From the October 2009 Far Eastern Economic Review
October 1, 2009
by Charles Horner
China's rise in the world in the last 30 years owes a lot to what it has learned from the West but, when it comes to "grand strategy," it has a home-grown tradition older and richer than any other. Its mere existence has become a weapon. Chinese strategists are intimidating because they are presumed to have a deep understanding of human nature, politics and diplomacy and how these enhance great national endeavors.
After the founding of the People's Republic of China in 1949, foreigners began their own intensive study of this tradition, and they have enhanced its aura. Sunzi is now an iconic figure in the West and East, and Western analysts and historians routinely explicate the treatises of other great masters and the empire-building achievements of the Mongols in the 13th century and the Manchus in the 18th. How will the old tradition and the growing fund of knowledge about it affect what Chinese-and others-think about China's strategic position today?
In both East and West, a certain pride of place has been granted to Mao Zedong (1893-1976). His writings on military affairs are an important part of his large oeuvre. What Mao thought he understood best was the reversal of fortunes-yin and yang, rise and fall. With his country invaded by Imperial Japan and his own base of operations besieged on all sides, what made him think he would win in the end?
Mao understood human nature; more importantly, he understood the vulnerability of Japan, a rising power susceptible to the hubris of empire. The Japanese, he believed, would not know when to stop. Meeting weak resistance to their initial onslaught, they would continue to charge into China. With Japan's armies vastly overextended and their flanks unprotected, China's counteroffensive could begin-slowly at first, but accelerating over time. Likewise, as Soviet-Chinese antagonism grew in the 1960s and '70s, Mao argued that any Soviet move into China would play out the same way.
Soon after the P.R.C. was founded, Mao famously said that the Soviets' present was China's future. Now in the aftermath of the Soviet demise, however, that comment haunts his successors. While the West has paid almost no attention to the origins of that spectacular and unanticipated collapse, in the P.R.C., institutes study it and journals publish articles about it. For Chinese strategists and decision-makers, the Soviet debacle has become a cautionary tale, but what is the moral of the story? China's students of the Soviet demise pay close attention to many domestic factors, but Soviet strategy and foreign policy also figure prominently in the discussion.
The West has forgotten the immensity of the Soviet empire and the scale of its ambitions. The Soviet Union sought the dissolution of NATO and the establishment of itself as the not-so-benign hegemon over all of Europe. It undertook a vast geopolitical enterprise to surround and gain control of the oilfields of the Middle East, hoping to acquire decisive leverage over the world's energy supply. It propounded sweeping changes for the existing international orders of commerce and culture and offered itself to the world as the best kind of domestic political arrangement. And then it was gone.
But while it existed, some in the West sought to calculate the costs of these large aspirations in order to determine whether the Soviet Union could sustain them and whether, by employing a range of tactics, the West could raise those costs to unsustainable levels. In two studies that would later inform the Reagan administration's strategy toward the Soviet Union, Charles Wolf, Jr. and his colleagues at the RAND Corporation looked at the costs accompanying Soviet imperial aggrandizement between l971 and 1983. They were already large, and the Reagan administration would succeed in making them even larger. Burdened with the additional costs of maintaining a domestic police state and of subsidizing a chronically inefficient economy, the Soviet Union could no longer remain a growing concern. Thus did the Evil Empire come to grief.
Attentive Chinese know this story well, and in its movement out into the world since 1991 the P.R.C. has been far more economical than its defunct "older brother." It does not maintain large armies of occupation in a group of satellite states, nor does it operate a collection of military and naval bases around the world. It invests in its military forces, but it invests substantially more in its economy, and has made it relatively easy for foreign investors to do so as well. It does not supply and finance armed insurgencies abroad, nor does it subsidize bankrupt states because they campaign for wholesale changes in the existing world order.
At the same time, the police state at home does not come cheap. It must control more than a million square miles of territory inherited from a multiethnic Manchu empire and inhabited by many millions who have yet to be convinced that they are somehow Chinese and should be ruled by Beijing. This has become the major challenge for the People's Liberation Army; in its war games, the PLA practices more for its mission of keeping the peace at home than it does for repelling invaders from abroad.
For expansion of its influence overseas, the P.R.C.'s weapon of choice for the moment is its huge hoard of money. In the P.R.C., foreign-currency transactions above a low threshold must be approved by higher authority in Beijing, and this suggests that the national government wishes to apply intelligent direction to such investments because it thinks of them as somehow "strategic." The P.R.C. now has about $2 trillion available for this purpose, though much of the war chest is already spoken for.
This is a formidable stash and the ways that the P.R.C. has spent it are at least suggestive and may even be instructive. Right now, China's overseas investments are a mere 5% of the world's total foreign investments. No matter the P.R.C.'s relative position, the world pays disproportionate attention because, unlike substantially larger overseas investors such as Switzerland, the Netherlands, or even Japan, the P.R.C. is presumed to have more in mind than merely making money. Other countries are convinced that the globalization of Chinese capitalism is consciously connected to a grand strategy and that it will somehow work out as China would like it to work out.
In the meantime, the portfolio is being built, first, with forays into advanced industrial countries. Certainly there is an element of traditional capital flight as a hedge-whether by well-connected individuals or the state itself-against future economic problems at home. Other objectives may include dependable returns, some influence on the hosts' domestic politics and greater access to otherwise unavailable advanced technology.
More conspicuous have been the deployments aimed at energy and natural resources. The paradigmatic transactions are some well-known investments in Africa-oil-related projects in Angola and Sudan-and the recent offer of $17 billion for the Argentinean unit of a Spanish oil company, with the prospect that more will follow into Venezuela and Brazil. Some of these initiatives have already turned contentious, especially in Australia, where on-again, off-again multibillion dollar deals for energy and iron ore are beginning to strain P.R.C.-Australia relations.
"Access," "security" and "reliability" comprise the standard vocabulary for analyzing the China's enthusiasm for actually spending, or at least vowing to spend, hundreds of billions of dollars on such ventures overseas. But is the P.R.C. made more secure by any of these gambits? One could just as easily conclude that China is making itself more insecure by increasing its dependence on the global maritime hegemony of the United States. If so, why should wary China watchers not be pleased whenever the P.R.C. puts money into distant places such as Iraq, Iran or Saudi Arabia? If the West worries about its own reliance on such places, why is China following in its footsteps?
The transport of resources vital to China's cities and factories is pathetically easy to disrupt, and not only by mighty fleets either. Pirates in inflatable boats can do it. Host governments-not just functioning ones like the Australian government but also near-to-nonfunctioning ones like many in Africa-can do it. Right now, the P.R.C. lacks the expeditionary or interventional capability to do much about it. Someday, a government of a developing country will invoke its own national interest and override the P.R.C.'s "contractual rights." This first expropriation of a large P.R.C. holding overseas will occasion much commentary.
Moreover, for the privilege of entering into such putative hostage-taking relationships, the P.R.C. will end up overpaying. For its imports, if it relies on resources that it actually owns overseas, it is a captive purchaser. If, at any given moment, market prices are less than what it costs China to purchase resources from itself, it is paying more than it has to. But, if market prices are higher, it will forego profits it might have earned by selling the resource to other customers.
In the meantime, the P.R.C.'s avidity for purchasing such privileged access will prove profitable over the longer run only if energy and commodity prices rise on a sustained basis, but they have yet to rise significantly and never quite seem to do so. Some bankrupt industrial companies-General Motors comes to mind-would have been far better off resisting the siren song of vertical integration and, instead, purchasing their parts from manufacturers competing to supply them, rather than from manufacturers that the combines themselves owned. China, a huge importer of petroleum and raw materials, is in a comparable position, albeit a comparably counterintuitive one.
A Chinese strategist ought to feel right at home sorting through such seeming incongruities. His tradition teaches him that it is vital to discern the difference between the reality of power and the mere appearance of it, even as he must always strive to convey the appearance of the strength he knows he does not yet have. In this, he can be aided by opponents who construe the situation in an entirely opposite way. Right now, it should be obvious that though the P.R.C. has indeed become a global concern, its reach far exceeds its grasp.
It must still rely for its bedrock economic security if not on the kindness of strangers, then at least on a familiar Pentagon that now has as one of its core missions keeping the world safe for Chinese capitalism. That could change of course, but so too could China's bankrolling of America's profligacy which, right now, is much in accord with the P.R.C.'s national-security interests.
A situation like this cannot but produce strategic cognitive dissonance. For Lenin and his political heirs in Beijing, the question was always who, whom?-that is, who can do what to whom? Today, the strategic analysts among us might pose the question this way: Who has what leverage? Who is acquiring it and who is losing it? Economists might ask: Who is paying how much to buy what? It is possible that China, determined to become a powerful world force by avoiding the fatal mistakes of the Soviet Union, is nonetheless making itself weaker and more vulnerable than it needs to be.
Charles Horner is a Senior Fellow at Hudson Institute and author of Rising China and Its Postmodern Fate: Memories of Empire in a New Global Context.
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