30 June, 2011

Oxford debate on China

My latest contributions to the Oxford debate in its newsletter "China Thinking":


29 June, 2011

America's core interests in Asia-Pacific (from EJ Insight)

Jun 28, 2011 08:36

America's core interests in Asia-Pacific
By L K Shiu

The U.S. State Department has made it clear that America has core interests in Asia Pacific. An analysis of the rising tensions in South China Sea cannot be complete without a dissection of what these interests are.

Many Chinese nationalists would think that the U.S. is the troublemaker behind the scene. They believe that the U.S. has been the chief obstacle to the unification of Taiwan with China, attempting to use Formosa as an unsinkable aircraft carrier against the mainland. According to this mindset, the U.S. is again endorsing or even enticing the Southeast Asian countries to oppose China in a bid to thwart China’s economic power and rising international status.

It is true that southeast Asian countries would unlikely act on their own accord without first gauging possible U.S. responses. However, they are not the mere puppets of the U.S. Vietnam, for instance, shares little in common with the U.S. ideologically and scars in their bilateral relationship run deep. But they understand each of them in isolation is no match for the Chinese. Hence, they aptly resist the calls of the Chinese government for joint development of the disputed areas on a bilateral basis.

The Philippine president, therefore, has called upon Asean countries’ support for multilateral development of the Spratly Islands, although Asean countries’ claims over the islands clearly do not square. And what could be better to tilt the balance of power than bringing in the might of the U.S.?

On the other hand, our anticipation of U.S. responses should be set in the wider Sino-U.S. relationship, instead of narrowly focusing on this dispute. This relationship is one of “co-opetition”, meaning they both compete and cooperate.

True, the two sides have been bickering on issues ranging from human rights to military spending and intervention in global affairs. But let’s not forget that the U.S. needs China for adjusting the global imbalance and invigorating its hitherto elusive economic recovery. On this side, what the U.S. wants is a more cooperative China and willing to play by international norms and rules (as interpreted by Americans at times), including higher consumption, appreciation of the renminbi, lowering trade barriers, etc. With Europe in debt distress, solid economic ties between the two countries is in U.S.’ interest.

That said, the U.S. is unlikely to tolerate any abrupt change to the status quo in the South China Sea - and certainly not of outright Chinese occupation - for at least four reasons.

Firstly, the area, according to some estimates, is the gateway to two-fifths of global maritime traffic. It’s not just the passageway for Middle Eastern oil to China and Chinese exports to Europe, but also other international shipments, including those bound for Japan. American interest is well captured by what Hillary Clinton called the “freedom of navigation”. It is important to the U.S. that this area remains open to U.S. maritime traffic, both commercial and military. The best way to achieve this is to avoid it being monopolized by any single power, especially China.

Secondly, if China gains effective control over this oil-rich area, offshore drilling will reduce its dependence on oil and gas imports, as well as the need of going abroad for difficult asset acquisitions. Cheaper and more accessible energy will further power its industrialization and would significantly strengthen its strategic position both in peace and at war.

Thirdly, the vast U-shaped area claimed by China could allow the Chinese to construct a permanent base deep into the heart of southeast Asia. The geopolitical implications would not be acceptable to the U.S.

Fourthly, if the U.S. did not stand firmly by the Asean countries this time, it would lose all its status in the region. Diplomatically, this is unacceptable to Uncle Sam and would have read-across implications for its dominating role in other areas of conflicts.

The U.S. does not have a legal standing to claim any of the territories in the region and does not have a formal justification for intervention. But it can appeal to the adherence of international law and maintenance of peace. It has an interest in seeing the current unclear ownership kept intact. Its interest will be best served by keeping this area open to all. And what better raison d’etat could be supplied other than the invitation of its southeastern allies?

It is therefore fairly certain that this dispute will be “internationalized” contrary to China’s expectation and interests, and will occupy the international agenda for some time to come. At the time of writing, media reports said that the U.S. has also brought in Japan, which has a natural interest in this matter because of its dependence on maritime life line. The Joint Statement of their Security Consultative Committee just held in Washington also mentioned security cooperation with Asean countries.

L K Shiu is a part-time lecturer at the Chinese University of Hong Kong and a public affairs consultant. He worked as an administrative officer in the Hong Kong Government.

-- Contact the writer at utopia1848@gmail.com


21 June, 2011

Conflicts over Spratly Islands (from EJ Insight)

Jun 20, 2011 08:32

Conflicts over Spratly Islands
By L K Shiu

Tensions are building up rapidly over the South China Sea. The Philippine government has resolved to rename the South China Sea as the West Philippine Sea in its official communications. The strait separating the British Isles from continental Europe had been the subject of conquests and disputes for centuries: the English call it the English Channel, the French La Manche. Restaurants in Seoul serve budget sushi made of fish from the “East Sea”, while the Japanese would say they are netted from the Sea of Japan. So much quibbling over names.

But the much-publicized Vietnamese decree on military conscription looks more ominous. The Asia-Pacific has not seen large-scale armed conflict since the Sino-Vietnamese border war in 1979 and the conclusion of the Vietnam War. This fact has been essential, though unacknowledged, to the peaceful economic take-off of the whole region in the past 30 years, including that of China.

Any change to this status quo would have far-reaching and fundamental implications for all of us, and could change the tenor of our times. A formal armed conflict involving China would put a sharp brake to its economic development program, a thousand times more “effective” than any increase in the reserve requirement ratio for Chinese banks. And regardless of the result, the domestic political scene is unlikely to be the same. It is thus opportune, as we have been discussing about maritime and energy security recently, to make some wild but necessary speculation on this subject.

The impact on the economy (and our lives, of course) depends much on the scale of escalation. There seems to be three possibilities. The first is pure diplomacy. It would involve merely exchange of heated rhetoric, coupled with regulated mass rallies at home. Nations may send more utility ships through the disputed waters, such as patrol boats or surveillance vessels. There will be more military drills said to be part of pre-scheduled routine training. Relevant ministries would continue to declare fishing bans or issue exploration permits to commercial interests operating in the disputed areas. Tensions may further heighten with news of certain countries erecting an outpost here and there, or others removing foreign countries’ flags or boundary markers. (As a matter of fact, defacement of a country’s flag within its territory can be deemed a serious disgrace and has been used as a pretext for war.)

But if that is the case, on the whole there would not be much new development. China, the Philippines, Vietnam and Malaysia have done all this before. In fact, the Vietnamese order on military conscription pertains more to eligibility, i.e., who would be included or exempted from military service, rather than a draft which would be tantamount to mobilization.

A well-tested military dictum from history suggests that if conflicts are well premeditated, it will not be known or publicized -- and vice versa.

This does not mean that what’s happening is just propaganda. Propaganda can be self-reinforcing, and can get out of control. This leads us to the second scenario which would be more worrying. We might see localized armed conflicts, intended or unintended, without formal declaration of hostility (i.e., war), involving China on the one side and the lesser powers (for want of a better word) on the other.

The possibility cannot be dismissed outright. The Chinese for centuries have had a very strong hold on the local economies of Southeast Asia. It has been a source of jealousy, and China's emergence as a world power only adds to such distrust. I am reminded of the very mixed and delicate feelings of the indigenous people by the latest address of Aung San Suu Kyi to Hong Kong’s university students. The Myanmar dissident praises China as a great nation but hopes that the Chinese people could also respect the local culture while doing business.

Historically, the tropical jungle has not been friendly to Chinese military operations. The latest border war against Vietnam at the early stage of Deng’s economic reform was inconclusive and costly. Results of conflicts in the open sea are difficult to predict these days. On the one hand, today's China is much more powerful than it was in the 1980s. On the other, the Spratly Islands are hundreds of miles away from China’s coastline, making logistical supply and air support very difficult. The Southeast Asian countries would be fighting very close to their home base.

Whether that would further escalate to a third scenario, one of open and formal conflict involving China and more than one of the Southeast Asian countries, is an important question. For that could gravely disturb the regional balance of power and certainly would invite intervention or involvement of other bigger powers.

The result could be catastrophic.

The crucial factor upon which all this depends is the attitude of the Americans which deserves more analysis.

L K Shiu is a part-time lecturer at Chinese University and a public affairs consultant. He worked as an administrative officer in the Hong Kong Government.

-- Contact the writer at utopia1848@gmail.com


12 June, 2011

Energy security and Sino-Russian gas deal (EJ Insight)

Jun 10, 2011 10:02

Energy security and Sino-Russian gas deal
By L K Shiu

Early next week, President Hu Jintao will be in Russia and Kazakhstan on a diplomatic tour to strengthen China’s ties with its western neighbors. Of more immediate interest to investors may be his opening address at the St. Petersburg International Economic Forum, which will be attended by a global entourage of business executives. There is also speculation that his official visit may help resolve remaining issues over an earlier Sino-Russian gas supply agreement.

The deal was originally made between PetroChina and Gazprom back in 2006 when Vladimir Putin visited China. It is said to have promised the construction of two natural gas pipelines from Siberia to China, one to its northeast and the other to Xinjiang. Together they may allow the Chinese tap into 60 billion cubic meters of natural gas, more than half of China’s natural gas annual consumption.

How do we make sense of such an important deal? What is the implication for China’s longer term energy development?

First, it is a continuation of a deliberate strategy by China to diversify its energy sources and enhance energy security. It is neither new nor the end of such strategy. Energy security is closely related to national security. Recall from my previous article that the perceived Chinese military threat is unfounded, as far as naval power is concerned. It is well-known that China’s dependence on oil import is at the mercy of the United States and its allies because the latter have de facto control of the Strait of Malacca, off Singapore and the Malaya Peninsula.

This is however not the only problem. The headache caused by limited long-range naval power is much closer to home: China could not even have effective claims over the rich oil and gas reserves in Nansha (South China Sea) and East China Sea. If the country had sufficient muscle to take complete control of those waters, it wouldn’t have given the chance to the Japanese and the Vietnamese to explore its turf.

In diplomacy, mutual understanding or joint development is usually euphemism for insufficient power projection (both soft and hard power). Who could imagine the U.S. giving off the right to foreigners to excavate the Gulf of Mexico? (Well, BP has the right but it is certainly not free; and BP’s shares are held by many Americans.)

In any event, such security concern is not new. It can be dated back to a long-standing debate over the country’s development strategy in Chinese history: whether it should go seaward or westward. If going seaward is somehow inhibited by the limitation of maritime power, the westward option means tapping opportunities of the inland and its neighbors, i.e. Russia and Central Asia.

In fact, this shift has been apparent for some years. The public relations outcome is the Shanghai Cooperation Organization. But it contains many substantive business initiatives too. China already has an oil pipeline linking up to Kazakhstan, completed in 2005, with an annual import of some ten million tonnes of crude. It has a potential capacity to go up to 20 million tonnes upon completion of its second phase, as envisaged in China’s 12th Five-Year Plan.

Another one is a gas pipeline running from Turkmenistan to China, importing some 30 billion cubic meters of natural gas. PetroChina is now laying another oil pipeline to Myanmar. Estimated capacity is 22 million tonnes with supplies coming from the Middle East and Africa.

There is another oil pipeline running from Skovorodino in Siberia to Daqing, China’s oldest petroleum base made popular by Mao’s Cultural Revolution.

Together, these facilities could provide up to 57 million tonnes of crude and over 70 billion cubic meters of gas, sharply reducing China’s dependence on the sea route. At present, nearly 80 percent of oil imports have to go through Malacca.

An interesting fact is that the continuation of this trend is likely to have uneven effects on the three oil giants. All of the above-mentioned routes are either constructed, operated or financed by or involving PetroChina.

As far as gas is concerned, readers would know that an alternative to pipeline transport is by shipment of its liquefied form called LNG. It requires purpose-built receiving and processing facilities at port. (Not long ago CLP of Hong Kong had urged the local government to allow it to construct an LNG terminal, but was turned down.) PetroChina has stakes in some of these LNG facilities. But LNG transport would allow for more participation of other companies such as Sinopec in this market.

Whatever the case, the plan of energy diversification is not without its own problems. As a business, the prime issue is price. The Russians already had disputes with the Chinese over the levy on pipeline oil transport. It is reported that they ran into similar problem over future gas supply. The Germans had a very bitter recent experience over tariffs when Putin threatened to turn off gas supply in winter. No doubt the Chinese leadership must be well aware of the risk involved in the coming visit.

L K Shiu is a part-time lecturer at Chinese University and a public affairs consultant. He worked as an administrative officer in the Hong Kong Government.

-- Contact the writer at utopia1848@gmail.com