouthpiece of the ruling establishment] editor, Hu Xijin.

Garnaut writes, “ In our interview he [Hu] didn’t seem to care whether his [verbal] missiles were aimed at me personally or my profession, my country or the wider Western world.”

For Hu, Australia was too insignificant to lecture China. Because: “You are driving a cart and we are driving a truck.”

Garnaut added, “Ditto for Japan, given its entire stock of highways was no greater than China could build in a single year. And the New York Times was ‘full of lies.’ ’’

In other words, 2010 was an ugly year for the region, with the Chinese dragon baring its teeth, indicating turbulent times ahead.

Korean conundrum and China’s rise

By Sushil Seth

Even though the situation on the Korean peninsula was defused in the wake of the South Korean military drills on the Yeopyeong island in the Yellow Sea, it came pretty close to a blow up.

Pyongyang had threatened “deadlier” retaliation if Seoul went ahead with its exercises. South Korea went ahead anyway. The stakes this time were much higher for North Korea with the inclusion in the exercise of about 20 American troops. In other words, the US was committed to its South Korean ally against any military escalation from Pyongyang.

In November, Pyongyang had retaliated against a South Korean military drill on the island that killed 4 people and destroyed homes. Therefore, it didn’t seem like an empty threat when North Korea threatened havoc.

But the inclusion of American soldiers in the military exercise was probably a important factor in dissuading Pyongyang for fear that any resultant injury and/or fatality of US personnel might invite American retaliation.

Besides, Seoul stood its ground and mobilized forces against any threat from North Korea. The emergency meeting of the Security Council, that was called to defuse the situation, found China and Russia urging South Korea to back off. But the United States stood by its South Korean ally.

Seoul was in a quandary. For a long time, Pyongyang had come to exercise a veto of sorts on South Korea’s peninsular policies by threatening retaliation of one sort or the other, more often than not threatening annihilation. Seoul often backed off for fear of a war, with its capital, Seoul, within range of North Korean artillery.

But President Lee Myung-bak’s administration decided to challenge Pyongyang’s veto on South Korea’s security policy by following up its military drills on the Yeopyeong island with a large-scale military exercise, just south of the heavily armed border.

While Russia and China have condemned this new exercise and called for restraint, the United States has backed its ally’s right to hold the defensive exercise. This is looking increasingly like a renewed Cold War visiting the Korean peninsula.

North Korea, of course, has threatened retaliation, declaring that it was “fully prepared to launch a sacred war of justice…based on the nuclear deterrent at any time necessary to cope with enemies’ actions.”

But the threat seems slightly less forbidding than has been the case before. For instance, Pyongyang’s threat has a moral dimension “to launch a sacred war of justice”.

And it doesn’t threaten nuclear war per se but the possible use of nuclear deterrent “to cope with enemies’ actions.” In other words, the overall terminology seems comparatively less belligerent.

Pyongyang obviously was not anticipating another, and much larger, South Korean military exercise, right across the border. Having backed off from threatened retaliation after South Korea’s military drills on the Yeopyeong island, it sought to put the best face on it by taking a high moral ground, declaring it “did not feel any need to retaliate against every despicable military provocation.”

Because: “The world should properly know who is the true champion of peace and who is the real provocateur of a war.” Its news agency KCNA blasted the “puppet warmongers” in South Korea.

But it also wanted to create some sort of diplomatic momentum ---at least the appearance of it.

This is where the unofficial visit to North Korea of Bill Richardson, former UN representative of the United States (and present governor of New Mexico), came handy. Pyongyang let it known through Richardson that it would let in inspectors from the International Atomic Energy Agency to its Yongbyon nuclear complex.

It has also reportedly agreed to ship 12,000 nuclear fuel rods to an outside (so far unspecified) country. And Pyongyang is agreeable to the formation of a military commission and to institute a hotline between the two Koreas.

But the United States is not buying into this new diversion that North Korea wants to create to get out of an ugly war-like situation it created in the first place.

And Pyongyang might even be willing to go back to the six-nation talks to get out of a sticky situation. But, if the recent history of nuclear talks is anything to go by, Pyongyang might be keen to use it as a bargaining chip to get all sorts of concessions from the US, Japan and South Korea.

Because it is a bargaining counter, North Korea is not keen to dismantle its entire nuclear program for the promise of economic aid, political legitimacy and the construction of nuclear power reactors (by its neighbors South Korea and Japan) powered by low-grade nuclear fuel, without the potential of turning into atomic bombs.

Pyongyang would like its denuclearization (if it were to happen at all) sequentially based on specific concessions from its dialogue patners with each successive step on the denuclearization ladder. The trouble, though, is that with its preferred sequential approach, North Korea can always go back to reviving the entire nuclear cycle at any time, if not satisfied with what it is getting in return.

It has happened before with the tardy progress of the 1994 nuclear deal, and new political problems during the Bush administration.

Therefore, one shouldn’t read too much into Pyongyang’s concessions (with or without possible denuclearization talks at some point) that seem tactical to defuse a dangerous situation. The US, in any case, doesn’t seem in any hurry to get back to any kind of dialogue with Pyongyang without tangible progress on the nuclear issue.

At the same time, though, the situation between the two Koreas remains quite tense.

The Korean issue has much wider implications. It is tied down with China’s commitment to North Korea, Japan’s fear of North Korean nuclear program and China’s regional bellicosity (backed with its military build up), and apparent US determination to stick around the Asia-Pacific region and with its allies.

Japan, for instance, is becoming increasingly concerned about China’s combative regional posture. Beijing is asserting its sovereignty over South China Sea, ignoring the rival claims of other South East Asian countries.

It has also sought to go ahead with gas exploration in East China Sea, where Japan claims sovereignty over Senkaku Islands (Diaoyu Islands to the Chinese), claimed also by China and Taiwan.

This has created some ugly incidents, with potential to get uglier if not handled with care.

China’s high pitch nationalist reaction against the detention of the captain of a Chinese fishing trawler that collided with two Japanese patrol boats is an example in point. Japan caved in by releasing the captain, and defused the situation.

Japan’s new National Defense Program Guidelines point to China’s military activities and lack of transparency as matters “of concern for the regional and global community.”

The new strategic doctrine shifts the emphasis on defending the country’s northern borders from Russia to confront the new situation arising from the rise of China. And to this end, it is planning a significant increase in its naval defenses.

For instance, it will increase from four to six the number of destroyers equipped with Aegis anti-ballistic missile technology. This will strengthen the joint missile shield it is developing with the United States. Japan is also enlarging its submarine fleet from 16 to 22.

Japan also sees, “North Korea’s nuclear and missile issues [as]…grave destabilizing factors to regional security.” And with China unwilling or unable to restrain North Korea, it is easy to imagine Japan’s sense of a security threat.

The combination of China’s so-called “peaceful rise”, and North Korea’s gung-ho behavior, is leading some regional countries to draw even closer to the United States to counter a dangerous situation. Will this keep a lid on China’s ambitions and North Korea’s brinkmanship? Only time will tell.

China’s North Korean gamble

By S.P.SETH

North Korea continues to be a terrible nightmare. It is a nightmare because it has the support of China. Otherwise, it would have imploded long ago.

Beijing’s support has several components, even though North Korea’s waywardness annoys it occasionally. But China is stuck with it. It is, as one senior Chinese official reportedly said a while ago: “ North Korea is our East Germany.”

And: “Do you remember what happened when East Germany collapsed? The Soviet Union fell.”

This is an important insight into the psyche of the Chinese communist leadership. There are two things that worry China’s communist oligarchy the most.

First, of course, is the fear of social instability and resultant collapse of the regime--- a process of hollowing out from within.

The speed with which the Soviet Union collapsed is a salutary lesson for China.

Second, and inter-related, is the fear of internal democratic dissent and external encouragement of a democracy movement in China.

China’s 11-year prison sentence of Liu Xiaobo, the co-author of China’s Charter 08 for democracy (and now the winner of Nobel Peace Prize), is an example of such paranoia.

China also fears that any implosion of the North Korean regime, and its unification with South Korea, might bring the US too close to China’s borders under the US-South Korean military alliance.

There are some suggestions that Beijing might be amenable to assurances of a benign US presence in Korea to ensure a relatively peaceful political transition in North Korea.

But a paranoid regime in Beijing is unlikely to entertain such assurances. Having been unimpressed by joint US-South Korean military exercises, Beijing is now even more peeved over US-Japan military exercises.

According to its Foreign Ministry spokeswoman, Jiang Yu: “Brandishing of force cannot solve the issue.”

But China’s recent bellicosity to assert its regional dominance, and North Korea’s belligerence, has created alarm among its neighbors leading to the tightening of their military and political ties with the US.

For instance, not long ago, South Korea used to placate Pyongyang and cultivate China, despite its alliance with the United States. But President Lee Myung-bak’s regime abandoned this policy in favor of strengthening ties with the United States.

Seoul was greatly disappointed with China when it took a neutral stand on the torpedoing of its naval ship, Cheonan, in March, with deaths of 46 of its personnel.

With such North Korean belligerence, and the recent artillery shelling of a South Korean island, Beijing still continues to counsel restraint and diplomatic efforts to calm down the situation. It is refusing to put necessary pressure on Pyongyang to act responsibly.

Indeed, for the first time, South Korea has felt obliged to move toward some sort of a trilateral military nexus with the US and Japan by sending military observers to the Japan-US exercises.

China fears that a reunified democratic Korea might have subversive effect on its political system. The demonstrative effect of the democratic political dispensation in Korea across the border might prove infectious for China.

It, therefore, makes sense when a Chinese senior official compared North Korea with East Germany, with the latter’s collapse contributing to the Soviet Union’s fall.

Be that as it may, any collapse of North Korea would pose immediate problems for China. There are two views on this in China’s academic community.

According to Zhu Feng, a professor of international relations at Peking University, the inevitable collapse of the North Korean regime would leave China with no choice but to support South Korea-led reunification.

Because: “If China dispatched troops across the Yalu River what would be the result? They will outrage South Koreans, raise unbelievable concerns from Japan, and US-China policy could change very tremendously.”

On the other hand, Cai Jian at Fudan University believes that China wouldn’t tolerate a “hostile regime” in North Korea as well as US military presence there. He opines that, “If South Korea keeps its pro-US policy then China has to maintain stability through North Korea.”

What it means is that unless a unified Korea agreed to be under China’s sphere of influence, China would continue to regard North Korea’s communist regime as an instrument of its policy on the Korean peninsula.

In other words, Beijing is determined to side with the Kim Jong-il dysnasty.

It might be recalled that Kim Jong-il’s youngest son was anointed as his successor after the elder’s Kim’s visit to China. He obviously received necessary support and guarantees from China’s rulers. In that case, they see the Kim dynasty as an instrument of their Korean policy.

Knowing fully well that the Kim regime is not only expanding its nuclear program but also supplying nuclear materials and technology (including missiles) to other countries, Beijing is apparently well aware of the dangerous consequences of its support for Pyongyang.

Indeed, the WikiLeaks cables suggest that some of this trade is actually conducted through China.

Since North Korea continues to be a law unto itself with its nuclear program, artillery shelling of a South Korean island as well as threats of unleashing more attacks on South Korea, China should know that its protégé is beyond any call for restraint and diplomacy as advocated by Beijing for the contending parties.

China is thus, wittingly or unwittingly, complicit in North Korea’s belligerence leading to regional instability.

And if China were to interpret US-Japan, and US-South Korean military exercises and preparations, as a potential threat to its security, this could set the scene for a repeat of the 1950-53 Korean war with China crossing the Yalu river against a perceived threat from the United States.

With social unrest mounting in China, its communist oligarchs might even prefer such a dangerous diversion in the name of protecting China’s national interests.

In Korea, therefore, we are entering dangerous waters (both literally and figuratively) with unpredictable results all-round.

China’s oligarchy versus Liu Xiaobo

By Sushil Seth

Much has been written about the award of Nobel Peace Prize to Liu Xiaobo, who is serving an 11-year prison sentence for his advocacy of democratic rule in China. We know that he is China’s leading political dissident and has authored the alternative blueprint, Charter 08.

But the more we know about him the more you understand why China’s ruling oligarchy is so deadset against him.

First of all, the Charter succinctly exposes the contradictions of the existing political system—a cruel Orwellian joke on its people. It says, “…the political reality, which is plain for anyone to see, is that China has many laws but no rule of law; it has a constitution but no constitutional government…”

Not surprisingly: “The stultifying results are endemic official corruption…weak human rights, decay in public ethics, crony capitalism, growing inequality between the wealthy and the poor, pillage of the natural environment… and the exacerbation of a long list of social conflicts…”

Which would lead to the logical conclusion that, “The decline of the current system has reached the point where change is no longer optional.”

The Charter 08 then goes on to propose the enactment of a new constitution based on the democratic principles of separation of legislative, judicial and executive power as well enshrining guarantee of human rights, freedom of expression and a whole lot more.

Such a prescriptive Charter will be the death knell of the political monopoly of the Communist Party of China. No wonder, China’s rulers went ballistic against Norway and the committee that awarded the prize. And, at home, they rounded up some activists.

Beijing has stopped dialogue with Norway on furthering trade relations, and demanded an apology from the Nobel committee for awarding the Peace Prize to a “criminal”, thus showing disrespect for China’s legal system.

These days China is big on demanding apology. Japan too was asked to apologize over the detention of the captain of a Chinese fishing trawler that collided with a Japanese patrol boat in the East China Sea. But that is another story.

However, Professor Liu Xiaobo is one of those rare people who is not for turning when he believes in what is right. The Party would like to see the back of him if he were to leave China for comfortable pastures abroad, where he has had academic stints in prestigious universities in the United States and elsewhere.

But he keeps coming back to pursue his passion and commitment to change his homeland. Though his current 11-year stint in jail is the longest so far, he is not new to such persecution at the hands of his country’s communist oligarchs.

He was jailed for 20 months in 1989 when he went on hunger strike to support the democracy movement. He spent another three years at a re-education camp from 1996 for his criticism of the party’s monopoly on power.

After serving his current 11-year mandatory sentence at the sheer pleasure of his country’s communist cabal, he would have spent 16 years in jail.

Still, Liu remains unbowed with his indomitable will to pursue the cause of political reform for his country. If democracy has to succeed in China at some point, men like Liu are the ones who would keep the torch alive.

Speaking at his trial on December 23, 2009, he recalled, “…[after] I was imprisoned [in 1989] for ‘counter-revolutionary propaganda and incitement to crime’… I was never again allowed to publish or speak in public in China.”

He went on to say that, “ But I still want to tell the regime that deprives me of my freedom… I have no enemies and no hatred… For hatred is corrosive of a person’s wisdom and conscience…”

Speaking on a note of hope, he said, “I hope to be the last victim of China’s endless literary inquisition, and that after this no one else will be jailed for their speech.”

Because:” Freedom of expression is the basis of human rights, the source of humanity and the mother of truth…”

From a perusal of the text of his statement at the December 2009 trial, Liu comes out as a towering personality of immense courage and compassion.

It is hard to believe that he is regarded as a “criminal” in his own country for exercising his right to free speech and saying the things which some of China top leaders have also said at times.

For instance, President Hu Jintao reportedly said in 2003 that the Communist Party faced “inevitable extinction” if it did not increase press freedoms.

And more recently Premier Wen Jiabao told CNN that, “Freedom of speech is indispensable for any nation. China’s constitution endows the people with freedom of speech.”

He added, “The demands of the people for democracy cannot be resisted.”

If so, why is Liu Xiaobo in one of Premier Wen’s jails for exercising his right to free speech under the Chinese constitution? Or is it all a charade?

Liu’s Noble peace prize created a bit of excitement among some Chinese party elders and a group of scholars, making renewed calls for democratic reforms.

In an open letter, 100 Chinese scholars urged “China should join the mainstream of civilized humanity by embracing universal values.” Because: “Such is the only route to becoming a ‘great nation’ that is capable of playing a positive and responsible role on the world stage.”

All this activity urging political reforms was probably intended to influence the deliberations of the Communist Party plenum just held. But it was ignored, as has happened in the past.

The only passing reference to this in the communiqué read: “Great impetus should be given to reform of the economic system, while vigorous yet steady efforts should be made to promote reform of the political structure.”

Which is neither here nor there.

Some China-watchers were heartened by Premier Wen’s support for political reforms. But Wen’s background as an aide to Zhao Ziyang during the tumultuous days preceding Tiananmen massacre and his conversion thereafter, is a testimony not only to his great instinct for political survival but also coming out a winner.

Therefore, one shouldn’t read too much into his rebirth as a political reformer.

But Liu and his band of political dissidents could one day become the rallying point of a popular movement against the party’s corrupt and politically suffocating rule.

China’s Middle Kingdom syndrome

By S.P.SETH

China has been firing salvoes in all directions, asserting its sovereignty/power over South China Sea, East Asia Sea and Yellow Sea, and as far away as the Antarctica.

According to Wei Wenliang, who heads China’s Antarctic program: with China’s increased scientific and maritime capability, it is now equipped to “shoulder responsibility” to administer the region.

As in the regional seas where other countries have competing claims, China will have to contend with quite a few countries about their respective claims in the Antarctica.

But closer to the region, it is a much more serious matter. For instance, China-Japan scuffle over their disputed sovereignty in East China Sea, where a Chinese fishing trawler collided with a Japanese patrol boat and its captain detained, created quite a serious crisis in their bilateral relationship.

The subsequent release of the captain, followed by a meeting between premiers of the two countries on the sidelines of an international conference, has calmed things down a bit, but the potential for a flare up is always there.

Even though Japan’s wartime record generally weighs against it in the region, it would appear that this time China’s reaction appeared to be a bit over the top, threatening “consequences” and what not.

Kosuke Takahashi of the Jane’s Defense Weekly, who follows these matters closely, has said, “If you look at the editorials in Southeast Asia and the US in major newspapers, you can see China overreacted.”

Expanding on it, he added, “South Korea also has issues with China over the Socotra Rock. The Philippines and Vietnam have territorial issues with China. Those countries look at the Chinese reaction and they are worried.”

China has been virtually telling its regional neighbors that they have no option but to lump China’s claims of sovereignty. As Dr Malcolm Cook of the Lowy Institute, an Australian think tank, has said, “It’s certainly given an example of China’s actions that don’t fit a ‘peaceful rise’ narrative…”

This is creating a new nexus between the United States and Southeast Asian countries, worried about China’s assertive sovereignty claims, with no provision for peaceful resolution of disputed issues. This is particularly reflected in closer strategic relations between the US and Vietnam, and renewal of military ties with Indonesia.

At another level, China is facing intense pressure from the United States and Western Europe in trade matters, particularly its undervalued currency.

Even though there is a reluctance in official quarters to brand it as “manipulation of currency” to give China a trade advantage in flooding the world with its cheap goods and accumulating vast currency reserves from trade imbalances, there is no ambiguity in the message about the need for China to revalue its currency.

This is starkly reflected in the US House of Representatives’ recent legislation to enable the US to impose retaliatory counter measures against China. The US Congress has been exercised over this issue for a long time, and, finally, the House has acted on this. The Senate still has to take up the issue. It will do so after the mid-term elections in November.

And it is high time too, according to the New York columnist and Nobel laureate, Professor Paul Krugman. In his recent column, he writes: “Diplomacy on China’s currency has gone nowhere, and will continue going nowhere unless backed by the threat of retaliation.”

He adds, “The hype about trade war is unjustified—and, anyway, there are worse things than trade conflict. In a time of mass unemployment [in the US], made worse by China’s predatory currency policy, the possibility of a few new tariffs should be way down on the list of worries.”

China’s response is contradictory. At one level they say that their currency value has nothing to do with China’s trade surpluses.

At the same time, Premier Wen Jiabao has reportedly said, “We cannot imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs.” In other words, China’s undervalued currency is a hidden export subsidy for China’s exports.

At the official level, the US is trying to hose down the danger of a looming trade war, while keeping up the pressure on China for a significant appreciation of its currency.

According to Timothy Geithner, US Treasury Secretary, “We’re not going to have a trade war. We’re not going to have currency wars.”

(Geithner might not think so but even IMF is worried about it, with different countries seeking export advantage through a possible bout of competitive devaluation of their currencies.)

He believes, though, that it is in China’s “own interest to allow its currency to appreciate in response to market forces.”

Will China do it significantly? Doesn’t look like. In other words, political, strategic and economic factors are converging to make for uncomfortable times ahead.

Europe too is worried about China’s undervalued currency. Beijing, though, is working to wean away Europe from a united front with the United States. Both the US and Europe have trade deficits with China.

Premier Wen Jiabao was recently in Europe on a charm offensive. He maintained China’s position on its currency value; arguing that his country needed rapid growth to pull millions of its people out of poverty.

But he assured that China would help maintain euro’s value by buying European bonds to help them refinance their struggling economies.

Speaking in Greece, during a one-week tour of Europe, he said, “I have made it clear that China supports a stable euro.” He added, “We will not reduce our holdings of European bonds in our foreign exchange portfolio.”

The choice of Athens as the starting point of his recent European tour, and remarks about supporting euro, is significant as China recently entered into a wide-ranging set of agreements for economic cooperation between the two countries.

Like Greece, which is in considerable trouble because of its indebtedness, the message is also meant for other similarly placed European economies like Portugal, Spain and Ireland to create closer economic links with China.

As some of the weaker economies in euro zone are struggling to keep afloat, China’s assurance on buying euro bonds will be a welcome relief.

At the same time, it might distract them somewhat from the issue of China’s undervalued currency, where the US is much more concerned because of its huge recurring trade deficit with China. The seemingly united front between the United States and Europe might, therefore, be susceptible to Chinese machinations.

At the same time, China’s increased investments in European bonds will give it even greater leverage over Europe, as it becomes beholden to China’s extended credit line, and a web of new and expanded economic linkages.

Even Europe’s largest economy, Germany, is increasingly becoming dependent on China for its exports. Anthony Faiola recently reported in the Washington Post that, “China passed the US last year as the No I overseas market for big-ticket German machinery, with titans from Siemens to Volkswagen—which so far this year has sold 1.3m cars in China, five times as many as it has in the US…”

However, it is not smooth sailing for China. Its provocative assertion of regional dominance is worrying its neighbors. And its under-valued currency is creating global fear of currency wars.

China needs two things to solidify its great power status. First, it needs a decade or more to consolidate and strengthen its position. Its recent loud declarations to be the master of the Asia-Pacific region were premature.

The United States still remains the world’s strongest military power. And even with its myriad economic problems, it still is the world’s largest economy and China’s major export market.

Second, and more importantly: without corresponding political reforms with wider popular representation and accountability, China’s economic edifice is built on very weak foundations subject to social and political eruptions.

Witness, for instance, China’s hysterical reaction to the awarding of Noble Peace Prize to Liu Xiaobo, who is languishing in jail for his advocacy of human rights and democracy in China.