China's irresistible power-surge

By ROWAN CALLICK in today’s The Australian


AFTER countless "dragon rising" conferences and speeches, Australians have grown accustomed to China's emergence as an economic giant to rival the US.
But the past few weeks have seen something new: the most important shift so far in the 21st century. History in the making. China has made its move.
In August it leapfrogged Japan as the world's second biggest economy. And it has started to make that strength tell, beyond the worlds of factories, foreign exchange and trade, which it has already ruled for a decade.
During the past few years, Beijing has talked of projecting its soft power, its cultural influence. But that was either a feint or was destined to be a flop.
Instead, China is now exercising its influence in the world of hard power, where it makes other countries behave in the way it wants -- and this is especially apparent in the seas surrounding China's 14,500km coastline.
These are the waters through which more than half of Australia's traded goods have to sail. And Australia is the Western country most enmeshed economically and socially with China. There is thus no strategic issue of greater weight for Canberra.
In the past few days, the US House of Representatives has voted overwhelmingly for legislation approving sanctions against China, which Americans criticise for subsidising its exports by keeping the value of its currency low by buying large amounts of foreign currency, chiefly US dollars.
Influential US economist Paul Krugman says these subsidised exports are hurting employment in the rest of the world. But not in Asia, where many of China's trading partners enjoy large surpluses in their China trade, thanks to the products they send for assembly there. Australia's dollar is riding high in part because of the strength of our trade with China.
The US is in no position to launch, let alone win, a trade war with China. US rhetoric about currency valuations instead underlines its economic impotence.
Two Chinese thrusts underline the country's role as a great power in Asia and, more significantly, its willingness to exercise its strength.
The first move: North Korea sank a South Korean corvette killing 46 sailors; the US and its Korean ally responded by planning a military exercise, involving the aircraft carrier George Washington, in the Yellow Sea between the Korean Peninsula and China.
China refrained from publicly rebuking Pyongyang and issued an emphatic warning to Washington and Seoul that this would be perceived as an attack on its sovereignty. The allies took a step back, and instead exercised off the Sea of Japan to the east of the peninsula.
The second move involved the ramming by a Chinese trawler of two Japanese gunboats in the oil and gas rich waters near Japan's Diaoyu islands, which are claimed by China. The Chinese skipper, Zhan Qixiong, was arrested.
China retaliated by banning exchanges with Japan, cancelling all cabinet-level contact with Japan, instructing travel agents to stop offering tours to Japan, and suspending negotiations to increase airline flights. "If Japan clings to its mistake, China will take further actions and the Japanese side shall bear all the consequences that arise," Chinese Premier Wen Jiabao said in New York.
A week ago, Japan released the skipper unconditionally and China sent a plane to bring him back. The national CCTV news featured skipper Zhan's welcome with bouquets, hugs from his family, and massed media attention.
This wasn't the end of the affair. China went on to demand an apology and compensation from Tokyo. A foreign ministry statement said, after Zhan's safe return: "This was an action that gravely violated Chinese sovereignty and the human rights of a Chinese citizen."
China is steadily building a huge naval force, with a focus on modern, fast, quiet submarines, many berthed in underground pens at a base on Hainan Island south of Hong Kong, with direct access to the South China Sea.
The global financial crisis has triggered a shift in the balance of economic power. And while there is growing debate over how the West can and should respond to China's strength, there is agreement that the levers for all other forms of power are ultimately pulled by the economy.
A leading Australian expert on Asia, economist Peter Drysdale, stresses that "economic size matters to political heft" -- a fact that can be overlooked in the US, many of whose leading commentators on foreign affairs tend to leave economics outside their analyses.
Ross Garnaut said in a recent speech on China as a great power: "China will be the world's largest economy when its people on average are about one quarter as economically productive as the people of the US", because it has four times the population.
Many economists are tipping this to happen some time between 2020 and 2030. Garnaut says it is hard to imagine the Chinese remaining for long less than a quarter as productive as Americans. In the meantime, the US has been stressing to China's concerned neighbours that it is not about to pull out of Asia.
Secretary of State Hillary Clinton has backed the Southeast Asian nations' desire for territorial disputes in the South China Sea -- which is rich in oil and gas, as well as a key shipping channel -- to be resolved through ASEAN.
China's news agency Xinhua responded that "superpowers often adopt the strategy of divide and rule" via such solutions. Beijing prefers to negotiate with its smaller neighbours one by one.
Influential Chinese commentators have been promoting Australia as a sympathetic mediator. China Daily noted approvingly that then foreign minister Stephen Smith called for tensions in the sea to be resolved bilaterally.
The newspaper said the Gillard government was thus "seen as siding with China on the South China Sea issue, which the US has wanted to internationalise".
Shen Dingli, at Fudan University in Shanghai, wrote in a commentary for the Lowy Institute: "Like many powers before it, China's growing maritime interests overlap with those of others. By differing from America, which meddles directly, Canberra receives more respect in the region."
A fortnight ago, Australian frigate HMAS Warramunga participated in Chinese exercises in the Yellow Sea, from which the George Washington carrier was excluded.
The Chinese ambassador to Canberra, Zhang Junsai, told The Australian on the eve of his departure that Australia is emerging as an exemplar for China's fast-changing relations with the West and the Asia-Pacific region, "a testing ground in areas where we are playing an increasing role".
Recently, China has conducted extensive exercises in the South China Sea, where it has arrested hundreds of Vietnamese fishermen for fishing in disputed waters.
Indonesian analyst Dewi Fortuna Anwar says the "increasingly aggressive rhetoric from Beijing sends rather unwelcome news to the rest of the region".
Including to Singapore, where these issues are playing strongly. Ambassador-at-large Tommy Koh has written a new book, Asia Alone: The Dangerous Post-Crisis Divide from America.
Singaporean academic Evelyn Goh says the key question is "whether Asians are willing either to shift into a Chinese sphere of influence, or to facilitate a highly complex negotiated power sharing arrangement between the US, China, Japan and the region".
China is now the biggest economic partner of all its Asian neighbours. As Bill Clinton famously stressed: "It's the economy, stupid." And the US looks unlikely to regain economic dominance.
Japan's Economics Minister Banri Kaieda said shortly before the release of Zhan: "The Japanese economy's future performance seems to depend on whether the problem is solved quickly."
Japan's trade with China reached $156 billion in the first half of 2010, up an extraordinary 34.5 per cent from 2009. Thirty per cent of Japanese firms' manufacturing output is produced in China.
Foreign Minister Kevin Rudd has warned that "we are now seeing the rise of a new great power. A growing China will pursue its interests globally: that is natural. [But] history is not overburdened with examples of how such transitions in geopolitical and geo-economic realities have been accommodated peacefully. We need a new way forward."
Andrew Davies, director of operations at the Australian Strategic Policy Institute, wrote of the Rudd government's 2009 defence white paper: "We come to the uncomfortable conclusion that our major ally and our major trading partner are, at some level, getting ready to fight one another."
Hugh White, professor of strategic studies at the Australian National University, who drafted much of the Howard government's defence white paper of 2000, has stirred up a furious response to his new Quarterly Essay, Power Shift -- Australia's Future Between Washington and Beijing, because of his prescription that Australia should persuade the US to accommodate China's ambitions, and should convince China to join a "concert of nations", including India and Japan, to guide Asia's future.
The core of his essay lies in the less contestable analysis that China's economic surge will form the basis for a great rise in its strategic power. When China becomes the world's richest country, "that will make it too strong to live under American leadership in Asia".
China, White writes, is "already bigger, relative to the US, than the Soviet Union ever was during the Cold War", although one difference is that China has boomed because of its international economic enmeshment, becoming a champion of globalisation.
White says that "if China's power displaced America's primacy, we will have to start thinking about our place in the world all over again", even though "it is easy to hope that, like climate change, the issue will just go away".
He says Asia is "a maritime theatre". But the Western Pacific "is likely to become a kind of naval no-go zone in coming decades", paralleling the economic "balance of terror" between the US and China, with neither wishing to push the other too far.
American analyst Robert Kaplan says while the US and other nations consider the South China Sea an international waterway, China considers it a core interest.
He expresses concern about the US being distracted by Afghanistan and the Middle East as China builds an economic empire based on a far-flung trading network ultimately protected by its warships: "the British Empire refitted for a 21st-century era of globalisation".
White says: "If we plan to get rich on China's growth, we had better get used to the idea of it as a very powerful state."
It is also a more predictable state than most rising powers.
Despite its often opaque governance, it is no longer ruled by charismatic visionaries but by committee men who almost chronically covet consensus.
One of China's nationalist thinkers, Wang Xiaodong, says that while China's present leaders are essentially administrators, when today's students eventually succeed them, "China will globalise its national interests, and this will affect not just our close neighbours but the whole world. It must gain the capacity to protect those interests."
Paul Monk, co-founder of Austhink Consulting and former head of China analysis for the Defence Intelligence Organisation, in a recent speech cited Lee Kuan Yew's description of Deng's resurgent China:
"This is not just another big player. This is the biggest player in the history of man."
Monk defines this in security terms: "The danger is less one of a large-scale military threat than of the gradual constriction of our freedom to operate in the manner to which Anglo-American naval primacy has long accustomed us."
He concludes: "The challenges we faced from Japan in the early 1940s and the Soviet Union during the Cold War were simple by comparison."