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Europe and China – Factors of Mutual Understanding

Attila Marjan

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Geopolitics: enmity, rapprochement, concrete political or military decisions besides straightforward interests are often based on perceptions and influenced by the (lack of) understanding of the counterpart. That is what call the geopolitics of perceptions which is probably more important than we think. It is true in the Sino-European relations that have a long history.

What would we see if we took a quick look at China’s few thousand years of history? A vast country with a sophisticated culture, which for thousands of years was miles ahead of the rest of the world both in terms of wealth and intellectual achievements. A people that gave the world porcelain, gunpowder, paper, the compass, steel-making and the printing press. A country that managed to protect its territory from invading barbarians for long centuries. A country that at one time considered itself so developed and perfect that it sealed its doors off to the outside world, much to its own misfortune. But, one day, China’s splendid isolation was disturbed as men from the faraway continent of Europe appeared. More and more arrived on bigger and bigger ships guns. Even the most knowledgeable of the European had a limited understanding of China and its people at that time. David Hume considered non-whites (including the Chinese) to be inferior peoples. Immanuel Kant believed that the Chinese race was a mix of Hindi Indians and Mongols.

Zhongguo or ”Central Kingdom”, i.e. the middle of the universe — this is what China is to the Chinese. Surrounded by devils: black devils in Africa and dog-headed big-nosed ones in Europe. Social autism and a tendency to isolationism, which caused China’s 19th-century decline, have always been characteristic of this great nation, the most ancient of all living cultures. Chinese culture has had an impact on all of Asia for thousands of years and since the Middle Ages (the European “Middle Ages” that is) on Europe too. China, as is so often the case, only looks homogeneous from a distance. There may be no borders, but this continent of a country is just as diverse genetically, linguistically and culturally as Europe. In the light of its heterogeneity and size, it is even more amazing that China is the oldest political unit in the world.

One of the secrets is that the elite exercising political control has always been the sole holder of all wealth, law and justice. The political function has always dominated the way Chinese society is organized. There have never been separate religious, economic or military elites as was customary in Europe. Political power is the absolute power in China, and the one and only focus of this political power is the state. This is something we must keep in mind when assessing today’s China with its malformed democracy and uncompromising immense state projects. In China there is hardly any public opinion, there are only decisions and implementation. The Himalayas keep China conveniently closed off from the West and India. Westerners must accept that China is different from our Indo-European cultures: the way it sees the world, politics, arts, law and religion is completely different. God and property are sacred values in the West — not in China. We seek the truth, the moral, the punchline, all of which are worthless to a Chinese. Westerners and Indians divide the world into categories; the Chinese see the world as dynamic, accidental and symbolic. How postmodern, one might say, using a Western term.

The relationship between China and Europe has always been shaped by two factors. The first one, distance, proved to be insuperable for a long time but was surmounted with the help of modern technology and improved transport. The second one, trade, remains a central element of Sino-European relations. Trade links between the two continents can be traced all the way back to early Christianity. The volume of goods transported on the famous Silk Road showed a considerable imbalance from the beginning and all Rome could offer in return were precious metals and valuables. This trade imbalance has always been present, but today is caused by China’s role in the global supply chain rather than by its self-sufficiency.

Even a “What you need to know”-type abridged version of Chinese history would run longer than the New Testament, so I will only pick out a few interesting episodes. During the rule of the Yuan Dynasty (which was of Mongol origin) from 1271 to 1368, travel to China became easier as the areas between China and Western Asia were mostly controlled by Mongol khans. The gates of China opened to foreigners. Kublai Khan even sent his envoys to Pope Clement IV with a request for a hundred Christian missionaries to promote Christianity and Western sciences among the Mongols. The Venetian merchant Marco Polo was probably the best-known foreign visitor ever to set foot in China and Mongolia. He arrived in 1275. On his account, when the 21-year-old was led to the Khan, he offered his services to the great Khan, who accepted, eventually rewarding the young Venetian with senior administrative posts. He spent the next twenty or so years under Kublai Khan. Marco Polo was appointed a member of the Khan’s Privy Council in 1277 and for three years he was a tax inspector in Yanzhou. In his book on his epic journey, Marco Polo describes a flourishing, developed and wealthy China handed down from the late Song dynasty and yet unspoiled by Mongol rule.

The Travels of Marco Polo became a medieval bestseller, but readers did not take the book altogether seriously, nicknaming the traveler Marco Milione and his book Il Milione (The Million, probably hinting at the number of lies told). Just like modern readers, his contemporaries were skeptical about Marco Polo’s writings, which bore an uncanny resemblance to the works of Arab and Persian travelers of the time. An armchair scholar or a great traveler, undoubtedly he left his mark on European geography, literature and history. But Marco Polo was only the first of many Europeans who made the long trip to China. Still under the Yuan Dynasty, Pope Nicholas IV sent Giovanni da Montecorvino as a Roman legate to the Great Khan, and he was consecrated as the first archbishop of Peking in 1307. Mongol emperors, who never had an unclouded relationship with the Chinese they governed, had the habit of appointing foreigners to public office, opened China to foreign traders and allowed — sometimes even promoted — all kinds of strange new religions. The Yuan era was the last period of the Empire when China was not characterized by introversion. From the 15th century on, China practically sealed off its gates to the outside world.

Portuguese vessels first landed in China in 1514, followed by the Spanish in 1543 and the Dutch another five decades later. European missionaries tried for centuries to gain a foothold on Chinese soil. One of the most successful missionaries was the Italian Jesuit priest Matteo Ricci, who traveled around China disguised as a Buddhist monk before settling in Beijing in 1601. The Chinese were usually more interested in European technological innovations than spiritual dogmas (yet another Chinese trait we consider contemporary but in fact one with a very long history), and the Jesuits were happy to satisfy their curiosity. Ricci, who took the time and energy to learn about Chinese culture, introduced several technological novelties, among them the watch. He ended up being named the patron saint of Chinese watchmakers. Until the 19th century, Jesuits fulfilled an important cultural mission in the Chinese court, playing a vital role in the promotion of Europe’s cultural, scientific and technological achievements.

Between 1500 and 1800, China had a significant impact on the modernization of Europe. From the beginning of the 16th century, there were continuous and direct relations between Europe and China. Geoffrey Hudons labeled this period “China Besieged”, by which he meant that European nations drew a cordon around China both by sea and land but were never able to conquer it. In fact, European traders were restricted to a handful of ports, and although the Jesuits brought with them a superior knowledge of mathematics and astronomy, resulting in a more accurate calendar, European presence never left a lasting mark on the Chinese mentality.

The impact was much more significant the other way around: Europe was more influenced by China than vice versa. The reports of the Portuguese and Jesuits on China’s achievements in standards of living, urbanization, technology and governance had a major impact on Europe at the time of the Enlightenment. Leibniz and Voltaire, two key thinkers of the Enlightenment, were greatly influenced by Confucianism and Chinese philosophy. The philosopher Leibniz praised the Chinese for their efficiency in adapting ethics and politics to practical life. Voltaire was impressed in particular by the secular nature of Confucianism and by the absence of clerical influence within government. However, many idealized the example of China in their fight against the ancien regime. Similarly, in the 1960s, Western student movements adopted the rhetoric of Mao’s Cultural Revolution in their protests against the establishment.

China was not only used as a model in fighting the existing order; some Chinese ideals were used as a basis for new theories. One example is Francois Quesnay, who in the 18th century started out from his theory on ”natural order” and — influenced by Chinese philosophy — arrived at his economic doctrine of laissez faire. Others, such as Rousseau, were more critical of China. Nevertheless, China’s influence on the European continent at the time is unquestionable. The import of porcelain and tea established new social customs; the cult of Chinese products bred the fashion of chinoiserie, which spread from the affluent to the rising middle classes. Europe’s admiration for China stemmed from its perceived superiority but, by the end of the 18th century, people’s enthusiasm for all things Chinese faded due to the Enlightenment, the industrial revolution and China’s resistance to change.

It took several decades from the arrival of Portuguese vessels on the Chinese coast to establish serious trading links between Europe and China. In 1699, England set up a trade representation in Canton in South China, which became and remained the center of Chinese-Western trade for centuries. Despite earning a hefty profit from customs duties levied on goods going through the port of Canton, China tried to restrict and control foreign trade as much as it could. England, on the other hand, wanted to boost trade and gain more access to Chinese markets and ports. A British embassy sent in 1793 to the court of the Emperor was given a welcome befitting a barbarian king’s envoy offering submission, their gifts were considered as “tribute,” but the Emperor refused to listen to British demands. Apart from trade restrictions, Britain had another problem with China. While the West wanted tea, silk and porcelain from China, it had little to offer in return. European merchants had to pay in silver, the only commodity the Chinese would accept. As a result, a lot of European silver was ending up in Chinese pockets. China was one of the world’s biggest economies. (Curiously, history repeats itself: two hundred years on, the trade balance between China and the West looks uncannily similar. The West buys what China exports. It is not accidental that China had accumulated trillions of dollars in reserves by the beginning of the 21st century.) By the 1820s, however, the flow of silver to China was reversed as Britain found a product that tickled China’s fancy: opium. With contraband opium Britain could finally reverse the trade deficit and get its silver back.

By the end of the 19th century, China was no longer a remote, mysterious land sealed off from the outside world. With the help of its merchants and missionaries the West had penetrated the Great Wall. In the 19th century; China underwent a shock therapy of social, economic and intellectual changes and was repeatedly humiliated ignominiously by Europeans. A series of military defeats and embarrassing treaties delivered a serious blow to China’s national pride and traditional worldview. The disdain for foreigners shifted into anti-European sentiment and mass xenophobia. The most extreme example was the Boxer Rebellion of 1900. This popular uprising by the “Righteous Fists of Harmony” — called Boxers in the West — was a violent anti-imperialist, anti-Christian movement triggered by Western expansion into North China. The rebel leaders called for the death of all foreigners and Christians in the country. They went as far as murdering the German envoy, who was on his way to the Empress dowager. The rebels laid siege to the Legation Quarter in Beijing, where foreigners sought refuge. The poorly armed Boxer rebels were unable to break into the compound, which was relieved by European, Japanese and US troops, which quashed the rebellion. Under the terms of the Boxer Protocol, the West exacted enormous war reparations from China. Chinese customs duties and salt taxes were enlisted as guarantees of the indemnity, and the Legation Quarters occupied by foreigners were removed from Chinese jurisdiction.

In the second half of the 19th century, China went on the defensive against European aggression. One of the most shameful and sordid episodes in European history was Britain’s illicit opium trade, which happened with the tacit agreement of the Crown and generated fabulous profits. Some historians suggest that the British East India Company conducted extensive market research to find a moneymaker that it could offer in exchange for Chinese silver. They chose opium, which had been widely used in China as an analgesic drug for centuries, and using the same methods as drug cartels in the 20th century, started “pushing” opium and gradually built up the illicit drug trade. Opium consumption spread quickly throughout China, opium parlors proliferated, and by the 1830s drug trafficking was a major business. The East India Company, with its monopoly on opium production in India, had a nearly limitless supply, exporting 200 chests in 1729, 20,000 chests in 1860 and 100,000 chests in 1873. The Chinese government tried to curb the opium trade and the outflow of silver. A newly appointed Imperial commissioner confiscated and destroyed more than 20,000 chests of contraband opium in a large-scale crackdown in 1839. In response, the British blockaded the city of Canton and the First Opium War broke out. Faced with the superior British fleet and army, China was defeated and forced to sign an ignominious peace treaty in 1842. The Treaty of Nanking ceded Hong Kong to Great Britain and opened five key ports to British trade. With a series of unfair and unequal treaties the colonizing powers managed to open almost a hundred Chinese ports and over thirty concession zones. Still, the West could never take full control of this vast country, let alone make it an exclusive colony of a single power. Instead, the rival colonial empires each established their own areas of interest on Chinese territory.

Western powers, in particular Britain and France, exploiting the weakness of the Chinese Emperor and enjoying the support of Russia and the USA, launched a military campaign against the Chinese government, which became known as the Second Opium War (1856-60). Unable to resist the advancing British and French, the Chinese negotiated yet another Treaty. The Treaty of Tianjin, among others, opened additional ports to foreign trade and required China to pay considerable war reparations. Until the reparations were paid in full, Western powers would occupy the city of Tianjin and another two ports. As a result of the opium wars, China lost much of its sovereignty to foreign powers. The once great and proud Chinese Empire was forced into semi-colonial status.

To the Chinese the Opium Wars marked the beginning of long years of humiliation and exploitation by foreigners. This is the period where we find the roots of China’s mixed feelings towards the West: on the one hand, they admire the developed Western economy and technology as well as the achievements of Western civilization; on the other hand the idea of the “colonizing white man” especially British sends shivers down their spines and stirs animosity towards the West as a whole. When I visited the Chinese Foreign Ministry in 2014 my Chinese counterpart made a half-funny remark on his English interpreter, saying that “she speaks a very good English but she still needs to learn the American accent, as we prefer it to the British one around here.”

In the 19th century, Europe brought extensive and rapid changes to a country that had been stable for thousands of years and whose society, economy and culture had been used to slow, gradual change. Europe first knocked on the door, but China being reluctant to let the newcomer in, Europe kicked the door open. At the turn of the 19th century, China’s agriculture, which employed 80% of the 400-million strong population, still used ancient technology and obsolete methods. As the country’s population grew, the area of farmed land remained unchanged. Farming technology too was unchanged, well behind the times. Rural communities were largely self-sufficient, capable of producing little marketable surplus. These economic circumstances considerably limited urbanization and industrialization. What China was unable to do on its own, Europe did for her: the Chinese economy was in these years largely built with and therefore dominated by foreign capital. The banking system, shipping companies, railroad construction, mining, and certain industrial sectors, such as iron and steelmaking and textiles, all owed their birth to Western investment. The Chinese elite had to decide how much of the old China it could try to keep and how much of the West to accept for the sake of modernization. It remains a disputed question whether China would have been able to modernize itself without the West and whether the West fulfilled a mission by modernizing China or simply destroyed the old China.

Western ideas breached the Great Wall of China way before the Opium Wars: this process began with the translation of the Bible and other religious texts into Chinese. However, the translation of Western literature into the local language only began on a large scale in the early 19th century. At this time the Chinese elite became interested in the West, its military, industrial and technological advances, as well as its philosophy, political institutions, social structures and literature. Various schools of thought sought to copy Western models and modernize the traditional system of Confucianism. China sought to modernize itself to be able to keep up with the European invaders. But it was too late; China was unable to lift itself out of trouble. It proved too feeble and had fallen too far behind the West for such a bootstrapping act.

Europe’s position in China was considerably weakened by the two world wars and reached its lowest ebb during the Cold War. With the Cold War over a reunified Europe and an ever-changing China were given a new opportunity to reshape their bilateral relations. However, a new breaking point appeared alongside the traditional geopolitical opposition: Europe and China had drifted apart ideologically in the wake of Communism’s victory in China.

We have seen that throughout the 19th and 20th centuries Europe had a crucial impact on China. The key legacy of this period, which China refers to as “the century of shame and humiliation”, lay not so much in the military defeats and conquests as in the psychological and intellectual spillover effects. Before, the Chinese intelligentsia had always seen conquerors as barbarians who might have been superior in military terms but whose material and intellectual inferiority to Chinese civilization was unquestionable. In the wake of its defeats in the two Opium Wars, China realized that it faced an unprecedented historic challenge. Yet, the reasons behind China’s defeat were considered mainly technological; thus the solution was thought to be a better navy and improved weapons. The slogan, which held true for Mao’s China and continues to hold true today, is: modernization to the greatest extent possible in order to preserve the Chinese state and culture. In other words, changes necessitated by practical challenges are only accepted as long as they do not affect the core of the system.

Mao Zedong proclaimed the People’s Republic of China on 1 October 1949. The Middle Kingdom was transformed into a Communist dictatorship. Chinese policy, however, has come a long way in the last fifty years. While Stalin was a real father figure for Mao, Khrushchev was simply a distant cousin. After Mao’s death, China began dismantling the ideological and economic walls built around it. During the Cold War years, between 1949 and 1989, Sino-European relations were shaped by ideological opposition as much as by the two sides’ links with the superpowers. The relationship between NATO member countries and China was primarily defined by US foreign policy. Accordingly, relations are best described as icy until 1971, when US-Chinese relations were normalized (and even started improving). From that point on, Europe made advances towards China, remaining careful not to upset its sensitive links with the Soviet Union. China wished to amend ties with Europe to bypass the US embargo, and later, in the ’70s and ’80s, to gain access to European civilian and military technology as well as to reinforce its position vis-à-vis the Soviets.

From the 1970s, political and economic ties developed steadily. European countries re-established diplomatic representations in China, which pursued the policy of the “Three Worlds”. In the Three Worlds theory Europe belonged to the Second World, the middle element between the two superpowers of the First World and the developing countries of the Third World. The aim was to align Europe against the Soviet Union. But the huge political and ideological gap between China and Europe was a natural obstacle to such strategic cooperation. Later, economic reforms turned China’s attention to Eastern European countries, whose new economies were more similar to its own than Western Europe’s. Nonetheless, China did recognize the danger that Eastern European economic reforms and Gorbachev’s perestroika posed to its political system. The increasingly close relations between China and Europe were cut off abruptly with the Tiananmen Square shootings in 1989. Europe was hoping that China would soon follow in the footsteps of the Soviet Union and Eastern European regimes and the Communist system would dismantle. These sweeping political changes came as a shock . Once again, Europe and China became estranged. But the wounds healed rapidly and relations warmed up soon. The handover of Hong Kong in 1997 and of Macau in 1999 were symbolic. While China negotiated these handovers with the UK and Portugal, trade talks were conducted with the European Union. The years that followed marked a meteoric rise in trade relations. The EU became China’s number one trading partner and vice versa. But the biggest leap forward was that China relaxed its ideological rigidity as it entered the mainstream of global capitalism squaring the circle and reconcile capitalism and free markets with autocracy. In modern China, especially among the most dynamic social class of entrepreneurs, economic capitalism is no longer an obscene word; it is rather a model to imitate, the key to prosperity and progress.

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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