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Atishay Abbhi
Saturday , June 02, 2012 at 16 : 27

Cut your best deal with China. Now


Toying with its economic and foreign policy has led China down the same road as with anything else 'Made in China'.

What Pacific Investment Management Company's (PIMCO) office in Singapore foretold few days ago through the media didn't sound quite true at that time. But this is perhaps what the world was waiting for but hoping against. A portfolio manager at the company told the media that China would see a growth rate of -7 per cent this year. Such a steep fall of this mammoth economy was on its way to do more harm than its exponential rise the world felt threatened by. This slide, as the company puts it, is at a 'pace unseen since 1999'.

Experts are suddenly concerned about China's 'limited' growth potential. The problem is being attributed to 'credit boom' and excessive investment boom, dangerously typical of a bubble. For you and me, this means Chinese banks lent money like freebies because they felt they would be repaid, not because the average Chinese could but because China's economy was promising. Chinese people borrowed the money to invest and invest they did. With more supply, prices fell and banks are now finding it hard to recover their money and could start going bankrupt. We all heard something similar just across the Pacific in 2008.

This economic slowdown alone is not worth shedding tears. It is the timing of it that must ring alarm bells in Zhongnanhai (China's power centre in Beijing). China's economic slide that is making headlines across the world has been accentuated by its strategic and domestic losses all around. In the last few months, the Chinese have left themselves vulnerable and exposed, both strategically and economically. A regime, for which economic prosperity became not just a strategic goal but an obsession, pledged keeping all hindrances at bay. It is this obsession that turned into its weakness. Even slightest of economic setbacks have got China to a position where it can neither afford a military solution to resolve strategic issues (even with smaller states, due to economic pressure), nor diplomatically assert itself strongly enough because it always had clients or suppliers, not friends.

Let's take Myanmar, possibly the first card to fall in the domino. When Myanmar was isolated, sanctioned and barred by the West, China held its hand and pulled it out, giving it economic and military feet to stand back on. Chinese monopoly in Burmese infrastructure, energy and defence cooperation due to global isolation was perhaps Beijing's single biggest coup till date. Myanmar - China's gateway to the West, an energy goldmine all to itself and a lucrative alternative to the troubled Malacca Straits for transporting over 80 per cent of its oil imports - had been in China's firm grip. But this grip had been making Myanmar's leadership claustrophobic for some time now. It gave India a chance to come and relieve it (it still does actually), but South Block didn't have enough ammo to respond (to be fair, balancing or substituting China in its backyard was never going to be easy).

Come late 2011 and begins Myanmar's opening up and China's closing down. In September 2011, Myanmar's Premier Thein Sien dared Beijing and suspended the controversial Myitsone dam project, to be constructed in a predominantly Kachin area, to signal his concern for minority issues in an ethnically charged country. The decision sent ripples across China because of the huge capital and human resource invested into the project. The CCP regime feared protests by workers involved in the project, which would have in turn challenged the legitimacy of the regime. Shocked and shaken by Myanmar's stern posturing, China was on the back foot, now worrying about the other project - a pipeline from Myanmar's west coast, Kyaukryu port in Sittwe to Kunming in China. Any further change in Burmese attitude for worse would have blocked its key import alternative for gas.

Thein Sein then scored another strategic victory when he released around 700 political prisoners including Aung San Syu Kyi. As she came out of her house waving, while rest of the world waved back, Beijing watched in silence, fearing what was to follow. Hillary Clinton landed in Myanmar signalling lifting of sanctions and with the elections in place and Syu Kyi in the parliament, Myanmar was becoming normal. The US subsequently suspended investment sanctions on Myanmar, making it the new Vietnam or Indonesia. Japan, South Korea, India, Thailand are all queuing up to help Myanmar build its roads, bridges, pipelines and whatever it wants. China was standing still while the world was rushing past it, even trampling on it. How high Chinese eyebrows rose was reflected in a Global Times editorial, warning that China would not allow its interests in Myanmar to be "stamped on". Eventually, China had to step aside. The ground wasn't theirs anymore to play. But Myanmar has done more damage to the party than the country. Myanmar's posturing against China has dangerously led to Chinese citizens pointing fingers at the party's efficiency to consolidate strategic and economic gains. Words of a frustrated worker at China's Sinohydro Company that was contracted to build the Myitsone dam were not just embarrassing but a tell-tale sign of something far more threatening for the leadership.

"When will the Chinese people straighten their backs," the worker asks. "Wake up, all the Chinese!" "Even a small country like Burma dares bully China".

The regime was hoping these words to not trigger a 'Chinese spring'. Fortunately for them, versions of such anger have not gone beyond the micro-blogging sphere.

Then came an assertive Manila, raising its head among the band-wagoning South East Asian nations, taking on Beijing over a highly sensitive territorial issue - ownership of the Scarborough Shoal or Huangyan Island in the South China Sea. The issue, which began with the Philippine Navy intercepting Chinese fishing boats, saw escalation of tensions to the point of warships hovering around the region. As of today, China has rejected Philippines' solution to take the matter to International Tribunal on the Law of the Seas. What is likely to have worked up Beijing more is the invitation to foreign companies like Shell, Chevron, etc. by Philippines, Vietnam for exploration in the South China Sea, which is not just economic but a strategic loss as well. Recent statements by CNOOC's (China National Offshore Oil Corporation) Chairman indicate that the party is using all resources, including its oil companies, to mark its economic and strategic territory. In a surprising statement just after the incident, Chairman Wang of CNOOC described its deep-water drilling rig 200 miles off Hong Kong in South China Sea as China's 'mobile national security' and a 'strategic instrument' for promoting country's offshore oil industry.

While both sides have put out strong claims, it cannot be said with certainty who started the fire but if it is the Chinese, one cannot rule out 'diversionary war theory' at play here. According to this theory, regimes dealing with an internal crisis create conditions of external conflict to divert the nation's attention and to improve or reinforce the legitimacy and power of the regime.

The South China sea issue serves the regime well in deflecting national attention from a dangerously sliding economy, public embarrassment through activist Chen Guangcheng's dissenting voice and actions (domestically and in Sino-US relations), much publicised party indiscipline after the Bo Xilai case, followed by serious leadership crisis where Zhou Yongkang, a politburo member and China's hitherto chief of domestic security, was unofficially relieved of his duties. Zhou was sidelined after he rose in support of Bo Xilai and opposed Wen Jiabao's political reforms, terming them as drifting towards 'pro-Western style democracy'. With the strategic goals of a robust economy and regime legitimacy under threat, Beijing would only be too happy to have South China Sea and other external issues continue to make headlines.

Chinks in China's armour are certainly visible after countries like Myanmar forced a strategic and economic embarrassment, Philippines challenged its territorial supremacy and bullishness, and shareholders are threatening pull-outs from a sliding economy. It may be too early to write China's obituary or claim that the bubble is bursting but one cannot ignore the dragon's slide into becoming the elephant even ants can boo. For states waiting to settle its disputes with China, the timing could just be right to get to the table and go back a winner. In the last 60 years, out of China's 23 territorial disputes, both frontier and offshore, 17 have been resolved and the negotiations for the rest are underway. Most of these resolutions have been a compromise on the part of China, despite having the capability to use force and not bargain. Reasons - most of these territorial compromises were made in the shadow of internal unrest.



















Tibet Revolt (1959) Burma 88%
India China offered 74%
Failure of Great Leap Forward and Xinjiang unrest (1962)Afghanistan100%
Mongolia 71%
North Korea60%
Pakistan 40%
Tiananmen Square crisisSoviet Union, 48%
Xinjiang violence Kazakhstan (1994) 78%
through the 90sKyrgyzstan (1996)68%
Tajikistan (1999) 96%

Hence, it is imperative that countries like India monitor the events in the region closely and, when time is ripe, strike a deal with China. The world is rushing to grab the seats vacated by China in places like Myanmar. While India has the advantage of being wanted by Nyaypidaw, a hare-like complacency must not make it reach last. It must ensure that Myanmar does not become another Nepal. However, as mentioned before, Myanmar is the first Chinese card to fall in the domino. Another increasingly China-dependent region, Africa, could be next in showing Beijing the exit door. China's economic, political and cultural insensitivity has already angered the likes of Zambia, Rwanda and Namibia. As "The Economist" famously reported last year, Africans are asking whether China is making their lunch or eating it. It is a matter of time that another energy rich region with a Chinese stronghold over infrastructure and energy contracts slides through Beijing's hands. Where China's economy and the Communist Party would be after that is anybody's guess.


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More about Atishay Abbhi

An ex-foreign affairs correspondent at CNN-IBN, tracking strategic affairs - from New Delhi to Nagoya, Sakhalin to Singapore - is Atishay's passion. He is specialised in Asian Affairs from Rajaratnam School of International Studies, Singapore.


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