Thanks to the “New Year’s” initiatives of Kim Jong-un – to which South Korean Moon Jae-in responded for his own reasons – significant progress was made in the inter-Korean dialogue at the highest level during the recent Winter Olympics in Pyeongchang (the possibility of an inter-Korean summit is even on the table), although the main achievements thus far have been in terms of good PR rather than concrete agreements. That being said, the possibility of reducing the threat of an all-out war on the Korean Peninsula, and of an eventual reconciliation of the two countries, is now closer than ever before.
However, this process makes the denuclearization of North Korea an impossibility. In fact, it does quite the opposite, effectively acknowledging Pyongyang’s status as a nuclear power. The North will not discuss the nuclear process with the South, as Seoul cannot provide any security guarantees. The only country that can is the United States, but Washington is not looking for compromises. The United States sees negotiations with North Korea purely as a discussion of the terms of Pyongyang’s capitulation and the surrender of its nuclear trump card. Put simply, North Korea, as a country that has spent generations building its international identity and influence on the basis of its nuclear weapons and which uses nuclear weapons as a guarantee of its security, has no plans to do this.
The last thing Washington wants is a rapprochement between North and South Korea, as this would hamper its immediate goal of eliminating the nuclear potential of North Korea (as well as the longer term objective of toppling the entire regime). What is more, the reconciliation of North and South Korea could be interpreted as a reduction of the military threat in its own right. In this case, the United States would have fewer opportunities to build up its military potential in Asia, which is directly primarily against China. For this reason, the United States does not want to allow “liberties” on the part of its junior partner in the union. Donald Trump is actively and unambiguously against a détente and is keen to step up the pressure as much as possible, including “twisting the arms” of his allies and partners if doing so serves his purposes. Washington is not limiting itself to demanding compliance with the sanctions agreed within the framework of the United Nations. With a view to weakening the North Korean regime, Washington is trying to ensure that the draconian sanctions imposed unilaterally by the United States are supported by other countries, the tacit threat being that repressive measures will be employed against dissenters. This is a shameless use of pressure, the likes of which we have not seen in modern history.
Russia and China are in a particularly vulnerable position and are accused, often without grounds, of violating the sanctions. From their perspective, these are demands to comply with the plans of the United States to implement a blockade on North Korea and suffocate the country’s regime though financial and economic means. The hopes harboured by the United States that events will develop in this way are based on a lack of understanding of the North Korean reality, a projection of its own ideas about how the economy and society should function. There is no way that a blockade will force North Korea to abandon its nuclear programme wholesale, although such a measure could make the country more acquiescent in terms of restrictions and monitoring activities. But such a scenario is unacceptable for the United States, as it is the recognition of North Korea’s nuclear status.
Donald Trump hopes to intimidate North Korea with demonstrative military preparations and a public discussion of a possible armed conflict. Such provocations are likely to intensify after the “Olympic truce,” particularly against the background of joint US–South Korea military manoeuvres, which will quite rightly cause concern in the North. Although these manoeuvres should probably not be seen as a dress rehearsal for a future invasion; everyone understands the scale of the disaster that would befall the region if this were to happen, especially considering the nuclear potential of both North Korea and the United States.
The danger is that, even if Trump is bluffing and has no intention of actually starting a war, his allies and enemies (and even his subordinates, in order for Trump to get what he wants) have to take these plans seriously. But such a policy could lead to the American military machine inadvertently falling into the abyss of a “limited” and then all-out global war by accident, oversight or fatal confluence of circumstances.
It is entirely possible that the United States will increase pressure on North Korea after the Olympics in order to anger the country’s leadership and provoke it into a sharp reaction, for example carrying out further nuclear tests. Pyongyang is likely more than ready to perform more tests, and has the technical need to do so (for submarine-based missiles, for example). Even if Pyongyang cannot be coaxed into starting a war, the United States may artificially create the necessary circumstances by engineering a casus belli situation (which was the case with the Gulf of Tonkin incident).
It must be recalled that China and Russia are being blackmailed with the possibility of a military catastrophe, which would help the United States pursue several goals at once. First, to try and force Moscow and Beijing to take more decisive measures against Pyongyang (perhaps even with a view to changing the North Korean leadership). Second, to put China (and Russia, although its stakes in this particular game are not as high) in an uncomfortable position, no matter how events unfold. Continued support of Pyongyang would undermine China’s image around the world, and not only in the eyes of pro-American countries. On the other hand, if China “abandons” North Korea at the insistence of the United States, then its reputation among friendly and undecided states will be seriously damaged. The latter will see China as a country that cannot be trusted or counted upon, and the United States will continue to be regarded as “global hegemon”. The United States will use Russia’s supposed violations and unwillingness to cooperate to discredit the country’s leadership.
It would appear that Russian diplomacy must be deployed as a countermeasure in several areas, including jointly with China.
First, strengthening coordinated actions between Russia and China on the Korean issue, including in their relations with third countries and international organizations, particularly the UN.
Second, intensifying contacts with Pyongyang in order to develop a unified course of action with other players and persuade North Korea to act with greater patience and flexibility (Track II, or informal, diplomacy is also important here).
Third, applying consistent and well-thought-out pressure on Washington to abandon its aggressive plans, and explaining that going through with these plans would violate Russia’s national interests and provoke an appropriate response.
Fourth, carrying out persistent work and developing cooperation with the North Korean leadership in order to encourage a warming of relations between the North and the South and avoid excessive concessions to the United States that would go against the logic of a rapprochement.
Fifth, concretizing and refining (step-by-step) joint proposals put forward by Russia and China on the development of a “road map” and actively promoting it in contacts with all partners and international organizations, including promoting the concept of six-party talks.
First published in our partner RIAC
China Vision: China’s Crusade to Create a World in its Own Image
In the wake of Chinese leader Xi Xinping’s moves to make himself ruler for life, everyone is wondering about his government’s ambitions for its role in the world. Daniel Wagner has written about what the trends indicate in China Vision: China’s Crusade to Create A World in its Own Image.
The book notes the paradox that China is in regards to investment. The world’s 2nd largest economy continues to accept billions of dollars in development loans from banks like the World Bank and Asian Development Bank. Meanwhile, Chinese state banks are loaning trillions of dollars to countries around the world. Chinese entrepreneurs are feverishly setting up businesses abroad and purchasing foreign companies and real estate. If a foreigner wants to invest in China though, they must accept ownership stake limitations and obey rules that explicitly make them less competitive. In regards to domestic investment, Wagner argues that China invests way too much on grand public projects, like apartment blocs that remain largely vacant, and not enough on small-midsized businesses. One of these days (the next global recession?), the chickens will come home to roost and China will have to re-evaluate its blank-check policy.
Much of the book focuses on China’s role in foreign diplomacy and commerce. The fledgling superpower is in the process of spending trillions of dollars on loans to the developing world, particularly through its Asia-oriented Belt and Road Initiative. These no-strings attached loans give China enormous power over many of the poorest countries in the world. Many people, like former Maldivian PM Mohamed Nasheed, have outright accused China of imperialist behavior. The author writes that, “Kenya was to be forced to relinquish control of its largest and most lucrative port in Mombasa to Chinese control as a result of Nairobi’s inability to repay its debts to Beijing.” China also owns ports in locales as diverse as Djibouti City and Zeebrugge, Belgium. Chinese firms are likewise emulating some neo-colonial tendencies. For instance, Wagner writes that, “Fewer than half of these [African-based Chinese] firms sourced inputs or had African management.” Controversial Chinese real estate projects like Forest City, Malaysia are arguably examples of literal colonialism.
Through this strategy of buying friends and building a global network of ports, China is strengthening its impunity as a Top 3 naval power. Increasingly, China is treating the South China Sea as its private fiefdom by ignoring credible territorial claims of the Spratly Islands and Scarborough Shoal by the Philippines, Indonesia, Japan, Brunei, Malaysia and Vietnam. Most disturbing of all is Xi’s recent verbal aggression towards Taiwan. By buying friends, China can mute criticisms of this military aggression in the UN and isolate foes like Taiwan (only 19 countries have diplomatic relations with it). With a rapidly expanding fleet of sea craft, the People’s Liberation Army Navy is better equipped than ever to project hard power via all of China’s ports, from off the coast of the Philippines to Belgium…. On this dire note, I wish Wagner had written more about the budding conflict between China and the other 1B-person country in the world, India. I predict that the dichotomy between democratic India and totalitarian China will determine the future of humanity. Seeing as India & China (and China’s close ally Pakistan) all possess thermonuclear weapons and have recent military skirmishes with each other, one can only hope that the Tiger and Dragon don’t initiate WWIII squabbling over a sleepy locale like Kashmir or Nepal.
In the final section of the book, Wagner writes about China’s dominance in the virtual sphere. Chinese tech companies like Baidu, Alibaba and Tencent are rapidly catching up and even beating Silicon Valley in terms of traffic, profitability and innovation (most importantly, AI). China has also become the de facto global leader in green technology. China’s blank-check philosophy funds these rapid advancements. A lot of this apparent innovation, however, is fuelled by corporate espionage. For the past few decades, Chinese firms (often with official backing) have been using spies and hacking to steal blueprints and thus reverse engineer inventions. Ironically, these knock-offs are oftentimes sold to the US government, which creates a huge security risk. In many cases, Western companies willingly share confidential data with China in order to be granted access to the Chinese market.
China’s running racket of stealing IP and personal user data from US companies that choose to operate in China demonstrates the importance of government regulation… In this case regarding national security and user privacy protection. Ironically, China enforces data encryption and other cybersecurity measures through regulations like the 2017 Cybersecurity Law. The willingness of Western companies to literally sell themselves out to China in the frenzied hope of making a quick buck in the world’s largest market is textbook junkie-mentality. These free market free-basers expose their fundamental flaw in the face of China’s system of state capitalism. By ceding responsibility of investment from the government to the private sector solely, countries like the US are being vastly outspent by China in everything from space travel to quantum computing research. As economists like Michel Aglietta and upstart politicians like Alexandria Ocasio-Cortez point out, the state must be responsible for picking up the slack when the free market fails to focus on important long term projects, like a Green New Deal (China already has its own publically funded version of the GND).
China Vision is a good account of the Chinese Communist Party’s domestic heavy-handedness and foreign diplomacy-via-blank-check. The two are interconnected, as China’s crackdown on internal dissidents informs how it treats foreign countries and human rights activists who dare to oppose it. Through China’s Belt and Road Initiative of loaning billions of infrastructure dollars to developing nations, it can control them through a carrot-and-stick approach. China’s spy state apparatus is also being used to sabotage foreign humanitarian organizations, religious groups, governments and companies. The CCP may soon export its surveillance state blueprint to other interested authoritarian states, setting the stage for a cold war between China and its client dictatorships & the Western democracies. The People’s Liberation Army is preparing for this possibility with a huge naval buildup in the contested South China Sea, aided by all of the “civilian” ports that it’s building there under the auspices of the BRI. Daniel Wagner’s book does a good job of explaining these geopolitical trends in a concise and even-handed way. He explains how colonialism and the Cold War helped to shape China’s cynical outlook on the world and doesn’t exaggerate China’s capabilities. Anyone in politics, tech, economics or the NGO sphere will learn a lot from this book.
China’s economic transformation under “New Normal”
China’s double digit growth, also termed as “old normal growth” had dominated the country’s economy since 1980s. Despite the rapid economic development over the last few decades, this old normal growth has encountered some setbacks, including economic imbalance, income inequality, limited consumption choices against increasing level of demand, and environmental challenges.
Given this context, a comprehensive new development model, “new normal”, incorporating the innovation, coordination, greening, opening up, and inclusiveness, is formulated by Chinese authorities to enable wide-ranging growth and development throughout the country.
Analysts refer to “new normal” as China’s new phase of economic development. The recent trend of “growth slowdown” or “new normal” economic growth is also referred to new strategy of Chinese foreign policy by the analysts.
During the 2014 Asia-Pacific Economic Cooperation (APEC) CEO Summit in Beijing held on November 09, 2014, Chinese President Xi Jinping first used the phrase as “new normal stage of Chinese economy.” President Xi also referred to China’s stable economic growth in order to improve and upgrade economic structure under the “new normal” conditions.
Subsequent to this, China’s 13th Five-Year Plan (2016-2020) incorporates the “new normal” in economic development with a particular vision of building a moderately prosperous society in all respects by 2020. The key significant features of China’s “new normal” are:
Slower economic growth
One of the key reforms or significant changes on China’s medium-high economic growth rather fast growth over the past few years is exceedingly evident. To be mentioned, over the past 40 years, China has maintained an average annual growth rate of around 9.5 percent that transformed an impoverished nation to an upper-middle-income nation.
In contrast, the gross domestic product (GDP) growth rate lowered from 7.5 percent in 2012-2014 to 6.8 percent in 2017. According to China’s National Bureau of Statistics (NBS), the GDP growth rate was relatively same, 6.6 percent, in 2018, with an expected target of around 6.5 percent at the same time.
For the purpose of economic restructure and high-quality development, China’s local governments have also lowered their GDP growth targets in the same year. The new trend of normal flow of growth is projected to be relatively same in the upcoming years.
Yiping Huang, Professor of economics at the National School of Development, Peking University, and an adjunct professor at the Crawford School of Public Policy, ANU, refers to such transformation of China’s growth model as the transition from “economic miracle” to “normal development,” which is the partial departure from the traditional bottom-up approach.
The World Bank also mentions that, China’s economic slowdown is not unexpected, rather desirable from both from short and medium-term perspectives aiming at fostering China’s transition to a modern economy through the new model. This transition denotes a clear move from high speed growth to slower, steadier, and more sustainable economy.
One of the significant aspects of China’s “new normal” economic model is to facilitate market for playing “decisive role” in allocating economic resources. The “new normal” endeavors for making interest rates, currency exchange rates, and land prices more market-oriented. Incremental steps have already been taken towards the liberalization of interest rate and exchange rate set by market forces, cutting taxes, and reducing costs in order to widen market access, stimulate market vitality, and support economy.
The improvement of market environment, enhancement of private investment and investment-led growth, establishment of comprehensive pilot zones, facilitation of interest rate controls on loans, proactive fiscal policy, prudent monetary policy, and the increase of effective supply among other significant measures have also been outlined in the report on the Work of the Government delivered by Premier Li Keqiang at the Second Session of the Twelfth National People’s Congress on March 05, 2014.
President Xi first announced the phrase “supply-side structural reform (SSSR)” in late 2015, which injects new impetus into China’s economic policy framework. The SSSR mainly focuses on reducing distortions in the supply side of the economy and upgrading the industrial sector.
A study on China’s SSSR conducted by Reserve Bank of Australia finds five core policy objectives of China’s supply supply-side reform–cutting excess industrial capacity; reducing leverage in the corporate sector; de-stocking of property inventories; lowering costs for businesses and addressing “weak links” in the economy.
In this regard, China has focused on overcapacity reduction, especially in coal and steel production. As for example, more than 65 million metric tons of steelmaking capacity and over 290 million tons of coal-production capacity were eliminated in 2018.
Moreover, the government has already reduced tax to foster business friendly environment. President Xi has underscored the necessity of strengthening areas of weakness to boost the supply of the public goods and services.
Innovation driven economy, the vital part of SSSR, attempts to enhance the quality of products, reduce ineffective and lower-end supply through the advancement of artificial intelligence, big data, and the inauguration of 5G mobile communication equipment etc.
As per the push for services-driven economy, the socio-economic issues for the improved people’s wellbeing have also been addressed in the “new normal”. President Xi Jinping remarks, “Comprehensively deepening reform will not only liberate the productive force but also unleash the vitality of the society.”
The 13th FYP highlights the development of services and measures to address environmental challenges in order to reduce pollution and amplify energy efficiency. During the 2014 Beijing APEC meetings, temporary shutdown of Chinese factories was given “priority of priorities” to curb pollution and ensure air quality. As per the policy, China has started accelerating the development of clean energy industry from 2018.
The green development aside, robust consumption, reducing social imbalances, improving education and healthcare facilities, and expanding social protection get equal priority in the new phase of economic development.
Opening up through Connectivity
The new phase of Chinese economic growth is based on political economy that anticipates trans-border trade and investment facilitation as well as border connectivity through greater integration and sustainable relations among nations. China’s stretching connectivity over Asia, Africa, and Europe through the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road”, altogether known as Belt and Road Initiative (BRI), is extending influence from South China Sea to Indian Ocean. RMB internalization and China’s leading role from multilateral trade forums to climate change accords clearly signify the “new normal” policy of President Xi Jinping.
Implications on China’s socio-economic development
The “new normal” economic model has far-reaching impacts on China’s comprehensive development and path towards building a moderately prosperous society.
First, China’s has comfortably been maintaining its position as the world’s second largest economy. National Bureau of Statistics (NBS) reports, despite the slowdown of GDP growth rate, China contributed more than 30 percent to world economic growth during 2017. Hence, the investment-led growth since 2012 has resulted huge benefits for Chinese businesses and the overall economy.
Second, Chinese people are getting relief from the side effects of old model, mentioned earlier. The country has been witnessing growing equality among people, comparatively equal income distribution, robust consumption, environment-friendly industrialization, quality products, and other developments in other socio-economic sectors.
Third, Qualitative than quantitative aspects of economic growth, balanced and sustainable growth, stable employment, innovation, green development, investment intensification, faster industrial upgrading, and opening up are leading to China’s dream towards a sustainable socio-economic development. For example, the number of Chinese enterprises, around 27 million, and market entities have been increased in China over the past few years under both market and supply-side structural reforms. These new business hubs are boosting the country’s structural transformation and economy.
Finally, China’s new phase of economic growth and new historic juncture reiterate China’s development as per the vision broadly prescribed in Socialism with Chinese characteristics for a new era.
The Slippery Slope of Sino-US Trade War
Change is the only constant. After a struggle for supremacy in geopolitical and geo-economical spheres, now technological realms have also been contested among superpowers. The Fourth Industrial Revolution is at the verge of breaking out and it is expected that this stage of modernization will tug the very fabric of society and will alter the way individuals interact with each other and world at large. Ongoing industrial innovation will act as a modus operandi to transform global economies, communities, and politics.
The world is in stern need of a modern global architecture before the fourth industrial revolution starts encroaching on us. That is why a trade tussle emerged on statist lines among all major economic stakeholders of the international economy, especially among those having a larger share in business with the United States. The US President Donald Trump opted a pre-emptive approach and imposed tariffs and nuisance in global economies. Eminent journalist, Bob Woodward highlighted the fact in his book ‘FEAR’ that USA’s protectionist elements are far-greater than ever before and such actions will hinder economic peace with traditional allies or trade partners. Trump’s tariff imposition on China and renegotiation of NAFTA and Free Trade Agreements with EU leaves no doubt about Woodward’s projections. Another famous Nico Colchester prize-winner financial journalist, James Politi of Financial Times referred exchange of tariff brawls between USA and China as “protectionist firepower” by Trump administration aiming against China. To cut short, current trade tariff discourse is in order to contain China in geopolitical, economic and technological leadership.
An ongoing trade war is economic intimidation and coercion by the USA towards China to redevise their trade agreements and get more favorable terms for the country, which will also advance Trump’s populist mantra of America First. Trade tariffs were imposed as a consequence for not responding the sheer allegations on Chinese companies by US administration of unprecedented level of larceny and infringement upon intellectual property rights. US Politicians claim that industrial migration and capital flight from the US to China was the reason of unemployment in the USA, but economists condemned the long-term policies like reliance on imports and not saving much for the future.
China’s rise is perceived as a threat to hegemonic stability, thus an influx of uncertainty is stirring in the realm of international political economies. This rise is analogous to the Thucydides trap and also depict similar characteristics as of power transition theory. But the fault line of this predicament lies in the technological advancement of China by virtue of US private enterprises and regional economic connectivity ventures of the country. In short, it is a feud between the two leading economic powers to overhaul world trading practice (its terms and conditions) coupling with technology and knowledge-based economy with an intent to hedge and wedge each other being the contenders of global hegemony.
Both economic powers, China and USA have been in a state of economic tug of war since June 2018. To resolve his sticky situation, Trump administration imposed 25 percent import tax on $50 billion worth of products of Chinese origin in order to overcome the trade deficit between both economic giants. China countered this move by levying duties on the produce of USA and more than three rounds of tariffs worth $250 billion were exchanged among both parties, in addition, both parties threatened with each other with penalties of $267 billion. However, both countries had annual trade relations of $710.4 billion in 2017 and China is ranked as the third largest export market for the USA.
The Chinese government was alleged for backing their private companies by injecting billions of dollars every year and termed as state-owned private enterprises by several journalists and newspapers. In addition, Chinese companies were suspected to violate patent rights especially the ones related to modern technology and Chinese authorities for restricting foreign companies to access their markets freely. China also announced its strategy named ‘Made in China 2025’ which implies that majority of end-user products will be developed by China in near-term while it is also a challenging situation for the USA for being a techno-center of the world. Vision 2025 asserts that China will be a front-runner in modern technologies like Artificial Intelligence and Biotechnology in the respective year .
While campaigning for elections, Republican President of USA, Donald Trump also proclaimed that Chinese development is equivalent to ‘rape’ and his administration will levy 45 percent tariffs on total imports from China. Formerly China had been under tariff regime of USA on products worth of $50 billion annually and President-Elect also threatened Chinese government to take a radical stance and impose further 25 percent taxes on January 1st, 2019 on products worth $200 billion. Chinese government retaliated this move by imposing tariffs worth $60 billion despite economic coercion from the US government of striking further duties on all products of Chinese origin.
Joseph Stiglitz, an eminent scholar, and Nobel laureate explained stated that:
“The United States has a problem, but it’s not with China. Predicament lies in America because they saved too little, and borrowed and imported too much“.
USA and China are heading towards a war which no one wants at this point in time.In this modern era, the US and China must see ahead of time and resolve their bilateral relations which is a cause of disturbance in the international economic order. To do so there is a need to establish new norms of trading and economics which incorporate prevalent treaties and meet the requirement of the 21st century. To serve the purpose rules should be developed to cater the technology related matters in international trading practices.
Current global situation of power transition and hegemon desiring stability depict the same case as of Thucydides trap which is an outcome of structural pressures spiraling from an emerging power challenge the ruling one. Although this theory is ancient but very relevant to the on-going trade-brawls of China and USA, a case where the leadership of both countries sings hymns of making their country great again. This conflict has no resolution other than either party accepts the dominance of other whereas in this case China is not going to cap and roll their economic endeavors, and the US will also not concur to Chinese supremacy in Pacific, cyberspace and external space. There are certain stern measures which competing economies will have to take in order or else it could be an all-out war.
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