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May 21, 2008

Exclusive: The Return of ‘Cold War Thinking’

William R. Hawkins

Beijing's response to the release of the U.S. Secretary of Defense's 2008 report to Congress on the "Military Power of the People's Republic of China" took its usual hard line. Chinese Foreign Ministry Spokesman Qin Gang said on March 4th, "We demand the U.S. abandons Cold War thinking and correctly recognizes China and China's development and revises the mistaken ways of the report." After Beijing responded to protests in Tibet with paramilitary violence, provoking an international outcry, the same argument was made by Foreign Minister Yang Jiechi on March 14^th, "we are strongly opposed to such practices as clinging to the Cold War mentality, drawing lines on ideological ground, provoking confrontation, practicing double standards or interfering in China's internal affairs in the name of human rights." The allegation of retrograde "cold war thinking" among foreigners has become standard in Chinese pronouncements. The term is routinely used in regard to U.S. alliances, particularly the one with Japan. There is, however, growing scholarly literature that supports the proposition that it is in Beijing that Cold War thinking is most prevalent.

Eamonn Fingleton, who has been observing Asia from Tokyo for two decades, argues that the American ruling elite does not understand China, or the nature of the Beijing regime. As the title of his new book, "In the Jaws of the Dragon: America's Fate in the Coming Era of Chinese Hegemony" (St. Martin's Press) indicates, Fingleton does not see the United States maintaining its preeminent position in world affairs. Indeed, he believes, "the United States is undergoing probably the fastest power implosion of any major nation in history." While most members of the U.S. establishment continue to believe (hope) commerce will liberalize China, making it a "responsible stakeholder," Fingleton argues what is taking place is the exact opposite. "Globalization" has merely given Beijing the financial and institutional tools to get what it wants from America - and elsewhere, on its own terms.

Beijing's state capitalism has been able to finance rapid economic growth by drawing on three sources; a high domestic savings rate (orchestrated by government policy), the inflow of foreign investment (the largest share of which has come from overseas Chinese entrepreneurs being lured back home), and large trade surpluses ($256 billion with the U.S. last year). In contrast, the United States has a domestic savings rate hovering near zero, and runs huge trade deficits. America attracts foreign investment, but it is used to fund consumption, or to buy up existing firms, not to create new business ventures or capacity. China's state-run banks provide subsidized capital for industrial expansion in an economy growing at double-digit rates. American banks are reeling from the subprime mortgage fiasco in an economy sliding towards a recession.

Before the Federal Reserve announced it would serve as the lender of last resort to Wall Street, many major American financial institutions, including Morgan Stanley, Bear Stearns and Citigroup, had been seeking Chinese capital to save themselves. As Fingleton writes, "the salience of savings and investment in building a nation's prosperity in more fully understood in contemporary Beijing than almost anywhere else."

Fingleton's most controversial warning is that China's rise will eventually draw Japan into its orbit, and out of its alliance with the United States. The Japanese "with less than 2 percent of the world's population, have always felt the need to ally with the strongest power of the day, or at least with the ostensible rising power," writes Fingleton. Washington hopes that Beijing's rise will compel Tokyo and other Asian capitals to draw closer to "hedge" against Chinese ambitions. But this classical balance of power model is not as easy to manage as many think.

In the Winter 2006 issue of "The Chinese Journal of International Politics," Wei Zongyou, a professor at the Shanghai International Studies University of Foreign Studies, described classic Chinese strategy as one of "divide and conquer." Once Beijing has sufficient power, it will seek to overturn the current world order and become the new arbitrator of global politics. In standard "realist" thinking, the status quo powers should band together to counter the rising power, but Wei doubts the universal validity of this theory. "There are many instances where states facing the threat of a rising hegemon or global empire do not adopt a balancing strategy. In many cases they avoid responsibility, do not get involved in the conflict, or bandwagon with the potential hegemon," he writes.

Wei uses the Warring States period of Chinese history for his case study of how the kingdom of Qin managed to unify China, even though it started from a weak and isolated position. He recounts how, "Qin followed this path by manipulating the inherent weaknesses of the hezong [containment] policy, countering with its own strategy of lianheng [divide and conquer] and ultimately winning." Beijing is trying to apply this same strategy on a world scale, to prevent concerted action against its rise while it is still in a fragile stage of development.

Veteran foreign affairs analyst Parag Khanna also sees China mounting a global challenge to both America and Europe in his new book "The Second World: Empires and Influence in the New Global Order" (Random House). The battleground is the "second world....the swing states that will determine which of the superpowers has the upper hand for the next generation of geopolitics.....The key second-world countries in Eastern Europe, Central Asia, South America, the Middle East, and Southeast Asia are more than just ‘emerging markets.'"

Like Fingleton, Khanna does not see the American model of "free market democratic capitalism" as the model everyone else will automatically adopt. "The second world's first priority is not to become America but to succeed by any means necessary," he writes, "there is a marketplace of models of success for the second world to emulate, not least the Chinese model of economic growth without political liberalization." This presents a clash of ideology similar to the Cold War that could imperil American liberty.

Beijing may still be behind the United States in military power, but it is gaining diplomatic and political ground by putting its economic expansion to use for state purposes. Khanna presents a litany of aggressive actions, "China is cutting massive resource and investment deals. Across the globe, it is deploying tens of thousands of its own engineers, aid workers, dam-builders and covert military personnel. In Africa, China is not only securing energy supplies; it is also making major strategic investments in the financial sector. ...China is exporting weapons at a rate reminiscent of the Soviet Union during the cold war, pinning America down while filling whatever power vacuums it can find. Every country in the world currently considered a rogue state by the U.S. now enjoys a diplomatic, economic or strategic lifeline from China, Iran being the most prominent example."

The irony in all this is that China's rise has been financed by the United States. It is the U.S. trade deficit that has given Beijing the largest hard currency reserves in the world ($1.6 trillion and growing). American corporations have been allowed to build factories in, and transfer technology to, China. And it has been the open U.S. market that has made Chinese investment profitable in an export-led growth strategy. As Paul Kennedy argued in "The Rise and Fall of the Great Powers: Economic Change and Military Conflict 1500-2000," "how a Great Power's position steadily alters in peacetime is as important to this study as how it fights in wartime." And those peacetime changes are rooted in competing economic performance.

Beijing is astounded that Washington has created such a permissive environment for China's rise. Its leaders are thus quick to condemn anything that might signal a return to traditional geopolitical thinking outside China. But as Fingleton, Wei, and Khanna have shown, the Cold War is on. American leaders must consider how best to contain further Chinese expansion and preserve a favorable balance of power in the world for U.S. security and values.

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