Monday, April 04, 2005

The China Syndrome, Part I

The good sirs at the Daily Demarche have graciously asked TIA to engage in a little cross-blog forum on the topic of China, and how that country's nascent emergence as a world player will affect, modify, and, to some extent, determine American foreign policy and the pursuit of our national interest in the decades ahead. Though this topic is far too daunting to attempt to address in a single blog post (even by my own verbose standards), I will try, in a two-part series, to work in the key elements of the story as seen through the lens of some strategic overlap between the US and China that loom on the near horizon.

Unsettling Bedfellows

It is not mere coincidence or happenstance that the story of future US/China relations should begin with the following mini-bombshell dropped by the investment firm Goldman Sachs regarding the rising price of oil. Rather than predict a slow decline from the current record highs which have been hovering between $50-60 a barrel for the past several months, Goldman Sachs announced that, according to their analysis, the price of oil (and with it gasoline and other petrol-based products), will continue to rise at a brisk pace for the foreseeable future - eventually reaching a staggering figure.

Oil prices have entered the early stages of a multi-year period of trading in which economic growth and rising demand could push oil to $105 per barrel, enough to meaningfully reduce energy consumption, Goldman Sachs analysts said Thursday [March 31]. [emphasis added]
The reasoning behind Goldman's bearish oil prognostication can be conveyed in basic economic terms: supply and demand. The supply of oil both in terms of the existing oil deposits worldwide, and, at least in the short term more importantly, the oil refinery capacity, is reaching a plateau or peak while the demand has been increasing exponentially and will continue to do so. At the fore of this spike in demand are the two developing powerhouses of China and India - which together comprise approximately 37% of the world's population.

In fact, China's consumption of oil has surpassed Japan's, making them the second biggest consumer after the United States - though the US is in China's sights as well, and they will likely be passing us along the track some time around 2020. India is not far behind either, recently moving into fourth place behind Russia. Other developing nations such as Brazil and Indonesia can be seen in the rear view mirror, and will likely be busy feeding at the same ever shrinking trough soon enough. We can see, therefore, why the folks at Goldman predict that such a prolonged and self-perpetuating surge in demand will buoy oil prices to such heights that consumption might actually be affected.

I believe that the mutually competitive quest for cheap, reliable oil supplies represents one of the most serious points of potential conflict between the US and China over the next century. Remember, many wars and skirmishes have been fought over this most vital of industrial economic lubricants, and exorbitant amounts of blood and treasure have been expended in attempts to maintain influence, control, and access to the richest deposits of the resource. Because of the strategic importance, which is growing not lessening as a result of the crunch on the market, some amount of tension and counterbalance between the US and China is inevitable.

In fact, at this point in time China has been openly courting oil producing nations in various corners of the globe. As this New York Times article (via LAT), and this Matthew Yeomans article, appearing in the April edition of The Atlantic (print only), point out, however, this has often meant China embracing and supporting nations that the US considers to be dangerous, unstable, and operating in contravention of its goals. It's an open secret that if you poke around the most recent human rights catastrophe occurring in Darfur, Sudan, you will find China willing to aid and assist the ruling regime and thwarting humanitarian efforts to curtail the slaughter, all in the interest and pursuit of oil. From the Times:

To meet the demand, India's government, like China's, is looking to tap countries the Bush administration and the European Union have tried to isolate....

Their newfound commercial confidants live in pariah states like Sudan and Myanmar, one sign that the political dynamics of the world oil market pose a difficult challenge for the Bush administration.
China is sounding rather capitalistic about its role in supporting regimes such as Sudan, Iran, and other similarly positioned despots.

China's deputy foreign minister, Zhou Wenzhong, took similar positions to India's in an interview in the summer of 2004. "Business is business," he said then. "We try to separate politics from business. Secondly, I think the internal situation in the Sudan is an internal affair, and we are not in a position to impose upon them."
Matthew Yeomans discusses the combination of military and economic enticements currently being dangled in front of some of these regimes:

Although the U.S. strategy is based not on physically controlling oil fields but, rather, on maintaining a stable price for crude oil on the global market, oil-producing regions are thick with U.S. military bases - in Nigeria, Kazakhstan, and several other countries, U.S. troops are working with local militaries to protect oil infrastructure. Military aid is also used to woo tinpot oil regimes, opening the door for U.S. companies such as ExxonMobil and ChevronTexaco to invest in local fields.

Late to the game and largely unable to compete with the U.S. militarily, China has sought to meet its energy needs by making use of its new found economic clout - most notably by buying drilling and refining rights throughout the world. Its state-owned oil companies have spent hundreds of billions of dollars on such rights, often at high premiums; since 1993 China has invested in more than fifty oil and gas projects in some thirty nations. In particular, China has focused on acquisitions and partnerships in pariah nations - Sudan, Iran - where the United States has refused to tread. In Sudan alone China has reportedly spent $15 billion developing oil fields.

Yet China, too, has begun to use its military to protect its investments and - indirectly - to open new oil markets. Reportedly, troops disguised as oil workers patrol Chinese oil infrastructure in Sudan. And in recent years China has consolidated its military presence in oil and gas-rich parts of the South China Sea, sovereignty over which is disputed.
The fact that there is a mixture of economic and military aid flowing to some of the world's most unstable regions should cause concern for all involved. China's role in the matter should be of the utmost interest to Washington if for no other reason than the prospect that China has sought to exploit US hostilities with certain states to pry their way into these markets. As a result, China is arming and funding states that we consider hostile and threatening.

With Saudi Arabia and Iraq clearly within the U.S. sphere of influence, China has been steadily courting Tehran and aims to become the biggest buyer of Iranian oil. In return for oil, China has supplied weapons - most notably anti-ship missiles, which Iran has aimed at the Strait of Hormuz, the busiest oil-export route in the world - and technology and materials that can be used for the manufacture of nuclear weapons.
Thus, China's increasing appetite for oil has contributed to undermining the Bush administration's foreign policy efforts toward interdiction in Sudan. In addition, the Bush administration, and it's European allies, have been hindered in their attempts to isolate and bring economic and military pressure on Iran to abandon it's ambitions for nuclear weapons. China's boldness has even led them into the Western Hemisphere, causing the Monroe Doctrine to roll over in its grave.

China has been busy cutting deals in America's back yard. In return for cooperation on oil projects, China has lent support for Brazil's bid for a UN Security Council seat. President Hugo Chavez, of Venezuela, eager to reduce dependence on the United States, has invited Chinese oil companies to explore Venezuela's oil fields and build refineries, and has proposed new pipelines to the Pacific that would make delivery to Asia cheaper.
Straits Too Narrow

The second potential spark in the powderkeg of US/Chinese relations can be found in the island of Taiwan and its incessant push and pull with mainland China over independence. The quick and dirty analysis is as follows: The majority of Taiwan's residents want to be a sovereign, independent nation. China considers Taiwan a renegade province and part of the mainland and has threatened to invade should Taiwan push for full independence. Likewise, China maintains the policy that Taiwan will eventually be "re-incorporated" into "one China." The US for its part has vowed to defend Taiwan should China invade, but has also been nudging Taiwan away from overly provocative statements of independence.

Recent trends in this trilateral balancing act have involved some bold secessionist rhetoric emanating from Taiwan's leadership, as well as the stern "anti-secession" law passed by China which reasserts prior threats of invasion. In some ways China miscalculated the political ramifications from this bellicose act, because the European Union backtracked on its move to lift arms embargos on China as a result of such a public message of aggression (and the pressure applied by the Bush administration also played a role in Europe's well advised reversal). Still, tensions are high, and the situation remains a locus of anxiety - as evidenced by the many valuable citations and quotes amassed by praktike at LAT. This is from a Frontline interview (via praktike) with David Lampton, director of China studies at the Johns Hopkins School of Advanced International Studies:

... prior to the World Trade Center bombing and its aftermath, if you asked where in the world could two major nuclear powers come into conflict, I would have said that the only probable place -- and it is probably still the only probable place -- where two big nuclear powers could come into conflict would be the Taiwan Strait.

In effect, the prevention of Taiwan going independent is absolutely critical to the legitimacy of the Chinese communist regime. Chinese leaders believe that, if they were to let Taiwan go independent and not respond, they would probably be overthrown by their own nationalistic people. Therefore, I think they would be willing to engage in what we might call "self-defeating military adventures" in order to prevent that result, even if they knew they were going to lose.

So in my view, the key problem for the United States is how to deter [China] from using force against Taiwan. We have to be very clear about that, because I think the United States would intervene if force were used under most circumstances I can imagine. But on the other hand, we have to deter Taiwan from engaging in such risky behavior that they precipitate an attack that will be destabilizing to Asia, destroy the Taiwan economy and drag the United States into a regional conflict.
Although the threat is more than real, I do not believe that a full blown war is imminent, given the enormous stakes involved for all three parties. Nevertheless, the diplomatic maneuvering needed to peacefully navigate the Taiwan Strait will require the full attention and skill of the Bush administration, and likely subsequent administrations. Any serious miscalculation or wrong step could explode in our faces, quite literally. Further, China could pursue other avenues short of war that could severely impact our well being and security.

In Part II, I will look at how the Bush administration is confronting the issues of oil competition with China and the prolonged cold-Taiwan standoff, and whether or not we are approaching these challenges with the full array of options available and from a position of optimal strength.

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