Posted on 09/09/2001 8:35:04 AM PDT by Typhoon
ANOTHER CHINA
By Francesco Sisci
PART 3: THE INTERNATIONAL SCENE (Cont)
CHAPTER 11: Peace or war?
11.1 Peace without peace
World War II had barely ended when humanity plunged into another fierce confrontation, this time between those for and those against communism. The camps, led by the United States and the Soviet Union, convinced the world that it was on the verge of a nuclear holocaust. Entire generations grew up under this shadow. As historian Eric Hobsbawm points out, until the 1970s the Cold War was actually a cold peace, with both Americans and Russians careful not to escalate tension to the point of actual use of nuclear weapons. The peculiarity of the Cold War was that, speaking objectively, no imminent danger of war existed.
On the American side, in the mid-1940s at least, there was a deep fear of a great slump and a belief that the future of liberal democracy was far from assured. The challenge just overcome from the right, ending with victory over fascist governments, gave way to fears of an even greater challenge from the left. Many expected a deep economic crisis, worse perhaps than that of 1929 which had brought the US to its knees and helped the rise to power of the Nazis in Germany. Certainly, the two contending political systems did little business with each other, and developed their own largely self-sufficient economic structures with little or no need to come to terms with each other. The two economies were so separate that when communism collapsed in Eastern Europe, pulverizing an economy sustaining about 400 million people, the rest of the world barely noticed.
While the dally routines of people in the US or the USSR were hardly affected by the Cold War, a low intensity war was waged in many Europeans countries, and many other conflicts erupted in Third World countries as a direct consequence of the US-USSR confrontation. No calculation has yet been made of the number of people killed in the Cold War. But taking into account all those killed in the many guerrilla wars across the globe, as well as deaths resulting from privation in the poorer socialist countries, the toll would be tens of millions dead as a direct or indirect consequence of the fight against communism. In the end, the defeat of communism could be seen to have been much bloodier than the defeat of fascism. War was waged after all, though in terms entirely different from those of previous conflicts.
If we start thinking in these terms, we can more easily see that wars continue, albeit in a different guise. In order to cope with the horrible monster of war, we must look squarely at it and call things by their names.
In July 1997, powerful financial forces attacked the peg between the Thai baht and the US dollar. The Thai economy collapsed, drawing with it the rest of Southeast Asia and ultimately causing a deep crisis in Japan, the second largest economy in the world. Some nine months later - the right time to conceive and give birth to a baby - India rekindled fears of nuclear proliferation by conducting five atomic tests, and Pakistan retaliated by doing likewise.
China was mentioned as being a powerful threat to India, but Beijing kept a low profile and tried also to moderate Pakistan's response. Beijing, in the meantime, also had kept the renminbi and the Hong Kong dollar stable, thus avoiding a new round of competitive devaluations in the region. While Beijing saw its exports decreasing because of the high renminbi in the first months of 1998, the Japanese yen slid against the dollar, boosting Japanese exports at the expense of Chinese and other Asian exports. That June, the Chinese demanded that Washington put pressure on Tokyo to stop the yen's slide, and Washington did just that, recreating for the first time since World War II the powerful link between Beijing and Washington that 50 years before had brought Tokyo to its knees.
Some nine months after that, the United States, together with Japan, announced plans for the deployment of a theater missile defense (TMD) system that would protect US forces and their allies from attack by an unstable North Korea, and also protect Taiwan from Chinese attack. China felt it was the real target of TMD.
The neat sequence of these events is such that they seem to be related. They indicate an important new kind of confrontation that I'd like to call "soft war".
11.2 Money wars
The five Indians nuclear tests appear to be a direct and legitimate effect of the financial crisis that shocked Asia and the world. Such a radical and seemingly extravagant statement is not prompted the geographical proximity of these two events, but by trends of thought common in Asia which, unlike dominant trends in the West, view politics and its priorities as "stronger" than merely economic, market-oriented needs.
Economists are still confused about what really happened in Asia in 1997, and it will probably be years before they agree on the cause of the financial crisis. Nobody foresaw it, and the worst that was expected was a crisis in the real estate sector in Thailand. In fact, factors which were earlier used to explain the economic health of Southeast Asia are now regarded as indications of the ineffectiveness of the economic model. Consider, for example, the tight bonds between governments and enterprises, the high level of savings and low consumption, the export-oriented economies. Other characteristics of the boom years - open economies and short-term loans - were pointed to as conditions for rapid growth. China and India were encouraged by Western economists to follow the examples of Thailand, Malaysia and Indonesia and liberalize the exchange of their national currencies. Today, short-term loans - hardly avoidable in opening national markets - are blamed as a major factor provoking the crisis.
The problem, then, seems not an economic one but instead a philosophical or an ideological one. But regardless of one's view, many points remain unclear. Why did economies like those of Singapore and Taiwan, healthy by any yardstick, come under attack, forcing them to depreciate their currencies? Present explanations rely on irrational phenomena, for example, ignorant brokers putting Taiwan, Korea and Singapore on the same level as Thailand. There are still suspicions that a campaign with political undertones was conceived with the aim of striking the whole region.
Even if these suspicions are completely groundless, it is still true that for countries like Indonesia the crisis was the end of an illusion and, generally speaking, of a development model. The rapid economic growth was meant to be the path followed by these countries in order to emerge. But it is clear that following the depreciation of Indonesian rupiah, whose exchange rate rose from 2000/US$ to 18000/US$, the achievements of a generation were swept away, and the time needed for recovery is still unknown.
Japan is also still in an extremely serious position. Unsuccessful in economic and technological competition with the US at the beginning of the 1990s, the country is now experiencing a time of great difficulty, requiring a profound restructuring of its society and of its modes of production and consumption. As we write, it is not known when and how its political system will be able to recover or when and how its once powerful banks will get rid of the present burden of bad debts. The Japanese situation is the most delicate, especially because of the economic bonds that tie the country to the US. Tokyo is the major US creditor and the US is, in absolute terms, the most indebted country in the world, partly due to the fact that it has to bear a great amount of imports from Japan.
Without entering this political and financial labyrinth, Japanese intellectuals timidly suggest that in the 1980s things would have taken a different turn if Japan had had the Bomb - that is, if Japan's national defense had been independent. Their argument is certainly a simplification because if the US hadn't been directly responsible for Japan's security, Japan probably would not have been able to export so much to the US, nor would it have been granted all the technology transfers of the past decades. But the lesson can be drawn by Asian countries, which saw in economic success the fastest and most efficient way to gain an important international role and redeem their colonial past, that economic success is neither durable nor sufficient to guarantee a geopolitical role.
On the other hand there is India, which, after a decade of economic reform and the potential for rapid economic growth, chose to explode five atomic devices, forcefully promoting its candidacy as a nuclear power. Is this a quicker way up the geopolitical ladder than achieving economic well-being after decades of hardship and sacrifices? As in Indonesia, years of economic development can be swept away by a short financial crisis. So it seems that if one wishes to have a seat at the table of the grandees, a proven nuclear arsenal is, at least for now, what is needed.
Russia provides confirmation of this. The USSR lost the Cold War because its economy (and its ideology) was crushed in the struggle with the US. But it still retains its seat in the Group of Eight, not because of its economic power, which remains very feeble, but because of its nuclear arsenal. This demonstrates that a country's economy is obviously very important, but the higher political and social potential imparted by a strong economy is less constant than that imparted by military might. Nuclear armament provides lower but more constant potential, while an economic crisis in fact provokes political and social turmoil.
The Asian Crisis and India's nuclear tests somehow decree the end of so many geo-economic trifles about a new centrality of geopolitics. This transformation, both ideological and geostrategic, doesn't have any metaphysical effect. It has concrete, very meaningful consequences for China, which had been orienting its entire security system toward the East, that is, toward solving the Taiwan reunion issue and facing the potential threat constituted by the US and Japan.
11.3 India and China, face to face
China had completely underestimated the potential Indian threat, viewing the country merely as a ticklish question due to Delhi's backing for the separatist (or autonomist) cause of the Dalai Lama. Nobody in Beijing really believed the Indian government was committed to stirring up Tibet. It was indirectly feared that the growth of Indian power could lead to hegemonic endeavor in South Asia, where China has one of its closest allies, Pakistan. Pakistan itself is crucial for Chinese interests in Central Asia, which has become involved in arms smuggling and training the separatist Uighurs of China's Xinjiang province. Another hypothetical, though weak, threat posed by India was expansion toward Myanmar, which has good relations with China.
In 1998, the statements by India's then Minister of Defense, George Fernandes, emphasizing that China was a threat to India, changed the strategic plans of the Chinese.
In the short run, China could benefit from India's nuclear tests. Beijing, already appreciated in Asia and the world as a pillar of financial stability for its choice to not devalue its currency despite the Asian Crisis, was able to improve its standing as a political stabilizer with its cool reaction to India's nuclear blasts and Fernandes's provocative statements. In this respect, China, more than any other country, influenced Pakistan's reaction to the tests and helped avert an arms race.
In such a situation, Beijing took advantage of then US President Bill Clinton's visit, which was important for both internal and international prestige and confirmed China's central role in Asia. With Japan struggling through hard times, Indonesia and its 200 million people in a deep crisis, and India adopting militarist airs and modifying the existing balance of power, China stood solid as a rock, helping prevent the entire region descending into chaos.
Asia is of fundamental importance for the world, not only because it contains the two most populous countries, both possessing nuclear arms and driven by global ambitions, but also because of Japan, which remains the second biggest economy in the world. At the same time, explosive geostrategic conflicts have ceased in Europe, Africa and America, while Asia, from the Middle East to Indonesia, is in ferment: this again underlines that Chinese stability is crucial for the entire world, not merely for the region itself.
A last point that can be made is that the Indian nuclear tests constituted a direct benefit for China. As a result of sanctions following its nuclear tests, India was denied aid funds. China can thus face a possible cold war with India in a very privileged economic position. Its economy is in better condition and it is destined to perform better than India's for a considerable time. As shown by the US-USSR confrontation, in a cold war the richer is most likely to be the winner. India is therefore out of the picture for now.
In the long run, things are more complicated for China. A hypothetical but substantial Indian threat urges China to consider its southern flank in addition to the persistently worrying eastern flank. This could require China to change its rearmament plans, which before the Indian tests were limited almost exclusively to the naval and aerospace sectors. After the Indian tests, even China's old land armies have to be transformed in view of a possible nuclear clash (exchange of tactical missiles?), or in view of a conventional land war involving India, the only country in the world with a population comparable to that of China.
These are fundamental questions that distract China from what has been its primary task in the past 20 years, economic construction. Its security worres can be allayed only by the constructive support of the US. Sino-US trust was deeply undermined in May 1998, with the NATO bombing of the Chinese embassy in Belgrade. The payment of large and unprecedented American compensation, and agreement on China's accession to the WTO, has partially patched up the rift. In the meantime, China realizes that being too deeply involved in a confrontation with India diverts it from its main aim, that of becoming a global economic power. To become engrossed in an arm race with India would imply a far more important defeat, namely in the economic catch-up race with the US.
Here, geostrategic calculation takes on political meaning. After the Indian nuclear tests, many articles were published in the American press confirming US hostility toward China because of its political system. And China's political system constitutes exactly the country's greatest weakness in a geostrategic confrontation, because, despite China's demonstrations of its responsibility, the risk remains of political isolation. At this point, our reasoning reaches into Chinese internal affairs and leads us back to reflect on how much influence can be exerted on a confrontation through politics and propaganda.
In all this, one thing is certainly clear for bankers and financiers all over the world: build up a security net and, if you leave your own country, accurately study geopolitics.
11.4 The Asian tinderbox
The Asian financial crisis created social instability and riots in which hundreds if not thousands died in Indonesia alone. On a larger scale, one could look at how birth rates and average life spans were affected by worsened economic conditions. In the end, the human toll could prove to be as high as that of a war.
All of this happened while the Cold War had not truly ended for Asia. Here, apart from Cuba, were the world's few remaining communist countries - China, North Korea, Vietnam and Laos. And there were also two nations - China and Korea - split for ideological reasons. In this atmosphere, the US began considering deployment of a new missile defense system aimed at much of this ideological divide. However, the ideological divide seems now to be less deep than it was 20 years ago when the US mooted its original "Star Wars" project, and this fact should not be forgotten. In the 1980s, there was a close-knit Western front against the USSR and its subject states. Today, the communist regimes in Asia are not united among themselves, and there is no unity among Asian countries against the communist regimes. Two of the communist countries (China and Vietnam) have market economies which are striving to improve by implementing all-encompassing economic reforms and Vietnam is, ambiguously and mysteriously, no longer considered a threat like China and North Korea.
The Asian Crisis was overcome in part due to China's determination not to devalue its currency. But this came at the cost of suppressing internal consumption and thus checking economic development. Chinese exports, though supported by reductions in salaries and tax cuts, still plunged and imports surged. Both facts also contributed to the Asian recovery, which in turn, from the second half of 1999, helped a better Chinese performance. But a new economic crisis is still possible in the region, and it is uncertain whether this time China could afford to keep the renminbi stable.
So, deployment of a US missile defense shield is strategically very different from the "Star Wars" of the 80s. Then, the missiles were targeted against declared enemies which were totally out of the economic ambit of the West. Now, although in theory protecting against attack from Pyongyang, the US defense shield is turned against China.
It is important also to clarify some of the deeper motivations at stake between the US and China. This takes us back to the 1930s when the the United States was assessing what kind of communists were the Chinese communists. General Joseph Stilwell (who commanded Allied forces in China, Burma, and India during World War II) held the view that they were not so communist after all and that the US had better back them against the Nationalist forces of the Kuomintang (KMT). Curiously, the opposite view was held by the Soviet communists, whose ambassador was the last to leave Nanjing after the advance of Mao's forces in 1949. Thus, while some Americans were backing the Chinese communists, the Soviets were backing the KMT. And the Chinese Communist Party appeared at the time quite strikingly pro-US and in favor of Western-style democracy.
One wonders now what the ultimate US goal was in opposing the communists. If the purpose was to stop the advance of communism in the world by backing the staunchest anti-communist forces, it failed miserably in China, because the Communist Party came to rule. If, however, the purpose was to stop China's growth, this was brilliantly achieved. At the end of World War II, China's GDP was about equivalent to Japan's. In 1976, after 27 years of Mao's rule, China's GDP was 1/9 that of Japan.
But was it communist rule alone that made this happen? Or rather, was it Mao's rule under the Soviets' wing and deprived of American support, that was responsible? In other words, if the US administration had listened to Stilwell and started training and supporting the Chinese communists, could the communists have been persuaded to make the agrarian reforms that the US deemed necessary for China? Much material could be provided to support this. But if this had been the case, would China's growth have been in best interests of the West? If China had grown at the same rate as Japan, its GDP would now be about 2/3 that of the US and Asia would probably have a bigger total GDP than Europe. If China's per capita GDP had grown at the same pace as Taiwan's, China's total GDP might have surpassed that of the US as early as the late 1970s, and arguably the Cold War might have been much shorter and the whole history of the past century might have been different.
The West must be persuaded that China's growth is in its best interests, helping global growth, and it is not contrary to US or Western interests. The US does not deploy missiles against Japan and, despite isolated French claims of defense against both East and West, no Western country prepares to defend against other Western countries. In this situation, is it so important for the US to be vigilant against possible Chinese attacks? And how vigilant should China be against possible US attacks?
The answers to these questions entail a more careful look at the situation of Asia.
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