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What could China learn from Europe?

Attila Marjan

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In the nineteenth century Europe’s key cultural impact on China has probably been its influence in modernizing the Chinese state. In the 1870s and 1880s, Chinese engineers who visited Europe realized in no time that Europe’s successes were not just due to technological advances but were more deeply rooted.

One returning scholar was Yan Fu, who translated the works of Montesquieu and Adam Smith, which introduced Western ideas to China and changed the way subsequent generations saw the world around them. Thomas Huxley’s Evolution and Ethics made the theory of social Darwinism popular. Although the writings of Bakunin and Kropotkin led some Chinese towards anarchism, the most influential streams of political thought among the elite were those of liberalism and socialism, which then made their way into the wider society through nationalism aimed at China’s modernization. Until the end of World War I the teachings of liberalism dominated public thinking, but the Treaty of Versailles sent China the message that the Western powers had exchanged their liberal worldview for the policy of force. In the post-war years, socialist ideas quickly caught on as they emphasized the common good and not the individual as the key motive of restructuring society.

The teachings of socialism and Marxism gradually became more widespread in China. It had been a widely held belief that these ideologies could only become successful in a developed capitalist country, but the Bolshevik revolution demonstrated that Socialist and Marxist ideas could release enormous energies from the tyrannized classes of underdeveloped Russia. One of the founders of the Chinese Communist Party, Li Dazhao believed that since China was even less developed than Russia, its revolutionary potential was greater.

Europe influenced China in several other ways throughout modern history. China had to abandon its hopes of becoming a universal power and to settle for being just a state like any other, only bigger. This meant the acceptance of a Westphalia-type setup, which introduced the new concepts of sovereignty, territorial integrity and clearly defined borders.

The two key events of the post-World War II era that have left their mark on China’s view of Europe were the consolidation of the Communist regime in China and the process of European integration. Following the end of the Cold War, many Chinese scholars were convinced that the globe would be dominated by one superpower and several regional powers, which would eventually lead to a multipolar world order. Studies on Europe are usually based on this presumption, therefore Chinese analysts usually first discuss whether the European Union can be considered an independent international power, in particular whether it can act independently of the United States of America. Independence from the USA has become China’s yardstick of Europe’s place in the world.

There is no such thing as an independent approach to Europe’s role in today’s world. Chinese analyses of Europe’s place in the world often reflect their own preconceptions. Observations about Europe mostly reflect the hope that the international order is on its way towards a world in which there is not one single dominant power but several politically equal regional centers, a world with a culture characterized by diversity and an economy characterized by interdependence. Even though some Chinese authors do understand the complexity of decision-making procedures in the European Union, the difficulties of finding consensus in an enlarged Europe, and the traditionally pivotal role of the Franco-German axis, the majority of them more or less see the EU as a single actor on the global scene. Chinese are fully aware of Europe’s weakness on the international political scene, which is largely due to the Union’s cumbersome and non-coordinated foreign policy profile.

The Asia-Europe Foundation conducted a survey in 2006 on how the Asian media, the elite and the ordinary citizen saw the European Union. Three leading newspapers were observed for a full year for the frequency of EU-related news, their relative significance and themes. The biggest daily published about 60 pieces of news on the EU monthly, while the leading TV channel featured a dozen news items on the EU monthly in its evening news program. Most of these news items were not leading ones and were usually unaccompanied by any commentary. The researchers queried 400 ordinary Chinese citizens about their knowledge and opinion of the European Union. The majority of respondents said that China’s key partner was the USA, followed by the EU, and somewhat surprisingly adding that the EU was likely to take over America’s pole position at some time in the future. In links with the EU, trade and finance were considered the most important. Most respondents associated the EU with the euro and trade when asked the question: what is the first thing that comes to your mind when you hear the term EU? There was a general consensus that the euro was the most important symbol of the European Union. The third part of the survey involved interviews with representatives of the Chinese political, economic and media elite as well as of civil society. 95% of the interviewees said that the EU was a major power, and they also agreed that the EU was one of China’s key partners alongside America and Russia. The opinion of the political elite was more positive than the economic elite’s: the latter gave an unequivocal answer, putting the USA as clearly the number one partner of China. However, to the question whether the euro would ever replace the dollar in international money markets as the leading currency, the economic elite gave a surprisingly open and positive answer: most respondents did not rule out the possibility of this scenario. Let us not forget though that this was before the Eurozone crisis. The opinion of the political elite differed: they believed that, due to America’s political dominance, the dollar would maintain its top spot. In general terms, the EU was considered most important by the political elite and the least important by the media elite, but all four groups expected the EU to take on a more important international role in the future.

The EU became China’s leading trading partner in 2004, and China is now Europe’s second most important trading partner behind the United States. The total value of EU-China bilateral trade grew more than sixty-fold since 1978, and Europe has worked its way up to become China’s number one supplier of technology. Germany is China’s key European trade destination, absorbing a third of all Chinese exports to the continent.

To many Chinese authors Europe symbolizes the spirit of the modern age, all the more so as they see their own aspirations materialize in European policies. Chinese analysts agree that Europe is not only keen but increasingly manages to build a key international position independent of the USA since the end of the cold war. More and more Chinese academics realize that the EU not only talks about the necessity of an effective multilateral system but also puts those ideas into practice. Some believe that this European aspiration stems from Europe’s postmodern foreign policy orientation and the neoliberal school of international relations. One of China’s leading Europe experts, Professor Feng, is often heard saying that the majority of Chinese have an overly generalized and idealized view of Europe’s position in the global pecking order. Professor Feng argues that the EU lacks one of the key prerequisites for status as a global power –military power – but that what it lacks in military might, Europe makes up for in extensive economic and diplomatic relations. Accordingly, he considers the EU as an incomplete and unbalanced pole of power. Many analysts put the emphasis on cooperation in the framework of the European foreign and security policy. Some of them are convinced that both Europe and China wish to strengthen economic globalization and curb political globalization, i.e. American political and cultural hegemony. Moreover many in China believe that the Chinese economy is more open than the often protectionist European economy.

China does not see Europe as having a global strategic vision – primarily because Europe is divided internally hindering it to speak with one voice on the international political scene. Due to these internal rifts in Europe, apart from trade policy, Sino-European relations take place at the level of the member states and the Union as a whole. China – known to steer clear of sensitive issues during international talks – does support Europe’s soft-power policy on the surface, but in reality has always been avid for hard solutions. The failures of Europe’s foreign policy in the Balkans and the Middle East have exposed the weaknesses of the soft-power approach to China too.

The one area where Europe’s economic, political and symbolic unity is beyond question is the single currency, the euro. Having said that, China still has no idea whom it should negotiate with on international monetary issues. Europe’s institutional representation is muddled, unlike in the United States, where there is a Treasury Secretary (finance minister) and a Chairman of the Federal Reserve (central bank governor) and that is it. According to Chinese predictions, in 30 years’ time there will be three major currencies in the world: the yuan, the dollar and the euro.

China still has a rather haphazard and changeable view of the EU. In the 1970s, China saw the EU as the embodiment of the capitalist world, the state-monopoly and imperialism, a political union of Western imperialist countries. It speaks volumes about the age that, in the seventies, the Eastern European press commented on European integration in much the same way. The Chinese defined the European Union as an ally of the USA, as Washington’s instrument to control Western Europe and as a political formation born out of the rivalry between the Soviet Union and the United States.

These beliefs were based on Lenin’s theory of imperialism and the Maoist “three worlds” concept. Back in those days, the popular Chinese line of thinking saw three reasons for the nations of Western Europe to create a European Union. Firstly, European integration was thought to be the upshot of the unbalanced development of capitalist politics and economics. America’s power was believed to be superior but provisional, which would gradually give way to a rising France, Germany and Italy. With this predicted shift of power, the Chinese thought that the aim of uniting Western Europe was to gain progressive detachment from the USA. Secondly, the European Union (the Common Market) was regarded as a product of the competition between Western Europe and the United States. With the spread of the Soviet Union’s sphere of influence and the collapse of the colonial system, the West was no longer best placed to compete for the markets of the industrialized and developing world. The Chinese were in no doubt about the objective of the six founding members of the Common Market: to secure their grip on key markets. Thirdly, the Common Market was seen as an offshoot of state-controlled monopolist imperialism. Monopolization is one of the basic features of imperialism — Lenin tells us. The European Coal and Steel Community was the first step towards international monopolization and a logical continuation of the Italian, German and French monopolist economies’ post-war development. The EU symbolized the highest level of European monopoly, created between private and state monopolies.

In the Maoist “Three Worlds” theory, Western Europe was America’s ally but also China’s potential partner for a joint fight against the Soviet Union. Intriguingly, from an intellectual point of view, in the 1960s and 1970s China had a bigger impact on Europe than vice versa. Many Western European intellectuals and the student movements of 1968 saw their own aspirations – namely their rejection of the establishment – in Mao’s Cultural Revolution. This only went to show how fragmentary their knowledge of the reality of the situation in China really was. Chinese analysts reckoned that the aim of the USA was to subdue Europe by way of its economic, political and military unification. When Europeans realized what the USA’s plans were, they brought into being their own Union in order to be able to counteract American and Soviet weight through economic and political unity. Nevertheless, in military terms, Europe needed America and NATO to protect it from the Soviet threat.

These rough-hewn theories were then replaced in the 1990s by a more sophisticated and better grounded view of the EU. From this point on European studies became more social science oriented in China, devoting more attention to how the EU and its policies work. Chinese academia changed its opinion and no longer believed that the European Union had been founded to counterbalance another economic or political world power. China now understood that the main motivation behind the EU was to secure the conditions for economic development and long-term peace through regional cooperation.

China began to study Europe and the EU methodically, dissecting it from an economic, political and cultural perspective. In the late 1990s, China recognized that Western powers were still members of the same family and that globalization only drew family ties closer. Hence, the main trend of development of international relations pointed towards a multipolar world rather than towards one without any poles. In such a world order the European Union’s mission would not be to simply act as one of the poles but to use its political and economic clout and become a key diplomatic player.

This Chinese fascination with European studies stems partly from the fact that they see Europe as a potential model for integration involving China and Taiwan or the Asian economies. The market economy reforms led not only to economic growth but also created new social problems in Chinese society, such as regional disparities, the growing gap between the rich and the poor, problems of public health and the mass influx of the rural population into cities. These problems generated a degree of social instability that could undermine the position of the ruling Communist regime. In response to these domestic social challenges, Chinese researchers started looking into the welfare and social security systems of European countries and into the regional policy of the European Union. It is significant that most of the Chinese scholars visiting Brussels came to study European social policy. This keen interest is attributable to the fact that China can only envisage a successful social security model with a strong state presence; therefore the Chinese are more curious about European achievements in this field than about the American model based on the idea of self-support. For some Chinese intellectuals, the model focusing on social equality and environmental friendliness instead of economic efficiency could serve as an example when implementing the long-cherished Chinese dream of “harmonious social order”. Just as European thinkers such as Voltaire or Leibniz once felt that another distant society was much closer to the ideal society, some Chinese may feel that way about Europe today.

The peaceful rise of China is the number one priority of the Chinese political elite, who collect all available analogies and lessons from around the world. China has several lessons to learn from the integration of modern Europe. European countries first fostered close links with one another and then extended various forms of cooperation to more and more areas on their way towards widening integration. The success of this process could serve as an example for the future development of an Eastern-Asian Community. On the other hand, while rising to the rank of a global actor through this process of integration, Europe was wise enough to maintain good relations with the USA within the framework of their political and military alliance. Thanks to the Atlantic alliance and their economic interdependence, the USA did not see Europe’s integration as a challenge to its dominance. The Chinese often refer to the USA-EU alliance as the “Western collective hegemony”, indicating the strength of trans-Atlantic ties. In parallel with its rise, the European Union commanded an increasingly important role in international institutions in the creation of which the USA had a decisive part. In fact, Europe became a major international player without becoming a competitor or challenger of the USA, and it did so by aligning itself to the international order built by the United States.

As China assumes a growing role in international organizations it can rely on the EU’s effective doctrine of multilateralism as a model to follow, as opposed to the USA’s unilateral approach. So a proper management of relations with neighboring countries, key global powers and the international community is a key factor. The ongoing enlargement of the Union is seen in China as proof of the fact that the EU is an attractive club that more and more countries wish to become members of, which in turn further strengthens its international clout. The 2004 Big Bang enlargement of the European Union – the reunification of Eastern and Western Europe – confirmed that Chinese conviction. Nonetheless, some of the ramifications of this last round of EU enlargement make China somewhat anxious. Most of the new member states had been liberated from Communist rule only a decade or so earlier, and with the Soviet Union now gone and consigned to the history books China remains the only major country governed by a Communist party.

Some in Europe have the belief that Europe could become China’s “tutor”, introducing this vast country to the world of fundamental European values such as soft power, consensus-based foreign policy, multipolarity, a social model built on justice and solidarity or environmentally-conscious living and business. But China has a different view. No doubt that China is sincerely interested in, studies and uses the achievements of the West and of Europe, but the idea of Europe becoming China’s tutor is mere fantasy. Nevertheless there is a middle ground how one can approach this issue. Continuing intensive exchange of views and structured dialogue at different levels, reinforcing institutionalized political and academic contacts to enhance the depth of Chinese knowledge about Europe’s values and achievements would definitely be beneficial for both of us.

Through a series of future papers focusing on some selected aspects of potentially relevant fields of EU know-how transfer (regional policy, social policy and the issue of multilateralism) the author proposes a modest contribution to the above objective.

Hungarian economist, PhD in international relations. Based in Brussels for fourteen years as diplomat and member of EU commissioners’ cabinets. Two times visiting fellow of Wilson Center in Washington DC. University professor and author of books on EU affairs and geopolitics. Head of department, National University of Public Administration, Budapest.

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East Asia

China & Nepal working towards a genuine good-neighbour tie

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Authors: Himal Neupane & Jamal Ait Laadam

Although China and Nepal are very different in terms of each territorial size, population, economic capacity, technological prowess and above all military power, the bilateral relations between them have been undergone consistently and significantly. Since 1955 when China and Nepal formally recognized each with, their bilateral relationship has been characterized by equality, harmonious coexistence, everlasting friendship and overall cooperation. Particularly during the past over 40 years, China and Nepal have undergone substantial developments in view of mutual understandings. For example, in 1996 the two sides for the first time agreed to build up a good-neighbour partnership of the 21st century.

In line with this spirit of mutual respect and equality, Chinese President Xi Jinping paid a state visit to Nepal on October 12-13, during which the heads of the two states formally announced that they elevated the China-Nepal Comprehensive Partnership of Cooperation to Strategic Partnership of Cooperation in light of their many common values to enhance cooperation It is reported that President Xi frankly said Nepal wouldn’t be a landlocked country in the future as the trans-Himalayan connectivity network ultimately will support sustainable development and stability of the entire South Asia region. This is not only a promise from a large neighbor, but also a sort of responsibility from a rising major power of the world, which aims along with other parties, either large or small,  to create an international community of shared future.

Accordingly, on October 12, Nepal and China signed 18 memorandums of understanding and two letters of exchange. The priority was laid down with a focus on the implementation of signed agreements and acknowledged policies. Besides, they also reaffirmed the commitment to broaden the level of cooperation under the spirit of the Belt and Road Initiative (BRI). Moreover, China and Nepal have agreed to enhance connectivity through ports, railways, roads, aviation and communications within the broad framework of the BRI and the Trans-Himalayan Multi-Dimensional Connectivity Network which are of strategic significance. As Chinese President Xi put it, “our two peoples have shared weal and woe, and set an example of friendly exchanges between neighboring countries, and we would act to carry forward the traditional friendship and take the bilateral relationship to a new and higher level via his state visit to Nepal.

For sure, nothing is free in the realm of international politics as the realists argue what China and Nepal need from each other are their common geopolitical and geo-economical interests? This kind of inquiry is sensible and also cynical. In fact, historically China and Nepal had been at good terms for a few centuries, and during the British colonial era, Nepal actually acted as a natural buffer state between imperial China and colonial India. Since 1949 when the People’s Republic of China was founded soon after the independence of India, Nepal ended its isolation and forged amicable ties with India and other countries. Initially, Nepal had close ties to India in terms of culture, ethnics and even military affair, but it never accepts external domination. In 1955 Nepal formally recognized Beijing as the legitimate government of China and since then, it has consistently supported China in foreign affairs. Meanwhile, China has offered economic aid to Nepali reconstruction in a gradual way.

However, since the 1980s, China has steadily transformed itself into the second largest economy of the world with its alarming manufacturing capability and progressive technologies. Due to this, China has provided more assistances to Nepal and other neighbours to share Chinese public goods, especially in terms of the infrastructure projects and alleviation of poverty. For example, President Xi announced in 2018, “In the coming three years, China will provide assistance worth RMB 60 billion to developing countries and international organizations participating in the Belt and Road Initiative, and contributing an additional RMB 100 billion to the Silk Road Fund.” As a developing country nestled in the heart of the Himalaya, Nepal surely needs to expand its infrastructure through involving itself into the BRI with the view to exploring and finally harnessing its huge potential sources —hydropower—for export.

Strategically speaking, China needs to maintain its border areas peaceful and stable in light of its “NEWS strategy” that means while China tries to consolidate its entente partnership with Russia on the North and pacifying its East coast, it necessarily aims to sustain the BRI projects to the West and the maritime silk route to the South. This is the core of the NEWS strategy initiated by the Chinese elite since President Xi took power. Consider Nepal’s strategic location and political stability, China is sure to promote the bilateral ties as the two previous MOUs were signed in Beijing including to rebuild Chinese—Nepali transit road network agreements. It will help northern Himalayan areas get an alternative transit route and also facilitate the local economics, as much important part of the BRI as the economic corridor between China and Pakistan. Moreover, since 2016, a freight rail line was even completed linking Lanzhou, a heavy industrial city in the West of China through Xigaze in Tibet, down to the capital of Nepal. This is a truly strategic pivot of the grand BRI project.

To that end, President Xi revealed to his Nepali counterpart Bidhya Devi Bhandari that the two sides should work closely to carry out the construction of a trans-Himalayan connectivity network, and expand exchanges and cooperation in various fields. For her part, Nepali President Bhandari graciously welcomed Xi’s state visit to Nepal and stressed that the rise of China backed up by its modernization drive will help bring benefits to Nepal and promote regional peace and prosperity. In light of this cordiality, the two governments issued a joint statement on Oct. 13, agreeing on more practical cooperation in the new phase of bilateral relations. For a few key points serve to inllustrate that first, the two sides agreed to take the BRI as an opportunity to deepen mutual benefits in arious fields including the Kathmandu-Pokhara-Lumbini Railway Project. Furthermore, cooperation will cover the Zhangmu/Khasa port, the Lizi/Nechung port, and the three North-South corridors in Nepal. Second, the two sides will hold comprehensive discussions to strengthen trade relations, including to take positive measures to increase Nepal’s exports to China and to facilitate Chinese banks to open their branches and other financial services in Nepal. Last, China promises to help Nepal shake off the status of being a least developed country and achieve the sustainable development goals in the next two decades.

Since states are committed to each other by the nature of the world in which they exist, any close cooperation between China and Nepal is never bilateral only, that means there is always local, regional and international concerns, suspicions and even hostilities towards either China or Nepal or both. Geopolitically, India is the first power, understandably, to feel uncomfortable if not angry. This is the reason why President Xi made his first trip to India prior to his state visit to Nepal, and held comprehensive talks with Indian Prime Minister Modi. Second, China and Nepal also need to coordinate each other deftly to convince other neighbours such as Sri Lanka and Bangladesh that any sort of their cooperation would never be exclusive but inclusive and open all others in the South Asia. Geo-economically, China has reiterated that it would not seek to use its economic or financial leverages to “dictate” the local affairs of the recipient countries. Meanwhile, Chinese companies also need to move in prudently and read the local laws and political norms before jumping into the businesses.

Xi has frequently said, China is the largest developing country and also a learning country all the time. In order to promote China’s strategy to link the countries involved, mutual respect and equality are the prior condition to the long-term cooperation. In light of this, it is expected that Xi’s state visit to Nepal, the first one by a president of China over the past 26 years, will unlock new strategic opportunities for bilateral relations, as well as positively promote their ties with India by understanding the prospects for trilateral cooperation. It is clear that Chinese-Nepali economic integration through BRI is unstoppable, so it is sensible for India and the others in the region to take the opportunity to extend the proposed high-speed railway between those two all the way south to the nearby West Bengal port of Kolkata to more closely tie the three together in a system of complex economic interdependence. This is a balanced approach to prevent an open rivalry between the key member states of the BRICS and the SCO over their common neighbors. Given this, Xi’s visit to both India and Nepal might be the very time to enhance the trilateral understanding among Nepal with its giant neighbor. To that end, Nepal, though a much smaller state compared to China and India, could play positively a role as the bridge for building a more trust-based relationship across this region.

China has showed its willingness to share with Nepal its development experiences, practices and inclusive economic governance approaches. In doing so, geopolitical factors should never be the obstacles for China-Nepal cooperation. Rather, Nepal could serve as a dynamic bridge between China and India, and China and South Asia.

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East Asia

Semiconductor War between Japan and South Korea

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Authors: Gleb Toropchin and Anastasia Tolstukhina

In the summer of 2019, a trade conflict broke out between Tokyo and Seoul and the matter is about more than the history between the two countries. The two developed economies have long been locked in a competition on the global cutting-edge technologies market. At the same time, they are links in the same technological chain.

At first glance, the exchange of trade restrictions that is taking place against the background of mutual accusations is nobody’s business but Tokyo and Seoul’s. Nonetheless, the consequences of the confrontation between the two countries have a global nature. The present article analyses the causes of the disagreements and looks at how the situation may develop

Introducing Restrictions and Removal from the “White List”

Despite the events of the colonial past [1], as well as the current territorial disputes that are so typical of Asia’s international politics [2], South Korea is one of Japan’s three largest trade partners. Japan exports into South Korea up to $54 billion in goodsThe key commodities include semiconductors and materials for their manufacture

The dependence of South Korean companies on imports of fluorinated polyimides and photoresists exceeds 90 percent, and their dependence on imports of hydrogen fluoride is around 44 percent (although this figure has fallen gradually from 72 percent in 2010)

However, on July 1, 2019, the Government of Japan announced restrictions on the export of commodities to South Korea that are of critical importance for microelectronics, and on July 4, the changes to the procedure came into force

Given the long-established delivery mechanism, such a political step was a surprise for many. The restrictions mainly affected three key materials for the microelectronics industry: fluorinated polyimides, hydrogen fluoride, and photoresists (these materials are used in the manufacturing of semiconductors and display panels). This measure does not mean that deliveries of these materials to South Korea have been completely stopped; however, from now on, it may take up to 90 days to approve transactions. Additionally, Japan said it would be taking South Korea off its “white list” of trade partners. The list includes states that are believed to be safe from the point of view of exporting strategic commodities and that are granted trade preferences

Let us try to understand why the Government of Japan took such steps

Pressure from Taiwanese and South Korean competitors

In 1986, an agreement was signed between Tokyo and Washington that prohibited Japan from undercutting global semiconductor prices. This step was initially intended to make the United States more competitive. However, even in those circumstances, Japan managed to take a significant chunk of the global semiconductor market from the United States in the late 20th century and retain its high positions until the 2010s. However, as early as 2012, experts noted that pressure from Taiwanese and South Korean competitors resulted in semiconductor sales of Japan’s four chip-makers, Toshiba, Renesas, Sony and Fujitsu taking a marked dip

Samsung Electronics succeeded in mastering the subtleties of developing technologies just at the right time, while Japan began to lag behind in R&D due to problems with formal education, and its revenues from global sales of microelectronics were falling against the backdrop of falling prices and the high exchange rate of the Japanese yen. Among other causes of this phenomenon, Japanese experts cite the desire to create hi-tech goods without account for high costs, and lack of innovative ideas

Today, South Korea is the leading manufacturer of memory microchips. Samsung Electronics and SK Hynix hold two-thirds of the global market. Additionally, both the United States’ Apple and China’s Huawei depend on the products produced by South Korean companies. Integrated circuit units account for 17 percent of South Korea’s exports (the entire microelectronics sector accounts for nearly a quarter of its exports), compared to less than 4 percent for Japan

An analysis of the global microelectronics market demonstrates that, currently, the market particularly values dynamic random-access memory semiconductors (DRAMS) that hold tremendous significance for such cutting-edge technologies as artificial intelligence, the Internet of Things and robotics. South Korea holds impressive positions in this area as well: Samsung and SK Hynix control 72.8 percent of the DRAMS market and 46.8 percent of the global flash memory market

Reasons for Introducing Restrictive Measures

The East Asia Forum reports that Japan’s strategy of opposing Seoul was developed jointly by the country’s Ministry of Economy, Trade and Industry, Ministry of Foreign Affairs and Ministry of Agriculture, Forestry and Fisheries. The Cabinet of Ministers subsequently supported these measures, thereby making the key decision to transfer the issue into the political realm

It appears that Japan’s decision to impose restrictive measures was prompted by the fact that the country has clearly fallen behind technologically on the global microelectronic market, which negatively affects both the country’s economic indicators and its national security

According to the expert June Park, the Government of Japan decided to institute the restrictive measures out of concern for national security, since, in exporting rare materials to South Korea, Tokyo cannot be certain they will be used properly

The Japan Times notes that Tokyo justifies the introduction of increasingly strict export requirements by claiming that confidence in South Korea has been undermined. In particular, some media outlets report that between 2015 and March 2019, no fewer than 156 materials, including hydrogen fluoride, were smuggled out of South Korea. There were also reports of hydrogen fluoride being exported to countries that are under international sanctions (Iran, Syria and even North Korea). Another reason for the restrictions is Tokyo’s concerns that South Korea violates intellectual property rights

South Korea denies all accusations. Its arguments are logical: Iran and Syria are friends of North Korea, therefore, Seoul has no reasons to help their regimes. President of South Korea Moon Jae-in called for the differences to be resolved by diplomatic means. However, the talks held on July 12, 2019, in Tokyo did not yield any results. Consequently, Moon Jae-in instructed the relevant agencies to develop reciprocal measures. At about the same time, there were reports of South Korea possibly filing a grievance with the World Trade Organization. As a result, hearings on the issue were launched in Geneva on July 24, 2019

In late July 2019, news broke that Tokyo was considering further restrictions since Japan believes the re-selling of strategic materials by Seoul to be a violation of the non-proliferation regimes regarding both weapons of mass destruction and conventional weapons. In this case, the restrictions would extend to other types of commodities and materials. On August 2, the Cabinet of Japan approved the decision to take South Korea off its “white list” (where the Republic of Korea was the only Asian state), thereby depriving it of trade preferences in regard to the materials mentioned above. The full list exceeds 1100 items

Despite these events, several deliveries of these materials from Japan to South Korea were made in August. However, they did not result in a thaw in bilateral relations. Seoul reciprocated by putting Japan on a restrictive trade list and terminating the military intelligence-sharing pact with Tokyo

“Wu Wei” American Style

China holds leading positions in deposits of rare-earth metals. Moreover, approximately 90 percent of the world’s rare-earth magnets are manufactured in China. Japanese companies use China’s raw materials to manufacture fluorinated polyimides, hydrogen fluoride and photoresists that are subsequently supplied to South Korea, Taiwan and other countries to be used in manufacturing chips, displays, etc. The circle is complete when these commodities go back to China to be used in the manufacture of finished products (such as smartphones and tablets), creating a sort of a closed-loop. Thus, the manufacture of competitive hi-tech products today is impossible within a single economy, and Chinese companies depend on parts coming from other Asian countries

Tracing the entire technological chain, we can assume that the Japan–South Korea conflict is closely linked to the trade war between China and the United States. South Korea’s Samsung Electronics is hindered by the restrictions on deliveries of Huawei memory chips since the latter is under U.S. sanctions. In turn, interrupting the chain of semiconductors delivery from South Korea will slow down the development of artificial intelligence in China. And who benefits from this? This is a rhetorical question

It would seem that the United States should be interested in cordial relations between their allies in the region, allies that form a sort of counterbalance to China and are ideological antagonists to North Korea. The White House, however, intentionally or unintentionally, demonstrates adherence to the Taoist principle of inaction, or “wu wei” (无为 in simplified Chinese), which entails a conscious refusal to act and the assumption of a contemplative stance. From the outset of the confrontation in July 2019, the United States announced it would not interfere in the conflict. Despite individual experts calling upon the United States to act as an intermediary between the two Asian states, Washington did not change its position

We should also note here that the Japanese company Toshiba announced the construction of a facility for the production of NAND-type (from the English NOT-AND, that is, a binary logical element) flash memory devices in Iwate Prefecture in cooperation with U.S. chip manufacturer Western Digital. We can cautiously assume that the United States and Japan are progressing toward a “technological union” in order to defeat China in the race for domination of the semiconductor industry

Public Opinion

Speaking of the impact that the conflict has on public opinion in both countries, we can quote a survey conducted by Japan’s Asahi Shimbun in mid-September 2019. Overall, slightly less than one third (29 per cent) of respondents admitted that they had a negative opinion of South Korea. This was far more pronounced among older people, which can be linked to their conservative views and the “proximity aberration” phenomenon (put simply, the older generations remember the events of the 20th century well)

As for South Korea, an anti-Japanese “grassroots” campaign has been launched in addition to the “top-down” process. In the second half of the summer of 2019, slogans『 가지않습니다 사지않습니다 』 (Korean for “Do not visit, do not buy”) calling for boycotting trips to Japan and Japanese goods spread on Korean social networks. And it looks like they were successful to a degree. For instance, the Yonhap News Agency reports that the number of South Koreans travelling to Japan in August fell by 60 per cent compared to the same period last year

In the run-up to the 2020 Summer Olympics in Tokyo, the trade conflict has become a reason for manipulating public opinion in South Korea. Additionally, we cannot rule out the possibility that populists use the disagreements between Japan and South Korea to advance their domestic agenda on the eve of the elections to South Korea’s unicameral parliament scheduled for April 15, 2020

Forecast: Cloudy in the East

Losses from the Japan–South Korea trade war may exceed $80 billion. There has already been a drop in sales of South Korean semiconductors manufactured by Samsung Electronics and SK Hynix. Moreover, the conflict threatens to disrupt the entire global technological production chain in microelectronics. The expert Robert Farley described this conflict (and the U.S.–China trade war) as “weaponizing interdependence.” One of the analysts with The Economist Intelligence Unit called this situation “mutually assured destruction.”

The Yonhap News reports that the consequences of the trade conflict have had greater negative effect on the Japanese economy than on the South Korean economy. For instance, in July–August, South Korean exports to Japan have fallen by 3.5 per cent, while Japanese exports to South Korea have dropped 8.1 per cent

The South Korean economy has also suffered against the backdrop of these events. Here, Seoul has only two ways out of this predicament:

-Transitioning to domestic analogues, which LG Display and Samsung Electronics already did in September of this year. Additionally, the country earmarked 2.1 trillion South Korean won in the 2020 budget to overcome the dependence on the export of rare materials from Japan

-Searching for alternative sources of hydrogen fluoride and other rare materials for microelectronics. Media outlets have reported that Russia might be a potential supplier of high-purity hydrogen fluoride. The head of the Korea International Trade Association said that Moscow had offered to supply hydrogen fluoride to Seoul. However, it is not easy for South Korean companies to transition to Russian imports of this and other materials for microelectronics. The physical and chemical properties of the products must be tested for a rather lengthy period of time (upwards of six months)

Apparently, the status quo on the microelectronic market will continue in the short-term, and both parties will seek ways to minimize losses. And we can already see evidence of this. In September and October, the Government of Japan approved deliveries of hydrogen fluoride to Samsung Electronics and SK Hynix

At the same time, if Tokyo and Seoul fail to find common ground in the medium and long term, then the current global technological chain in microelectronics may be dismantled, which will, of course, negatively affect the growth rate of the global economy. However, so as not to end our study on a pessimistic note, let us note that, under the current circumstances, many hi-tech companies around the world, including those in Russia, now have the chance to become new links in the value chain and occupy its niche in microelectronics

From our partner RIAC

[1] In 1910, the Empire of Japan annexed the entire Korean peninsula. Korea essentially became a Japanese colony. The Japanese language and culture were forced onto the Korean people. Up to 200,000 ethnic Koreans served in the Imperial Japanese Army during World War II (including future president of South Korea and “father of the economic miracle” Park Chung-hee). Today, Japanese war crimes are a subject of talks between South Korea and Japan. In 2015, Minister of Foreign Affairs of Japan Fumio Kishida promised 1 billion yen to the victims of violence in compensation, and Prime Minister Shinzo Abe offered a public apology for Japan’s actions during the war.

[2] The dispute concerns the Liancourt Rocks, a group of small islets that the Koreans call Dokdo (“Solitary Islands”) and the Japanese call Takeshima (“Bamboo Islands”). Back in the early 20th century, Japan claimed sovereignty over these islands; however, following its defeat in World War II, it was forced to abandon its colonial acquisitions. On the other hand, the 1951 Treaty of San Francisco does not mention this territory, which gives Japan formal grounds to dispute the sovereignty of the islands where South Korea maintains military and civil infrastructure.

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East Asia

Future Trends of China’s Diplomacy

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This year 2019 marked the 70th anniversary of the founding of the People’s Republic of China (PRC), and China’s diplomacy has also gone through a journey of 70 years. The 70-year history of the PRC can be divided into the first 30 years after its founding and the second 40 years since opening and reform were initiated in 1978. The characteristic of china diplomacy is a responsible nation, rational behavior and the confidence of great power.

China had a clear break with the old diplomacy of humiliation; established a new kind of diplomatic relations with other countries on the basis of equality and mutual benefit; secured an equal position and dignity on the global stage; gained diplomatic independence by safeguarding and strengthening national independence, and protecting national security and territorial integrity; settled the border disputes left  over from history with most neighbors by peaceful means, creating a stable neighborhood in general; established strong friendships with the vast majority of developing countries through mutual support; and set up a new diplomatic contingent for seeking the diplomacy of independence. The following are the future expectations of China diplomacy:

Firstly, Deng Xiaoping’s directive, “Don’t seek for leadership,” stays powerful in China’s new diplomacy, so China’s future diplomacy will keep on emphasizing on the management of the crisis, economic diplomacy, multilateral diplomacy, cultural diplomacy, cooperation, and accommodation while protecting the main national interest. Solving problems and managing crises will stay an important characteristic of China’s diplomacy, particularly in its ties with other major powers. Meanwhile, in cooperation with other major powers, China will appear to be more active in managing fundamental global issues at the strategic level.

Secondly, The Chinese government has repeatedly said that China does not have a plan of challenging the international system and has focused on the importance of being a “responsible member” of the universal society. As of late, China has developed new concepts for its foreign policy orientation, just as (1) “new security” emphasizing shared and cooperative security, (2) “peaceful development” focusing on non-violence commitment, (3) “win-win” cooperation denying a zero-sum comprehension of international affairs, and (4) building a “harmonious world” that promoting harmony with diversity, solving conflict through dialogue, and democratization of world governmental issues.

As these concepts demonstrate, China has no desire of being revolutionary in the international system, rather, it intends to be a responsible member of world affairs. Economic diplomacy will remain to be emphasized by china. While trade will keep on being a fundamental diplomatic focus, energy security and energy diplomacy will be given additional accentuation. Energy supply, energy shipment, and energy-saving cooperation will be fields where the diplomacy of china will move forward.

Lastly, Multilateral diplomacy will take on an even greater role in the future diplomacy of China. China will become more involved at the global level and in regional affairs at the United Nations. As the identity of China is more globally and regionally established, the current concept of multilateralism in the overall diplomatic strategy of china can be re-defined to realize national interests, address thorny issues, and provide governance in a complex world. More attempts will be created to improve regional integration between the SCO and East Asian. Finally, various needed diplomatic attempts may need to be further reinforced. China will keep on being cooperative, however, it will likewise be more active. All things considered; cultural diplomacy will be a new attribute of China’s diplomacy. Confucianism, an extremely cosmopolitan doctrine that promotes harmony and peace through human relations, will be an important component of cultural diplomacy, both to strengthen China’s soft power and to reduce the negative result of the China threat theory.

China has accumulated a wealth of experience over the past 70 years, understanding that China cannot develop without the world and that without China the world cannot prosper. China’s future and fate have been closely linked to the rest of the world. What is certain is that China will adhere to the path of peaceful development and that the people of China will join the people from all other countries in working to realize the lofty dream of a harmonious world.

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