China: The Struggle for Territory Eclipses Trade

Journal of Political Risk, Vol. 8, No. 6, June 2020

Military parade to commemorate the 70th anniversary of the Chinese people’s victory in the Japanese Resistance War and the end of World War II, 2015. The number of tanks in China’s armored forces ranks third in the world. The main battle tanks have the ability to fight under nuclear and night conditions. Source: Press Service of the President of Russia.

William R. Hawkins
Former U.S. House Foreign Affairs Committee member

In February 1999, President Bill Clinton opened a major foreign policy speech by  claiming, “Perhaps for the first time in history, the world’s leading nations are not engaged in a struggle with each other for security or territory. The world clearly is coming together.” This was the height of the post-Cold War delusion that history had come to an end and that a new world order had dawned based on a global partnership for economic development. Yet, Clinton knew that this was still a work in progress. In the same San Francisco speech he talked about conflicts in the Middle East, Southwest Asia and the Balkans, the threat of nuclear proliferation, and the need to bring Russia and China “into the international system as open, prosperous, stable nations.” The emphasis, however, was always on economics, a peaceful way to rise within classical liberal theory, transcending political issues and separating wealth from power in an interdependent world.

The classical liberal view held that wealth could be best pursued outside the bounds of sovereign territory. Borders were not to impede the movement of people, capital or goods which were motivated by material gain and self-improvement. Their frame of reference was the efficient use of resources world-wide to maximize global output, not their relative use among national sub-units. Peace would be the result of economic interdependence as trade could gain access to resources at less cost than conquest, and that once entangled in global supply chains, the cost of disruption for political reasons would be unbearable. The classical worldview was very popular in the 19th century prior to World War I and revived briefly during the interwar years only to be once again vanquished by World War II. The rapid onset of the Cold War kept such idealism in check, but it burst forth again after the Berlin Wall came down, symbolically opening the world to new possibilities.

The traditional concern of politics is the control of people and resources within a defined territory. Economics is a tool to build up the strength of the national domain. Throughout history there is a link between territorial size and national/imperial power. Organizing a vast land and building up its productive capabilities, agricultural, industrial, and technological, are the keys to prosperity and security. Where work is done and how assets are allocated across the map determine the international balance of power. It is no surprise that China sees its path to greatness as being the development of its vast homeland on a par with what Americans achieved in their domain “from sea to shining sea.” Economics is thus in a supporting role; it is not the main event.

Last November, President Donald Trump claimed credit for keeping Chinese forces at bay in Hong Kong. He warned President Xi Jinping that if there was a violent crackdown against the pro-democracy demonstrators, it would have a negative impact on trade talks. China is vulnerable to economic pressure because it needs exports to keep its factories open and people employed. It imports technology, food, and capital to expand its capabilities. The coronavirus pandemic which originated in Wuhan has weakened the Chinese economy and spread distrust of continued engagement with Beijing around the world. President Xi should thus be more cautious in the present environment if economics is at the forefront of his concerns; his behavior indicates he has other priorities that economic sanctions cannot alter.

The protests in Hong Kong started over a proposed law that would have allowed those arrested in the city to be extradited to China for trial and punishment. The fear is that this would be applied to political prisoners, meaning anyone who advocated human rights or democracy in the former British colony. UK Prime Minister Margret Thatcher had hoped that the terms negotiated for the 1997 handover would shield the city from the harshness of the Beijing regime for another fifty years. This would give time for positive reforms in China. By 2047, optimists expected Beijing would look more like Hong Kong than the reverse.

Unfortunately, this has not been the trend. The National People’s Congress in Beijing enacted new “national security” legislation that went into effect on June 30, an hour before the 23rd anniversary of the British handover. The details of the law’s 66 articles were kept secret until passed. It criminalizes any act of secession, subversion, terrorism, and collusion with foreign or external forces. Subversion means anything that would undermine the authority of the central government, including any kind of dissent that can be easily rolled into charges of secession and foreign collusion. And any disruptive demonstrations can be considered terrorism. The new law reaches much further into Hong Kong than the previous extradition law and truly ends its autonomy under the “one country, two systems” arrangement established by the 1984 Sino-British Joint Declaration and the Basic Law. It is conquest.

On June 30, the U.S. State Department declared, “The United States will not stand idly by while China swallows Hong Kong into its authoritarian maw. Last week, we imposed visa restrictions on CCP officials responsible for undermining Hong Kong’s autonomy. We are ending defense and dual-use technology exports to the territory. Per President Trump’s instruction, we will eliminate policy exemptions that give Hong Kong different and special treatment, with few exceptions.” A month earlier, the U.S., Australia, Canada, and the United Kingdom had issued a joint declaration protesting the legislation and proclaiming, “The international community has a significant and long-standing stake in Hong Kong’s prosperity and stability.” Yet, the Communist regime does not seem as concerned about the economic and diplomatic fallout today as it appeared to be last year. This itself is a development that raises an alarm that can be heard beyond Hong Kong.

There is nothing in President Xi’s background or character that would hold him back from crushing an uprising in Hong Kong. He is a hard-liner. His “China Dream” and the mandatory propagation of his “thought” in the manner of Mao Zedong mark him as a dictator with dangerous ambitions. His virulent campaign against “separatism” stretches from the brutal occupation of Tibet to Uyghur concentration camps in Xinjiang to increasing military threats against Taiwan. Only external pressure can keep him in check, but how much pressure will it take? The threat of sanctions seems to have been shrugged off.

Of course, the sanctions in play are not as strong as they could be. Targeting individual officials rather than national targets does no serious damage. Consider the reverse. On July 13, China imposed sanctions on U.S. Ambassador at Large for International Religious Freedom Samuel Brownback, Senators Marco Rubio (R-FL) and Ted Cruz (R-TX), Representative Chris Smith (R-NJ) and the Congressional-Executive Commission on China. This was in retaliation for the imposition of sanctions by Washington on several Chinese officials involved in human rights abuses in Xinjiang the previous week. But does anyone believe any of the individuals, in either country, will change their stands on the issues, or abandon their duties for personal gain? What kind of people do we believe we are dealing with? Such sanctions cannot be considered anything more than a diplomatic signal, not a meaningful tool of leverage. The same can be said of the sanctions imposed on individual Chinese officials regarding Hong Kong.

Much stronger would be a halt to trade talks meant to restore business as usual to U.S.-China relations followed by a return to the broad restrictions on Chinese exports and direct investment imposed early in the Trump administration based on national security concerns. Even these measures would not likely pressure Beijing to roll back its policies of enforcing territorial control over restive and coveted provinces. The control of land and people are too important to the regime. It cannot be risked for comparatively minor economic benefits. American policy must, therefore, aim at gaining material advantages that will maintain a favorable balance in the great power competition that characterizes U.S.-Chinese relations. That means a decoupling of ties that have transferred substantial capabilities to China and made key industries in America dependent on Beijing-dominated supply-chains. As large a gap as possible must be kept between American and Chinese capabilities by promoting the former and retarding the latter. International economics must return to its role as a support for national power, rather than as an end in itself.

Beijing clearly does not want to suffer the consequences of decoupling, and has even claimed its position in global markets is so strong that America dare not pull back. President Xi has, however, already made the transition in thought from commercial partner to strategic rival with much higher stakes than those contemplated in business deals. The economic engagement that was supposed to integrate China’s “peaceful rise” into a liberal global system has lost is political preeminence. This means the risk of a real war, not just a trade war, has increased.

The South China Sea is the danger zone. The development of military bases on islands wholly created by the regime to extend its sovereign claims has been a focus of attention. There have been numerous maritime incidents between China and its neighbors as Beijing has attempted to assert its control over the entire maritime region. The United States, along with other naval powers including Japan, India, the UK, and France have conducted “freedom of navigation” operations in the South China Sea to demonstrate their rejection of Beijing’s territorial claims. On July 13, the U.S. abandoned its stance of being neutral in regard to specific bilateral disputes, declaring “Beijing’s claims to offshore resources across most of the South China Sea are completely unlawful, as is its campaign of bullying to control them.”

In response, Foreign Ministry Spokesperson Zhao Lijian stated, “China’s sovereignty, rights and interests in the South China Sea have been established over the long course of history. China has effectively exercised jurisdiction over relevant islands, reefs and waters in the South China Sea for thousands of years.” He also criticized the U.S. for not ratifying the UN Convention on the Law of the Sea which legitimized the offshore extension of territorial control by coastal states to 12 miles for sovereignty and 200 miles for exclusive economic development. This treaty marked a revolutionary enclosure of new territory. Beijing has tried to muddy the waters between the sovereign and economic zones. The next day, another Foreign Ministry spokesperson proclaimed, “Speaking of sanctions, China is not afraid of them. However, as an old Chinese saying goes, ‘a tree wants to enjoy a moment of tranquility, but the wind keeps blowing.’ If the US wants to make a storm, then just let the storm rage with greater force.”

The supposed power of sanctions also comes from the liberal classical model. If trade is elevated to the peak of international relations, then its threatened disruption gives the country with the stronger economy immense pressure to compel a rival’s behavior. But if other considerations, such as territorial control with the development of domestic assets becomes a higher concern, then sanctions lose their punch as a diplomatic tool.

Beijing’s ambitions ultimately rest not on expanded reefs but on Taiwan, the lynchpin of the first island chain that constrains China’s naval expansion. Beijing’s hopes for a peaceful absorption of Taiwan have been dashed by the comfortable re-election of President Tsai Ing-wen, the leader of the Democratic Progressive Party which is based on Taiwanese nationalism. Beijing has dropped the term “peaceful” in its unification narrative and is asserting that “there will surely be national security legislation for the island” if it falls under mainland control. The DPP has been growing in strength as younger generations have come to identify themselves as Taiwanese, not Chinese. Taiwan was governed from Beijing for only four years (1945-1949) since 1895. A recent poll conducted by the Taiwanese Public Opinion Foundation found that among those surveyed, 54 percent said they support Taiwanese independence, 23.4 percent favored maintaining the “status quo” (de facto independence), while only 12.5 percent supported unification with China.

What has deterred Taipei from declaring formal independence has been fear of a Chinese attack. The poll found, however, that a slim majority of 55 percent no longer fear an attack. Yet, such optimism depends on the U.S. and its allies presenting a credible threat of a decisive military intervention to deter Beijing.

In his attempt to become a leader with the stature of Mao Zedong, President Xi is undoubtedly aware of how the founder of the Communist regime thought about the primacy of territorial control. When Mao informed his Russian counterpart Joseph Stalin that he was ordering Chinese troops into Korea in October 1950, he painted a grim picture of the expected reaction: “We must be prepared for the United States declaring and entering a state of war with China, and we must be prepared for the United States at least using its air force to bomb a good number of major cities and industrial centers in China and using its navy to assault coastal regions.” Yet, Mao went ahead with his plan to conquer South Korea because he believed that whoever controlled the territory being fought over would win the war. Once driven from the Korean peninsula, the U.S.-led UN coalition would not be able to return. The bombing campaign and blockade would end, and China would recover. Today, we could forecast that any sanctions imposed on Beijing for the invasion of Taiwan would not endure as far into the future as President Xi would see control of Taiwan. President Xi has seen how President Barack Obama’s claim that the Russian conquest of Crimea would not stand against Western opposition and sanctions has proven a hollow threat. Taiwan must be defended; if lost, it would be nearly impossible to recover.

The People’s Liberation Army (PLA) could march across the Yalu River, but it cannot march across the Taiwan Strait. This water barrier is four times as wide as the English Channel which frustrated Napoleon and Hitler. Last year was the 75th anniversary of D-Day, a Herculean task even when enemy air and naval opposition was virtually zero. U.S. naval and airpower are in the front line of the effort to keep an invasion of Taiwan a “bridge too far” for Chinese planners.

A May 11 article in The South China Morning Post claimed that Beijing was trying to tap down rising “nationalist fervor” on Chinese social media calling for an invasion of Taiwan. Naval and air shows of force by both the U.S. and China have been converging on the Taiwan Strait. When the U.S. sent the USS Ronald Reagan and USS Nimitz carrier groups into the South China Sea in an unusual dual deployment, Chinese media made the connection with Taiwan. Global Times, the outlet of the ruling Communist Party, quoted analysts saying “The US drills are just a show performed for its West Pacific allies and Taiwan secessionists.” Having lost its “Hong Kong card” due to the new national security law, it was argued that the U.S. had to shift “its focus to the South China Sea and Taiwan, in which military might plays an important role.” As usual, Beijing is attributing to America its own strategy.

Chinese naval forces were also in action and it was asserted “The two US aircraft carrier battle groups are nothing more than paper tigers on China’s doorsteps, as the region is fully within the grasp of People’s Liberation Army (PLA) with specially made weapons that can destroy aircraft carriers.” While such bravado is expected from the state-controlled media, it is vital that Beijing’s leaders do not actually believe it if peace is to be maintained in the region.

The announcement that the U.S. would sell Patriot PAC-3 air defense missiles to Taiwan was dismissed in a Global Times editorial. “The arms sales will not change the power balance across the Taiwan Straits” but were denounced because the deal “gives Taiwan secessionists false courage.” The editorial also noted that on the same day the Taiwan sale was announced, the U.S. sold 105 F-35 fighters to Japan, indicating “the US, Japan and Taiwan have gradually formed a military companionship.”

Territory is at the heart of this “companionship.” Chinese ships have been operating near Japan’s Senkaku islands daily since April. On July 17, the Chinese Foreign Ministry stated, “The Diaoyu Island and its affiliated islands are an inherent part of China’s territory, and it is our inherent right to carry out patrols and law enforcement activities in these waters.” Tokyo strongly disagrees, asserting its ownership of the islands. A look at the map shows it is the location of these islands, just north of Taiwan and forming a line from Taiwan to Japan, that makes them strategic for Beijing’s ambitions and Japan-Taiwan security.

The return of territorial ambition, with its long-term value for national development, over the short-term gains from trade, marks the end of the globalization moment. The United States is not the only player in the resumption of Great Power competition which is realigning its economic assets by decoupling from China. Japan is offering subsidies to its firms to come home or at least move out of China to lands that do not pose a security threat to Tokyo. So far, 57 firms have agreed to relocate operations back to Japan and another 30 have agreed to move assets to Southeast Asia. Tokyo has also invited Taiwan Semiconductor Manufacturing Company, a world leader in the field, to be at the center of a new initiative to undertake advanced projects in Japan, a partnership with obvious military as well as commercial potential.

India is also reacting to Chinese aggression on its border, as Beijing has been attempting to expand its territorial control in all directions. Both sides have been reinforcing their military positions after several bloody clashes, but India is also seeking to de-couple its economy from Chinese influence and penetration. New Delhi has drawn up a list of 275 Chinese apps that it will scrutinize for violation of its national security or user privacy rules. And restrictions are being placed on the participation of Chinese firms in government procurement. U.S. Secretary of State Mike Pompeo urged India to move “supply chains away from China and reduce its reliance on Chinese companies in areas like telecommunications, medical supplies and others” at the U.S.-India Business Council’s India Ideas Summit, July 23. Beijing has protested these moves, claiming as it always does that decoupling will be harmful to the country pulling away from Chinese influence even though any serious analysis of the pattern of Chinese involvement is exploitive to the point of earning the title “imperialism.” By its own figures, Sino-Indian trade only totals $100 billion a year and Chinese investment in India is a mere $8 billion. The task of decoupling for New Delhi is not going to be onerous, and its own development will benefit from drawing closer to the U.S., Japan, and Australia in a new alignment against Beijing.

In a very hardline address to the American Chamber of Commerce in China on July 17, Vice Foreign Minister Zheng Zeguang asserted, “The US side has made everything a matter of national security, and suppressed Chinese tech firms. Such moves will force Chinese firms to accelerate self-innovation and boost faster development of China’s high-tech industry, making US companies lose market share and cooperation opportunities they could have had…. We urge the US side to correct its mistakes, give up anti-China gibberish.” Yet, this is exactly the point. Throwing China back on its own resources will slow its progress as the contest will explicitly be about the size of the gap in capabilities between the two competing powers. Zheng’s bravado was undercut by his emphasis on Beijing’s desire to attract foreign investment and maintain “cooperation” with Western firms, two of the drivers of China’s rise that a more alert gaggle of policy-makers in Washington should have curtailed long ago.

The decoupling policies of Washington, Tokyo, and New Delhi restore the traditional pattern of international economics. Princeton political economist Joanne S. Gowa finds that throughout history trade patterns have been aligned with security alliances. She argues in her book Allies, Adversaries, and International Trade that it would be unwise to abandon the traditional practice of “trade follows the flag” because interdependence is too risky. Gowa contends that “power politics is an inexorable element of any agreement to open international markets, because of the security externalities that trade produces…. trade enhances the potential military power of any country that engages in it.” Trade with an ally makes both parties stronger, whereas trade with an enemy creates “a security diseconomy” where an enemy gains strength, especially if the trade balance favors the rival as has been the case with China. And, of course, building up the capabilities on one’s own realm is the firmest foundation for social and military cohesion and strength. National economic strategy is back in the driver’s seat where it belongs.

William R. Hawkins is an economist specializing in national security issues. He is a former Republican staff member on the U.S. House Foreign Affairs Committee.