Inside the Red Dragon--Part 4

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This is Part 4 of my interview series with Jeremy Hurewitz, Head of Business Intelligence for Nardello & Co., an international corporate investigations firm based in New York.  Mr. Hurewitz is an expert on Chinese affairs, and he offers keen insights into the political and economic developments there and what they mean for the United States and the rest of the world. We ended Part 3 talking about the prospects for China’s continued liberalization.  James R. Gorrie, Managing Editor, Absolute Wealth.

James: Do you think China will become the next super power? There’s no doubt that they definitely have a much bigger footprint on the global stage. In strategic terms—the projection of power with their navy, what they’re doing with dollar exclusion zones abroad, in terms of the amount of gold the People’s Bank of China is purchasing. Some consider them a superpower already.

Jeremy: China’s ambitions are much more regional than global. It seeks primarily to push US influence out of East Asia, and then secondarily, from Asia generally. Or at least lesson US influence rather than usurp the US’s position as the pre-eminent, global power.

Later in its development, China may push towards that goal, but judging from its actions, its ambitions are on a much more local scale. You can see that in its military build up. Yes, it has retrofitted a former Soviet aircraft carrier and it has aspirations for a blue-water navy, but those ambitions are way in the future. I don’t think China has the technical capabilities in the very near term to really project power in places like the Middle East or Latin America yet.

Nor does it really want to. But China’s naval development has been called the greatest build-up of submarine power during peacetime. They have built an extraordinary number of advanced submarines--with an eye towards making sure that it can open up shipping lanes if there’s a crisis in the Malacca Straits, for example.  It wants to be able to project power there and also on Taiwan, which is always a huge priority for them.

The Chinese are not, however, trying to establish parity in terms of technological expertise and military firepower with the US. They’re being very smart, thinking about things like cyber warfare and other tactical efforts.

They may not be able to “win” in a naval battle with the US in the Pacific, but they’re certainly changing the US’s strategic calculus.  Their capability to inflict a certain level of damage will make the US think twice about defending a Taiwan that declares independence or about using force when any other problems potentially come up.

There’s also another dimension for anyone who aspires to be a global power; they have to have a philosophy that they want to export. That’s one of the main things that China lacks. Thinking back to the Cold War era, the US and the Soviet Union each had different conceptions about the way the world should look.

The US philosophy was/is based on universal values, human rights, and democracy; the Soviet Union was all about ‘workers of the world unite.’ Both had a vision that they were selling to the world. What is China’s vision? China doesn’t have a philosophy to export. It's all about its own narrow self-interest in growing its economy.

And, China is still a very poor country; you can understand why it wants to just grow. I don’t see them becoming a super-power and taking the place of the US or even becoming a rival on that level, because it doesn’t have the soft power to do so.

Also, on the diplomatic front, for years China made an effort to establish good relations with its “smile diplomacy” and its lack of interference in the affairs of nations.  That smile diplomacy, which I used to see as a journalist when I would travel around the region, was effective. I would hear a lot about how the US’s support came with a lot of conditions, but China’s did not.

Since the global financial crisis, however, that has changed. China didn’t get hurt as badly and feels maybe a little cocky about it. As of late, it's been much more inclined to throw its weight around, in terms of disputes in the South China Sea, for example, and that’s actually surprised me.

That behavior has really backfired on them. Pushing around its much smaller neighbors who now are looking towards the US and others to shore up diplomatic partnerships against an increasingly assertive China has erased years of benefits it gained with its smile diplomacy.

Overall, China’s future is a little bit of a mixed bag. A definite ‘no’ to global super power, at least in the near term, but very much a ‘yes’ to asserting its dominance in Asia and trying to lessen US influence.

James: Yes, China seeks to displace the US from the Asian region. Japan has recognized this new posture and has reorganized its military into a more defensive position towards China. The US sees this, too, and its response has been to boost its military presence in Australia.  China definitely seems more assertive.  Even the official newspaper of the Chinese government has suggested war against Vietnam and the Philippines over disputed undersea oil reserves.

My sense is that there is a feeling with the younger leaders in China of a political “manifest destiny” that you alluded to earlier, that China should assume its “rightful place.”

The old leaders know what real war is about, and what it does to a country.  Some of the younger ones have no wisdom of the past, but rather, have a cowboy mentality, or at least a mentality of making their mark in the new China, and I think we’re seeing that today more than one way.

The US is perceived as a flailing giant and as a declining hegemon.  The same with Europe, who, of course, used to be China’s masters.

That viewpoint is reflected not only in China’s regional military posture, but I also think it's reflected in the fact that they’re establishing dollar exclusion trading zones in places like Chile and Brazil, where the dollar is not allowed. That’s a big middle finger to the US and to the dollar denominated, international financial system.

That’s my interpretation of it. Maybe I’m over-reading it, but my sense it that the younger leadership is feeling a little more aggressive and feeling their oats, as it were.

Jeremy:  I think that there’s something to that; China’s thinking is to undercut the US in any way it can. The dollar exclusion zones are another way to do that.  China will be trading with Russia for energy in the Russian ruble. That’s a recent development.

China has openly floated alternatives to the US dollar in global trading in a variety of international forums. They continue to try to chip away at the US dominance whenever they can, in a quiet way. Sometimes louder than others, but not as overtly where they’re trying to really push the US into a corner or anything like that, but it is a goal.

The younger generation may not remember war, but they have certainly been steeped in the humiliations of China’s past, so there’s a lot of nationalism that boils to the surface very quickly in contemporary China.

It also sounds like--and this is the scuttlebutt leading up to the political transition-- the military is behaving in a more assertive manner, and it will be interesting to see if Hu Jintao holds on to his military post or if he passes that along immediately to Xi Jinping.

So yes, managing the world’s largest army and its aspirations to be more assertive is something that merits our close attention.

Just another point, too, about diplomacy. China has a vested interest in supporting the authoritarian nations around it and dealing with its democratic neighbors in a way that’s ‘keep your friends close and your enemies closer”.

In Central Asia, China would like to see the end of any US military presence there, and continues to support authoritarian governments in the region.  Also, China has no interest in seeing the North Korean regime disappear, either from a refugee prospective or from the prospective that a united Korea would likely be more Western leaning. China also remains concerned about a more assertive Japan, which is the only country that could potentially challenge China from a military prospective, if it wanted to.

China is also nervously watching the reforms going on in Burma.   As one journalist from a major Western newspaper said to me, regarding why the Burmese junta has liberalized so quickly:

“Well, I think they woke up one morning and realized they were in bed with the Chinese and they didn’t think she looked that good.” I thought that was a funny and telling comment.

James: Speaking of being in bed with the Chinese, recently there was a little black book put out by the Chinese government which has all kinds of historical revisionism in it. It was endorsed by the leader in Hong Kong, and the Hong Kong folks aren’t really pleased with that, which begs the question: Is the One-China, two-systems policy, as it relates to Hong Kong, sustainable? Where do you see that situation going?

Jeremy: Well, I don’t think it's unsustainable, and there’s a lot of good that’s happened. If you look at Hong Kong and you remove the idealism out of it, it's a model that could potentially work, if you’re somebody who wants to think about models to have a deal with a really complex, intractable problem like Taiwan.

So there are good things about the one country two-system policy, but there’s also a lot of frustration in Hong Kong, too. Part of the handover agreement between the British government and the Chinese was that the people in Hong Kong would be able to vote for their leader. That seems to be put off more and more into the future, and that’s a source of real frustration.

Hong Kong society is a lot more cosmopolitan than mainland China, and remains sensitive to authoritarian rule. In fact, decades after Tiananmen Square, hundreds of thousands of people take to the street every June 4^th in Hong Kong to remember and protest the student massacre that took place in Tiananmen Square.

James: Human rights will continue to be a concern in Hong Kong. That will be a continuing problem for them with China, won’t it?

Jeremy: That’s not going away.  There’s a real and growing concern for human rights in an open society like Hong Kong.  Yes, that will cause problems. Even the recent change to the chief executive voting that took place was a problem.  Both candidates were terribly flawed.

They made Beijing look bad because both candidates had additions built on to their homes that were illegal and played fast and loose with the rules in a way that made people in Hong Kong very upset.

Also, economic disparity has grown worse, partially as a result of all the hot money flowing in from China.  Wealthy Chinese want to have an outlet for some of their money outside of the mainland, so that’s been a big problem.

James: And the revisionism that’s going on?

Jeremy: There’s been controversy recently over textbooks for Hong Kong students that describe the Chinese Communist Party as progressive and selfless and unified. People are complaining that the mainland is trying to brainwash Hong Kong students.

So there’s real frustration in Hong Kong. I don’t know where it will all lead and I don’t know what the potential avenues for changing anything there might be. I just know that there are upsides to the political situation there, and then there are some real downsides that you hear about.

James: Here’s a different issue: China controls Hong Kong, but it certainly doesn’t control Taiwan. Hong Kong is not an armed threat the way Taiwan is. The Taiwan question is certainly not a place where the one China, two-systems would apply.

Also, today there’s a lot of re-education, a lot of revisionism going on. So there is a real division between Hong Kong and China about their own history and what really their respective societies are about.

Jeremy: Well, I don’t know what the alternative will be. Hong Kong can’t declare independence from China. Maybe there will be rioting and it'll lead to political reforms. I just don’t see what the options for Hong Kong are there, but your point about history is interesting.

In South Africa, as a result of apartheid they had a truth and reconciliation commission. Living in Eastern Europe for many years, I saw those societies reckon with the past in many different ways. There were trials about former Communist Party officials: some paid the price for what they did and others didn’t.

Some societies were more inclined to push things under the rug than others.  These things aren’t easy and you judge people in a different time, often decades later with different circumstances and it's very difficult. China faces a big problem in that Mao is still considered their George Washington.

If you read Mao: the Unknown Story and learn about who he was, many people consider Mao as bad as Hitler and Stalin in terms of responsibility for the number of deaths. Thirty to thirty-five million starvation deaths have been attributed to The Great Leap Forward, and millions more from The Cultural Revolution, not to mention endless numbers of lives that were wrecked, so the country itself hasn’t reckoned with its own legacy in recent years; forget hundreds of years ago, we’re talking about just the 20th Century.

This concludes my interview with Jeremy Hurewitz, Head of Business Intelligence for Nardello & Co., an international corporate investigations firm based in New York.  JRG

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