The Bottom Line.
In this Insight, Paul Clerc-Renaud and Christophe Granier attempt to sketch a post-trade war landscape. China-US relations are complex and many factors need to be taken into account. Yet, interestingly, whilst Washington fights, it seems that Beijing is on the way to collecting the benefits of his patient strategic efforts, both from an economic and strategic perspective.
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China Foresight: Sketching a post-war landscape
[By Christophe Granier and Paul Clerc-Renaud]
Like all conflicts, the current confrontation between the United States (a declining power) and China (the new supporter of multilateralism and openness) will create casualties. Interestingly, the analysis of the conflict and the various bets on its implications are only of interest to external audiences. The two main actors, however, are more pragmatically focused on the evaluation of the opponent’s weaknesses and on their own means of coming out victorious – or the least weakened, at least – of this period of tension.
While the tariff dispute now seems to be on the way out, the technological confrontation continues. Washington attempts to break Beijing’s momentum, to halt its process of modernization and to prevent its unquestionably rising leadership in robotics, artificial intelligence and communication networks. The Huawei case is an illustration of this, and so is the vehement condemnation of the “Made in China 2025” plan.
A legitimacy issue?
All things considered, nonetheless, can we legitimately condemn a country for making its own development roadmap and for planning its economic independence?
Would any Power have dared to condemn the growth plans and strategies of the French General of Gaulle fifty years ago? Certainly not.
In fact, it seems that the means matter more than the goals in Uncle Sam’s anti-Beijing frenzy, and if the Chinese hubris is often apparent, it does not justify American paranoia.
For the government of Xi Jinping, besieged by a network of very influential Western media worldwide, the priority is to identify friends, gather converging interests and prepare for the worst in terms of both strategy and economy. Diplomacy thus meets business, in other words, and the seeds planted until now will soon need to turn into productive gardens, stable enough to travel the world with products and services, thus guaranteeing long-term economic stability.
In a post-trade war world, whilst Washington fights, it seems that Beijing is on the way to collecting the benefits of his patient strategic efforts. Looking after new alliances and building complicity with partners is the priority, and whether this will happen is only a matter of time. In fact, the only thing that remains to be determined – in the current intertwining of free trade agreements, trade associations, fundraising clubs, security, and other organizations – is the list of countries which will be the future partners of the Chinese block.
Circle metaphysics and tube strategies.
The power of internal development is also a topic which matters.
Within the “Greater China”, the Hong Kong Special Administrative Zones and Macao are administered with a large degree of autonomy within the framework of “one country two systems”.
Since 2003, indeed, China has concluded with them the so-called CEPA (Closer Economic Partnership Arrangement) agreements granting goods, services, and investors from both special economic regions preferential market access. China also benefits from Hong Kong’s services and networks in relation to international logistics, financial and commercial matters, including special free trade treaties with a growing number of countries or country groupings.
Hong Kong and Macao also make part of the Greater Bay Area with Shenzhen, Guangzhou and seven other cities in the Guangdong province. In practice, while the Greater Bay Area’s development plan was just announced in February 2019, the grouping constitutes a megalopolis of 70 million inhabitants capable of competing in terms of connectivity, innovation, and technology with the bays of San Francisco and Tokyo. The Greater Bay Area is also the point of convergence of the land Belt and the Maritime Silk Road from the BRI Initiative and as such, it is the ideal platform for Chinese companies wishing to expand internationally.
Accustomed to a long imperial tradition of self-centered geopolitical reasoning, the Chinese authorities consider their close vicinity as a natural area of privileged protection and exchange. On the economic level, this scheme leads to a sustained trade opening, because healthy neighbors normally refrain from developing political aggressiveness. This results in a common market, in fact and in reason, which by the same token creates a new range of policy complexities.
Beijing has also developed its influence in relation to regional bodies in its immediate area (ASEAN, RCEP, Eurasian Union) when it has not created or maintained associations by itself (Shanghai Security Organization, China-Korea-Korea-Japan Trilogue).
Isolated within the APEC nations surrounding the Eastern Ocean, China is also facing difficulties when it comes to moving beyond its role as an observer in the less active Pacific Islands Forum.
The relationship between China and its counterparts is delicate because of past litigation and because of heavy geo-economic constraints. But Beijing has been able to prepare alternative plans, to develop relationships with more countries, and to form diversion corridors capable of channeling its economic flows. The Belt & Road initiative is precisely about that, with corridors across Pakistan, Myanmar or more simply Malaysia, from Kuantan to Port Klang.
Sometimes, dividing is another possibility, and the Lancang-Mékong Cooperation – pampered by China which actively contributes to it – might one day protect the Myanmar-Laos-Cambodia axis, vital access to the hot seas, against the possibly adverse initiatives of the ASEAN-AEC.
Overall, from land to rail and road axes, the energy transport appendices and the various strategic maritime lines in the South Seas as well as around the poles constitute “tubes” of equally critical importance. In essence, these developments bring China a lot further into the global world that it originally decided to target during the CCP congress of 1999 where the “Go-out” strategy was initially developed.
In this complex assemblage, the Siberian desert that covers the Chinese territory – from both a terrestrial and maritime point of view – plays a very special protective and resourceful role. The relationship with Russia is crucial, in fact, because Russia is the only block that China cannot avoid or split in its expansion.
Beijing has also established contacts beyond the Eurasian continent. Created at the turn of the century, the Forum for China-Africa Cooperation (FOCAC) for instance brought most African states together around China, which has de facto become the continent’s leading banker. Its regular meetings are the solemn occasion to give up on debt due and unpaid by countries in financial difficulty, not to forget the biannual revisions of the framework for the aid to be provided.
In Europe, and participating in the further splitting of an old continent in search of unity, the 16+1 (today 17+1) initiative has united 11 countries of the Union and 5 other nations of Eastern Europe, naturally connected to the transcontinental “belt” outlet.
Since 2015, China and the Community of Latin American and Caribbean States have furthermore been drawing up plans to increase cooperation.
As part of the development of the digital “Silk Road”, Beijing’s strategy is overall to connect Africa and Latin America to its fast communication network. From its Gwadar base on the Pakistani coast, an underwater cable is to connect the ports of Mombasa and Djibouti. On the other side of the African continent, the laying of the transatlantic cable from Kribi in Cameroon to Fortaleza in Brazil was awarded to a Chinese contractor. More unusual, a record project is to link China to Chile by crossing the South Pacific.
Bilateral treaties and financial motorways.
In preparation for the forthcoming complexities under the multilateral system (at the top of which the WTO prevails), China’s post-war landscape is also characterized by the negotiation of many bilateral treaties that may one day replace a global modus vivendi with isolated preferential agreements.
In this area, there are few or no political considerations, but a cold accountant’s lucidity: even Singapore and New Zealand, rare countries with trade agreements with Taiwan, are also linked to Beijing by treaties that have recently been renewed with a view to strengthening relations. If trade was always the subject matter of these treaties – the spectrum of goods concerned of which varies significantly from one to the other – investments remain complex and small states (especially in Africa) have in practice some difficulties to access funds.
For once aligned with economic geopolitics specialists, the Chinese authorities by investing in multiple paths at the same time thus confirm that bilateralism is the weapon of the powerful whilst multilateralism remains the shield of the weak.
Some blockades may of course occur, but the role of bilateral treaties is specific; it is to perpetuate a relationship instituted under a pre-formed framework, despite the existence and prevalence of the WTO, whilst using economic cooperation to limit the occurrence of serious conflicts. With its multifaceted strategy, Beijing therefore keeps improving its chances of implementing its global ambitions.
From money talks to currency discussions.
Having said that, the reality of international trade is that global economic exchanges require a currency accepted by all the parties involved. Despite its efforts, Beijing has not managed yet to increase the use of the Renminbi in international trade. In effect, the currency barely exceeds 2% of transactions worldwide.
The Chinese currency only improves its position as an international reserve currency very slowly. It used in some countries placed under economic subjection or bored by the supremacy of the US dollar, but no major partner (the latest being India) has yet accepted the Chinese offer to settle trade in domestic currencies.
In response, the Chinese government promotes the expansion of dematerialized payments by leaving its champions (Alibaba and Tencent) cover an increasingly respectable part of the planet through their transmission networks. In the future, the creation and increasing use of a new secure electronic currency might compete with the dollar and the euro.
China’s influence will follow these channels because beyond ensuring survival, Beijing’s real ambition is to constitute an affidavit zone that can counterbalance the opponent’s zone. To do this, however, Beijing will likely need to deploy a lot more efforts in terms of trust building, cultural assimilation, and cooperation.
Strategic review: focus or dispersion?
If Laozi’s adage that a journey of a thousand lilies begins with a single step remains true, Beijing has to date covered much of the way whilst increasing its presence and influence well beyond the historical boundaries of the traditional Empire. Even before the arrival of Donald Trump, in fact, it had lived more successes than setbacks.
If the technological war takes over from the trade war and if the future holds other types of conflict, the time for a pre-balance sheet has come in the various circles drawn around Asia.
China in Asia and the Pacific.
Very close to the Chinese giant, Southeast Asia is the most logical source of allies for Beijing but it also brings together countries with a wide range of behaviors and could thus become a problem of choice. Eminently cautious, Vietnam and Thailand know how to pull the chestnuts out of the fire without committing themselves, and Singapore has as much to lose as it has to gain from an alliance close to subjection.
North Asia (Korea and Japan) is also strategic in terms of position and wealth, but it knows how to protect its interests and delay open conflict.
The situation might be much simpler in Central Asia, so far convinced of the importance and of the real advantages that the interconnection of BRI networks brings to it. Yet, these new satellites might at some point reveal some unpredictability (Turkmenistan) which will then need to be dealt with. South Asia (which receives significant subsidies) might also prove surprising at some point, starting with a reluctant India that is seeking to play a dominant role.
On the Pacific side, the recent period of comfortable blindness during which flourishing trade was accompanied by significant investments has just ended with the realization of Beijing’s real military power and of its direct ambitions towards the south-east. Fiji, Tonga and Papua have just fallen more or less into its area of influence but Australia’s rearmament and the resumption of its quadrilateral QUAD discussions with the United States, Japan and India are other major signs.
Although it may seem far away geographically, Africa remains a playground of influence on which China has aims, political as well as economic. Hence, even if Beijing’s existing soft power reserves are still oriented towards the West, the flow of recent developments tends to create a to-watch-list in which digital and technological “tubes” will play a crucial role.
On the other hand, the Middle East and its growing complexity form a worrying white zone in which the Chinese diplomacy – despite its efforts – is struggling. Latin America, which has long been solicited with some occasional successes, is alternatively an ideal diversionary objective for China.
On a strictly commercial level, Beijing will continue to play its role towards multilateralism.
On the Pacific side, it might try to cultivate APEC relations and attempt to join the CPTPP – without much chance of success). In Southeast Asia, it will likely invest in the RCEP while trying to safeguard a failing WTO. All in all, a question nonetheless remains as to the country’s political and economic objectives and arsenal should a context arise possibly marked by a long and dangerous conflict.
In essence, China is powerful but the options remain limited. The constellation of BRICS – once known as the grouping of the major emerging countries against Western domination – nowadays, remains disparate and the organization is happy to limit itself to issuing joint communiqués at the opening of UN summits.
Due to their metronome regularity, associations such as FOCAC, OCS and 17+1 seem more effective. The African forum and the financial links it has created seem likely to withstand many of the vicissitudes to come.
After a start, the Shanghai Cooperation Organization – in its limited format as well as in its expanded version – is possibly of more considerable interest, especially since it focuses on security. As such, it is preparing the Chinese military umbrella for a fairly large area of Asia and its success would be considered by Washington as a major risk.
For the European Union, the nearest danger is China’s association with the 17 countries of Eastern Europe, a strong argument used by members tempted by the exit or wanting to obtain a special status. Premier Li Keqiang, a key player of China’s participation in this association, also recently advocated closer relations with the Eurasian Union, the embryonic and partial common market of the countries of the former Soviet Union.
In a global environment in the process of de-structuring, China is overall pursuing its path and is setting standards around the planet, hoping – probably rightly so – that several of them will illuminate its way towards an uncertain future. Thucydides defined his trap – now overused – only a few years after Sun Zi’s death, but he had certainly not read the always judicious precepts of the old Chinese sage who guide his successors.
This insight was originally published in French in « La Lettre de la Chine Hors Les Murs » N°28, March 2019, by the French External Trade Advisors (Comité National des Conseillers du Commerce Exterieur).
Christophe Granier | China Expert Contributor
During his 37 years banking career, Christophe Granier was most of the time involved in asset finance activities, running specialized leasing subsidiaries of Soc Gen in seven countries including Japan, Turkey, and the Netherlands.
His main positions were Senior Country Officer of the Bank in Pakistan, Managing Director of Trilease International Ltd and Sogelease in Hong-Kong, before moving to Shanghai in early 2005 to establish the wholly-owned Soc Gen subsidiary specialized in leasing and renting activities.
Christophe Granier devoted more than 10 years of its career to Greater China. French Trade Counselor since 2000, he was also the Secretary-General of FTC sections in Hong Kong & China for 8 years. Coordinating the booklet on the International Strategies of French Groups in 2011, he took the lead of the worldwide inquiry on the China globalization “La Chine Hors Les Murs” in 2013, publishing the main study in 2014 then heading the Observatory for China Globalization.
Paul Clerc-renaud | China Expert Contributor
Paul Clerc-Renaud is a China and Asia-Pacific expert, contributor to The Asia-Pacific Circle’s insights. Based in Hong Kong since 1977, Paul is the Managing Director of Fargo Group, a supply chain management, manufacturing, and distribution specialist operating mostly in China, India, and Vietnam. He is currently Honorary President of the French Chamber of Commerce and Industry in Hong Kong.
Paul is a former director of the Pasteur-HK University Research Center, Conseiller du Commerce Exterieur de la France (member of the board of the National Committee 2011-17), Hong Kong member of the Hong Kong France Business Council and investment promotion ambassador of Invest Hong Kong. He received the honour of Chevalier de l’Ordre National du Merite (Knight of the French National Order of Merit) and Officier de la Legion d’Honneur (Vice Chairman & Honorary Secretary of Legion d’Honneur Club Hong Kong Chapter).
Disclaimer: The views expressed are those of their author(s) only and do not reflect those of The Asia-Pacific Circle or of its editors unless otherwise stated.
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