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Riding the dragon, soaring on
eagles
By Daniel Smith
(Posted with permission from Foreign Policy in Focus)
While they prate of economic laws, men
and women are starving. We must lay hold of the
fact that economic laws are not made by nature.
They are made by human beings.
-
Franklin D Roosevelt
Everyone is
entitled to their own opinion, but not their own
facts.
- Daniel Patrick Moynihan,
former US ambassador
Once upon a time,
creditors exacted "a pound of flesh" from those
who, having borrowed money at high interest rates,
found themselves unable to repay loans on time and
in full. John Perkins, author of Confessions of
an Economic Hit Man (EHM), appearing on PBS
television's NOW on March 4, described a
modern twist in this vicious circle at the level
of nation-states.
Since World War II, the
United States has deliberately manipulated the
economic and political life of developing
countries to create a new global imperium based on
massive indebtedness as the basis for exacting
many pounds of flesh. Posing as a friendly expert,
the EHM advises countries to contract with large
US companies to build massive projects financed by
loans from international financial organizations,
justifying the projects as critical for improving
the lives of ordinary citizens.
But the
loans are so large and the interest rates so high
that the money cannot be repaid, and common
people's lives get more, not less, desperate.
Opposition by individual elected officials in
victimized countries can trigger "accidents"
(assassinations) and collective rejection, or
default may trigger military action. According to
Perkins, the price for self-preservation, both
personal and national, is to fall in behind US
"leadership".
Economic overstretch
But this US empire, built on enthralled
debtor nations, may itself be in danger from
economic overextension. While economists may opine
learnedly about the significance (if any) of the
US federal debt for fiscal and monetary policy,
many non-economist internationalists and ordinary
citizens are convinced that the United States is
increasingly vulnerable to the pressures and
priorities of creditors who see President George W
Bush's administration as a heedless bull in a
china shop recklessly threatening to destroy
agreements and institutions that have helped
stabilize international relations for several
decades.
At the risk of statistical
numbing, it might be instructive to sample a few
US economic facts as documented by Congress and
the Treasury Department:
- Between January
2001 and July 2004, the portion of the US debt
privately held by foreigners rose from 30% to 42%.
- Between September 2003 and September
2004, foreigners increased their holdings by
US$400 billion, from $1.46 trillion to $1.86
trillion - financing virtually the entire $422
billion budget deficit for fiscal year 2004.
- US Treasury Department statistics
through July 2004 reveal that five of the seven
top foreign holders of US obligations are Asian,
with Japan ($696 billion) and China ($167 billion)
in first and second place, respectively. (The
other three in Asia, ranked five, six and seven,
are South Korea at $62 billion, Taiwan at $58
billion, and Hong Kong at $50 billion.)
-
Despite an overall increase in the value of
foreign holdings for all of calendar year 2004,
December saw a sharp monthly decline in foreign
purchases of Treasury bonds and notes. Foreign
central bank acquisitions nose-dived by two-thirds
(from $21 billion to $7 billion) while private
foreign purchases plummeted by nearly 75% (from
$32.8 billion to $8.4 billion).
- Japanese
non-central-bank holdings dropped $3.1 billion
(from $714.9 billion to $711.8 billion) from
November to December 2004. South Korea's portion
registered a slight decrease. In contrast, the
Chinese increased their total holdings by $2.7
billion (from $191.1 billion to $193.8 billion).
- In late February 2005, South Korea's
central bank revealed its intention to "diversify"
by straying from the US dollar to other currencies
- undoubtedly the euro, which has strengthened
over the past few years.
These economic
realities are noteworthy, because excessive debt
can act as a reverse "nuclear deterrent" for a
large debtor. That is, a debtor's ability to
initiate or avoid action on the global stage is
constrained because those who "own" the debt may
have priorities that differ from those of the
debtor nation, and the creditors may decide to use
their economic position to advance their preferred
policies or to thwart those of the debtor. When
this impasse goes "critical" in the form of "vital
national interests", the fallback position is
either selective or general violence in an effort
to regain - or at a minimum maintain - the debtor
nation's empire.
Legitimacy
crisis
Economic woes in the form of a weak
currency, ballooning debt and unsustainably large
trade deficits are not the only indicators of
cracks in the empire's edifice. Another in a
series of international polls - this one last
taken December - looked at the role of the United
States and China in the world. Nearly 23,000
individuals in 22 countries in Asia (six), Europe
(eight), North and South America (six), the Middle
East (one) and Africa (one) were interviewed.
In 14 countries, China is seen as a
positive influence on world events by a plurality
or majority - with the average across all
countries standing at 48%. In contrast, the United
States is viewed positively in only six countries
and negatively in 15, with the averages being 38%
and 4%, respectively.
Among its six
regional neighbors, approval for China ranges from
70% in the Philippines to South Korea's 49%, with
only Japan lagging at 22%. Significantly, of all
of China's neighbors, only Japan (at 35%)
registered less than majority support for a more
economically powerful China.
Regarding
military power, citizens in 17 of the 22 nations
said a stronger China would not be a positive
development - with the average negative response
at 59%. Nonetheless, a clear majority in India
(56%) viewed a stronger military role for China as
a positive development. Negative responses from
the remaining regional countries ranged from 79%
in Australia to 46% in the Philippines. Equally
interesting in light of the European Union's
now-postponed plan to lift its embargo on arms
sales to China, is that clear majorities in all
five EU countries polled felt a militarily
stronger China would be a negative development.
Only Turkey, which has been trying for years to
begin the process for EU membership, polled below
50% negative response to a more militarized China.
Even those who dismiss "street" polls as
mere venting of popular passions or reflections of
government propaganda can find little solace in
the reality of China's growing influence in Asia.
China's good neighbor policy
The
numerous regional agreements between China and its
neighbors indicate that Beijing has succeeded in
ameliorating the fears and suspicions of most
countries. This is most apparent in China's
relationship with the 10-member Association of
Southeast Asian Nations (ASEAN), both mainland and
island states.
In November 2002, China and
ASEAN concluded the Framework on Economic
Cooperation, which, among other provisions, calls
for a free-trade zone between China and the
original six ASEAN states: Brunei, Indonesia,
Malaysia, the Philippines, Singapore and Thailand.
ASEAN and China initialed a "Strategic
Partnership for Peace and Security" in October
2003, with China also acceding to the terms of
ASEAN's "Treaty of Amity and Commerce".
November 2004 saw two important additional
steps. One was an agreement to resolve trade
disputes, and the second affirmed the intent of
all parties to resolve quarrels concerning
territory and jurisdiction in the South China Sea
without "resorting to the threat or use of force".
China has also been shoring up its
northern and northwestern fronts. The 1996
Shanghai Five (China, Russia, Kazakhstan,
Kyrgyzstan and Tajikistan) agreement recognized
China's drive for reunification (fully to
incorporate Macau, Hong Kong, Tibet and Taiwan),
paved the way toward resolution of remaining
international border disputes among the five,
initiated a demilitarizing of common borders, and
affirmed the principle of state sovereignty and
non-interference in the internal affairs of each
country. With the accession of Uzbekistan in 2001,
the renamed Shanghai Cooperation Organization
(SCO) turned to regional economic arrangements and
anti-terrorism concerns. With the declared
intention of opposing "terrorism, extremism and
separatism", the SCO provides all six member
countries with a multinational platform for
resisting US calls for political liberalization
and greater human rights.
Interestingly,
India and Pakistan have both signaled an interest
in joining the SCO, a bid that current members
seem hesitant to approve. Of the six SCO nations,
China would have the most to gain from such an
expansion, for it would frustrate, to some degree,
US attempts to erect a "containment ring" around
China. For its part, Beijing is countering these
US moves with more active diplomacy in what many
might consider US "home turf".
On October
10, 2002, with all of the former Soviet Central
Asian republics enrolled in the North Atlantic
Treaty Organization's Partnership for Peace, China
formally requested the opening of a "strategic
dialogue" with NATO. (In NATO's June 2004 Istanbul
summit, the alliance signaled a potentially closer
relationship by declaring that Central Asia and
the Caucasus were "strategically important
regions".)
After years of effort and
despite heavy US pressure on the EU to maintain
the ban, China seemed on the brink of persuading
the European Union to lift the arms embargo
imposed after the Tiananmen Square massacre in
1989. But with enactment of the Anti-Secession Law
codifying Beijing's threat to employ force should
Taiwan take overt steps toward or declare
independence, the EU decided to delay lifting the
embargo for at least six months.
For its
part, China had said it would not have tried to
buy "expensive" and "obsolete" European arms, but
US analysts worry that China might get technology
such as the EU's Galileo navigation satellite.
Tellingly, Australia - the main regional "Western"
country and a steadfast US ally - never objected
to the lifting of the EU embargo. Canberra wants
more information on the EU arms trade "code of
conduct" and asks to be notified of any sales by
EU countries. (Australia lifted its own embargo in
1992 and is now negotiating terms for providing
uranium ore to China's nuclear-power industry.)
Similarly, Israel and Russia, both of which have a
history of military sales to China and imposed no
post-Tiananmen embargoes, never registered
objections despite the sophisticated sales
competition that the EU would represent.
China's first-ever deployment of uniformed
personnel on a United Nations peacekeeping mission
took place in 2004, when Beijing sent 1,000 riot
police to Haiti.
International Business
Machine Corp has sold its personal-computer
division to the Chinese firm Lenovo Group Ltd, in
which the Chinese government has a stake. The
sale's finalization was subject to approval by
Washington, which was finally given with some
restrictions on access by non-US personnel to
collocated but unrelated high-tech projects.
In testimony before the House Armed
Services Committee on March 9, the head of the US
Southern Command noted that Chinese defense
officials conducted 20 visits to Latin America and
the Caribbean (prompting nine reciprocal visits to
Beijing). Several of the visits were to the 11
countries whose US military aid was stopped
because their governments refused to sign
agreements that would exempt US personnel from the
jurisdiction of the International Criminal Court.
North Korea and Taiwan
But
economics and world image are not the only areas
of concern for Washington. There are also the
seemingly intractable issues of North Korea and
Taiwan, both of which involve the United States as
a central protagonist.
North Korea's
nuclear weapons - anywhere from two to 15,
depending on which US intelligence agency is
tallying - are not just a US concern. But although
Beijing does not want to see either North or South
Korea (or an eventually reunited Korea) acquire a
nuclear arsenal, it is not as beleaguered by the
possibility as is Washington. In fact, Chinese
officials have publicly questioned Washington's
appraisal of Pyongyang's self-declared status as a
nuclear-weapons state.
Regarding the North
Korean "problem", China finds itself uniquely
positioned as the only country genuinely able to
mediate and facilitate discussions. But as the
history of the "six-party talks" illustrates,
Chinese envoys have been sorely tested just to
keep the deliberations going. For example, on
February 10, North Korea announced that it was
leaving the talks, which had not been held since
last August because of US demands that North Korea
completely dismantle its nuclear program as a
precondition for more assistance. After a four-day
visit by a senior Chinese government official,
North Korea's leader, Kim Jong-il, was said to be
willing to resume the six-party discussions, if
Washington showed "trustworthy sincerity". Just
what counts as "sincere" remains undefined, but
Pyongyang's past demands include written assurance
that Washington does not seek regime change,
guaranteed aid (including fuel), and conclusion of
a peace treaty officially ending the Korean War.
US military options are severely
restricted by the ongoing war in Iraq,
intelligence gaps regarding the location and
vulnerability of North Korea's nuclear facilities,
and the massive destruction that South Korea
(especially Seoul) would sustain in either a
preemptive or retaliatory military strike by the
North. Nonetheless, rhetoric from the Bush
administration aimed both at Kim Jong-il
personally and at North Korea as a political
entity - eg, "rogue state" and "outpost of
tyranny" - seems designed to keep the atmosphere
roiling and to postpone the next meeting of the
six parties indefinitely.
Given
Washington's approach to negotiations, Chinese
leaders may soon interpret the Bush
administration's endgame as keeping China's border
with North Korea under persistent threat of
large-scale migration, should Pyongyang suffer
economic meltdown or go to war against the South.
This would dovetail with Beijing's perception that
many in Washington view China as the emergent
great-power competitor that the United States will
have to confront early in the 21st century.
Central Intelligence Agency (CIA) director Porter
Goss was quite explicit on this theme when he
stated that "Beijing's military modernization and
military build-up is tilting the balance of power
in the Taiwan Strait". Yet of the four
modernizations that China is pursuing, military
modernization is the lowest priority.
Tensions in the Taiwan Strait
That said, China does not shirk from the
question of Taiwan and military force. With
neither Beijing nor Washington blinking, a series
of intertwining events over the past 13 months has
perceptibly raised tensions in the Taiwan Strait.
In the run-up to the presidential election
in March 2004, Taiwan's President Chen Shui-bian
promised to rewrite the island's constitution and
free it from the "fiction" of being labeled part
of China. He also proposed to seek approval of a
"process" for independence via a referendum -
sidestepping the constitution - and even placed
referendums to carry out the process on the March
ballot. Chen was narrowly re-elected; the
referendums were not approved. Under US pressure
to tone down his rhetoric, Chen then backpedaled
on independence in his May 20 inaugural address.
Last July, China, which had also
castigated Chen during the Taiwan presidential
race, conducted extensive military training in the
Taiwan Strait while the US exercise "Operation
Summer Pulse 04" in the Pacific - a larger drill
than usual - was under way.
In the run-up
to the December Taiwanese legislative elections,
Chen again promised to move ahead with a 2006
referendum on independence, specifying a 2008
implementation date if his party won the December
poll. His party lost, but the fact that Chen had
reopened the independence question was enough to
spur the mainland Chinese to introduce an
"anti-secessionist" law at their National People's
Congress.
Beijing steadfastly insists that
Taiwan and its status are internal concerns of the
Chinese people, who need no "assistance" from
other countries. The February 20 joint declaration
by the Japanese foreign minister and the US
defense secretary that the state of affairs in the
Taiwan Strait is a "common strategic objective"
was an attack on the unified sovereignty of China,
which both the United States and Japan have
acceded to under the "one China" policy.
In addition to annual State Department
funding of the American Institute of Taiwan -
transparently an unofficial embassy - Washington
reportedly plans to send military officers to
Taiwan as official representatives of the
Pentagon.
For years, many in the US
Congress have advocated UN membership for Taiwan,
though this status is granted only to legitimate
national governments. On February 17, five members
of the House of Representatives introduced
legislation demanding that the Bush administration
restore full and official diplomatic relations
with Taiwan. Such a move would embolden Chen
Shui-bian, who so far has been dissuaded from
declaring Taiwan's independence both by the better
judgment of the Taiwanese people and by Beijing's
insistence on the island's peaceful reunification
with the rest of China.
Washington is
trying to force Taiwan to accept and pay for $18
billion in new "defensive" weapons first
authorized in April 2001. The adoption of the
Anti-Secession Law by the mainland's National
People's Congress has energized debate in Taiwan's
legislature over this US aid package.
Beijing reportedly believes that one aim
of the Bush administration is to turn China and
Japan against each other. But China is now Japan's
No 1 trading partner, and China has opened its
doors to Japanese investments. Japan also
recognizes China's role in facilitating the
six-party talks with North Korea over the latter's
purported nuclear-weapons and long-range-missile
programs.
At the same time, Japan's
expanding cooperation with the United States
regarding ship-borne missile defense suggests that
Tokyo's concerns over North Korean missiles have
broadened to include the 700-800 missiles on
China's mainland across from Taiwan. Moreover, the
withdrawal of 12,500 US troops from Korea, the
repositioning of the remaining forces away from
the Demilitarized Zone, statements by the US
Pacific Command that the troops left in Korea
could be used regionally, and the twin
possibilities that the combined UN command in
Korea will be dissolved while the United States
reconstitutes a corps headquarters in Japan all
suggest a fundamental reorientation of
Washington's attention in Asia away from the
Korean Peninsula. This policy shift is reminiscent
of the perception drawn from secretary of state
Dean Acheson's January 1950 speech that Korea (and
Taiwan) lay outside US defense interests.
Although such maneuvering will not tempt
Beijing to challenge Washington militarily,
China's growing economic and diplomatic presence
on the world scene is engendering greater
confidence among Chinese leaders. For example, US
criticism of China's human-rights record was
uncharacteristically reciprocated by a
spokesperson for China's governing cabinet who
specifically cited accounts of prisoner abuse by
US military and civilian personnel at Abu Ghraib,
Guantanamo Bay, and other prisons in Iraq and
Afghanistan.
In the foreseeable future,
China's economic position vis-a-vis the United
States and its role in the North Korean nuclear
talks will remain key to US-China relations. On
the economic front, because China's rapid growth
has been fueled by a large surplus of exports over
imports in trade with the United States, Beijing
is not expected to "pull the plug" on US trade
short of looming and inevitable armed conflict
resulting from a clear Taiwanese declaration of de
jure independence. Beijing would like to regain
political control of Taiwan without a fight, and
to that end China will continue to enmesh the
island in a web of economic relations that Taipei
will increasingly be loath to sacrifice.
Like all US presidents ever since Richard
Nixon "opened" China, George W Bush has chosen,
after initially hesitating, to try to ride the
Chinese dragon - but with spurs on his boots.
Having managed to climb on, he cannot get off
without the risk of being thrown. For its part,
China has decided to soar on the eagle to the
sky's limit. Beijing believes that if it can hitch
a ride while the eagle economically exhausts
itself, China can at last preempt US influence in
Asia.
As the old song says, "dragons live
forever".
Daniel Smith is a
military affairs analyst for Foreign
Policy In Focus (which made this article
available), a retired US Army colonel, and a
senior fellow on military affairs at the Friends
Committee on National Legislation.
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Trade war: US vs the rest of the
world (Apr
2, '05)
Bush wins as Beijing
overplays its hand (Mar 25,
'05)
The real 'China
threat'
(Mar 19, '05)
Cornering the
dragon (Mar 19, '05)
China seethes at US-Japan
'meddling'
(Feb
24, '05)
China, too, wants to mend US
fences
(Feb 17,
'05)
US-China complications,
contradictions
(Feb 4,
'05)
China yawns at Bush freedom
rhetoric
(Feb 2,
'05)
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