Jonathan Holslag On world order and disorder

China and Asia

Holslag, Jonathan, 2015. China’s Coming War with Asia. London: Polity. (read)
Holslag, Jonathan, 2012. Trapped Giant, China’s Problematic Military Rise in Asia. London: Routledge and IISS. (read)
Holslag, Jonathan, 2011. China and India, Prospects for Peace. New York: Columbia University Press. (read)
Holslag, Jonathan, 2011. China’s vulnerability trap. Survival, 53, 2. (read)

Fleuron“Our position at the centre of Asian geopolitics weighs on China like a mill stone. If we do well, our neighbours see that as a threat. If we are in trouble, that is equally perceived as a threat. We are a challenge just by being here: 1.2 billion people surrounded by another 2.2 billion people. To rise successfully, we will have to take these other people’s interest as much into account as our own. We cannot act as an aggressive island power. That would be the end of our development.” It was a retired Chinese Ambassador who shared with me this assessment a few years a go. He had seen it all: Mao’s export of revolution, Zhou Enlai’s laborious fence mending, and the commercial offensive unleashed by Deng Xiaoping. Strolling under the weeping willows of Ritan Park, Beijing, these few sentences occurred to me as the very core of Chinese geopolitical thought.

Let me explain my research on China and Asia a bit more. As an academic, one can become very specialized in a tiny aspect of life or to try to be very good at piecing together different parts of a larger puzzle. I feel more attracted to the latter, recognizing of course that each little piece has to be studied carefully. So, yes, I do try to understand the economy of Asia, but also domestic politics, geography, the military transition, and, importantly, its very rich history. The one day, for instance, I have lively discussions with officials about warships in the Pacific; the other day, I try to find myself a way through the balance sheets of the Chinese central bank. It is a challenge, but a fascinating challenge.

Since I started my research on Asia, two important questions have been guiding my work. The first question is very straightforward: Can China rise without entering into the kind of great power conflicts that we have seen so many times in the past? I have tested many assumptions of both optimists and sceptics. The answer seems to be that it cannot rise without conflict. The second question is broader: Can Asia with its billions of people rise in the same way as we did in the West? Many Asian countries, including China, are following Western blue prints for agricultural development, industrialization, urbanization, and other matters, but the context and the nature of the world economy is now totally different. My observation in this regard remains that Asia is heading for disaster if it tries to become rich the way we did. Many governments in the region know this, promise to change, but do not put that in practice.

Open door

Block China and Asia1Asia remains a belt of uncertainty for China. If it handles it well, the region presents vast opportunities: export markets, resources, trade corridors, and partners to join forces with against American unilateralism. If the neighbourhood were to turn against China, however, or destabilize, Asia would become a geopolitical straitjacket, a launch pad for aggression, a barrier between Chinese industries and overseas markets, a breeding ground of extremism and secessionism, to use some Beijing language. I believe that it is in this concern that one can trace the origins of the fixation of the last two generations of Chinese leaders with peaceful development. To them, peaceful development was not just hazy idealism or diplomatic duplicity; it was a matter of geopolitical necessity. More background on China’s geopolitical position can be found in one of the chapters in Trapped Giant.

It led them to embark on an impressive regional diplomacy that was meant to reassure neighbours and to weaken resistance against China’s rise. Economic cooperation has been the cornerstone of this policy. Here it was the objective to let China tap into other Asian markets, without raising distrust of its increasing competitiveness. In one article, I examined a very visible aspect of this strategy: China’s roads diplomacy. Beijing haSchermafbeelding 2014-07-03 om 14.04.43s tried to weave neighbouring countries in a network of infrastructure. While this project was certainly not unsuccessful, most other markets continued to diversify their trade linkages. The same was true for development aid. Foreign aid has turned into a vital instrument for China to cement closer economic ties.

Along the way, Chinese leaders turned to Adam Smith and David Ricardo to justify their trade strategy. A division of labour would emerge that enhances productivity, trade, and thus also cooperation and peace. As both countries have to lift millions of people out of poverty, the Sino-Indian partnership is the best case to test the Ricadean formula. In my book China and India: Prospects for Peace I found that this division of labour will not emerge and that growing trade does not erase tensions. Another example of the limitations of economic cooperation, a follow-up paper looks at the extent to which both countries are able to overcome the dispute over Himalayan rivers and finds no evidence that a water war will be avoided. In one of my last studies, I posit that China is using a narrative of harmony to build very unequal partnerships and even to pursue interests that bear many resemblances with the open door policy of imperial powers in the past.

The coming war

The litmus test of peaceful development remains, of course, how China handles security challenges. China and the other Asian powers share a lot if security concerns related to piracy, terrorism, failing states, etc. In a 2009 paper, however, I argue that traditional distrust impedes cooperation on non-traditional challenges between China and India. In another article, published in Issues & Studies and as a shorter version in the Washington Quarterly, I elucidate how China’s growing awareness of overseas security challenges has led it to adjust its diplomacy and military modernization in a way that it becomes able to deal with these issues independently. In other words: it does not want to rely on other regional powers for safeguarding its interests abroad.

Block China and Asia3In Trapped Giant, I go further. This book elucidates how China has been altering the military balance between the continent and the first island chain that runs from Japan to the Philippines. But still, China feels insecure, mostly because its ships and bases will still be vulnerable for long-range strikes from American aircraft carriers and submarines in the Western Pacific. Hence, the long-term objective to also alter the military balance beyond the Ryukyu Islands and to terminate America’s primacy in the Pacific. This effectively implies that Asia will have to live under China’s shadow and that countries like Vietnam will find it impossible to defend their territorial claims.

I bring these different themes together in a forthcoming book, under the rather dramatic title China’s Coming War with Asia. The book sets out by arguing that China’s great aspirations are incompatible with the idea of a peaceful rise. It then goes on to rebuke the myth that Asian stability has been maintained in the previous decades because China accommodated its neighbourhood. In fact, it was the other way around. China has been very successful in showing flexibility without having to compromise on its great aspirations. The reason that other Asian countries, thus far at least, remained quiet is mostly that the United States military primacy was uncontested and that they had many opportunities to offset China’s growing economic influence. That is no longer the case.

So, what are the prospects? The most uncomplicated scenario would be that China continues to rise and that the United States tries to resist it more forcefully. This will cause what Robert Gilpin famously called a hegemonic war. But China remains far behind the United States, so that the feared Gilpinian moment is not near. But even if the United States remains safe, other Asian powers feel increasingly insecure. Moreover domestic uncertainty, nationalism, and territorial disputes could easily trigger armed confrontations. This second scenario of regional conflicts is already more likely and it could of course make the United States to intervene. A third possibility is that of a faltering pretender. China gets stuck in its economic transition, the Party sees this as a major threat to its survival, and seeks to divert public frustration to external threats. If history teaches us one important lesson, it is that rising powers become more reckless when they stumble.

Bottleneck

What aggravates these problems is Asia’s economic bottleneck. First of all, the need for economic opportunities, jobs, and incomes remains huge. Asia’s population is set to expand by another 780 million by 2050. Today, China, like most other developing countries, looks at the industrials sector to create these opportunities and especially to spark the productivity boost that is needed to cross the infamous threshold of US$ 12,000 and to become a rich country. But, as I argued in some opinion articles, the industrial sector might no longer be able to do the trick. Take China: for each 10 per cent growth in the sector, employment only grows by 0.7 per cent and this ratio continues to go down. When Europe transformed from a rural society into a rural society, this was still 5 per cent employment growth for each 10 per cent output growth.Block China and Asia2

This all implies greater efficiency, which is good for profits. But, then, Asian manufacturing struggles with overcapacity. The desire of countries like China to accelerate the modernization of their manufacturing leads to a strategy in which trillions of household savings are transferred to the industrial sector and capacity is pumped up much faster than demand. The only way to sustain that is to provide even more credit, also to foreign customers. China has really been failing to remedy this imbalanced growth.

The problem is that services alone do not offer an alternative. Countries that specialize in services, like India, struggle with vast trade deficits and public debt. What is more, the lucrative parts of the services industry are often just small islands of wealth in a sea of poverty. Services without industry also tend to rely heavily on external demand, demand from Western markets mostly, and demand thus that is very uncertain.

But the agricultural sector is not able to function as a demographic shock absorber either. The available farmland per capita goes down very fast and the productivity of farms is suffering from draught, erosion, and excessive use of fertilizer. So, this leaves many Asian countries grapple with impoverished farmlands and explosively growing cities that are surrounded by endless slums.

If one looks back at the past decades, China has been a true exception. It is one of the few developing countries where economic growth was not entirely erased by inflation. It is one of the few economies also that did manage to create many new jobs in the formal sector. Yet, this is still not enough. Social unrest increases and confidence in the future of the economy is decreasing.

Two transition traps

So, what I see before me, when I look at Asia, is a region that is stuck in two transition traps. On the one hand, it is struggling with the tensions that are the result of the larger and larger gap between China’s rise and the rest. This is a classic problem of changing distribution of power. On the other hand, it grapples with the growing gap between economic growth and the extent to which it creates tangible benefits for the majority of the people. The cake is still getting bigger, as economists would argue, but, I retort, it is also getting lighter and there is more air in it.

I fear that until a solution is found for the latter, it could continue to aggravate the dilemmas that are the result of the power shifts. That is to say: countries will compete fiercer for wealth and security. The one uncertainty that this brings is that some countries might soon become too weak to clench a fist. Even if China itself is in deep economic trouble, its neighbours could be too exhausted to challenge it. This, I argue in a paper, could already be true for India. In that case, China might be able to push ahead and establish a true Sinocentric order. In other words, the focus on our research might not have to be on the apparent strengths of the Asian powers, but on which power is most lenient in overcoming its weaknesses.

Fleuron

Selected keynotes and briefings:

On Asia’s economic bottleneck the Dutch Annual Ambassadors Conference, The Hague, the Port of Rotterdam, Siemens, the Vice-President of the European Parliament, the European Parliament Foreign Affairs Committee, etc.

On China’s economic transition: Rabobank, BNP Paribas, ING, Shell, Merit Capital, European Federation of Construction Companies, London School of Economics, the European Commissioner for Trade, the European Commissioner for Industry, the President of the European Council, the European Parliament Trade Committee, etc.

On Asian security: Damen Shipyards, EADS, the NATO Flag Officers and Ambassadors Course, the annual Chiefs of European Navy Meeting, the Dutch Ministry of Defence, the French Ministry of Defence, the European Parliament Foreign Affairs Committee, etc.

In the media:

Holslag, Jonathan, 2012. China Goes to Sea. Project Syndicate, 27 March 2012. (Read)
Holslag, Jonathan, 2010. China’s Muscle Flexing is a Sign of Weakness. Financial Times, 27 September 2010. (Read)
Holslag, Jonathan, 2009. The Rise of the Beijing Consensus. the Guardian, 19 April 2009. (Read)