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When the new Chinese leader Xi Jinping set out to meet President Obama in California, the task and the objectives that he set for himself were relatively simple. The Chinese leader wished to emphasize that this was a meeting of two equals and that this was a ‘new historical starting point’ that underlined a ‘new model of relations.’
In other words Xi, who has just started his ten- year tenure as the supreme Chinese leader, coveted from the very beginning of his rule to be seen as Obama’s equal; if not as his partner in deciding the vital issues facing the world. Just as Mao on the founding of the People’s Republic had made the historic declaration that the Chinese people have ‘stood up,’ Xi now wanted the world to acknowledge that China as a great power had ‘arrived.’
The Chinese have much going for them. Undoubtedly China is an economic and a military super power. The two way trade with the US has risen from US$ 375billion in 2009 to US$ 600billion in 2012. Chinese investment has doubled in the US in the last two years. There are at present about 194,000 Chinese students studying in the US; up from 67,000 students in 2008. Conversely, there are over 20,000 US students studying in China. Chinese business and tourist arrivals have risen from 400,000 in 2008 to over 1.5million at present. It is estimated that by 2117 this figure is likely to reach 4 million or about 10,000 arrivals every day!1
And yet China remains a fragile super-power. China’s phenomenal growth just as Japan’s was; is export driven, based on low cost labor and an under- valued currency to provide exporters a distinct competitive edge. China’s large export trade surpluses are invested in US government securities to avoid an upward pressure on its currency. When Japan was forced to sign the Plaza Accord, it had to agree to appreciate the Yen; thus leading to a compression of Japan’s exports and subsequently of its growth. Japan has since then been struggling to recover its economic élan. China’s strong reluctance to appreciate the Yuan is based on its lingering fear of going the Japanese way.
On the other hand, the fear that China is economically headed the Japanese way has induced the rich Chinese to vote with their feet by emigrating out of China. An estimated 14% whose net worth is more than US$ 10 million have already left. Despite severe restrictions imposed by the Bank of China on capital currency movement an estimated US$ 3.72 trillion have moved out of China in the last decade2. A recent study puts the costs of corruption in China at 3% of its GDP annually or about US$200billion. A survey in October 2012 underlined that nearly 82% Chinese felt that the nation had suffered a moral decline 3.
In the recent past the Chinese leadership has tried to dampen the twin ills of economic inequality and widespread corruption by promoting exuberant nationalism and by maintaining an impressive rate of growth in an attempt to drown out discontent. This excessive play on nationalism has had its repercussions on foreign policy, for every issue no matter however trivial, is now seen as a test of national will. Not surprisingly therefore, China is now at loggerheads with most countries in its immediate neighborhood. The recent spats with Japan over the Senkaku islands, with the Philippines over Scarborough Shoal, with Vietnam over islands in the South China Sea and with India in the Depsang area are acute symptoms of this malaise. This in turn has sufficiently alarmed the countries of the Asia-Pacific region, including India, to seek collective remedies and to turn to the United States for military and political support. According to US Defence Secretary Hagel, 60% of US naval assets will be deployed in the Pacific by 2020.
President Obama is aware of and understands perfectly China’s hopes and desires as also its unique fragility. He is not about to give any comfort to the new Chinese leadership without commensurate quid pro quos. The crucial point is whether China will be able to ‘adjust’ its policies and practices to meet key US demands. Chinese readiness is already evident over the Korean peninsula, in that the Chinese have agreed to ‘contain’ North Korean nuclear ambitions and push it into talks at the inter-Korean level. Cabinet level officials of the two Koreas have subsequently met for the first time in six years. It is a matter of time only before the six nation talks are held. As Tom Donilon, the US National Security Advisor clarified, ‘I think what you have underway here is a shared threat analysis and a shared analysis as to what the implications and impact would be of North Korea pursuing a nuclear weapons’ 4
China in a significant move has also agreed to discuss ways to reduce emissions of hydro- fluoro- carbons [HFC]. Both the US and China are the world’s two largest emitters of green- house gases and both agreed to ‘work’ with other countries to reduce emissions of HFC. Previously, China had maintained that to cut its emissions would mean it would have to compromise its economic growth. The US, on the other hand, had maintained that it would not take any action till China did.
The Obama-Xi summit however indicated that there was no tangible forward movement on [a] cyber espionage [b] arms sale to Taiwan [c] maritime disputes in the South China Sea and [d] on US allegations that China was manipulating the value of its currency.
Obama came armed with the thought of pushing the Chinese hard over cyber espionage and openly declared that ‘cyber hacking was inconsistent with the kind of relations we want to have with China and that if it continued it would be a very difficult problem in economic relations.’ As a matter of choice the US decided to only push what it euphemistically called ‘cyber enabled economic theft,’ for fear that an omnibus approach would mean that its own activities in this regard would come under the scanner. The sensational revelations of Edward Snowden, the National Security Agency whistleblower, dampened any chances that Obama had of taking the high moral ground. With the Snowden affair snow balling the Chinese had little difficulty in rebuffing US accusations about its cyber hacking activities.
The fact that there was little progress on the other issues of importance, underlines the fact that US-China relations will continue to be governed both by co-operation as well as contention. How the politics of the US-China relationship pans out in the future would determine to a large extent the politics of the Asia-Pacific region. The key feature to watch would be the Yuan-Dollar exchange rates. If there are signs that an upward revision of the Yuan is imminent, it would indicate that the US has been successful in pressurizing the Chinese to adapt to US demands. In that case, the real question would be: Is China going the Japan way?
By Special Arrangement with The Institute for Defence Studies and Analyses (www.idsa.in)