Trump, Tsai, and the Three Communiques: Prospects for Stability in US-China-Taiwan Relations

The Shanghai Communique of 1972 and the U.S.-China Joint Communiques of 1979 and 1982 have been essential foundations of a bilateral relationship that has remained impressively stable while it has become much broader, deeper, multifaceted, and globally important than either side could have expected forty-five years ago, and as it has faced challenges created by China’s rapid rise.

The U.S. and China have had different understandings of these fundamental texts.  To China, the Communiques embody binding international commitments. For the U.S., they are two sides’ parallel statements of deeply entrenched policies.  Where China sees U.S. acceptance of China’s position that Taiwan is part of China, the U.S. insists that it merely acknowledges the existence of a view ostensibly shared on both sides of the Strait.  From the U.S. perspective, the U.S.’s Taiwan Relations Act (TRA) and—less securely—President Ronald Reagan’s Six Assurances stand alongside the Three Communiques as authoritative statements of U.S. policy.  For China, the additional documents lack such stature and have been sources of U.S. failures to implement commitments in the Communiques, particularly on arms sales to Taiwan.

Despite such divergences, the Communiques have underpinned a mutually acceptable framework for handling what was once the most serious problem for U.S.-China relations and remains a major area of potential discord today: Taiwan.  For the U.S., the arrangement has meant adopting a “one China policy” that eschews support for “two Chinas,” “one China, one Taiwan,” Taiwan independence, diplomatic relations or security pacts with the government in Taipei, support for Taiwan’s joining states-member-only organizations, and so on.  For China, it has meant acquiescing (although with objections) in U.S. policies and practices that support a functionally autonomous Taiwan, including robust informal relations, some level of arms sales, advocating Taiwan’s “meaningful participation” in the international system, and insistence that any resolution of the cross-Strait issue be peaceful and (since the Clinton administration) have the assent of the people of Taiwan.

Perhaps the most important practical contribution of the Communiques (and the TRA) has been to provide a fixed anchor for U.S. policy—one on which Beijing has been able to rely.  Occasionally, U.S. presidents or officials have appeared to deviate from policies rooted in the documents.  Sometimes, these moves seemed “pro-Taiwan,” as when President George W. Bush said he would do “whatever it took” to help Taiwan defend itself, or when President Bill Clinton offered what Beijing saw as excessive support for the unacceptably “pro-independence” Taiwanese leader Lee Teng-hui.  Other times, the seeming shifts were “pro-Beijing,” as when Secretary of State Colin Powell indicated Taiwan lacked sovereignty and seemed to imply support for reunification, or when President Barack Obama omitted a robust reference to Taiwan, while reaffirming respect for China’s sovereignty and territorial integrity, in a joint statement during his 2009 visit to China.  When these disturbances have occurred, U.S. leaders have retreated to the “big four” texts and reassured nervous audiences in Beijing, Taipei, and elsewhere that there was no change in policy.  This has been good for stability in cross-Strait and U.S.-China relations.  The bounds the Communiques have set for both sides have helped contain even serious crises, including those surrounding China’s missile tests in the Strait in the mid-1990s and Taiwan’s referendum on entry into the United Nations in 2008.

Will this pattern persist in a new difficult period, with Tsai Ing-wen and Donald Trump in power?  Trump’s early moves have been, at best, extreme versions of the apparent departures from established policy undertaken by other administrations.  Trump appeared to move in a “pro-Taiwan” direction when he accepted Tsai’s congratulatory phone call.  Much more alarming for Beijing, Trump declared the one China policy to be negotiable, and linked its continuation to possible Chinese concessions on issues ranging from trade to the South China Sea.  Trump statements also shook Taiwan, where his suggestion that the one China policy was a “bargaining chip” in negotiations with China implied that Taiwan might be a bargaining chip too, and where candidate Trump’s less-than-reassuring statements about commitments to treaty allies such as Japan and South Korea undermined confidence in the U.S.’s thinner and less formal support for Taiwan’s security.

It is encouraging that the Trump administration has imitated its predecessors in returning to the shelter of long-established policy: Secretary of State Rex Tillerson affirmed that there were no plans to change the one China policy, and Trump promised, in a call with Chinese President Xi Jinping, that the U.S. would “honor” the one China policy.  While these are welcome moves, concerns continue.  Trump framed his pledge as granting a request from Xi, not as reconfirming unshakeable U.S. policy.  Like many of Trump’s statements, it may be fleeting, soon to be undercut by a tweet.  Disturbingly absent from Trump administration statements have been strong references to the Three Communiques and the TRA—the traditional underpinnings of stability in U.S. policy.  Recommitment to those foundational documents is especially important today, with a U.S. leader prone to extraordinary volatility, a leader in Taiwan distrusted by Beijing, and a leader in China who has said that a political solution for Taiwan cannot be passed on “from generation to generation.”

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Revival of the Regional Comprehensive Economic Partnership

Countries Involved in the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership
Countries Involved in the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership

 

The Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP) are both free-trade agreements in Asia that have been under negotiation for a number of years.  Often seen as competitors, however, the former is led by China and the latter by the United States.  By February 2016, the RCEP had fallen behind the TPP, whose negotiators had already signed an agreement and returned it to their twelve member countries for ratification.  Their RCEP counterparts were still mired in talks.

 

Even so, the TPP’s negotiations were by no means a cake walk.  Concerns in Japan over agricultural issues and in Southeast Asia over the TPP’s “deep” standards repeatedly delayed an agreement.  Indeed, there had been too many delays.  By the time a deal was reached, the United States, the pact’s biggest member, had begun what turned out to be a particularly bitter presidential election and one in which the TPP became a lightning-rod issue.  Even the pact’s early advocates, like former Secretary of State Hillary Clinton, who was one of the presidential candidates, strongly disavowed it.  In such a political climate there was little chance the U.S. Senate would ratify it.

 

The election of Donald Trump as the next American president sealed the fate of the TPP in the United States.  Soon after, President Barack Obama abandoned his efforts to ratify the pact.  Trump himself declared that the United States would withdraw from it after he is sworn in as president.  That threw the future of the TPP into turmoil.  It also breathed new life into the RCEP.  Capitalizing on the TPP’s disarray, Chinese President Xi Jinping reassured participants at the Asia Pacific Economic Cooperation summit in late November that China would renew its efforts to conclude the RCEP.

 

RCEP vs. TPP

Why does that matter?  What, apart from some of their member countries, is the difference between the two free-trade agreements?  Traditionally, countries conclude free-trade agreements to lower or eliminate tariffs, and thus encourage trade.  While that has generally spurred economic growth in developing countries, it has also tended to hollow out legacy industries in developed countries.

 

Consequently, developed countries, like the United States, have sought a new approach to free trade.  Embodied in the TPP (and its sister free-trade agreement, the Transatlantic Trade and Investment Partnership), that approach requires member countries to adopt domestic policies that would “raise labor and environmental standards, impose disciplines on government-owned corporations, strengthen intellectual property rights enforcement, [and] maintain a free and open internet.”[1]  In that way, developed countries argue, trade would be not only freer, but fairer too.  Indeed, some in the Obama administration even saw the TPP as part of a grander vision for a “rules-based international order.”

 

Naturally, developing countries feared what impact such policies would have on their protected companies and industries.  For example, the TPP would require them to end their preferential treatment of state-owned enterprises in government procurement, something they were reluctant to do.  Nevertheless, developing countries were ultimately persuaded to join the pact because of the added benefits they could gain from greater access to the markets of developed countries.

 

On the other hand, the RCEP is a far more traditional free-trade agreement.  It does not share the lofty ambitions of the TPP.  It does not concern itself with “behind the border issues,” like the preferential treatment in government procurement.  Rather, it simply focuses on reducing and eliminating tariffs.  Countries can limit competition wherever they see fit.  On the surface, that sort of pact would appear easier to negotiate.  But developing countries must carefully consider the terms of such a pact, because they can lock countries into being part of regional supply chains whose ultimate benefits accrue elsewhere.  Given that there are thousands of categories and subcategories of goods to consider (not mentioning the fact that many of those are shuttled between countries before they are assembled into a final product), negotiations are bound to be complex.

 

Impact of RCEP

Still, the RCEP is back on center stage.  If successfully concluded, it could change the structure of Asian trade in ways that would put China firmly at the center of commerce in the region.  That, some worry, would accrue even more political as well as economic power to China.  But given the prevailing sluggish global economy, what matters to most developing countries is reaping the immediate benefits from freer trade.  Unsurprisingly, a couple of countries at the APEC summit quickly seconded China’s interest in reviving the RCEP’s negotiations.  It is now up to China to make it happen.

 

[1] John Lyons, Mark Magnier, and William Mauldin, “China Steps In As U.S. Retreats on Trade,” Wall Street Journal, Nov. 23, 2016, pp. A1, A6.

 

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Limits of Chinese Friendship: China’s Development Loans to Venezuela

In 2004, Chinese President Hu Jintao and Venezuelan President Hugo Chávez agreed to form a “strategic partnership for common development.” The benefits from that partnership looked as if they would ensure an enduring relationship between their two governments. China would gain greater access to Venezuela’s oil reserves, which are not only among the world’s biggest, but are also considered by China to be more strategically secure than others, because they reside in a country outside of American influence. In return, Venezuela would gain a benefactor who could enable Chávez to transform his country into a modern socialist state and export his “Bolivarian Alternative*,” an anti-American coalition, across Latin America.

China's Development Loans to Venezuela
Source: Inter-American Dialogue

Hence, it was no surprise when the China Development Bank (CDB) and Venezuela agreed to a multi-year loan agreement in 2007. It allowed Venezuela to borrow up to $5 billion each year from the CDB, providing Chávez with the immediate financing that he needed to pursue his ambitions. In exchange, Venezuela would service its debts by shipping oil to China.

But times change. Not only has the price of oil dropped, so too has China’s voracious appetite for it. Plus, Russia has been aggressively pitching its large and strategically secure oil and natural gas reserves to China. Meanwhile, Chávez’s socialist policies floundered. Rather than modernize Venezuela’s economy, they amplified its dependence on oil. From 1999 to 2014, oil’s share of Venezuela’s export revenues rose from 69 percent to 96 percent. Rather than improve Venezuela’s food security, they reduced its agricultural output. Today Venezuela imports more of its foodstuffs than it did before chavista land reform began. The failure of Chávism has put Venezuela in a precarious economic position.

Nonetheless, both the CDB and China Export-Import Bank have continued to make new loans to Venezuela. Nearly every year since 2007, China has ploughed money into the country (see the chart above). Although signs of trouble were already evident, Chinese President Xi Jinping decided to double down on Venezuela in 2014. He elevated China’s relationship with Venezuela to the status of a “comprehensive strategic partnership.” But as a condition for China’s continued investment, Venezuela would have to give Chinese companies more preferential treatment in its infrastructure contracts.

That bought Venezuela some time, but not much. In 2015, the revenues of Petróleos de Venezuela S.A., Venezuela’s state-owned oil company, plummeted over 40 percent from the year before. To help out, the CDB appears to have been willing to take less oil than what some of its loans required. In other cases, it was willing to accept payments in the form of devalued Venezuelan bolívars, instead of U.S. dollars. In July, the CDB opened an office in Caracas to nominally boost its relationship with Venezuela. But more likely, it did so to keep a closer watch on its investments there.

Certainly, China needs to do so. Increasingly desperate to raise money, Venezuela’s central bank sold over 30 percent of its gold reserves in the last year—12 percent in just the first quarter of 2016. In June, Reuters reported that Venezuela asked the CDB to further relax the terms of its loans. Caracas was said to have requested a one-year grace period in which it could escape principal payments if the price of Venezuelan oil dropped below $50 per barrel (which it already is). At this writing, it is unclear whether the CDB agreed to the request.[1]

China is learning that “yuan diplomacy” can be riskier than it once thought. Already, the CDB has had to forgive some $4 billion of its loans, mostly to African countries. One might expect China to do the same for at least some of Venezuela’s $65 billion worth of Chinese loans, given its friendship with Caracas’ chavista government. But China has not done so. Instead, China has distanced itself from Chávez’s successor, Nicolás Maduro. According to the Financial Times, China reached out to Venezuela’s political opposition, which controls the country’s legislature. Beijing likely sought assurances that should Maduro leave office Venezuela would still honor its debts to China.[2]

Perhaps China is concerned about triggering a wave of requests for loan forgiveness. After all, China has lavishly provided loans to many other energy-rich countries, all of which have felt the pinch from declining oil and natural gas prices and a slowing global economy. In the end, however, China may have to accept some sort of restructuring of its loans to Venezuela in order to avoid an outright default.

True friends are tested in adversity. Clearly, the Maduro government’s growing inability to repay its loans to China has put their relationship in a difficult spot. Equally clear is that Beijing’s desire to recoup as much as possible from its development loans to Venezuela has trumped its friendship with the country’s chavista government. By turning to his political foes, China must have upset Maduro. But it also made plain what China’s real priorities are.

* Now called the “Bolivarian Alliance for the Peoples of Our Americas”

[1] Corina Pons, Alexandra Ulmer and Marianna Parraga, “Exclusive: Venezuela in talks with China for grace period in oil-for-loans deal – sources,” Reuters, Jun. 15, 2016.

[2] Lucy Hornby and Andres Schipani, “China seeks to renegotiate Venezuela loans,” Financial Times, Jun. 19, 2016.

 

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A Backlash Against Chinese Military Activity in Djibouti — and Why It Matters

In March we published an E-Note about the Chinese decision to establish a base in Djibouti — its first military installation beyond the South China sea. Numerous American policymakers and their allies in the Pacific have raised alarms about the move, while Arab powers, also active in the country, are intrigued.

Djibouti grunge flag

American military planners can be relied upon to prepare countermeasures for whatever challenge the base may one day pose to U.S. forces in the region. It is in any case minimal. But as we showed by highlighting China’s formidable investment in Djiboutian infrastructure and public works, America stands at a comparative disadvantage in terms of soft power influence in the country. Hopes to mitigate the problem impel American scrutiny of any Djiboutian political trends with potential bearing on China’s status there.

Accordingly, it is worth noting that a Djiboutian opposition party has sent an open letter of protest to Chinese President Xi Jinping. The “National Democratic Party of Djibouti” is headed by Hassan Cher Hared, a former political prisoner now living in Switzerland. The group has not served in government since 2010, when President Ismail Omar Guelleh circumvented the constitution, ran for a third term, and gutted the ruling coalition. The content of the letter may nonetheless channel sentiments shared by a portion of the population. 

Hared denigrates the Guelleh government as a “mafia regime.” He warns that unemployment is high and debt is rising fast. He blames China for having loaned the country $1 billion on highly unfavorable terms — only ten years to repay the loan, at a five percent interest rate with no grace period — while Guelleh and his cronies steal much of the money. China’s treatment of Djibouti is an “abusive power relationship,” he writes, akin to the Soviet Union’s backing of Somali dictator Siad Barre in the 1970s. He adds that while the Chinese may be only too happy to see their client Guelleh increasingly at odds with the United States, Beijing should take notice that it is angering the Djiboutian population. Finally, Hared demands that China stipulate anti-corruption measures in disbursing its loan to Guelleh, halt construction of the base, and remove its troops from the country.

The letter is dated January 21st, the day Beijing announced its plan to build the base. Hared appears to have been circulating it ever since. FPRI president Alan Luxenberg recently received a copy via e-mail. Others cc’ed included the foreign ministries of the UAE and Bahrain, American and European human rights groups, and the German Marshall Fund of the United States. This spread of recipients suggests that Hared wants to win sympathy in the West and diminish esteem for Guelleh in the eyes of his Gulf supporters. (As we noted in the March E-Note, Arabic media write favorably about Guelleh as a nation builder who would like to make his country “the Dubai of Africa.”) Hared’s humble effort at political outreach has not attracted attention in English-language reporting about Djibouti — though some Arabs have noticed it, and relayed the critique of China in Arabic media.

Hared’s grievance resembles the familiar dissatisfaction with Chinese economic policies elsewhere in Africa among other populations that experience them. But in this first Chinese experiment at military deployment on the continent, the possibility of a political backlash will especially concern Beijing. It should also interest Washington.

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China’s “One Belt, One Road” to Where?

During visits to Central and Southeast Asia in 2013, Chinese President Xi Jinping unveiled Beijing’s aspiration to create what it called the Silk Road Economic Belt and the 21st-Century Maritime Silk Road.  Both would entail the construction of new infrastructure to better connect the present-day countries along what was once the ancient Silk Road between China and Europe.  The former would do so over land with roads, railways, and airports; the latter across the ocean with seaports.  China’s two-part aspiration is now commonly referred to as its “One Belt, One Road” initiative.

China One Belt, One Road Initiative

At the time of Xi’s unveiling, China was near the zenith of its economic power.  Not even the 2008 global financial crisis seemed able to derail China’s economic ascent.  Some saw the “One Belt, One Road” initiative as a way for China to extend not only its economic, but also its political reach across Eurasia.  India had begun to worry about what it considered to be China’s “string of pearls,” a series of Chinese-built seaports across the Indian Ocean.  Others viewed the initiative even more broadly as an ambitious effort to reorient global commerce towards China.

But since then the air of invincibility surrounding China’s economy has dissipated.  China’s engines of growth—export manufacturing and infrastructure construction—have sputtered, as the debt that fueled them and the overcapacity that they created have ballooned.  Over the last year and half, Chinese leaders have been forced to repeatedly “fine tune” their economy to keep it growing.  They boosted China’s government spending, devalued its currency, cut its interest rates six times, lowered its bank reserve ratio seven times, and even directly intervened in its stock market.  Still, China’s economy continues to slow.

That slowdown has spurred Chinese leaders to seriously begin to shift their export and infrastructure-led economy to one that is driven by consumers.  How successful that transition will be is uncertain.  But one thing is clear, the “social stability” so prized by the Chinese Communist Party has begun to fray.  Popular unrest is on the rise.  The number of labor protests in China has soared from about 100 in 2010 to almost 2,500 in 2015.[1]

Thus, Beijing has every incentive to keep its giant manufacturing and infrastructure-construction state-owned enterprises (SOE) humming, as its economy makes the transition.  Seen in that light, China’s “One Belt, One Road” initiative looks less like a well-planned strategy and more like a scramble to keep the order books of its SOEs full.  New infrastructure contracts abroad would help do that; and once built that new infrastructure might help Chinese manufacturers export at a lower cost.

One can see China’s push to build more infrastructure projects from Indonesia to Pakistan.  In September, a Chinese-led consortium won approval from Indonesia to build a $5.5-billion high-speed railway in Jakarta.  But the consortium won only after it agreed that the Indonesian government would not have to guarantee the Chinese loans needed to finance the railway’s construction.  While that concession may have secured the approval, it also increased the potential financial losses that the consortium would have to bear if anything goes wrong.  With such large and complex construction projects, it is hard to ensure that will not happen.

Surely, China expected a different outcome after its construction companies built a port at Gwadar for Pakistan in 2007.  Despite a total investment of over $1 billion, the port has remained virtually idle.  Now China is doubling down on the Gwadar project.  It has promised $45.7 billion in fresh financing to build the China-Pakistan Economic Corridor, a series of energy, road, railway, and pipeline projects that will more closely tie Gwadar to China.

Of course, China can still benefit from such infrastructure projects even if they turn out to be unprofitable.  The new road, rail, and pipeline routes through Pakistan will enable China to import strategic resources, like oil, natural gas, and minerals, from the Middle East without being reliant on sea routes through the Indian Ocean.  The projects could also deepen China’s “all-weather” friendship with Pakistan by creating new constituencies within Pakistan that benefit from the economic activity that the trade routes to China could foster.

Other land-based links to China could do the same. The Kunming-to-Bangkok railway is another example.  The portion of it in China is already finished; the portion in Laos broke ground in December; and the final portion in Thailand is slated to begin construction in May 2016.  Given the massive scale of Chinese trade, even if a small portion of it is redirected over the railway, it could reshape the economic interests of a small country like Laos.  Indeed, China may hope to use the railway to pry Laos away from its traditional ally, Vietnam, and gain another friend in ASEAN.  On the other hand, China would not benefit to the same degree from Chinese-built seaports and airports that are not directly connected to it.  While they may boost trade in the host country, the course of that trade could be redirected elsewhere, if trade with China does not evolve as expected.

That is now a real possibility.  If the Chinese economy continues to soften, it means that China will need to import fewer raw materials and export fewer finished goods.  In the second half of 2015 China’s monthly imports fell 10 to 20 percent from a year earlier; and its exports slipped too.  Unless global demand revives or Chinese consumers pick up the slack, Beijing might well expect its “One Belt, One Road” initiative to yield more long-lasting political than economic benefits.

[1] “Number of strikes and worker protests in China hits record high in November,” China Labour Bulletin, Dec. 3, 2015.

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The Big Chill: Domestic Insecurities and Sino-Japanese Relations

China and Japan sparred once again, this time at the United Nations.  Last week, China’s ambassador for disarmament affairs charged Japan with amassing excessive amounts of sensitive nuclear materials, notably 1,200 kilograms of highly-enriched uranium and 48 tons of separated plutonium (of which about a quarter is stored on Japanese territory).  That is sufficient, he claimed, for Japan to make 1,350 nuclear warheads.  Japan’s disarmament envoy shot back that his country’s nuclear program has safely operated under the International Atomic Energy Agency’s safeguards for more than 50 years.  He added that over that time Japan has consistently demonstrated its peaceful intentions and would not pose a threat to other countries.[1]  Given that he directed his response at China’s ambassador, one may have also taken it as a reminder of China’s recent aggressive behavior in the East and South China Seas.

Shinzo Abe and Xi Jinping at APEC 2014

The pointed exchange marked another episode in the downward path of relations between China and Japan.  It was not so long ago both countries got along.  Throughout the 1990s and 2000s, they enjoyed ever closer economic ties.  Many blame the current deterioration in Sino-Japanese relations on the tensions that arose over Senkaku Islands (or Diaoyu Islands in China) in 2010 or Tokyo’s purchase of them from private Japanese owners in 2012.  Certainly trade between the two countries has fallen ever since then.  (See table.)  But the dispute over the islands was just the spark.  China and Japan have substantially changed over the last two decades, both in absolute and relative terms.  Both countries have developed domestic insecurities that led them to view each other with greater concern.

On the surface, China does not seem to have any cause for insecurity.  Its ruling Chinese Communist Party (CCP) is ostensibly at the pinnacle of its power.  The government at which it is the head has presided over a 35-year economic expansion that has made China the envy of the developing world.  It is even doling out largesse under the auspices of its “One Belt, One Road” initiative and through the Asian Infrastructure Investment Bank (AIIB) that will likely expand its influence across Asia and Africa.

Yet the CCP has reason to be anxious.  In its headlong push for economic growth, it often ignored public ire over government land grabs, pollution, and workers’ rights.  The party’s widespread corruption further dented its credibility.  Hence, despite the CCP’s best efforts to eliminate organized dissent, the number of public protests has recently risen.[2]  Meanwhile, China’s fast-rising economy, once the CCP’s shining achievement, is losing its luster amid sagging exports, bursting property bubbles, and rapidly mounting debts.  Seen in that light, China’s “One Belt, One Road” initiative and AIIB begin to look more like a worried search for growth abroad (and work for its infrastructure-building companies) than a coherent strategy to connect Eurasia’s economies.

Adding to the CCP’s unease is the ever-smaller number of true believers in its Marxist-Leninist ideology.  Chinese President Xi Jinping’s efforts to promote Marxism have fallen flat.  So, the CCP has returned to nationalism to bolster its popular appeal.  A big part of that has always been showcasing the CCP as China’s savior from Japanese occupation (while largely omitting the role of Taiwan’s Kuomintang).  The CCP seems to believe that its ceaseless criticism of Japan proves that it still faithfully stands watch against any revival of Japanese militarism that could threaten China.

Linked to that narrative, the CCP has tried to show how much stronger China has become under its rule.  That was made clear in September when China celebrated the 70th anniversary of the end of World War II (and China’s victory over Japan) with a massive military parade in Beijing.  The martial display conveyed the message to the Chinese people that they should be confident in the ability of the CCP to not only defend China, but also govern it.  On the other hand, that Beijing felt the need to use such demonstrations of strength to dispel doubts about its political legitimacy probably worried its neighbors.

Meanwhile, across the Yellow Sea, Japan has grown insecure too.  It can no longer rest easy as Asia’s dominant economic power, a title that it lost to China a decade ago.  It is increasingly aware of its national vulnerabilities.  Japan’s population is ageing fast and shrinking.  That demographic shift not only has implications for every aspect of Japanese society, but also will make economic growth harder to achieve.  That is doubly concerning for Japan, which is still struggling to break free from a quarter century of economic stagnation.

Japanese leaders are all too well aware that China’s rise is remaking the regional hierarchy in Asia.  They realize that Japan cannot afford to remain forever quiescent, if it is to avoid being consigned to a subordinate role in the new order.  That has compounded Japan’s sense of unease, because Japan knows that it must keep the power gap between China and Japan from growing wider, even though it now has fewer resources with which to do so.  Fortunately for Japan, other Asian countries have begun to feel the same way.  India, the Philippines, and Vietnam have all embraced Japan.

Tokyo has taken advantage of that sentiment and become far more diplomatically active across the region, if only to prevent China from consolidating its power there.  As Xi has pushed China’s “One Belt, One Road” initiative, Japanese Prime Minister Shinzō Abe has never been far away.  Abe has travelled to Southeast Asia numerous times to ink economic, political, and even a few military cooperation agreements.  Last week, Abe began a five-country tour through Central Asia, which lies at the heart of China’s “One Road.”  A week earlier, the Japanese Maritime Self-Defense Force dispatched a destroyer to participate in naval drills with India and the United States in the Indian Ocean for the first time.

Meanwhile, there has been a generational change in Japan.  Older Japanese who had been willing to accept Japan’s diminished international stature as penance for its militarist past are passing from the scene.  Younger Japanese who have no connection with that past believe that their country has proven itself to be a responsible actor in world affairs.  Today, a majority of Japanese believe that Japan has sufficiently apologized for its military actions during the 1930s and 1940s, which China relishes reminding Japan of at every turn.  Unsurprisingly, recent polls showed that only 7 percent of Japanese viewed China favorably (down from 55 percent in 2002).  Even more telling, China’s very unfavorable rating in Japan climbed to 48 percent.[3]

The domestic insecurities of China and Japan are unlikely to abate soon.  China’s insecurities, bound up with those of the CCP, will grow if the Chinese economy continues to slow.  Japan’s insecurities are tied to its long-term demographic trends.  Both sets of insecurities continue to drive a wedge between the two countries.  Even the non-governmental Beijing-Tokyo Forum, whose primary purpose is to improve Sino-Japanese relations, has found it harder to reach a consensus.  The forum, which invites high-level former government officials from both countries, has always managed to eke out a joint statement, even during particularly testy times in Sino-Japanese relations like 2012.  This week it concluded without managing even that.  For the moment, relations between China and Japan are on ice.  The region should be grateful that the latest row between the two countries occurred inside the United Nations and not out in the East China Sea.

[1] “China Slams Japan’s Plutonium Stockpile, Frets About Nuke Armament,” Japan Bullet, October 21, 2015.

[2] See China Labor Bulletin.

[3] Pew Research Center, “Global Opposition to U.S. Surveillance and Drones, but Limited Harm to America’s Image,” July 2014; Pew Research Center, “America’s Global Image Remains More Positive than China’s,” July 2013.

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In China: “A Peaceful Democratic Transition?”

China

Nothing appears by accident in the Global Times, Beijing’s mass-circulation tabloid owned by the People’s Daily and run by the Communist Party. So I was astonished to read there, in an editorial feature this past March 9, the following sentence:  “The West has never thought that China will have a ‘peaceful democratic transition,” [西方從未想過中國將有’和平的民主過度]. Even a year ago such words would have been grounds for firing or worse. Yet there they were; they had passed through layers of editors and censors, and their meaning was unmistakable.

How to explain them? I think this sentence is one of the now regular but inconspicuous clues scattered in the media as to where China’s new and energetic President Xi Jinping 習近平 (1953-) seeks to take his country.

The article appeared in response to a piece by an American China specialist long known for his highly favorable views of Chinese communism but now suddenly turned pessimistic, foreseeing chaos ahead [David Shambaugh, “The Coming Chinese Crackup, Wall Street Journal, March 6]. The essay seems deeply to have insulted the Chinese authorities.

Why? As the Chinese author sees it, by insisting that the his people cannot rule themselves, but instead require the strong hand of dictatorship, with chaos as the only alternative, the regime’s most reliable American apologists are in fact suggesting that somehow, by nature or culture, the Chinese are simply unfit for or incapable of the sort of peaceful change that in 1994, for instance, saw Nelson Mandela (1918-2013) elected president in previously apartheid South Africa.

“No,” the newspaper is saying: “Americans, please realize that Chinese are not natural slaves and that we can and will change if necessary as many other countries have done.”

An unprecedentedly fierce attack on corruption even at the highest levels has so far been the hallmark of President Xi’s administration: He has put one corrupt official after another behind bars—“tigers” they are called in Chinese, laohu 老虎.  An example is Zhou Yongkang 周永康 (1942-), who among other things, is the controller of the whole national secret police and security apparatus. All have been so long in office as to have seemed permanent fixtures of the regime, having limitless power—and also fortunes, some in the billions of US dollars—at least partly secreted outside China.

Attacking such “tigers” head-on as Xi is doing is an enormous risk. He understands better than anyone that if they should somehow band together, they can easily topple him. Rumor has it that Xi has already survived six assassination attempts.

Nothing, however, unifies these “tigers” except individual greed. They have no ideology; if anything they are rivals. Furthermore, ordinary Chinese people are thrilled to see notorious criminal officials brought down. This writer’s observation is that the general Chinese community has not been so interested in politics since the 1980s, before their dreams of democracy drowned in the blood of the June 4, 1989 Tiananmen massacre. That Xi is playing a very dangerous high-stakes game cannot be denied. If it breaks against him and he is deposed, then China will almost certainly face chaos and internal conflict.

Suppose Xi succeeds, however? Some of his statements about rule of law, following the constitution, and so forth suggest that at a minimum he is aiming to make China what the Germans call a Rechtsstaat—not a democracy, but a polity ruled fairly, by laws. That is certainly conceivable.

Like Mikhail Gorbachev (1931-) Xi perhaps also believes that Communism can work if purified. Should he reach the rule of law stage, however, he will discover that is not the case, as Gorbachev did. Without intending to, the last Soviet ruler built the legal and constitutional fire-escape that allowed the Soviet people not to rebuild communism, but rather to file safely out before it collapsed on them. If things break his way, and the rule of the “tigers” is ended, Xi could well do the same for China.

Or even more. Perhaps it is as a signal of the ultimate goal that we should read that phrase, in an official communist newspaper, about China having “a peaceful democratic transition.”  Certainly the words were printed intentionally and chosen to convey some meaning. What else, realistically, could that meaning be?

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Contested Border: China, India, and the Asian Century

Chinese President Xi Jinping’s three-day visit to India last week was supposed to have breathed new life into ties between Asia’s two giants, China and India.  It was the first visit to India by a Chinese president in eight years.  Many hoped it would reboot what was once heralded as the “Asian Century.”  Implicit in that hope was the belief that good relations between the two countries would have to develop to realize the potential of such a century.  On that score, Xi assured his host, Indian Prime Minister Narendra Modi, that China believed its neighbors would be vital to its wellbeing, after all “a warlike state, however big it may be, will eventually perish.”

That assurance was needed, because during Xi’s visit to India, Chinese troops twice crossed into territory that India claims as its own.  One incident began near Chumar about a week before Xi’s arrival.  Chinese forces brought heavy construction equipment and workers into the area with the intention to build a new road there.  Indian troops confronted them and a standoff ensued.  Meanwhile, another incident developed at nearby Demchok, where over a hundred Chinese nomads gathered to protest India’s construction of an irrigation canal that they believed was on Chinese soil.  Thirty Chinese soldiers accompanied the protesters.  Local Indian authorities dispatched 70 border policemen to the scene.  That created a second standoff.  Both then escalated during Xi’s visit.  At their height, about 800 Chinese troops and 1,500 Indian troops were deployed to the areas.  No doubt, the incidents gave Modi something to talk about with Xi during their time together.

China India Asian Century - Border Dispute over Chumar and Demchok

In public, however, Modi and Xi tried to downplay the border incidents.  For Modi, the visit was a chance to attract Chinese investment into Indian infrastructure and manufacturing projects.  For China, it was an opportunity to pry India away from the overtures of Japan and the United States.  A number of agreements were signed.  The two sides agreed to jointly study improving India’s railway system, ease the trade imbalance between them, and cooperate on developing a new economic corridor through South Asia.  China pledged that it would invest $20 billion into India over the next five years, of which $6.8 billion would go into building two new industrial parks in Gujarat and Maharashtra.  In a speech at the end of his visit, Xi contended that “only when the China-India relationship develops, will a real ‘Asian Century’ emerge.”

Nevertheless, many issues still split the two countries.  Their disputed border is only one of them, albeit a particularly thorny one.  In the first nine months of 2014, India recorded 344 Chinese border incursions.  Seventeen rounds of negotiations between the two governments since the 1990s have done little to settle the issue.  But even without the border dispute, there were still other instances of friction between the two countries in just the last week that would have taken some of the shine off of Xi’s visit.

On September 15, India agreed to extend to Vietnam a $100 million export credit for defense equipment that Hanoi has been busily acquiring to counter China.  As if that was not enough, India’s state-owned national energy company, OGNC, signed an agreement with its Vietnamese counterpart, PetroVietnam, to expand their cooperation in oil and gas exploration in the South China Sea, most of which China claims as its maritime territory.  That prompted China’s foreign ministry to warn India against entering into any deals that infringe on China’s territorial claims in those waters.

Similarly, India remains suspicious of Chinese intentions regarding its neighbors in South Asia.  Over the last decade, China has financed and built a string of major port and airport infrastructure projects in places like Gwadar in Pakistan, Hambantota in Sri Lanka, and Kyaukpyu in Myanmar.  Now, China has announced its “Maritime Silk Road” initiative in the region, which echoes its “New Silk Road” effort in Central Asia.  Indeed, prior to arriving in India, Xi was pushing the new initiative in Sri Lanka and the Maldives.  India has naturally grown concerned that China might challenge it as the dominant power in the region.  Last week, the Maldives only fanned those concerns when it gave a highly lucrative contract to manage its international airport to a Chinese company, after taking it away from an Indian one in 2010.

During Xi’s visit, Modi suggested that their two countries should put the past behind them.  Unfortunately, the present looks little better than the past.  The twenty-first century may well be remembered as an Asian one.  But one should not assume that an “Asian Century” will necessarily lead to prosperity and renewal, as Xi implied.  Europe dominated the eighteenth and nineteenth centuries.  Both were known as much for the conflicts and rivalries among European powers as for their economic development.

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China and the Islamic State

The Islamic State in Iraq and Syria might seem far removed from China.  But the spread of its sort of Islamic militancy knows few boundaries.  On Monday, Indonesian authorities arrested seven men who had sought to meet Indonesia’s most-wanted Islamic terrorist.  Four of them, travelling on forged Turkish passports, turned out to be Chinese Uighurs.  Jakarta is now investigating whether the men are linked to the Islamic State.  That follows comments made this summer by the Islamic State’s leader, Abu Bakr al-Baghdadi, that a number of Chinese fill his ranks, and images that surfaced two weeks ago of a Chinese national who was captured while fighting for the Islamic State.

To be sure, Beijing has long been concerned about Islamic militants, particularly those in its far western province of Xinjiang.  Over the last two decades, there have been periodic episodes of violence by the province’s Muslim Uighur ethnic group against local Han Chinese (often followed by equally violent reprisals by the latter against the former).  Historically, however, those episodes have been mainly driven by specific grievances rather than jihadist fervor.  Most cases of unrest occurred after some perceived injustice, such as the detention of an imam or other local leader.  But in recent years, Uighur attacks have become more frequent and ranged far beyond the borders of Xinjiang.  Three major attacks occurred so far this year.  In March, knife-wielding assailants attacked a train station in Kunming, in central China, leaving 31 dead and 140 wounded.  Then in May and August, two more attacks occurred in Xinjiang.  Those attacks left another 127 dead and scores of wounded.

For years, Chinese authorities have tried to prevent such unrest with a three-pronged approach: boost the economic development of Xinjiang; encourage Han Chinese to migrate there; and tighten security across the province.  They largely succeeded on all three counts, but failed to end the unrest.  The biggest beneficiaries of Xinjiang’s economic growth turned out to be the Han Chinese migrants, not the native Uighurs.  That left the Uighurs feeling not only relatively poorer, but also brushed aside by the influx of Han Chinese.  Meanwhile, tighter security meant that Chinese police and security forces had been set on a hair trigger to react to any suspicion of Uighur unrest.  That led to routine security sweeps which have alienated even more Uighurs.

But whatever the internal situation, Beijing has always been quick to accuse exile Uighur groups for fomenting or supporting acts of terror within Xinjiang, particularly the East Turkestan Islamic Movement (ETIM).  While that may be true in some cases, most exile Uighur organizations were in no position to foment or support much of anything in Xinjiang.  Indeed, the activities of the ETIM have likely been exaggerated by not only Chinese authorities, but also the ETIM to aggrandize itself.  The well-funded Islamic State would be a far bigger danger should it ever reach China’s door.

But even before the Islamic State’s rise, China had begun to seek ways to keep militant Islam as far away as possible.  That was one of the key reasons behind why it, Russia, and four Central Asian countries created the Shanghai Cooperation Organization (SCO) in 2001.  Today, China sees its support for the SCO as a bulwark against the advance of militant Islam towards its borders and the Islamic State should it try to establish itself in Central Asia.  Last Friday, Chinese President Xi Jinping attended this year’s SCO conference in Tajikistan.  There, he urged SCO’s other leaders to do their utmost to prevent Islamic extremism.  He also elevated China’s ties with Tajikistan to that of a “strategic partner” and promoted China’s “New Silk Road” concept.  Earlier this summer, the SCO held its largest military exercise since the early 2000s.  About 7,000 troops participated in the exercise, with China providing the majority of them.

The advent of the Islamic State in areas where China has commercial interests had already endangered Chinese citizens.  Beijing evacuated over a thousand Chinese workers from Iraq in June, when Islamic State forces marched on Baghdad.  That evacuation followed others from Libya and Syria after conflicts consumed those countries.  While China has been so far unwilling to directly confront Islamic militants, China did agree to deploy a 700-man infantry battalion to a United Nations peacekeeping mission in South Sudan in September.  The battalion will be used to protect oilfields that are operated by China National Petroleum Corporation and threatened by civil strife.

All this may sound like the common concern over the Islamic State might have given China an incentive to work with the West, if only to protect itself and its economic interests in the Middle East.  But that is not quite the case.  Just because they agree on who is a threat does not mean they can agree on what to do about it.  The two sides still hold different visions of how the world should work.  That much was clear in China’s official response to U.S. President Barack Obama’s call for an international coalition to fight the Islamic State in Iraq and Syria.  Chinese Foreign Ministry’s spokesperson agreed that “The international community should jointly combat terrorism.”  But, she added, China would want to ensure the respect of the “relevant countries’ sovereignty, independence and territorial integrity in the international fight against terrorism.”  So, unless Syrian President Bashar al-Assad—a leader reviled in the West—approves of American-led air strikes against the Islamic State in Syria, China would not support such actions there.  (Russia holds the same position.)

For now, China can afford to walk that fine line.  It can expect that the United States and its allies will do their best to defeat the Islamic State or, at least, prevent its expansion.  But other dangers still lurk.  Already, China is concerned about the ramifications of the American withdrawal from Afghanistan.  Could Afghanistan or Pakistan’s tribal regions produce new Islamic militants who might incite even greater unrest in Xinjiang?  Hence, China continues to bolster its relationships with its Central Asian neighbors, in part, to create a buffer zone between it and whatever dangers lay beyond.  China’s “New Silk Road” fits nicely into that strategy.  Its economic benefits should help to cement the commitment of the elites from Central Asia’s countries as well as enable them to contain Islamic militancy in their countries.  But China should take care that its “New Silk Road” does not benefit those elites too much.  Not doing so could breed resentment against China among the rest of their populations.  Were that to happen, Beijing’s “New Silk Road” might also become a new path for Islamic militants to China.

 

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Railway to Somewhere: Thailand’s Politics and China’s Reach in Southeast Asia

Despite elections last Sunday, Thailand remains riven by political conflict.  On the one side is the current government of Prime Minister Yingluck Shinawatra (and nominally her brother, Thaksin Shinawatra, who was ousted from power in 2006).  Their supporters dominate Thailand’s north and northeast.  On the other side is the Democrat Party, whose adherents are largely drawn from Bangkok’s middle class, southern Thailand, and the royalist establishment.  While many issues divide the two sides, the outcome of their struggle may have an impact on China’s reach in Southeast Asia.

Countries have long dreamed of a railway connecting China and Southeast Asia.  A century ago, both the British and French governments hoped to link their Southeast Asian colonies with China.  But ultimately terrain and war halted those ambitions.  The Cold War poured further cold water on the idea, as revolutionary China seemed more intent on exporting communism than trade.

But a decade after China implemented its market reforms, things began to change.  By the mid-1990s, the ASEAN-Mekong Basin Development Cooperation revived hopes for a railway between China and Singapore.  But a lack of funding prevented its progress.  Finally in 2011, the Asian Development Bank, working with the region’s countries, agreed to finance a circuitous railway that ran from China, down the length of Vietnam, across Cambodia, through Thailand, and finally down to Malaysia and Singapore.  Railway construction costs were held down by the fact that the route knitted together several existing railway lines, though a substantial sum would be needed to upgrade existing rails and rolling stock.

But China has since upended the plan.  It sought a more direct route to Southeast Asia.  It had already built a railway from Kunming (in southern China) to its border with Laos.  Then China’s railway minister pushed for $5 billion worth of Chinese financing to extend that railway to Vientiane, the Lao capital.  The early 2013 downfall of that minister on corruption charges (and the elimination of his railway ministry) left some to wonder whether the proposed railway would proceed.  But that uncertainty was lifted a few months later when Chinese President Xi Jinping proposed the creation of a China-backed Asian infrastructure development bank, part of his new charm offensive in Southeast Asia.  One of the infrastructure projects that he highlighted was the proposed railway.  However, even if its financing looks more settled, the railway still faces the challenge of construction.  While its route is more direct, it will require scores of bridges and tunnels to wend its way through Laos’ mountains.  Meanwhile, at the other end of the hoped-for railway, China has expressed interest in the expected tender for the Malaysia-Singapore segment later of it in 2014.

Such a railway would have strategic value for China.  Just as the transcontinental railways across the United States helped bind its eastern and western halves in the late 1800s, China’s north-south railway would help better integrate Southeast Asia—a mainly seaward-facing (and American-leaning) region—with its economy and political interests.  In addition to being more direct, the route that China’s railway has chosen would tighten the connection between it and its ally Laos and entirely avoid Vietnam, a country with which China shares a long and quarrelsome history.

Whether the north-south railway from Kunming to Singapore is completed depends on Thailand, which sits in the middle of its projected path.  Thailand’s current government has already discussed with China the possibility of building a connecting line between Vientiane and Bangkok, using concessionary Chinese loans.  (Rather than replace the existing railway, a new high-speed one would be built next to it.)  That connecting line would bring construction jobs to Thailand’s economically-lagging northeast.  But there are those in the region who are concerned about the schemes of China and Laos, due to their unfettered hydroelectric dam development on the Mekong River and its tributaries (those dams could cause droughts or floods on their agricultural lands if they are poorly managed).  Should the Democrats succeed in displacing the current government from power, one might expect that talks with China over the railway would continue, given that many of their Bangkok supporters also favored hydroelectric dam construction on the Mekong River.  However, in the tit-for-tat nature of Thailand’s politics, grudges can be deeply held and if the proposed railway between Vientiane and Bangkok is too closely associated with the current government, the railway could become a casualty of the domestic politics between the two factions.

Just how concerned should observers be about a railway that ties Southeast Asia more closely to China?  In the short run, they probably need not worry too much.  After all, China financed and built a port and pipeline in Myanmar that linked its coast to China’s border, but Myanmar still sought to build stronger relationships with Japan and the United States.  But over the long run, as economic interests in the infrastructure become entrenched and if they come to influence a country’s government, then national interests can shift.  Thus, it would be wise for Japan and the United States to encourage the speedier construction of the Asian Development Bank’s railway route through Vietnam.  That route would not only encourage stronger Cambodian bonds with Thailand and Vietnam, but also enable Cambodia to become less reliant on Chinese foreign direct investment for its economic growth.

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