Mar 2005

This article is part IV of a series. Click the following for part III, Ensuring Energy Security. For part I, click here.

Before the dragon can dominate the world, it has to ensure solidarity in its own neighborhood. In this regard, China has learned to speak softly and persuasively. Still a military weakling in comparison to the United States, China’s strategy is to spread largesse, emphasize diplomacy, and highlight the intrusive elements of American might.

In China’s script, the United States is cast as the bullying outsider who does not truly understand Asian ways; China is the peaceful force who will offer a counterweight to America, and ensure the best interests of Asia as a whole (without resorting to bullying or force).

The smaller Asian countries are invited to see China as friendly protector… the gentle giant watching over the neighborhood. Once again, America has given China a window of opportunity here: while the United States gives in to lobbying interests at home and imposes protectionist tariffs on Asian exporters, China has cut restrictions on imports and entered into a free trade zone with locals.

China is also providing strategic aid and assistance to fellow Asian countries, with an eye for maximizing its reputation as a friendly and reliable ally. This includes billions of dollars in economic aid to various Asian countries, with promises of more in future. Beijing’s generosity was especially appreciated after the Asian currency crisis of the late 1990’s: while America and the IMF preached painful austerity and tough discipline, good neighbor China was handing out interest-free loans.

The benefits of a gray line between capitalism and statism work to China’s diplomatic advantage also. Thanks to the proliferation of state owned enterprises (SOEs), China can woo any partner it chooses with lucrative business proposals. To be in China’s good graces is the geopolitical equivalent of having a rich uncle; billions of dollars in economic development and infrastructure investment are available at the drop of a hat, funneled through China’s multinationals at the behest of Beijing.

The investment-backed charm offensive is working: samplings of Asian opinion consistently show China to be perceived as a closer friend than the United States. China also has the advantage of natural cultural ties. There is an Asian way, an Asian understanding, that outsiders simply do not ‘understand’; whether this is true or not, it is a feeling that China is happy to cultivate. As more Chinese travel locally and establish cultural and economic ties on the grass roots level, China’s regional influence will grow further.

America’s longstanding reserve of good will—a sort of psychological reward for being a source of security and stability in Asia—is now threatening to go sour with neglect. Asia currently views the United States as being overly preoccupied with the war on terror and the middle east, ultimately to Asia’s detriment.(The grand language of the Bush doctrine only confirms Asian suspicions that the Americans are off on a wild goose chase.) In regards to North Korea, many South Koreans have a greater fear of President Bush than they do of Kim Jong Il. Logical? Probably not. But the simple fact is that by withdrawing troops, sending mixed signals, and acting inconsistently, the United States has the misfortune of appearing more part of the problem than the solution in regards to North Korea. This, too, ultimately benefits China.

With regional ties established, China can begin the necessary and vital process of economic diversification: transferring demand from one overwhelming customer–the United States—to a more balanced mix of neighborhood locals, various strategic partners, and growing internal consumption. At the moment, there is no alternative to the debt-laden American consumer, but this will change over time. With China’s help, the Asian neighborhood will bootstrap itself to more robust levels of prosperity. Bit by bit, the US credit card will diminish in strategic importance to China’s growth… and the day that China can afford to part ways with America is the day the confrontation countdown begins.

The winners in this scenario? Asian neighbors of strategic interest to China… companies that stand to benefit from a regional rise in prosperity and improving prospects for local trade. Consider industries that will benefit from a consolidation of negotiating power, as Asian countries learn to work more closely together under Beijing’s lead. Outsiders with key technologies, such as Shenghua’s western partner in the coal liquefaction process, nuclear technology developers and oil sands extractors, will also benefit from a renewed focus on Asian energy independence.

Next, Part V: Knowledge & Technology Transfer.