A continuing rise of China

UNTIL the end of May, I was the chairman of a logistics company. At any one time, there are hundreds of thousands of containers floating across the Pacific. Because of the trade war, sometimes we are not sure, when the containers arrive, what the tariff rates would be. For the business world, the China-US trade tension has created enormous confusion and anxiety. And there's a very significant trade and investment diversion. Countries like Vietnam are benefiting hugely. In fact, the whole of South-east Asia is benefiting from the China-US conflict. So do parts of South Asia, like Bangladesh and Sri Lanka. Africa, too, is benefiting.

But, if the two clash, it is not good for the world. And direct conflict may well hasten the arrival of another global financial crisis. When these things happen, they happen. And it begins sometimes from the most unexpected corner (of the world).

But what is much more serious is not the trade conflict. It is the political conflict, because the US now worries whether China poses a significant security threat to itself. The US is used to acting freely after the collapse of the Soviet Union. It is used to operating freely everywhere in the world. It has its aircraft carrier battle groups in the Gulf, in the Baltics, in the Mediterranean, the Black Sea, in the South China Sea, everywhere. In the air, on land, sea surface and underwater. Now, especially in the Western Pacific, they meet the Chinese - underwater, on land, in the air, in outer space. And they are now not so sure if there is a clash in the South China Sea, whether they will be able to prevail over the Chinese.

The Chinese are sending signals: "We don't want a war. But don't be so sure that if there's a war, you will win." If you have followed the Oct 1 70th anniversary parade in Beijing recently, the Chinese very deliberately opened a few cards - very deliberately. And for specific reasons: to signal to the US that, in their strategic thinking, do not be too sure that - over the South China Sea, over Taiwan - that you will win without doing great harm to yourself. And that is a question mark the Chinese want to put in the minds of US strategic thinkers.

The US doesn't like this because it is not used to this. And they're going after companies like Huawei. The reasons they give are not the real reasons.

If you follow Edward Snowden and why he blew the whistle, it was because they were creating an incredible system called PRISM, which enabled them to listen to (German) Chancellor (Angela) Merkel's private conversation on her mobile phone.

As Huawei expands, as the Chinese becomes significant in the 5G world, the ability of the US NSA (National Security Agency) to penetrate international information systems becomes more difficult. They believe that China has been benefiting from US openness. The large numbers of Chinese students who study in the US, the professors who teach in the US, that they have been siphoning knowledge to China. The FBI is now obsessed with this.

And in top universities in the US, they have asked for a listing of ethnic Chinese scientists. In other words, not only PRC passport holders but also Hong Kong Chinese, Taiwanese Chinese, even Singapore Chinese.

Christopher Wray, the director at FBI, in his testimony to Congress, said: "China's efforts in taking intellectual property from the US is not an all-of-government effort, it is all-of-society." All-of-society. So the American response must also be all-of-society. Now, this is very close to ethnic profiling! But the US is in such a frame of mind now.

Recently, when Houston Rockets' manager, in a tweet, supported Hong Kong democracy, there was a furious response in China. And then the manager removed the tweet, apologised - but his apology in Chinese was much more fulsome than his apology in English, and this was noticed by the Chinese. And now the (US) politicians are jumping in and saying: "Why are you apologising? Why are you being intimidated by the Chinese?" So, big hoo-hah.

This is now the phase of history we're entering, where Sino-US conflict will be extended for years to come, maybe even decades to come. And many of us may be caught in between. It is much more important than trade conflict. How will it end?

It can end in war - I hope not. Because war between China and the US will be devastating for the entire world. But it may lead to proxy wars, proxy conflicts, in various parts of the world.

I don't believe that China is expansionist. In Chinese history, the preoccupation of the leaders of China is domestic because it is a huge country. And managing a country of that size is not easy. When they are organised, their productivity is awesome. But when they dissolve into conflict, the conflicts are also awesome. And that's why you have these long cycles in Chinese history. What we're seeing today is a continuing rise of China. It will continue for another 10, 20, 30 years, but after that, it will plateau. China is ageing. This will have a big impact on the economy. But, in the meantime, as China adds two Saudi Arabias to its economy every year, it will benefit its neighbours more and more.

In July this year, McKinsey produced a report with a simple but profound conclusion. It is that the world's exposure to China is growing - because the Chinese economy is growing rapidly - but China's exposure to the rest of the world is reducing. The reason is that the growth of the Chinese economy is increasingly driven by its internal economy, not by its external economy. Because of its size, because of the size of its market, in the years ahead, China will be a more important market than the US for many countries and companies. Even for US companies, China may become a more important market than the US market.

Throughout Chinese history, the Chinese have been averse to sending military forces far away. You know, in the 8th century, at the peak of China's development during the Tang Dynasty, they had an army near the Fergana Valley in Central Asia, when the Abbasids were moving eastwards. They clashed. In the famous battle of Talas, the Abbasids defeated the Tang army, and the Chinese never crossed the Tianshan Mountains again in their history.

China's statecraft is not to use military force lightly but to conduct diplomacy in such a way that there's no need to fight. If you are China's neighbour and they find you difficult, what do they do? All they do is to add a little friction to the trade. Just a little friction. You will feel it because your economy is much smaller than China. China will just reduce friction for the other countries. It has no impact on China, but it has an excruciating impact on you.

In the same way, if China wants to favour a particular country, all it needs to do is to reduce friction for that country. And that country will be delirious! But, again, the cost to China is minimal because all it needs to do is to tighten up a little all around and to feed that country. This has been Chinese statecraft - practised statecraft - for a very long time.

So, in some respects, China's behaviour is predictable. But many countries don't believe this. They say, no, all this is just talk. Well, we'll see. Both sides have to prepare for war - I don't think it will happen because it'll be disastrous. There'll be trials of strength. And this has enormous implications for the rest of us.

In the Middle East, in recent years, the entanglement is with the Western powers. I remember having a conversation with the previous Emir of Qatar, Sheikh Hamad. We were discussing the book by David Fromkin, A Peace to End All Peace. World War I was supposed to be the war to end all wars. It was a phrase by (Field Marshall Archibald) Wavell. But in the end, it became a peace to end all peace. Many of the problems that we see in the region today, whether it is the Turkish problem with the Kurds, Yemen, the tension with Iran, have their roots in the period of Western dominance when the Ottomans were in decline.

But if we cast our eyes 20, 30 years ahead, China will become a factor in the Middle East. And if you add up the economies of South-east Asia and South Asia, that's one more China. So the gravitational pull affecting geo-economics and geopolitics in the (Middle East) region will change. And the countries in the region which anticipate these changes, which prepare for them, and which adjust to them, I think will enjoy a great advantage.

You remember in 2016, January-February, China's President Xi Jinping made a visit to Iran, Saudi Arabia, and Egypt. I followed it closely because I thought it would be quite interesting how China managed its external affairs with countries that don't have good relations with each other.

When Mr Xi arrived in Teheran, he met the president, he met the spiritual leader; hugs and professions of strategic friendship. Then he went to Riyadh, and again Saudi Arabia and China professed their strategic friendship. The same in Cairo. And also with the Arab League.

Three months later, Chinese vice-premier Liu Yandong visited Israel and Palestine. The Israelis said: "Never before has the relationship between Israel and China been at such a peak!" And so too with the Palestinians.

Now, is it because the Chinese are more brilliant? That they can find a way to solve equations which other countries cannot solve? No! It's because they have a very different view of statecraft from Western powers. And their approach is: I have enough problems of my own; I have enough headaches of my own. If we can work together, help one another, let's do that. Let's be friends. Your problems? Well, good luck to you. If I can help you, I'll help you. But they're your problems; they're not mine. There's no attempt to convert you to their system. There's no attempt to have a preference that Arab societies or Iranian society or Muslim society should be organised in one way or another. And this is the import of the Belt and Road.

The Americans are very unhappy about Belt and Road because they think the connections which China is building would reduce their power and influence in those countries. But for China, this is nothing new because when the water tower goes up - by which I am referring to the Chinese economy - it is natural that the water will flow down. It will not flow down in a straight line - sometimes it meets a mountain, sometimes it runs into a canyon, it follows the lay of the land. Countries which welcome the China trade will get more of it. Countries which are opposed to the China trade will find it flowing around them. And after a while, they realise that they are missing out and find their neighbours benefiting more than them. And so they make adjustments.

We see all this in South-east Asia. Because China has complex relations with Vietnam, with Myanmar, with Laos, with Bangladesh, with India, with Pakistan. For countries which oppose the Belt and Road, the Chinese response is: "Well, it's up to you! But in the meantime, we will work with your neighbours." And then gradually they erode your position. THINKCHINA

The full version of the article was first published on ThinkChina.