Even before the pandemic the Chinese Communist Party had been flexing it’s muscles. In response to the arrest of Huawei executive in Canada, the Chinese government illegally kidnapped and has continued to hold two Canadians on fictional charges of espionage. [MT1] China has gone tit for tat in response to the Donald Trump led trade war, putting tariffs on US agricultural goods. [MT2] In Australia, an effort to buy control of Australia’s mining industries and infrastructure has led to tightening controls on foreign investments. Border clashes in India’s far north have led to a month’s long standoff and increasing buildup between the two nuclear armed nations. The world has watched the Chinese government crackdown on Hong Kong, reversing its promise of 50 years of autonomy and One China, two systems. It reneged on its pledge not to militarize the Spratly Islands in the South China Seas. In the far west of the country, a crackdown on China’s Muslim inhabitants, Uighurs, has led to an internment of over a million people. China is also reportedly using its extensive Belt and Road initiative to gain strategic access to countries to broaden its sea power. [MT3] In countries where they have done substantial lending, particularly in Africa, efforts have been made to get the Renminbi used alongside the US dollar. In July of this year, the new security law passed by the Chinese government made it effectively illegal, globally, to advocate for democratic reform in Hong Kong.
For a year replete with terrible things, China has given its best efforts to be more than an “also-ran”. But for any superpower (and make no mistake, this is a superpower and we live in a multi-polar world) this seems like a lot of toes to step on. Canada, the US, Australia, South Korea, Europe, and India have all, in one way or another, been challenged by the Chinese. Even the Chinese response to Covid-19, as detailed in Bob Woodward’s new book, Rage, shows that the Chinese authorities covered up the seriousness of the new virus, and that a charitable reading of its actions would be disinterest in how other countries might deal with it. At worst, it’s actions might be described as malevolent, interested in seeing it become a pandemic for their own benefit.
The response from the international community has been mixed however. Far from relying on old alliances to convene panels and establishing a coordinated international response, countries have largely faced these problems in isolation, and it is precisely for that reason that China has been so aggressive over the past 12 months.
Under Obama, whose own foreign engagements were at best mixed, there was at least a sense that the US intended to lead an organized response to China’s growing power status. Between the two leaders as well there seemed to be a clear understanding that their relationship was going to need ongoing management. But the election of Trump changed that math. First, the US bowed out of the Trans Pacific Partnership (both Trump and Clinton vowed to not sign the signature deal that would have aimed to get out in front of China in Pacific trade relations) and Trump has maintained a signature focus on “America First”, a mindset that has backed away from multilateral strategy and look for deals that exclusively benefit the United States.
In the short term the US is likely to benefit, signing deals by themselves means fewer compromises seen in large multilateral deals. But America’s strength has never been that it can “go it alone”. Though much of its’ historic growth did come from its rapid expansion across the continental US, the US’s rise to prominence at the end of the Second World War was its ability to build an extensive network of allies and client states. Compared to the Soviet Union the US lacked a conventional army to match its Soviet rival, but through the Marshall Plan, NATO, and other strategic alliances there has been no corner of the Earth that the US couldn’t reach and influence. That allowed the US to establish the “global order”, one that was initially in opposition to the Soviet Bloc, but one that also became the sought-after route to global prosperity.
Following it’s admission into the World Trade Organization, China has also massively benefited from this global order, but like any rising power it seeks to remake the world in ways more advantageous to itself. Xi Jinping, like Donald Trump, has been explicit in his desire to “Make China Great Again”, undoing the “Century of Humiliation” that looms large in the minds of CCP officials. The historic China is that of a great power, a centre for global culture, surrounded by vassal states like Korea and Japan. Xi Jinping and the CCP, wish to see China returned to this role in the 21st century, making Pacific neighbors subject to its influence and providing a growing alternative to US and Western economic development. All this is old hat. The real question is why is it that China seems to have suddenly become so aggressive despite the immense success its had while not being antagonistic.
One explanation might be China’s policy of Active Defense, a position that dates back to the founding of the Communist regime. This is a posture that seeks for maximum aggression in the face of potential conflicts with larger enemies. Forms of active defense appeared when China helped the North Koreans beat back US forces in the Korean War, the Sino-Indian war of 1962 and an attack on Russia over a border dispute in 1969. This form of defense aims to put potential aggressor nations on a back foot and establish clearly that China’s will regarding national interests is resolute.
Another possibility is that China is testing the waters. With much of the world struggling to deal with Covid-19, this is as good a time as ever to see how united the traditional great powers have been. So far the response has been disorganized and uncoordinated. India, which has never had a strong desire for international alliances now finds itself fairly isolated, traditionally antagonistic with its neighbours (the longest walled border in the world is between India and Bangladesh) surrounded by nations that increasingly see their economic development through China. In Europe, the resurgence of a nationalist far right and the high cost of economic bailouts following 2008 has left many countries at Europe’s fringe more open to help from outside the EU. Meanwhile, the high cost and duration of the wars against terrorism have left Western powers far less interested in open conflict and their populations more wary of joint military adventures.
Whether the CCP under Xi Jinping lied about the nature of the novel coronavirus (almost certainly), or deliberately allowed it to escape across its borders (hard to conclusively prove), the Chinese government now finds itself exactly where it always wished to be, ascendant against a disorganized and self-serving group of largely Western antagonists. And while America may get some short terms gains from its “America first” foreign policy, the collapse of an organized and united group of nations committed to the global order will only make life more unpredictable and more costly.
In 2010 China blocked the export of rare earth minerals to Japan over arrested fishermen, and in 2011 China stopped buying salmon from Norway after awarding the Nobel Peace Prize to a Chinese dissident. In 2012 China punished the Philippines by leaving bananas on the docks until they rotted during a “prolonged investigation” after the Philippines challenged China’s claim on islands in Philippine waters. In February China stopped buying Canadian canola as part of its campaign to have Canada release Meng Wanzhou. In response to an Australian request for an international inquiry into the outbreak of the Covid-19, the Chinese government stopped accepting Australian beef and placed an 80% tariff on Australian barley. All of these events were a result of China responding to international decisions or publicity they didn’t like. In another time these penalties would be of little consequence, but China is the number one trading partner for 130 countries, giving it unprecedented economic leverage on a global scale. That makes the possibility of an effective response to Chinese economic might all but impossible without committed allies.
A famous but apocryphal saying from the 1850s was “If I could add an inch of material to every Chinaman’s shirt tail, the mills of Lancashire could be kept busy for a generation.” In the early 21st century those dreams have been realized but they’ve come with a high cost. At it’s current rate of growth (around 6.9%) every four years China adds the equivalent of the economy of Germany to its own. With such economic power why wouldn’t China assume that the world should be remade in its interests? Why should China not have more say in international organizations? Why should it not set the terms of border disputes with neighbours? Why should it not tell human rights organizations to butt out of its business? Why should China not “have its place in the sun?”, as Kaiser Wilhelm once said of a similarly ascending Germany more than a century ago?
China’s rise is real and cannot be undone. It must be managed, and for those of us that believe that the world is better under the current global order, that means that middle economic powers like Canada, Australia, Western Europe, the UK, Japan and South Korea, will need to better manage our own big power, the United States. With China now the largest market for cars, cell phones, online shopping, alcohol and luxury goods we also cannot ignore or live without the Chinese economy. We are bound together, but not yet subservient. As citizens in a free world, and investors in our own future, these are the problems we must begin demanding of our own politicians to solve, or we will all pay for the consequences with a poorer and more turbulent world.
Books used in this essay include:
Destined for War by Graham Alison
Active Defense by M. Taylor Flavel
The China Wave: Rise of the Civilizational State by Zhang Weiwei
Information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Adrian Walker from sources believed to be accurate. The opinions expressed are of the author and do not necessarily represent those of Aligned Capital Partners Inc.