Chapter 1. Introduction
2.1 Economic Rise
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and India merging as ‘major powers’.2 If China’s rise as world’s economy power is predicted then it means there is a relative decline in America’s economic hegemony.
Besides geo-economic threat, China rise also has geopolitical dimension, for example in the early 2000 both China and India was perceived as potential threat to America, but the level at which this threat was perceived was different. In the case of India they were considered ‘natural ally’ which mean that America supported the rise of India. Here, the difference between the two was their political ideology, so if this was real that means China threat also consists of geopolitical threat, according to US.
If theorists were to fear whether China rise is a threat or not based on past examples of various nations rising and falling, it should be kept in mind that China’s current rise is not a timer, and its behavior in international is very different from past examples. It is said that first-timers are aggressive predators,3 not only is this second time for China but also in its first time (before the Western exploration) its rise was benign.
This chapter will express the major developments of the China Rise phenomena giving accounts of its economic credibility and growth which affect the progress in military and its image making in the region and ultimately the world.
2.1 Economic Rise
China’s economic growth has quadrupled since the 1980s intensifying to become one of the world’s fastest growing economies. Private and semi-private enterprises, higher education, and international trade all contributes to higher economic growth in China. More importantly international trade and inflow of huge amount of Foreign Direct Investment are underlined as the main engines of China’s growth performance.
2 Anthony Fensom, “China, India, to lead world by 2050 says PwC,” The Diplomat, 2015.
http://thediplomat.com/2015/02/china-india-to-lead-world-by-2050-says-pwc/
3 J. C Hsuing, China into its Second Rise: Myths, Puzzles, Paradoxes, and Challenges to Theory, Singapore: World Scientific publishing Co., 2012, p. 48.
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China’s economy expanded at an annual rate of 6.9 per cent in the second quarter of 2017, beating the government’s target in a year of political transition.4 Growth remained at its strongest level since the third quarter of 2015. The Gross Domestic Product (GDP) Annual Growth Rate in China averaged 9.71 percent from 1989 until 2017, reaching an all-time high of 15.40 percent in the first quarter of 1993 and a record low of 3.80 percent in the fourth quarter of 1990.
Figure 2.1: China’s Annual GDP Growth Rate (%)
[Source: The World Bank]
The National Bureau of Statistics added that the 6.9 % growth rate showed China’s economy had become ‘more stable, co-ordinated, and sustainable’. The signs of slow growth were due to the government tightening monetary policies and property sector at the start of 2017.
The global presence of Chinese economic power project the rise of China as an
‘Economic Rise’ deemed to take up the role of a responsible leadership. In other words, as long as China is considered relevant in the world economy their role as a leader contains them from causing any risk to the international order.
4 Gabriel Wildau, Tom Mitchell, “China GDP Growth Points to 2017 Economic Rebound,” Financial Times, July 27, 2017. https://www.ft.com/content/6e46e302-6878-11e7-8526-7b38dcaef614
0 2 4 6 8 10 12 14 16
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
GDP
GDP
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Liberals and realists have argued the potentiality of economic dependence among great powers with probability of war. The theory of trade expectations5 clarifies the notion of economic dependence by fusing the liberal insight that the benefits of trade gives states the incentive to be cooperative while the realist view that the potential cost of over dependence can push states to war to ensure continued access to necessary and vital materials and goods.
In addition to this, the theory introduces a new variable- the expectations of future trade.
Economic interdependence among states will be peaceful if states expect that trade levels in the future is high. If their future trade expectations are low, then the most dependent state will likely initiate conflict for fear of losing the economic wealth that supports their long term security.
Realists have opined that only the most dependent state in the economic network will initiate conflict which means that China’s rise as an economic power guarantees little to no power conflict and war. Another example in contrary is the case of North Korea. The continued sanction on the country forces them to initiate instability and war for their economic security because they are highly dependent nation with no future trade expectancy.
To simply construct a theoretical logic to this theory, let us consider the following graphical representation:
5 Dale C. Copeland, Economic Interdependence and War, New Jersey: Princeton University Press, 2014, p.16 18
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Theory of Economic Interdependence
level of dep. * level of dep. *
*
* future trading future trading (Figure. 2.2 a) (Figure. 2.2 b)
[source: author]
Figure (2.2a) accounts the Liberals perspective of state’s expectation to its trading environment. It assumes that states seek to maximize welfare therefore the more the level of future trade expectancy the higher the level of economic interdependence and actors will foster peace given the benefits of trade over war. Figure (2.2b) accounts the Realists assumption that states seek to maximize security thus at higher level of dependency states severe trade ties (low future trade expectancy) to escape potential vulnerability.
State’s dependency depends on benefits of trade and the costs of severed trade. Benefits being positive and costs being negative, the expected value of trade may be anywhere between the two extremes, depending on a state’s estimate of the expected probability of securing open trade or being cut off.6
The prospect of conflict or hegemony in case trade is severed can only be ascertained based on the relative power balance. For example, only if one state is more powerful than the other can there be threat, but if both states are equally powerful then the expected value of future trading is high and thus likely to trade peacefully and project healthy relationship and leadership.
Modern technology has increased the costs and risk of aggression making trading more preferential. Norman Angell makes the argument that trade pays more than war through the observation that states tend to choose peaceful trade over ‘old method’ of power politics because
6 Dale C. Copeland, “Economic Interdependence and War: A Theory of Trade Expectation,” International Security, Vol.20, No. 4, 1996, pp. 20-21.
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even though war was once legitimate, modernization has made it difficult to supplement oneself through force, by destroying economic bonds.7
China’s economic acceleration can be assumed through four stages of reformation: First, 1980s- set up of modern economic management system. Second, 1990s- increasingly privatized corporate system that strengthened profit incentives; set up new system of urban society safety nets, rural compensation efforts, well-funded police, and arrest of ringleaders, violent protestors, and some corrupt officials. Third, 2001 through 2007 by now China was surging with domestic investment and consumption and its entry into the WTO stimulated growth to more than tenfold.
China’s fourth reform phase began in 2008 with its newly formed government, with young leadership meant to last for the next fifteen years. This period of young leadership promoted promising combination of economic growth alongside environmental protection and social welfare.
Chinese theorists rooted their development strategy in the work of Friedrich List 8 who insisted that policies must make state a key player in development, such strategies include selective protectionism and promoting champion industries, because countries pass through stages of industrial maturation linked to their level of development.9
Its economic growth over the years has cumulated China into a major global commercial and institutional leader, with its size double to that of America. Implications of its growth suggests China will take the lead in shaping trade and investment patterns, any fluctuation in the domestic market will send ripples around the world, its monetary policies will influence liquidity and interest rates everywhere, leadership of international institutions will gravitate toward China.
Thus, China’s economic activity will spill into every conceivable dimension of international relations. The United States will only have an important secondary influence.
These factors itself incline to rationalize the notion that the nation’s economic rise is a pure opportunists with large encompass of actors interested in its investment and assistance both global and regional. It is easier to achieve an advantageous position through economic
7 Norman Angell, The Great Illusion, New York: G.P Putnam’s Sons, 4th edition, 2015, p.59.
8 Albert Keidel, “China’s Economic Rise: Fact and Fiction,” Carnegie Endowment for International Peace, Policy Brief, 2008, p 2-4. http://carnegieendowment.org/files/pb61_keidel_final.pdf
9 Friedrich List, National System of Political Economy, New York: Cosimo Classics, 2011 p.22.
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multilateralism than militarism. For this reason, Chinese economic and diplomatic influence has spread rapidly. The price America has to pay for containing China will only grow and its effectiveness will be only reduced because no country will wish to sacrifice their economic gain in exchange for any political and military alliance to contain China.
Lately reports calculate that China’s open-market based economy has created problems of inequality in per capita income between the coastal and interior provinces,10 and to achieve balanced growth so as to reduce these disparities appears to be one of the major policy challenges China has to face in order to maintain a steady GDP growth rate and social stability.
Krugman argues that China will face a limit on growth sooner or later, since it depends heavily on a massive increase in input with only small improvement in productivity, as in the case of East Asian economies.11
2.2 Military Expansion
Major western security analysts have projected China’s rising economic power as a tool to potential military expansion. They also believe that the growth of Chinese military power will be a potential source of conflict between major powers in Asia. As of now, China’s military capabilities are relatively weaker than America and unlike America, who enjoys a system of bases and agreements like those found in Guam, Japan, South Korea, Southeast Asia, and Central Asia, China has no such system. Thus, US clearly enjoy substantial military advantages. The Americans distinguish clearly between rising Chinese economic power, with which they are comfortable, and military power, with which they are less comfortable, despite America’s own military supremacy.
Amongst all of Chinese activity, perhaps the most provocative has been China’s devotion to the “nine-dash line”. It is this array of disputes in the South China Sea that has prompted tension in the region and infamously indicted China of expanding and upgrading their military capabilities.
10 John Knight, Sai Ding, China’s Remarkable Economic Growth, North Carolina: Oxford University Press, 1st edition, 2012, p. 99.
11 Paul Krugman, “The Myths of Asia’s Miracle,” Foreign Affairs, Vol.73, No.6, 1994, p.63.
http://www.brmandel.com/uploads/3/2/4/5/3245755/myth_of_asias-miracle.pdf 21
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trillion of natural gas, and 10% of the world’s fisheries and most importantly 30% of the world’s shipping trade flows through here to booming economic centers and markets of South East Asia12. Currently five countries lay claim to some part of it based on the United Nations Convention on Law of the Sea, which states that a nation’s territorial water extend up to 200 nautical miles from its shores or otherwise known the Exclusive Economic Zones (EEZs).13 China argues they have historical claim to South China Sea (SCS) dating back to naval expedition in the 15th century and following WW2 when Japan lost control of all the surrounding seas, China used the moment to claim the sea by drawing a border that encompass 90% of the SCS, which became known as the 9 Dash Line14 and has no concrete clarification to its boundaries.In the middle of it all are the Spartly Islands currently claimed by China, Brunei, Vietnam, Philippines and Malaysia. These clusters of Islands are at the heart of the SCS, and any country that can claim the Spartly Islands can extend their EEZs to include them and gain exclusive rights to the surrounding territories.15 China building man-made islands in these inhibited islands and installing military bases took the dispute to the new level because it threatened the position of the other claimants.
Now the dispute becomes even complicated when US start to take notice. Although America has no claims to the SCS, it being the lone super power uses their massive naval army to defend the international waters. But China sees the US presence in the area as an encroachment in their backyard.
China is building airstrips on disputed islands in the South China Sea, moving oil rigs into disputed waters and redefining its airspace but without any clear program for turning such assertion into the acknowledged status it sees. This troubles the neighbors, and it definitely
12 GlobalSecurity.Org report on South China Sea Oil and Natural Gas.
http://www.globalsecurity.org/military/world/war/spratly-oil.htm
13 UNCLOS, Oceans and Law of the Sea, United Nation.
http://www.un.org/depts/los/convention_agreements/convention_overview_convention.htm
14 Beina Xu, “South China Sea Tensions,” Council on Foreign Relations, 2014.
https://www.cfr.org/backgrounder/south-china-sea-tensions
15 Robert Beckman, Leonardo Bernard, “Maritime Boundary Disputes in the east and South China Seas,” Forging a Common Maritime Future for ASEAN and Japan, Centre for Strategic and International Studies, 2015 pp. 27-29.
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troubles America. In other words, China’s desire to re-establish itself (without being fully clear about its intentions) and America’s determination not to let that desire disrupt its interests and those of its allies (without being clear about how to respond) have caused tension and distrusts in the region and among allies.
According to the State Council,16 China plan to extend its global military reach to safeguard its economic interests, while also defending its territorial claims at sea against
‘claimants’ and prying by the United States. Beijing has insisted its military is dedicated to international security cooperation and peaceful development, in order to protect their national interests. For example, in a move welcomed by other nations, China sent a 700 strong peacekeeping force in the winter of 2014 to South Sudan, where it has extensive oil interests, marking the first time it has sent an infantry battalion on a UN mission.17
China is the only country besides the US to have a triple-digit defense budget (in USD).18 This level of spending is remarkable given where China started off. For example, in the late 1990s, their military spending roughly totaled to about $10 billion on par with Taiwan and definitely lesser than Japan and South Korea. However, since then the budget began to rise significantly, firstly because their economy soared and secondly, the low inflation rate in the last two decades means real growth in defense spending has nearly matched nominal growth.
Defense budget identifies the importance of a country’s armed forces relative to other organs of the state. No matter how much a country spends on military, it must still find ways to translate its potential capability for power into power itself. The following graph represents China’s defense spending according to three sources: The official Chinese Defense Budget, US Department of State, and a non-partisan third party, Stockholm International Peace Research Institute (SIPRI):
16 Chinese Military Strategy white paper outlining the new policy of ‘active defense’, released by the Chinese Ministry of National Defense, May 26, 2015.
http://english.gov.cn/archive/white_paper/2015/05/27/content_281475115610833.htm
17 David Smith, “China to send 700 combat troops to South Sudan,” The Guardian, December 23, 2014.
https://www.theguardian.com/world/2014/dec/23/china-700-combat-troops-south-sudan-africa-battalion-un peacekeeping
18 Global Firepower list of Military Strength Ranking 2017. http://www.globalfirepower.com/countries-listing.asp
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Figure 2.3: China’s Defense Spending (US$bn)
[Source: Various19]
Estimating Chinese Defense budget is inconsistent as there is no universally accepted standard for reporting military spending. Although China provides official estimates of its defense spending, external estimates of the same are often higher than Beijing’s official number.
Therefore, the above graph has been drawn from three different sources for a comparison analysis.
Official figures released by the Chinese government peg the country’s 2016 defense budget at $146.6 billion, an increase of 7.6 percent from the 2015 budget of $144.2 billion. The SIPRI estimates the overall 2016 figure at $226 billion and the 2015 estimate at $214 billion.
The U.S. Department of Defense (DOD) places the 2015 defense budget at more than $180 billion, while the SIPRI puts the number at $214.1 billion.
19 China’s National Defense http://www.china.org.cn/government/whitepaper/node_7060059.htm, Department of Defense Annual Report to Congress https://www.defense.gov , SIPRI Military Database
https://www.sipri.org/databases/milex
0 50 100 150 200 250
Chinese offical defense budget
US Department of Defense SIPRI
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efforts. China began military modernization in earnest after the 1995–1996 Taiwan Strait crisis, an event that exposed fundamental weaknesses in China’s ability to deter foreign intervention in China’s sovereignty disputes. Additionally, the increase in China’s defense spending during this period was, in part, a response to domestic policies that left China’s defense budget relatively low. Throughout the 1980s and early 1990s, the Chinese defense budget suffered even as economic reforms increased China’s overall wealth, which prompted the PLA to increase its low funding through business investments. Due to corruption and a host of other problems, the PLA was forced to strip in 1998, a move that resulted in increased defense costs for the Chinese government.20Even though China’s defense spending as a percentage of GDP has not risen significantly, China’s aggregate spending increase has corresponded with several high-profile procurement programs, military reforms, and doctrinal and strategic shifts within the PLA.21 These changes have facilitated China to play a larger role in regional and international security. Some of these efforts, such as China’s participation in UN peacekeeping operations, antipiracy efforts, and humanitarian assistance and disaster relief are welcomed contributions to global governance. On the other hand, defending China’s security interests in the East and South China Seas may strain relations with other regional actors.
While Chinese military spending has increased considerably over the past decade, China’s military budget lacks in comparison to the U.S. military budget. The United States spent 3.3% of its GDP on defense in 2016, with a nominal expenditure more than two and a half times higher than China’s figure. Even when considering the estimation discrepancies discussed above, China would have to spend a great deal more to match U.S. defense spending. Unlike the United States who maintains a global military presence, China has no bases on foreign soil and its defense interests are primarily focused within the Asia-Pacific.
Potential military expansion has also been speculated since President Xi announced in 2013 that the country would invest in historic Silk Road trade routes across Asia to Europe and
20 Dennis J. Blasko, The Chinese Army Today: Tradition and Transformation for the 21st Century, New York:
20 Dennis J. Blasko, The Chinese Army Today: Tradition and Transformation for the 21st Century, New York: