Taiwan Loses Another Ally

In another blow to Taiwan’s ever-shrinking list of diplomatic allies comes the news that Panama has severed ties with Taiwan in favor of establishing a relationship with the People’s Republic of China. Panama’s announcement comes only months after Sao Tome and Principe cut ties with Taiwan in favor of China. With these two nations switching recognition, Taiwan has only 20 official diplomatic allies. As China continues to exert pressure on President Tsai Ing-wen and her Democratic Progressive Party (DPP) that holds a majority in the country’s legislature, China will attempt to poach more of Taiwan’s allies in an attempt to further isolate Taiwan from the international space.

The Office of the President released a statement addressing the switch in recognition: “We express our deep regret and disappointment at the Republic of Panama’s decision to renounce our long-standing friendship and establish diplomatic relations with the People’s Republic of China.”

The End of the Diplomatic Truce

Though people unfamiliar with Taiwan are not likely to see the importance of the end of this relationship, it is important to understand how China acted during the tenure of former President Ma Ying-jeou, a member of the Kuomintang (KMT), Taiwan’s other major political party that has a more a pro-China view than the DPP. At the beginning of his presidency in 2008, Ma announced that he was pursuing a policy that he called a “diplomatic truce,” in which Taiwan and China tacitly agreed to stop poaching each other’s allies. In 2008, Ma said during the planning stages, “If the diplomatic truce turns out to be a successful strategy, it might be possible that we won’t gain any more allies, but we won’t lose any either.”

Ma’s prediction almost proved true. During his two terms in office, Taiwan only lost one ally, Gambia, in 2013. However, China did not establish official relations with Gambia until 2016, only a few months before Ma left office and Tsai took his place. The delay in establishing relations could be seen as a sign of deference for the diplomatic truce under Ma’s presidency.

Unfortunately for Taiwan, the diplomatic truce has ended with China poaching two countries— Sao Tome and Principe and Panama—from Taiwan since Tsai took office in May 2016. Panama’s move has particularly angered Taiwan. In the summer of 2016, Tsai visited the country for the opening ceremony of the newly expanded Panama Canal. Panama and Taiwan had good relations and exchanges before this announcement.

The canal is most likely the primary reason for Panama’s sudden decision since China is its “second most important customer.” China now has no incentive to stop using the canal, and it cannot dangle its high level of usage over Panama as a veiled threat. The move now also calls into question the China-backed Nicaragua Canal as Nicaragua still recognizes Taiwan, not China. The project’s viability had already been hotly debated, and perhaps Panama hopes that China will focus less on the Nicaragua Canal as a result of its decision.

Tsai released a statement criticizing China’s role in the Panama switch as well as its recent actions in trying to isolate Taiwan from the rest of the world:

Although we have lost a diplomatic ally, our refusal to engage in a diplomatic bidding war will not change. The fact that the Republic of China exists will not change. And Taiwan’s value and standing in the international community will not change.

We are a sovereign country. This sovereignty cannot be challenged nor traded. China has continued to manipulate the “one China” principle and pressure Taiwan’s international space, threatening the rights of the Taiwanese people. But it remains undeniable that the Republic of China is a sovereign country. This is a fact China will never be able to deny.

What Next?

The question, now, for Taiwan is what will happen next. Sao Tome and Principe’s decision to switch to China did not cause much angst in Taiwan since the small island nation apparently asked for $200 million before its switch in recognition. The country was essentially demanding a handout for the continuation of relations, but the Panama case appears different and unexpected. China’s poaching of these nations is exactly what the diplomatic truce under the Ma years stopped, but with Tsai in office, China has decided to alter its course.

Now, if China is truly opening its wallet to Taiwan’s other 20 allies, can Taiwan—or any nation—blame them for accepting a switch in recognition for the prospect or promise of millions of dollars in aid and/or investment? There is not much that Taiwan can do since the Tsai administration has stated that it will not engage in this practice for the sake of stability across the Taiwan Strait. As pressure continues to mount on Taiwan and as its list of allies grows thin, Taiwan may need to rethink its strategy for keeping or finding allies in light of China’s recent actions.

Tags: , , ,

Effectiveness of Economic Sanctions on Russia’s Economy

In early 2015, Western leaders thought they had Russia cornered.  A year earlier they imposed on Russia economic sanctions, which ranged from restrictions on access to Western capital markets to bans on the export of oil-production technology, to punish it for its role in dismembering Ukraine.  Those sanctions and the Russian boycotts that followed threw Russia’s economy into turmoil.  With some justification, President Barack Obama declared that “Russia is isolated with its economy in tatters” in January 2015.  But two years later, Russia has stabilized its economy, annexed Crimea, and kept its “little green men” in eastern Ukraine.  What went awry?

Peak Pain

In financial terms, Russia felt the most damaging impact of the West’s economic sanctions within the first year of their imposition.  Suddenly, Russian companies, holding dollar and euro-denominated debt, had to repay their loans without the ability to refinance them.  Russian banks targeted by Western sanctions saw their overseas assets frozen.  That created a cash crunch.  Many companies were forced to suspend operations and slash jobs; some even required government capital injections to survive.  But they did survive.

Commodity Price Stabilization

Unfortunately for Russia, the West’s economic sanctions coincided with a steep drop in global oil prices.  That, more than anything else, exacerbated Russia’s economic woes, since much of the country’s economy depends on the production of commodities, primarily oil.  Oil prices plummeted from over $100 per barrel to under $35 per barrel in late 2015.  But then they began to recover the following year.  So too did the prices of other major commodities that Russia produces, including iron, aluminum, and copper.  No doubt global economic growth, which boosted commodity prices, helped Russia to better ride out Western sanctions.

Floating Currency

But the stabilization of commodities prices did not save Russia’s economy.  With economic sanctions darkening the country’s outlook, the value of the Russian ruble was cut in half.  At first, Russia’s central bank tried to defend it, consuming $200 billion in foreign exchange reserves in the effort.  But ultimately, Russia’s central bank took a leaf from the International Monetary Fund’s market-based playbook and allowed the Russian ruble to float.  That freed Russia’s central bank from having to defend the ruble and prevented an even greater outflow of hard currency that would have further undermined Russia’s economy.

Moreover, since commodities are generally priced in dollars, the sharply devalued ruble meant that though Russian companies faced falling prices for their goods, the dollars they did receive could be converted into more rubles.  That softened the economic blow—enough so that Russian energy companies could continue to reinvest in their businesses.  As a result, despite the sanctions on oil-production technology, Russia is able to produce more oil today than it did before the sanctions were imposed.

Inflation Control

With shortages of imported goods and more rubles in circulation, inflation became a real threat.  Rising prices ate away at the purchasing power of ordinary Russians.  But rather than reflexively enact price controls, Russia’s central bank used another market-inspired lever.  It raised interest rates, up to 17 percent by December 2014.  Credit naturally dried up, further depressing the Russian economy.  But fortunately for Russia, inflation was quickly brought under control.  That allowed Russia’s central bank to gradually lower interest rates to 10 percent, giving Russian companies much-needed breathing room to recover.

Fiscal Discipline

In the depths of its economic recession, Moscow could have increased government spending to boost economic activity.  But with falling revenues from Russian oil production, a surge in spending would have pushed Russia’s government budget deep into the red and fueled a potential economic crisis.  Instead, Moscow exercised fiscal discipline.  It held its spending in check and ran a budget deficit of only 3 percent of Russia’s GDP last year.  When more funds were needed, Moscow raised taxes and dug into its two sovereign wealth funds, draining a third of their assets before oil prices stabilized.

Wavering Western Resolve

Meanwhile, European companies, particularly German ones, gave Moscow hope.  They were never keen on the economic sanctions against Russia.  From the start, they lobbied German Chancellor Angela Merkel to water them down.  After they were imposed in 2014, German direct investment into Russia evaporated.  But only a year later, German companies returned, investing $1.8 billion into Russia.  Last year, they invested another $2.1 billion, more than they had in the year before economic sanctions were imposed.  Such continued investments have encouraged Moscow to question the strength of Western resolve.

Conclusion

The West’s economic sanctions have bent but did not break the Russian economy, despite its structural vulnerabilities.  What steadied it was a combination of several factors, the most important of which were the stabilization of global commodity prices and the market-oriented policies implemented by Russian authorities.  They made Russia’s economy more resilient and prevented an even deeper recession.

Ultimately, economic sanctions can make countries more vulnerable to global economic forces.  But rarely do they deliver a knockout blow themselves.  Western economic sanctions against Russia have proven the rule, rather than the exception.  Ironically, the West’s success in spreading open-market ideas at Russia’s central bank may have inadvertently weakened the effectiveness of its own economic sanctions.  If so, the further spread of such ideas could make economic sanctions even less effective in the future.

Tags: , , , , , , , ,

China’s Global Engagement Cooperation, Competition, and Influence in the 21st Century

China is again undergoing a period of significant transition. Internally, China’s leaders are addressing challenges to the economy and other domestic issues after three decades of dramatic growth and reforms. President Xi Jinping and other leaders also are refashioning foreign policy to better fit what they see as China’s place in the world. This has included a more proactive approach to trade and related international economic affairs, a more vigorous approach to security matters, and a more focused engagement on international cultural and educational affairs.

In this volume, China specialists from around the world explore key issues raised by a changing China’s interaction with a changing world. They chronicle China’s emergence as a more capable actor whose engagement is reshaping international affairs in many dimensions. These include: global currency and trading systems; patterns of cooperation and competition in technological innovation; economic and political trends in the developing world; the American-led security order in the Asia-Pacific region; the practice of international military and humanitarian intervention; the use of naval power; the role of international law in persistent territorial and maritime disputes in the East and South China Seas; the international human rights regime; the circulation of Chinese talent trained abroad; a more globalized film industry; and programs to reshape global cultural awareness about China through educational initiatives.

Across these diverse areas, China’s capacity—and desire—to influence events and outcomes have risen markedly. The results so far are mixed, and the future trajectory remains uncertain. But across the wide range of issues addressed in this book, China has become a major and likely an enduring participant.

China’s Global Engagement: Cooperation, Competition, and Influence in the 21st Century is available for purchase on amazon. 

China’s Nuclear Interest in the South China Sea

Economic and sovereignty interests are commonly cited as the reasons for China’s assertiveness in the South China Sea. The security of China’s sea-based nuclear deterrent could be added to that list of reasons.

Since the founding of the People’s Republic, China has worried about external threats—and justifiably so. During the Cold War, it faced down both the world’s superpowers, first the United States and then the Soviet Union. Both were armed with nuclear weapons at a time when China was still developing its own arsenal. But even after it successfully produced nuclear-armed ballistic missiles, China could not rest easy. It still had to ensure their survivability to create a credible nuclear deterrent.

China’s Sea-Based Nuclear Deterrent

Early on, China understood that ballistic missiles based on land would be more vulnerable to preemptive attack than those based under the sea.  And the longer they could stay under the sea, the safer they would be.  Thus, in the late 1950s, China began to acquire the technology needed for nuclear-powered ballistic missile submarines (SSBN), which can operate underwater for long periods, and for their associated submarine-launched ballistic missiles (SLBM).[1]

By the 1980s, China built its first SSBN, the Type 092 (or Xia-class), along with its first SLBM, the JL-1. Though only one Xia-class submarine ever became fully operational, China went to great lengths to protect it. Chinese engineers tunneled under a rocky promontory at Jianggezhuang, adjacent to the Yellow Sea, to provide the submarine with a hardened shelter. As it turned out, the Xia rarely went to sea during its service life.[2] But if it sailed into the Yellow Sea today, China might have some cause for concern, given the proximity of capable naval forces from Japan, South Korea, and the United States on the sea’s eastern edge.

China’s Southern Strategy

After the Cold War, China continued to improve its sea-based nuclear deterrent. About a decade ago, China began serial production of its second SSBN, the Type 094 (or Jin-class). So far, the Chinese navy has commissioned four Jin-class submarines; the completion of the JL-2 SLBM followed.[3] But years before the submarines entered service, China had already started construction on a new naval base for them that runs along Yalong Bay, near the South China Sea. With satellite imagery, one can see the grand scale of the new base.  (See image below.) It even features a submarine tunnel, like the one at Jianggezhuang, but with enough room for loading facilities and multiple submarines.[4]

Yalong Bay Naval Base

 

China’s Jin-class SSBNs are now regularly seen at the base.  (See image below.)  South of it is the South China Sea—a region increasingly dotted with Chinese military outposts and airfields. It is also a region with no navies capable of directly challenging China’s. Indeed, Chinese strategists may have envisioned the South China Sea to be a naval bastion, a partially enclosed area where China’s SSBNs could safely operate under the protection of friendly air and naval forces. The Soviet navy operated in the Barents Sea and the Sea of Okhotsk in much the same way during the Cold War.

Jin-class Submarines
Source: Jamestown Foundation

To be sure, the South China Sea carries drawbacks as a naval bastion. The biggest is probably the fact that operating there would put China’s SSBNs further from potential targets in the Western Hemisphere, though future SLBMs may have longer ranges. Still, the South China Sea does enable China to disperse more widely its undersea nuclear forces, and thereby improve their survivability. If China has come to see the South China Sea as important to the security of its sea-based nuclear deterrent, then those who hope that patient economic and diplomatic engagement will persuade China to change its behavior in the region are very likely to be disappointed, as they have been to date.


[1] John Wilson Lewis and Xue Litai, China’s Strategic Seapower: The Politics of Force Modernization in the Nuclear Age (Stanford: Stanford University Press, 1994), pp. 23–125, 129–205.

[2] Stephen Saunders, ed., Jane’s Fighting Ships 2014-2015 (London: Jane’s Information Group, 2014), p. 128.

[3] Office of the Secretary of Defense, Annual Report to Congress: Military and Security Developments Involving the People’s Republic of China 2016 (Washington, DC: U.S. Department of Defense, Apr. 2016), p. 26.

[4] Richard D. Fisher, Jr., “Secret Sanya: China’s new nuclear naval base revealed,” Jane’s Intelligence Review, May 2008, pp. 50–53.

Tags: , , , , , ,

Not Over Yet: China’s Progress in the South China Sea

China may be hoping that the recent easing of tensions in the South China Sea marks a turning point in the region—one that leads to the countries of the Asia-Pacific abandoning their confrontational approach to China. In February, Chinese Foreign Minister Wang Yi could point to some “clear progress” toward that end. After being stalled for years, negotiations between China and several Southeast Asian countries finally produced a draft of a new code of conduct for the disputed waters.

China could also cite progress on another front: relations with the Philippines. Throughout the term of former Philippine President Benigno Aquino III, which ended in June 2016, the Philippines had been a thorn in China’s side. Not only did it offer the United States access to its military bases, the country also won a legal victory against China’s South China Sea claims at the Permanent Court of Arbitration (PCA), an international tribunal in The Hague. But the election of a new Philippine president, Rodrigo Duterte, created an opportunity for China.

Duterte’s violent anti-drugs campaign drove a wedge between the Philippines and United States. And so, as Washington publicly criticized Duterte, Beijing offered him $24 billion of economic inducements. That made it easier for Duterte to overcome domestic opposition to his pivot away from the United States. He soon ended joint Philippine-U.S. military exercises and naval patrols in the South China Sea. While he has not terminated his predecessor’s base-access agreement, he may yet do so.

Enduring Challenges

Even as some challenges to China have receded, others remain, and new ones have emerged. Certainly, last year’s leadership change in Vietnam did little to alter that country’s determination to counter Chinese actions in the South China Sea. Satellite images showing that China is building new logistical and military facilities in the Paracel Islands (which Vietnam also claims) have led Vietnamese leaders to do more, not less. Hanoi continues to improve the security of the islands that it occupies.

New Challenges

Meanwhile, Indonesia has become more vocal. Once, Indonesia was content to smooth over its maritime dispute with China by obliquely asserting that no “territorial” dispute existed. Today, Indonesia has taken a clearer line. As Chinese fishing boats, sometimes accompanied by the Chinese coast guard, have pushed deeper into Indonesia’s exclusive economic zone in the South China Sea, Indonesian authorities have stepped up their patrols of the region. In February 2017, Indonesian President Joko Widodo unexpectedly revealed that he would welcome a joint naval patrol with Australia in the South China Sea.  His suggestion was all the more surprising given the rocky security relationship between Australia and Indonesia.

While it refrained from taking up Widodo’s suggestion, Australia did urge Southeast Asian countries to use the PCA’s rejection of China’s claims as the basis for their new code of conduct with China.  For the moment, that quelled concerns over whether Australia would gradually accept Chinese behavior in Southeast Asia as its economic ties with China grew. Some had wondered whether such a process would accelerate, particularly after the stormy conversation between Australian Prime Minister Malcolm Turnbull and President Donald Trump in January.

But possibly the most worrisome to China is Japan’s vigorous activity in Southeast Asia. Japanese Prime Minister Shinzō Abe routinely visits the region, often bringing with him promises of greater economic and military cooperation. He has offered both the Philippines and Vietnam offshore patrol vessels to monitor the waters they dispute with China. Tokyo has also encouraged Japanese companies to expand their engagement with the region through trade and infrastructure development. A year ago, Japan sent one of its newest attack submarines, the Oyashio, on a tour of Southeast Asia, the first time a Japanese submarine has done so in 15 years. In May 2017, Japan intends to send its largest warship, the helicopter carrier Izumo, to the region. The carrier will spend three months there before it sails onto the Indian Ocean to participate in a joint India-U.S. naval exercise.

Future Progress

It appears that even without the United States leading the way, other countries of the Asia-Pacific are not yet ready to resign themselves to Chinese ambitions in the South China Sea. Resistance to China may have reached less of a turning point than a plateau. The South China Sea is now far more militarized than ever before. All claimants to its waters have strengthened their claims to the region and their defenses on their respective island outposts. Even the Philippines is continuing with its plans to upgrade the airfield and harbor facilities on Thitu Island in the Spratly archipelago. While a period of intense confrontation in the South China Sea may have passed, it does not mean that further Chinese progress will be easy.

Tags: , , ,