The most sensible people to be met with in society are men of business and of the world, who argue from what they see and know...

-William Hazlitt

Responding to Structural Change in the Asia-Pacific

Remarks to an Australian National University - East-West Center Conference

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
 | April 14, 2015

Washington DC

These days, people who talk about the Indo-Pacific region – the arc of Asia from Japan through China to Pakistan – always begin by noting that it’s becoming the world’s center of economic gravity.  That’s true.  The region’s economy is now half again as large as America’s or Europe’s.  In purchasing power terms it’s twice as big.  It accounts for nearly half the world’s manufacturing.  It is where the world’s supply chains converge.  It’s growing faster than anywhere else.  And it’s increasingly Sino-centric.

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Three years ago, Indo-Pacific states began to spend more on their armed forces than Europeans did.  With the exception – so far – of Japan, major powers there are boosting their defense budgets at double-digit rates to cope with threats within their region – from each other and from U.S. forces there.  None is yet attempting to develop the capacity to project force into other regions of the world.  But rising tensions with the world’s only global military power – the United States – are pushing China in this direction.

America has been part of the Indo-Pacific state system since 1853, when Admiral Perry’s “black ships” forced their way into Japan.  Since 1945, the United States has been the dominant power and arbiter of politico-military relationships in the Western Pacific.  But the countries of the Indo-Pacific region have become too big and dynamic to be regulated by any single power.  Many continue to welcome American protection.  But, increasingly, reflecting their growing wealth and self-esteem, they resist U.S. guidance and chart their own course.  The status quo is unsustainable.

As balances of power within the region and between its nations and the world evolve to erode the Pax Americana, the risk of war by inadvertence is rising.  Americans and Chinese alike incline to the conceit that it is their bilateral rivalry – rather than interactions between China and its  neighbors – that drive this dynamic.  But good relations between China and the United States do not guarantee good Chinese relations with the other nations of the Indo-Pacific.  Conversely, if China has good relations with its neighbors, it will have good relations with the United States.  This is why China’s relations with its periphery have global impact.

The squabbles over borders that are driving the region’s current arms races were suppressed by the Cold War and the long American hegemony in Asia but have little, if anything, to do with the United States.  Neither are they new.  History is the remembrance of mostly lamentable events.  Asia has a history surplus.  The past there seems  never to be past.  It’s just unfinished business waiting to be put right.

China’s neighbors are without exception committed to enhancing their prosperity though close connections to China’s burgeoning wealth.  But those with territorial disputes with China are understandably apprehensive about how Beijing might use its surging military power with respect to them.  They turn to the United States and each other for reassurance that China will not bully them.  The way for China to ensure that its neighbors’ craving for safety does not become acute anxiety and active antagonism is to manage relations with them so as to minimize their perception that they might be intimidated or humiliated by China’s superior power.  To accomplish this, China must, at a minimum, establish mutually agreed borders with its neighbors.  This is something China can only do with them directly, not with or through the United States.

For its part, the United States is anxious about being excluded from Asia’s emerging Sino-centric economic order but gratified to be wanted militarily by traditional allies and friends there.  Standing up to military bullies is something Americans think we know how to do.  Besides, positing China as a “peer competitor” provides a cure for enemy deprivation syndrome.  And it’s good for the defense budget, which feeds the military-industrial complex, which has become a central prop of our political economy.  China’s challenge to U.S. hegemony in the Western Pacific  enables military Keynesianism, the only kind of economic stimulus and jobs program the U.S. Congress will support.

So we Americans are happy to relieve Asians of the need to give serious consideration to what they might do on their own to cope with China and content to help them manage the tensions their disputes with China continue to fuel.  We have no direct role in these disputes and cannot solve them.  We are flattered by the role of protector.  It fits with our militaristic approach to foreign policy.  Americans have become accustomed to supremacy in Asia.  We relish being needed.

But, in many ways, the United States is turning out to be a strategic one-trick pony.  All we Americans seem to know how to do in foreign policy is what we learned to do during the Cold War.  That experience taught us to guarantee the security of others by deploying our forces as tripwires, declaring challenges to their security to be challenges to our own, and promising to use nuclear weapons to defend them without necessarily consulting them about this.  American strategy during the Cold War was to isolate our adversary and deny it the influence to which its power would otherwise have entitled it.

So the formative foreign policy experience of the United States involved ever more militarized struggle with a global ideological and geopolitical adversary, the Soviet Union.  This explains why the American response to China’s emergence as a global economic and regional military power has been almost entirely martial.  We have made countering Chinese power and perpetuating our quasi-imperial, post-1945 dominance of the Western Pacific the organizing principles of our Asia policy.  To this end, we are drawing anxious Asian nations under our wing and extending implied security guarantees to them, posturing combatively, and preparing for prolonged confrontation and war with China, nuclear or not.

This is not quite what our allies and friends in the Asia-Pacific signed up for.  None is confident of U.S. resolve or staying power.  But all, to one extent or another, base their national strategies on the expectation that America will remain a formidable, if not dominant factor in the Asian-Pacific balance of power.  That is a reasonable expectation.

But America’s security partners do not want to be subsumed in Sino-American rivalry.  They seek security without antagonism, still less war, with China.  They know that they must come to terms with – they must accommodate – the reality of China’s rising power.  They are doing what they can to strengthen themselves and to ensure they are not alone.  They want our backing to enhance their independence and bargaining position vis-à-vis China, not to confront or provoke it.

Unfortunately, America’s impulse to interpose its forces between others and China, rather than fostering diplomatic dispute resolution, inadvertently creates moral hazard.  Moral hazard is the condition that obtains when one party is emboldened to take risks it would not otherwise take because it knows another party will shoulder the consequences and the costs of failure. We have seen this dynamic at work most clearly in the confrontations between China and other claimants to islands, rocks, and reefs in the East and South China Seas.

U.S. policies aimed at deterrence rather than dispute resolution  embolden protected claimants to harden their positions and to avoid consideration of negotiated settlement of their differences with China.  The security guarantees these policies embody imply that a clash between China and one of its neighbors could trigger an American attack on China.  The U.S. “pivot” to the Asia-Pacific thus creates the illusion of American-led collective defense even as it imposes no restraint or accountability on any of the beneficiaries of American protection.  This posture preserves the United States’ role as regional hegemon by ensuring that all in the region would suffer should China or any of the nations on its periphery misjudge or mismanage existing disputes.

Five years into the “pivot,” it is becoming clear that this kind of defense “rebalancing” by the United States, far from constraining China, is instead arousing it.  Rebalancing – still more rhetorical than real – has aggravated rather than moderated regional confrontations.  The well-intentioned U.S. effort to manage tensions has demonstrably  frustrated rather than promoted diplomatic solutions to the disputes that threaten stability in the region.

The extension of an avowed or implied American military shield to each and every opponent of a Chinese territorial claim has helped propel China into patrol-boat diplomacy and power projection through island-building.  China is now engaged in measures short of war but bereft of diplomacy that neither the United States nor those it seeks to protect can effectively counter.  The absence of any effort by any party to do more than freeze the status quo perpetuates the possibility of armed conflict that could ignite the first trans-Pacific war since 1941.  Meanwhile, official Washington’s intermittent denials that the United States is attempting to contain China or that it seeks to frustrate Chinese initiatives like the Asian Infrastructure Investment Bank bring to mind Mark Twain's comment that one should “Never believe anything until it has been officially denied."

China’s capacity to conduct an active defense of its periphery and its current territorial holdings in its near seas  is growing apace with its economy.  The military balance off the China coast has been shifting inexorably against the United States.  Strengthened Chinese defenses are already beginning to deprive America of the ability to respond to clashes between China and its neighbors with counterattacks from China’s near seas.  This is forcing the U.S. military to prepare to fire at China from farther away, that is, from outside the “first island chain.”  This would place China’s neighbors – including all the counter-claimants to land features in the East and South China Seas – forward of the U.S. naval line of battle should war break out in the region.  That makes these neighbors not only the probable cause of potential Sino-American conflict but a major part of the battlefield in any such war.

These trends are a convincing refutation – if one is really needed – of the notion that the answer to the region’s intensifying security dilemmas should or could be escalating American efforts to sustain military supremacy along the frontiers between  a steadily wealthier and stronger China and an economically ever-more Sino-centric Asia-Pacific.  Time as well as geography work to China’s advantage.  America may be holding its own, but China is on the upswing and on its home ground.  Distance attenuates power even as short lines of communication augment it. Counterattack is inherently more demanding than active defense, especially when it involves the projection of power across a wide ocean.

The bargaining power of China’s neighbors in disputes with it has been receding.  It is more likely to continue to ebb than to grow.  The military balance between China and its neighbors has been shifting in China’s favor.  It is more likely to tip against the United States over time than toward it.

Realistically, therefore, the protection the United States can offer those with disputes with China is a wasting asset best leveraged now rather than later.  It should be seen not as a long-term answer to the challenges of rising Chinese power.  Instead, it should be exploited to settle issues on more favorable terms now than will be possible later and to eliminate irritants to nationalism at home and in China rather than allowing them to fester.  If China needs to settle its disputes with its neighbors in order to calm their mounting apprehensions of it, those neighbors also have compelling reasons to resolve their disputes with China sooner rather than later.

China’s neighbors should therefore see and use American power as backing for peaceful efforts to resolve disputes with China, not as reassurance that they need make no serious effort to settle these disputes through negotiations.  The “rebalancing” of U.S. global strategy toward the Indo-Pacific known as the “pivot” is timely and appropriate, given the rise of the region to global centrality.  But enhanced attention to Asia should be designed and implemented to lower military tensions between the nations of the Indo-Pacific, not to lock these tensions in, still less to escalate them.  Addressing those tensions is key to a mutually agreeable rather than antagonistic relationship between the United States and China.  So it is in the interest of all concerned.

No one should underestimate either American power or obduracy.  I am confident that, as undesirable as this would be,  the United States is fully capable of following a course of military confrontation with China, leading to a dangerous global contest for supremacy, the outcome of which is far from certain.  This seems to be the bracing future that some of those who conceived the “pivot to Asia” anticipate.  It could prove to be a case of self-fulfilling pessimism and paranoia.  It is hard to argue that this is not now the direction in which things are moving.  Only fools, warmongers, and complacently overconfident members of the military-congressional-industrial complex could find that encouraging.

All the more reason for the states of the Asia-Pacific to make use of America’s great power to facilitate rather than delay or obstruct mutually beneficial resolution of their disputes with China.  What is inherently at stake in these disputes is trivial.  It is worth a tough diplomatic struggle but not a war.  Were the nations of the Indo-Pacific to leverage American backing to make their peace with China, they would create a more secure and prosperous world for themselves as well as the United States.

This conference could make a contribution to achieving that better future by considering how diplomatic processes designed to resolve issues and set aside the prospect of war might work.  I would be happy to begin that discussion now by responding to questions and comments. 

Diplomacy on the Rocks: China and Other Claimants in the South China Sea

Remarks to a Seminar of the Watson Institute for International Studies, Brown University

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
 | April 10, 2015

Providence, Rhode Island

For centuries, the islands and other land features of the South China Sea were seen as places to be avoided – valueless hazards to navigation.  The waters around them were treated by fishermen as an unregulated regional commons where everybody, regardless of nationality, could find and take what they wished.   This changed in 1982 , when the United Nations Convention on the Law of the Sea conferred rights to exclusive economic zones (EEZs) on habitable islands.  About the same time, advances in technology made seabed oil and gas resources increasingly accessible.  Nationalism and economic interests in possession of these islands then aligned.  Vague assertions of historic connections to islands, rocks, and reefs became adamant claims of ownership.

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The Paracel (or Xi Sha / 西沙) Islands are now claimed with great passion by both China and Vietnam.  Some or all of the Spratly (or Nan Sha / 南沙) Islands are similarly claimed by China, Malaysia, the Philippines, and Vietnam.  Let me very briefly recount the tangled history of these claims.  Listen closely.  The facts belie the prevailing narratives.

It is hardly surprising that the claimants have reinterpreted their history to make it conform to the once-foreign Westphalian notion of sovereignty.  They have produced reams of paper documenting close encounters with remote rocks by the sailors of long-vanished Chinese and Vietnamese dynasties.  But whatever those sailors were doing, it had nothing to do with either asserting or violating sovereignty, which was not yet an operative concept in Asia.

China first asserted sovereignty in the modern sense to the South China Sea’s  islands when it formally objected to France’s efforts to incorporate them into French Indochina during the 1884 – 1885 Sino-French war.  Chinese maps since then have consistently shown China’s claims, first as a solid and then as a dotted line.

In 1932, France nonetheless formally claimed both the Paracel and Spratly Islands.  China and Japan both protested.  In 1933, France seized the Paracels and Spratlys, announced their annexation, formally included them in French Indochina, and built a couple of weather stations on them, but did not disturb the numerous Chinese fishermen it found there. In 1938 Japan took the islands from France, garrisoned them, and built a submarine base at Itu Aba (now Taiping / 太平) Island. In 1941, the Japanese Empire made the Paracel and Spratly islands part of Taiwan, then under its rule.

In 1945, in accordance with the Cairo and Potsdam Declarations and with American help, the armed forces of the Republic of China government at Nanjing accepted the surrender of the Japanese garrisons in Taiwan, including the Paracel and Spratly Islands.  Nanjing then declared both archipelagoes to be part of Guangdong Province.  In 1946 it established garrisons on both Woody (now Yongxing / 永兴) Island in the Paracels and Taiping Island in the Spratlys.  France protested.  The French tried but failed to dislodge Chinese nationalist troops from Yongxing Island (the only habitable island in the Paracels), but were able to establish a small camp on Pattle (now Shanhu / 珊瑚) Island in the southwestern part of the archipelago.

In 1950, after the Chinese nationalists were driven from Hainan by the People’s Liberation Army (PLA), they withdrew their garrisons in both the Paracels and Spratlys to Taiwan.  In 1954 France ceased to be a factor when it accepted the independence of both south and north Vietnam and withdrew from Indochina.

In 1956 North Vietnam formally accepted that the Paracel and Spratly islands were historically Chinese.  About the same time, the PLA reestablished a Chinese garrison on Yongxing Island in the Paracels, while the Republic of China (Taipei) put troops back on Taiping Island in the Spratlys.  But, that same year, South Vietnam reopened the abandoned French camp on Shanhu Island and announced that it had annexed the Paracel archipelago as well as the Spratlys.

In 1974 South Vietnam attempted to enforce its claims to sovereignty by placing settlers in the Spratlys and expelling Chinese fishermen from the southwestern Paracels.  In the ensuing naval battle at Shanhu Island, China defeated Vietnamese forces.  This enabled Beijing to extend its control to the entire Paracel archipelago, where it has not been effectively challenged since.

Five years later, Hanoi (now the capital of a united Vietnam) repudiated its earlier deference to China’s claims, adopted South Vietnam’s position, and claimed sovereignty over all the islands in the South China Sea.  In the early 1980s, as Beijing, Kuala Lumpur, Manila, and Taipei protested, Vietnam resumed vigorous settlement and garrisoning of the Spratlys.

From 1946 to 1950, Chinese nationalist forces maintained a garrison on Taiping Island, the only habitable island in the Spratlys.  This military presence was reestablished by Taipei in 1956 in response to the activities of a Filipino lawyer and businessman, Tomás Cloma.

In 1956, Cloma proclaimed the establishment of a new country, “Freedomland” in the Spratly Islands.  The sole function of Freedomland turned out to be issuing postage stamps to collectors.  Cloma’s announcement of Freedomland caused both Beijing and Taipei to reiterate China’s claims to the Spratlys.  Taipei sent troops to drive Cloma off Taiping Island.  Its forces are still there.

Cloma’s proclamation of Freedomland was legal in the Philippines because, as Manila noted in its reply to protests of Cloma’s actions from Beijing, Paris, Saigon, and Taipei, the Philippines had made no claim of its own to the Spratlys.  But in 1972 the Philippines did begin to make such claims.  In 1974, President Ferdinand Marcos forced Cloma to convey all his rights (whatever, if anything, these were) to the Philippine government for one peso.  That same year the Philippines occupied five islets in the Spratlys.  By 1978 it had occupied two more, plus two reefs.

Spain and the United States exercised sovereignty in the Philippines consecutively for four centuries (1543-1946) but never annexed the Spratlys.  Manila’s clam to them is based on the fact that, with the exception of Taiping Island, they were unoccupied and up for grabs.  The Philippines’ other argument for owning the Spratlys is that they lie within the 200-nautical-mile Exclusive Economic Zone (EEZ) it unilaterally proclaimed in 1978 in anticipation of the 1982 Convention on the Law of the Sea, which authorized littoral states to create such EEZs off their coasts.

Malaysia also bases its claim to the southernmost Spratlys on their location within the EEZ it proclaimed in 1979.  Malaysia seized Pulau Layang-Layang (Swallow Reef) in 1983 and established a military presence there.  It  has since reclaimed enough land to build an airfield and a small resort hotel on the atoll.

The Filipino and Malaysian cases are politically potent but legally weak.  An EEZ does not determine the ownership of the islands it surrounds.  Under the law of the sea, ownership of land features determines rights over the adjacent waters and seabeds.  “The land dominates the sea,” not vice versa.

But Malaysia, the Philippines, Vietnam, and now China have correctly understood that the key to sovereignty is not legal arguments but physical possession and control – a continuous human presence.  Whether an island generates an EEZ or simply a twelve-mile territorial sea is determined by whether or not it is able naturally to support human life.  Hence the rush to seize and settle any and all land features in the South China Sea and to demonstrate that people can live on them.

In the late 1980s, China belatedly responded to the activities of other claimants in the Spratlys.  After a bloody skirmish with Vietnamese forces at Johnson South (now Chigua / 赤瓜) Reef in March 1988, China seized seven land features and followed other claimants in building fortresses atop reefs and rocks.

Only two islands in the South China Sea were traditionally thought to meet the somewhat vague criterion of natural habitability.  These were Yongxing Island in the Paracels and Taiping Island in the Spratlys, both claimed by China for at least 130 years and held for more than a half century by Chinese forces from Beijing and Taipei, respectively.  But now there is a human encampment on every island, rock, and reef in the South China Sea where one can perch.  There is nothing more for any claimant to occupy without dislodging another claimant.

This leaves claimants with few options for settling the question of who owns what.  Altering the current pattern of possession would require either the expulsion or negotiated withdrawal of one or more of the parties.  No party wants or sees any advantage in war.  But no party’s nationalism will permit it to give up what it now has.  And all want more.

Sovereignty could theoretically be bypassed as an issue through cooperative exploitation of natural resources, as China has repeatedly proposed, but generations of Chinese, Vietnamese, and Filipino schoolchildren have grown in classrooms with maps on their walls showing that all or most of the South China Sea is part of their country.  The peoples of the littoral states seem determined to possess whatever’s off their shores, not just profit from it.  By contrast with Brunei, Malaysia, and Thailand – which are jointly developing areas in dispute between them – in China, the Philippines, and Vietnam economic interest has so far been unable to make a dent in, still less overpower, possessive patriotism.

With neither war, negotiated compromise, nor joint development in prospect, there is impasse.  And, in the South China Sea, impasse entails the entrenching of popular hostility, arms races, and the impairment of other relationships between claimants and their security partners amidst the constant danger of war by inadvertence.  This is not a situation any party should find acceptable.  But it is the inevitable outcome of an approach aimed at preventing conflict by managing contention rather than resolving the disputes that produced it.  Instead of deterring conflict, the claimants need to remove its proximate causes and justifications.

The point of departure for doing this must be recognition that, with no land features left unoccupied, there is nothing more to be had without pushing other claimants off what they now possess.  It is realistic to accept that the status quo is preferable to attempts to upend it.  The requirement for setting aside specific claims so as to exploit resources jointly is no different.  The prerequisite for any sort of resolution is a common understanding of who claims what and how the law of the sea might extrapolate additional rights from it.

In the end, whatever the proposed solution, there is no alternative to the well-known doctrine of international law known as uti possidetis.  This is a Latin abbreviation of the phrase uti possidetis, ita possidetis, meaning “what you have, you may continue to hold,” regardless of how you acquired it.  This understanding is the legal justification both for the retention of territory acquired in war and for peaceful coexistence and acquiescence in inherited frontiers between newly independent states.  It replaces quarrels and controversies with peace, which diplomats define as “restrained tolerance of the status quo by those with the capability to alter it by violence.”

Uti possidetis allows claimants to acknowledge and live with the status quo without having to agree that its establishment was right or proper.  Its application to the land features in the South China Sea would clear the way for the clarification of boundaries on the basis of the law of the sea, supplemented by the demarcation of these boundaries through bilateral negotiations as required to draw median lines.

A total of forty-four features in the Spratlys are currently settled, occupied, or garrisoned: twenty-five by Hanoi, eight by Manila, seven by Beijing, three by Kuala Lumpur, and one by Taipei.  The political difficulty for the claimants of accepting this outcome should not be underestimated.  All sides feel cheated by it.  None is without passion on the subject.

The numbers of features occupied reflect which countries were quickest and most vigorous in seizing them.  So uti possidetis would give Hanoi by far the largest share, with Manila second.  Kuala Lumpur’s claims are already limited to what it actually possesses, so uti possidetiswould represent no sacrifice on its part.  But Beijing – which was late in asserting itself – would be left with very little.  That is a particularly difficult political problem for the Chinese Communist Party.

Since 1949, when Mao Zedong proclaimed the People’s Republic, the Party has staked the legitimacy of its rule in China on its having ended foreign disrespect for Chinese sovereignty, territorial integrity, and national dignity.  Yet, on the Party’s watch over the past forty years, almost all of the land features China long claimed in the Spratlys have been seized, occupied,  and garrisoned by other countries.  This outcome is the direct result of policies of strategic forbearance imposed by Deng Xiaoping and linked to restraint by Beijing on other even more important challenges to China’s sovereignty and territorial integrity, such as how to deal with Taiwan.  Accepting that China has permanently lost territory risks stimulating nationalists in both the China mainland and Taiwan to charge that the Communist Party’s recent foreign policies have undercut rather than served the mandate of Chinese nationalism.

But the alternative to a modus vivendi that accepts a status quo largely defined by other, smaller claimants is not just continuing friction and rancor in Chinese relations with these neighbors but ongoing Chinese military tension with the United States and the constant danger of war by inadvertence.  China is in no danger of being driven from its holds in the Spratlys and Paracels.  Its island-building activities are intended to establish that it’s not just there to stay but entitled to a strong role in the management of the area.  Once this is clear, will Xi Jinping have the vision and courage to say no to impatient nationalists, as Deng Xiaoping did in the interest of conciliating and avoiding conflict with China’s neighbors and the United States?

The chances of Xi and other Chinese leaders doing so would be enhanced by a less confrontational stand toward China by the United States..  The transformation of claims between the South China Sea’s littoral states  into a test of wills between Washington and Beijing has added an unhelpful overlay of great power rivalry to an already complex mix of impassioned disputes.  In 2010 the United States dramatically asserted to a regional meeting in Hanoi that it had a mandate to prevent violent changes in the status quo in the South China Sea.  At the same time, it declared that it took no position on claims there.  This was ahistorical.  It was also disingenuous and unpersuasive.

In practice, as some in the region recall, long before the United States turned against them as part of its “pivot to Asia” in 2010, America had supported China’s claims in the Paracels and Spratlys.  The U.S. Navy facilitated China’s replacement of Japan’s military presence in both island groups in 1945 because it considered that they were either part of Taiwan, as Japan had declared, or – in the words of the Cairo Declaration – among other “territories Japan [had] stolen from the Chinese” to “be restored to the Republic of China.”  From 1969 to 1971, the United States operated a radar station in the Spratlys at Taiping Island, under the flag of the Republic of China..

Neither the Paracels nor the Spratlys ever mattered to the United States at all (except as hazards to navigation) until they became symbols of Washington’s determination to curtail the rise of China’s power along its periphery.  No country with claims to the Spratlys interferes with shipping or peacetime naval transit in the South China Sea.  Nor does any party in the region have an interest in threatening commerce transiting it.  The South China Sea is every littoral nation’s jugular.  China and the other countries on the South China Sea have a far greater stake in assuring freedom of navigation in and through it than the United States does.

It is not in the U.S. interest to perpetuate the antagonisms that now inflame relations between claimants in sections of the South China Sea.  They poison Sino-American relations as well as other littoral states’ relations with China.  China’s neighbors have to live with China, and China has to live with them.

The Cold War seemed to teach the United States that safety lay in deterring conflict rather than in attempting to address its causes.  But applying this timid approach (derived from yesterday’s nuclear standoff and strategic stasis) to the dynamic situation in today’s Indo-Pacific and South China Sea perpetuates rather than controls risk and escalates rather than subdues tensions.  U.S. interests would be far better served by a bold attempt to eliminate the causes of conflict than by continuing the futile pursuit of mechanisms for managing tensions.  Having taken sides against China, the United States cannot now hope to mediate between the parties.  But it can make it clear that it would welcome, accept, and support the negotiated settlement of their differences.

Arguing for the conclusion of a code of conduct to ban land grabs and their fortification makes no sense when all land that can support fortifications has already been seized and is being built on.  Finding a way to apply uti possidetis in ways that minimize claimants’ political difficulties does make sense.  If the United States cannot be part of a solution, it should demonstrate its leadership by encouraging Asian nations to pursue diplomacy that promotes one.  Often, when diplomacy cannot immediately solve a problem, it can create a negotiating process that gives a solution time to ripen and negotiators the opportunity to craft one.

China and its neighbors should see and use American power as backing for peaceful efforts to resolve their disputes, not as an excuse for deferring or avoiding settlement of their differences.  The “rebalancing” of U.S. global strategy toward the Indo-Pacific known as the “pivot” is timely and appropriate.  But it should lower military tensions between the nations of the Indo-Pacific and thus between China and the United States, not lock these tensions in, still less escalate them. Mark Twain once advised: “If you see someone coming down the street with his arms open and a big smile on his face, turn and run like hell!”  Washington should not prove him right about this in the Indo-Pacific.

The issues of the South China Sea are too trivial to be allowed to spark armed conflict or trans-Pacific confrontation.  They are solvable, if those enmeshed in them are willing to make the effort to imagine and pursue solutions to them.  The parties need urgently to get on with this.  And they deserve American encouragement to do so.  

A Short Talk about the Oil Market

Remarks to a Women's Investment Club

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
 | February 25, 2015

Washington, DC

Remember “peak oil?” It’s been proven to be the nonsense some of us thought it was at the time. How much oil there is depends on how much you’re willing to pay for it. There is always some price level at which it is profitable to extract and refine it.

We’re seeing that illustrated now in reverse.

Not long ago, oil was $100 or more per barrel and interest rates were very, very low. This had all sorts of economic consequences:

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– it became very profitable to produce oil and a great deal of it was found and produced. The major oil companies ramped up capital expenditures and launched big new projects all over the world.

– tar sands – which yield oil at about $85 plus transportation – became a potentially competitive energy source. Hence the Keystone XL pipeline project.

– exploration and production (E&P) in challenging (and therefore expensive) environments like the presalt off Brazil, other very deep waters, and the Arctic became financially feasible.

– oil producers, like Russia and Saudi Arabia, made bundles of money. Venezuela could afford to run its oil company and economy into the socialist ground.

– hydraulic fracking and horizontal drilling to extract oil and gas from shale – techniques pioneered by the US Department of Energy through public-private partnerships – became very profitable, sometimes obscenely so.

Small companies here in North America borrowed $200 billion in bonds and bank loans to go into the fracking business. Their debt grew much faster than their revenues.

Renewable energy sources, like wind and solar, as well as hydro and nuclear energy, became cheap enough to justify investing in them for environmental reasons. Hybrid and electric cars became attractive to wealthy consumers. We became progressively more efficient at using energy of all kinds.

All this has now changed.

Since 2008, North American crude output has risen from 7.5 million barrels per day to over 11 million.

Over that seven year period, Brazil, Iraq, and Russia added another 3 million barrels per day to global supply. Meanwhile, the world economy remained mostly in recession, curtailing demand growth. High oil prices encouraged efficiencies, further reducing demand.

In 2014, supply of 93 million barrels per day exceeded demand by about 1 million barrels.

Supply grew by 1.9% while demand grew by 1%. Inventories began to build up.
This oversupply caused prices to fall to about $45 per barrel. This is having complex effects:

– development of tar sands as well as investment in deep sea and Arctic oil are not economic at current prices and are being postponed. The oil majors have cut their investment plans by about 15%. That means that some of the oil that was expected to be produced in the 2020s will not be. A lot of current projections of future supply and demand will prove incorrect.

– Brazilian production from the presalt layer breaks even at about $45 plus about $7 in transportation costs. It has become iffy.

– the first bankruptcies of overleveraged frackers have already occurred. Some are still profitable but many are staying in production just to service and retire debt.

– fracking depletes fields in a couple of years instead of the 20 – 30 typical of “conventional” reservoirs. In a year or two oil supplies from fracking are going to be a lot less than anticipated.

– the oil majors will snap up many of the smaller companies that have been doing the fracking.

– with prices low, demand for oil is likely to pick up but the increased strength of the dollar relative to other currencies means that foreign countries that import oil will not experience price cuts like those here.

– oil producing countries face austerity. Some, like Venezuela, face bankruptcy. Others, like Iran and Russia, face the double whammy of low oil prices and sanctions.

– some kinds of renewable energy are no longer economic. (On-land wind and some forms of solar power are probably exceptions.) There will be a shakeout in the green energy sector. Demand for energy-saving vehicles will lessen.

– contango – that is, buying for purposes of arbitrage – has set in. Buying oil at current prices for resale at higher prices later makes sense. A lot of oil is therefore going into storage.

– employment in businesses with high energy consumption like airlines or petrochemicals will increase. But a lot of jobs will also disappear, at least for a while. (1.7 million North Americans are now employed in fracking or related industries, like steel, pipe, rigs, and construction.)

– the effects will be felt differently by different regions. Oil producers will suffer. Oil consumers will benefit.

What next?

All things being equal, around September, supplies will begin to contract fairly sharply and the gap between supply and demand will narrow.

Prices will rise but not to levels high enough to save most of the frackers. Say $60 – $65 a barrel. Just guessing.

A year or two later, supply shortfalls will send the price of oil way up again. Think $140 / bbl. That will bring the shale producers – by this time many of them owned by the majors – back. And a year or so later, that will push prices down.

In the longer term, the availability on fairly short order of oil from fracking promises to help stabilize prices. Fracking is likely to supplement and may displace Saudi Arabia from its current role as the world’s swing producer. Eventually – sometime in the 2020s – this should stabilize what will otherwise be a volatile oil market. I’d guess the equilibrium price will be about $75 but your guess is as good as mine.

Of course, all things may not be equal. If pressed too hard, Iran or Russia or both could decide on a breakout strategy, taking out other nations’ oil production with cyber or military sabotage. That would send prices through the roof.

Barring that sort of thing, however, the prospects are pretty sure to be as I’ve outlined them. 



What to do about Russia
Introduction of Ambassador Jack Matlock to a salon of the Committee for the Republic

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
 | February 11, 2015
Washington, DC

We are here to consider some very consequential and timely questions.  Is Russia on the prowl or in a corner?  Where does Russia fit in the European state system?  What kind of Ukraine would serve the interests of peace and stability in Europe and might Russia be persuaded to cooperate in creating such a Ukraine?  What is the risk of war with Russia?  What would be the consequences of such a war?  Might it be nuclear?

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It makes a very big difference whether Russia is on the rise, on a roll, and on the make or in decline, fearful, and on the defensive.  Which is it?  Compromising with a confidently ambitious Russia might stimulate it to seek further concessions.  Compromising with a Russia desperate to fend off perceived threats to its vital interests might help allay its anxieties and enable cooperation with it.

The nature of the Russian role in the European state system is hugely important.  In 1815, reintegrating a humiliated France into Europe on terms that respected its interests ushered in a long period of peace.  In 1919, writing a humiliated Germany out of any role in managing European affairs didn’t work out so well.  What relationship do we and our European allies see Russia having with the rest of Europe? What relationship does Russia seek?

Which is more likely to enhance European and Russian security, a Ukraine that is neutral between NATO and Russia or one that is aligned with one or the other of them?  Is it better for the EU or Russia to leave this question open or to resolve it once and for all, one way or the other?  If a viable and prosperous Ukrainian state aligned with neither Russia nor the EU and NATO is in the best interest of all (including the Ukrainian people), how can we create such a Ukraine?  Is the Austrian State Treaty of 1956 a relevant precedent?

Hotheads in Washington and Moscow seem to be pushing the US and Russia toward a new Cold War.  Is the United States prepared to fight a hot war with Russia?  Is Russia prepared to fight the United States?  Given the danger that war between nuclear powers entails, we were careful to avoid armed conflict with each other during the Cold War.  Is such conflict somehow less dangerous now?

These are tough questions.  There is no one better qualified to lead us in a discussion of them than Ambassador Jack Matlock.  Jack is one of the great men of US-Russian relations and the dean of America’s Russia-watchers.  He is a statesman, which means he is a problem solver.  He is a professional diplomat, which means he is a specialist in solving problems through measures short of war.  He is a realist, which means that he has always seen the difference between the glories of Russian literature and the beguiling disinformation of the Kremlin.

Jack Matlock spent thirty-five years in the foreign service of our country, culminating in tours of duty as Ronald Reagan’s ambassador to both Prague and Moscow.  In both posts, he was famously open to a wide range of political contacts.  He knew that one should always be in with the outs.  This served the United States well when first the Soviet empire and then the Soviet Union itself collapsed.

Jack provided the USSR with an elegant but critical eulogy in “Autopsy on an Empire,” his magisterial book on its collapse.  In “Reagan and Gorbachev: How the Cold War Ended” he gave us a gripping eyewitness account of the transformation of US-Russian relations.  In “Superpower Illusions: How Myths and False Ideologies Led America Astray – and How to Return to Reality,” he offered a penetrating analysis of how we squandered the opportunities the end of the Cold War brought and how we might yet seize them.

William Tecumseh Sherman famously said that: “the purpose of war is a better peace.”  Tonight we call on Ambassador Matlock to help us consider how to achieve a better peace rather than a cold or hot war with Russia.

China as a Great Power

Remarks to a China Renaissance Capital Investors

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
 | November 7, 2014

Macau S.A.R. of China

In 2012, China’s now-paramount leader, Xi Jinping, invited President Barack Obama to collaborate with him in developing a “new type of great power relationship.”  It wasn’t clear to anyone what he meant by that.  Perhaps he himself didn’t know and was just calling for dialogue about how best to manage a newly polycentric world order.  But whatever else it signified, Mr. Xi’s initiative was an announcement that China – in its own eyes – has achieved the status of a great power and expects to be treated as such.  This change in self-perception has been accompanied by a notable retreat from China’s previous modesty about its status in both regional and global affairs. And this, in turn, is altering foreign perceptions of China.

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China’s growing weight in global economic affairs is undeniable.  A couple of months ago, the International Monetary Fund (IMF) declared that China’s gross domestic product (GDP) had passed that of the United States if adjusted to purchasing power parity (PPP).  Beijing immediately denied officially that it was number one.  After all, at nominal exchange rates, China’s GDP is still just three-fifths of the European Union’s (EU) and America’s.  (It could pass both as early as the end of this decade.)  PPP equations are not very compelling when you’re on the cheap, discounted end of them.  For now, the Chinese yuan doesn’t buy much that’s priced in either euros or dollars.  Chinese officials must also have feared that accepting the status of the world’s top economy would encourage some foreigners to stick their hands out in anticipation of giveaways while others demanded global leadership China did not want to provide.

Demure as China may be about its achievements, it is now a very big factor in the world economy.  It accounts for about one-fifth of global industrial production.  (Within a decade, this could rise to one-fourth.)  One-fifth of the world’s internet users are in China.  Their numbers are growing fast.  By 2020, China is expected to have a middle class population of 600 million.  It will have the world’s largest online market.  For the past decade, the Chinese economy has contributed one-third or more of global growth.  A 1 percent rise or fall in China’s rate of growth now adds or subtracts 1/2 of 1 percent from the entire world’s growth rate.

Despite its remarkable achievements in recent decades, if China fails to carry out the reforms it is currently attempting, its growth rate will fall significantly and its future power will diminish accordingly.  It cannot hope under any circumstances to grow at ultra-rapid rates.  But, assuming its proposed reforms take hold, China’s economy should continue to expand faster than any other of its size and complexity.  By the centennial of the founding of the Chinese Communist Party (CCP) in 2021, it may well have resumed its millennial station as the largest in the world in absolute terms.  And, given China’s investments in developing its scientific and technological workforce and in research and development, its qualitative impact on the world is likely to be equally impressive.

Chinese spending on R&D is now about two-thirds that of the United States but growing very fast.  It should overtake U.S. levels by 2022, when it will amount to about $600 billion yearly.  By 2025, the Chinese scientific and engineering workforce is projected to total at least 5.5 million persons.  That is the equivalent of the S&T workforce of all of the OECD countries today.  The total for “China” does not include the S&T workforces of Taiwan and Hong Kong, which are increasingly integrated with those of the China mainland.  What’s more, over the past three decades, China has exported a huge number of bright young people to be educated in the West.  Many have stayed abroad and become major contributors to international science and technology.  (Any English-language scientific journal one looks at today has a lot of cutting-edge articles written by individuals or teams with Q, X, and Zh in their surnames.)  These specialists may not live in China, but they are in touch with colleagues there. Meanwhile, many foreign firms are relocating their R&D facilities to China to take advantage of the engineering and technical talent there.

Money plus manpower combined with openness to international collaboration generally yields results.  It is too soon to judge what China’s official focuses on biotech, information technology, telecommunications, energy, lasers, materials science, robotics, space, pharmaceuticals, and infrastructure will produce.  The Chinese Communist Party (CCP) places its hopes on China’s state-owned enterprises (SOEs).  But that’s a mistake.  China’s SOEs are, for the most part, unregulated monopolies, with all the inefficiencies and management difficulties that status implies.

The Party slights the Chinese private sector for ideological reasons.  Outsiders underestimate it because they misunderstand the Chinese economy.  In a triumph of preconception over reality, both imagine that the mainspring of Chinese growth and innovation is state rather than private enterprise.  But it is the private sector that has been driving Chinese economic expansion, job creation, business modernization, and the development of new kinds of goods and services for both domestic and foreign markets.  Venture capital and entrepreneurship in China’s private sector are now accelerating innovation in a widening range of fields.  Just ask cell phone and other telecoms  manufacturers about this.

The Indo-Pacific has over half the world’s population.  It has already become the global center of economic gravity.  Its economies consume more than two-fifths of the world’s energy and produce about one-third of its exports.  In PPP terms, the region accounts for about 40 percent of global GDP, dwarfing the EU’s 23 percent and America’s 20.  Within the region, India is now larger than Japan, contributing almost 17 percent of its economic output.  But China’s economy is over twice as large as India’s, with more than 40 percent of the region’s output.  China has a great deal less to be modest about than it once did.

China seems to be on the way to resuming its historic status as a major source of the world’s new technology, joining Japan and south Korea in this role.  India is coming along too.  But in terms of economic and technological dynamism as well as supply chains, China is and will, for the foreseeable future, remain the region’s hub.

This is in part why one now seldom hears references to Deng Xiaoping’s recommendation that China 韬光养晦 (“taoguang yanghui.”). This is a phrase that has been mistranslated to sound sinister: “to hide one’s capacities and bide one’s time.”  It’s actually a line from a poem by a 2ndcentury official who advised colleagues retired by the emperor to “shroud their brilliance and cultivate obscurity.”  In other words, strive to be unobtrusive.  That’s always been a good way to stay out of trouble.  But it’s hard to remain self-effacing when you’re on a roll.

And it’s even harder for China to continue to sit humbly on the sidelines when its peers – the world’s established economic powers – are unable or unwilling to address issues that matter greatly to its present and future prosperity.  The Chinese have become key participants in the so-called “free world” – the capitalist economic order created by the Pax Americana.  But the United States is now afflicted with unprecedented partisan gridlock and political paralysis.  America’s domestic dysfunction has infected the international institutions it created and for long led.  Like the government in Washington, these institutions are now unable to set priorities, make strategic choices, or manage change.  Europe is almost as stagnant, stodgy, and self-absorbed.  Mr. Abe’s “three arrows” of domestic Keynesian stimulus and regulatory reform notwithstanding, Japan is no better.  The resulting international leadership vacuum has made it impossible for China to remain disengaged from key questions of global and regional governance.

Institutions like the exchange rate and reserve management systems of the IMF and the lending programs of the World and regional development banks need to evolve to remain competent, relevant, and responsive to the massive changes now underway in the global economy.  But the governance of these institutions no longer reflects the actual distribution of global capital and commerce.  Existing arrangements exclude the largest and fastest growing stakeholders in these institutions from roles in decision-making commensurate with their shares in the global economy.  As a result, the international system lacks the capacity either to adapt to altered circumstances or to react effectively to emergencies.  The key institutions of the Pax Americana have not met the changing demands of a world no longer dominated by the developed economies of the West.  The United States retains the strength to lead the world in making necessary adjustments.  It still claims pride of place in shaping the evolution of affairs at both the global and regional levels.  But, so far this century, it has lacked the inventiveness and strategic vision as well as the decisiveness and capital to do so.

China is in the midst of yet another major reordering of its economy.  The difficulty of accomplishing this amidst a  recession in the Organization for Economic Co-operation and Development (OECD) countries has underscored to China’s leaders how dependent on the continued growth and prosperity of global markets their country has become.  China is the world’s greatest trading power.  It is not only the world’s greatest exporter of manufactured goods but its largest importer of commodities.  It has a big stake in the soundness and efficiency  of global transportation infrastructure.  China’s prosperity is linked to the growth of other so-called “emerging markets” as much or more than it is to the established markets of the developed world.

Outbound investment from China now exceeds the flow of foreign direct investment to it.  China has a vital interest in continued global growth and an expanding role in the world economy.  It needs a prosperous international environment as much as it needs a peaceful one. China cannot afford to remain aloof from the reshaping of international arrangements to support these objectives.  Chinese have been frustrated by the American default on reform of existing arrangements to meet the emerging challenges of the 21st century.  The Chinese are not alone in their exasperation at this.

China and other newly powerful participants in the globalized economy of the 21st century have not given up on legacy institutions, but they have lost patience with U.S. procrastination and have begun to supplement existing arrangements with their own. The Asian Development Bank (ADB) has estimated that to optimize growth the region needs at least $800 billion in annual investment in infrastructure.   In early May, China took the lead in establishing an Asian Infrastructure Investment Bank (AIIB) to address infrastructure modernization and expansion requirements that the ADB has been unable to meet.  The AIIB came into being on October 24.  It has an initial capitalization of $50 billion – most of it contributed by China – that is expected fairly quickly to grow to $100 billion, making it two-thirds the size of the ADB.  The AIIB’s second-largest shareholder is India.  A similar bank is contemplated to serve the members of the Shanghai Cooperation Organization (SCO).

World Bank lending has lagged as the United States, Europe, and Japan – which dominate it – have proven unable or unwilling to expand it.  In July, China joined with Brazil, India, Russia, and South Africa – the so-called BRICS countries – in chartering a New Development Bank (NDB) to supplement World Bank investment in infrastructure with authorized lending of up to $34 billion annually.  Each of the founding countries will contribute an initial $10 billion in capital, for a total of $50 billion, rising later to $100 billion.  Each will have one vote.  Unlike the World Bank, where the United States has a veto, no member of the NDB will have veto power.

From the perspective of the so-called “emerging markets,” the Fed’s on-again off-again program of “quantitative easing” has been indistinguishable from currency manipulation.  So in July, the BRICS also created a Contingent Reserve Arrangement (CRA),  This is a framework to limit the impact of domestically dictated U.S. monetary policies on developing country economies and to provide protection against the economic volatility these insouciantly cause.  The CRA parallels and supplements the IMF.  Its initial capitalization is $100 billion, of which China is contributing $41 billion.  It will start lending in 2016.

Meanwhile, in part due to obstruction by India, the World Trade Organization (WTO) is no longer able to achieve the liberalization of global trade and investment regimes.  This has led to efforts to accomplish this at the regional level.  As a case in point, Beijing has stepped up efforts to establish a Regional Comprehensive Economic Partnership (RCEP) for the Indo-Pacific.  RCEP would bring together Australia, China, India, Japan, south Korea, New Zealand, and the ten member countries of the Association of Southeast Asian Nations (ASEAN) in a single free-trade area.  It would include 46 percent of the world’s population, 40 percent of its GDP, and most of its fastest-growing large economies.  China would, of course, be the heavy hitter in RCEP.   The United States would not be part of it.

China is also pressing for a Free Trade Area of the Asia Pacific (FTAAP) that would embrace all members of the Asia-Pacific Economic Cooperation (APEC), including the United States and Canada.  The U.S. has resisted this proposal as a distraction from Trans-Pacific Partnership (TPP), which excludes China despite its status as every other participant’s largest trading partner.  China has pushed to make its inclusive proposal a main topic of discussion at the current APEC summit in Beijing.

These initiatives meet real needs that existing institutions have not met and have no prospect of meeting.  In taking remedial action, China is acting like the “responsible stakeholder” in the international system it has become.  The official U.S. reaction has nonetheless been churlish.   American lobbying appears to have delayed Australia, Indonesia, and south Korea decisions to join the AIIB.  All will eventually do so in order to avoid strategic isolation in an increasingly Sino-centric Asia.  U.S. opposition and dissociation from Chinese-led institutions just deprives Americans of influence and participation in investment programs of great importance to global and regional development.  It erodes rather than reinforces the standards and lending criteria the United States has traditionally favored.  Of course, there is also no reason to rule out the eventual merger of the new institutions with the old.

Washington’s peevishness about the creation of institutions that it and its allies do not dominate and cannot control is understandable if not a little pathetic.  The locations and leaders of the new institutions clearly symbolize both a trend toward Indo-Pacific leadership in global finance and the emerging centrality of China in global and regional affairs.   The ADB may be headquartered in Manila but it has been dominated by Japan and the United States.  The European and American-dominated IMF and World Bank are based in Washington.   The AIIB has its headquarters in Beijing but includes members from South, Central, and West Asia as well as the Asia-Pacific.  It will be led by an experienced Chinese financier.  The main office of the NDB will be in Shanghai.  Its first president is to be from India.  After a couple of bad centuries, the Indo-Pacific is back at the center of global affairs.

Meanwhile, the deterioration of U.S. and EU relations with Moscow is driving Russia away from Europe and closer to China.  This too underscores the extent to which a Sino-centric order is emerging on the Eurasian landmass.  This nascent order is not structuring itself the way the post-World War II Pax Americana did.

So far, Chinese-sponsored amendments to the existing state system are taking the form of loose associations rather than alliances.  They have no leadership hierarchy, weighted voting, or great power vetoes.  They are not supranational organizations. The SCO, which is the closest thing to an alliance that China has contracted, acts as a club directed at countering terrorist and secessionist activities.  It conducts military exercises but has no agreed command structure and embodies no mutual defense commitments.  Its members share no political philosophy other than the principle of non-interference in each other’s internal affairs.

The BRICS and  the Conference on Interaction and Confidence Building Measures in Asia (CICA) are egalitarian consultative groupings rather than organizations. They facilitate but do not require cooperation and embody no client state or satellite relationships.   They also have no ideological identity or aspirations to develop one.  They include almost every variety of political system – from China’s Leninism with Confucian characteristics to India’s rowdy democracy, the presidential dictatorships of Central Asia, the sultanates of Arabia, and everything in between.

The groupings in which China has begun to involve itself are classic examples of cooperative diplomacy.  They connect participants to China but have none of the attributes of spheres of influence.  They emphasize the sovereign independence and equality of states, consistent with the Chinese and Indian-formulated “Five Principles of Peaceful Coexistence.”  China does not claim or assert primacy within them.  The new financial institutions Beijing has helped create are consistent with this pattern of ideological neutrality and decision-making by consultation rather than at Chinese direction.

China is, in effect, working toward new patterns of relationship with other powers, great and small and near and far.  President Xi Jinping’s proposal for “a new kind of great power relationship” appeared initially to be directed only to the United States.  But it soon became apparent that the concept was unworkable unless it was applied to China’s relations with other great powers as well.  China’s not-unreasonable objective is to reshape the international order to ensure that it is responsive to its concerns.

China has shown no desire to dominate emerging institutions and arrangements.  Still its size and dynamism are such that it is a preeminent presence in any grouping it joins from which the United States is absent.  That makes other participants uneasy.  In the case of a country as colossal as China, the distance between being dominant and being perceived by smaller neighbors as domineering is not very large.

China is the new heavyweight in the Western Pacific. It is in this context that its recent activities in the East and South China Seas have alarmed Filipinos, Japanese, and Vietnamese.  Chinese see themselves as belatedly reacting to inroads by others into places they have claimed without challenge since ancient times.  Others see China as trying to bully them into leaving places they currently control and believe are rightly theirs.

China’s recent patrol-boat diplomacy on these disputes in the East and South China Seas has altered its image in the region and around the world.  In the past, China was often represented abroad by the symbol of a panda.  Now it is invariably shown as a dragon.  This is not a friendly image.  Even the best-intentioned of dragons is intimidating to those smaller than it.  Not surprisingly, China’s smaller neighbors have begun to band together to constrain it.  Most have also actively sought American support to balance it.

Some Americans are eager to respond.  Their motives vary.  Some wish to hang onto the politico-military supremacy the United States has enjoyed in the Asia-Pacific since the defeat of Japan in World War II.  Many see it as a matter of national honor to answer requests for back-up by allies and client states.  Some are gratified that, despite many troubling changes in the global situation, the United States is still recognized as indispensable to regional order.  And some see China as a potential global rival whose power must be curtailed in its region before it becomes irresistible.  They seek to assure that Chinese power remains checked by a continuing robust military presence in the region.  Many are in denial about the shifting balances of economic power, military prowess, and political influence that have marked the post, post Cold War period.

By any measure, the return of China to great power status is a momentous development.  It is not surprising that it has raised many questions about how China will behave and what kinds of  relationships it will seek with others in its region and beyond.  Politics in the Indo-Pacific region have never been so intensely nationalistic.  China’s neighbors must learn to live with a China that is no longer weak, poor, or vulnerable.  Beijing must learn to deal sensitively with neighbors who are outspokenly apprehensive about China’s new military strength, economic power, and occasional hauteur.  None of this will be easy.

China’s interactions with its neighbors have a decisive effect on its relationships with countries farther away.  In this context, China has an urgent need to craft a “new type of great power relationship” not just with the United States but with other potential partners or adversaries, like India, Indonesia, Japan, the Koreas, Russia, the EU, and Brazil. What sorts of relationships will these be?  Will the new, polycentric world – in which China will inevitably sit on the board of directors – operate under rules or without them?  If there are rules, who will make them?  We do not yet know the answer to these questions, but they are important.  If there are no rules, every country, including China, will have no choice but to derive its political power from the barrel of a gun.  The norms of international law have been much violated in the early years of this century.  We must hope that the new relationships being forged among the world’s and the Indo-Pacific region’s great powers will help to bring about the reinvigoration of these norms rather than their  final passing.  

The Geopolitics of the Iran Nuclear Negotiations

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
 | September 29, 2014

Washington, DC

Last July, negotiators from the Islamic Republic of Iran and the “P5+1″ (China, France, Germany, Russia, the United Kingdom, and the United States) failed to reach a final agreement trading restrictions on Iran’s development of its nuclear industry for sanctions relief.  Having missed  their deadline, they extended it, giving themselves until November 24 to agree.  On September 19, they picked up the negotiations where they had left off, but made little progress.

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The P5+1 and Iranian negotiators are meeting amidst rapidly evolving international and regional circumstances.  Whether they succeed or fail, their discussions will have an impact on much more than just nuclear proliferation in the Middle East.  They will affect the geopolitics of that region, relations between the world’s greatest powers, and the emerging pluripolar world order.


Despite international anxieties about Iran’s nuclear weapons program, the program itself remains a conjecture and allegation rather than an established fact.  The world’s most highly regarded intelligence agencies affirm only that some Iranians were doing some work on nuclear weapons until 2003, when the Islamic Republic ended this.  The official worry is now that Iran’s mastery of the full nuclear fuel cycle and its development of missiles will give it “nuclear latency” – the future capacity to weaponize nuclear materials on short notice.  The intelligence agency consensus is that the Tehran has not made a decision to do this.  Still, the seldom-rebutted popular narrative is that Iran is going all out to build a bomb.  Even those who reject this narrative do not trust Iran not to make a decision to acquire nuclear weapons in future.  This distrust is deep-rooted.  It will not be easy to overcome.  It is also not without its ironies.

Iran’s supreme authorities have proclaimed that nuclear and other weapons of mass destruction are forbidden by Islam.  They say that Iran is morally barred from building the bomb.  Iran’s history makes it hard to dismiss this declaration out of hand.  After all, despite an estimated 100,000 deaths from Iraqi nerve gas attacks, it was on this basis that Tehran declined to develop its own chemical weapons capability during the 1980 – ‘88 Iran-Iraq war.

The only threats to Iran from countries wielding weapons of mass destruction now come from  those most agitated about Iran’s possible acquisition of them — Israel, the United States, and (to a lesser extent) France and neighboring Russia – all of which have nuclear arsenals and a record of assaulting Muslim states.  It is logical that Iran should want a nuclear deterrent to bar attack by such nuclear-armed enemies.  Powerful interest groups and politicians in Israel, Saudi Arabia, France, and the United States assign more weight to this logic than to the findings of their own intelligence agencies.  Israelis recall that they ran their own clandestine nuclear weapons program decades ago amidst constant denials that they had such a program.  Israel’s government doubts that Iran is any more truthful about its nuclear programs and their objectives than Israel was.

Holocaust-inculcated paranoia disposes the Jewish state to treat the Iranian nuclear issue as a zero-sum game.  The Netanyahu government opposes Iran’s retention of any nuclear industry at all.    It has repeatedly threatened to attack Iran to destroy its nuclear facilities.

Like its Gulf Arab neighbors, Iran plans increasingly to rely on nuclear energy for electric power, freeing fossil fuels for profitable export.  Given past US-led efforts to shut off its access to nuclear fuel and materials, Iran insists on its own control of the nuclear fuel cycle.  The P5+1 objective is to persuade Iran to cut its nuclear activities to the smallest possible scale and the lowest possible level of enrichment over the longest period of time to which Iran will agree.

Israel’s views have decisive influence in Washington and substantial impact in Berlin,  London, Paris, and Moscow.  As a practical matter, if the talks produce agreement, it cannot be ratified by the United States or carried out by the U.S. and most other negotiating parties unless the Obama administration convincingly answers, obviates, rebuts, or rejects Israel’s objections, which are sure to be forcefully advocated by its claque in the U.S. Congress.  In the absence of a deal, Iran will continue to develop its nuclear sector without effective international constraint.

A breakdown in the negotiations or an agreement that falls apart due to opposition from Israel’s American partisans would see the U.S. Congress seek to ratchet up sanctions against Iran.  Israel would be forced to decide whether to mount a unilateral attack on Iran or suffer a loss of credibility as its repeated threats to do so were revealed to be a bluff.  Iran would have to choose between its professed aversion to weapons of mass destruction and its need to deter attack by Israel or the United States.  Those Iranians, including President Rouhani and his government, who had gambled on doing a deal with the United States would be politically humiliated and discredited.  Iran might follow north Korea in withdrawing from the Non Proliferation Treaty (NPT).  The role of international law in non proliferation efforts would suffer a debilitating setback.  The prospects for the proliferation of nuclear weapons in the Middle East would be greatly enhanced.  The struggle to craft a strategy to deal with the spreading phenomenon of Islamist extremism, including the so-called “Islamic State” (IS) now straddling the Iraq-Syria border, would be further complicated.

Another extension of the negotiating deadline would lack credibility and – to one degree or another – entail some of the same negative consequences as a failure to close a deal or to implement one.  There is a lot at stake in the current negotiations.  Recent international trends and developments are both adding to their complexity and magnifying the consequences of their outcome.

The Changing Global and Regional Contexts of the Talks

Over the past year, relations among the P5+1 and the situation in the region have both changed substantially.  Tensions between the EU, US, and Russia have become acute.  Iran is less isolated internationally.  Israel’s influence in France, Germany, and the U.K. has weakened.  The rise of IS and the drawdown of Western forces in Afghanistan have made cooperation with Iran on regional issues more attractive.  Meanwhile, U.S. dollar hegemony has begun visibly to erode.  The net effect of these changes has been to create new diplomatic options and opportunities for future sanctions avoidance by Iran.

As a result of the Ukraine crisis, Washington and Moscow are now barely on speaking terms.  Berlin, London, and Paris have cut back engagement with the Putin government.   Russia has moved to embrace China as an alternative to Europe.  China, for its part, has been eager to secure its inner Asian rear.  (A good relationship with Russia strengthens China’s ability to fend off what it sees as a rising threat from the United States in the Western Pacific.)  These developments have greatly lessened Western influence in Moscow and reduced Russian interest in deferring to Western policies when its own interests in the Middle East and elsewhere suggest a different course.

In August, Russia reportedly agreed to buy an initial 500,000 barrels of Iranian oil for resale on world markets, including China, with an option for twice as much.  This directly undercut Western sanctions restricting Iran’s oil trade.  (Most sanctions on Iran have been imposed by the West without UN Security Council authorization, depriving them of binding force under international law.   In the absence of UN legitimation of sanctions, China has been importing about 675,000 barrels of Iranian oil a day.  India imports almost 300,000.)  In the short term, the reported Russian deal reveals a damaging split in the political solidarity of the P5+1.  It reduces financial pressure on Iran.  In the longer term, it raises questions about the viability of current – let alone future – sanctions against Iran.

Most Europeans want a deal with Iran that reduces the prospects for Iranian development or deployment of nuclear weapons as well as follow-on proliferation in West Asia and North Africa.  The EU has little appetite for more sanctions against Iran.  Moreover, the limited sanctions relief of the interim agreement of November 24, 2013 predictably awakened interest in the Iranian market.  European companies have been especially active in seeking sales and investment opportunities, stealing a march on their more cautious and presumably less-favored American competitors.  (Asian companies have all along been active in Iran.)

European interest in trade and investment in Iran is all the greater because the EU now seeks more than ever to reduce its energy dependence on Russia.  European interest in achieving closure in the nuclear talks with Iran has risen. Meanwhile, distaste for Israel’s domestic and regional policies has grown considerably in Europe but much less so in the United States.  In this atmosphere, an Israeli effort to block or sabotage agreement with Iran would potentially split the P5+1 along yet another axis.

Recent gains by Sunni extremists in Iraq and Syria have served to underscore Iran’s strategic influence in the Fertile Crescent, strengthening incentives for Western rapprochement with it.  So far, deference to Gulf Arab animus toward both Iran and its Shiite clients in the region has prevented the United States and other leading (mostly Christian!) participants in the newly formed anti-IS coalition from active exploration of overt cooperation with Iran.  Much has been made of the bravery of the Kurdish peshmerga, but the Shiite coalition of Iran, the Iraqi and Syrian governments, and Hezbollah has been and remains the main force arrayed against IS on the ground.

In practice, Iran has the same enemies in the region as the West, if not the same friends.  Unlike the Gulf Arabs, Iran has no ideological contradiction arising from a requirement to appease Sunni extremists at home or to oppose democracy in places like Egypt or Bahrain.  Awkward as Western cooperation with Iran may be in terms of relations with the Arabs of the Gulf, the arguments for it are likely to seem increasingly compelling as the struggle against Sunni extremists in the region takes its predictably difficult course.  Iran is about to be admitted to the Shanghai Cooperation Organization (SCO).  The need for Iranian and SCO actions to counter the (Sunni extremist) Taliban in post NATO Afghanistan can only strengthen the case for cooperation with Iran.  Such cooperation is incompatible with anything other than a relaxation of sanctions.

In the absence of consensus in the UN Security Council, most sanctions against Iran rely upon the fact that the dollar is not just the global medium of trade settlement and benchmark for currency exchange but also the U.S. national currency.  Sovereignty over the dollar has allowed the United States to prohibit Iranian transactions in it and currencies linked to it, effectively excluding Iran from global trade and finance except as approved by Washington.  But, as is always the case, the market distortions sanctions entail have created incentives to find ways to work around them.  This means avoiding the use of the dollar in favor of gold, other currencies, or barter.  The need to do this has been especially felt by countries like China, India, and Turkey, which need Iranian oil.

International transactions in the dollar and related currencies are facilitated by the Society for Worldwide Interbank Financial Telecommunication (SWIFT), from which the United States engineered the expulsion of Iranian banks in 2012.  The U.S. resort to sanctions against Iran and other countries has inspired a variety of mechanisms designed to avoid not just the dollar but also SWIFT, whose databases enable the United States to monitor and punish transactions it has prohibited.  Recent sanctions against Russia are spawning still greater creativity in this regard. This is reflected  – inter alia – in recent initiatives by the BRICS group of countries to settle trade in their own currencies.  The Chinese yuan, Hong Kong-Shanghai, and China’s UnionPay seem now to be emerging as alternatives to the dollar, New York, and SWIFT in the conduct of interbank transactions supporting international trade.

The Indo-Pacific region’s economies are already 1.5 times the size of either NAFTA or the EU  and are growing more rapidly.   The implications of this are clear.  The era in which the United States and/or Europe can effectively sanction other countries without the support of the UN Security Council and the non Western great powers excluded from it is drawing to a close.  The opportunities for avoiding or undercutting sanctions available to countries like Iran are growing concomitantly with the redistribution of power in the global economy.

The Geopolitical Consequences of No Agreement

Iran has been seriously hurt by sanctions.  But Iran’s pain – which, all too predictably, has not produced changes in Iranian policy – is likely to diminish with time.  Another round of Israeli-inspired, American-led tightening of sanctions will be difficult.  Before long, it is likely to become impossible.  If the current negotiations fail, there is every reason to believe both that Iran will be able to tough out the aftermath and that the strait jacket of sanctions that has constrained the Iranian economy will steadily loosen.

Iran’s talks with the P5+1 have represented a gamble by Iranian moderates that improved relations with the West on terms respectful of Iranian sovereignty and national dignity are possible.  A perceived Western rebuff of this thesis would severely undercut them.  It would also sharpen the contradiction between Iran’s professed moral principles and its military’s perception that it needs a nuclear deterrent.  Tehran might well respond by denouncing the NPT and ending international inspection of its nuclear facilities, as north Korea did.  US-Iranian reconciliation would likely be deferred for another generation or more.

Israel and the Gulf Arabs are disposed to welcome anything that delays or complicates Western rapprochement with Iran, which they judge is likely to come at their expense.  Thus, they might initially welcome a failure by the P5+1 and Iran to reach agreement.  But any such schadenfreude would be short-lived.  The dashing of Iranian hopes for improved relations with the United States and EU would seriously reduce prospects for the political compromises between Iran, its neighbors, and the West necessary to replace sectarian struggle and violent politics with stability in the Fertile Crescent.   A definitive failure of  Western efforts to broker less alarming nuclear policies in Iran would have the effect of exacerbating longstanding strategic antagonisms and increasing tensions in the Persian Gulf.

The lack of any internationally monitored cap on Iran’s nuclear capabilities would be seen by its Arab neighbors as the removal of an essential external check on its imperial ambitions.  In response, the several Gulf Arab states would likely carry out their oft-threatened preemptive acquisition of nuclear deterrents, whether imported or indigenous.  (Once on the road to nuclear capability, they might also feel strong enough to pursue accommodation with Iran.)  The Gulf Arab states would certainly insist on the right to their own nuclear enrichment, paralleling Iran’s programs.  Others beyond the Gulf, like Egypt and Turkey, might well feel compelled to follow suit with their own nuclear programs, leading to a spreading frenzy of nuclear proliferation.  An unmanageably complex tangle of nuclear balances and doctrines would succeed Israel’s current nuclear monopoly in a region notoriously prone to war.

What Might Follow Agreement

By contrast, an agreement between Iran and the P5+1 that survived Israeli and Gulf Arab second-guessing could (and likely would) stall, if not preclude, further nuclear proliferation in the region.  It could also catalyze progress toward Iranian rapprochement with the United States and other Western countries.  Its regional impact would depend in part on whether it was judged as likely to prove effective in curbing Iran’s presumed nuclear ambitions.  If so, it could facilitate the regional accommodations necessary to restore stability in the Middle East and wider Muslim world.  If not, it could trigger efforts by some Arab Gulf states to field their own nuclear deterrents before reconsidering how to coexist with the Islamic Republic.

One way or another, an agreement would produce a chance for all parties to discover common interests in combating and containing extremism, whether Sunni or Shiite in origin, and an opportunity for creative diplomacy to replace military contention with peaceful coexistence and competition.  These opportunities might not be seized, of course.  But they would not exist at all in the absence of a successful outcome to the current negotiations. 

This was published as an article by the Norwegian Institute of International Affairs, and posted at:


North America and China in the New Energy Age

Remarks at the Opening of the 2014 Conference of the Canada-United States Law Insstitute

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
 | April 4, 2014

Cleveland, Ohio

It’s a pleasure to join you at Case Western University.  We’re here to explore the connections between energy, the environment, markets, technology, legislation, and regulation  in North America and the world.  We Americans have, of course, figured out how to stage a world series by redefining the “world” to exclude everyone other than ourselves and a few Canadians.  But we can’t get away with doing this when it comes to energy, the environment, markets, and technology.  These are global systems affecting life throughout our planet.

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Energy was one of the first commodities to be globalized and trade in it is a constantly shifting picture.  When I served as U.S. ambassador to Saudi Arabia twenty-odd years ago, someone told me that around 1880 American businessmen petitioned the U.S. Department of State to establish a consulate on the Red Sea at Jeddah.  They claimed they needed a U.S. government presence there to support burgeoning sales of Pennsylvania rock oil (what we now call “petroleum”) to the Arabs, who were becoming addicted to imported American kerosene.   Less than seven decades later, those very same Arabs began to export huge quantities of crude oil to the world, including the United States.

Another seven decades have passed, and the release of tight oil and shale gas in North America is making the United States — at least for a time — once again a major exporter of various forms of energy, including not just coal but natural gas.  Tight oil has boosted U.S. oil production by nearly three-fifths since 2008 and cut our annual import bill by about $100 billion. But oil prices are still set by global, not regional markets, and they will continue to be set in this way.  By contrast, gas prices — and therefore the costs of petrochemicals — now differ greatly from continent to continent.  Gas in North America costs one-third what it does in Europe and one-fifth what it does in Asia.  Trade is the exchange of what one has in relative abundance for what one does not.  The U.S. no longer imports liquefied natural gas (LNG).  That’s cut another $100 billion off our trade imbalance. More than twenty applications to export LNG from the U.S. are now pending at the Department of Energy in Washington.

We still import a lot of crude oil, in part because our refineries are designed to handle heavier oils than we are now producing domestically.  We have been selling a rapidly growing amount of petcoke — the highly polluting residue of such refining — to China.  At the same time, we are exporting rising quantities of diesel and other refined petroleum products.  In sum, we are exporting some types of energy and products that incorporate fossil fuel feedstocks even as we continue to import many others.

As this suggests, the ultimate result of what’s happening will not be “energy independence” — as some claim — so much as strategic self-sufficiency in some, but not all, categories of energy.  Our geopolitical autonomy will continue to be tempered by our participation in an increasingly complex pattern of international energy interdependence.

I’ve  been asked to speak to you this morning about how North America’s interactions with China will affect some of these emerging complexities.  Why China in particular?  Well, China is now the world’s largest energy user and its greatest polluter.   Five years ago it became the world’s largest automobile market.  For two years it has been the world’s largest annual investor in renewable energy.  Economists predict that it is about to become the world’s biggest economy, a status it enjoyed for millennia until it was surpassed by Britain around 1850.  A few years after China overtakes the American economy in size, if its growth continues, it will have a GDP larger than the U.S. and Canada combined.  Trade in energy promises to be a major element in North America’s evolving relationship with China.

This year’s Canada-U.S. conference is focused on prospects for the development of environmentally responsible energy sources, for North American participation in the global energy trade, for increased efficiency in the use of energy, for carbon trading and tax schemes, and for the future of the automobile.  I have only a very few minutes to say something about all these issues.  I’m afraid I’ll be pretty superficial.  But that has never bothered me at all.  Years ago, a wise man from the East assured me that, if something is worth doing, it is worth doing superficially.  (He was, of course, from the East Coast of the United States.)  I console myself that the excellent panels at this conference will provide the depth and detail I cannot.

Thinking about the current state of Sino-North American energy relations caused me to recall a famous piece in the Toronto Globe and Mail over three decades ago  In it, Ross Munro, the Globe and Mail’s Beijing correspondent, wrote about his participation in the Beijing marathon.  This was, of course, before that marathon became the slog through the smog that it is now.  As Mr. Munro, who is Canadian, ran the course, he heard the crowd yelling 加油, 加油 (jiāyóu, jiāyóu!).  He was greatly encouraged by this.  He took it to be short for 加拿大朋友 (jiānádà péngyŏu) or “Canadian friend” and reported that China had been seized with s mysterious wave of affection for Canadians.  Perhaps.  But jiāyóu literally means “add oil” — that is, “step on the gas” or “pick up the pace.”  And in our energy relations with China, that’s exactly what we’re now doing.

The boom in shale gas is creating new opportunities for North American energy companies to market fuels to China and for Chinese oil and gas companies to buy into their production here.  Chinese imports of petcoke — the sludge from U.S. refineries — have been growing at 50 percent per year.  China imported U.S. propane for the first time last May.  The U.S. shipped 111,000 metric tons of it to China last year, according to Chinese customs data.  China imported 74,000 tons of propane from the U.S. this January alone.

In the last few years, Chinese energy companies have invested huge amounts of money abroad.  Despite the severe political obstacles we Americans (and, to a lesser extent, Canadians) have put in the way, they have also invested more than $25 billion in oil and gas production in North America.  They are now actively exploring buying positions in the services sector here as well as elsewhere.  In addition to securing resources, they want to master hydraulic fracturing, horizontal-drilling, and oil sand extraction technology as well as other techniques for application both back home in China and in their foreign operations.

Investment in increased energy production, especially environmentally responsible investment, is good for the global economy as well as for Canada, China, and the United States.  Its implications go well beyond the bilateral context in which we usually consider it.  Let me give you a pertinent example that involves Canada, China, and the U.K.  When CNOOC’s newly acquired Nexen unit shuts down the Buzzard oil field in the North Sea for maintenance this July, Britain’s exports will drop enough to have a marked effect on its GDP and job market.  (A shutdown by Nexen in 2012 helped push the British economy back into recession.)   As ownership of the means of production is globalized, we are seeing economic interdependence develop new dimensions.

The sudden abundance of natural gas in the United States has brought about more than opportunities for exports.  It has reduced domestic demand for other fuels, especially coal.  Coal now accounts for less than 40 percent of U.S. electric power generation, down from over 50 percent a decade ago.  For a while, exports to China and Europe  kept U.S. production up and prices high.  China is the world’s largest producer and consumer of coal.  It burns half the coal burned in the world and it depends on coal for around 78 percent of its power.  The result in the great cities of China, as in London from the 1880 through the 1950s, is increasingly unbreathable air and polluted water.  Coal is the source of a lot of China’s environmental problems.  Could  tight oil and shale gas be the answer to these problems?

Most estimates are that China has only half the tight oil but about the same amount of shale gas reserves as Canada and the U.S. combined.  Unfortunately, however, much of China’s unconventional energy is located in relatively remote areas with little or no infrastructure, limited water, and convoluted geology.  You can drill a shale gas well in North America for between $3 and $4 million. It costs nearly $15 million to do that in China.  Given geological and other differences, it won’t be enough for Chinese companies to copy North American practices.  They will need to develop innovative technologies of their own to exploit their country’s reserves.  These include injecting substances other than water to raise reservoir pressure and perfecting new drilling techniques.  All this will take time.

But the Chinese public is quite understandably unwilling to continue to put up with unbreathable air.  Some of the eight-and-a-half million Chinese who have emigrated in recent years are environmental refugees.  They left to spare their children the experience of growing up in a badly degraded environment.  The political salience of the environmental catastrophe in Chinese cities is why Premier Li Keqiang’s state-of-the-nation speech at the recent National People’s Congress came down so heavily on the need to combat pollution.

China  is shutting down steel, cement, and glass-manufacturing facilities that are heavy polluters.  Air pollution in China is the result of multiple factors, including car engine exhaust and construction dust, but there is no question that coal-burning power plants are the largest cause of the sooty air in China’s cities.  The Chinese government is finally forcing power plants to stop shutting down their scrubbers when the inspectors aren’t looking and cracking down on the corruption that facilitates this.  Coal consumption in China continues to rise but emissions of sulphur dioxide — a health hazard in its own right and a major contributor to acid rain and visibility problems — fell by 3.5 percent last year and should drop by another 2 percent this year in what Western scholars have called “one of the most swiftly effective air-pollution policies implemented anywhere.”

In his speech, Premier Li claimed that the amount of energy consumed per unit of GDP growth would be cut this year by 3.9 percent, following a 3.7 percent drop last year.  China already has some of the toughest efficiency standards in the world for buildings and transport.  But for these standards to be effective, China needs to make further progress toward enforcement under the rule of law.  Accomplishing this is a stated objective of the new Chinese government, though environmental enforcement is not helped by the escalating persecution of non-governmental activists.  All in all, however, China is attempting to move away from a focus on rapid economic growth to address a widening range of quality-of-life issues.

As it restructures key elements of its socio-economic system, Beijing is trying to shift energy production toward renewable sources.  It has just banned new coal-fired power plants in some of its major cities.  It is also building 32 nuclear power plants and hopes to raise the nuclear component of its national energy diet from its current 2 percent to 6 percent by 2020.  (By comparison, the U.S. is about 19 percent nuclear and Canada is a bit more than 15 percent.)

Nuclear power aside, renewable energy sources made up 57 percent of newly installed Chinese generating capacity last year.  China put in 22 gigawatts of hydropower capacity and about 14 gigawatts of wind power.  It is looking to install another 18 gigawatts of wind power this year and to generate 200 gigawatts from wind by 2020.  In 2013, China installed a record 12 gigawatts of photovoltaic panels, more than the total amount of solar power now in operation in the U.S. and Canada together.  This year, another 14 gigawatts of solar power should come on line in China.

In the aggregate, these trends amount to the fastest shift in the structure of a national energy market that history has ever seen.  Shifts in energy supply and demand in China have global consequences.  Their impact is not limited to China and its major trading partners.  For example, China’s subsidies for photovoltaic projects have caused solar-panel prices to tumble worldwide.  This has made solar power competitive with other sources of power in a widening range of environments.  The same sort of efficiency gains and cost reductions are now taking place in wind power. China’s current experiments with carbon-trading regimes in seven cities and provinces and its plans to develop a national carbon-trading system next year are being carefully watched around the world.

Nor is China isolated from policy and legislative trends in other countries.  The Australian government’s declared intention to abandon its carbon tax system is leading to second thoughts about imposing one in China.  In Beijing, there’s now a lot more talk about raising taxes on air pollution, waste water, and solid waste than about a carbon tax.

Meanwhile, with another 90 million people — about 43,000 people per day — expected to move into China’s cities by the end of the decade, the Chinese government continues to emphasize investment in urban transportation, including roads as well as mass transit.  At least 26 Chinese cities are now building or expanding subway systems, while another eleven have begun to plan them.  But the growth in mass transit will moderate but not solve the traffic gridlock on city streets.  The Chinese love affair with the private automobile is new but shows few signs of abating.

Last year more than 20 million new cars and trucks were sold in China, while sales in North America topped 17 million.  Between them, North American, European, Korean, and Japanese companies have 60 percent of the Chinese vehicle market.  So far this year, sales in China are up 18 percent, outpacing expectations of a 10 percent gain.  But, despite subsidies for electric vehicles, most Chinese consumers have so far been as unenthusiastic about them as North Americans.  Perhaps Tesla’s arrival in China, where it hopes to find its largest market, will change this.  Let’s hope so.  1.4 billion Chinese driving cars with internal combustion engines is more than the planet could bear.  The fact that the U.S. is helping China to develop higher emissions standards may help, but it won’t be enough.  Whatever the answer to environmentally sustainable urban transportation systems may be, China is where we will find it, if we ever do.  We all have an interest in China succeeding at this task.

I want to close with a few thoughts about geography and the balance of resources between China and North America as it affects comparative advantage and the prospects for our relations.  No thoughtful Canadian or American would exchange our physical circumstances for those of China.  North Americans use 14.5 percent of the world’s arable land and about 19 percent of its water to feed and clothe a mere 4.9 percent of its population before exporting a huge food surplus.  China must sustain 19.5 percent of the world’s people on about 7.5 percent of its arable land, with less than 7 percent of its water.  It is the world’s largest importer of oil seeds and other food crops.  As the acquisition of Smithfield Foods by Shuanghui shows, Chinese agribusiness is beginning to figure out that it is more efficient to feed animals here than to transport the feed for them to China.  In food as in energy and petrochemical production, North America has the advantage.

Finally, to paraphrase Otto von Bismarck, from a strategic perspective, compared to just about everybody else, but especially the Chinese, we Americans and Canadians are two very lucky peoples.  We are bordered to the south by friendly Mexicans and to the east and west only by fish.  China has the Russians and Mongols to its north, the Vietnamese to its south, the Afghans,  Indians, and Pakistanis to its West, and the Koreans and Japanese to its east.  Those are the kind  of neighbors that make one cautious.

The military-industrial-congressional complex in this country has been doing its best to cure our enemy deprivation syndrome by depicting China as a military peer competitor.  But China is unlikely to live up to the image.  There’s really not much for us to fight with it about.  In the end, we’ll have to look elsewhere to justify military Keynesianism.

Meanwhile, there are multiple energy and environmental partnerships to be struck with the Chinese.  There is cooperative science and technology development to be done with their universities, companies, and scholars.  There are experiences and conclusions from regulatory experiments to be shared.  There is a lot of profitable business to be done.  And there is a conference to get on with.

Thank you very much and best wishes for a successful set of meetings. 

Interesting Times at the Committee for the Republic
Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
 | September 10, 2013
Washington DC

I’ve written a book called: “Interesting Times: China, America, and the Shifting Balance of Prestige.” “Prestige” is the aura of power, the aspect of it that makes others want to be seen in your company. The balance of military power has not shifted, but the balance of prestige between the United States and China has. That makes a real difference, but how much of one?

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I’m not going to rehash my book, but I will speak briefly tonight about three things: (1) how far China has come and where it’s headed; (2) whether China is able or willing to displace the United States as the global hegemon; and (3) the notion of our shifting our strategic attention more toward East Asia, which, of course, presupposes that we somehow restrain our seemingly irresistible impulse to start new wars in the Middle East.

First, a few words about Chinese progress. China has had a couple of bad centuries, but it’s back, and it’s on track soon to regain its millennial status as the largest economy in the world. Chinese think that’s the natural state of affairs. It is only the speed with which it has happened that they find remarkable. And it is.

When I first visited Beijing in 1972, GDP per capita there – in today’s dollars – was about $130. Last year, it was almost $14,000, with purchasing power equivalent to about $21,000. That’s a more than 100-fold increase in the wealth of the average Beijinger!

In 1972, Taiwan’s 16 million people had a GDP slightly larger than the China mainland’s 875 million. The Chinese economy is now expected to surpass ours in purchasing power terms by 2016, when we hold our next presidential election. China will almost certainly overtake us in nominal exchange rate terms before the 2021 centennial of the founding of the Chinese Communist Party. Not long ago, the Economist magazine predicted this will happen in 2018, but falling growth rates both here and in China may have altered that calculation.

In 1972, China’s worldwide imports and exports came to a grand total of $6.3 billion, including US-China trade of about $95 million. Last year China’s trade in goods alone was $3.9 trillion. US-China trade in goods and services came to $536 billion.

There was no investment by either country in the other in 1972. Now there is investment by American companies everywhere in China. Our states and localities are pushing for some sort of Open Door policy for Chinese investment in the United States. A Chinese company is about to bring home the U.S. bacon and Smithfield ham, and, with them, better standards of food safety for Chinese consumers.

In 1972, there were no Chinese tourists or students in the United States or anywhere else. A few hundred Americans visited China. This year there are over 200,000 Chinese studying here. Almost 2 million Chinese tourists will visit and over 2 million Americans will go to China.

This has become a very consequential relationship and it’s becoming more so. Having just waxed uncharacteristically numerical, I want to assure you that, while there are many references to facts and figures, there are no dreary charts and graphs or statistical recitations in “Interesting Times.”

The book does, however, explore how China transformed itself by inventing something I call “cadre capitalism” – otherwise known as “socialism with Chinese characteristics.” Ideological skittishness means that cadre capitalism is not much analyzed in China. Ideological preconceptions make it greatly misunderstood here and elsewhere abroad.

Cadre capitalism links local boosterism to economic entrepreneurship and then links both to the promotion of individuals to higher levels of the Party hierarchy. It creates self-interested, selfish partnerships between local officials and business people. They collude to advance local political, economic, and commercial interests over those of other such partnerships elsewhere. This drives so-called state-owned enterprises to ferocious competition with each other and everyone else.

Cadre capitalism makes doing business in China quick and easy for those who understand and participate in it and hard for those who don’t. It’s a unique artifact of Chinese culture. It can’t be exported as a model or borrowed abroad. Perhaps that’s just as well. If corruption is at heart the result of an inability to separate personal interests from public or enterprise interests, then cadre capitalism promotes corruption as well as the energetic pursuit of profit.

China’s astonishing economic success has led lots of people to envy it. But most economists and – more important – China’s leaders believe that the model that produced this success is obsolete. The country is now entering a decade-long era of restructuring and reinvigoration to enable it to cope with the many challenges its successes have created, including huge environmental damage, overdependence on export markets, overinvestment and under-consumption, abuses of monopoly power, over-regulation, burgeoning local debt, and inadequate financial support for China’s booming private sector. China plans reforms of its monetary system, capital markets, and taxes. The list of proposed reforms has twenty-two items on it, in seven economic sectors. We won’t know the details of the first set of reforms or how bold or timid they are until November at the earliest. That’s when the Communist Party is scheduled to have its next plenary session.

I’d bet on bold ideas, implemented incrementally and cautiously. There’s a reason that Deng Xiaoping favored what he described as “feeling one’s way across a stony riverbed with one’s feet.” China has very little margin for error. It needs to tread carefully as it adopts new ways of doing things.

China’s leaders are haunted by their country’s horrifying history of pestilence, severe famine, and violent subjugation by foreigners. China must feed, clothe, and house twenty percent of the world’s people on less than ten percent of its arable land, with only seven percent of its water. For almost four hundred of the past thousand years, foreign invaders ruled China. As recently as 1931- 1945, as many as thirty-five million Chinese died as Japan tried to conquer their country. At least seventy million more died from internal rebellions and disorders over the century between the second Opium War and Deng Xiaoping’s repudiation of Mao’s totalitarian utopianism.

There is not a country anywhere on the planet that would exchange its geopolitical circumstances for those of China. China shares land borders with fourteen countries, including some very tough customers, like Afghans, Indians, Koreans, Mongols, Pakistanis, Russians, and Vietnamese. The Japanese, Taiwanese, and U.S. navies are just off China’s coasts, where the Indian navy has also begun to make occasional appearances.

China’s human and natural history as well as its geography make its leaders risk averse. They are conservative and cautious in their management of their country and its foreign affairs. Even if China had an ideology or political-economic system it could export (which it doesn’t), its leadership would still be very conscious that they can’t afford to make mistakes at home or abroad.

All this is in effect the answer to the second question I posed. Can China displace the United States as a military colossus in command of global affairs? Does it want to do so?

China’s multiple past wounds and present vulnerabilities are about as solid a guarantee as one could hope for that it will continue to be interested mainly in its own domestic tranquility and prosperity. It will continue to wait for foreigners to come to it for enlightenment, not pursue them to impose Chinese ways on them. Chinese have never been astonished by the well-known fact that foreigners are incorrigibly barbarous. If we and other benighted peoples continue to fail to appreciate the superiority of China’s way of doing things, Chinese will just write us off as boorish and uncultured. They will shake their heads in disbelief at the ignorance and poor judgment that make us foreign, and go on about their own business.

This brings me at last to “the Pivot” – the proposed rotation of American forces and shift of foreign policy attention to East Asia from points West. The first thing our government tells us is that the pivot is “not about China.” Of course it’s not about China, except when it is – or when there are no Chinese in the room to listen to us as we figure out how to turn our attention to the Indo-Pacific while simultaneously bombing Syria and/or Iran and continuing our crusade against militant Islam.

Strangely, we are having trouble convincing others in Asia that we’re really going to drop things elsewhere to help them balance China’s rising wealth and power not just now but over the long haul. We’re also having trouble convincing the silly Chinese that, despite everything we’re doing, it’s not our intention to remain in position to assault them from their own near seas or to keep them from having much say in what happens in their neighborhood. They just don’t seem to appreciate that we feel threatened by their belated attempts to complicate and frustrate foreign attack and undermine our omnipotence. We demand that China swear off all acts that undercut our ability to overwhelm it! We, not they, properly call the shots in East Asia. To underscore this point, we now propose to build a trans-Pacific free-trade zone that excludes China, even though it is every Asian and Pacific country’s largest trading partner.

The trouble with foreign affairs, I guess, is that it involves foreigners, who are by nature inscrutable and inexplicably disinclined to recognize our inherent benevolence as Americans.

The Chinese and others need to understand that we Americans have no choice. There’s no one else who can do what we can. So we must pivot to the East. God is on the side of the big economies and that’s where they’re beginning to be and that’s where China is too. We need to deploy our military to do something about this, even if it’s not clear exactly what economic problems an American military build-up might solve other than keeping our defense spending up while our allies keep theirs down. But military build-ups are as American as the Colt revolver and the Lone Ranger. So redeploy we must.

The problem is that China may be on the verge of developing an autistic government with a bloated military budget, a bad habit of exempting itself from international norms, and a preference for applying coercion rather than diplomacy to those who annoy it. Perhaps, in time, China will even develop some sort of ideology it can seek to impose on others with the fervor of a gang of Jehovah’s witnesses or democracy promoters. Some might say that our problem boils down to a well-founded fear of China becoming more like us. Does the world have room for another country that is strong at arms but a bit weak in the head and convinced that bombing foreigners is both an act of humanitarian assistance and the surest path to peaceful coexistence with them? We doubt it.

Americans who are nostalgic about the Cold War and eager to reenact it look forward to China mirroring us to become a true “peer competitor.” That may not include a critical mass of people in this room. But, just think! A China that modeled itself on America would justify sustaining our own bloated military budget, cure our enemy deprivation syndrome, and return us to the welcome simplicities of some sort of bipolar struggle for global dominance. For the leprechauns of the military-industrial complex, such a China is the pot of gold at the end of the congressional rainbow. So we propose to swing our military away from West Asia (the Middle East) and rebalance it to East Asia.

China’s bankers, unlike its military, seem curiously relaxed about this possibility. Perhaps it’s because they own so much American debt they can’t help noticing that we have a budget problem we are addressing by mindless disinvestment – cutting everything equally so as to avoid having to make choices or set priorities. If the United States can’t prepare itself for the future, make choices, or set priorities at home, why worry about it doing so abroad? As long as there’s an Israel Lobby to set Washington’s foreign policy priorities for it, what’s the real chance that China – as opposed to angry Arabs and militant Muslims – will become Enemy Number One for Americans? And, if Asia deserves more attention because it’s becoming the world’s economic center of gravity, will a militaristic “Pivot” affect that reality, or just waste money?

So the best bet in Beijing – like the worst fear of the military-industrial complex here – is that America’s “Pivot” will turn out to be just another blast of boastful babble from the Beltway bubble’s bureaucrats and their bloviating bosses. Of course, the People’s Liberation Army can’t be sure about that, so it will prepare for the worst. What this means is that China’s ability to fend us off will improve even if our ability to bludgeon it into submission doesn’t. This is how wasteful arms races are born. This time around the competition is with a country that does seem to know how to set priorities and whose economy is about to be bigger than ours. Despite our unmatched military capabilities, the “Pivot” strikes most America-watchers in China as too clever by half – more self-licking ice-cream cone than military menace. I suspect they’re correct.

Most likely, the “Pivot” will turn out in the end to have been part pirouette, part bluff, and part fiscal fizzle. That’s too bad. It is entirely appropriate for the United States to pay more attention to East Asia, including to shifting military balances. These involve more than the return of China to its pre-modern weight in regional affairs. Since 1945, Japan has achieved wealth, international respect, and an unsung but formidable self-defense capability. It has been followed on this path by the southern half of Korea, India, and most of the ASEAN nations. Countries like Singapore punch above their weight and, as Americans and Chinese have both learned, Vietnam is no pushover.

It is true that China is now rising, but there is no vacuum along its borders. The task before us is not to build a military Great Wall on China’s East and South, but to facilitate graceful adjustment by China’s smaller neighbors to its renewed prosperity and military vigor and by China to their wealth, power, and independent sovereignty. This task makes a robust American presence in the region desirable for some time to come. But adjustment to new regional realities will not be advanced by U.S. policies that obviate the responsibility of Asian nations to mount their own effective efforts at self-defense or that discourage their establishment of mutually respectful relationships with China, India, and other regional powers. If China’s behavior stimulates its neighbors to come together to limit its influence, this a problem for China, not one for us, still less a reason to expand our military presence in Asia.

Forty-one years ago, Richard Nixon reopened relations with China and ultimately catalyzed China’s return to wealth and power. Perhaps a word from the master is in order. In dealing with the changes since 1972, the United States should be guided by the Doctrine Nixon articulated at Guam on July 25, 1969. This put forward three principles:

“First, the United States will keep all of its treaty commitments.

“Second, we shall provide a shield if a nuclear power threatens the freedom of a nation allied with us or of a nation whose survival we consider vital to our security.

“Third, in cases involving other types of aggression, we shall furnish military and economic assistance when requested in accordance with our treaty commitments. But we shall look to the nation directly threatened to assume the primary responsibility of providing the manpower for its defense.”

That was sound policy then and it is sound policy now. I’d add only that, for the United States to meet the economic challenge of a rising, competitive Asia, we need policies that leverage Asian prosperity to the benefit of our own. If we try to divide Asia to suit our geopolitical convenience instead of accepting, accommodating, and buttressing its new balances of power, we will end by dividing Asia from ourselves. That would undercut both our prosperity and our global and regional influence. It would also necessitate an even higher level of defense spending than the unaffordable one we now have.

The United States, the Middle East, and China
Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
 | June 5, 2013
Remarks to the Far East Luncheon Group
I’m here to speak to you about the United States, the Middle East, and China. Given the topic, it seems appropriate to tout both my new book, Interesting Times: China, America, and the Shifting Balance of Prestige and my last one, America’s Misadventures in the Middle East. Both, I am told, will be available for sale by the publisher after my talk. I’ll be happy to sign copies of either or both of these books, if anyone is interested in my doing that.

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In foreign policy, national interest is the measure of all things. But interests, national or otherwise, are defined by the vectors of domestic politics. No region better illustrates this than the Middle East, the region that extends from the Eastern Mediterranean to Iran and Arabia. I want to speak to you today about the differing national interests of the states and peoples of this region, the United States, and China, which is emerging as a growing presence there as it is everywhere. One legacy of the Cold War is an American tendency to search for an arch adversary and cast relationships with it in zero-sum terms. As I will explain, I don’t think that is the correct prism through which to view China’s engagement with the Middle East.
But before I get to China, let me begin with a few observations about where we Americans now stand in the Middle East with regard to Arab-Israeli peace, strategic transit, energy security, markets, and the effects of regional instability on our domestic tranquility.

For fifty years, we have treated the achievement of security for a Jewish homeland in Palestine as our top priority in the Middle East. We have sought to achieve this by military aid to foster and guarantee Israeli military hegemony in the region and by diplomacy aimed at brokering acceptance of it by its Arab and Muslim neighbors. The results are in. At no small cost to the United States in terms of the radicalization of Arab and Muslim opinion, oil embargoes, subsidies, gifts of war materiel, wars, and now anti-American terrorism with global reach, Israel has become a regional military Goliath, enjoying a nuclear monopoly and overwhelming superiority in the region’s battle space. But U.S. diplomacy has definitively failed.

In no small measure as a result of its own decisions, the Jewish state has no recognized or secure borders. Although acknowledged as an unwelcome fact, Israel remains a pariah in its region. In many ways, acceptance of Israel’s legitimacy is receding, not advancing, under the impact of the racial and religious bigotry its policies are seen to exemplify. Israel appears to have decided to stake its existence on the dubious proposition that it can sustain military superiority over its neighbors in perpetuity. It has no diplomatic strategy for achieving acceptance by them. Nor does the United States.

The great American naval strategist, Alfred Thayer Mahan, was the first to call the region “the Middle East.” The age of oil had not then quite arrived. Admiral Mahan wanted to highlight the area’s strategic importance as the meeting place of Europe, Africa, and Asia and the focal point of the transportation corridors connecting Europe with the Indo-Pacific. The Middle East’s geopolitical location remains a central but largely unremarked aspect of its importance. Logistics is everything in military strategy but only logisticians seem to think about it. Without the ability to transit the Middle East at will, America would be much impaired as a global power. The maintenance of a permissive environment for such transit thus remains a vital U.S. interest. Our privileges in this regard rest on the value the region’s rulers assign to our commitment to protect them. That, in turn, depends on whether they judge that they have an alternative to the United States as their protector. It’s clear that, at present, no one else wants or can take on the role we have traditionally performed. So, though we are increasingly estranged from the region’s peoples, our ability to travel through it to other parts of the globe is not in immediate jeopardy.

When someone mentions the Middle East, most people think first of oil. The United States ceased to be a net exporter of petroleum in 1970, when domestic oil production peaked. By 2005, we were importing 60 percent of the oil we consumed. Most of this came from outside the Middle East. Still, about 56 percent of the world’s oil reserves are in that region, as is the only surge production capacity. What happens in the Middle East, more than anywhere else, determines both levels of global supply and prices. During the Cold War, the U.S.-led anti-Soviet coalition we called “the free world” was heavily dependent on imports from the region. Our economic and strategic interests combined to make secure access to its energy supplies a matter of vital concern. Our relationships with countries in the Middle East like Iran and Saudi Arabia reflected this. So did our emphasis on freedom of navigation in the Persian Gulf.

Our ability to extract oil and gas from shale and other previously unexploited sources at current price levels will alter these equations importantly. By the end of the decade, the United States may again be a net exporter of energy. Our reliance on imported oil could fall to as little as 10 percent before rebounding as shale reservoirs are depleted. But, regardless of North American progress toward energy self-sufficiency, the world and most of its major energy consumers will remain dependent on oil from the Middle East. What happens there will continue to have a decisive effect on energy prices. The availability of energy from shale means strategic immunity from supply disruptions outside North America. It does not mean independence from global markets.

What self-sufficiency does mean is that our interest in protecting access to the Persian Gulf’s energy resources will soon derive entirely from our aspirations for leadership of a globally healthy economy rather than from our own import dependency. This will raise obvious questions about the benefits versus the costs to our country of our traditional “lone ranger” approach to preventing the disruption of supplies and shipping in the Persian Gulf. I wouldn’t be surprised to find us looking for partners with whom to share the financial and military burdens of that mission in future.

The Middle East accounts for around 5 percent of global GDP. It is growing by about 5 percent annually and accounts for about 5 percent of U.S. exports. Arab cash purchases and generous taxpayer funding of arms transfers to Israel play a vital role in keeping production lines open and sustaining the U.S. defense industrial base. Including military goods and services, the United States has a substantial but declining share of the region’s imports – about one-fourth of them. By way of comparison, China’s share is nearly two-fifths and India’s one-fifth, almost all non military in nature. The Middle East is a significant market for American engineering, educational, and consulting services. Otherwise, as long as Arab oil producers’ currencies remain linked to the dollar, the region’s markets cannot be said to be of more than marginal importance to the U.S. export economy.

The Middle East has, however, become the principal focus of U.S. national security policy. U.S. support for Israel and military interventions in the region have made it the epicenter of anti-American terrorism with global reach. Israel is threatening war on Iran to preclude it from developing nuclear weapons. Although other countries in the region dislike – even fear – Iran, none supports preemptive attack on the Islamic Republic. Meanwhile, our cooperation with the region’s governments on counterterrorism is on the rise. So is the number of terrorists. There is a lot more hatred of America out there than there was before 9/11. We have added the resentment of most Sunnis to that of Iranian Shi`a, while igniting a civil war between these two sects of Islam and destabilizing the Fertile Crescent. No one can now say when or how any of this will end.

The peoples of the region share a desire for freedom from imperial or colonial dominance and for affirmation of their disparate religious, ethnic, or cultural identities. They are not much interested in our ideology or political practices but, by contrast with other regions, almost all seek foreign patrons to secure themselves against each other. Israeli Jews depend on us to support their ethno-religious uniqueness. Iranians believe that we menace their independence and cultural identity. Egyptians count on us because they do not know where else now to turn. Kurds hope we will back their self-determination. The Gulf Arabs seek our help and that of others to protect them against Israel and to balance Iranian power and preclude Persian hegemony.

Middle Eastern governments with oil or gas depend on energy exports to finance their defense and domestic welfare, development, and stability. Those without such resources seek subsidies for the same purposes. Despite varying degrees of foreign dependency, all jealously guard their independence and freedom of action. And none is wedded to us or any other patron. All are looking around for alternative backers.

This is where many in the region believe China could come in. In China, the Arabs see a partner who will buy their oil without demanding that they accept a foreign ideology, abandon their way of life, or make other choices they’d rather avoid. They see a country that is far away and has no imperial agenda in their region but which is technologically competent and likely in time to be militarily powerful. They see a place to buy things they can use and enjoy. They see a country that unreservedly welcomes their investments and is grateful for the jobs these create. They see a major civilization that seems determined to build a partnership with them, does not insult their religion or their way of life, values its reputation as a reliable supplier too much to engage in the promiscuous application of sanctions or other coercive measures, and has no habit of bombing or invading other countries to whose policies it objects.

In short, the Arabs see the Chinese as pretty much like Americans – that is, Americans as we used to be before we decided to experiment with diplomacy-free foreign policy, hit-and-run democratization, regime change, drone wars, and other “neocon” conceits of the age. And they see a chance to rebalance their international relationships to offset their longstanding overdependence on the United States. But the political aloofness that makes China attractive as a partner also makes it unlikely that it would agree to compete with us for the privilege of acquiring and protecting foreign client states.

China has a long history of engagement with the Middle East. Islam entered China shortly after its seventh-century revelation, in 618, the year the Tang Dynasty began. The first official envoy of the Rashiddun Caliphate arrived in Chang’an in 651. It’s little known in the West that the great Ming Admiral Zheng He, who commanded multiple voyages to South Asia, East Africa, and the Middle East from 1405 to 1433, was a Muslim whose grandfather and father had made the pilgrimage to Mecca and who had been tutored in Arabic. He was following long-established, well-mapped Arab and Chinese trade routes. Four of his seven voyages touched Arabia. He himself visited Mecca on the last of them. The connections between East and West Asia were severed and atrophied during the era of European imperialism and the Cold War. They are now being rebuilt with astonishing speed.

China’s economy grew more than six-fold over the past ten years. China became the world’s largest energy consumer in 2010. It is the world’s biggest investor in renewable energy, but last December it displaced the United States as its largest oil importer. China now consumes 21.3 percent of the world’s oil. Not surprisingly, its main interest in the Middle East is uninterrupted access to the region’s abundant energy supplies.

China imports over half its oil from the region, primarily from Saudi Arabia, though it also buys almost half the oil produced in post-Saddam Iraq, where Chinese oil companies now play a leading role, and more than two-fifths of the oil exported by Iran. To buy all that oil, China must sell goods and services to Middle Eastern oil producers. As has become so common in so many other places, China is now the top destination for the region’s exports and the largest source of its imports. Chinese companies are the largest foreign investors in a growing number of Middle Eastern countries. For non oil-producing countries that rely heavily on the tourist industry, Chinese visitors are now a significant source of hard currency. Chinese is taught in Confucius Institutes in Israel, most Arab countries, Iran, and Turkey.

American presidents up to Woodrow Wilson (and his immediate successors) would have understood today’s China’s reluctance to take sides in the quarrels of others. As a vulnerable new state, the People’s Republic of China follows a policy analogous to that recommended by our founding fathers. As Thomas Jefferson put it: “Peace, commerce, and honest friendship with all nations — entangling alliances with none.” China does not wish to be manipulated by Israel against the Arabs, by the Arabs against Israel or each other, or by either against Iran. It hopes for productive relations with all. Unique among great powers, China simultaneously maintains largely positive and substantive relations with all the region’s peoples. This is not an easy stand to take in an area prone to view events as a conflict between good and evil.

In dealing with the turmoil in Syria, China has clung to its vision of non interference in the internal affairs of sovereign nations despite the damage this has done to its image in Saudi Arabia, its most important economic partner in the region and the principal sponsor of the Syrian rebels. Its unwillingness to support the Assad government against the insurgents has meanwhile earned it no points with Iran. China has excellent relations with Israel (including a lot of military technology coooperation), but does not take the side of the Jewish state in its struggle to master and dispossess the Palestinians. Nor, as a country that seeks no enemies, is China prepared to play the role of mediator in the Middle East. It recognizes, as the Greek philosopher Bias did two-and-a-half millennia ago, that “it is better to mediate between enemies than between friends, because one of the friends is sure to become an enemy and one of the enemies a friend.”

China has sound domestic reasons to be cautious about involvement in the Middle East. There is not a single province in China without a native Muslim population. Increasing numbers of Chinese make the pilgrimage to Mecca. Although – for complex reasons – the official figures are much lower, well over 100 million Chinese are Muslim, and the number is growing. Some Uyghurs have raised the banner of Islam in a violent campaign for the secession of Xinjiang. Al-Qaeda had a a Uyghur chapter. The contagious sectarian dogmas of the Middle East could adversely affect China’s security and social tranquility.

In short, China shares neither the priorities nor the impulse to activism of the United States in the Middle East. It has no emotional commitment to the Jews of Israel or the Muslims of Arab countries, Iran, orTurkey. It did not have its diplomats taken hostage by raging students in Tehran. Its armed forces are configured to defend its national territory, not to project power on the global level or to the Middle East. China does not need security of transit through the region.

China is dependent on Middle East oil supplies but confident that the self-interest of vendors and diplomacy make the use of force largely irrelevant to the security of energy supplies. Where actual threats to this security have arisen, as from Somali piracy in the Gulf of Aden, China has independently deployed the People’s Liberation Army Navy (PLA Navy) as part of an ad hoc, U.N.-authorized, multinational effort to restore freedom of navigation. Meanwhile, China has hedged against the possibility that the United States, India, or another great power might try to break its energy supply chains by diversifying its sources of oil and gas as much as it can. And, for sound strategic reasons, unlike us, China has kept its distance from the religious struggles of the Middle East. It has been content to buy what it needs and sell what it can to cover the cost, stay out of politics, and avoid taking stands on religious issues. If that sounds like the advice your grandmother gave you for dealing with other people, that just confirms its essential wisdom.

Much as the countries of the Middle East would like to enlist China as a sponsor and protector, they are learning that China has neither the capability nor the inclination to take on these roles. Their disappointment with Chinese distance from them has not impeded their development of a robust pattern of economic interdependence with China. The good news is that China does not seek to usurp our self-appointed role as the protector of the Middle East. That, I think, is also, in some senses, the bad news. We will not easily escape the burdens we have assumed in that region.

There is room for Sino-American cooperation in the Middle East. There is no inevitability about contention between us there. One must hope that we can in fact ways to work together or in parallel. It would help to listen, not apply mirror-imaged stereotypes to each other. Perhaps we could both learn something from that. Neither coercion nor the use of force is the only way to advance the national interest. Diplomacy and other measures short of war are generally less costly and more effective. The politics of the homeland may define national interests but a clear-eyed view of the realities of the world beyond it is essential for their successful prosecution.

Despite the growing economic interdependence of the United States and China, the overall trajectory of our official relations is at present negative. We would do well to avoid adding needless elements of a zero-sum game in the Middle East to the mix. There, as elsewhere, we need to search for broader common interests within which narrow differences can be subsumed and on which policy coordination can take place. I hope the effort to do this will be a significant part of the summit meeting between Chinese Communist Party chairman Xi Jinping and President Obama that begins tomorrow.

U.S.-China Relations in an Age of Strategic Reappraisal and Realignment
Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
 | May 23, 2013

Remarks to the Foreign Affairs Retirees of New England
There comes a time in every man’s life when he has more to recall than to anticipate. Like everyone else in this room today, I keep striving to reach that point and falling short. I can’t help looking to the future, because that’s where I’m going to spend the rest of my life. Besides, it’s getting so hard to remember things.

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I can’t help thinking of the old man who was sitting with his friend in the living room while his wife rustled up dinner for them. He turned to his friend and said: “my wife and I went to this really incredible restaurant downtown last week. Amazing food. Impeccable service.”

“What’s the name of it?” his friend asked.

“Well . . . ” He scratched his head and stared into the fireplace. After a long pause, he looked at his friend and asked: “What do you call that red flower with the thorns you give to women you love?”

“A rose?” his friend suggested.

The old man turned in the direction of the kitchen and bellowed: “Hey, Rose! What was the name of that restaurant we went to last week?”

As long as we have someone like Rose to consult, hindsight is an exact science. But, even with Rose as an assistant, prediction is not.

We are living in a world no one who toiled through the Cold War ever imagined. There is no Soviet Union. There are once again wars of religion, but there is no global contest of ideas Five centuries of Western dominance is coming to an end and the world and regional orders created by European ascendancy and American primacy are disintegrating. Our republic is becoming a garrison state in which our civil liberties are contracting rather than expanding.

Except where we are making war on foreigners, they no longer pay as much attention to us as they used to. In most places, anti-Americanism is giving way to creeping indifference about what Washington and New York think. For the first time since about 1880, there will soon be an economy larger than ours. We need to adjust to China’s return to wealth and power as well as to the strikingly unfamiliar context in which this is occurring.

It’s already obvious that the 21st century will be very different from the last. Before I get to the evolving relationship between the United States and China, let me briefly sketch out some of the remarkable changes taking place in the world that the U.S. and China cohabit. These changes add up to the end of the worlds created by World War I, World War II, and the Cold War. Power is devolving to the world’s regions. No one is in overall charge. And that raises a lot of questions.

In the Middle East, the work of Mr. Sykes and M. Picot is being undone. As you’ll recall, they were the British and French bureaucrats who dismembered the Ottoman Empire’s West Asian provinces to create today’s Iraq, Jordan, Lebanon, Palestine, and Syria. The ongoing demolition of Syria very likely foreshadows the demolition of some or all of the other states Sykes and Picot agreed to set up. Meanwhile, Turkey is back as a great power in West Asia and North Africa. This, together with the Syrian turmoil and the Arab uprisings in North Africa, is a big bang on the Middle Eastern kaleidoscope. How the pieces will rearrange themselves is unclear, but some sort of rearrangement is in prospect.

So too with America’s military role in the region. The United States has begun to revert to its historic status as a major energy exporter rather than importer. Indeed, U.S. production of oil and gas will double or even triple over the coming decade. It seems certain that some Americans will question the rationale for continuing to provide free U.S. military protection to assure access by other great powers to Middle Eastern energy supplies that they can’t do without but we can. Will we ask the major consumers of this energy – China, India, Japan, Korea – to assume this politico-military burden or to share it?

Having belatedly come together to establish the world’s largest economic collective, Europe seems to be unraveling. The European Union is too big to be ignored but too feckless to be taken seriously. The good news is that, unlike the 20th century, when the fault lines in Europe triggered a series of violent changes in the global order, in the 21st century, Europe now seems more squishy than tectonically brittle.

But Europe’s divisions are sharpening. Britain is seriously contemplating secession from the European Union (EU). Scotland may hive off from England. Germany more and more openly calls the shots in the EU. France chafes at German ascendancy and the triumph of the English language in Europe but has no persuasive answer to either phenomenon. The European South is on the economic ropes.

All in all, Europe remains a puzzle, wrapped in a muddle inside a pretense. It may be becoming something, but no one can be sure or say quite what. In the meantime, its component parts are focused on each other more than on the wider world. That gives them greatly diminished influence internationally.

Europe was the birthplace of the Enlightenment values that gave America its libertarian soul. In some ways, after the battering we Americans have administered to our civil liberties since 9/11, Europeans are now more faithful to the rule of law than we are. If the two sides of the Atlantic no longer agree on the norms of constitutional democracy and international law, what future do these concepts have? Now that Asia has become the world’s economic center of gravity and seems to be outperforming the West in delivering an ever-better life to its citizens, this question can no longer be evaded.

The major challenge to the once-universal sway of Western values now comes from the Dar al Islam, the 1.6-billion and 57-nation-strong global community of Muslims. This is the last remaining ideological bloc on the planet. Islam spans four continents and is expanding on all of them. The human-guided cruise missiles of 9/11 were acts of reprisal by a small and deviant minority of this vast community. They sought revenge for the deaths at our hands or those of Israel of hundreds of thousands of Muslims. And they wanted to drive home their opposition to our perceived imperial ambitions in the Islamic heartland.

Our immediate response to 9/11 had the support of the world, including overwhelming majorities of Muslims. We squandered that support with our subsequent invasion of Iraq, our mindless transformation of our punitive raid in Afghanistan into a bloody campaign of pacification there, and our inauguration of a drone-borne reign of terror in an expanding number of Muslim countries in West Asia and North Africa. The perceived injustice and inhumanity of American policies in the Muslim world have now gone a long way toward transforming an anti-American minority into a very large majority. This is most evident in Pakistan. It is happening elsewhere as well.

The hatred that our policies engender was the proximate cause of the April 15 terrorist bombing of the Boston Marathon. The insecurity we have imposed on Muslim peoples abroad is now blowing back on our own domestic tranquility. The president’s speech last week at the National Defense University was characteristically eloquent in its analysis of this vicious cycle of causation, but typically cursory in terms of prescriptions for how to break it.

Among other unintended consequences, the so-called “war on terror” is now connecting us to Africa in new and troubling ways. Well over 40 percent of Africans are Muslim. American military action against Islamic militants now extends to West as well as East and North Africa. We are beginning to see anti-American terrorism from Africans.

Africa is no longer either the colonial playground or the humanitarian theme park the West has traditionally fancied. Africans have begun to challenge the arbitrary state borders created by European powers at the Berlin conference of 1884-1885. They are in the midst of a violent process of creating their own, indigenously crafted polities. New states have emerged in Eritrea, South Sudan, and possibly Mali, as the sea of human entropy once known as Zaire continues its bloody disintegration. But this chaos obscures the fact that Africa now has many of the world’s fastest growing economies.

Africa’s economic progress reflects and is reflected in the decisions by China, India, and Brazil to treat Africans as trading and business partners rather than as recipients of charity with strings. To the distress of foreign assistance officials in international organizations and Western capitals, this has empowered Africans to make their own decisions about how to develop their countries. The result is a lot more growth as well as more opportunities for corruption.

Africa is finally beginning to emerge as an economic force in the world. In coming decades, as wages rise in China, it is expected to give up 85 million manufacturing jobs, Africa’s abundant cheap labor assures that it is where many of these jobs will end up. China is already Africa’s largest trading partner and investor. Major projects there tend to be contracted to Chinese, Indian, and Brazilian companies.

Brazil’s rise as a great regional power is another significant part of the realignment of global affairs. Before the Spanish Empire connected North and South America, these continents were ecologically, culturally, economically, and politically isolated from each other. This pre-Colombian geopolitical division now seems to be reasserting itself. The Monroe Doctrine posited a single strategic zone in the Western Hemisphere, dominated by the United States and denied to European and – by implication – Asian influence. That notion is dead.

Canada, Mexico, Central America, and the Caribbean remain in the U.S. sphere of influence but South America has left it. Brazil now has the sixth-largest economy in the world. China overtook the U.S. as Brazil’s largest export market five years ago. Brazil’s main trading partners are now its Spanish-speaking neighbors, Europe and Asia, not North America. As Brazil becomes the center of the South American political economy and develops relationships to its east and west, it is emerging as a diplomatic actor of consequence in Africa and international organizations.

To round out this brief account of the huge geopolitical changes taking place that set the strategic context outside the Indo-Pacific region, let me say a few words about our former Soviet enemy. Moscow now lacks a messianic ideology or the means to attempt global conquest but it retains the ability to destroy any country that attempts to subjugate the Russian Federation. Although most Russians are nostalgic about the USSR’s past global power, its collapse is turning out in many ways to be a good thing for Russia. Putin’s regime may in some ways resemble a protection racket more than a government but it is afloat on an apparently inexhaustible sea of oil and natural resources of great importance to the global economy. Despite its inscrutability, Putanism seems for now to have a firm grip on Russia and the Russian imagination.

Some Russians have become very, very rich. Many others have become world travelers. The Russian middle class clogs the beaches from Goa to Hainan. Every Russian may be dissatisfied in his or her own way, but all are proud to be Russian and – Western sympathy with noisy Russian dissenters notwithstanding – a clear majority supports strongman nationalism.

That is not to say it’s at all clear where Russia is going. Still, as Cyprus and Syria illustrate, Russia’s participation is indispensable in dealing with more and more events well beyond its borders. Meanwhile, the hounds of Russian intellect are once again in joyous pursuit of the elusive fox of their country’s identity. Americans have no dog in that chase. Yet we need to decide how Russia fits into our world view. We have yet to do so.

Situated between East and West, Russia is proving able to exploit both the confusions of Europe and the dynamism of China. A geographic position long thought to be a weakness is turning out to be a strength. Russia’s neighbors are courting relations with it as a great regional rather than world power. Moscow now has the best relations in its history with Germany, Turkey, and China It is conducting experiments in strategic coordination with all of them. It is also on good terms with Iran. And in Central Asia, Russian soft power has become a welcome alternative to past imperial and Soviet might as Russia pursues accommodation with China in the Shanghai Cooperation Organization.

Russia has also retained a cooperative relationship with India, which is slowly shucking off the Fabian socialism with Soviet characteristics that long kept it from realizing its potential as a great power. India dominates South Asia except for Pakistan, which China supports to keep India off balance. India is now reaching out to Vietnam and Japan to pay China a similar favor in East Asia. It is competing with China and the United States for influence in Indonesia, which is itself emerging as a great regional actor. India’s perception of itself as the natural rival to China for leadership in Asia is becoming more plausible than it once was.

This process is accelerating under the impact of Japan’s right-wing government’s determination to make Japan a “normal country” and to abandon the pacificism imposed on it by the American occupation after World War II. Japan is taking a much more active role in its own defense. It is loudly contesting territorial disputes with China, Korea, and Russia. Prime Minister Abe openly aspires to exploit widespread apprehensions about China’s rising power to build an anti-China coalition in Asia.

This coalition would embrace other countries with territorial disputes with China like India, the Philippines, and Vietnam and those interested in rolling back Chinese influence, like Myanmar. But Japan’s prospects for leading such a coalition are impaired by the transparent lack of remorse that underlies its politicians’ formal apologies for wartime atrocities. Indeed, by marked contrast with Germany, many Japanese seem to view a “normal” Japan as one that takes pride in its imperial and militarist past. They see Japan’s principal mistake in World War II as having been to allow itself to be defeated and occupied. They are indifferent to or deny Japan’s gross mistreatment of captive populations and its violations of the laws of war in the 1930s and ‘40s.

So the rise of China, itself deeply unsettling to longstanding dispositions of power in Asia, is far from the only strategic shift in progress there. The strengthening of India and Indonesia, the maturation of south Korea as a global industrial and technological force, the failure of north Korea as a society, and the emergence of a less risk-averse and more nationalistic Japan add to the complexities of the new order in Asia. In my view, we are not dealing well with those complexities.

It is said that generals invariably prepare to fight the last war. Similarly, politicians always seem to want to reenact past approaches as new problems arise in foreign affairs. The United States clung to isolationism in the 1930s long after it was dangerously inappropriate to do so. After World War II, we went to the other extreme, promiscuously extending protection to almost half the world’s countries. Ironically, having entangled ourselves in these alliances to prevent world domination by others, we now justify them in terms of preserving the credibility of our own military supremacy and omnipotence, including especially our postwar control of the Western Pacific. Most remarkably, thirty-five years after China’s defection to cadre capitalism and twenty-five years after the collapse of the Soviet Union, we are clinging to alliance structures designed to contain the long-vanished Sino-Soviet bloc.

The so-called U.S. “pivot to Asia,” though justified by reference to regional concerns about rising Chinese power, seems less a response to demands from allies, partners, and friends than a move to retard the loss of our nearly seven decades of dominance in the Western Pacific. Threat analysis is, of course, the highest form of budget justification. China’s erosion of the traditional American military supremacy in its near seas is a timely justification for military Keynesianism – continuing high levels of defense spending to head off job losses in our military-industrial complex. By ironic contrast, the economic aspects of the “pivot” seem mostly intended to undercut China’s role as the center of the Asian economy rather than to create American jobs.

The Soviet collapse deprived our foreign policy of focus. The “pivot” takes China as the cure for this enemy deprivation syndrome. But it’s far from clear that we have the fiscal resources or freedom of maneuver away from the Middle East that the “pivot” presupposes. So far, the “pivot” – or, to give it its kinder, gentler name, the “rebalancing” – is mostly rhetoric, not action. But this has been enough to embolden some of China’s neighbors to risk provoking it, while inducing a pronounced chill in Sino-American relations. There is a risk that Americans are about to satisfy the nostalgia some evidently have for the Cold War by producing a new version of it. Last time, the game was called when the Soviet Union defaulted. It’s very unlikely that this would be the result of a similar contest with China.

The introduction of capitalism was necessary to save China but capitalism cannot now do without China. China is integral to the global economy; it cannot be isolated or “contained.” Its system, unlike that of the Soviet Union, has a history of adapting to meet the challenges before it. It is unlikely to fail. Indeed, China’s economy seems poised to match and then dwarf ours in size. Historically, there is nothing new about this. Until recently, when it had a couple of bad centuries, China accounted for one-third or more of global GDP. China’s neighbors may be apprehensive about the application of its coercive power to the minor territorial disputes they have with it, but they do not fear occupation or subjugation by it. With the possible exception of Japan, they seek to accommodate China at minimal cost to their interests, not to take sides against it. None wishes to go to war with China.

This is not America’s finest hour. Our political system is broken, our constitutional balances undone. Our bill of rights is compromised or suspended. We are disinvesting in our human and physical infrastructure. Our economic competitiveness is visibly declining. We are unable to pass a budget, still less set priorities for our languishing economy. In short, we are afflicted by budgetary bloat, political constipation, diplomatic enervation, and strategic myopia. This doesn’t seem a particularly propitious time to pick a fight with a rising power.

That’s why next week’s two-day private meeting between President Obama and President Xi Jinping is vitally important. Mr. Xi has proposed that China and the United States try to develop “a new type of great power relationship” to avoid the conflict that has so often occurred between established and rising powers and to foster cooperation instead. His concept makes sense but has little, if any content as yet. Diplomats, of course, take a professional delight in the inchoate, inane, vapid, and unspecific. So I’m sure that you, like me, will see the present lack of substance to Mr. Xi’s idea as a good thing. It’s an invitation to Mr. Obama to work with him to define a new and positive framework for Sino-American relations. And that is exactly what we need to do in the radically changing global and regional circumstances in which our two countries now find ourselves.

China and the United States are dependent on each other for our prosperity. Without cooperation between us, effective global governance is impossible. Challenges like global warming, environmental degradation, pandemic disease, the maintenance of global order and the rule of law, non proliferation, space and cyberspace as new human domains, and the achievement of security from intercontinental war will not be met. If the United States and China choose a path of confrontation, we will both lose. China has been fond of saying that it needs a peaceful international environment in which to restore itself to wealth and power. The United States now needs such an environment no less than China if we are to return to realizing the enormous potential inherent in our geography, human diversity, openness to ideas, propensity for innovation, and traditions of liberty. Next week’s meeting promises to be a turning point for both countries, for Asia, and for the world.

Asia’s New Strategic Landscape

Ambassador Chas W. Freeman, Jr.  (USFS, Ret.) |  23 April 2013, Jiaotong University, Shanghai, China

Introductory Remarks to the Seminar on U.S., Chinese, and Russian Relations

The Asia-Pacific region is now more troubled by multiple crises and confrontations than it has been in twenty years.  The crises and confrontations include:

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  • threats of nuclear war in Korea,
  • maneuvering by China and Japan over conflicting claims to the Diaoyu or Senkaku islands,
  • intermittent incidents between China and some Southeast Asian nations over claims to islands, shoals, reefs, and seabed resources in the South China Sea, and
  • escalated tensions between Japan and south Korea as well as Russia over emotionally-charged maritime boundary disputes.

These tensions reflect unexpiated historical traumas, states of war that have yet to be succeeded by formal peace agreements, and the legacy of past imperial spheres of influence, colonial conquests, and Cold War confrontations.  The flare-up of these disputes after decades of dormancy is the result of shifting balances of capabilities among the region’s powers that have yet to be reflected in readjusted relationships, new equilibriums, and patterns of mutual restraint.  The difficulty all concerned are having in handling their conflicting interests underscores the need to reach closure on historical issues, formally end bygone wars, and settle territorial disputes in the Asia-Pacific region rather than allowing them to fester and stimulate nationalist frictions.

The global stake in this region’s stability is great and growing.  East and South Asia have resumed their historic role as the global center of economic gravity and the Pacific basin has eclipsed the Atlantic as the home of the world’s most dynamic societies.  In economic terms, Asia is now Sino-centric.  China is where the region’s and the world’s supply chains converge.  It has recently joined the United States and Japan as a world economic power, meaning a country whose interests and activities must be taken into account everywhere on our planet.

With Russia, China is also increasingly active in defending the rules of international behavior enshrined in the United Nations Charter through its status as a permanent member of the Security Council.  This places China ,with a few other countries, at the managerial apex of the evolving world political order.  And, for the first time since the eighteenth century, China has a credible ability to defend the approaches to its borders as well as its territorial integrity.  It has reemerged as Asia’s greatest military power.

This is the economic, political, and military context in which the United States has announced a “pivot” to the Asia-Pacific region.  The logic of a shift in American strategic attention to Asia is irrefutable.  Characteristically, having received a directive to emphasize Asia, the U.S. military responded with disciplined speed.  The civilian elements of our government are taking their time to mobilize themselves.  This has left the impression that the “pivot” is all about military deployments.  It has also left the precise import of the “pivot” to be clarified by the passage of time and the direction of events.

In essence, however, the “pivot” or “rebalancing” is simply recognition of the heightened importance of Asia.  This acknowledgment of evolving Asian realities will find ongoing expression in American economic, political, and military strategy and activities.  America’s Asian allies, partners, and friends seek U.S. support for the process of peaceful accommodation of Asia’s new realities. They do not want to divide their region into competing spheres of influence dominated by great powers.  American facilitation of the peaceful adjustment of balances between Asian nations can and should be a constructive part of the “new pattern of great power relations” that Chinese State President Xi Jinping proposes.

The United States has been an essential element of the Asia-Pacific balance of power since the 1850s.  In 1945, America occupied and attempted to reform Japan.  Since then, the United States has filled the vacuum the overthrow of Japanese militarism and Japan’s earlier annihilation of European colonialism in Asia created.  Asian-Pacific states have come to rely on a robust American presence to stabilize their region.

The United States has acted consistently to oppose violent alteration of the status quo in Asia.  For a quarter century, this pitted America against China.  Our two countries fought directly to a standstill in Korea from 1950 to 1953 and indirectly to a U.S. defeat in Indochina, which fell to Hanoi in 1975.  Russia, in the person of the Soviet Union, was indirectly but substantially involved in both conflicts.

The United States stood aside as China used force to convince Hanoi to stand down from empire-building in Southeast Asia.  U.S. policy created a context in which China can and has promoted peaceful change through dialogue across the Taiwan Strait.  At the cost of awkwardness and occasional tension in its relations with China, the United States has opposed coercive measures against Taiwan.  But it has welcomed and supported every advance in the ongoing process of cross-Strait rapprochement and integration.  It has objected to none.  The results speak for themselves.  As a very great Chinese statesman once put it: “practice is the sole criterion of truth.”

Far from seeking to “contain” China, as some in China allege, American policy over the decades since normalization in 1979 has sought to encourage China to come out of its shell and join the councils of global governance.  China’s membership in the World Trade Organization and in the G-20, as well as the unprecedentedly elaborate consultative processes of the U.S.-China strategic and economic dialogue all attest to this.  Much of contemporary China’s success as a modernizing society reflects the welcome America extended to Beijing’s new policies of reform and openness.  The United States has welcomed Chinese students, Chinese products, and Chinese services as well as access to China’s growing market for its own goods and services.

As Russians well recall, “containment” was a grand strategy premised on the calculation that the isolation of the Soviet Union would ultimately produce its collapse, as defects in the Soviet system took their inevitable toll.  Whatever their imperfections, U.S. policies toward China since 1972  have been based on engagement, not containment.  These policies have helped to draw China into a world order it once shunned and to propel it toward ever greater wealth and power.  The Chinese and American economies are now heavily interdependent.  The concept of “containment” is totally inapplicable to China.  No one in the United States advocates applying it.

But everywhere along its borders, in relation to its neighbors, China now appears to have the military upper hand.  If fear of bullying by China is not to provoke the formation of coalitions in opposition to China, smaller, weaker Asian countries must be confident that they will not be subjected  to power politics or the use of force.  In its politico-military dimension, U.S. policy is directed at providing this reassurance.

It is entirely natural that China’s neighbors should seek American backing as they work out new relationships with China and each other that reflect the changing balances of power in Asia.  China also quite reasonably expects that the United States will counsel its allies, partners, and friends to avoid acting provocatively toward China.  America is playing this vital role.  It is a role that is consistent with longstanding American support for peaceful resolution of disputes in Asia.  It is also one that is congruent with China’s interest in managing frictions along its borders by measures short of war as it strives for greater wealth and domestic tranquility.

Of course, China cannot be sure that the “pivot,” might not become the basis for attempted American military coercion of it.  It is logical that China should insure itself against this possibility.  Shoring up China’s long-underdeveloped relationship with Russia, which stands on its other flank, is an obvious part of such an effort.  It has also been no secret that China and Russia share a concern about the potential for U.S. missile defense programs and deployments to undermine strategic deterrence.  It is natural too, given its global interests, that China should wish to reach out to regionally powerful states like Brazil, India, and South Africa as well as to developing countries with mineral and other resources that China needs.  I take it that these factors contributed to President Xi Jinping’s decision about where to make his first calls abroad.

On some topics, bilateral dialogue between great powers is not enough.  China, Russia, and the United States have common interests to which we must all three attend.  Korea is a case in point.  Our three countries need urgently to consider how best to sustain peace and stability in the Korean Peninsula in the face of all the challenges now evident there.  Afghanistan is a Central Asian state with a history of harboring and exporting terrorists. In the year ahead, as NATO and U.S. forces prepare to withdraw from Afghanistan, it will be important for China, Russia, and the United States to consult about how best to deal with the possible consequences of this for regional and global security.

These topics and others, I imagine, will be part of the “new pattern of great power relations” that China and America are committed to explore.  The concept of a new style of great power interaction clearly applies to Sino-Russian relations too.  Who knows?  It might even come to inform and improve Russo-American interaction as well.  We must hope so.

Interesting Times: China, America, and the Shifting Balance of Prestige

Washington, DC |  March 28, 2013

Book Launch, Carnegie Endowment for International Peace

I owe the two words “interesting times” in the title of this book to my publisher, the redoubtable Helena Cobban. She thought the phrase captured the spirit of the exciting, trying, exhilarating, exasperating, but always surprising progress that China, the United States, and the world have registered over the past half century.

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I see one or two notoriously finicky people here. Let me therefore admit at the outset that, while Chinese has many wonderfully descriptive epigrams, the celebrated curse, “may you live in interesting times,” is not one of them. It was apparently coined by the British ambassador to China, Sir Hughe Montgomery Knatchbull-Hugessen KCMG around 1937, after he had the “interesting” experience of being strafed and wounded by a Japanese fighter aircraft in Shanghai. So the curse originates in China but, given the inscrutability of Sir Hughe’s name, no one has ever been able to remember for long who first uttered it or where.

“Living in Interesting times” doesn’t even have a standard Chinese translation. In my view, the energetically vexing uncertainties of modern life in China deserve succinct expression in a snappy four-character phrase. So, by the way, does the other apocryphal Chinese curse, “may you come to the attention of people in authority.” Perhaps the publishers of a future Chinese edition of “Interesting Times” can crowd-source appropriate new 成语.
Let me turn to the book itself.

There is a mythical Chinese animal called the “四不像” – the “beast that is unlike four others.” It has a cow’s hooves but does not moo. It has a horse’s head but can’t be sold as beef in European butcher shops. It has a deer’s antlers but does not live near strip malls in the suburbs. It has a donkey’s body but is not an ass. Some say its bite is fatal and some are horrified by it.

This book may horrify a few people but I doubt it will bite, still less kill anybody. Like a “四不像,” it is tempting to define “Interesting Times” by what it is not. It is not your common Washington suck-up to the administration of the day, work of sinology, think-tank study, or belief-tank polemic. It contains an anecdote or two and, for better or ill, it reflects the author’s place and perspective about things when they happened, but it is not an autobiography. Nor is it a Washington-insider account of how the author invented devilishly clever policies, personally sold the president on them, and imposed them on unwitting foreigners.

The book expresses my views rather than those of any institution or group of like-minded people. In sum, it reflects who I was and who I am and what I saw and see changing in and with China. I was a career diplomat and am a businessman who dabbles in sinology, not a sinologist, securocrat, or policy wonk who dabbles in diplomacy or business.

China has been around for a long time but I first discovered it in 1963 in Widener Library at Harvard, when I sought refuge from the intellectual desert of law school by reading world history. Later, after I entered the Foreign Service of the United States, I fought to get into the Chinese language and area studies program so I could learn Mandarin and Taiwanese. I had convinced myself that geopolitics would force a Sino-American rapprochement. I thought it would be exciting to be part of that. As it turned out, it was. To one degree or another, I have been happily engaged with China for forty-four years.

“Interesting Times” contains observations about a half century or so of developments in Sino-American relations. It looks at changes in the regional and global orders brought about by China’s recovery from its previous catalepsy, convulsions, and foreign incursions. The book documents my efforts at various times to understand and explain what China was up to and to project where it might be going.

In addition to what is in print in the book, there are supplementary materials that reside online. For example, there is a memorandum inspired by a delicious bowl of noodles that I bought in Tiananmen Square in 1979. In the memo, I rashly attempted to forecast what China might be like after another 20 years. A lot of my hypotheses then and on other occasions did not coincide with the conventional wisdom and were controversial. Better analysts than I roundly criticized – sometimes denigrated – me for my views. Sometimes they were right to do so. China is a moving target that is hard to grasp.

It is difficult to overstate the speed and scope of the changes that have occurred in China and its foreign relations over the course of the forty-one years since I first set foot in Beijing. The Cultural Revolution had then shut down China’s foreign relations. China had only one full ambassador abroad – Huang Hua, whom Zhou Enlai protected by not recalling him from Cairo. Today, China is a presence everywhere and a major actor determining the reactions of the international community to events well beyond its immediate periphery. In this regard, consider, for example, G-20 and IMF meetings, peacekeeping operations in Haiti, the Congo, and Lebanon, proposals for foreign intervention in Syria, and sanctions against Iran. That’s before you get to current affairs in north Korea, the Diaoyu or Senkaku Islands, or the Russian armaments industry.

The basis for the huge expansion in Chinese global and regional influence is, of course, mostly economic. In 1972, in current dollars, China’s GDP per capita was about $130. When George W. Bush took office in 2001, this had grown to over $1,000. Last year, it was over $6,000, with purchasing power equivalent to about $9,000. Think about what that means for ordinary people in China! That’s a 47-fold rise in wealth!

In 1972, Taiwan’s 16 million people had a GDP slightly larger than the China mainland’s 875 million. The Chinese economy is now expected to surpass ours in purchasing power terms by 2016, the year in which we will hold our next presidential election. China will almost certainly overtake us in nominal exchange rate terms before the 2021 centennial of the founding of the Chinese Communist Party.

In 1972, China’s worldwide imports and exports came to $6.3 billion, including US-China trade of about $95 million. Last year China’s trade in goods alone was $3.9 trillion. US-China trade in goods and services came to $536 billion. There was no investment by either country in the other in 1972. Now there is US investment everywhere in China and our states and localities are pushing for some sort of Open Door policy for Chinese investment in the United States.

In 1972, there were no Chinese tourists or students in the United States. A few hundred Americans visited China. This year there are over 200,000 Chinese students here. Almost 1 ½ million Chinese tourists will visit and over 2 million Americans will go to China.

You get the point. This is a very consequential relationship that is in the process of becoming more so. I don’t have to drone on for you to appreciate the extraordinary dynamism of China and US-China relations and their effects on Asia and the world. And, having just waxed uncharacteristically numerical, I want to assure you that, while there are many references to facts and figures, there are no dreary charts and graphs or statistical recitations in “Interesting Times.”

The book does, however, contain a fair amount of exploration of how China changed and of the nature of what I call “cadre capitalism” – otherwise known as “socialism (or is it Leninism) with Chinese characteristics.” Cadre capitalism is something new. For ideological reasons, it’s poorly understood in China and greatly misunderstood abroad. Cadre capitalism is a party-based system that links political boosterism to economic entrepreneurship. It makes so-called state-owned enterprises formidably competitive and business in China highly efficient. It’s a unique artifact of Chinese culture that, in my view, cannot be exported as a model or borrowed abroad. Perhaps that’s just as well. If corruption is at heart the result of an inability to separate personal interests from public or enterprise interests, then cadre capitalism promotes corruption as well as business efficiency.

“Interesting Times” spends a lot of time looking at the origins and evolution of the question of Taiwan’s relationship with the rest of China and America’s role in this. One online piece looks at Taiwan in foreign strategies toward China since the 17th century. Mostly, however, the book tracks the evolution of the Taiwan issue in US-China relations, in whose development it remains a significant inhibition. And it examines the effects on China’s neighbors and the United States of China’s remarkable return to wealth and power. It looks back forty years, but it also tries to look ahead another forty.

On that incautious note, let me turn the podium back to Dr. Swaine before we turn to questions and comments.

The Global Impact of Asian Disharmony

Ambassador Chas W. Freeman, Jr. (USFS, Ret.) | 28 February 2013 | Sausalito, California

Remarks to the Winter Roundtable of the Pacific Pension Institute

It’s a pleasure to be back among friends at a Pacific Pension Institute roundtable.  The last time we were together was in July 2011, when PPI met in Vancouver.  I spoke then about the shifting strategic geometry of Asia and its impact on the world order.

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A few days ago, I reread what I said in 2011.  I’m not sure whether to be happy or distressed that most of the trends I identified have continued to play out.  A Sino-centric Asian order is upon us.  China is both the largest trading partner and greatest politico-military obsession of every nation in the Indo-Pacific region.  To a greater extent than I feared and to the dismay of most countries within it, the region looks as if it is beginning to divide itself into spheres of influence, with one sphere looking to Beijing, and one to Washington and – possibly – Tokyo.

New leaders have just taken office in China, Japan, and both south and north Korea.  Before they can consider compromise, politicians must show themselves to be tough custodians of the interests in their charge.  This is all the more the case when many of those they lead are in an assertively nationalistic frame of mind.  So Xi Jinping, Abe Shinzo, Park Geun-hye, and Kim Jong-Un are all striking defiantly uncompromising poses with respect to a growing array of issues and disputes.  The world is hearing much more than it ever wanted to hear about the Diaoyu / Senkaku archipelago, Takeshima / Dokdo, the Kuriles, the Spratleys, Yeonpyeong Do, Huangyan Dao / Scarborough Shoal, Hoang Sa / the Paracels, Arunachal Pradesh / Tawang, the Aksai Chin, and other places almost no one can find on a map.  And now we are having to learn the names of north Korean missile and nuclear test sites as well.

One-eighth of the way through the 21st century, Asia is not just Sino-centric, it is in transition and less harmonious.  Asia’s disharmonies have broadening international impact.  There is a sense that armed conflict between the region’s great and lesser powers could be in the offing.  If tensions continue to rise, Asian quarrels will have profound effects on the global political economy, which is already in many ways unhealthy, unstable, in unguided transition, and vulnerable to political-economic setbacks.

In some but not all of the territorial disputes that now threaten the peace of Asia, China is a key actor.  China has a strategic interest but no direct involvement in others.  The United States, by contrast, has explicit or implicit security commitments that to one degree or another entangle it in all these disputes.  In the absence of a clearer drawing of lines than America has so far put forward, allies and partners will challenge Washington to fulfill its undertakings as they choose to interpret them rather than as Americans may have conceived them.  If conflict erupts, except where China is directly involved, Beijing can decide to remain on the sidelines.  The United States is essentially hostage to all who have become accustomed to relying on its post-World War II dominance of the Asia-Pacific region.  In no dispute is the initiative with Washington; in none can it easily stand aside.

It is this element of automaticity in American military entanglement that, more than anything else, led former Australian prime minister Kevin Rudd to liken the current situation in the Western Pacific to that in the Balkans a century ago.  In 1914, apparently trivial events in a then deservedly obscure corner of Europe set off a great war that no one wanted or expected.  Aside from the huge butcher’s bill it entailed, World War I ended four decades of prosperity through advancing globalization. It overthrew the established political, economic, and financial orders.  It redistributed the world’s wealth and power and ushered in a seventy-five-year period of great power contention for worldwide military dominance.

Let us hope that, in recalling the events of ninety-nine years ago, Mr. Rudd proves to be a better historian than futurologist.  Still, he is right to be greatly concerned about what might be at stake as Asia’s great and lesser powers squabble and posture over barren islands, rocks, and shoals in the Sea of Japan and the East and South China Seas.

Of course, unlike comparable powers in 1914, the parties to these contests are mostly mobilizing coast guards and other civilian agencies rather than armies.  They are careful to keep their armed forces in the rear, even as they boost their military budgets and force structures and prepare for battle.  They understand that combat over piddling places of little but symbolic importance could prove catastrophic for much larger and more concrete national interests.  It is reassuring that they give every sign of determination to manage their disputes without resorting to force, despite pressure to do so from their publics.

But the focus on managing rather than resolving the causes of current tensions – though understandable – is making the risk of accidental conflict a permanent feature of the Indo-Pacific landscape.  Despite the desire of both Americans and Chinese to avoid a fight, this increases the danger that the two countries could become embroiled in a trans-Pacific war.  The rising tensions in Asia matter not just to the parties directly concerned.  They affect all who derive their prosperity from the global economy.  In this era of globalization, that means everybody everywhere.

After a couple of centuries of eclipse, the Indo-Pacific region has again become the world’s economic center of gravity – the major driver of its growth.  Unstable political relationships between China and its neighbors and in the Indo-Pacific’s core northeast Asian region could reverse the process of economic integration in Asia that has been central to the success of globalization.  If that happens, the livelihoods and prosperity of people everywhere will suffer.  The global economic outlook is already doubtful.  There is prolonged recession in the industrial democracies.  Political constipation, budgetary bloat, and fiscal fibrillations are enfeebling the United States.  The demise of effective global governance is allowing a lengthening list of serious problems to accumulate.

Substitutes for fiscal policy like quantitative easing, competitive devaluation, and other techniques of monetary stimulus risk triggering ruinous currency and trade wars.  Contingencies ranging from a collapse of confidence in the dollar-based international monetary system to global warming are going unaddressed.  The deterioration of political and economic ties between China and Japan, Japan and Korea, and China and some ASEAN nations adds significantly to the possibility that Asia will contribute to rather than cure the current global malaise.

The economic fallout from the Sino-Japanese dispute over the Senkaku or Diaoyu archipelago has already been substantial.  Over the past half year, anti-Japan backlash in China has reduced the market for Japanese goods and services and cut Japan’s already anemic growth rate by at least one percent.  It is one reason Japan is now back in recession.  The new Abe administration faces major economic policy decisions amidst security challenges on Japan’s maritime frontiers.

Tokyo has before it four major opportunities to expand Japan’s access to overseas markets through new free-trade agreements.  One is with the European Union.  Japanese companies lack the advantages that their south Korean competitors have wrested from the EU.  A similar Japanese arrangement could add a bit over one-fourth of one percent to Japan’s growth.  There is no real debate in Japan about the desirability of trade negotiations with the EU.  It is a “no brainer.”

By contrast, the other potential agreements represent major decisions about Japan’s future strategic orientation.  Two would link Japan firmly to rising prosperity in Asia.  The Regional Comprehensive Economic Partnership (RCEP) would unite the ten members of ASEAN in a vast free-trade area with Australia, China, India, Japan, south Korea, and New Zealand.  Joining the RCEP could boost Japan’s growth rate by over one percent.  The conclusion of a trilateral Japan-China-Korea free-trade agreement alone would add three-quarters of one percent to the Japanese growth rate.  Neither the pan-Asian RCEP nor the more circumscribed northeast Asian trilateral agreement has yet fallen victim to recent tensions between China, Japan, and their neighbors.  It is particularly encouraging that trilateral discussions are continuing between China, Japan, and south Korea despite bilateral tensions among them.

The fourth potential agreement would enlist Japan in a project to develop an Asia-Pacific free-trade area that excludes China.  The Trans-Pacific Partnership (TPP) was originally an arrangement between Brunei, Chile, New Zealand, and Singapore.  Washington’s belated decision to get behind the TPP was more political than economic.  The TPP is a key component of America’s “pivot” to offset and constrain Chinese influence in Asia.

China is the region’s economic center and its biggest and fastest growing market.  It is poised to overtake the United States as the world’s largest economy and the EU as its largest importer of goods and services in a few years time.  A free-trade arrangement without China does not make sense in purely economic terms.  Still, joining the TPP could boost Japan’s growth by a bit over one-half of one percent.

None of these agreements is likely to come easily, but Japan must decide very soon where to place its bets.  Despite the huge stake of Japanese business in developing Asian markets, Tokyo’s choice now seems more likely to be shaped by political nationalism than by economic self-interest, even though the latter is self-evident.  Japan has a wealth of intellectual property and high-quality, branded products, while China and other Asian countries have rapidly growing middle classes with rising purchasing power.

Over the coming fifteen years, China alone is expected to account for nearly one-fourth of the total  expansion in global consumption, adding about $6.2 trillion to current levels.  If Japanese products are unwelcome in Chinese markets, Japanese companies and the well-being of ordinary Japanese will both suffer.  But, in current Japanese politics, the economic arguments for focusing on developing Japan’s markets in China have less traction than before.

After nearly seven decades of cautious deference to the United States, Japan has only recently resumed  making its own strategic decisions.  Only Tokyo can now decide what sort of relationship with Beijing is in its interest.  Its decision will have considerable – perhaps decisive – impact on U.S.-China relations as well as on Japan’s relations with the United States, and on the strategic orientations of other Asian nations trying to come to grips with the reality of China’s rise.

At present, Sino-American relations are characterized by broad economic interdependence and selective political cooperation.  These positive elements of the relationship contrast with mutually suspicious and increasingly hostile military interaction.  Ironically, the Taiwan issue, once the only plausible cause of possible conflict between China and the United States, has become much less salient and dangerous, as Taipei and Beijing ratchet up cross-Strait rapprochement.  But, mindful that Japan’s, the Philippines’, and Vietnam’s quarrels with China could set off a Sino-American war, both the United States and China now openly seek to deter such a war by preparing to fight one.

In current circumstances, there is a substantial risk that the much-heralded “Asian century” could feature  a cold war between the United States and China.  That is not a happy prospect even if fear of triggering a nuclear exchange effectively inhibits risk-taking by both sides.  The world cannot prosper in peace if the relationship between its two largest economies and most comprehensively capable military powers is uncooperative, verging on hostile.

Sino-American cooperation on global governance and the mutually beneficial management of trans-Pacific economic interaction are essential for global peace and prosperity.  So is cooperation between China, Japan, and south Korea.  Progress is incompatible with intensifying military tensions and rivalry.  No one wants such antagonism, but it is now a real possibility.  Statesmen on both sides of the Pacific must strive to preclude it.

Asian nationalism has always been a strong undertow along Asia’s poorly demarcated frontiers.  But, since the Korean War, only India and Pakistan have been swept into full-scale wars.  For different reasons, China, Japan, and the two parts of Korea have each, however, exhibited the passive-aggressive demeanor of nations that see themselves as perennial victims of the outside world.  In this context, Japanese statements and actions evidencing a lack of contrition for the actions of the Imperial war machine in the first half of the last century easily become a regional problem.

Chinese condemnations of Japan’s denials of its past behavior have in turn empowered Japan’s rightists to push an ever-more overtly anti-China agenda.  Sino-Japanese frictions over territorial issues have inflamed nationalist passions in both countries.  Previously latent territorial disputes between Japan, Korea, and China have been reactivated.  Northeast Asia is caught in a feedback loop that reinforces animosity and reduces willingness to cooperate.

Contested memories of past cruelties have become a particular, self-perpetuated burden on Japan’s relations with its neighbors.  Japan’s political autism aggravates the problem.  How could even the most ethnocentric of Japanese politicians fail to anticipate the international consequences of renewed denial of the abuse of Korean and other Asian women in Imperial Japanese field brothels during World War II?  Such revisionism enrages other Asians – not to mention the world’s women.  It raises questions about whether Japan has truly changed.  I believe it has, but no one in Asia is going to take my word or that of any other American on this.

Similarly, Chinese statements and actions asserting claims to the murkily drawn borders of Imperial China remind Asians of past Chinese hegemonic behavior.  This is all the more the case when the People’s Republic speaks in haughtily self-righteous language echoing that of the Qing Dynasty.  No one, not even Chinese, recalls the Qing Empire or its arrogance with favor.  When joined to stepped up patrols of previously unsecured Chinese boundaries, China’s evocation of its imperial past alarms its neighbors and impels them to seek the support of both the United States and other Asians against China.

For its part, if Japan seeks international support for its sovereignty and territorial integrity, the practice of unrepentant nationalism is no way to secure this.  After more than six decades of exemplary behavior in foreign affairs, today’s Japanese leaders risk overwriting widespread admiration of their country with revived images of the mass murders, rapes, enslavements, and other war crimes carried out by previous generations of Japanese.  Japan needs at last to show other Asians that its nationalism can be respectful of theirs.

Nowhere is Japan’s task more urgent than in its relations with Korea.  By its own reckoning, in the course of its very long history, Korea has been invaded more than seventy times, mostly from what is now China.  But Korean suspicions of China pale before the bitterness aroused by three centuries of Japanese efforts to conquer Korea and the harsh rule of the Imperial Japanese Army in the peninsula from 1905 to 1945.

Last Friday, as Prime Minister Abe met with President Obama in Washington (just three days before the inauguration of Park Geun-hye as the new south Korean president), Mr. Abe sent a senior official to represent him at local celebrations of Japan’s claim to what it calls Takeshima – the islets that Koreans know as Dokdo.  These barren rocks were annexed by Japan in 1905, reclaimed by Korea in 1945, and garrisoned by it over sixty years ago – in 1952.  Japan’s reassertion of its claim predictably evokes Korean memories of past Japanese aggression and domination.  Japan’s actions and the Korean reactions to them illustrate that, in northeast Asia, there is plenty of shortsightedness to go around.

Until recently, the burgeoning cooperation among Japan, south Korea, and China was the linchpin of Asian financial and economic integration.  Last summer, however, as Sino-Japanese tensions hit their peak and amidst a Korean-Japanese war of words over Dokdo / Takeshima, Japan and Korea called off an agreement to share intelligence.  The South Korean president dramatized Korea’s control of the islands by landing on them.  The two nations withdrew their ambassadors from each other’s capitals and ended a currency swap agreement that had been widely seen as a centerpiece of progress toward Asian financial integration.  Still, Japanese cooperation with south Korea remains a real possibility, especially if it includes China.  Notwithstanding all the irritations that divide China, Japan, and Korea, the first formal negotiating session on a tripartite free trade area is due to convene in Seoul in about a month.

Even without such an agreement, south Korea’s economic integration with China is proceeding apace.  Almost five million south Koreans visited China last year.  South Koreans are the largest single group of foreign students in Chinese universities and  Chinese students outnumber all other nationalities studying in south Korea.  In December, the two countries concluded a currency-swap arrangement that will boost trade settlement in their currencies, bypassing the dollar.  China is south Korea’s largest trading partner, with two-way trade amounting to about $240 billion last year.  By contrast, although China accounts for over 70 percent of north Korea’s foreign trade, this amounts to less than $6 billion annually.

North Korea represents a huge U.S. policy failure, rooted in decades of diplomacy-free military confrontation and sanctioneering.  (The policies that helped to produce the angrily isolated and strategically dangerous nuclear nightmare that is today’s Democratic People’s Republic of Korea are now being applied with cookie-cutter mindlessness to Iran, where they promise in time to yield similar results.)

North Korea is also both a major Chinese policy failure and an instructive insight into the limitations of Chinese statecraft.  North Korea is overwhelmingly dependent on China.  There is almost nothing that Chinese like about it – its dynastic system, its ideology of self-reliant self-starvation, its paranoid belligerence and nonsensical bombast, its provocative and often criminal international behavior, its ingratitude for China’s support, or its nuclear weapons and missile programs.  Yet China has not been able to influence north Korean behavior in any important respect.

To some, this might seem an embarrassing demonstration of the limits of China’s power over a dependent, if churlish neighbor.  It certainly devalues Chinese prestige.  Yet China’s other, far more mannerly neighbors should find China’s unwillingness to bully north Korea into following its dictates reassuring.  It suggests that, in the updated version of the traditional Sino-centric order that is emerging in Asia, China will demand respect but not obedience and deference rather than submission.  This conjecture is not invalidated by China’s current quarrels with neighbors  over its maritime frontiers.

The narrative here and in much of Asia blames an inexplicable surge of “Chinese assertiveness” for these quarrels.  Certainly, China has been both imperious in its handling of them and obtusely slow to square its claims with the U.N. Convention on the Law of the Sea.  Yet the origins of these ruckuses lie less in Chinese initiatives than in the new capacity of all claimants, not just China, to exercise jurisdiction in what were previously no-man’s lands.  A comparison of the situation in the East and South China Seas  forty years ago with that today shows a much expanded presence by Japan, the Philippines, and Vietnam but only a limited growth in that of China.   Be that as it may, the efforts of all sides to colonize or police islands in these seas have now ignited nationalist passions on all sides.

China is far from the only country to require a peaceful international environment to get on with enhancing its prosperity through continued regional integration and globalization.  China can ill afford the mobilization against it by neighbors that continuing tensions over otherwise inconsequential rocks and reefs will breed.  Other claimants must expect their bargaining positions to weaken as China’s strength continues to rise.  So the earlier a resolution, the better for all sides.

At this point, unfortunately, there is no obvious path to such resolution.  The United States has made itself part of the problem.  Washington cannot mediate.  ASEAN cannot act multilaterally to solve bilateral disputes in the South China Sea when these disputes are themselves multilateral disputes within ASEAN.  For varying reasons, the parties are disinclined to resort to international arbitration.  Even as it protests Japan’s claim, Seoul insists there is no dispute about its ownership of Dokdo and refuses to talk to Tokyo.  Ironically, Tokyo similarly denies to Beijing that there is any dispute over the Senkakus.  This has galvanized Beijing into actions that contest Japan’s de facto control of the islands in order to demonstrate that there is in fact a dispute.  In an apparent attempt to remake the Peter Sellers; film, “The Mouse that Roared,”Kim Jong-un has meanwhile produced a video musing about a north Korean attack on New York.  If it weren’t so dangerous, such a muddle of childish posturing would be entertaining.

But it is dangerous and, as I have suggested, a serious risk not just to the parties but to the global economy and to Sino-American relations.  We must all hope for statesmanship from Xi Jinping, Abe Shinzo, and Park Geun-hye.  No one outside their region can manage the exceedingly difficult politics of promoting a reduction in recent tensions and a return to a modus vivendi between them.  Meanwhile, it is time for new thinking about the problems posed by an unstable and bellicose north Korea.  Sixty years after the armistice that suspended fighting in the still unfinished Korean War, it may be time to replace those makeshift arrangements with a peace treaty in Korea.

It is a measure of how much the world has changed that the global financial community cannot afford not to mount a watching brief on events in northeast and southeast Asia.  The United States sees itself as the balancer and lubricator of regional relationships.  But current U.S. policies, including the much ballyhooed “pivot to Asia” are either irrelevant or aggravating factors in these regional disputes.  The American Lone Ranger is still brave, fast, and heavily armed but this will not help solve these disputes.

It seems that answers can come only from within the region.  Perhaps they will emerge from the second coming of Prime Minister Abe or the radical reorganization of the Chinese government and the redirection of its policies promised by General Secretary Xi Jinping at the current Communist Party plenum in Beijing.  Maybe they will emerge from an initiative by south Korea’s new president.  Few countries have as much to lose as Korea from the current trend toward the division of Asia into spheres of influence.  President Park is an able and imaginative woman.  Conceivably, Indonesia, ASEAN’s greatest power, could take the lead in composing Asian differences.

We are in the midst of an uncomfortable initial demonstration of the new centrality of Asia in world affairs.  Asian states, great and small, are working out new relationships among themselves and with the United States and the world.  The Indo-Pacific region is transforming itself from the world’s factory floor into its greatest consumer market.  Its currencies are broadening their global reach.  Asia is where the growth and the money both are.  And Asia is where, for better or ill, the future of the global economy and the course of the twenty-first century will be decided.