Washington’s China problem


 

The U.S.’ confrontation with an increasingly powerful and incipiently aggressive China is getting much more complicated.

There is no question of its high priority among the U.S.’ foreign policy issues. But with a lame duck Obama Administration which has pursued a policy of retreat from involvement in crises areas as a solution to what it saw as U.S. over commitment, there is grave danger of a clash as a result of misperceptions by either side.

Were you a Chinese strategist attempting to measure an American opponent’s intentions, the contradictory U.S. positions might well be so confusing as to be unintelligible.

On the one hand, Washington has either ignored – or some would say, encouraged – a massive trade with a deficit of $365.7 billion in 2015 in Beijing’s favor, slightly up from the previous year’s record $343 billion. It could well be argued, and is in some quarters, that while this arises in no small part from China’s manipulation of its currency, it is a net gain for the U.S. China, a capital short economy with a relatively backward civil society, is in fact subsidizing exports to the U.S., even if that is at an American cost in lost manufacturing producing grave social and political problems with its loss of jobs.

On the other hand, some U.S. policymakers obviously are alarmed at the penetration of the Chinese into areas of the American economy that present security risks. The U.S. Commerce Department has just announced new restrictions on exports of American products to the Chinese telecommunications equipment maker ZTE. The Chinese company makes routers and switches for telecommunications operators, mobile phones and offers telecom software services. Now an international giant, it is the outgrowth of a company organized in the late1980s by a group of investors with ties to China’s Ministry of Aerospace. It has become the paradigm for Chinese Communist “state-owned and private-operating” entities, some mammoth dinosaurs absorbing too much capital with their favored political access, but some like ZTE becoming relatively efficient and competitive international operators.

But in Washington, the Chinese company is now suspected of having violated U.S. sanctions on Iran. Despite its sophistication, the company is still heavily dependent on U.S. component chipsets and software. So the Commerce ban on hardware – not yet on software – weighs in heavily on what were 80% of the company’s 2014 sales. The U.S. Commerce Department action has forced the company to at least temporarily delist on the Hong Kong and Shenzhen stock markets.

Beijing has been trying to break this kind of American technological hold – if not the actual dependency – by last year putting in bids for American and Taiwan chip producers. But it again faced U.S. regulatory restrictions and these efforts were not successful, even in Taiwan where local business interests while increasingly dependent on Mainland markets are technological and managerially superior.

The ball is now in Beijing’ court again as to how it will respond to the new American restrictions. But perhaps as important is at what level in the American political establishment such complex problems of dealing with the Chinese geopolitical conundrum are acknowledged, much less understood.

While the U.S.-China relationship on the one hand exists at this complex politico-economic level of shared technology, much more crude Beijing thrusts have to be an American policy concern. China is continuing to dredge up shoals and build military bases a thousand miles from its southern coast in the South China Sea, athwart one of the most important commercial and strategic sealanes in the world. Its growing naval strength is trying to break through East Asia’s inner islands chain – dominated by Taiwan — threatening Japan in encroaching in the East China Sea off Korea and the Japanese home islands and American dominance in the Western Pacific.

This year’s formal allocation of a reduced rate of growth of Chinese military expenditures might be welcomed in Washington – although they represent only a fraction of real expenditures on armaments and military personnel. But the fact that uniformed Chinese military are being quoted in the official Communist media – an unheard of phenomenon – critiquing this “cutback” is perhaps even more disturbing. It has to mean that the power of an expanding and ambitious Chinese military in deciding overall China policy is growing. That is a major development that even U.S. China-watchers have not been prepared for, and poses new problems for American strategists, in and out of government.

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