US-China in Asia-Pacific

By S P SETH

The US President Barack Obama’s just concluded Asia-Pacific trip is a strong signal that the United States will re-energize its engagement with the region. It is important to remember that the US has been the dominant economic and military presence in the region since after WW11. With the collapse of the Soviet Union in 1991, the US sway was even more complete. China had started as an emerging economy in the eighties under Deng Xiaoping’s leadership after the disasters of the Cultural Revolution. And it depended on the US and its Western allies for entry into their markets and into global trade forums like the World Trade Organization.

However, early in the present century, the US invaded Afghanistan and Iraq as part of its global war on terror, where it is still stuck, especially in Afghanistan. With the US distracted and increasingly mired in these two wars, China was able to raise its regional profile backed by impressive economic growth, and a steady rise of its military power. There was a growing feeling in the Asia-Pacific region that the United States might not stick around for long, with China eventually replacing it as the dominant power. The global financial crisis in 2008 and 2009, which the United States and Europe are still struggling with, tended to further increase this pessimism about the United States.

It is against this backdrop of China’s rise, and its impact on the region, that President Obama forcefully declared during a daylong visit to Australia that the US is an Asia-Pacific power and it is here to stay. As the US unwinds its military involvement in Afghanistan and Iraq, it is shifting its focus to Asia-Pacific where the history will be made in this century. Obama said, “The United States has been, and always will be a Pacific nation.” Therefore: “Let there be no doubt. In the Asia-Pacific in the 21^st century, the United States of America is all in.”

The choice of Australia to make this declaration is important as both the US and Australia are further expanding their military and strategic alliance against the backdrop of a perceived threat from a rising China. The US-Australia military alliance under the ANZUS treaty is being beefed up with the stationing of US marines in the country’s north, and with the use of naval and air facilities in the country’s west. Both the US and Australia deny that their expanded military relationship is directed against China, but there is very little doubt that China is seen as a likely threat.

President Obama said in Canberra that, “The United States will play a larger and long-term role in shaping this region and its future, by upholding core principles [of human rights] and in close partnership with allies and friends. “ In other words, China is forewarned that the US will not quietly fade away, and that it will not have an easy time with its neighbors unhappy with maritime disputes with China. These smaller countries are being assured that they can bank on the United States to stand their ground. At the same time, the United States will not let up China on violation of human rights and the promotion of democracy.

The assertion of China’s sovereignty over South China Sea is likely to become a regional flashpoint at some point. China’s smaller neighbors, like the Philippines and Vietnam, have competing claims to the Spratly group of islands in South China Sea, that have caused some naval incidents blamed on China. The US and the Philippines are taking steps to boost their defense relationship. The US and Vietnam are also forging closer political and military ties, and there has even been talk of a former US military base (of the Vietnam war time) being revived. The US and Japan are already close military allies, with their alliance further beefed up in the last few years. China and Japan too have competing maritime claims in East China Sea, leading to naval skirmishes not long ago. At the same time, the Korean peninsula remains a live wire with North Korea unwilling to give up its nuclear capability. Though China is opposed to North Korea’s nuclear ambitions, it is not inclined to team up with the US and Japan, among others, to turn on Pyongyang.

And Taiwan, of course, remains a live issue, with China claiming it as its own territory with the right to take military action if it were to declare independence. The US acknowledges China’s sovereignty over Taiwan, but is against the use of force by China to achieve it. At the same time, China’s sovereignty claim over South China Sea is creating nervousness that it might interfere with open sea-lanes. All in all; Asia-Pacific is potentially a time bomb with all these claims and counter-claims.

The South China Sea featured in the just-concluded East Asia Summit in Bali against China’s wishes, and is likely to become part of its agenda in subsequent summits. Beijing would prefer its discussion at a bilateral level between the concerned countries with competing claims. It regards the US as an external force that shouldn’t have anything to do with regional disputes. The US, of course, is determined to raise its Pacific profile as the one that is and has always been a Pacific power. In other words, the US decision to make its Asia-Pacific policy a priority is likely to further complicate US-China relations.

And Australia is right in the middle of it, being a willing, if not enthusiastic, partner of the US’ policy to contain China, if necessary. China’s People’s Daily warned Australia that it cannot play both sides of the coin hoping to maximize its economic gains from a booming trade relationship with China while siding with the United States strategically. It said, “Australia surely cannot play China for a fool. It is impossible for China to remain detached, no matter what Australia does to undermine its security.”

More importantly, though, Barack Obama’s revitalized Asia policy goes beyond Australia. In a way, it tells Beijing that gloves are off and the United States will make a determined stand in the Asia-Pacific region to stave off China’s push into the region and to push out the United States. And for this, the US will foster new and reinforce old military and strategic ties with regional countries with maritime disputes with China or otherwise keen for a countervailing force to China’s rise. How will this US-China competition for power will unfold is anybody’s guess? One thing is for certain. Which is that the Pacific Ocean is unlikely to live its pacific name with the new unfolding power game.

Note: This article was first published in the Daily Times.

Will China Lend Europe a Helping Hand?

By S.P.SETH

While Europe is undergoing economic self-flagellation, China appears to be sitting pretty with its foreign currency reserves of over $3 trillion. Despite approaches from European leaders for China’s help, Beijing is acting rather coyly. Apparently, the Chinese would like Europe to approach them formally and, in the process, make China the crucial player in the European salvage operations.

Besides Europe, even the US is not too great a shape economically. In other words, the entire global financial architecture needs overhauling. And China has deep pockets in terms of its foreign exchange reserves to be able to play a leading role. And in the process demand a determining role in the global financial institutions, like IMF.

It would also like the Western countries to lay off China in terms of its currency valuation, market status of its economy, building up protectionist barriers against Chinese exports and so on. To give one example: Premier Wen Jiabao reportedly said in September that, “We have on many occasions expressed our readiness to extend a helping hand, and our readiness to increase our investment in Europe.”

He added that it would be good “if they should recognize China’s full market-economy status” before the 2016 deadline set by the World Trade Organization. This is the way, he maintained: “To show one’s sincerity on this issue a few years ahead of that time the way a friend treats another friend.”

In other words, China will exact a price ranging from re-arranging the global financial architecture to political and strategic concessions as things evolve.

The point, though, is it is in China’s economic interest to help Europe because, first, it is China’s major export market and, second, it has a big chunk of its foreign exchange reserves in euro. And if Europe slows down or falls into recession (as might happen with the US too), its repercussions on China’s employment situation will only add to social instability.

For instance, when global financial crisis hit in 2008 and 2009, China experienced a major slump in its export industry with millions of workers laid off. And there were fears that the returning rural migrants could create an explosive economic and social situation back in the countryside.

China’s massive stimulation package saved the situation in the short term, but resultant inflationary pressures, over-investment, developing asset bubbles, sectoral imbalances, new unaffordable apartment buildings with no occupants, increased internal debt--- all these anomalies have still to work their way out.

China is in the advantageous position of having large foreign currency reserves. But it also has a large internal debt estimated anywhere between 100 and 200 per cent, when one includes the borrowings of local, regional and other government instrumentalities. And it is creating serious distortions in the country’s economy.

To take one example: The interest on saving deposits in China is around 2 percent while inflation is around 6 per cent, which is eroding people’s savings. This, in turn, has created a black market in lending with usurious interest rates.

In other words, there is something about China’s economy that just doesn’t add up. As Larry Elliott writes in the Guardian: “Historically, an uncontrollable rise in credit has been the best indicator of a financial crisis, as the West knows from recent experience.” And he posits the question: “Can China buck this trend?”

He believes: “There is exaggerated confidence in the ability of the People’s Bank of China to finesse a soft landing, just as there was in the ability of the ‘maestro’ Alan Greenspan to prevent the American bubble popping a decade ago.” It looks like the Chinese situation has the “booming echoes of the [US] subprime crisis.”

The question arises: how healthy is China’s economy? The bullish view is that China’s economic growth (even if at a slightly lower rate than the usual of around 10 per cent) has a long way to go driven by the country’s urbanization and industrialization. Therefore, any slowdown will be short term.

The problem with this view is that it doesn’t take into account social and political factors that are complicating China’s picture. At some point, there is a need to interlink the country’s economic growth with social and economic equity and political reform.

China is said to be about 50 percent urbanized and in the next decade or two there is talk of taking it close 100 per cent. One shudders to think of a billion people living in a dog-eat-dog culture of greed, not to talk of the resultant pressure on social and related infrastructure.

We are talking here of a society with a long historical and cultural tradition of close family and clan traditions that have provided succor through times good and bad. And their displacement from such a close and known environment to an urban setting, putting them in the midst of an unfamiliar and, sometimes, hostile surroundings, is likely to create severe pressures and social breakdowns.

And even its rosy economic picture appears dubious at times. WikiLeaks reportedly revealed a conversation in 2007 between the then US ambassador to China and Li Keqiang (likely to be China’s next Premier), then governor of China’s Liaoning province, in which Li told the US ambassador that China’s gross domestic product number was “man-made” and “therefore unreliable.”

In other words, China’s economic statistics might be dodgy. If that is true, it changes the entire picture requiring a re-evaluation of what is and what is not true about China’s economy.

But that doesn’t detract from China’s capacity, based on its foreign reserves, to lend Europe a helping hand at its time of crisis. Apart from its own economic advantage of maintaining an important export market and the value of its euro holdings, it is an important opening for China to create a new strategic space in a fast changing Europe.

US-Pakistan ties in a knot

By S P SETH

Many people in Pakistan hate the Western coverage of their country as a litany of disasters from terrorism to becoming a nuclear threat for the rest of the world. Here is one such description from a senior Australian journalist who recently visited Pakistan for an investigative report. Paul McGeough’s report in the Sydney Morning Herald headlined, “A monster roaming the world”, began: “Search for a firm footing in Pakistan and there is none—all is quicksand… strategically, politically morally.” The rest of the article is an elaboration of what is wrong with Pakistan.

A recent report in the Economist magazine concludes that Pakistan is a country with “venal civilian leaders; army men hankering for the next coup and having pesky journalists killed off; Islamists who shoot opponents for being liberal.” And it says, “With a friend like Pakistan, who needs enemies?”

A recent BBC documentary has further amplified this image, quoting Taliban sources confirming the US allegations that Pakistan’s ISI is actively involved in helping Taliban. Mullah Azizullah, a Taliban official, reportedly said that the trainers at the Taliban training camps “are all the ISI men.”

Understandably, such negative imaging of Pakistan creates annoyance and resentment in the country. Of course, within Pakistan, some of its finest journalists are even harder on their country’s political and military establishment for their acts of omission and commission, though they don’t much like outsiders telling them what they already know. One notices, though, that the criticism within Pakistani media is now more circumspect, which might have something to do with the country’s worsening relationship with the United States and the need to stand together fearing some sort of US military against Pakistan. The US accuses Pakistan of being in cahoots with the Taliban in its recent attacks in Kabul.

The situation seems to have eased a bit following Secretary of State Hillary Clinton’s visit. She, however, kept up the pressure on Pakistan to do more against the Taliban sheltering in its territory as well as against the Haqqani network, believed to be an extension of the ISI. As a result, the Haqqanis might have temporarily moved across into Afghan side of the border. The Pakistani army seems to have stepped up operations against Taliban elements in tribal areas of Waziristan. How long this temporary truce will last is anybody’s guess, because the relationship is based on distrust. But as long as both sides find the other useful, they will try to make it work, though the pressures lately are too sustained and likely to cause more ruptures and political confrontation.

As is, by now, well-known that a sharp slide in Pak-US relations started with the US military operation in Pakistan to kill Osama bin Laden, without the knowledge of the Pakistani authorities. Since then it has been one thing after the other, with stepped up Taliban attacks on the US and NATO troops in Kabul, US accusation of ISI’ involvement with the Taliban, and Pakistan’s fear of US military attacks into its tribal areas on top of the current drone operations. This has seriously worked up all sections of the Pakistani people, where support for the United States was already in short supply.

The problem for the United States is that a progressive radicalization of Pakistani people in anti-US terms is making its task of fighting the Taliban in Afghanistan and Pakistan increasingly difficult. As Noam Chomsky, a well-known US academic who is known to hold views different from his governments, (quoting Anatol Lieven, a British specialist) said here in his Sydney Peace Prize lecture: “…destabilizing and radicalizing Pakistan, risking a geopolitical catastrophe for the United States—and the world---which would dwarf anything that could possibly occur in Afghanistan…” is not a wise move.

In Pakistan, the problem, though, is (and has been) that the country’s establishment, dominated by the military, thinks mostly in terms of beefing up their military power to prepare against a foreign attack, most of the time from India. This has skewed Pakistan’s priorities since the fifties, leading it into unwholesome alliances with the US and its Western allies, hoping to have an edge against India that hasn’t worked.

In the eighties, Pakistan got involved into the Afghan imbroglio, first against the Soviet military intervention in Afghanistan, and more recently (since after the 9/11 terrorist attacks) with the US to fight Taliban in Afghanistan, which is not going too well. Indeed, instead of creating a solid alliance with a common purpose, it has plunged their relationship into, probably, their worst crisis. With the US committed to withdraw its combat troops from Afghanistan in 2014, Pakistan apparently is keen to position itself for a determining role in that country.

Which has led both the US and Pakistan to fast track their respective political agendas in Afghanistan. It would appear that Pakistan has lately bolstered up its linkages with the Taliban to establish a privileged position in the post-2014 period, hoping that the Taliban will eventually come on top in any struggle for political power. On the other hand, the US is even more desperate to require Pakistan’s help to deal forcefully with the Taliban. This is part of the US strategy to bring the Taliban into Afghanistan’s political process from a position of strength. At the same time, it requires Pakistan to be a conduit and guarantor of such a peace deal. Which, in effect, means that the Taliban will agree to operate under the present Afghan constitution with Hamid Karzai as the country’s president until the next round of elections. It seems like a forlorn exercise, principally because the Taliban don’t see themselves as a vanquished political and military force.

Whatever the future political and power contours of Afghanistan, the lesson for Pakistan is that the country’s political and military establishments urgently require a reorientation of priorities to provide its much suffering people economic and physical security that has eluded them so long. Because: without internal cohesion and strength, no amount of military power and strategic shuffling will keep Pakistani state afloat for long. Paul McGeough quotes Arif from Human Rights Commission of Pakistan to say: “The government does not have the capacity to tackle any of the issues [confronting the country]. Things will just keep getting bad… and I don’t discount the fact that we can fall into chaos.” It is, therefore, high time for a total national re-think of the country’s future.