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The battle for the Iranian nuclear deal: China approaches a watershed

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Conventional wisdom has it that China stands to benefit from the US withdrawal from the 2015 international nuclear agreement with Iran, particularly if major European companies feel that the risk of running afoul of US secondary sanctions is too high.

In doing so, China would draw on lessons learnt from its approach to the sanctions regime against Iran prior to the nuclear deal. China supported the sanctions while proving itself adept at circumventing the restrictions.

However, this time round, as China joins Russia and Europe in trying to salvage the deal, things could prove to be different in ways that may give China second thoughts.

The differences run the gamut from an America that has Donald Trump as its president to a Middle East that is much more combative and assertive and sees its multiple struggles as existential, at least in terms of regime survival.

Fault lines in the Middle East have hardened because of Israel, Saudi and United Arab Emirates assertiveness, emboldened by both a US administration that is more partisan in its Middle East policy, yet at the same time less predictable and less reliable.

Add to this Mr. Trump’s narrow and transactional focus that targets containing Iran, if not toppling its regime; countering militancy, and enhancing business opportunities for American companies and the contours of a potentially perfect storm come into view.

That is even truer if one looks beyond the Gulf and the Levant towards the greater Middle East that stretches across Pakistan into Central Asia as well as China’s overall foreign trade.

China’s trade with the United States stood last year at $636 billion, trade with Iran was in that same period at $37.8 billion or less than five percent of the US volume.

The recent case of ZTE, one of China’s largest IT companies, tells part of the story.

Accused of having violated sanctions, the US Department of Commerce banned American firms from selling parts to ZTE, bringing the company to near bankruptcy. Mr. Trump appears to be willing to help salvage ZTE, but the incident significantly raises the stakes, particularly as China and the United States try to avoid a trade war.

That is but one consideration in China’s calculations. Potentially, other major bumps in saving the nuclear agreement lurk around the corner and could prove to be equally, if not more challenging.

Tensions in the Middle East are mounting. The fallout of Mr. Trump’s recognition of Jerusalem as the capital of Israel and seemingly unqualified backing of Israel in its almost certainly stillborn plan for peace with the Palestinian is reverberating.

Discontent across the region simmers just below the surface, magnified by youth and next generations in countries like Syria and Yemen who have little to look forward to.

The bumps fall into three categories: the degree to which China feels that it can continue to rely on the US defence umbrella in the Gulf; pressure on China by Middle Eastern states to shoulder the responsibility that comes with being a great power, if not take sides; and change in a region that is in a process of transition that is volatile, violent and could take decades to play out.

Yet, as China takes stock of the Middle East’s volatility and China’s strategic stake in regional stability, it appears ill-equipped to deal with an environment in which its traditional policy tools either fall short or no longer are applicable.

Increasingly, China will have to become a geopolitical rather than a primarily economic player in competitive cooperation with the United States, the dominant external actor in the region for the foreseeable future.

China has signalled its gradual recognition of these new realities with the publication in January 2016 of an Arab Policy Paper, the country’s first articulation of a policy towards the Middle East and North Africa.

But, rather than spelling out specific policies, the paper reiterated the generalities of China’s core focus in its relations with the Arab world: economics, energy, counter-terrorism, security, technical cooperation and its Belt and Road initiative.

Ultimately however, China will have to develop a strategic vision that outlines foreign and defence policies it needs to put in place to protect its expanding interests; its role and place in the region as a rising superpower, and its relationship and cooperation with the United States in managing, if not resolving conflict.

To be sure, China is taking baby steps in that direction with its greater alignment with international moves to combat Islamic militancy even if its campaign in north-western China risks straining relations with the Islamic world, the creation of a military facility in Djibouti, work on a naval base in Pakistan’s Jiwari peninsula, and cross-border operations in Afghanistan and Tajikistan.

Those may be the easier steps. Dealing with partners like Saudi Arabia and the United Arab Emirates that seek to establish regional hegemony by imposing their will on others at whatever cost may be more difficult. So far, Saudi Arabia and the UAE have not pressured China to choose in their rivalry with Iran.

But it can only be a matter of time before they do, particularly if Chinese investment in Iran and trade were able to offset the impact of US sanctions to the degree that the Islamic republic is not forced to compromise. To evade that situation, China has offered to mediate between Saudi Arabia and Iran, an offer the kingdom was unwilling to take up.

China is not immune to Saudi pressure. To protect their Saudi and UAE interests, Chinese alongside Hong Kong and Japanese banks refused earlier this year to participate in a one-year extension of a $575 million syndicated loan to Doha Bank, Qatar’s fifth-biggest lender.

Similarly, Saudi Arabia in April forced major multi-national financial institutions to choose sides in the Gulf spat with Qatar. In response to Saudi pressure, JP Morgan and HSBC walked away from participating in a $12 billion Qatari bond sale opting for a simultaneous Saudi offering instead.

The stakes for Saudi Arabia in Iran are far greater than those in Qatar. Iran poses an existential threat to the House of Saud for reasons far more intrinsic than the accusations Riyadh lobs at Tehran. The more Iran is able to defeat US sanctions, the more Saudi Arabia is likely to push China and to reduce their support of the nuclear agreement.

That pressure can take multiple forms. With US-backed efforts at regime change in Tehran potentially on the horizon, Saudi Arabia has put building blocks in place over the last two years.

Large sums originating in the kingdom have found their way to militant, virulently anti-Shiite, ultra-conservative Sunni Muslim madrassas or religious seminaries in the Pakistani province of Balochistan that borders on the Iranian province of Sistan and Baluchistan.

A Saudi thinktank allegedly backed by Crown Prince Mohammed bin Salman, has developed plans to stir unrest among the Baloch minority in Iran, partly in a bid to complicate operations at the Indian-backed port of Chabahar, a mere 75 kilometres up the coast from Gwadar, a crown jewel of the China Pakistan Economic Corridor, China’s $50 billion plus Belt and Road stake in Pakistan.

China, moreover, has so far relied on its economic clout as well as Saudi Arabia to remain silent about a crackdown in Xinjiang that targets Islam, putting the kingdom as custodian of Islam’s two most holy cities in an awkward position.

The long and short of all of this is that, in an environment in which the Middle East views conflicts as zero-sum games, China is likely to find it increasingly difficult to remain aloof and straddle both sides of the fence. Salvaging the Iranian nuclear deal could come at a cost China may not want to pay.

Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and the author of The Turbulent World of Middle East Soccer blog, a book with the same title, Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario and three forthcoming books, Shifting Sands, Essays on Sports and Politics in the Middle East and North Africaas well as Creating Frankenstein: The Saudi Export of Ultra-conservatism and China and the Middle East: Venturing into the Maelstrom.

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East Asia

The Demise of a French Sub Deal: Is China a Threat?

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The conflict between emerging and existing powers is almost as old as time.  Labeled the Thucydides Trap, it first recounted the 5th century BC Peloponesian war and its inevitability as Sparta, the dominant power, feared the rise of Athens.  Is something similar about to transpire between the US and China?

The latest war of words is about nuclear submarines.  When armed with ballistic missiles, they become a hidden mortal danger.  So the US also deploys nuclear attack submarines which shadow rival nuclear ballistic submarines … just in case.

Australia was in the process of acquiring 12 French conventional attack submarines (a deal worth $37 billion) when the US and UK stepped in with the AUKUS deal.  Intended to counter China, it offers Australia  advanced nuclear propulsion systems and an opportunity to construct nuclear subs of their own with the technology transfer.  Australia will then become the seventh country in the world to build and operate nuclear submarines.

The fear of the ‘yellow peril’ is ingrained in the Australian consciousness from the days when they were afraid of being swamped by Chinese immigrants.  It led to restrictive immigration policies for non-whites. 

Much of the concern with China is due to the forceful nature of Chinese leader Xi Jinping’s policies.  In Xinjiang the Uyghur population is a minority in its home province due to the influx of Han Chinese.  Moreover, Uyghurs feel discriminated against, in jobs and the progress they can make.  Some have rebelled causing many to be put in re-education camps where there are tales of torture although denied by Chinese authorities.  Biden has declared it a genocide and introduced sanctions on leading Chinese officials there. 

China’s proactive foreign policy, renewed interest in Afghanistan, its warships patrolling all the way across the Indian Ocean to Africa are further evidence.

The new Afghan leaders, at least many of them, spent their exile in Pakistan giving the latter influence with the new government.  And Pakistan is effectively a Chinese client state.  The mineral wealth of Afghanistan, if it is to be developed, is thus likely to include Chinese help.

The UN General Assembly holds its first debate of the new session on the third Tuesday of each year; the session then runs through to the September following.  As leaders converge, one of the questions being asked of those involved in AUKUS is how they are going to pacify an angry France.  It has recalled its ambassadors from Australia and the US — in the latter case a move without precedent in almost 250 years of diplomacy.

If the French feel the Australians have been duplicitous, the Australians for their part claim they are obligated to do the best for the people who elected them.  The new deal brings jobs, technology and a greater role for Australia in dealing with an increasingly powerful China

It would be a great shame if the West in trying to shore up its interests in the Indo-Pacific region loses a crucial ally — France — at the very least in wholehearted support.  Is Mr. Xi smiling and quoting some ancient Chinese proverb, perhaps Lao Tzu, to his colleagues?   

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Japanese firms’ slow and steady exit is sounding alarm bells in Beijing

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Last year in March, former Prime Minister Shinzo Abe had indicated Japan would initiate measures to reduce the country heavily relying on China for factory production. Since July 2020, Japan has rolled out subsidies totaling over 400 billion Yen to move its enterprises out of China to Southeast Asia and beyond. It is yet to be seen if the scale of incentives has actually triggered a major change in where Japanese companies relocate production.  On the other hand, experts in China continue to wonder why would Japanese companies which are on average making 17% profit diversify into the ASEAN nations, where in 2019, their rate of return on direct investment was a mere 5%?

***

In less than ten days, Japan is going to have a third prime minister within a short span of twelve months. On September 1 last year, when Prime Minister Shinzo Abe resigned on health grounds, Yoshihide Suga was chosen as Abe’s successor. At the time, China’s leadership did not show any worrying signs as the new Japanese leader was expected to continue with the foreign policy of the previous government. But one year later, Suga’s unexpected departure is leaving Japan’s diplomatic relations with China considerably strained over Taiwan. Yet the leadership in Beijing is not going to lose sleep over the next prime minister’s public stance on the Japan-Taiwan “alliance.” What China will be closely watching is how many more billions of Yen and for how long a new leader in Tokyo will carry on with rolling out subsidies to lure away Japanese businesses out of China?

Interestingly, on assuming office Prime Minister Suga had promised continuity in domestic policies and that he will respect Abe’s foreign policy. However, Suga’s promised commitment to further improve relations with China was viewed differently in the People’s Republic. Writing in an article on the day Yoshihide Suga took office in Tokyo, Zhou Yongsheng, professor of Japanese studies at Beijing’s China Foreign Affairs University, observed: “[Under Suga] Japan will continue to align with the US as far as international relations and security affairs are concerned, and continue to back the US policy of containing China It is under these preconditions that Japan will seek cooperation with China.”

In sharp contrast, reviewing Suga’s foreign policy performance after two months, NIKKEI Asia’s foreign affairs analyst Hiroyuki Akita wrote in November 2020: “Suga has not said much publicly about his views on diplomacy but he has urged his aids to continue Abe’s diplomacy as it is at least for one year.” Akita gave a thumbs up to this approach and recalled a Japanese saying to describe it: “if it ain’t broke, don’t fix it.” However, not everyone agreed with Akita praising Suga’s brief record in diplomacy as flawless. Having spent seven years in the Abe cabinet as Chief Cabinet Secretary, Suga’s image was that of “a fixer, not a leader.” Suga did everything in diplomacy in his early phase as the prime minister what Abe had been espousing for the past seven years.

But as Toshiya Takahashi, professor of IR at Shoin University in Japan had predicted within a few weeks of Suga becoming the top leader, “Abe’s shoes were too big for Suga to fill.” Why so? Mainly because unlike Abe, not only Suga was not ideological, he was also far less diplomacy driven. “Suga is not an ideologically driven revisionist — he is a conservative politician, but his attitude has no relation to ideology. He does not seem to hold any specific cherished foreign policy objectives that he is willing to push with all his political capital in the way that Abe did in 2015 with the passage of the security-related bills,” Takahashi had commented.   

To observers and experts in both Japan and China, Prime Minister Suga’s (he will relinquish office on September 30) non-enthusiastic approach to foreign policy might have much to do with the current state of strained relationship between Japan and China. Asahi Shimbun opinion poll last year claimed foreign policy and national security as among the two most popular elements of Abe’s legacy. No wonder, critics in Japan have been pointing out that Suga’s cabinet did not have the luxury and support Abe enjoyed in foreign affairs of having in the government someone like Shotaro Yachi – the former secretary general of the National Security Secretariat. In China too, reacting to Suga’s first policy speech after taking office, scholars such as Lü  Yaodong, Institute of Japanese Studies, CASS in Beijing had observed, “Suga seems not to be as enthusiastic about China-Japan ties as Abe. Compared with Abe’s administration, Suga may walk back China-Japan ties.” (Emphasis added)

Remember, as already mentioned, the LDP had succeeded in pursuing policy of (economic) cooperation and avoiding confrontationist diplomacy with China under Abe. But Suga government’s failure to effectively fight coronavirus pandemic and its perception that China was increasingly becoming aggressive in SCS, are being cited as reasons why Japan was compelled to take strong steps against China. It is too well-known by now how Tokyo angered Beijing by referring to the importance of Taiwan to regional security in the recently released 2021 Defense White Paper. In fact, a Chinese scholar had warned as early as within a month of Suga taking over as prime minister from Shinzo Abe, saying that “Japan will take a more offensive stance against China over maritime boundary disputes under the incitement of the US” (emphasis added).

Hence, it is of extreme import to mention here China’s top diplomat Wang Yi’s recent trip to four ASEAN nations. Apparently, the second visit by the Chinese foreign minister in quick succession in the neighborhood had aroused the global media attention as it was soon after the recent visit to the region by the US vice president Kamala Harris. However, according to a Chinese commentator, Wang Yi’s recent visit to ASEAN countries must be viewed in the context of the region turning into a “battle ground” for rising economic one-upmanship among big powers. “Just a day after Wang Yi’s departure, Vietnam reached an agreement on defense equipment and technology cooperation with Japan,” the commentary noted.   

Furthermore, whilst under the previous Abe government, Japan consistently increased its investments in the ASEAN nations, except in the year 2016, all through from 2014 until last year, Japan’s investment in the region far exceeded that of China’s. Contrary to his vows, since coming into office in September last year, especially following his meeting with President Biden in the White House in April this year, Prime Minister Suga’s quiet agenda has been to confront China in both political and economic arena. In Japan, the Suga agenda was interpreted by analysts as “rebuilding Japan-US industrial chain, decoupling economic ties with China.”    

A policy report released by Japan External Trade Organization (JETRO) in March 2021, revealed three important facts: first, in the year 2019, total Japanese investment in ASEAN nations stood at USD 265.5 billion – 14% of the country’s overall overseas investment, i.e., USD 1,858.3 billion.; second, in 2000, Japanese investments in ASEAN totaled USD 25 billion as against its USD 8.7 billion investment in China – a gap of USD 16.3 billion. Whereas in 2019, Japan invested USD 135.2 billion more in ASEAN as compared with China. As pointed out by one Chinese analyst, this gap is hugely significant, especially as the overall size of the ASEAN economy is a little over one-fifth of China’s GDP; third, followingthegovernment’s new strategy last year to encourage Japanese businesses to move out of China to new locations in ASEAN nations, the new guidelines also entailed reducing investments into China. A large part of the investments was diversified into ASEAN markets.

Finally, what is beginning to worry the Chinese authorities is the trend and direction of slow exodus of Japanese businesses out of China going back to Japan and towards Vietnam and Indonesia on one hand, and widening gap in Japanese investments between ASEAN and the PRC, on the other hand. At the same time, it was beyond anyone’s imagination in China that Japan would be acting foolish and risking “economic security” by diversifying businesses and investments into less profitable “barren” markets. But then who could anticipate what political and economic policy-rejigging coronavirus pandemic would bring about?

Overall, China’s more immediate and bigger concerns are firstly the sudden departure of Prime Minister Suga – in spite of Suga having made it clear he had no will to change or reverse “decoupling” policy he had been pursuing, and secondly, whoever emerges as the new leader of the four contenders by the month-end, analysts in Japan believe Tokyo is unlikely to change its “anti-China” political and economic policies.  

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How China Exacerbates Global Fragility and What Can be Done to Bolster Democratic Resilience to Confront It

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Authors: Caitlin Dearing Scott and Isabella Mekker

From its declared policy of noninterference and personnel contributions to United Nations (UN) Peacekeeping Missions to its purported role in mediating conflicts, China has long sought to portray itself as a responsible global leader, pushing narratives about building a “community of common destiny” and promoting its model of governance and economic and political development as a path to stability. This narrative belies the reality. Chinese Communist Party (CCP)-style “stability,” whether to protect Belt and Road Investments (BRI) or regimes with favorable policies towards China, in practice facilitates authoritarianism and human rights violations, contributes to environmental degradation and corruption, and undermines democratic governance, all of which can fuel instability, intentionally or otherwise.

In pursuit of its true goal – “a world safe for the party” – China has leveraged its diplomatic and economic power to weaken  the international human rights system, bolstering support for illiberal regimes, contributing to democratic decline and exacerbating global fragility in the process. Nowhere is this more apparent than in conflict-affected contexts.

Conflict Resolution, CCP Style

Although China brands itself as a ‘promoter of stability, peace, and unity’, its very definition of stability is built on its authoritarian model of governance. This, plus its concerns about non-interference in its own domestic issues, informs its conflict resolution approach, which emphasizes host state consent and political settlement, two-ideas that can be laudable in theory, depending on the context. In practice, however, China’s conflict mediation efforts in some instances have provided support to incumbent regimes who are perpetuating violence and conflict, promoting a  ‘stability’ that disregards the voices of vulnerable populations and the need for inclusive governance. In the case of the Syrian civil war, China’s “political solution” meant maintaining China-friendly Bashar al-Assad’s grip on power, while blocking resolutions condemning the regime’s brutality against its citizens. 

“Stability” promoted by China can also come at the expense of human rights. China (and Russia) have previously pushed for cuts to human rights positions within peacekeeping missions, endangering the capacity of these missions to protect civilians in conflict.  In Myanmar, where the military is committing unprecedented human rights violations against its own citizens, China initially blocked a UN Security Council statement condemning the military coup and other international efforts to restore stability at a time when a strong international response was much needed. This was in line with China’s previous engagement in the country, working closely with the military regime to “mediate” conflict near the Chinese border in a way that preserved China’s interests and influence, but did little to actually address conflict. After a growing humanitarian crisis began to threaten its investments on the Myanmar side of the border, however, China changed rhetorical course, showing where human rights violations stand in its hierarchy of stability.

Advancing China’s Interests, Undermining Governance

China’s policies in fragile states mirror its unstated preference for expanding its economic and political interests, even if securing them sidelines the stated imperative of addressing fragility. In some instances, China has lobbied for UN policies in conflict-affected contexts that appear to support its own agenda rather than – or sometimes at the expense of – peace. According to the U.S. China Economic and Security Review Commission’s 2020 report to Congress, “China has shown an apparent willingness to leverage its influence in the UN peacekeeping operations system to advance its economic interests in African countries, raising the possibility that Beijing is subverting UN norms and procedures in the process.” Per the report, the most notable example of this was in 2014 when China lobbied to expand the UN Mission in South Sudan to protect oil installations of which the China National Petroleum Corporation held a 40 percent stake.

Moreover, China’s pursuit of its interests sets up countries on unstable trajectories. China’s economic investment policies and initiatives exacerbates governance deficits and increases fragility by encouraging corruption, facilitating authoritarianism and human rights violations, and contributing to environmental degradation, all key drivers of conflict. Two cases from Nigeria and Pakistan highlight the point.

In Nigeria, China’s investment projects have exacerbated corruption and fueled distrust in local government – key drivers of conflict and intercommunal violence in the country. China has exploited poor regulatory environments and worked within illegal and corrupt frameworks, often tied to armed groups and criminal networks. In one illustrative example, China state-owned timber trading companies  offered bribes to local officials to illegally harvest endangered rosewood. Members of local communities have cited feelings of exploitation by officials accepting bribes from Chinese businessmen, further stressing fragile ties between local government and citizens. Such business practices also demonstrate a blatant disregard for the environmental consequences of illegally harvesting endangered flora and fauna. Moreover, the inherently opaque nature of these projects that are tied to CCP interests makes it difficult to demand accountability.

Similarly in Pakistan, a 62-billion-dollar project known as the China-Pakistan Economic Corridor (CPEC) aimed at linking Xinjiang to the Arabian sea, has exacerbated tension in conflict-affected provinces. The project plans to build infrastructure and extract resources from several less developed regions, while overwhelmingly benefitting industrial and political hubs such as Punjab. Many provinces, including Balochistan and Sindh, have accused political elites of altering the route of the corridor in their own interests, thus further marginalizing their communities. Separatist groups have launched several attacks throughout the country, not only fueling conflict between Pakistani ethnic groups but also leading to attacks against Chinese expatriates. Recently, prominent voices from within China have called for a military intervention in Pakistan. CPEC has increased military presence throughout small villages, sparked an uptick in violent conflict along the route, and further eroded trust in local government institutions.

These cases may of course signal more opportunism and indifference by China to the impact of its engagement on stability in any given country, as opposed to an explicit attempt to undermine democratic governance (as it has done elsewhere in support of pro-China interests). Regardless of the intent, however, the impact is the same. China’s focus on political leverage and profits first and foremost undermines stability – and China likewise can benefit from instability in states with corrupt politicians interested in trading local resources for short-term political gains.

What Can be Done: Bolstering Democratic Resilience to Address Fragility and Foreign Influence

Foreign authoritarian influence has a compounding impact in conflict-affected contexts, further undermining governance structures, institutions, and processes that can mitigate or exacerbate fragility.  Good governance, on the contrary, can not only help countries prevent and manage conflict, but can also help countries address the myriad challenges associated with foreign authoritarian influence. Strong democratic institutions help societies respond positively and productively to threats both domestic and foreign.

Targeted investment in democracy in conflict-affected contexts vulnerable to foreign authoritarian influence offers an important opportunity for utilizing the Global Fragility Strategy in support of US foreign policy initiatives and advancing the Biden Administration’s policy priorities to tackle climate change, prevent authoritarian resurgence, confront corruption, and prevail in strategic competition with China.  An investment in support of democracy and good governance to address any one of these issues will reap dividends across each of these issues – engaging in conflict prevention and stabilization programming will both advance global democracy and advance US goals vis-à-vis China and other authoritarian rivals. Such investments, which must be long-term to account for the compounding impact of foreign authoritarian influence in already fragile environments, should include:

  • Supporting governments, civil society, and citizens to better understand, expose and counter foreign authoritarian influence, particularly in conflict-affected contexts where data and research efforts can be challenging. An understanding of China’s playbook is critical to countering CCP influence operations;
  • Helping independent media to investigate and expose foreign authoritarian influence and how it fuels conflict, whether through training, financial support, or other protections of the civic and information space, to raise public awareness of the impact of such engagement on conflict dynamics and promote transparency and accountability in dealings with foreign actors;  
  • Developing evidenced-based tools to prevent and mitigate foreign authoritarian influence in fragile contexts;
  • Strengthening electoral institutions, political parties, legislative bodies, and judiciaries to uproot elite capture and mitigate malign influence;
  • Leveraging diplomacy to build political will and incentives for government officials to resist foreign malign influences. Such diplomatic efforts can include increased outreach and contact with countries previously neglected by the US – but prioritized by China – and public diplomacy to both expose the CCP’s misleading narrative and advance narratives about what democracy can deliver;  and
  • Coordinating with similarly-minded donors such as the European Union, Japan, and Australia, to implement a unified approach to match the scale of Chinese investment and maximize the impact of any intervention.

Only democracy can help countries navigate the nexus of domestic and foreign threats to their stability. In the era of COVID-19, authoritarian resurgence, and climate crisis, supporting countries to develop these “resilience” fundamentals is a sound – and necessary – investment.

*Isabella Mekker is a Program Associate with IRI’s Center for Global Impact, working on countering foreign authoritarian influence and conflict prevention and stabilization programming.

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