China: A Satiated Power?

A Rising Hegemon in International Perspective

Prepared by Sean Clark

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CHINA: A SATIATED POWER?

A RISING HEGEMON IN INTERNATIONAL PERSPECTIVE

Sean Clark, Centre for Foreign Policy Studies

Dalhousie University, Nova Scotia

Prepared for the International Security Research and Outreach Programme

International Security and Intelligence Bureau

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PREFACE

The International Security Research and Outreach Programme (ISROP) is located within the Defence and Security Relations Division of The International Security and Intelligence Bureau. ISROP’s mandate is to provide the Department of Foreign Affairs and International Trade Canada (DFAIT) with timely, high quality policy relevant research that will inform and support the development of Canada’s international security policy in the areas of North American, regional and multilateral security and defence cooperation, non-proliferation, arms control and disarmament. The current ISROP research themes can be found at: http://www.international.gc.ca/arms-armes/isrop-prisi/index

ISROP regularly commissions research to support the development of Canadian foreign policy by drawing on think-tank and academic networks in Canada and abroad. The following report, China: A Satiated Power? A Rising Hegemon in International Perspective, is an example of such contract research.

Disclaimer: The views and positions expressed in this report are solely those of the author and do not necessarily reflect the views of the Department of Foreign Affairs and International Trade or the Government of Canada. The report is in its original language.

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PRÉAMBULE

Le Programme de recherche et d’information dans le domaine de la sécurité internationale (PRISI) fait partie de la Direction des relations de sécurité et de défense, qui relève elle-même de la Direction générale de la sécurité internationale. Ce programme a pour mandat de fournir au Ministère des Affaires étrangères et du Commerce international (MAÉCI), en temps utile, des études stratégiques pertinentes et de haute qualité qui permettent d’orienter et de soutenir l’élaboration de la politique canadienne en matière de sécurité internationale concernant la coopération nord-américaine, régionale et multilatérale en matière de sécurité et de défense, ainsi que la non-prolifération, le contrôle des armements et le désarmement. Les thèmes de recherches actuels du PRISI figurent à l’adresse suivante :

http://www.international.gc.ca/arms-armes/isrop-prisi/index

Le PRISI commande régulièrement des études à des groupes de réflexion et à des réseaux d’universitaires au Canada et à l’étranger afin d’appuyer l’élaboration de la politique étrangère canadienne. Le rapport sommaire suivant, intitulé, La Chine : Une puissance rassasiée? Le nouvel hégémonisme chinois dans une perspective internationale, est un exemple de ce type d’étude.

Déni de responsabilité : Les vues et opinions exprimées dans le présent rapport sont exclusivement celles de l’auteur, et ne reflètent pas nécessairement la position du Ministère des Affaires étrangères et du Commerce international, ou celle du gouvernement du Canada. Le rapport est présenté dans la langue de rédaction.

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Executive Summary

For all the fear and concern accompanying discussions of China’s spectacular reemergence, the central conclusion of this paper is that current behaviours and contemporary trends point to a future where China maintains its current satisfaction with the international system. In terms of security, China’s neighbours are too weak individually to pose much of a threat, yet at the same time powerful enough in tandem to make military expansionism impractical. This is not to suggest that China lacks those who yearn for the return of lost territory, such as ‘rebel’ Taiwan or the ‘nine-dash line’ in the South China Sea, but that there is very little reason to think these revanchists have the strength to carry the day. This is in large part due to the central pillar of the CCP’s rule: the achievement of steady economic growth. For all its flaws, the CCP has overseen the most impressive economic catch-up of all time. The conclusion amongst the Chinese public is that continued communist rule is thus a laurel worth bestowing.

The remaining key aspect of great power satiation is wealth. Here again there is nothing to suggest that China will find the international system discomfiting. Chinese exporters have gone from strength to strength, with little opposition from overseas markets shown. Rather than slapping on anti-dumping duties and erecting tariff walls, foreigners have lined up to buy cheap Chinese goods. Moreover, what little tension does exist can be expected to diminish as China’s economy continues its trend of shifting away from exports and more towards domestic consumption. The consequent forecast is for smaller current account surpluses and thus even less international wrangling over Chinese market gains. In short, the future of economic growth in China will lie primarily on the strength and vigour of the domestic reforms that must now be undertaken. Even here there is good reason for optimism, given that a clutch of economic reformers has been installed at the very heights of the Chinese economy. If the success of these able technocrats in the late 1990s is any indication, markets will be further freed and the concomitant productivity gains made plentiful. Such a result would set the stage for a China quite unlike the Germany of 1914, a power deeply unsatisfied with the contemporary international system and surrounded by mutual hostility. Instead, China would appear much more similar to the United States of 1890, steadily—and contentedly—gaining in power and influence but to the anger and detriment of few.

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Sommaire

Malgré toutes les craintes et les préoccupations exprimées dans les discussions sur la renaissance spectaculaire de la Chine, la principale conclusion de ce document est que tous les comportements actuels et toutes les tendances futures laissent présager un avenir où la Chine continuera de s’estimer satisfaite du système international. S’agissant de la sécurité, les voisins de la Chine, pris individuellement, sont trop faibles pour constituer une quelconque menace. Dans le même temps, ensemble, ils sont suffisamment puissants pour amener Beijing à renoncer à tout projet d’expansion militaire. Cela ne veut pas dire pour autant que la Chine ne souhaite pas récupérer le territoire perdu, comme Taïwan la « rebelle » ou la zone dite de la « ligne en neuf traits », dans la mer de Chine méridionale. Il semble cependant très peu probable que les revanchards exercent suffisamment de pouvoirs pour mener à bien leurs projets. Dans une large mesure, cela s’explique par l’un des objectifs centraux du programme du Parti communiste chinois (PCC) : l’instauration d’une croissance économique durable. Et c’est sous la direction du PCC, malgré tous ses défauts, que s’est effectué l’un des rattrapages économiques les plus impressionnants de tous les temps. En conséquence, pour le public chinois, le maintien du communisme en vaut le prix.

Le dernier besoin qu’une grande puissance cherche à satisfaire, c’est la richesse. Or, sur ce point encore, rien ne laisse penser que la Chine trouvera à redire du système international. Les activités des exportateurs chinois ne cessent de se développer, alors que le reste du monde se contente de regarder passer les trains. Au lieu d’imposer des droits antidumping et d’ériger des obstacles tarifaires, les étrangers font la file pour acheter des marchandises chinoises bon marché. Qui plus est, les tensions restantes, si petites soient-elles, devraient s’estomper à mesure que l’économie chinoise continuera de se rééquilibrer au profit de la consommation intérieure, et au détriment des exportations. Aussi faut-il prévoir des excédents moins importants du solde du compte courant et, par voie de conséquence, moins de discorde encore sur la scène internationale. Autrement dit, l’avenir de la croissance économique en Chine sera tributaire, d’abord et avant tout, de la force et de la vigueur des réformes à engager dès maintenant au niveau national. Même dans ce domaine, l’heure est à l’optimisme, étant donné que l’on a confié à une poignée de réformateurs économiques les rênes mêmes de l’économie chinoise. Si l’on se fie au succès de ces technocrates efficaces, à la fin des années 1990, une libéralisation accrue des marchés est à prévoir et, dans la foulée, des gains de productivité considérables. Si tel est le cas, la Chine ressemblera non pas à l’Allemagne de 1914, mais plutôt aux États-Unis de 1990, de sorte que son pouvoir et son influence augmenteront constamment, sans susciter la colère, ni au détriment d’autrui.

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Introduction1

The most dominant political economy trend of the past two decades has been the reconvergence of wealth between East and West. After two centuries spent languishing in deep poverty, China has roared back to the front rank of world economies. Beginning with the cautious reforms of Deng Xiaoping in 1978, markets have been freed, property rights promulgated, and profit once again made legal. With the vibrancy of capitalism unleashed, Chinese productivity has soared and entrepreneurialism flourished. Combined with a large, disciplined, and low-cost workforce, China has become extremely attractive to overseas investors. Even more, the country’s high rate of domestic saving and persistent current account surpluses has led to unprecedented capital accumulation. At over $2 trillion,2 China has already built up the world’s largest stock of financial reserves.3 Meanwhile, the country continues to build schools, factories, and airports at breakneck speed. Hundreds of millions of Chinese have been lifted out of poverty during this transformation from agrarian backwater to ‘workshop of the world.’ From Shanghai to Shenzen, endless rows of gleaming new skyscrapers have gone up seemingly overnight, transforming the skylines of cities once trapped in drab Maoism into the cutting edge of architecture and design. In short, China now boasts the most impressive economic catch-up of all time. The reverberations of China’s tremendous economic expansion have been felt in many fields, but perhaps nowhere are the implications more profound than the matter of international power. Realists have long contended that economic strength underlays military capability.4 This notion finds agreement within Chinese strategic culture, where the expression “prosperous army and strong country” is commonly espoused.5 The recent purchase of new fighters, ships, and missiles, to say nothing of the dramatic improvement in the People Liberation Army’s (PLA) basic kit and training, has certainly been made possible by the country’s buoyant economy. Further growth will enable military spending to become even more lavish. The International Institute for Strategic Studies (IISS) suggests that given potential American budget cuts China could conceivably be outspending the United States on defence by 2022.6 Some fear this buildup signals a much more aggressive Chinese international posture. Arthur Waldron suggests that “sooner or later, if present trends continue without change, war is probable in Asia….China today is actively seeking to scare the United States away from East Asia.”7 It is possible that such estimations are overly dramatic. True, the country will, as rising powers are wont to do, develop new and more sophisticated military capabilities. But these need not upset China’s ‘Big Switzerland’ policy of conducting their affairs while

1 This section draws from Sean Clark, “In the Dreadnought’s Shadow,” Canadian Naval Review, (Fall 2011). 2 Note that all figures are in nominal USD, unless otherwise stated. 3 Anthony Faiola, “China Worried About U.S. Debt,” Washington Post, March 14, 2009. 4 Jacob Viner, “Power Versus Plenty as Objectives of Foreign Policy in the Seventeenth and Eighteenth Centuries,” World Politics (1948). 5 Peter Hays Gries, China's New Nationalism: Pride, Politics, and Diplomacy, (Berkeley: University of California Press, 2003, p105. 6 International Institute for Strategic Studies, The Military Balance: 2013, (London: IISS, 2013). 7 Arthur Waldron, “How Not to Deal With China,” Commentary, (March 1997).

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“hiding their light under a bushel.”8 Chinese scholar and Communist Party (CCP) theorist Zheng Bijian asserts that China will “not follow the path of Germany leading up to World War I or those of Germany and Japan leading up to World War II.” Instead, it shall “transcend the traditional ways for great powers to emerge” and “strive for peace, development, and cooperation with all countries of the world.”9 Such a pacific strategy is eminently plausible, given that “China is stronger today and its borders are more secure than at any other time in the last 150 years.”10 There is also good reason for China and the other great powers to remain on friendly terms. China and the United States, for example, enjoy close trading ties, a common enthusiasm for basketball and free enterprise, and even fought alongside one another in the Second World War. Nowhere is it preordained that a young colossus must come to blows with the powers who preceded it. Yet what if this assumption of enduring tranquility does not hold true? We need not travel far to uncover such sentiment. It is certainly discomfiting to the Party leadership that so much of the economy depends on raw materials obtained from abroad.11 Never before has China had to worry about foreign supplies keeping the lights on and the factories humming.12 So too does Beijing remember that in the early 1800s China’s role as regional hegemon was upset in dramatic fashion. During this period China found itself brutally “thrown out to the margins” of a suddenly Eurocentric world.13 A “century of humiliation” ensued, a wrenching memory that still lingers, ever feeding the conviction that the nation’s ‘middle kingdom’ status must one day be restored.14 In the mid-1990s Chinese nationalists marched under the banner of “China Can Say No”15 and today nationalist websites seethe with rage at every perceived international slight. Even the former Chinese Premier, Wen Jiabo, has openly accused the United States as “trying to preserve its status as the world’s sole superpower, and [denying] any country the chance to pose a challenge to it.”16 In fact, most of the Chinese leadership assumes that strategic rivalry with America will only “increase with the ascension of Chinese power.”17 Perhaps this is why a country facing minimal chance of invasion is now the world’s second largest military spender.

8 “The Trillion-Dollar Club,” The Economist, April 17, 2010. 9 Zheng Bijian, “China’s ‘Peaceful Rise’ to Great-Power Status,” Foreign Affairs (vol. 84, 2005), p22. 10 Andrew J Nathan and Robert S Ross, The Great Wall and the Empty Fortress: China's Search for Security, (New York: W.W. Norton, 1998), p226. 11 Y Deng and F Wang, China Rising: Power and Motivation in Chinese Foreign Policy, (Lanham: Rowman and Littlefield, 2005). 12 Jad Mouawad, “China's Growth Shifts the Geopolitics of Oil,” New York Times, March 19, 2010. 13 Chen Zemin, “Nationalism, Internationalism and Chinese Foreign Policy,” Journal of Contemporary China 14, no. 42 (February 2005), p36-7; Robert Kagan, The Return of History and the End of Dreams, (Toronto: Vintage, 2009), p27. 14 Michael Swaine and Ashley Tellis, Interpreting China's Grand Strategy: Past, Present, and Future, (Santa Monica: RAND, 2000), p15. 15 Robert Kagan, The Return of History and the End of Dreams, (Toronto: Vintage, 2009), p30. 16 Andrew J Nathan and Bruce Gilley, China's New Rulers: the Secret Files, (New York: Review Books, 2003), p208. 17 Rosalie Chen, “China Perceives America: Perspectives of International Relations Experts,” Journal of Contemporary China 12, no. 35 (May 2003), p290.

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Theory & Research Design This leaves us with a crucial a question: how likely is a growing China to conclude the current international order is sufficiently accommodating to its national interests? The model posited here is simple, assuming that great powers are primarily concerned with security, national grievances, domestic politics, and wealth. If ‘satiation’ can be achieved on these fronts, a growing power will be sure to keep any revolutionary intentions it harbours in check. If not, the expectation is for ever-greater levels of animus, belligerence, and the growing prospect of war. A fair question is to ask why these variables and not others? Their selection is the product of the author’s previous research,18 as well as their service as a rough encapsulation of the major bodies of international relations thought. Realists, for example, hold security as a statesman’s ultimate concern. Authors from Machiavelli to Morgenthau emphasize that in the absence of security, no other political good is obtainable.19 Successful invaders impose their own legal and moral codes, domestic preferences notwithstanding. The precondition for international tranquility is therefore a relative balance of power among rivals. Only with force sufficient to keep all neighbours at bay does international cooperation become possible. Liberals are more divided but no less adamant in their claims. Wealth, one school argues, is the ultimate salve to perceived national slight. Become rich and all sins will be forgiven. The capacity to generate wealth is therefore the central determinant of international stability; a growing economy is expected to remain fat and happy.20 Liberals of the domestic politics persuasion argue instead that the stability of any regime rests on its ability to deliver political goods to its main supporting constituencies. Failure to do so risks political upheaval, with the aggrieved party rising up and casting the ruling class to the street. International politics is thus a two-level game:21 dealings at the international level must not only make the state stronger and wealthier, but also improve the domestic palatability and hence survival of those in charge. This paper makes a similar effort to incorporate constructivist and cultural theories. This is done by evaluating the extent of popular sentiment vis-a-vis the international system. In some cases, such as France leading up to the Great War,22 no manner of wealth or security can quench a burning desire to have some perceived historical slight put right. This is termed revanchism, from the French word for revenge. Having lost its provinces of Alsace and Lorraine to Germany in 1871, many in France demanded the territory returned no matter the cost. In 1873 the French poet Victor Laprade wrote:

18 See the complete collection at www.seanmclark.ca. 19 Niccolò Machiavelli, The Prince, trans. Harvey Mansfield, (Chicago: University of Chicago Press, 1998); Hans Morgenthau, Politics Among Nations, (New York: Knopf, 1973). 20 Joseph A Schumpeter, Capitalism, Socialism and Democracy, (London: Harper, 1961); Norman Angell, The Foundations of International Polity, (William Heinemann, 1914). 21 Robert D. Putnam, “Diplomacy and Domestic Politics: the Logic of Two-Level Games,” International Organization, (vol. 42, 1988). 22 John F V Keiger, France and the Origins of the First World War, (New York: St. Martin's Press, 1983).

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“Land of pity, sweet land of France; The honour I render, the love I owe; Inspire nothing more in me than hatred and vengeance: A dream of bloodshed fills my mind in your glades.”23

When such views become pervasive the existing international order will be deemed intolerable by politicians and public alike. Given the demonstrated power of this effect, it too has been incorporated into the study. Together these variables provide a useful means of evaluating just how satisfied China is with the international status quo, and how likely this condition is to continue into the foreseeable future. Of course, Beijing and its citizens may care about additional matters, and there is no certainty that unhappiness with any of them will ensure war’s instigation. But few would argue that a China threatened by regional insecurity, economic uncertainty, or domestic upheaval would consider the current international arrangement tenable over the long term. Similarly, no one would suggest that a China riven with unbridled antipathy towards its neighbours could be trusted to keep its finger off the trigger. On the other hand, a China that finds relative satisfaction in what the contemporary order offers each of these needs can be expected to be a relatively harmonious member of global society.

23 Cited from M J Cohen and John S Major, History in Quotations, (London: Orion, 2008), p703.

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International Security

We are firm in our resolve to uphold China’s sovereignty, security and development interests and will never yield to any outside pressure.” Hu Jintao, Report to CPC Congress, November 2012

China lives in a dangerous neighbourhood. It is surrounded on all sides by countries with whom it has a violent past. Many of these slights have not yet been forgotten; memories in Asia run deep. It is therefore unsurprising that this well of grievance and animosity recently passed Europe to become the world’s second-largest military market.24 Revived economic powers, the thinking seems to be, require armouries befitting their newfound wealth and status—all the better to settle old scores. Policymakers in Beijing thus have good reason for casting a nervous eye to what has over the last two decades become a highly militarized region. There is certainly no shortage of candidates worthy of China paying close heed. Taiwan and Japan, for example, boast advanced American-designed fighter planes and the latest shipborne radar. South Korea, too, is home to a sophisticated army and is a growing naval power, with four 14,000-ton flattop assault ships soon to be completed. In the west, India’s military is undergoing a vast modernization program, including the deployment of new main battle tanks and nuclear-powered ballistic missile submarines. In the north, Russia deploys along its border plentiful military hardware of a sophistication China cannot yet match. Most potent of all lies to the east, just offshore. Here the US Navy and its peerless collections of ships and aircraft patrol as they have done since the closing months of the Second World War, ever watchful.

24 Andrew T H Tan, The Arms Race in Asia: Trends, Concepts and Implications, (Routledge, 2013).

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Growing Power, Enduring Gap Against this China can nevertheless look to its own burgeoning military strength.25 Numerically, the country has always been at the front rank of armed forces. Even today the People’s Liberation Army (PLA) boasts 1.6 million soldiers under arms, an air force of 420,000 personnel, and a navy of 270,000 sailors. More important, however, is the rapidly improving quality of these forces. Much of this is due to China’s generous defence budget, which although staying relatively steady in terms of GDP share, has grown rapidly in absolute value thanks to the country’s torrid economic growth. Much of this spending is cloaked in secrecy and buried within other departments; the Stockholm International Peace Research Institute (SIPRI) and the IISS conclude the official defence budget underestimates actual spending by some 30-50%. Yet despite this imprecision the overall trend is consistent: China spends vastly more on its military than just a few years ago A good guess today is a defence budget of about $140 billion US per year, or 2% of GDP and roughly triple the amount spent in the mid-1990s.26 Growing budgets have enabled the purchase of a vastly improved arsenal. From Russia have come S-300 missiles, Su-27K fighters, and Kilo and Typhoon submarines. Israel, another critical supplier, has provided laser-guided bombs and AWACs airplanes. From Ukraine came a rusting Soviet-era carrier, recently refurbished and put to sea for trials. But as much as China has paid in recent years to international arms dealers, efforts regarding domestic production have been even more pronounced.27 Her foreign-built carrier, the Liaoning, is said to be followed by at least two domestically-produced vessels.28 Already billions have been spent on the development of a naval air arm to accompany this nascent fleet.29 Three Type 052C guided missile destroyers have been put to sea, with three more soon to follow. Another seven China-built, nuclear-powered attack and ballistic missile subs are currently in the works. A further area of indigenous military development is the stealth fighter program, with two separate models under development.30 The star is the Shenyang J-31, which bears uncanny resemblance to the rear section of the F-22 and the forward of the F-35.31 So too has the army deployed the world’s first ‘anti-ship ballistic missile,’ a truck-mounted weapon that can strike rival fleets stationed in China’s littoral waters hundreds of kilometres away. The PLA has even launched an aggressive push into unmanned aerial vehicles, building variants that appear to be clones of the US Reaper and Predator models. 25 David Shambaugh, Modernizing China's Military: Progress, Problems, and Prospects, (University of California Press, 2004); Richard Fisher, China's Military Modernization: Building for Regional and Global Reach, (Stanford Security Studies, 2010). 26 SIPRI Military Expenditure Database, available at www.milexdata.sipri.org. 27 Tai Ming Cheung, Fortifying China: the Struggle to Build a Modern Defense Economy, (Ithaca: Cornell University Press, 2008). 28 Richard Fisher, “China Has Plans for Five Carriers,” Aviation Week, (January 5, 2011). 29 The J-15 naval aircraft is roughly equivalent to the F-18, though with a shorter range and less sophisticated sensors. The Ka-28 helicopter serves as submarine hunter. A Z-8 helicopter has been fitted with radar to provide maritime airborne surveillance, albeit with a more limited range than an airplane like the USN’s E-2. 30 Richard Norton-Taylor, “Experts Surprised by Quick Development of Chinese Stealth Fighter,” The Guardian, (January 11, 2011). 31 Although perhaps mere coincidence, it is worth nothing that the F-35 program was hacked by unknown assailants and data stolen. John Reed, “China’s Newest Stealth Fighter Flies,” Foreign Policy, (October 31, 2012). The J-20 is the other stealth jet.

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The overarching lesson is that the quality of China’s military hardware is rapidly improving. The ill-equipped PLA that rushed into Korea in 1950 and stumbled into Vietnam in 1979 is no longer. Whereas China’s military industry could once only produce cheap knockoffs of simple Russian equipment, the country today boasts gear with sophistication and real military value. Problems remain at the very edge of the technology frontier, such as with aircraft engines and naval propulsion systems, but the overall quality has improved remarkably. "On some technology, they are now competitive…with European arms exports and very competitive on price."32 Chinese equipment is known on the international market for its no-frills reliability and cost effectiveness. Because of this, China has become the world’s fourth largest exporter of military equipment. The caveat to this is that despite the rapid improvement in the quality of China’s military equipment, it still does not equal the very best of China’s rich rivals, whose models remain between ten and twenty years ahead. The Liaoning, for example, lacks the catapult necessary to launch large aircraft and travels with a tugboat in case the ship becomes unable to return to port under its own power. The Type 052 warship carries only 50% as many missiles as an American Arleigh Burke destroyer and its radar is likely far less advanced. China’s two Type 093 submarines are capable of long range patrols but lack the Very Low Frequency radios necessary to transmit orders from aircraft to submerged submarines, as well as the higher frequency radios necessary for ship-to-submarine communication. The result is a lack of tactical control over the underwater fleet. Another indication that China has a ways to go is that it built two separate prototypes for the J-20

32 Simon Wezeman, senior researcher at the Stockholm International Peace Research Institute, cited in Tim Hepher, “China Pushes Exports, Flags Ambitions at Arms Fair, Reuters, (November 16, 2012).

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stealth fighter, one with a Russia-made AL-31F engine because the other, the Chinese-designed WS-10A, is simply too unreliable. The domestically-produced WZ-10 attack helicopter faces similar engine problems. The aggressive push into cutting-edge military equipment has thus not come without setback. The struggle to improve troop quality has been similarly arduous, particularly in the army, which is the least technologically-intensive, worst-educated, and most conservative branch. A steep divide separates the ‘professionalist’ and ‘red’ camps, with the latter emphasizing ideological purity and staunchly defending Mao’s outdated emphasis on guerrilla tactics. Training and equipment are viewed as secondary matters in a true ‘peoples’ army.’ Instead, the red vision is of an entire nation rising up in arms, bound together by a common patriotic consciousness. Opponents are to be overwhelmed by superior numbers, hit-and-run tactics, and a greater moral commitment to the struggle. The professionalists, on the other hand, advocate for a smaller, professional army, one equipped with modern weaponry and sophisticated training. Having examined the wreckage of America’s opponents in Saddam’s Iraq and Milosevic’s Kosovo, they fear anything less is doomed to failure. Although the latter school can be seen as ascendant, their mark has not yet been fully felt. The PLA did, after all, respond quickly to the 7.9 magnitude earthquake in Sichuan in 2008, and with an impressive degree of organization and eagerness to help. But observers frequently noted the army’s primitive equipment and a marked lack of training. China’s RMA enthusiasts themselves admit it will not be until the end of the decade before the latest batch of advanced military platforms and their associated information networks are fully rolled out. Even then the job will not be complete, as both the level of integration and the overall technology itself will likely still be behind that of the West.33 Few anticipate, for example, that the deployment of the J-31 in the early 2020s will fully close China’s fighter capability gap with the United States.

33 “The Dragon's New Teeth,” The Economist, (April 7, 2012).

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Balancing in Asia The Chinese debacle in late-1970s Vietnam signalled to its neighbours that despite the country’s vast bulk, China’s military prowess was surprisingly limited. Her divisions were poorly led, improperly trained, and woefully under-equipped. The schism with Moscow in the 1960s left the country cut off from the latest military technology. The anti-materialism and anti-intellectualism espoused by the Cultural Revolution left the command level bereft of modern and innovative military thought. China’s troops thus struggled mightily to bring an exhausted, much-smaller country fighting a two-front war to heel, leaving Beijing aghast and her rivals emboldened. A chastened Deng Xiaoping ensured thereafter his country “kept its light under a bushel” and stayed away from foreign military adventures. Military spending in the 1980s plummeted as the Party prioritized the economy and other spending areas. But growing power has brought serious reconsideration, both within the CCP’s Zhongnanhai compound and amongst China’s neighbours. According to both RAND and the Centre for Strategic and Budgetary Assessments, China will by 2020 be well on its way to deterring foreign vessels from operating within the “first island chain”, the perimeter running from the Aleutians in the north to Taiwan, the Philippines, and Borneo in the south.34 China’s neighbours know this and have begun to balance against her in ever-greater fashion, relying primarily on the series of formal alliances signed between the United States and its key Pacific partners following World War II.35 The US for its part has

34 Ibid. 35 Formal defence pacts were signed with Australia and New Zealand (the “ANZUS” treaty), Japan, and the Philippines. In 1953 and 1954 further agreements were formalized with South Korea and Taiwan. The

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announced plans to “rebalance” its naval forces, raising the number of fleet assets in the Pacific and Indian Oceans from roughly 50% today to 60%.36 In the summer of 2012 Secretary of State Clinton traveled through southeast Asia to sell this “southern pivot” and found receptive audiences at each stop. What makes the reinvigoration of this US-led security structure so remarkable is that it has taken place despite the emergence of China as a vital economic confederate for everyone involved. China is now the largest trading partner of Taiwan, Japan, South Korea, and Australia, yet each perceives China as its greatest long-term threat. As China’s military has become bolder and more powerful, these countries have in turn been looking to the United States for closer security ties. According to Satu Limaye, Washington director for Hawaii’s East-West Centre: “the demand for American security has never been higher.”37

There are several reasons for this. The first is that the United States remains the continent’s strongest naval power and offers an unrivalled nuclear umbrella. For this reason, “If you are buying security, [America] is the place to shop.”38 The second is that relations between China’s neighbours themselves are fraught with enduring suspicion. Japanese-South Korea relations in particular remain frosty, requiring America to serve as a much-needed mediator. Third and most important is that China’s growing bellicosity has done little to calm the assumption that its intentions are less than purely benign. In June 2012, for example, the People’s Liberation Army Navy (PLAN) announced it would conduct formal alliance with Taiwan lapsed when the US recognized China in 1979, though an informal arrangement remains. 36 Jane Perlez, “Leon Panetta Outlines New Weaponry for Pacific,” New York Times, (June 1, 2012). 37 Cited from Banyan, “Where Asia Left It's Heart,” The Economist, (September 24, 2011). 38 Ibid.

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“combat-ready patrols” of contested waters in the South China Sea. This followed an escalating series of naval clashes between Chinese, US, and Japanese forces off its eastern coast as well. So too did China’s failure to condemn North Korea after the sinking of the ROKS Cheonan rattle the once-improving relations between Beijing and Seoul. In Taiwan, booming trade with the mainland has not undone the fact that a thousand PLA missiles remain trained upon the breakaway island. China, in other words, has poorly hidden its recent efforts to reassert itself in East Asia.39 That its neighbours would begin to balance together more tightly is a natural response. Chinese Security But what about the other direction? If growing Chinese power is driving its neighbours into a stronger alliance, should this not cause alarm in Beijing as well? Germany’s rise in the late 19th and early 20th centuries caused great consternation in Paris, London, and St. Petersburg, and did much to establish the ‘Triple Entente’ that German military commanders found so unacceptably dangerous. In a classic example of the arms racing dynamic, improved German military power made its neighbours more vulnerable to attack. These countries constructed new armies and alliances in response, almost certainly out of an entirely defensive motivation. Yet this newfound Entente power fed German suspicions that its rivals sought to thwart the young country’s rapid rise. Germany then built more of its own armies in return, endangering her neighbours once again. On and on the circle went, until fear trumped reason and the Great War broke out. The Chinese case faces two significant departures from this historical precedent. First is that Germany shared a land border with its chief military rivals. As was shown in 1914, 1918, and 1945, invading French and Russian armies can simply walk onto German soil. The China case is different in part because of the ‘stopping power of water’.40 As both Hitler and Napoleon would lament, projecting power is exponentially more difficult when every bullet and bandage must first be transported by ship or barge. Fortunately for China, it is separated from its two chief strategic rivals, Japan and the United States, by large bodies of water. Even with the PLA’s qualitative inferiority, landing an army upon Chinese shores would pose a significant military challenge. China’s plentiful littoral missile defences alone would badly dent any invading fleet. The likelihood of such an event is therefore unlikely to keep serious PLA commanders up late at night. The second distinction is that China is armed with nuclear weapons and a relatively robust second-strike capability. Conservative estimates put the number of Chinese warheads at several hundred. Better understood are the platforms used to deliver them. Under the command of the Second Artillery Corps (SAC), China’s nuclear forces field roughly 66 land-based ICBMs and 24 submarine-launched SLBMs. To this total the SAC adds 116 intermediate range ballistic missiles, capable of distances in excess of 1,750 km, as well as 204 short range ballistic missiles (for ranges between 300 and 600 km) and 54 land attack cruise missiles, capable of striking targets 3,000 km away. The land based missiles are protected by 5,000 km worth of military tunnels. Dubbed by state media as the 39 Aaron Friedberg, A Contest for Supremacy: China, America and the Struggle for Mastery in Asia, (New York: W.W. Norton, 2012). 40 John Mearsheimer, The Tragedy of Great Power Politics, (New York: W.W. Norton, 2001).

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“Underground Great Wall,” their task is to keep China’s strategic missile squadron safe for a counterstrike in the event of a nuclear attack.41 At sea, the PLAN is developing the Type 094 and Type 096 ballistic missile submarines, the latter likely to carry up to 24 JL-2 ballistic missiles each. The PLA Air Force (PLAAF) operates an aging H-6 bomber fleet, composed of 120 aircraft modelled on the Tupolev Tu-16 Badger. These are capable of dropping both conventional and nuclear payloads, but are due to be replaced by the rumoured H-8 and H-9 strategic bombers. The lesson is that not only does China have a significant number of nuclear weapons, it also boasts an impressive array of means to deliver them. Both serve as an important deterrent to any would-be invader. A Well-Armed Equilibrium So how secure is China under the present international order? The short answer is very. China is no longer an unwieldy collection of obsolete weaponry and ill-trained cadres, incapable of standing up to a modern military opponent. Today it boasts a rapidly improving arsenal and an ambitious young officer corps, much of which has taken the RMA lessons of the past 20 years to heart. Under generals such as Fang Fenghui, head of the PLA, the Chinese military is slowly becoming more professional. The dead weight is being jettisoned and old equipment replaced with advanced platforms that operate in conjunction with a network of sophisticated sensors and communications devices. Already some analysts imagine Chinese military power denying the United States access to parts of the Pacific in less than a decade.42 As is, most areas within the first island chain have become far too dangerous for anyone seeking to land on Chinese shores without welcome. It is important, however, to recognized that this power is far from unbridled. Chinese military technology remains at the leading edge a generation behind the US and its allies. Though rapidly improving, China’s soldiers and sailors are nowhere near as potent as those of the West, many of whom have honed their skills for over a decade at war. Reinforcing this message of deterrence against China is the tightening trans-Pacific alliance. The stronger China grows, the more resolute this balancing becomes. The paradoxical result is that while China deploys an ever larger and more impressive military, the country’s relative power remains basically the same. The addition of several more Liaoning class aircraft carriers, for example, do Beijing no favours if they encourage South Korea and Japan’s new flattops to sail to each others’ aid in the time of crisis.

41 “China Builds Underground ‘Great Wall’ Against Nuke Attack,” The Chosn Iibo, (December 14, 2009). 42 Ambrose Evans-Pritchard, “China, Japan and the World's Agadir Crisis (1911),” The Telegraph, (September 19, 2012).

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China’s Central Military Committee is well aware of this. Hyper-nationalists like the state-run Global Times may threaten that if “countries don’t want to change their ways with China, they will need to prepare for the sounds of cannons,”43 but few at the very heights of China’s defence and foreign ministry establishment contend such logic is sound. Even within the military itself—as neurotic and jingoistic an organization as can be found in China—the belief that pre-emptive military force would bring tangible benefit is noticeably mute. No one thinks that a quick march will deliver Beijing into foreign hands. By any rational estimation, then, the great powers of East Asia are locked into an equilibrium of military stability. But what of the potential for irrational conclusions? What if reason is abandoned at the hands of emotion? In the next section we examine this prospect.

43 Economist, “Dragon’s”.

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Revanchism

“Diaoyu Islands Belong to China We refuse to sell Japanese good in Silk Street Market” Protest banner, Beijing (September 2012)

All nations harbour grudges. The ebb and flow of history invariably crowns some winners and others losers. Whether by fair means or foul, armies are beaten, treaties are broken, princes become paupers, and hegemony proves fleeting. The animus generated by such traumas does not usually dissipate in their immediate aftermath, but is seared into collective memory. This scarring process rarely consists of a straightforward recollection of facts. Stories of kith and kin, after all, are seldom told with an unsympathetic eye. Tragically, the consequence of such myths is that they make national grievances difficult to address. Before and After the Fall Nothing builds national pride more than success. This is important, because of all the great powers today, none carry a more distinguished pedigree than China. The Chinese state traces itself all the way back to 221 BC, when Qin Shihuang united four contending principalities into a single polity. His empire stretched for an area equal to roughly one-third modern China, encompassing the northern half of the country out to the western leg of the Great Wall. At its peak, the imperial court at Xi’an presided over a population of roughly 60 million. Even more impressive is that the bureaucracy the Qin established remained in place under various guises until the 20th century. Twice the country was seized by foreigners: the Mongols, who established the Yuan Dynasty in the 13th century; and the Manchus, who founded the Qing Dynasty in 1644. Yet each time the conquerors and their horse-borne armies were quickly assimilated into the peoples they overran. Change was cyclical, not linear; new dynasties looked to recreate the old order rather than build an entirely new one. And what an incredible order it was. Centuries passed, but China retained its role as ‘middle kingdom’. Its armies were larger, cities more populous, and industry more developed than any of its neighbours. Tribute flowed into the country, along with obeisance from all but the most obstinate tribes along the inner steppes. As Maddison has shown, China boast title as the world’s largest economy for virtually its entire existence. When the Mediterranean was laid low by the war, pestilence, and political upheaval that followed the fall of Rome, even per capita wealth stood for a time ahead.44 The technology gap was even more profound, with China well in front of the West until the 16th century.45 Meanwhile, Qing military success roughly doubled the country’s territorial size between

44 Angus Maddison, Chinese Economic Performance in the Long Run, (Paris: OECD Development Center, 2007). As late as 1820, China’s population dwarfed that of Western Europe 381 million to 170 million. Economic metrics were no different, with China’s GDP outmatching all of Western Europe’s $229 billion to $160 billion. (All figures in million 1990 International Geary-Khamis dollars). Angus Maddison, Contours of the World Economy, (Cambridge: Cambridge University Press, 2007). 45 See, for example, Joseph Needham, Science in Traditional China: A Comparative Perspective, (Cambridge, MA: Harvard University Press, 1981).

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1680 and 1820.46 These conquests, including Mongolia in 1696-97, Taiwan in 1683, Tibet in 1720, and a huge area of central Asia in 1756-57, did much to secure China’s inner Asian frontiers. An additional “outer perimeter of docile tributaries,” including Burma, Nepal, Siam, Annam, Korea, and the Ryukus, provided an extra layer of security.47 For century after century, China stood as a bastion of relative calm in a world of upheaval and national extinction. The durability of China’s success manifest itself in supreme national self-confidence. The Qing, for example, set up an office for managing modern-day Mongolia, Xinjiang, and Tibet. They named it the Lifan Yuan or ‘barbarian management department’. Similarly illustrative is the missive issued by Emperor Qian Long to an emissary of George III in 1793:

“The Celestial Court has pacified and possessed the territory within the four seas…. The virtue and prestige of the Celestial Dynasty having spread far and wide, the kings of the myriad nations come by land and sea with all sorts of precious things. Consequently there is nothing we lack…. We have never set much store on strange or ingenious objects. Nor do we need any more of your country’s manufactures.”

This may have been true for a good deal of time. But the decades following Qian’s death demonstrated that the European world had already passed China by. Whereas China once employed iron-tipped plows when the West still struggled with wooden-tipped versions, now it was China that lagged behind, sticking with iron even as Europe moved on to steel. By the 1830s, China was facing a rising population, stagnating economic productivity, a decrepit transportation system, and a steady drain of silver to British heroin merchants. To make matters worse, in 1850 a madman named Hong Xiuquan instigated the Taiping Rebellion, a civil war that lasted fourteen years and plunged the country into chaos and starvation. When combined with two humiliating military defeats at the hands of Great Britain, confidence in the central government evaporated. A proud nation fell prostrate before a series of ruthless foreign predators, the last of whom did not leave until America’s crushing victory across the East China Sea forced the evacuation of the Japanese army in 1945. Festering Slights China has, for the most part, regained its lost territory. Japan’s forces are long gone. Hong Kong has been returned from Great Britain. Outside a few small border spats, largely the legacy of a failed Indian gamble in 1962, the ‘great game’ played along China’s western interior has been settled. Geographically, China today reflects almost completely the borders maintained by the Qing. Tibet, provided de facto independence under British auspices in 1912, was retaken by the PLA in 1951. Manchuria, first captured by Russia, who then lost it to Japan, has been similarly given back. The diplomatic legations in Beijing, whose imposition in the mid-1800s was so hated by the Boxers and their followers, exist today at the mercy of China’s rulers. Firms now seek permission to enter Chinese markets rather than rely on the Royal Navy to batter a way through. The middle kingdom, in other

46 Maddison 2007, p43. In 1820, China’s national territory stood at twelve million square kilometres. 47 Ibid.

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words, boasts a degree of political independence not seen since the time of Qian Long’s declaration. But forgiveness for past transgressions has not been forthcoming. The wound to China’s national pride inflicted by these colonial adventures lingers on. The least worrisome of these grievances is the enduring sense that, because the contemporary international system was built during a period of steep Chinese disadvantage, the country’s voice is improperly represented on the international stage.48 This is especially true when it comes to America and its perceived global leadership. The assumption is the United States has no desire to share this role and actively seeks to thwart the ambitions of others. This sense of unease is helped by neither the constant USN patrols through what China considers its backyard49 nor the presence of 30,000 American troops on the Korean peninsula. By contrast, Chinese observers have long pointed to the “superhegemonist” ambitions of the United States,50 arguing that the deployment of American military forces to the region serve the interests of Washington alone. Episodes of Sino-American tension during the Tiananmen massacre, the 1995-6 Taiwan Straits crisis, and following the 1999 bombing of the Chinese embassy in Belgrade have all fed the perception that the United States is “not just arrogant,” but actively seeking “to prevent China from prospering and gaining its rightful place at the top of the world system.”51 Meanwhile, the close association of the United Nations and Europe with this US-led structure ensures a similar degree of suspicion towards them as well.

48 Song Qiang et al., Unhappy China: the Great Time, Grand Vision and Our Challenges, (2009); Zhang Zangzang et al., China Can Say No: Political and Emotional Choices in the Post Cold-War Era, (1996). 49 The US views South China Sea as international waters and calls for the freedom of navigation. 50 David Shambaugh, Beautiful Imperialism: China Perceives America, 1971-1990, (Princeton: Princeton University Press, 1991), p252-53. 51 Gries 2003, p142-43. See also Kagan 2009, p32-33.

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Two factors mitigate this grievance. The first is that the basic architecture of the post-World War II order was built to accommodate the war’s victors. Though largely the result of forces beyond its control, China had the good fortune to emerge on the winning side. Incorporating Beijing into this arrangement during the 1970s’ Sino-US rapprochement took a degree of diplomatic dexterity—the United States had to quietly dump Taiwan and hand over its UN security council seat to the communists—but the structures themselves were ready-made to include Chinese participation. More recently, the United States has signalled a similar willingness to bring China into the G-20 and other such fora, with the only proviso that China brings along its chequebook. For its part, China has eagerly embraced such opportunities, acceding to the WTO in 2001—a membership sought “voluntarily and with great tenacity.”52 China similarly responded to the Great Recession of 2008-09 not with a cascade of beggar-thy-neighbour policies but rather a $585 billion stimulus package and an eagerness to cooperate. China was a keen participant at the 2008 Washington and 2009 London G20 summits. In the latter it committed to help Japan and the European Union in raising $250 billion additional bail-out funds for the IMF.53 China has been equally collaborative on the topic of climate change. It is, for example, a signatory to the Kyoto Protocol and the Copenhagen and Ambo declarations. More broadly, the Yearbook of International Organizations reports that the number of Chinese memberships in intergovernmental organizations has grown steadily over the last decade, returning to the country’s pre-Tiananmen peak. More importantly,

52 Jeffrey Sachs and Wing Thye Woo, “China's Economic Growth After WTO Membership,” Journal of Chinese Economic and Business Studies 1, no. 1 (2003): 1–31. 53 Rich Miller and Simon Kennedy, “G-20 Shapes New World Order with Lesser Role for U.S. Markets,” Bloomberg, (April 2, 2009).

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whereas China’s international participation in the early reform period was notably “passive”, today the country is a much more active participant and displays a generally high standard of regime compliance.54

*Source: Reprinted from Hachigian et al 2009, p11-12. A grievance of greater intensity are the territorial disputes that dot the country’s borders. The descent from untrammelled empire to regional also-ran bred serious disagreements over where China’s borders should lie. The resolution of these overlapping claims, however, has generally gone smoothly. Through concerted effort and a willingness to deal, China resolved fourteen of its sixteen post-1949 land-border disputes.55 In each case China came to the table offering compromise, and all but Bhutan and India found the terms acceptable. Further negotiations in the 1980s with Britain and Portugal similarly secured the peaceful return of Hong Kong and Macau, the last Asian holdouts of Europe’s bygone imperial era. This leaves the territorial dispute with India as the only serious remaining land border issue, and even this is more properly subsumed under the greater Indo-Pakistan contest over Kashmir. The border squabble has certainly proved little hindrance to the rapidly growing Sino-Indian trade, valued at more than $60 billion in 2010 and projected to increase further. Like those with the global north, China’s relations with India harbour considerable mistrust and worry, but there exists no martial intent. The South and East China Seas At sea the story has not been nearly so pleasing. There China confronts both less geopolitical necessity for concluding these quarrels and insufficient naval power to force a

54 Nina Hachigian, Winny Chen, and Christopher Beddor, China's New Engagement in the International System, (Center for American Progress, November 2009). 55 These were Burma, Nepal, North Korea, Mongolia, Pakistan, Afghanistan, three with Russia, Laos, Vietnam, Kazakstan, Kyrgyzstan, and Tajikistan. M Taylor Fravel, “Regime Insecurity and International Co-operation,” International Security, (Fall 2005).

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preferable outcome. The border disputes with Russia, for example, were resolved against a menacing backdrop: the combination of millions of soldiers and nuclear weapons gave real urgency to reduce tensions. By contrast, with maritime claims China has limited incentive to deal and far less leverage to achieve the bargain it wants. In the immediate term, the collection of tiny reefs and rocky outcroppings that so roil the East and South China Seas are useful for stirring the nationalist passions that divert the public’s attention from CCP transgressions. They also would make handy naval operating stations in the strategically important first island chain. Chinese control of the Senkaku islands, for example, would provide the PLAN with unobserved access for its ballistic missile submarines into the Pacific Ocean. In the longer-term, there exists real potential for major oil and gas extraction—both vital resources in a region with massive foreign energy dependence. At the same time, the recent expansion of the PLAN’s ‘green water’ fleet has not dethroned the USN as the Pacific’s most potent naval power. Japan boasts a powerful fleet as well, including its somewhat inappropriately named coast guard. So too are the Taiwanese and South Korean maritime forces rapidly improving. Indonesia, Canada, and Australia have similarly begun ambitious naval armaments programs. This leaves China unable to bully its way into the same degree of territorial concessions it could otherwise achieve on land. Together, China has good reason to want to hold fast to its demands, yet at the same time lacks the means necessary to achieve a profitable resolution. This is not a situation conducive to resolving international tensions.

*Source: Perry-Castañeda Map Collection, http://www.lib.utexas.edu/maps/china.html. The offshore islands, then, are a rather unpredictable wildcard. China has certainly sent mixed signals, at least regarding the South China Sea. It has long been assumed that Beijing seeks validation of the ‘nine dash line’, commonly printed on Chinese claim maps, that encompasses practically the entire region. Such an entitlement would place the Spratleys, Paracels, Pratas, and the Scarborough Shoal all under Chinese control. But in February 2012 the Chinese foreign ministry released a statement declaring “no country

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including China has claimed sovereignty over the entire South China Sea.”56 This suggests that despite China’s ‘escalation strategy’—deploying a crescendo of aggressive fishing boats, armed coast guard vessels, and the occasional combat squadron into contested waters—the country’s foreign policy on this front may not be quite as hawkish as it appears. There is certainly little evidence that either the CCP politburo or the Foreign Ministry are gearing up for a serious fight over the region. If anything, territorial spats distract from China’s burgeoning trade efforts, including the 2010 free trade agreement with ASEAN, which at $400 billion in goods and services now serves as China’s third largest trading partner and the largest market for investment by Chinese firms. This may hold true for the East China Sea as well, despite the disagreements there being an altogether uglier affair. The complication is the long and bloody history between China and Japan. The Second Sino-Japanese War in particular killed half a million Japanese soldiers and another 20 million Chinese, most of them civilians. Massive Japanese air raids and ferocious house-to-house fighting levelled many of China’s major coastal cities. The war also included vile episodes such the infamous ‘rape of Nanking’ and the horrifying germ warfare experiments conducted by Japan’s infamous Unit 731 on unsuspecting captives. This ugly backdrop has been let fester by the hardline nationalists in each country. Chinese websites and message boards are littered with anti-Japanese epithets. Football contests held in China, such as the 2004 Asian Cup and 2008 East Asian Cup, have become known for their ugly demonstrations. Chinese police even went so far as to instruct Japanese fans not to wear team uniforms, in order to avoid mob provocation. In 2012 an anti-Japanese riot in Shenzen attacked the city government’s administrative building and demanded the country declare war on China.57 For its part, Japanese politics courts a growing class of right-wing nationalists, who include among their number the mayor of Japan’s largest and most important city, and approves textbooks that whitewash the country’s barbaric imperial history. Visits by political leaders to the Yasukuni Shrine, where fourteen Class A war criminals are interred among the rest of Japan’s war dead, similarly precipitate Chinese outrage. The tension between these two titans has spilled over into a series of heated contests. The latest furor concerns the Japanese government’s purchase of the Senkaku islands,58 which led to China sending a half dozen paramilitary ships in protest. Live-fire exercises by China’s East Sea Fleet were also conducted, including 40 missile launches and sorties by dozens of J-10 fighters.59 But this is just the latest in a series of maritime conflicts. The Chinese navy routinely incurs into Japanese waters, probing ever deeper under steadily more skillful crews: a PLAN submarine was once spotted lurking off Okinawa, and a steady rotation of survey ships has been sent to map the East China Sea, drawing the criticism and anger each time. The regular nature of these clashes has given rise to fears that what we 56 “South China Sea,” The Economist, (March 24, 2012); M Taylor Fravel, “Clarification of China's Claim?,” The Diplomat, (March 5, 2012). 57 Mark Mackinnon, “Growing Tension Between China and Japan Fuels Concerns Over Potential War,” Globe and Mail, (September 16, 2012). 58 Ironically, the aim of the Japanese government was to keep the islands out of the hands of Tokyo's China-bashing governor, who wanted to buy them himself. 59 Christian Le Miere, “China and Japan: Nationalism Rising?,” IISS Voices, September 17, 2012; Jane Perlez, “As Dispute Over Islands Escalates, Japan and China Send Fighter Jets to the Scene,” New York Times, (January 19, 2013).

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are now witnessing resembles the Agadir Crisis of 1911,60 a foreign policy debacle that set the stage for war’s outbreak in 1914.

A more compelling argument, however, is that this is all hyperbolic theatre. True, the angry nationalism, sordid history, and poor dialogue do the region no favours. Yet the benefits of upsetting maritime commerce for a few marginal scraps of rock would be minimal. The depth of the economic relations between China and Japan, for example, make war a dubious proposition. China is now Japan’s biggest trading partner, with $340 billion US worth of goods and services transiting between the two in 2012 alone.61 More broadly, China is the world’s second largest trader, and a heavily commodity-reliant one at that. A shooting war in the East or South China Seas would bring China’s steel mills and electronics factories grinding to a halt. It would also likely close the Straits of Malacca tanker route, through which 80% of China’s imported oil is shipped.62 Tens of millions would be thrown out of work. Inflation would skyrocket and protesters would take to the streets en masse. As China’s 2006 Defence White Paper remarked, “Never before has China been so closely bound up with the rest of the world as it is today.”63 Thus despite what some commentators assume, there is no war for these uninhabitable islets in the offing. 60 Evans-Pritchard 2012. 61 World Trade Organization, “Trade Profiles,” www.wto.org. 62 “Whoever is lord of Malacca, has his hand on the throat of Venice,” wrote Tomé Pires, the strait’s first Portuguese governor. Cited from Ian Morris, Why the West Rules—For Now, (Toronto: McClelland & Stewart, 2010), p431. 63 China's National Defense in 2006, (Beijing: Information Office of the State Council of the People's Republic of China, 2006).

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Taiwan The same can be said for the even bigger headache of Taiwan. For all the xenophobic outrage and memories of World War II that colour relations with Japan, there exists no nerve in China more raw than the one that sits just 120 miles off the Fujian coast. Here is the last redoubt of the People’s Republic of China, the island refuge where KMT loyalists fled when the civil war was lost in 1949. Despite its beginnings as a brutal authoritarian regime, Taiwan has developed a vibrant, if raucous, democratic culture. For this reason alone Beijing watches the nation of 23 million with keen intensity. Backed by a 2005 Anti-Succession law, China has constantly warned that an outright declaration of independence would be met with force. There is little reason to doubt the veracity of this claim, given the leadership’s oft-demonstrated unwillingness to unilaterally forgo the use of force again Taiwan—no matter the potential economic or military costs, duration or intensity of American intervention, or balance of forces in the region. 64 That the CCP would be so aggravated by a de jure declaration of what is already de facto truth is on the face of it absurd. But for the communists, Taiwan is ‘the province that got away’.65 Its continued independence signals to the world—as well as China’s own people—that an alternative, democratic path is not only possible but perhaps enviable. Doubly worrisome for the communists is that Taiwan harbours little desire to return Beijing’s rule. Public opinion polls consistently find only a minority of Taiwanese favour reunification.66 Yet on the mainland the hunger for its return has not diminished. Whereas it was once thought this view was limited to China’s old guard, it appears a new generation has taken up the conclusion that Taiwan is a dangerous revolutionary model and its independence must therefore be scuttled. For this reason the Chinese public is almost universally supportive of the 400,000 PLA troops who stand permanently ready in Nanjing military district, quietly deterring Taiwan from embracing too distant a public stance. To this China has another 1.2 million soldiers from which it can draw. In contrast, Taiwan keeps just 130,000 troops under arms and relies on a military budget of just $14 billion per year, about a tenth of Chinese spending. On the other hand, tensions have soothed substantially since the provocative Chen Shui-bian left Taiwan’s top office in 2008. The current president, Ma Yingjeou, has repudiated the pro-independence policies of his predecessors and ties with the mainland have improved dramatically. China is Taiwan's top export market, a condition bolstered by the eighteen cross-strait agreements signed between 2008 and 2012. This includes the 2010 Economic Cooperation Framework, a free trade deal which did much to please business leaders in both countries. Beijing, too, has shifted its strategy from belligerence to seduction, actively wooing moderate Taiwanese leaders. The dividends of this have been large, with many in Taiwan now advocating a softer line towards China. Meanwhile, four million Taiwanese visit China each year and some 750,000 have set up permanent residence. Taiwanese investors have likewise invested $150 billion in some 30,000

64 Thomas J Christensen, “Posing Problems Without Catching Up,” International Security, (Spring 2001). 65 Deng and Zemin, for example, were willing to accept considerable Taiwanese autonomy, but in return the country must stay under “one China.” 66 John Bryan Starr, Understanding China: a Guide to China's Economy, History, and Political Culture, (New York: Hill and Wang, 2010).

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Chinese enterprises, found mostly in Guangdong and Fujian and include the main manufacturing hubs of high-tech giants Foxconn and HTC. Cross-strait trade now exceeds $120 billion per year.67 What further calms the prospect of future Sino-Taiwanese violence is the fact that a Chinese military invasion would be extremely difficult. It certainly could not be achieved without wholesale damage to the very province Beijing seeks to take back. More likely than an all-out assault would be a naval blockade, either holding the 10,000 Taiwanese troops stationed on Jinmen and Mazu islands hostage or of Taiwan itself. Such a move would likely bring Taipei to rescind any outright declarations of Taiwanese independence. But total capitulation would be an entirely different matter. It is hard to imagine a scenario where the PLAN brings Taiwan to its knees, followed by the shell-shocked populace blithely accepting a PLA garrison force as it moved ashore. More likely is it that war would simply progress to a much more costly land-based guerrilla phase, bringing the question of cost-benefit once again to the fore. Moreover, as reiterated by the 2005 US-Japan-Taiwan joint security statement, the island boasts extremely well-armed friends. Thus no matter how many land-based anti-ship missiles the PLA deploys, Beijing will have ample reason for pause when considering the military option. The result of these economic and combat realities is that while the 1990s and early 2000s were a time of mutual fear and increasing militarization, the situation today is much healthier. There is far less anxiety and a great deal more cooperation between the two nations, even if this is essentially constrained to economic matters. Reduction of the mutual military distrust, let alone political reconciliation, remain a long ways off. But China appears to be patient, a stance that diminishes the fear felt in Taiwan. It is therefore safe to conclude that the Taiwan Straits will not be compelling the CCP leadership to abandon international cooperation and embrace the use of force any time soon. 1914 No Longer Much has been made of the similarities between the nationalist discomfort felt by China today and that of Germany prior to the Great War. As we have seen, contemporary China demonstrates a worrying mix of hyper-nationalist tendencies. Yet this revanchism is far less potent than generally assumed. No doubt the hard-liners who riot against Japanese footballers68 and clamour for a military solution for ‘rebellious’ Taiwan would find common cause with the prewar Pan-German league.69 But China’s foreign relations do not

67 Starr 2010, p336. 68 During an anti-Japanese riot in 2005 “protesters used slogans that echoed anti-Japanese campaigns of a century ago, denouncing ‘little Japan,’ calling Japanese dogs, urging China to ‘stand up,’ and calling for a boycott of Japanese products.” Howard J French, “China Allows More Protests in Shanghai Against Japan,” New York Times, (April 17, 2005). A year earlier at the Asian Cup final in Beijing, Chinese protesters burned Japanese flags and forced Japan's small contingent of fans to flee to safety in busses. BBC, “Chinese Riot After Japan Victory,” (April 7, 2004). 69 Pan-German extremists were a recognized minority, though the largest membership ever claimed was under 25,000. Nor did they have as much influence in Berlin’s foreign policy circles as the Pan-Slavs in Russia. Still, in 1901 they managed to put 32 deputies in the Reichstag and the Kaiser and his ministers did little to disassociate themselves from the group. Joachim Remak, The Origins of World War I, (Holt, Rinehart

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yet match the “neurotic climate of suspicion and insecurity”70 that characterized prewar Europe. Unlike today, there existed in 1914 “a widespread belief that war was not only inevitable but desirable.”71 Echoing a common sentiment, the Prussian general and military historian von Bernhardi claimed that…

“War is a biological necessity of the first importance, a regulative element in the life of mankind which cannot be dispensed with…But it is not only a biological law but a moral obligation, and, as such, an indispensable factor in civilization.”72

Today the story is noticeably different. Modern nationalist Chinese websites like the Global Times and anti-CNN.com focus on refuting “untrue reports” of Beijing’s heavy-handedness by the Western media,73 rather than exhorting sacrificial violence. This makes them remarkably tame in comparison. Although sharper teeth lie behind China’s ‘smile diplomacy’74 than Beijing would openly admit, China’s central priority remains the assurance that international entanglements do not interfere with economic development.75 Without steady growth and the domestic stability it brings the CCP cannot survive. This ensures that anti-Western or Japanese or Taiwanese rhetoric—itself often fanned by the regime in an effort to boost its own credibility—is tamped-down by the government whenever tempers flare too high. Beijing knows that unleashing the whirlwind of war risks unsettling the steady economic growth that forms the bedrock of their legitimacy. But if that bedrock were to crumble there would be far less reason to restrain China’s more aggressive nationalist impulses. War might even become a gamble worth taking. We move next to a consideration of whether or not such a tectonic shift in domestic politics is likely.

and Winston, 1967), p73. This despite the fact that, as Remak notes, “no responsible German statesman before 1914 thought in terms of Napoleonic visions.” (p72). 70 John Keegan, The First World War, (Toronto: Vintage, 2000), p420. 71 James Joll, The Origins of the First World War, (London: Longman, 1984), p186; p171-96 provides a good account of the mood of Europe in 1914. 72 Friedrich Bernhardi, Germany and the Next War, (Longmans, Green, 1912), chpt 1. Chapter 2 was entitled “World Power or Decline.” 73 Jill Drew, “Protests May Only Harden Chinese Line,” Washington Post, (March 24, 2008). 74 Cited from Emmott 2009, p49. See also Information Office of the State Council of the People’s Republic of China, China’s Peaceful Development, (September 2011). 75 Robert G Sutter, Chinese Foreign Relations: Power and Policy Since the Cold War, (Lanham, MD: Rowman and Littlefield, 2012).

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Domestic Politics

“Faced with the reality of poverty and dictatorship, we can endure it. But we cannot allow our descendants to grow up in the stranglehold of lack of freedom, democracy, and people’s rights.” Chen Yün (Spring 1979)76

China is a police state. Harsh repression maintains the authority of the Communist Party, an organization that “does its best to silence most dissenting voices, strictly controls the press, and lavishes resources on the best cyber-censorship money can buy.”77 The People’s Armed Police and the other national security organs are large in number, well-armed, and granted sweeping powers. Internet chatrooms are monitored and foreign websites frequently blocked by the infamous ‘Great Firewall of China.’ Offline behaviour is tracked closely as well, with plainclothes and uniformed officers standing on permanent watch in towns large and small. This includes Beijing’s Tiananmen Square, where airport-type scanners monitor entry to the plaza. Protests around the country are filmed for the later identification and harassment of leaders and repeat ‘offenders’. When tested, the regime can be brutal. The most egregious example in the reform era is 1989’s massacre at Tiananmen. Here an escalating series of nation-wide strikes and demonstrations culminated in a massive pro-democracy protest in downtown Beijing. Frightened by the revolutionary potential of these young students and activists, the government called in loyal troops from outside the capital and gave orders to open fire.

“Armoured personnel carriers formed the spearhead while soldiers on foot shot to kill from both sides. Meanwhile, the first of the night’s armoured cars and tanks smashed its way through the citizens’ barricades to the east….Several cyclists who could not get out of the way in time were crushed or tossed aside.”78

The Chinese government itself estimates 241 people were killed in the violence; NATO puts the number at 7,000. This was just the worst excess of a state unwilling to tolerate dissent. Ethnic rioting by minority Uighurs in Xinjiang in 2009 saw heavy police and military units sent to subdue the region. An unknown number of casualties followed. Better recorded are the clashes in Tibet, where insurrections and mass demonstrations were met with brutal force in 1959, 1989, and 2008. Perhaps even more striking has been the government’s treatment of the Falun Gong, a well-organized but primarily spiritual exercise and meditation regime similar to t’ai chi. In 1999, the Falun Gong assembled 10,000 citizens to protest silently in Tiananmen Square on the ten-year anniversary of the massacre. The government quickly cracked down in reprisal, branding the group a ‘superstitious cult’ and arresting members. Less brutal but similarly telling is how the Sichuan earthquake of May 2008 exposed the shoddy construction of numerous public schools. When the parents of 129 children killed in the disaster attempted to sue the authorities responsible, the government threw the case 76 Cited from Major and Cohen 2008, p899. 77 “Property Rights in China,” The Economist, (March 8, 2007). 78 John Gittings, China Through the Sliding Door, (Touchstone, 1999), p148.

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out of court. Also that year was the ‘Charter 08 declaration’, which called for an end to one-party rule. Signed by 300 intellectuals, many were arrested in the weeks following, including the literary critic and human rights activist Liu Xiaobo. Liu received the 2010 Nobel Peace Prize while in jail, his fourth such prison term. This heavy-handedness has done much to tarnish the CCP. Even more corrosive, however, has been the regime’s pervasive corruption and unpunished ineptitude. Take how in the early 1990s, local officials encouraged the selling of blood plasma to supplement peasant incomes. Since many Chinese believe the loss of blood will weaken them, the donated blood was re-infused into patients after the plasma was removed—but often only after it was first mistakenly pooled with HIV-infected material. The UN estimates that by the end of 2005 some 55,000 commercial donors had been infected. Tellingly, not a single official has been punished, with the victims threatened to decline interviews unless, the authorities warn, they are prepared to “bear the consequences.”79 Other examples abound. The government’s initial response to the SARS outbreak was one of secrecy and cack-handedness, facilitating the national and international spread of the disease.80 Similar complaints followed investigations into a fatal July 2011 train crash, which exposed corruption and poor quality control during the rollout of China’s massive new high speed railway.81 More pedestrian—but ultimately more disruptive—is the arbitrary caprice of party leaders and state officials.82 This primarily takes the form of the forcible expropriation of private homes. Often done to boost council revenues, local authorities seize land and offer below-market compensation, then sell the property on the open market at full price. District coffers have become flush through such sales, but they have also created a caste of dispossessed, unable to replace their confiscated homes.83 Perhaps most absurd is the manufactured joy discharged by the state’s propaganda arm. These efforts include endless public floral displays and official media pablum chronicling the happiness of Tibetan and Uighur peasants, all farcical depictions made painful in light of the simmering ethnic tensions found throughout the interior. The real tarnish on the CCP brand, however, is corruption. It is seemingly ubiquitous, defying all attempts to extinguish it. This resilience is the product of a series of factors, including the Confucian tradition of hierarchy and the cultural emphasis on guanxi or networking. But what really lends itself is the economy’s incomplete marketization, leaving many economic decisions in the hands of unelected state officials. Legislators are not required to declare their assets and the media rarely report corruption cases without prior approval by government officials.84 In what is likely a conservative estimate, the

79 “Blood Debts,” The Economist, (January 18, 2007). 80 A Ahmad, R Krumkamp, and R Reintjes, “Controlling SARS,” Tropical Medicine & International Health 14, no. 1 (November 2009): 36–45. 81 Tania Branigan, “China Train Crash Inquiry Ordered as Public Outrage Continues,” The Guardian, (July 27, 2011); Tania Branigan, “Chinese Anger Over Alleged Cover-Up of High-Speed Rail Crash,” The Guardian, (July 25, 2011). 82 G Chan and C Wu, Zhongguo nongmin diaocha [A Survey of Chinese Peasants], People’s Literature Publishing House, 2004. See also, E Friedman, P G Pickowicz, and Mark Selden, Revolution, Resistance, and Reform in Village China, (New Haven: Yale University Press, 2005. 83 “Time for a Property Tax,” The Economist, (February 4, 2012). 84 “Corruption in China,” The Economist, (April 19, 2007).

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National Audit Office concluded that $35 billion of government funds were misused in 2009. Other estimates suggest that 10% of the government's procurement and administrative spending is funnelled as bribes or simply stolen.85 Shockingly, the latest report by Washington-based Global Financial Integrity (GFI) shows that cumulative illicit financial flows from China—primarily by corrupt officials—totalled a massive $3.8 trillion between 2000 and 2011.

A Crumbling Bargain? The Chinese public tolerates this heavy-handedness, ineptitude, and corruption for one basic reason: the CCP has delivered more economic growth at a faster rate than any other regime in history. A rising tide salves the wounds of political incompetence. It for good reason that ever since Deng, growth has been the foremost concern of the Chinese government. Li and Zhou, for example, studied the turnover of top provincial leaders between 1979 and 1995 and found that the likelihood of promotion depended primarily on economic performance.86 When growth stalls, however, the regime’s detractions become much more difficult to bear. It is often forgotten that Tiananmen was just one site of an estimated 342 cities that witnessed protests in 1989, as rampant inflation—the national rate hit 18.5%—followed by recession cast doubt on the Party’s capacity to deliver further growth. Yet when growth returned the unrest declined. For this reason steady economic growth is sacrosanct for the CCP; it forms the basis of Beijing’s political survival.

85 Minxin Pei, “Corruption Threatens China’s Future,” Carnegie Endowment for International Peace (October 2007), p3. 86 H Li and L A Zhou, “Political Turnover and Economic Performance,” Journal of Public Economics 89, no. 9 (2005): 1743–1762.

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It is possible, however, that the premise of this bargain has subtly shifted. Recent events suggest that the public now demonstrates care and concern about more than just wealth. This is certainly the case in the interior, where rising incomes have failed to stifle ethnic conflict. Increased demand for rural remedies such as the famous ‘Caterpillar fungus’ has boosted earnings of peasant farmers along the Tibetan plain, yet violent demonstrations remain a relatively common occurrence. Ganzi prefecture was scene of some of the year’s worst unrest, even though rural incomes there rose by 30% in 2011.87 Wealth, it therefore seems, is insufficient to satisfy China’s most repressed minorities. It has also generated new expectations, particularly regarding the environment. This is problematic for the CCP, for its entire political machinery is geared towards the generation of economic growth, despite the heavy cost. As Minxin Pei notes,

“the Communist Party’s survival is predicated on the neglect of fundamental aspects of society’s welfare in favor of short-term economic growth….Because the party relies on growth for legitimacy, Beijing invests in tangible signs of progress—factories, industrial parks and the like. This emphasis on ‘visible’ gains has in turn led to huge social deficits.”88

The World Bank estimates that environmental damage as a percentage of China’s gross national income is roughly 9%.89 Put in more tangible terms, the death toll for premature deaths in China from respiratory disease related to air pollution is an estimated 750,000 per year,90 while 190 million Chinese are sick from drinking contaminated drinking water.91 According to one 2012 report, “up to 40 percent of China’s rivers were seriously polluted” and “20 percent were so polluted their water quality was rated too toxic even to come into contact with.”92 Simply building more coal plants and car factories will not undo such calamities.

87 “No Power to Pacify,” The Economist, (February 4, 2012). 88 Minxin Pei, “Looming Stagnation,” National Interest (March 3, 2009), p1-2. 89 World Bank, “World Development Indicators (WDI),” www.worldbank.org. 90 Richard McGregor, “750,000 a Year Killed by Chinese Pollution,” Financial Times, (July 2, 2007). 91 Elizabeth C Economy, “The Great Leap Backward,” Foreign Affairs (September/October 2007). 92 Yang Jian, “China's River Pollution 'a Threat to People’s Lives’,” English People's Daily, (February 17, 2012).

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With good reason, then, many citizens are rethinking economic growth as the nation’s most pressing priority. Citizen complaints about the environment, expressed on official hotlines and in letters to local officials, are increasing at a rate of 30% per year; in 2007 they topped an estimated 450,000. Yet since few of these are resolved satisfactorily, protesters have been taking increasingly to the streets. Figures released by China's top environmental officials indicate 51,000 pollution-related protests took place in 2005, or almost 1,000 each week.93 These are remarkable numbers for a regime that prides itself on order and stability. Add these environmental protests to the growing anger over defective trains and wanton property confiscation and the CCP has a real problem on its hands. The government’s own figures suggest political disenchantment is on the rise. In 2004 there were an estimated 74,000 protests in China; in 2005, the number reached 80,000.94 Less than a decade later, the latest official data reveals a stunning 180,000 mass protests, or about 500 incidents per day. State media reports these protests have become increasingly violent, especially in regions populated by ethnic minorities. They have also become more sophisticated, often the product of growing participation by the urban middle class. Tech-savvy activists now come armed with blogs and cell phones, making it difficult for the state to keep pace. According to the Chinese Academy of Sciences, protests organized in 2011 were better organized and more confrontational than previous events. It also appears these were more likely to trigger copycat demonstrations,95 suggesting the number of

93 Economy 2007. 94 Sutter 2012, p28. 95 Cited from The Economist, “A Dangerous Year,” (January 28, 2012).

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protests could grow further. This combative state of affairs has led many to conclude that China’s rulers are “sitting on a ticking time bomb.”96 The CCP Soldiers On Yet perhaps things are not as precarious as they appear. After all, China’s leaders are well aware of the potential threats to their regime. The CCP has been quick to follow government scandals with very public sackings and the occasional execution. It also appears willing to address these issues openly. In October 2012, then-President Hu addressed the People’s Congress with the ominous warning that a failure to tackle corruption could prove fatal to the party".97 Premier Wen has similarly stressed the need to incorporate environmental concerns in economic planning.98 The 2013 National People’s Congress was coloured by identical talk, with the subsequent installation of widely-lauded reformers and technocrats into key government positions widely taken as indication of both self-awareness and the new government’s commitment to pre-empt the growing threats to the regime.99 The CCP does have several aces up its sleeve. The first is that for all the criticisms of the government’s heavy-handedness, Asian experience indicates personal freedom is no guarantor of stability and growth. The development of vibrant capitalism, the embrace of globalization, and the delivery of relatively good governance have come independently of whether elections are competitive or not. The Philippines, Bangladesh, and Pakistan, for example, all flirted with varying degrees of democracy yet place well behind the continent’s autocrats in terms of welfare gains. “Clearly, the lack of contested elections was not a hindrance to growth in Asia; indeed, it was one of the best predictors of success.”100 So long as “governments delivered the goods in terms of growth, the citizenry would hold off on democratic aspirations until the economy reached a stable, middle-class income plateau.” Given the sheer number of Chinese who remain poor, there is still a long ways before the bargain should be expected to break down.101 It is also possible that both China’s environmental and corruption problems have been overblown. When Chinese corruption over the past 15 years is compared with that found in the United States during the decades leading up to the Great Depression—two periods with roughly similar income levels—the results are actually quite favourable. Evidence gleaned from tracking prominent American newspapers suggests US corruption…

“in the early 1870s — when its real income per capita was about $2,800 (in 2005 dollars) — was 7 to 9 times higher than China’s corruption level in 1996, the corresponding year in terms of income per capita. By the time the U.S. reached

96 Pei 2009, p16. 97 BBC News, “China's Hu Jintao in Corruption Warning at Leadership Summit,” (November 8, 2012). 98 Joseph Kahn and Jim Yardley, “As China Roars, Pollution Reaches Deadly Extremes,” New York Times, (August 25, 2007). 99 Nick Edwards, “Analysis: China Heads Back to the '90s in Economic Reform Drive,” Reuters, (January 19, 2013). 100 Jonathan Anderson, “The Color of China: Beijing's Exceptionalism,” National Interest, (March 3, 2009), p12. 101 The Arab Spring, for example, found remarkably little resonance in China.

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$7,500 in 1928 — approximately equivalent to China’s real income per capita in 2009 — corruption was similar in both countries. The findings imply that, while corruption in China is an issue that merits attention, it is not at alarmingly high levels, compared to the U.S. historical experience.”102

These findings are consistent with a “life-cycle” theory of corruption and give reason to conclude that steady modernization will lead to further declines. The government has already established a Corruption Prevention Bureau and made it independent of the Party. It has also begun to tolerate some criticism levied at it in the blogosphere, so long as these ‘microblogs’ focus their attention on specific misdeeds by government officials rather than broader misgivings about the regime itself.103 This provides at least a modicum of public accountability for officials and helps ensure the most outrageous Party and government transgressions are punished. China’s environmental problems appear somewhat less worrisome when judged in comparative perspective as well. The cost imposed by dirty water and air is indeed great, but these problems are generally ameliorated with wealth and time.104 A 1977 report by the OECD called Japan in the late 1960s, for example, “one of the most polluted countries in the world.”105 Today, however, it ranks as one of the top countries on the authoritative Environmental Performance Index.106 We can therefore expect that as China becomes richer it will better afford the cleaner and more efficient technologies that reduce the environmental impact of economic activity. A shift from coal to gas, renewable, or nuclear energy, for example, would do much to protect Chinese lungs.107 Just as importantly, growing affluence leads to a transformation to more ‘post-material values,’ where things like environmental goods take on a political imperative all their own.108 This process has already started, for the country is actually greener today than under Mao. In the decades following the Great Helmsman’s death, private woodlots sparked reforestation, major cities now have at least primary wastewater treatment, and air pollution has been curtailed by electrostatic precipitators.109 In 2008, the China Environmental Protection Agency—founded only in 1998—was given ministerial status,110 further evidence of growing environmental consciousness. Further wealth is likely to drive even more progress. Already, progressive taxation on fuel-guzzling car engines means 102 Carlos D Ramirez, “Is Corruption in China 'Out of Control'?,” GMU Working Paper in Economics No. 12-60 (December 5, 2012); Kate Mackenzie, “Questioning China's Governance,” Financial Times Alphaville, (October 29, 2012) 103 Bill Emmott, Rivals: How the Power Struggle Between China, India and Japan Will Shape Our Next Decade, (London: Penguin, 2009), p85. 104 Simon Kuznets, Population, Capital and Growth: Selected Essays, (New York: Norton, 1973). 105 Cited in Albert Keidel, “China’s Economic Rise—Fact and Fiction”, Carnegie Endowment for International Peace, Policy Brief 61, (July 2008), p11. 106 Japan scored 23rd of 132 countries, while China ranked just 116. See Yale Center for Environmental Law & Policy, Environmental Performance Index, http://www.epi.yale.edu/epi2012/rankings. 107 Resul Cesur, Erdal Tekin, and Ayodogan Ulker, “Air Pollution and Infant Mortality,” Andrew Young School of Policy Studies Research Paper Series 13 (January 1, 2013). 108 Ronald Ingelhart, Culture Shift in Advanced Industrial Society, (Princeton: Princeton University Press, 1990). 109 Vaclav Smil, Global Catastrophes and Trends: the Next Fifty Years, (Cambridge, MA: MIT Press, 2008), p136. 110 Keidel 2008, p11.

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sales tax ranges from just 1% on the most efficient to 40% on the sports cars and sports utility vehicles with the largest engines. China now boasts stricter emission standards than the United States.111 Illegal coal mines have been closed and some heavily polluting factories shuttered.112 The Finance Ministry has begun openly musing about imposing a carbon tax.113 Most impressive is that despite the risk of being seen as political agitators, China remains full of environmentalists who expose pollution and press local government officials to enforce environmental laws.114

Through all of this the Party has proven to be remarkably resilient and adaptable. It has morphed from a peasant-based guerrilla movement into a clique of ‘red hat’ capitalists. Recent years have seen it take steps to shift state resources to the interior in an effort to help balance the country’s massive east-west disparity. The State Council recently released a 35-point plan, which included calls to increase the minimum wage to at least 40% of average salaries and to force state-owned enterprises to hand over more of their profits for government redistribution.115 It has tackled environmental problems with increasing tenacity and makes a grand spectacle of punishing those corrupt officials both unlucky enough to be caught and to have fallen out of favour. The new party boss, Xi Jinping, has loudly announced his attention to crack down on corruption and official extravagance, committing himself to rooting out “tigers and flies” (big and small-time crooks) and banning such items as shark-fin soup and expensive liquor at official banquets. Tellingly, one of the most popular books in elite circles today is the Chinese translation of Alexis de 111 Keith Bradsher, “China Is Said to Plan Strict Gas Mileage Rules,” New York Times, (May 27, 2009). 112 Kahn and Yardley 2007. 113 “China a Levy Carbon Tax Before 2015—Report,” Reuters, (January 5, 2012). 114 See, for example, the Beijing-based Global Environmental Institute, at http://www.geichina.org/. 115 Simon Rabinovitch, “Beijing Vows to Raise Minimum Wages,” Financial Times, (February 5, 2013).

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Tocqueville’s 1856 classic The Old Regime and the Revolution. The current generation of CCP leaders clearly has the question of survival on the forefront of their minds. The CCP: Holding Strong When the communists won power in 1949 the officer who ‘liberated’ a district stayed on to rule it. The CCP’s political monopoly has been maintained by force ever since, keeping the party in control through thick and thin. Early growth and the end to the chronic largess and political instability of the Kai-shek era earned the communists many plaudits and new converts. Yet this reservoir of goodwill was almost entirely undone by the deadly famine unleashed during the Great Leap Forward and the anarchy and social trauma inflicted by the Cultural Revolution. Only the enduring loyalty of the army and the unfathomable success of Deng’s grand economic experiment kept the CCP power base from crumbling. Without these foundations the communists would likely have been consigned to the dustbin of history. In many ways the CCP’s recovery and endurance seem miraculous. Today the party is once again under assault. Factional politics and decentralized, unaccountable provincial fiefdoms stymy even those officials who do not abuse their positions for personal gain. Absent electoral contests and a relatively open media, China offers precious few means to protect property rights and maintain the rule of law. Corruption has flourished no matter how vocal—and apparently, sincere—the central government’s efforts to curb it. Even more, the CCP’s need for constant economic growth provides ample incentive to give social and environmental concerns short shrift. All of this is noted by a public who, while appreciative of the massive gains in material standing the Party has delivered over the last thirty years, have no love for the rulers who run their country in such an oppressive manner. Yet there is no evidence to suggest the CCP’s rule has run its course. For autocrats, China’s leaders hand over power with remarkable regularity and retire gracefully from the public spotlight. The country also enjoys considerable fiscal leeway to address social issues and stalled domestic consumption. The 2012 budget deficit, for example, was just 2.3% of GDP; in the United States the figure was 7.6%. Nor is there reason that China’s authoritarian nature need impede the CCP’s goals of reducing inequality, stopping land seizures, containing environmental damage, and preventing the frequent food and consumer product regulatory scandals. Singapore, for example, is hardly pluralistic, yet boasts one of the most capable governments on the planet. In the meantime, China’s trains run on time, its environmental remediation efforts tower above any historical comparison on a per capital basis, and the economy—seemingly no matter what curveball the global financial crisis throws at it—keeps chugging forward at roughly 8% per annum. Thus while confidence in the Chinese government fell by some 10% over 2010-11,116 it remains in healthy territory. With growth having returned in late 2012 it is possible that even this decline has been arrested.

116 People's Republic of China: Staff Report for the 2012 Article IV Consultation, (International Monetary Fund, July 2012), p24.

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This matters for international relations because a Beijing elite that concludes its domestic power base poses no threat of upheaval has less reason to ramp up the hyper-nationalism and sabre-rattling that so poisons foreign relations. Proponents of a democratic China would be wise to advocate for gradual reforms, a shifting set of goalposts that neither threatens the current leadership too greatly nor creates the instability that causes output to plunge and makes ‘rally-around-the-flag’ xenophobic enterprises palatable. A model of democratic transition along the lines of South Korea or Taiwan would be much more amenable to international peace and stability than, say, Iraq. In any case, continued economic growth is the key. China’s capacity to reduce inequality, combat pollution, and even jumpstart an industrial sector plagued by flagging global demand relies on a steady stream of healthy growth and rising government revenues. The CCP has shown it can maintain stability so long as such growth is achieved. If the economy falters, however, all bets are off. We next consider the role the international system will play in regards to this crucial variable.

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Wealth “Communist society will not flourish in a courtyard behind locked doors. Opening the country to the outside world is not an expedient measure but a fundamental principle for building a socialist society, as well as the only road to a communist society.” Li Honglin, People’s Daily (October 15, 1984)117

The last ingredient of great power satiation is wealth. If a growing power can maintain its pace of rapid economic development there is little reason to upset the proverbial applecart. Growing rich, in other words, can make the existing international order seem tolerable. But to get rich generally requires international mobility in goods, capital, and technology. As China under Mao demonstrated, even large countries will languish if cut off from the global economy. China’s postwar penury was tragic evidence of Adam Smith’s observation that autarky is a sure path to ruin.118 The need for transnational commerce is particularly crucial if certain vital goods cannot be domestically procured. In China’s case this includes the vast quantities of imported raw materials, ranging from aluminum to zinc, needed to keep its coastal factories humming. Imports of capital and technology are similarly crucial, with rising powers relying on these to improve the productivity and sophistication of their industrial base.119 New factories require new buildings, machines, and the knowledge to run them. Even when domestic savings rates are extraordinarily high, much of this must come from abroad. A good deal of software, for example, is unavailable in China through domestic manufacture. In this way open markets facilitate the transformation from an agricultural-based economy to one based on industry and then services, steadily raising incomes as it does. What really holds the eye of policymakers and publics, however, is the export of these commodities. Although economists have long observed that the primary gains of trade are imports, great attention is perpetually fixed toward the current account. This is because unlike the diffused gains of imports, profits from exports tend to be concentrated among specific—and generally large—firms. The gains from importing Pakistani textiles, for example, are spread over the millions of Americans who can now purchase cheaper t-shirts and underwear. The returns to US aircraft exports, by contrast, are largely confined to the shareholders and employees of giants like Boeing and Lockheed Martin. This provides exporters with much greater incentive to keep their interests to the political front and centre than importers. Exports play into a nationalistic component as well. Buying up foreign firms and building factories overseas generates a measure of national pride, adding to the importance ascribed to exports further still. Last is the economic argument in favour of trade more generally. A healthy trading sector permits the development of comparative

117 Cited in Cohen and Major 2008, p899. 118 Adam Smith, The Wealth of Nations, (London: J.M. Dent & Sons, 1964); Douglas A Irwin, Peddling Protectionism: Smoot-Hawley and the Great Depression, (Princeton: Princeton University Press, 2011). 119 For a discussion of technological imitation, see Donald S Cardwell, Wheels, Clocks and Rockets: A History of Technology, (New York: W.W. Norton, 2001), p460.

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advantages that raise aggregate incomes. Bigger markets mean more specialization and thus higher productivity, which is the true foundation of wealth. The Growth This Far Trade offers rising powers the means to accumulate great wealth. Mid-19th century Germany, for example, rode a wave of industrial innovation to global commercial success. The discovery of synthetic fertilizers and innovations in the production of manufactured dyes laid the foundation for Germany’s highly acclaimed chemical industries. Similar development was witnessed in the metals, shipping, machine tools, electrical, optical, banking, and insurance sectors. By 1870, large firms like Hoechst, Hapag, Siemens, Bayer, Man, Henschel, and Krupp loomed large in the international marketplace.120 Once there, they continued to erode the market share of foreign competitors. Take how Germany produced 169,000 tonnes of steel in 1870 against England’s 286,000 tonnes. By 1910, however, it was dramatically out-producing England by 13.7 million to just 6.4 million tonnes.121 Other great powers who achieved great affluence in this manner include Athens, Venice, Holland, England, and Japan. Incredibly, China has put all these great feats to shame. In 1978 Deng Xiaoping launched a series of reforms known as kaifang or ‘opening up.’ Although these began as modest experiments with the liberalization of surplus agricultural production, they led in the 1980s to market-based industrial reforms and the creation of special, foreign investment-friendly economic zones. In foreign managers, technology, and capital came, particularly from Taiwan and Hong Kong, building the factories needed to meet the country’s bourgeoning merchandise trade.122 More recently, China’s overseas expatriates—known domestically as ‘sea turtles’—have begun to return, carrying with them cash to invest and, more importantly, the knowledge and skills of the world’s most competitive universities and firms.123 The Chinese government also offers market access in return for foreign companies sharing advanced industrial processes. Firms such as GE, Motorola, Siemens, and Microsoft have all willingly complied, building factories and training workers in return for admission into China’s billion-plus person market.124

120 Hermann Kinder and Werner Hilgemann, Atlas of World History, 2 vols (London: Penguin, 1978), p60-1. See also Alan Milward and S B Saul, The Economic Development of Continental Europe, (London: George Allen & Unwin, 1973), chpt 6. 121 Remak 1967, p77. 122 Pranab Bardhan, Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India, (Princeton: Princeton University Press, 2010). 123 In these ways the 1980s and 1990s saw overseas Chinese bring $190 billion in FDI, or more than 50% of the total. Amy Chua, Day of Empire: How Hyperpowers Rise to Global Dominance--and Why They Fall, (New York: Doubleday, 2007), p297. 124 Kathryn Kranhold, “China's Price for Market Entry: Give Us Your Technology, Too,” Wall Street Journal, (February 26, 2004).

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Combined with local savings, foreign investment and technology built the Chinese infrastructure needed to flood the world with cheap goods. Finding a receptive global market, trade exploded: growing from 21% of China’s GDP in 1982 to a peak of more than 65% just prior to the Great Recession. In absolute terms, trade has grown from $20.3 billion in 1978 to $2.73 trillion in 2011 (current USD).125 More importantly, growing trade volumes have been good to the Chinese economy, fuelling growth in personal incomes and raising China from agrarian backwater to upper middle income status in a remarkably short period of time. GDP growth in the thirty years that followed Deng’s cautious reforms averaged 9.9% per year. Some 440 million Chinese—again, almost half a billion people—have been lifted out of deep poverty. By any metric, China’s embrace of the current international order has enabled the most dramatic economic catch-up of all time.

125 World Bank, WDI.

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Same System, Same Growth? Despite China’s incredible economic performance over the past thirty years, it remains well behind the developed world. At just under $8,000 PPP, average annual incomes are still less than one-sixth that of the United States. The China Modernization Report, published in 2007, noted that in 2015 China will only have modernized to the level the developing world achieved in 1960.126 The Chinese economic miracle can therefore not be let falter. Completing convergence will require two things. First is continued access to the global market. The exporting firms that dominate China’s seaboard in particular require continued outlets for their wares. As the 2008 global slowdown demonstrated, sudden declines in global aggregate demand inflict serious trauma on China’s export-driven economy. World trade tumbled by a record 10.5% in 2009, and as American and European spending dried up so too did China’s factories grind to a halt. Annual GDP growth in China decelerated sharply from its 14.8% peak in the second quarter of 2007 to just 6.6% in the first quarter of 2009. These idled assembly lines generated mass unemployment; more than 20 million jobs were shed in Guangdong province alone.127 Interruption of steady foreign sales would therefore pose a serious obstacle to China’s continued prosperity. But China needs more than foreigners to buy its goods. It also requires safe places to sock its excess savings. The last decade witnessed not only a massive outflow of Chinese merchandise goods, but also of capital. America and Europe’s yawning trade deficit with the ‘workshop of the world’ leaves China awash in funds. Because the domestic financial

126 “Report: China to Complete First Stage of Modernization by 2015,” English People's Daily, (January 29, 2007). 127 Stephen S Roach, “China Is Okay,” Project Syndicate (August 29, 2012).

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system is so poorly developed and the superabundance of savings so great, much of this capital is re-exported overseas through the Chinese national bank. In addition, the Central Bank ‘sterilizes’ dollar profits to keep the Yuan artificially low. This adds further to the massive sums funnelled into US Treasury Bills and similar securities each year.128 Imports matter to China, too. Given the mountain of under-utilized local capital, incoming FDI no longer plays such a central role in the Chinese economy.129 Borrowing needs can now be almost entirely met with China’s artificially high domestic savings. Much more important is the continued importation of leading-edge technology. Despite China’s advance along the production frontier, most sectors remain several generations behind the leading global technology. It will take many more years of accessing the West’s cutting-edge equipment and software before anything close to technological parity is achieved. Even then, the nature of economic specialization and the growing complexity of technology suggests no country will be able to meet all its technological needs solely through domestic means. Similarly important is an open international market in natural resources. Although China is a massive country with a well-endowed resource base, the input-intensity of the light- and heavy-industries in which Chinese firms dominate require additional resources from overseas. In 2011, for example, 8% of China’s $1.7 trillion USD in merchandise imports were agricultural goods, with another 30% comprising fuels and minerals.130 Much of these goods were destined for re-export after final assembly in the massive factory towns along the Chinese coast. Their appetite for resources appears insatiable: between 1999 and the 2007 commodity boom peak, the value of copper ore and concentrate imported into China rose 250-fold; for soybean and oil imports the increase was 350-fold. Ships laden with natural resources from around the world descend on China’s ports, plying their cargoes from far-flung locales in massive numbers.131 Incredibly, the loading queue at the coal port in Newcastle, Australia, was 79 ships long in 2008, almost all of whose destination was China. Open for Business There is good reason to anticipate that world markets will remain open for the foreseeable future. China has demonstrated little problem convincing other nations to part with their wares. Sometimes this is because China is willing to look the other way when it comes to unseemly trading partners. Burma, North Korea, Syria, and Sudan are just some of the dictatorships who have benefited from China’s ‘hands-off’ policy. But the main reason the goods keep flowing is that China offers such generous terms. It has aggressively courted vast swaths of the developing world, chequebook in hand. The past decade is littered with agreements that exchange Chinese capital for access to mineral resources.

128 Foreign Direct Investment (FDI) flows, on the other hand, are remarkably modest in comparison. At just over $300 billion, China’s total stock is smaller than that of Sweden and Russia. FDI as a percentage of net outflows was just 0.7% in 2011. World Bank, WDI. 129 In fact, FDI inflows as a percentage of GDP were just 3.0% in 2011, well down from the four-and-a-half percent rate in the mid-2000s and five and six percent rates of the early and mid-1990s. Ibid. 130 WTO, “Trade Profiles.” Another 59% were manufactures. 131 “A Ravenous Dragon,” The Economist, (March 13, 2008).

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Loans are provided to governments on generous terms, as are promises to build important national infrastructure. In the spring of 2009, for example, China announced deals to double its development fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build a hydroelectric plant, provide Argentina with access to more than $10 billion in credit, and lend Brazil’s national oil company another $10 billion. Not wanting to privilege one region over another, the following November Premier Wen pledged $10 billion in new low-cost loans to Africa over the next three years, doubling the previous commitment made in 2006.132 Central Asia, too, has benefited from Chinese munificence. Burdened by a banking sector struggling with foreign debts, Kazakhstan was eager to accept China’s economic lifeline—a loan yet again of $10 billion. All of this comes on top of another $25 billion loan to Russia in exchange for future oil supplies, plus another $3 billion copper investment in unstable Afghanistan.133 Such vast sums of hard cash prove an almost irresistible commodity. There have been, however, a few suggestions that perhaps there are some limits to how much Chinese money a country is willing to take. Much of the compensation, after all, comes in the form of infrastructure built by Chinese firms. This construction work can be slapdash, with the occasional building opening to much fanfare and then falling apart soon after. Similarly, lax oversight in safety and environmental regulations are ruthlessly exploited by Chinese companies who come to harvest natural resources. At Chinese-run mines in the Zambian copper-belt, for example, workers must work for two years before earning a safety helmet.134 Some observers worry too much dependence on Chinese investment gives China ‘colonial-like’ power. Others simply find the repressive CCP regime too distasteful to do business with. The much-delayed $15.1 billion takeover of Canada’s Nexen by the state-owned CNOOC oil company brought all of these different fears to boil. This occurred despite booming trade between Canada and China, and the fact that voracious Chinese consumption of Canadian raw materials did much to propel the Canadian economy forward in the 2000s, even as its traditional partner, the United States, stumbled under the weight of bad debt and poor fiscal management. A poll done by AngusReid found 58% of respondents wanted the Canadian government to block the deal.135 Echoing Africa’s newfound unease, some Canadians went so far as to express fears of Canada becoming a mere ‘resource colony’ of Beijing. Yet it is important to remember that despite all the sound and fury, the Nexen deal eventually went ahead.136 More importantly, even if the Canadian government had nixed the offer the flow of commodities from Canada’s west would not have suffered much; China would have simply purchased the bitumen from others in the Alberta oil patch. In Africa too, the emergence of mixed feelings has not dethroned China as the continent’s largest trading partner. Local grousing appears only to slow the trading relationship at best, and is clearly unable to thwart it substantially. At the same time, growth in China’s commodity appetite has been steadily slowing since the 2008 Great Recession. What is remarkable

132 Barney Jopsen and Jamil Anderlini, “China Pledges $10 Billion in Low-Cost Loans to Africa,” Washington Post, (November 9, 2009). Trade between the two has jumped tenfold since 2000. 133 Isabel Gorst, “China Throws Kazakhstan Economic Lifeline,” Financial Times, (April 17, 2009). 134 The Chinese in Africa,” The Economist, (April 20, 2013). 135 AngusReid, Most Canadians Would Block Proposed Takeover of Nexen, (October 16, 2012). 136 Joseph Boris, “Canada OKs CNOOC's $15b Purchase of Nexen,” China Daily, (December 8, 2012).

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about this trend is that it has occurred even as total trade has begun to rebound. The implication is that even a moderate decline in the world’s willingness to part with its natural resources will be likely more than offset by slowing Chinese demand for commodities in the first place.

Export markets pose a more formidable test. It is one thing to pay for and remove another country’s natural resources. It is something quite another to enter a foreign market and muscle aside domestic firms. Laid-off workers from these uncompetitive enterprises take to the streets while their former employers utilize back-room channels to petition political leaders. Both search for protection from low-cost foreign goods, creating an altogether greater furor than the struggles over the parting of natural resources. The expectation is thus to see greater ‘pushback’ against any county that demonstrates an impressive run of export success. Surprisingly, little of this has been witnessed. It is true that China has been subject to the occasional bromide and counter-vailing duty, such as those for exports of tire and steel levied by the United States. But the world has generally been sanguine about China’s growing market share. This is best evidenced by average tariff rates and the number of China-related WTO disputes, both of which have remained remarkably steady. Tellingly, the world went through greatest global recession since the 1930s and yet the international aversion to tariffs on manufactured goods held strong. Low aggregate demand is the reason why Chinese exports slowed down in the latter 2000s, rather than a rising tide of protectionism. In fact, tariffs have continued their downward tumble. Tracking WTO antidumping initiations tells a similar story: most nations have been more than willing to concede China’s export success, lining up instead to buy these cheaper goods as they arrive

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in port. The implication is clear: there is no sense that a severing of China from its export markets is anytime in the offing.

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Growing Ambivalence Not only is it likely that international markets will remain open for business, there is also good reason to conclude that China’s reliance on them is set to diminish. This is so for two reasons, the first being the likelihood that China will follow its predecessors and slowly reduce the raw materials intensity of its products as it continues to shift into higher-value goods.137 Computers, for example, rely on fewer physical inputs per dollar than textiles, toys, and raw steel. The trend will only be enhanced as the service sector continues to grow, for in industries like IT support and health care the demand for natural resources is even less. Previous experience suggests that manufacturing’s decline begins at roughly $8,000 PPP GDP per capita (1990 GK$).138 Manufacturing in China should therefore soon be trending downward. In fact, employment growth in manufacturing has already begun to stagnate. At the same time, the exploitation of modern shale oil and gas fracking technologies, alongside China’s aggressive shift to nuclear139 and clean energies such as solar and wind, offer the hope of at least tempering growth in the need for foreign energy supplies. Together these trends suggest China’s demand for commodities will soon hit its peak.

The demand for capital and technology, on the other hand, is likely to only increase. In fact, the shift into higher value manufactures and services will in fact require massive amounts of both, yet much of this will increasingly be produced at home. Growing rates of 137 Martin Sommer, Christopher Gilbert, and Angela Espiritu, “The Boom in Nonfuel Commodity Prices: Can It Last?,” IMF World Economic Outlook (September 2006): Chapter 5. 138 James Manyika et al., Manufacturing the Future, (McKinsey Global Institute, November 2012). 139 China already has nine nuclear reactors under construction, 24 ‘on order or planned,’ and 76 further ‘proposed’.

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domestic innovation, for example, will greatly supplement foreign technology. Companies in the Fortune 500 list already have 98 research and development (R&D) facilities in China.140 China now boasts more researchers than Japan, the third largest R&D budget in the world, and more post-secondary students that the US and Japan combined. In 2010, 22 Chinese universities made the Shanghai Jiao Tong University’s top 500 rankings of the top 500, compared with 154 America, 25 Japanese, and just two Indian. The amount of top quality Chinese research has increased dramatically as a result and the expectation is that its production of high value goods should grow as well. As for capital, China’s reliance on FDI inflows have already dramatically diminished. If anything, the country faces excess pools of domestic savings looking for profitable investment. It will take some time before this reservoir is exhausted and foreign capital is once again required. The second reason why trade will decline in relative salience is that the Chinese economy is likely to begin to shift away from export-led growth and towards domestic consumption. Already wages throughout the economy are growing, bringing a commensurate increase in buying power. According to HSBC, real wages measured in 2005 dollars have risen 350% in the past 11 years, significantly faster than any Asian country.141 Wages in China’s southern cities, for example, are approaching $6 an hour, roughly equal to those paid in Mexico.142 This growing spending power has dramatically increased levels of domestic consumption. An Economist Intelligence Unit survey of executives from 328 companies found that 46% of respondents expected China to be their biggest market within ten years.143 Growing imports will in turn reduce China’s persistent current account surpluses, calming the foreign accusations of dumping and other unfair trading practices. Open Markets, Healthy Fortunes For China to remain satisfied with the current international order it must have access to world markets. There is little reason to suggest any substantial effort has been made by foreign competitors to deny China this, and this situation is unlikely to change soon. China’s rise to position as exporting powerhouse has been accompanied by remarkably little resistance. Meanwhile, China’s seemingly insatiable thirst for foreign supplies of raw materials of all types is set to slow, as materials-intensive production shifts to more competitive, lower-cost countries. Most important of all is that consumption has already begun to shift inwards, making the country less dependent on the international trading system. Rising domestic consumption will help safeguard China’s long run growth prospects and keep tempers from flaring over tariff squabbles or exporter-induced job losses. As it does the expectation is that the world economy will become less of an irritant to China and its neighbours, not more so. This is to our good fortune. The last time a rising Asian hegemon displayed deep disgruntlement with the economic order was Japan in 1941. There rising tensions led to an oil embargo by America, Britain, and the Netherlands, a move that left the Japanese

140 Adrian Wooldridge, “The World Turned Upside Down,” The Economist, (March 17, 2010). 141 David Pilling, “Foxconn Union Heralds End of Cheap Era,” Financial Times, (February 6, 2013). 142 Chris Anderson, “Mexico: the New China,” New York Times, (January 26, 2013). 143 Economist Intelligence Unit, Multinational Companies and China: What Future? (November 2011).

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economy with just six months of reserves and looming economic collapse.144 With the current system, however, no such ultimatum is likely. This means there is no reason for China to conclude that the most profitable way forward is to make a run at continental domination through military conquest, as did Japan in the early 1940s. Instead, China’s importers and exporters have found the current order a highly profitable and welcoming place. If China’s economic miracle breaks down, it will not be because of closed international markets. What remains is thus a story of domestic economic management and reform, an issue we touch upon briefly in the concluding remarks that follow.

144 Saburo Ienaga, The Pacific War: World War II and the Japanese, 1931-1945, (New York: Random House, 1978); Ronald H Worth, No Choice but War: the United States Embargo Against Japan and the Eruption of War in the Pacific, (Jefferson, NC: McFarland & Co., 1995); Jonathan Marshall, To Have and to Have Not: Southeast Asian Raw Materials and the Origins of the Pacific War, (Berkeley: University of California Press, 1995).

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Conclusion

For all the fear and concern that usually accompanies discussion of China’s spectacular reemergence, this paper has been considerably sanguine. There is of course no shortage of challenges that confront China and its neighbours, shared difficulties that will inevitably deliver bouts of frustration, harsh words, and bluster. But the evidence suggests real reason to be upbeat when considering the prospects for China and the global order. Shared interests, after all, dominate the relationship. More importantly, there is nothing inherent in this collection of post-war political and economic structures that precludes the peaceful integration of China’s newfound might and its very real ambitions. We do not live in the neurotic and uncompromising Europe of 1914, and China is certainly not Wilhelmite Germany.

This conclusion has not been borne of idle speculation. Current behaviours and

contemporary trends have been systematically evaluated through the use of a simple deductive model, one that assumes there are four central aspects to a nation’s satisfaction with the contemporary world order. In each there appears great incentive for China to adhere to the status quo. This is welcome news, for the alternative to acceptance and collaboration is to strike out as a revisionist power, seeking to remake international affairs using military force. Even when this latter strategy brings the rising power success, there are always some condemned to fiery ruin. Cooperation is therefore a far more palatable outcome, being very much to the net global benefit.

Security is China’s paramount concern, but also its least pressing. Her neighbours

are too weak individually to pose much of a threat, yet at the same time powerful enough in tandem to make military expansionism too risky a prospect for Beijing to seriously consider. This is not to suggest that China lacks those who yearn for the return of lost territory, such as ‘rebel’ Taiwan or the ‘nine-dash line’ in the South China Sea. China fared poorly at the hands of foreigners during the opening half of last century and it still holds dear many national grievances. But China’s leaders are at heart eminently pragmatic. They understand the central pillar of the CCP’s rule is a high rate of sustained economic growth. Given the threat unbridled antipathy towards Japan or Taiwan poses to the acquisition of further riches, there is little reason to think the revanchists would be given freedom to carry the day.

The CCP has, after all, mastered the art of the police state. Critics are silenced with

spiteful efficiency. Dissidents spend years locked away in work camps, often for voicing the most innocuous of complaints. Yet this heavy-handedness, alongside the corruption such immunity from public scrutiny invariably breeds, is deemed tolerable by the Chinese people. The reason is that, for all its flaws, the CCP has overseen the most impressive economic catch-up of all time. With livings standards having risen for far and so fast, the conclusion seems to be that continued communist rule is a laurel worth bestowing. If the current international system can deliver such astounding growth, what value would there be in trying to change it?

Indeed, the world economy certainly has been welcoming. China has both profited

immensely from the current arrangement and become one of its leading members. Chinese

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officials now play at IMF and WTO meetings an increasingly central role. More importantly, the rise of China as an export powerhouse has generated surprisingly little ill will. Tariffs have maintained their downward trend. Accusations of unfair trading practices have stayed remarkably mute. Here again there is nothing to suggest that China will find the international system discomfiting. Even more, what little tension does exist can be expected to diminish as the Chinese economy continues its trend of rebalancing away from exports and towards domestic consumption, shrinking current account surpluses all the while.

The great test, then, will not be with the international system at all. The future of

China’s economic growth will instead rely primarily on the vigour of the domestic reforms that must now be undertaken. Government budgets will have to be restructured to support more social expenditures. As is, China spends far less in these areas than other developing countries and too many Chinese rely for their income security on the generosity of family, charity, or the street. Taxes will have to be raised in response—a prickly issue in any jurisdiction. But this is a fight well worth having, for the happy by-product would be a reduction in the national savings rate and a commensurate boost to private consumption, to say nothing of reduced in social tensions.145

Beijing must also step back from its micromanagement of the economy. Most urgent

is an end to the setting of interest rates by fiat and the need to free up labour mobility. Liberalizing residency requirements in major cities would boost consumption and accelerate the urbanization process, which in turn would hasten the profitable transition to a more service-based economy. Ending the preferred borrower status of state-owned enterprises (SOE), which starve the private sector of capital and choke innovation with their anti-competitive tendencies, must also be ended, alongside the routine land expropriation that creates such inequality and discontent.146 None of this will be easy. Reform will need to take place in stages, in order to cushion the blow to the economy, yet still at speed sufficient to prevent the reforms from becoming bogged down in China’s convoluted party system and unyielding provincial fiefdoms.

There is good reason, however, to be optimistic these tasks can be

completed. China’s new premier has placed in key positions disciples of China’s under-appreciated 1990s reformer, Zhu Rongji. Vice Premier Ma Kai, Finance Minister Lou Jiwei, and central bank governor Zhou Xiaochuan were all top Zhu lieutenants at the State Commission for Restructuring the Economy, the body that drew up the blueprint for China’s 1990s ascension into the World Trade Organization and the corresponding liberalization of China’s myriad army- and state-owned enterprises.147 The success of these reformers is of course far from preordained, but it bodes well that such a clutch of talented technocrats has been installed at the very heights of the economy. Perhaps these much-needed reforms will see some light.

The fundamental lesson is that Chinese prosperity serves as a boon to international

145 Yukon Huang, “Demystifying China's Slowdown,” CNN, (July 23, 2012). 146 World Bank and the Development Research Center of the State Council, the People's Republic of China, China 2030, (Washington, DC: World Bank, 2012). 147 Edwards 2013.

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tranquility. Anything that can be done to add to it should therefore be encouraged. In many ways, China is like the United States in the 1890s: boisterous and occasionally belligerent, but nonetheless able and willing to keep the peace with its great power rivals. This proved fortunate, for in return the established powers sought no quarrel of their own. If anything, they gained from America’s newfound wealth and power. Britain and France found the US a valuable ally during the First and Second World Wars. Germany and Japan have found a good partner to conduct commerce with. Others, too, shared in the gifts of Harvard, General Electric, and America’s multitude of Nobel Prizes. How fortunate we would be if a century from now similar words were written about China’s rise to power.