There is, of course, a lot said about the rise of export-led Asian economies, especially China, but notice the framing of the issue. Despite the huge impact of Chinese industrial prowess on the global economy, western media narratives relegate the country to a supporting role in a drama that is still all about us: cheap Chinese exports servicing western consumer culture; Chinese capital flows feeding the West’s appetite for debt; the offshoring of manufacturing capacity as a business strategy for western companies.

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Meanwhile, we arrogantly assume that the process of globalisation-as-westernisation (i.e. the rest of the world becoming more like us) will carry on regardless. The idea that China might be able to exert ‘soft power’ influence in the other direction doesn’t much enter into our minds.

Here are three unrelated stories that should give us pause for thought:

The first starts with Ariana Grande, an American pop star so famous that even I’ve heard of her. When, earlier this month, she released her new single, it was expected it would go straight to the top of the charts – including the iTunes chart for digital downloads. But as Adam Minter explains for Bloomberg, that’s not how things worked out:

“Kris Wu, a superstar in China, not only had the No. 1 spot on the iTunes’ singles chart but also seven of the top 10 songs. It was an extraordinary achievement for an artist with almost no North American profile”

How, then, did he did he pull off this chart upset? There were allegations of hi-tech malarkey, but the explanation appears to be that Wu’s new album was released in America before China – and that his devoted Chinese fans found a way of downloading it from US websites. The episode is an illustration of the way that digital is creating a global media market place in which western tastes, and taste-makers, are no longer the be-all-and-end-all.

Now, onto a different kind of chart: The Economist reports on the growing achievements of Chinese universities in STEM subjects. The article includes a list of world universities ranked by the number of highly cited papers they’ve produced in maths and computing. China’s Tsinghua University comes in at number one – and of the top 15 universities, seven are in China (including one in Hong Kong), six are in America and two in Singapore. Europe doesn’t feature at all.

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Finally, a particular application of China’s STEM expertise: surveillance. Previously on UnHerd, I’ve written about the Chinese state’s advanced deployment of facial recognition technology and its all-encompassing Social Credit System. I also argued that such systems would be exported to, or emulated by, other countries.

Well, here’s a Reuters special report by Angus Berwick on Chinese involvement in Venezuela’s ‘ Fatherland Card’ – a smartcard ID system that “transmits data about cardholders to computer servers. The card is increasingly linked by the government to subsidized food, health and other social programs most Venezuelans rely on to survive.”

One could also mention Singapore’s “Lamppost-as-a-Platform” project which is looking to install CCTV on the city-state’s 110,000 lampposts. Here, by Aradhana Aravindan and John Geddie, is another Reuters report on the story:

“Video surveillance networks are common in cities like London or New York. But Ian Wilson, a security lecturer at Australia’s Murdoch University said he believed that Singapore’s would be different in that it might involve extensive facial recognition technology.

“Such technology has become commonplace in Chinese cities like Beijing and Shanghai.”

Cities around the world could soon be looking like Beijing and Shanghai – looking right at you, in fact.

It’s not that the age of westernisation is over, but that it’s no longer the only force in globalisation – and nor does it have any right to be. For both better and worse, China, and other rising powers, will be shaping the way we live and not just in the economic sphere. 

So, one more reason to lift our heads from our immediate news fixations and take in the world around us.

And then, the announcement at the weekend that the two-term rule for the Chinese presidency was scrapped provided a conclusion to the five-year process of power accumulation; it marked a return to politics of leader worship, and the re-assertion of Communist Party dominance in Chinese life.

This move was no surprise to anyone who has followed Xi’s first term in office. When he came to power, in 2012, China was riding high on the prosperity that Deng Xiaoping’s reforms had ushered in 20 years previously. Deng had learned the hard way that excessive concentration of power damaged both Party and country, and had laid out a succession formula which had allowed a peaceful transition twice – an unprecedented advance in China. For the first time, power was passed on without bloodshed.

Consider what had gone before: from 1949 to Mao’s death in 1976, China had been consumed by savage internecine power struggles within the Party that had spilled out into catastrophic nationwide battles. In the years of Maoist supremacy, nobody dared gainsay the leader’s grandiose visions, visions that killed more Chinese in those decades than all the war, pestilence and famine that had marked the first half of China’s grim 20^th century.

Deng himself, twice a victim of Mao’s purges, was clear that China should never again suffer under a leader who held absolute power, and understood what was required to avoid it. One important condition was a consensual model of leadership. Another was that a power holder could relinquish his position safe from fear of vengeance. When Xi imprisoned Zhou Yongkang, he removed that guarantee. Now, he himself has too many enemies to give up power safely.

Xi Jinping’s real power bases are his posts of General Secretary of the Chinese Communist Party and head of the Military Commission. When he took over the Party, it was in decline: its ideology was confused, its membership was shrinking and it was publicly reviled as a vehicle for corruption and rent seeking. Political reform was widely expected and openly demanded, as people hoped for a continuation of Deng’s prescription of strengthening the state and the rule of law as a defence against Party abuse.

But Xi Jinping has undermined or bypassed the institutions of the state, concentrating executive power in “leading small groups”, many of which he chairs. He has reinserted the Party into every aspect of national life – from the education system to private enterprise, shutting down the think tanks, locking up the lawyers and others who were freely debating China’s constitutional future.

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He has imposed a new ideology that promises to make China great again, in an obvious echo of another global leader. And he has revived an imperial approach in which the ruler personifies the state and the national interest. As he himself put it at a high-level Party meeting in 2016:

“Everything in China is under the direction of the Communist Party: party, state, army, civilian life and education, and at all points of the compass.”

And everything in the Party is now dominated by Xi.

Will it hold? It is generally unwise to take dictatorships at their word. Xi sits at the apex of a series of structural problems at home and is heavily dependent for his legitimacy on the chimera of militant nationalism, combined, of course, with an ambitious system of digital surveillance and coercion.

But this is no longer the Mao era. When Mao Zedong Thought was the national catechism, China was poor, troubled and closed off. Today China is out in the world, a major beneficiary of globalisation, and the Party is now obliged to try to impose its story in the global context. Abroad, as the Global Times, one of the Party’s more extreme mouthpieces put it, China has yet to establish global leadership in ideology and in communications. Expect more demands that business partners, visiting dignitaries and Western scholars kowtow to the Party’s version of history as the price of the relationship.

So why was it necessary to remove term limits to the presidency, when Xi’s real power lies in a Party position that has no term limits? Deng Xiaoping, after all, continued to dominate China in later years from his position as Honorary President of the Chinese Bridge Association. One possible reason might be to deprive any rival – perhaps Premier Li Keqiang – of a future power base. If so, then the move is a sign of anxiety rather than confidence.

Succession, however, is the Achilles heel of any dictatorship and, as China’s history teaches us, of the imperial system also: Qin Shi Huang, China’s brutal first emperor, set up a 10,000 year reich that collapsed four years after his death. In the two millennia since, China’s elite power struggles have been savage. Under the People’s Republic, every nominated successor between 1949 and 1989 ended up deposed, in jail or dead. Deng’s settlement gave China an interlude of relative political order. Now that is over, sooner or later, trouble is likely to return.

Read UnHerd’s China (not Trump) series

On 3 September 2017 North Korea conducted a test of a nuclear weapon. Seismic tremors from this test suggest that it was almost certainly a hydrogen bomb in the early stages of development. The test followed an August 28 intermediate range ballistic missile launch over Hokkaido (Japan) and on November 28 of an intercontinental ballistic missile capable of carrying a nuclear warhead. The purpose of these tests is to pose a mortal threat to US security such that not only would the United States be unwilling to launch a campaign to change the North Korean regime, but that it would also be unwilling to put its homeland at risk in order to enable South Korea to resist demands for a forcible reunification of the Peninsula.

The current US options

At present, the US seems to have only three options:

1. the continued diplomatic pursuit of phased negotiations with North Korea by which it is hoped that the imposition of economic sanctions – and the ultimate promise to lift those sanctions – will induce the North Koreans to freeze the development of their nuclear weapons programme, halt further missile testing, and eventually roll back their nuclear weapons program.
2. the use of military force either as a demonstration to dissuade the North Koreans from pursuing their nuclear weapons ambitions or to actually destroy the weapons facilities and launchers that are the result of those ambitions.
3. the tacit acceptance of a North Korean nuclear arsenal capable of delivering nuclear weapons to US soil, coupled with threats to retaliate against North Korea were those weapons ever to be used to attack the US.

China has an important role to play, as the US recognises, in all of these scenarios. What is less well recognised is that each of them would be a disaster not only for the US but also for China.

Sanctions don’t bite quick enough

The first option depends upon the international community aggressively pursuing economic and diplomatic pressure on North Korea. Since 2006, at the urging of the United States, the UN Security Council has adopted eight resolutions imposing increasingly costly sanctions on North Korea, including severe limits on its weapons trade, banking, and various financial transactions.

China is the key player here, because approximately 90% of North Korea’s international trade is with China. I’m convinced, however, that there is nothing the international community generally and China specifically can win from the imposition of sanctions that will result in the Kim regime abandoning its nuclear weapon and ballistic missile programmes. That is because the regime sees these programmes as the guarantee of its security and the regime has shown itself willing to impose enormous suffering on its people and incur the hostility of many states including China in order to assure its hold on power.

I think that privately, most people who urge this option recognise this but they say that if negotiations could at least slow down North Korea’s programmes, eventually the people of North Korea – either in a general uprising, or acting through alienated members of the leadership – will overthrow the regime. It will be increasingly difficult for North Korea to keep its citizens from being exposed to the world outside and, it is said, this will increase pressure on Kim Jong-un to find ways to strengthen the economy, increase international trade, and pursue economic growth. The fact that the regime has decisively rejected this policy, which it had earlier pursued with Chinese interlocutors, makes it clear, however, that nothing short of a coup d’état or a revolution – a dim prospect – could really alter North Korea’s commitment to be a nuclear weapons power. 

The use of force: The operation would be successful, but the patient would die

The second option, the use of kinetic attacks on the North Korean military, is in my view totally unrealistic at this time. Those who suggest it seemed to have lost track of the reason why we are opposing North Korea’s nuclear programs in the first place. We are in Korea to protect an ally, the republic of South Korea.  The consequence of a US preemptive strike against North Korea would leave Seoul in ruins.

It would be an act for which the US would not be forgiven and one which could well unravel both the system of US alliances and US nonproliferation efforts in the region for which our deterrent and our military presence have been responsible. Nor would it be without enormous cost to China. An American military attack on North Korea would trigger the Chinese military alliance with North Korea. China would be compelled to deploy military force in North Korea with the objective, at a minimum, of creating a buffer zone to prevent millions of North Koreans from pouring into China.

The North Korean regime might well collapse under such attacks but the consequences for China including a South Korean military presence on its border, are quite unacceptable.

If nuclear deterrence worked in the Cold War, why not with North Korea?

The third option, which might be called a version of “containment”, is no more realistic than the first two. This would mean the acceptance of the development of a North Korean nuclear weapons capability that threatens the American homeland.

But, it is urged, the US was willing to accept just such hostile capabilities in the case of the Soviet Union and China. By credibly threatening to destroy those countries by means of nuclear retaliation should the American homeland be attacked by them, US forces kept that homeland safe. That was the rationale, at any rate, responsible for the Kennedy administration’s determining not to preempt the nascent and vulnerable Chinese nuclear program as many in that administration urged.

The problem is that North Korea’s strategic objectives are very different from those of either China or the Soviet Union. North Korea’s paramount goal is to unite the Korean Peninsula. And while the US deterrent would doubtless protect the US homeland, striking the US homeland is not the North Korean objective. Rather its objective is to put South Korea in the position of asking the United States to leave the Peninsula so as to avoid a conflict that would destroy both North and South Korea. This would not be an unrealistic choice by South Koreans who could well calculate that the American defense of their government would mean the destruction of the society.

Such a scenario might be superficially appealing to China. After all, isn’t it Chinese policy to see the Americans leave the region and abandon its local alliances? In fact, this may be the most dangerous option of all for China because it leads directly to the proliferation of nuclear weapons to both South Korea and Japan. It is the US extended deterrent protecting these countries that has kept them from acquiring their own nuclear arsenals; remove this deterrent, and both states have the technology, and technocracy, wealth and face threats that would impel them to acquire their own nuclear arsenals.

An unexplored option: ‘The Greater Will of China’

If China were to give a credible nuclear guarantee to North Korea in the case of a US invasion or preemptive strike against the regime, there would be little point in North Korea risking the survival of its regime by developing long-range nuclear weapons.

This policy is not to be confused with the current mutual defense pact between North Korea and China, one cornerstone of which is China’s no-first-use policy.  Getting under China’s nuclear umbrella, however, could provide Kim a greater chance of long-term survival than a nuclear arsenal vulnerable to US first strike and anti-missile technologies. Indeed, without the protection of Chinese nuclear extended deterrence, Kim’s allegedly defensive strategy will almost certainly lead to his eventual destruction with enormous human costs to the peoples of the Peninsula.

Chinese nuclear deterrence must, however, sit within a much larger diplomatic and legal framework. In February, 1951, during the Korean War, peace negotiations began between China, its ally the North Koreans, and United Nations led by the United States. These lasted more than two years during which there was a military stalemate. The final agreement, signed on July 27, 1953 merely provided for an armistice and created a two mile wide demilitarised zone – roughly along the 38th parallel.

That ceasefire agreement still holds. Legally, the Korean War is merely in abatement and has not terminated because no final peace settlement has been agreed upon. Both North and South Korea claim to be the sole legitimate government of the Peninsula.

This situation is similar in some aspects to that which the Soviet Union faced in the mid-1970s. Then, also, the boundaries of its allies were unrecognised because their frontiers had been forged in the aftermath of World War II and there was no peace agreement between the Soviet Union and the Western states. In that sense, the Helsinki Accords of 1975, though not a binding treaty, finally ended World War II and recognised the inviolability of the postwar borders.

I propose a similar conference, convened by the UN, to include North Korea, South Korea, Japan, China, the US and Russia with the objective of finally ending the Korean War and recognising the borders of both Koreas. Roughly speaking, the US and China would be in the position of the US and the Soviet Union at Helsinki.

President Xi, the statesman

Why would China want to assert its leadership in this way? And if it did, why would the North Koreans – at present wary of China – accept the offer?

As I’ve indicated, the alternatives for China are bleak: the continuation of the current diplomatic strategy by which the international community has made China responsible to pressure North Korea is a strategy that makes both China and the US look weak in the region and makes China responsible for the failure of impossible diplomatic task.

The outcomes of the three currently recognised options all have deadly and incalculable consequences for China. On the other hand, accepting the leadership role as a co-convener of a conference that finally ends the Korean War and that takes these catastrophic options off the table is very much in China’s interest. It would secure for China a diplomatic role as a great power that its economic growth alone cannot achieve. It would defuse a regional conflict with the United States. It offers the only realistic means of restraining a troublesome ally whose ultimate ambitions do not coincide with those of China.

Why would North Korea accept such a Chinese offer?

North Korea’s rationale appears to run like this: no guarantee by the United States or by the international community that North Korea believes is being led by United States, can be trusted. Only the capability to deploy hydrogen warheads launched by long-range ballistic missiles that could destroy American cities can provide an ironclad guarantee for the regime. North Korea believes that there is nothing of such value to the Americans on the Peninsula that would lead them to risk – or suffer – the deaths of millions of Americans. Once testing confirms their capabilities, the regime will be safe and its dynasty can rest easy.

There is an error in this reasoning, however. As long as only American allies, like South Korea and Japan, were threatened by North Korea there was no urgent need for the US to act to remove the Kim regime. It was thought that if we simply played for time eventually the sort of internal contradictions that resulted in the destruction of the regimes that governed the Warsaw Pact states would bring about a similar transformation in North Korea. The US could afford to wait. But now, whether by design or miscalculation, the US homeland has been brought into jeopardy. Now, there is an immense incentive for the US to surge the development of its nuclear damage limitation capabilities – the ability to limit North Korea’s capacity to inflict retaliatory damage on the US. North Korea’s manoeuvres to secure its future have made it now so deadly to the US that its eventual destruction is sealed.

Only one manoeuvre could save North Korea: the acquisition of a credible nuclear guarantee by China. It is scarcely conceivable of the US would risk nuclear retaliation from China just to remove the Kim regime if that regime no longer posed a mortal threat to American cities. In fact, North Korea’s negotiating strength is at its zenith now but its peril will only grow in the absence of such a Chinese guarantee.

Our aim must be to re-orient Kim’s paranoia, making him more afraid of losing an attractive opportunity for security in the eyes of his own people than he is afraid of dependence on China.

For a lot of us, it’s the likes of Google, Amazon, Facebook and Apple. Smaller, but game-changing companies, like Tesla and Uber might also get a look in. But what about Didi Chuxing, Xiaomi or Meituan-Dianping? Ring any bells?

Those Chinese enterprises aren’t exactly household names in the West; but, according to Christina Larson (in a report for Wired), they comprise “three of the world’s top five most highly valued private companies.”

Clearly, the notion of China as a supplier of cheap manufacturing capacity for the West is getting out-of-date:

“…a few years ago, China’s leaders decided they wanted the country to be known for a new kind of electronics – not only ‘Made in China’, but ‘Designed in China’.”

What China’s leaders want, they usually get:

“China [now] has the largest number of unicorns outside the US. In 2014, it overtook Europe as a destination for venture capital, according to PricewaterhouseCoopers.”

(In this context, a unicorn is a start-up business, typically in the tech sector, valued at $1 billion or more.)

Some might suspect that the Chinese have merely graduated from copying western products to copying entire business models. Larson argues there’s a lot more to it than that:

“China’s established internet titans – Baidu, Alibaba and Tencent, sometimes called ‘BAT’ – began as clones of US companies like Google and eBay. But these giants have since evolved in distinct new directions, rather like megafauna evolving new breeds within a Galapagos Islands ecosystem.”

That “ecosystem” is certainly well-protected from the outside world by trade barriers. Nevertheless, the pace and scale of development is impressive:

“In a country where personal cheques and credit cards never went mainstream, paying with your smartphone has become the norm: in 2016, China’s mobile payment market was 50 times the size of that in the US, according to research firm iResearch. Now the sidewalks of Beijing and other metropolises are crowded with millions of bright orange and yellow ‘smart’ bicycles, activated by commuters who scan a QR code with their phone camera and pay using one of the country’s two dominant digital platforms, Alipay and WeChat Wallet.”

In many ways, China is going further – and certainly faster – in applying technologies whose fundamentals were developed in the West. But is it enough to make the most of what’s already available?

As I’ve written about previously, innovation follows pathways whose potential eventually becomes exhausted. Unless they make the conceptual leaps necessary to discover new pathways, businesses, industries and eventually entire economies can find themselves themselves running out of steam.

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It’s easy to feel overawed by the Chinese rate of economic growth (especially compared to ours) – but, of course, they’ve had the advantage of being able to implement in a few decades technologies that were originally developed elsewhere over centuries. Indeed, they’ve been able to leapfrog intermediate stages of development that the West not only had to implement, but also invent in the first place.

There was a time when westerners were the catch-up kings, making the most of technologies that the Chinese (and other civilisations) had invented centuries earlier – such as paper and gunpowder. But eventually, to maintain our forward momentum, we had to become the pioneers. It won’t be long before modern day China has to do likewise.

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It’s a challenge the Chinese government understands, hence their massive state-led investments in frontier technologies like quantum computing. An awful lot hangs on whether China’s top-down approach to fundamental innovation produces better results than the mostly market-driven approach of the West.

China, however, is steadily aiming to undermine the status quo. Its continuing development of what naval experts call a “blue water navy” threatens to disrupt American dominance of the Pacific, and with that the democratic status of nations that have heretofore depended on American naval power.

Maritime trading nations throughout history have depended upon control of the seas for their wealth and power. Ancient Athens, for example, gained its empire and held off Sparta for over 20 years in the Peloponnesian War because of its naval dominance. It finally lost its power, and the war, when Sparta (with Persian money) created its own navy and defeated the Athenians at the battle of Aegospotami. Britain’s empire was also founded upon its naval power, as any school child who has ever learned about the Armada or gazed upon Nelson’s Column in Trafalgar Square knows.

China is no different. Its wealth depends upon trade, and that trade sails upon ships. It also depends upon the importation of oil and raw materials that also sail on ships. The ability to control those shipping lanes in case of conflict, therefore, is essential to any serious Chinese foreign policy.

That, in turn, requires a “blue water navy”. Naval experts classify naval forces according to the types of waters a country’s force can exert power over. A “brown water navy” can operate within a country’s coastal zones while a “green water navy” can exert power over regional seas close to the coast. A “blue water navy” is one that can successfully project power far from a country’s coast, often thousands of miles from its closest port. Only such fleets can contest the control of open seas and far-away shipping lanes.

China has been openly pursuing this capability for decades. It has steadily built up its navy to the point that its submarines and surface fleet can contest control of the waters between it and Taiwan, making American support of the tiny island in the event of conflict with China more hazardous. But only aircraft carriers can control large ocean spaces. That makes China’s pursuit of such boats extremely important.

China recently launched its second carrier, the first built entirely within the country. Its first, the Liaoning, was launched in 2012, but it was a refitted ship purchased from the Ukraine. Building a carrier domestically allows China to expand its capabilities as quickly as it can learn how to do so.

The People’s Liberation Navy is aggressively pursuing that goal.  A senior researcher associated with the Chinese navy, Yin Zhuo, says, “In order to protect China’s territories and overseas interests, China needs two carrier strike groups in the West Pacific Ocean and two in the Indian Ocean. So we need at least five to six aircraft carriers.” To put that in perspective, currently only the United States operates more than two. China’s third carrier, currently under construction, is expected to be much larger and more advanced – and closer to American-quality – than either current ship.

China’s naval buildup extends well beyond aircraft carriers. Last autumn it introduced small ships built with stealth technology. Pictures emerged last month of a new warship that could be outfitted with electromagnetic pulse weaponry, a technology that even the US Navy does not have. It has also launched a new type of modern destroyer that arguably is the most advanced in the world outside of the most modern American designs. The Chinese navy is rapidly expanding its capabilities far beyond those necessary to protect its coastline from invasion.

These trends have not gone unnoticed among China’s regional neighbours. Australia, Japan, India, and the US are exploring joint naval exercises in the South China Sea, a flash point for tensions with China. Japan currently operates two medium-sized “helicopter destroyers” that have many of the capabilities of traditional aircraft carriers. Japanese news media reported last December that discussions with the US are underway that would allow for these ships to carry and launch American-made jet fighters such as the state-of-the-art F-35.

If this is true, Japan would quickly acquire the ability to contest sea lanes independently of the US, giving it greater flexibility in the event of a clash. India launched its first domestically-designed and built aircraft carrier in 2016, with a second, nuclear-powered ship in the planning stages. Even Vietnam is getting into the action, building up its navy with purchases from Russia and hosting a visit from a US carrier group this March.

None of these developments means war is coming soon. But it does show that the backbone of Western defense in the Pacific, the American navy, will come under increasing pressure in the coming years. This in turn can influence other countries which may rethink their alignment with the West.

The Philippines is the great prize in this quiet conflict, as its strategic position astride the north-south sea routes of East Asia means whomever it aligns with has the upper hand in the region. America has long relied on its relationship with the Philippines[1. America governed the Philippines from the conclusion of the Spanish-American War in 1898 until Philippine independence in 1947. Its forces liberated the country from Japanese occupation during the Second World War, and the US maintained air and naval forces in the country for decades until their closure in the early 1990s. Even today the US plans to use Philippine military bases for its operations in the event of confrontation with China.] for its naval strategy in the region, but Philippine President Rodrigo Duterte is moving the country away from its American orientation. The American media often criticises Trump for praising the mercurial and crude Philippine leader, but perhaps the President has been made aware of the nation’s central importance in containing Chinese ambitions and decided that Manila is worth courting.

The world is focused on President Trump’s tweets, but it would be advised to spend a bit more time paying attention to the naval arms race underway in Asia. Capability always precedes conflict, and China’s blue-water naval ambitions will create the possibility for many such conflicts in the years ahead.

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Wilson’s speech marked the start of ‘the American century’ – his country would lead a ‘liberal coalition’ of Western democracies, supported by smaller client states elsewhere. That was the moment, perhaps more than any other, when the US, newly-crowned as the largest economy on earth, laid claim to global hegemony.

China’s current rise to global hegemon has so far been rather different. The International Monetary Fund (IMF) already acknowledges that the People’s Republic has overtaken America as the largest economy on earth – at least on the basis of Purchasing Power Parity (PPP), a measure that adjusts for differences in prices. But China, for now at least, seems unlikely, unwilling and unable to usurp the US by taking on a military leadership role, engaging in far-flung conflicts or acting as a global arbiter of peace.

The route Beijing is plotting towards worldwide influence and control is more gradual, based less on military prowess, more on economic and financial might. China’s fast growth – averaging more than 7% a year for more than four decades – is now widely acknowledged and understood. Those watching closely may also have noticed that Beijing, off the back of China’s awesome export machine, has amassed the world’s largest stock of foreign exchange reserves – its $3,300 billion haul exceeding that of the entire G7 combined.

Beyond the headlines, though, other developments, far less noticed but no less telling for that, illustrate the extent of China’s financial progress and the scope of its global ambition. And the most significant for a while will be next month’s launch, after a 25-year wait, of oil futures contracts, denominated in yuan, listed on the Shanghai stock exchange and available to global investors.

The launch of a new financial instrument, which sounds rather technical, won’t trouble many Western headline writers on 26 March – the date, just announced by the China Securities and Regulatory Commission, that these contracts will first trade – they’ll no doubt remain fixated on celebrity tittle-tattle, Brexit and Trump. But these new contracts represent a big step in China’s long-held ambition to establish the yuan as a major reserve currency, perhaps one day replacing the dollar as the denomination of choice for worldwide trading, settlement and, crucially, in which central banks hold their reserves.

The key to reserve currency status, history shows, is being a petrocurrency – the currency in which crude oil is priced and traded. China is working on that, too. As it strives to challenge the dollar’s dominance, Beijing boasts important allies – including oil export giants Russia and possibly even Saudi Arabia. And now, by denominating oil contracts in yuan, and allowing them to be traded globally, China will be taking another important step in promoting the use of its currency around the world.

The “exorbitant privilege” of reserve currency status

For much of the 19th and the first few decades of the 20th century, sterling was the world’s reserve currency. Some time during the 1930s, with America confirmed as the world’s commercial powerhouse, having eclipsed the British Empire several decades earlier, the dollar took over as the global currency of choice. That reserve currency status was then confirmed at the landmark 1944 summit in Bretton Woods, New Hampshire, which set up the IMF, World Bank and other US-dominated institutions which formed the architecture of global financial governance that remains broadly in place today.

Since then, global commerce has been conducted largely in dollars and leading economies have held the greenback as their primary reserve currency, in their respective large companies, treasuries and central banks. The advantages this bestows on the US are enormous. Reserve currency status generates huge demand for dollars from governments and firms around the world. This has allowed successive US administrations to spend far more, year-in year-out, than is raised in tax and export revenue.

By the early 1970s, US economic dominance was so assured that even after President Nixon reneged on the dollar’s previously unshakeable convertibility into gold, amounting to a massive default, dollar demand kept growing. As such, for several generations now, America has not needed to worry unduly about balance of payments crises, as it can pay for imports in dollars printed by the Federal Reserve.

Washington can borrow and spend, then, pretty much at will, as long as the world keeps buying ever more US government bonds. The Fed, in other words, uniquely in the world, can ‘print hard currency’.

It is this “exorbitant privilege” – as French statesman Valéry Giscard d’Estaing once sourly observed – that has been the bedrock of America’s post-war hegemony. It is the status of the dollar, above all, that has allowed Washington to get its way, putting the financial squeeze on recalcitrant countries via the IMF while funding foreign wars. To understand politics and power it pays to follow the money. And for most of the past century, that money has been dollars.

A China-Russia tie-up is challenging US hegemony

That US hegemony is now being explicitly challenged – by China. In 2013, President Xi Jinping, laid out the ‘One Belt, One Road’ proposal, a modern equivalent of the old ‘Silk Road’, with Beijing creating a network of railways, roads, pipelines, and utility grids linking China, Central Asia, West Asia, and parts of South Asia. Comprising more than physical connections, OBOR is aiming to be the world’s largest platform for economic cooperation, trade and financial collaboration, as well as social and cultural exchange. This is no idle talk. The ratings agency Fitch estimates that no less than $900 billion of OBOR projects are currently underway.

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By Peter Franklin

In 2014, China then launched the Asian Infrastructure Development Bank, to directly challenge the World Bank. Based in Beijing, the AIIB channels a combination of state and private cash into infrastructure projects around the world – under the tutelage of China, not the US. America initially discouraged other large Western economies from joining the AIIB’s board, but Washington was defied, including by the UK.

China has, in addition, backed the creation of the New Development Bank (NDB), often referred to as ‘The Brics bank’. Established by Brazil, Russia, India, China and South Africa, this Shanghai-based lender extends finance to both public and private projects globally, once again challenging the dominance of the US-led Bretton Woods institutions. Billions of dollars of NDB loans have already been extended for projects ranging from renewable energy, to rural drinking water, to information technology.

Aside from high-profile institution building, China is also asserting itself by building bonds of economic co-operation that, in turn, will boost the role of the yuan. It is in this regard that the new Shanghai-listed oil contracts are so crucial. And they are being launched in the context of an ever-strengthening bilateral relationship, of primary importance to both sides, between China and Russia.

Enemies for much of the Cold War, China and Russia have spent the last decade building serious commercial ties across their 2,700-mile border. Trade between them, just $12 billion back in 2007, soared to $85 billion last year. Both sides recognise the vast synergies between Russia, the world’s largest energy exporter and a bridge to continental Europe, and China, not only the world’s largest manufacturer but, since last year, the biggest oil importer too.

In 2009, Rosneft secured a $25 billion oil swap contract with China. The state-run Russian oil giant signed an additional $270 billion deal in 2013, agreeing to send an extra 300,000 barrels a day eastward for 25 years, doubling its crude supplies to China. Russia is now the largest exporter to the People’s Republic, selling around a fifth of its exports to China, which in 2017 averaged around 1 million barrels a day.

These crude exports have risen steadily since the 2010 opening of the Sino-Russian ESPO (East-Siberia-Pacific-Ocean) pipeline. A second ESPO pipeline then opened last month, doubling Russia’s export capacity to China. The geopolitical implications of this China-Russia tie-up are obvious, for those prepared to think them through – and not necessarily advantageous to the West.

Moscow, for one thing, with a major alternative buyer of its hydrocarbons, now has more price leverage when selling energy to Europe. But the broader importance of this emerging pan-Siberian link-up is that, by extending existing yuan-ruble swap arrangements, and settling massive energy trades in a currency other than the dollar, these two nations are directly challenging the predominance of the US currency.

Crude oil is currently priced in dollars, of course. The two main global price indices – for ‘Brent Crude’ and ‘West Texan Intermediate’ – are remnants of Anglo-Saxon global rules. But China’s voracious appetite for energy imports, and America’s increased focus on domestic production, mean the days of dollar-priced energy, and related dollar-dominance, are starting to look numbered.

That’s why Beijing has already struck numerous trade agreements with major commercial partners such as Brazil and India that bypass the dollar. If Beijing and Moscow – representing, respectively, the biggest demander and supplier of exported energy on earth – decided totally to drop dollar energy pricing, while encouraging others to do the same, America’s reserve currency status would start to unravel. That, in turn, would undermine the US Treasury market, seriously complicating Washington’s ability to rack up enormous annual budget deficits and finance its vast, and still fast-growing, $20 trillion of dollar-denominated debt.

The yuan may not become the reserve currency, but the era of the dollar is ending

Originally attracted by the dollar’s stability, the big emerging markets have become increasingly miffed in recent years by America’s deliberate currency debasement, as Washington has fired up the virtual printing press in the aftermath of the 2008 financial crisis.

Since the quantitative easing began, the US base money supply has ballooned from $800 billion in 2009 to well over $5,000 billion now. That’s bad news for foreign creditors like China, with vast dollar-denominated reserves and debt instruments, diluting the value of what they are owed.

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Capitalism's richest got richer from central bank responses to 2008's bust (as well as from the boom before it)

By Liam Halligan

These concerns over dollar depreciation, plus a desire to divert part of America’s “exorbitant privilege”, has seen China and Russia cut a number of non-dollar energy deals, which have the added advantage of avoiding US sanctions, or any other random controls imposed by the US banking system. Moscow and Beijing are now stepping up bi-lateral large-scale non-dollar settlement, in the form of currency swaps and specific deals. Much of the $27 billion Russia is using to finance its vast Yamal Arctic liquid natural gas project, for instance, is coming from Chinese lenders.

With these new crude contracts priced in local currency, Beijing is helping Russia – along with Iran, that other key power necessary for Chinese-led Eurasian integration – short-circuit US sanctions by trading energy in their own currencies, or in yuan.

Naysayers claim the dollar will stay supreme. On-going capital controls, which restrict movements of money in and out of China, will spook foreign investors, they say. So Shanghai’s oil contracts will remain an offbeat, exotic investment, rather than position the yuan as a petrocurrency.

Not so, the Chinese authorities shoot back. The yuan will soon be fully convertible into gold on both the Shanghai and Hong Kong exchanges, they claim. The key is that the dollar is being bypassed and, in this ‘Asian century’, the unique status of the US currency is a relic of a bygone era.

Beijing is staging a full-frontal attack, with other large powers in its corner. Along with Russia, China is also pressuring Saudi Arabia – the lynchpin of the OPEC exporters’ cartel – to price its oil exports in yuan. Beijing has already made an offer to “take a large strategic stake” in Saudi Aramco, the state-owned oil monolith, which an increasingly cash-strapped Riyadh is being forced partly to privatise. And with plenty of cash reserves at the ready, Beijing can extend further largesse to the Saudis, until it gets what it wants.

The dollar’s reserve status won’t end overnight. The US currency still accounts for around 60% of central bank reserves around the world, though that is down from 80% in the 1970s. But the yuan has made a start.

My guess is that, pretty soon, within a decade or so, a ‘reserve currency basket’ may emerge, with central banks storing wealth in some combination of dollars, yuan, rupee, reals and rubles, as well as precious metals. Perhaps some kind of synthetic mix of the world’s leading currencies will emerge, with emphasis placed, after years of QE, on assets backed by commodities and other tangibles, as well as crypto-currencies.

China’s new oil contracts, though, will expand ruble-yuan oil trading across the vast Eurasian landmass, and with broader non-dollar commodity trading beyond that, turn up the heat up on the West. It brings us closer to the dissolution of America’s unique reserve currency status, ushering in a new multipolar world order.

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China's rise has been stunning - and we shouldn't be afraid of it

By Michael Burleigh

We should hardly be surprised that it is China, the would-be global hegemon, that’s threatening to crush the last petals of digital flower power. The People’s Republic is working on the most comprehensive project for social control that has ever been devised.

The Beijing project combines the business reviewing (credit ratings) and peer reviewing (AirBnb) to create the ultimate Klout score: a measure of the trustworthiness so beloved of the Chinese Communist Party. This information is then immediately accessible upon the scanning of someone’s face. Welcome to the Social Credit System: “basically a big data gamified version of the Communist Party’s surveillance methods”[1.  Rachel Botsman, Wired, October 21, 2017, “Big data meets Big Brother as China moves to rate its citizens.” Adapted from her book, Who Can You Trust? How Technology Brought Us Together and Why It Might Drive Us Apart (Penguin Portfolio, 2017)].

The original plan for the “Social Credit” project goes back to 2014, when it was laid out in a document approved by the Chinese State Council. Despite some delays, after an initial period of voluntary participation, a full – and compulsory – rollout is planned for 2020.

The project is brilliantly simple – and singularly sinister.

Any one thing of which they disapprove will have an impact in every other area of your life.

This from Rachel Botsman’s book Who Can You Trust?

… people with low ratings will have slower internet speeds; restricted access to restaurants, nightclubs or golf courses; and the removal of the right to travel freely abroad with, I quote, ‘restrictive control on consumption within holiday areas or travel businesses’. Scores will influence a person’s rental applications, their ability to get insurance or a loan and even social-security benefits. Citizens with low scores will not be hired by certain employers and will be forbidden from obtaining some jobs, including in the civil service, journalism and legal fields, where of course you must be deemed trustworthy. Low-rating citizens will also be restricted when it comes to enrolling themselves or their children in high-paying private schools…. As the government document states, the social credit system will ‘allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step’.

It is happening already:

In February 2017, the country’s Supreme People’s Court announced that 6.15 million of its citizens had been banned from taking flights over the past four years for social misdeeds…. Another 1.65 million blacklisted people cannot take trains.

As The Conversation reports:

Being a “good citizen” is well rewarded. In some regions, citizens with high social credit scores can enjoy free gym facilities, cheaper public transport, and shorter wait times in hospitals. Those with low scores, on the other hand, may face restrictions to their travel and public service access[2.  “China’s Social Credit System puts its people under pressure to be model citizen”, The Conversation, January 21, 2018].

And here’s an update from Rodion Ebbighausen on the German website Die Welt:  

People who don’t visit their aging parents regularly, for example, will get minus points. The same goes for people who cross the street on a red light or illegally dump their garbage[3.  Rodion Ebbighausen, “China experiments with sweeping Social Credit System,” Die Welt, January 4, 2018].

If you watched the Nosedive episode of the Netflix sci-fi series Black Mirror, this may sound familiar. Though while the Nosedive set-up is nowhere near as comprehensive (or as threatening) as the Chinese project, the core idea is the same: peer evaluations in real time assign significance to everyone.

China may only be the start. As the article in Die Welt notes, China may now export their system to other (repressive) regimes around the world.

It could hardly be more different from the vision of the early internet pioneers, as captured by John Perry Barlow in his 1996 manifesto:

“Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather.”

This is not Google Glass, but facial recognition glass connected to Chinese police database. Deployed to a Zhengzhou railway station 5 days ago, it has detected at least 7 fugitives and 26 fake ID holders. #surveillance pic.twitter.com/eXrzRgORam

— FAN Wenxin (@xinwenfan) February 6, 2018

“It won’t be The Donald that historians of 2118 will be focusing on as they remember our times (unless he does press that big red “and it works” nuclear button on his desk…) It will be the rise of China.”

Michael Burleigh continues his case that China, unlike any other great power, is uniquely overwhelming and the planet’s longest reigning home of “high civilisation”. In potentially becoming the world’s top nation, China is only restoring the position it has enjoyed for most of its 5,000 years of existence. And, insists Burleigh, compared to an increasingly unilateralist Washington DC, Beijing seeks to protect the existing multilateral world order.

This piece follows last night's

China: unique in the world and longest-standing guardian of high civilisation

By Michael Burleigh

China’s political and economic structures are unique and to the Western eye, a puzzle:

Its Leninist capitalist model means that the Party’s dedicated red telephone is the most important object on any CEO’s desk.

It is not supposed to be still like this since the West has always assumed that as China became more prosperous and connected with the world, it would ineluctably liberalise.

Adopt the free market and the codicil of liberal democracy will follow – that was the assumption anyway.[1.  For a succinct exposition see Kurt Campbell and Ely Ratner ‘The China Reckoning’ Foreign Affairs March/April 2018 pp. 60-70.]

This has proved as fanciful as US Republican delusions in the 1930s and 40s that China was going to become a vast Christian democracy under Chiang Kai-shek. Consistent growth and the restoration of great power status haven’t put the Communist Party and its state-directed economic model out of business but, instead, legitimised both.[2.  For an exhaustive account of US relations with China see John Pomfret, The Beautiful Country and the Middle Kingdom. America and China, 1776 to the Present (New York 2017) which is especially strong on missionary activities.]

Unlike ‘democratic’ India, every Chinese child receives a decent education and even remote villages have electricity, telephones, sanitation and roads. There is no caste system either and initiative is rewarded rather than stifled by rentier elites. But China is also an incredibly decentralised country, in which 85% of expenditure is at the subnational level, and in which local and provincial authorities engage in a dynamic learning process to compete with one another as they mix and match development strategies. These are unencumbered by many of the obstacles in democracies based on the separation of powers. Instead, to paraphrase Deng, China will employ any cat to catch mice, regardless of whether it is black or white.[3.  Arthur Kroeber, China’s Economy. What Everyone Needs to Know (Oxford 2016) p4.]

Starting under Deng Xiaoping in 1979, China learned from the ‘little dragons’ of Japan, South Korea and Taiwan – two of which were highly authoritarian – so it, too, could rapidly industrialise and urbanise – notably through the coastal provinces opposite Hong Kong (which itself became an important source of investment capital). Two hundred million people had moved to burgeoning cities like Shenzhen before Deng retired in 1992. But it is easy to overlook the fact that the rural poverty rate also fell from 75% to 23% – partly because of the development of rural industry. The automotive giant Chery, which owns Volvo nowadays, is based in rural Anhui province rather than Shanghai.

Improved relations with the US, after Nixon’s historic visit to China in 1972, meant that defence spending could be cut, from 4.6% of GDP in 1979 to 1.4% by 1991. China also eschewed acquiring a huge nuclear arsenal. Military facilities and manpower could be redirected to civilian economic expansion, particularly in the coastal cities. The negative example of the stagnant Soviet Union was also a spur to rapid development. In the wake of the Tiananmen Square massacre in 1989, Deng calculated that accelerated economic development would lead to improved living standards for the middle class and, as annual growth regularly averaged 12%, justifiable pride in China’s ‘standing tall’ in the world.[4.  For much of the above see Ezra Vogel, Deng Xiaoping and the Transformation of China (Cambridge, Mass 2011).]

President Xi Jinping

Since 2012 China has been ruled by the now 64 year-old President Xi Jinping – its most powerful ‘core leader’ since Deng and Mao. He is also China’s commander-in-chief, having brought the PLA tightly under Party control. Quiet, steely and authoritative, he is a striking contrast to Donald Trump, a bumptious and ignorant parvenu, oddly suited to a country which generates a great deal of meaningless noise and whose political system is visibly falling apart against a backdrop of incipient civil war. The contrasts are becoming unavoidably vivid. Last October, Xi’s power was displayed to all at the 19th Party Congress in Beijing. Apart from Mao he is the only leader to have his corpus of writings elevated into eponymous “Thoughts”. Even the great transformer Deng had to be content with “Theory”. Xi also has his American-style ‘China Dream’.

Xi is fond of quoting an anthology of poems from 1100-700BC celebrating the talented officers who enabled King Wen to enjoy his repose, adding “to found a state that can last for centuries, talent is key”. The people who rule China read, and sometimes write books, and they have spent their lives being ‘stress-tested’ in a series of roles that can involve governing a province whose average size is that of Spain (46 million people) or which have particular challenges, from being in the backward interior or because of ethno-religious tensions. They think strategically, as a friend of mine discovered when the Minister of Agriculture profusely apologised for not having the fifteen years sustainability plans in ready form. He had the five and ten years plans in multiple volumes on his office shelves.[5.  For a good portrait of China’s current Standing Committee of the Politburo see Roderick MacFarquhar ‘The Red Emperor’ New York Review of Books 18 January 2018 pp. 29-33.]

Three key aims stand out:

1. One overriding challenge has been to cleanse corruption within the party and state, including the military and security services, so as to justify enduring Communist Party rule. To date some 1,375,000 of 82 million party members have been penalised for breaching discipline, with some of them ending up in Communist Party courts and jail. Much of this may just involve eating more than the mandatory ‘four dishes and a soup’ at banquets or flashing a $50,000 Swiss watch. It can, however, also involve generals who have (but now had) pallet-loads of corruptly acquired cash in their basement from selling military promotions.
2. Secondly, Xi is aware of the brittle nature of any society based on acquisitive materialism. To that end, he is engaged in ‘re-moralising’ Chinese society by blending ‘socialism with Chinese characteristics’ – meaning anything that conduces to economic growth – with traditional Confucian civilities.
3. Finally, he wants to restore China to its historic role as a great power, less by crude military might – displays of which are for internal consumption – than by offering dozens of countries ‘win-win’ economic ties (notably through the $1-8 trillion One Belt, One Road Initiative) and a pragmatic model of development for the developing world. China also supports a fair and effective international order based on the mutual respect of sovereign nations.

For more on that second key aim...

Is President Xi a moralist like Gertrude Himmelfarb?

By Michael Burleigh

China’s long-term strategy is bounded by two upcoming centenaries, that of the founding of the Chinese Communist party (falling in 2021) and of the People’s Republic (2049). Though annual growth has slipped to 6.5%, the aim is to eliminate the last vestiges of (rural) poverty, blighting approximately 300 million people; to complete the urbanisation of the population to around 70%; and the realisation of a “moderately prosperous society” by the Party’s anniversary. Thereafter, from 2035-2049, the goal is the wholesale transformation of the economy, from exports to consumption, and involving everything from electric vehicles and quantum computing to industrial robots, which if Xi has his way, will be ‘Made in China’.

Panda or wolf?

China has come very far in a short space of time, and its potential to travel much further remains enormous. Some in the West find China’s rise alarming, because it confounds expectations of how modernisation supposedly works, highlights the short-termist inadequacies of our systems of government, and, above all, involves competition without confrontation.

The response from the outgoing top superpower, the USA, has been notably unimaginative. Cod history leads to warnings about the so-called ‘Thucydides Trap’ in which a rising power, like Imperial Germany in 1914, clashes with an established one such as Imperial Britain.[6.  Graham Allison, Destined For War: Can America and China Avoid the Thucydides Trap (New York 2017).]  More seriously, the ‘new’ 2018 US National Defense Strategy is like a dreary reversion to the thinking of the Cold War:

“China is leveraging military modernization, influence operations, and predatory economics to coerce neighboring countries to reorder the Indo-Pacific region to their advantage. As China continues its economic and military ascendance, asserting power through an all-nation long-term strategy, it will continue to pursue a military modernization program that seeks Indo-Pacific regional hegemony in the near term and displacement of the United States to achieve global pre-eminence in future”.

It continues[7.  James Mattis, Summary of the 2018 National Defense Strategy of the United States of America (Washington DC 2018) p2.]:

“China and Russia are now undermining the international order from within the system by exploiting its benefits while simultaneously undercutting its principles and ‘rules of the road’.”

America’s own culpable role in destabilising the international order, during its brief and illusory “unipolar full spectrum dominance moment” from 1989 to 2008, goes entirely unremarked upon – though there is some specious play elsewhere in the National Strategy with the alleged “period of strategic atrophy” under Barack Obama. There is no acknowledgement either of America’s role in almost destroying the world’s financial system in 2007/2008, though China’s Finance Minister quietly remarked to his friend Hank (Paulson), the former US Treasury Secretary, that America’s days as a teacher in this area were over.

It is not China that has been raining bombs and missiles (or using shadowy drone strikes) at enormous cost in blood and treasure on the likes of Afghanistan, Pakistan, Libya, Somalia, Syria and Yemen – and not to mention Iraq. In fact, in 1999 China itself became a victim of this US addiction to bombing when five JDAMs “accidentally” slammed into its Belgrade embassy, killing three Chinese journalists. The opening last year of China’s sole overseas military base (a modest naval facility in Djibouti to give onshore R&R to sailors deterring pirates, right next to a giant US drone base at Camp Lemonnier) caused near hysteria in the world’s pre-eminent military power, with its 700 or so overseas bases and 200,000 troops stationed overseas.

Then we have the extraordinary claim that China is “reordering the Indo-Pacific region”, as if the sudden abandonment by the Americans of the customary term ‘Asia-Pacific region’ was not in itself a provocative declaration of intent based on the ‘Quad’ of Australia, India, Japan and the US to contain China in its near neighbourhood. The Australians immediately hedged their bets by declaring they do not regard China as a military “threat” at all.

All this, however, is almost a detail in comparison with the idea that China is “undermining the international order from within the system”. In reality, China has been a consistent supporter of the UN, if only as the best guarantor of Westphalian state sovereignty, and it is the largest contributor of troops to peacekeeping missions. A Chinese police general heads Interpol.

Perhaps what the Americans really do not like is that a more powerful China would like to refashion international organisations which the West essentially shaped after 1945, while claiming the great power ‘exemptionalism’ that the US itself routinely asserts by not signing up to the International Criminal Court or the United Nations Convention on the Law of the Sea. If it can’t get its way within the myriad international organisations it has joined, then China simply creates cover versions, as it has done with the Asia Infrastructure Development Bank as a rival to the US-dominated IMF.

The present US administration often does not even pay lip service to the global commons anymore. Shortly after Trump’s first tour of Europe and the Middle East in May 2017, his National Security advisor, Herbert HR McMaster joined Gary Cohn in an op-ed[8.  HR McMaster and Gary Cohn ‘America First Doesn’t Mean America Alone’ Wall Street Journal 30 May 2017] that said:

“The president embarked on his first foreign trip with a clear eyed outlook that the world is not a ‘global community’ but an arena where nations, nongovernmental actors and businesses engage and compete for advantage…Rather than deny this elemental nature of international affairs, we embrace it”.

That is a straightforwardly Darwinian perspective, obviously at variance with the Chinese vision of ‘win-win’ for everyone through economic cooperation and Beijing’s support for international cooperation. President Trump has been true to his word…

• He warned Nato allies that the party was over if they did not stump up more to defend themselves.
• He withdrew the US from the Trans-Pacific Partnership, and is trying to ‘renegotiate’ NAFTA with Canada and Mexico.
• In order to oblige his Israeli and Saudi friends, Trump says he will rip up the 2015 JCPOA nuclear deal with Iran, an international agreement ratified by among others China, and the UK. This last move also virtually negates any prospect of a peaceful resolution of the nuclear crisis with North Korea since it removes any incentives from Kim Jong-un to cooperate.

The Business of China is Business – and Latin America shows how it does that business…

Talk of China’s “predatory economics” is also risible, coming as it does from a nation whose President Calvin Coolidge in 1925 opined “the business of America is business”. As the self-proclaimed “master of the deal” Trump should be able to grasp – although, apparently, he has been taken captive by all those generals in the White House whose expertise is in bombs rather than balance sheets and PNL.

Let’s turn to a region where China has been highly active in recent years, namely the 33 nations of Latin America and the Caribbean (LAC for short). It is a revealing example of the disparity between American anxiety about China’s rise and a complex local reality.

Before embarking on his first Latin American tour, Secretary of State Rex Tillerson told an audience in Texas that “Latin America does not need new imperial powers that seek only to benefit their own people. China’s state-led model of development is reminiscent of the past. It does not have to be the hemisphere’s future”.

It was unfortunate that even before he touched down in Mexico, ostensibly to repair some of the damage done by Trump in calling Mexicans drug-dealing rapists, that Tillerson extolled the virtues of generals getting rid of failing governments. He may have meant Venezuela, but among his regional audiences it brought back dark memories of US-backed military coups, the murder (and attempted murder) of presidents, and backing for right-wing death squads. These are not clichés of the left-wing imagination as I’ve been on naval bases and ships where victims were tortured and shot. Praising the 1823 Monroe Doctrine was not clever either – since it and the 1904 Theodore Roosevelt corollary that licensed military intervention are widely held to have sanctioned US meddling in the region.[9.  Krishnadev Calamur ‘Tillerson to Latin America: Beware China’ The Atlantic 3 February 2018.]

China’s interest in Latin America is relatively recent, roughly since the 1990s and involves its vast need for raw materials or food products, like copper, iron ore and soya beans.[10.  For the background see David Schambaugh, China Goes Global. The Partial Power (Oxford 2013).] Whereas China’s trade volume with the region was $12 billion in 2000, by 2013 this had grown to $260 billion, with $250 billion of direct investment over 2015 to 2019. China’s leaders have frequently visited Latin America (Xi has been twice as president and twice as vice president), while regional leaders have been to Beijing 170 times. China became an observer at the Organisation of American States in 2004 and has joined myriad regional forums since.[11.  See Ted Piccone ‘The Geopolitics of China’s Rise in Latin America’ (Brookings Institute Geoeconomics and Global Issues Paper 2 November 2016).]

There are very few signs that the Chinese presence involves ‘hard’, ‘soft’ or ‘spiky’ power. Although there is much febrile talk of China’s military modernisation, the enduring effects of the one-child policy make the son or daughter a very precious commodity. China does not have a single military base in LAC, excepting a modest satellite monitoring station in Argentina, and arms sales are a tiny $100 million to the entire hemisphere. Beijing resolutely refused too to take up the Red banner when the Russians abandoned Cuba. If they think about the island at all, it as a potential tourist destination for middle class travellers (though apparently it will need to open a lot of Chinese restaurants first). The supposedly malign global influence of cultural Confucius Institutes is also miniscule. There are a mere 24 for a total Latin American population of 639 million. Nor have the Chinese dumped any of their work force, which can be a source of tension in some African nations, where these intrepid entrepreneurs then take over poultry markets or taxi ranks.[12.  For the American-derived concept of spiky power see ‘At the sharp end’ The Economist December 16-22 2018 pp. 19-22.]

Not every UnHerd author is so relaxed as Michael Burleigh about China's global footprint...

China isn't just buying Western businesses. Is it also trying to buy Western minds?

By Chris Deerin

Although China has been a BRICs  nation since the bloc’s formation in 2009, there is not a single fluent Mandarin speaker in the Brazilian foreign ministry. On my annual visits to Chile I have never had a conversation with (overwhelmingly conservative) bankers, businessmen, diplomats, and military people in which anyone mentioned China – even at the vast Chuquicamata copper mine whose rows of copper plates are destined for there – although hey had a lot to say about Trump, much of it negative – because his aspersions against Mexicans reverberate throughout a very Hispano-European demographic. (And they worry that Trump will help breath new life into populists like Mexico’s López Obrador in the region’s six major elections in 2018). The absence of talk of China is, nonetheless, odd since not only does most of Chile’s copper go to China, but trade in other goods has risen by 148% between 2008-16. They include eight types of fruit, wine – where China is now Chile’s largest export market – forestry products and salmon.[13.  Javiera Quiroga ‘Chile Hitches Ride On China’s Coattails as Copper Addiction Eases’ Bloomberg News 26 July 2017.]

There are perfectly straightforward reasons why LAC states should be interested in doing business with China. Because it is so culturally alien, and a developing nation to boot, it carries no ‘imperialist’ baggage, and can address South-to-South issues in a meaningful way. Moreover when China grants loans, it does not try to impose stringent and painful austerity, as the IMF would. It is also ready to countenance debt write-offs. As even American conservatives grudgingly acknowledge, the Chinese are pragmatists when it comes to development models, basically trying anything that works, though their emphasis on both infrastructure and local governance also appeals. Like any businessmen, the Chinese also have an eye for a bargain too. Because of Brazil’s protracted ‘Car Wash’ (‘Lavo Jato’) corruption scandal there are many assets going cheaply as desperate owners try to rustle up the money for fines.[14.  See Seth Kaplan ‘Development with Chinese Characteristics’ The American Interest 3 January 2018 and on Brazil Joe Leahy, Andres Schipani, Lucy Hornby and Archie Zhang ‘Brazil’s vulnerability is a big opportunity for Chinese investors’ Financial Times 13 November 2017.]

And what about China's influence in other corners of the world?

In Mugabe's fall we also see the fall of the West - and the ascent of China

By Liam Halligan

Nor is there much evidence that China is using its economic might in LAC to alter the geopolitical orientation of these countries. The one exception concerns recognition of the so-called Republic of China (Taiwan). Of the remaining 22 states which still call it by the old style, 12 are in LAC, though only Paraguay is a big one. If China is trying to alter their behaviour it takes a great deal of investment money to change minds, as Beijing finally achieved with Costa Rica when it de-recognised Taiwan in 2007. There’s still a way to go with Honduras, El Salvador, St Lucia and St Kitts. Nor are there any signs that Chinese business involvement results in these states changing how they vote in the UN. Although China is vehemently opposed to decriminalisation of drugs or public health solutions to this curse, this has not deterred any of the LAC who advocate it. Similarly, Argentina and Chile are more likely to vote with the US when it comes to human rights issues than they are with their new friends from the Far East.

It seems absurd for the country that has ripped up its own international order in pursuit of some neocon fantasy and Trump’s nonsense about America First to accuse ‘revisionist powers’ of being bent on the same goal, even if that might be true of Putin’s Russia. Like any good businessman, Xi is taking advantage of every opportunity America’s erratic course offers him and his people. Since Europe, which for my purposes, includes Britain in the geographical sense, has no strategic conflicts with China – in a recent speech the UK Chief of the General Staff Carter did not even mention it once as a threat – Washington should really start worrying since, as we are often told, geographical distance is no longer an impediment to where we make friends in the world (as we will do if the US proves erratic and unreliable). Personally I can’t wait for that to happen, or for this country to adopt some of China’s tough-minded, pragmatic and unsentimental views of the world. In the meantime, one earnestly hopes that China’s justifiable pride in its achievements does not tip over into hubris, and that it can learn the advantages of being a magnanimous great power too.

TOMORROW IN THIS SERIES: Nigel Cameron on how Beijing is using tech to intensify an already strict oversight of its citizens.

It has three unique features;

1. It has a five thousand years old continuous high civilisation – at least since President Jiang Zemin visited Egypt in 1997, saw the pyramids and added a thousand years on.
2. Its population is almost a sixth of the whole globe’s – though in the long run it faces problems of ageing.
3. And finally, until the irruption of Europe and the intrusion of Japan in the nineteenth century, China almost willfully isolated herself from other cultures.

A further distinguishing feature is the near-homogeneity of the population and a relative absence of religious fissures. Of its 1.4 billion people, ethnic Han Chinese constitute 93%. Muslims, the largest minority, are a mere 21 million. Tibetans represent five million and Mongols six. For all of Beijing’s problems in Tibet and Xinjiang province – where they have perfected the surveillance state – it is unlikely that China will ever allow any minority to develop a viable separatist movement – let alone to secede. China may celebrate colourful folkways, but it is deeply assimilationist too. Ethnic homogeneity and an increasingly common culture give the Chinese what the great medieval Arab historian Ibn Khaldun called ‘asabiyyah’, meaning a very strong sense of purposeful solidarity.

Unified under the first Emperor Qin in the third century BC, the country was later to suffer protracted periods of internecine warfare. If the Qin dynasty remains a reference point for the Chinese, it is as much for the severity of the centralised rule as for the successful unification. To this day Chinese leaders remain haunted by the menace of local fiefdoms – one of the reasons why the once mighty ‘neo-Maoist’ Chongquin party boss Bo Xilai is in a prison cell with grey hair and a long beard. In China, as you might have noticed, all leaders are clean shaven and their hair is jet black.

The notion that the Chinese are a race of plagiarists is belied by the richness and inventiveness of its past – in industry as in culture. When Europe was sunk in its Dark Ages, China enjoyed one of its most prosperous eras. The Tang dynasty (AD 618-907) was a highpoint of Chinese civilisation – notably it was the time when wood-block printing was invented. Writing paper had been discovered by the court eunuch Cai Lun in AD 105 and was used as lavatory paper from the 6th century.

This was also when the examination system for public office was elaborated. The advantage was its meritocratic nature – the reason that Europe introduced similar reforms a little later. One thousand years later. The downside was its scholastic approach. The examinations, with Confucian values (551–479 BC) at their core, placed a premium on rigid conformism rather than individual thinking. It was a tendency Mao Zedong understood and exploited to the full during his communist dictatorship.

The greatest mystery in Chinese history was its failure to expand its overseas exploration and trade at a time – the fifteenth century – when its shipbuilding capacities were far in advance of the West’s. Its command vessels, for example, were three times the size of Nelson’s HMS Victory. The epic voyages of Admiral Zheng He during the fifteenth century were never repeated.

Internally, however, the country progressed. The most recent high point came during the eighteenth century and under the Qing dynasty (AD 1644-1912), when the Manchu Emperor Qianlong beat back rebellions and expanded the country beyond its borders. China’s emperors believed they had Heaven’s Mandate (tian xia) to rule neighbouring peoples through tributary arrangements based on elaborate rituals of obeisance. Though still a despotism, China was the largest economy on earth by 1800. The part played by the government in economic organisation was especially notable, for example in storing grain against the risk of famine.

There followed two centuries of disaster. Internal stagnation and corruption facilitated reversals at the hands of Europe’s nineteenth century imperialists, and the imposition by Britain (and others) of “unequal treaties” that accorded them extraterritorial rights. That humiliation has not been forgotten.

After defeat at the west’s hands the century ended with a defeat from the industrialised Japanese. After the downfall of the Qing dynasty in 1911 and the degeneration of an interesting attempt at republican democracy under Sun Yat Sen, China was subject to the horrors of Japanese invasion and an occupation in which fifteen million Chinese perished. After a protracted civil war, the country was ripe for 1949’s Maoist takeover – though the revolution began with as much nationalist as communist character.

The price paid for the stability of the country that followed, and for such advances in health and education as the revolution brought, was colossal. Some seventy million people are estimated to have died during Mao’s dictatorship, more than half from starvation in the Great Leap Forward of 1958-62. Even the country’s sparrows were slaughtered to stop them eating stores of grain – extracted from starving farmers and despite their diet actually consisting of the insects which consumed the grain. The rest perished from endless purges and the severity of life in the laogai labour camps. Finally, after being marginalised by reformers, Mao made a late comeback in 1966 – inciting the murderous and decade-long Cultural Revolution. Its aim was to destroy the ‘Four Olds’ – Old Customs, Old Cultures, Old Habits, and Old Ideas – the entirety of China’s past. By the time of the Great Helmsman’s death, China was so isolated that its only ally was Albania and its sole embassy could be found in ‘Old’ Egypt.

Many of China’s present-day stances are influenced by this history. Obviously that would include a profound terror of internal disorder – notably during the 1850-64 Taiping Rebellion when as many as thirty million were killed. There is also an acute sense of victimhood at the hands of external powers – with indignation deepened by seeing the home of their pre-eminent civilisation being humbled by nations with so much less to boast about.

MORE FROM MICHAEL BURLEIGH’S EXTENDED ESSAY TOMORROW. (MONDAY MORNING UPDATE: HERE IT IS). MICHAEL KICKS OFF OUR WEEK OF PIECES ARGUING THAT OUR TIMES WILL BE REMEMBERED FOR THE RISE (ONCE MORE) OF CHINA AND NOT – AS THE NEWS MEDIA GIVE THE IMPRESSION OF BELIEVING – AS THE ERA OF TRUMP.

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An introduction to our China (not Trump) series

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By Tim Montgomerie