A new world order?

China's foreign and defence policies have undergone a seismic shift as commercial interests take precedence over ideology.

by Michael Backman, World Business
Last Updated: 23 Jul 2013

Everyone is aware of China's economic transformation, the ramifications of which are felt worldwide. But what is less well known is that China's foreign and defence policies are changing too, and particularly noteworthy is the degree to which China's approach to international affairs is now subordinate to its commercial interests. It completes the transformation of China from an ideologically driven country, eager to support international communism, to a pragmatic trading nation. Where once it sought to fund underground Maoist movements, it now prefers to do a deal for iron ore or cotton.

China has also started to play an active role on the world stage in international security issues, and an even greater role beckons. In 1989, it took part in the UN force to Namibia; in 2000 it sent 15 peacekeepers to the UN's mission in East Timor; in 2004, it contributed 550 troops to Liberia and then 175 to the Democratic Republic of Congo; and in 2006, it committed 1,000 troops to the UN force in Lebanon, making it one of the largest contingents.

The Chinese navy joined a multinational maritime exercise in early 2007 for the first time. It sent two missile-armed frigates to take part in anti-terrorist manoeuvres in the Indian Ocean, an exercise that included ships from Pakistan, the UK, France, Italy, Malaysia and Bangladesh.

It has also become active at the UN in New York, as it moves towards having a voice that matches its economic weight; its UN representatives have started to give press conferences and soundbites. Historically, China has been a passive Security Council member and typically abstained on anything sensitive, but last year it twice voted for Security Council resolutions - one condemning North Korea's missile launches and the other calling on Iran to cease enriching and reprocessing uranium.

China's military spend is changing in line with its economic development. It announced a 17.8 % increase in military spending for 2007, after a 14.7% increase in 2006, a 12.6% increase in 2005, an 11.6% increase in 2004, a 9.6% increase in 2003 and a 17.6% increase in 2002. On the face of it, these increases seem enormous, but because of its rapid economic growth, China needs to increase its defence budget to keep it at a constant proportion of GDP. These increases are in excess of GDP growth, but not wildly so.

Even with these increases, China's declared spending on its military is relatively low compared with the US. In 2005 the US spent $400 billion and Japan about $47 billion compared with China's $30 billion. The CIA, however, asserts that much of China's defence spending is hidden and off-budget, and claims that it might be two or three times higher than admitted. Some offer even higher estimates: John Tkacik, a senior research fellow in Asian studies at US think-tank The Heritage Foundation said in March that allowing for purchasing parity power differences in defence procurement, an appropriate equivalent figure is about $450 billion.

"The ultimate question must be whether Beijing's leaders have any purpose in assembling a military machine worthy of a superpower other than to have the strength to challenge the US' strategic position in Asia," says Tkacik in somewhat US-centric fashion.

Not only is it spending more on defence, but it is changing how it spends its budget. Currently, China does not have an aircraft carrier in service. The US, the UK, Russia, Italy, Brazil and even Thailand are among the countries that do. In fact, China doesn't have a lot of things when it comes to military hardware. But it is getting them.

The US and the European Union have arms embargoes in place on China, and in 2007 US military contractor ITT agreed to pay a $100 million settlement for allowing its night-vision technology to be transferred illegally to China. It has sought to develop its own weapons industry and buys much of its external purchases from Russia and Israel. Although it has cut its number of military personnel over the past few years, it still has the world's largest military with 2.3 million active personnel. The cuts are a reflection of China's greater use of sophisticated defence technology; it is known to have spent $10.4 billion on weapons systems between 2001 and 2004, reflecting a move from a defensive capability to an attack capability.

Where is this heading? With more than $1 trillion in foreign reserves, surging military expenditure and diplomatic initiatives in Africa, South America, Central Asia and the Middle East, China is beginning to flex its muscles abroad. Foreign and military policies of the major powers have always been determined by a need to protect commodities supplies. As Chicago-based economist David Hale of Hale Advisers notes in a background paper, Will China need a blue water navy to protect commodity markets?, British foreign policy in the late 19th and early 20th centuries was shaped by business interests.

China's booming economy means that it has a voracious appetite for raw materials, much of which need to be imported. It has few oil reserves and by 2030 is likely to need to import 7.3 million barrels of oil annually. It also has huge copper needs, but can satisfy only 18% of these needs from domestic sources. Similarly, it can supply only half its nickel requirements from domestic sources.

As Hale observes, the importance of international trade to China's economic well-being raises the question of the extent to which it will develop a 'blue-water' (ie, ocean-going) navy to keep the shipping lanes open and protect the merchant shipping that feeds China with the supplies that it needs of oil, gas, iron ore and copper from all over the world, including Africa, Saudi Arabia, Australia and Brazil. Most of China's trade goes through the Malacca Straits and the Bay of Bengal, both of which have more pirate activity than anywhere else in the world: 118 incidences of pirate attacks were recorded in the area in 2006, compared with 50 for the rest of the world.

China has plenty of incentive to develop a blue-water navy. It has made no open declarations of intent, but there is no doubt that it is upgrading its capability. Its Romeo and Ming-class conventionally powered submarines are being augmented or replaced by the more capable Song class submarines, which are indigenously produced, and by Kilo class submarines, which China has acquired from Russia. Its small force of nuclear-powered submarines is being upgraded too: the old Han-class submarines are being replaced by the indigenously produced Type 093-class SSN. Three new classes of Chinese-made destroyers have been brought into commission, which will enable a single ship to provide anti-aircraft defence not just for itself but for a formation of ships.

When will China decide to put its first aircraft carrier into commission? It announced an intent in 2006 to design and build its own carrier. They are hugely expensive: conventionally powered carriers can now cost about $2.5 billion to build; nuclear-powered carriers cost almost twice that. Nor do they operate alone; they need supply vessels, associated aircraft, submarines and advanced electronic surveillance for protection. The Chinese government acquired one carrier from Ukraine, the Varyag, which is moored in the northern port of Dalian, ostensibly as a tourist attraction but few analysts believe this is the case.

"Although China claimed that the Varyag would be used as a tourist attraction, the aircraft carrier could actually be used as a training ship in preparation for building an aircraft carrier battle group," Liu Chih-chien, a spokesman for Taiwan's military, has been quoted as saying. It might even be upgraded to become operational. The Australian government sold China one of its decommissioned carriers in 1985 as scrap, but it is believed that Chinese engineers carefully studied the vessel before it was dismantled.

China's shipping capabilities are also being substantially upgraded and extended; it is emerging as the world's most important builder of merchant shipping and should overtake South Korea by 2015 to become the world's biggest producer of all classes of ships. In addition, the shipping arms of South Korea's Daewoo and Samsung have set up shipbuilding facilities in China to save costs.

China's 2006 White Paper on national defence said that the country intended to reduce the number of combat aircraft in favour of fighters, which represents a seismic shift. "The air force aims at speeding up its transition from territorial air defence to both offensive and defensive capabilities in the areas of strike, air and missile defence, early warning and reconnaissance, and strategic projects."

In 2006, it unveiled a new, indigenous, fighter jet, the J-10, an advanced, multi-role aircraft, designed by Chinese engineers, with assistance from Russia and Israel, and made by China Aviation Industry Corporation I, China's biggest aircraft manufacturer. Up to 300 J-10s could be produced to supplement the Russian-designed Sukhoi Su-27 and Su-30Mk jets already in service with China's airforce. The J-10 is one of the most advanced fighters in the world and China now has something to offer other countries to sweeten trade. After numerous unsuccessful attempts to buy AWACS technology from Israel, France, Britain and Russia, it has now developed its own indigenous early warning aircraft, which will allow it to project its power far beyond its borders and beyond what has been its main military concern, Taiwan. The aircraft, known as the KJ-2000, is a conversion of a Russian-made I1-76 transport plane.

Protecting sea lanes is one thing, but what about military operations in other countries? China has become one of the largest trading partners for many countries in the past two decades - it is now Australia's second biggest trading partner - but a lot of the action has been reserved for developing countries. China is hungry for resources and this presents the flipside of its export revolution: its import revolution. It now imports almost as much as it exports.

It is a massive importer of commodities, but it doesn't just want to buy commodities - it wants to own their source, and so it has spent billions on foreign mines and oil and gas fields. Most of these investors are not private companies, but arms of the Chinese state. Chinese companies have struggled to become major investors in most Western economies; they feel more at home in developing economies. Many investments have been in countries that are politically unstable, heightening the risk but also increasing the influence that China might have in local political and military outcomes.

China now has mines and other assets across Africa, South America and central Asia. The US has long sought foreign military bases in those countries that are important to it commercially; might China also, for example, demand bases in Western Australia to protect its resource supplies and investments there? It has already deployed 4,000 troops in Sudan to protect its investment in the oil pipeline, which it co-developed with Petronas of Malaysia, and to help train Sudanese troops.

In another example of China's extraordinary dealings with the military of countries in which it invests, it paid for and renovated Murray Barracks, the headquarters for Papua New Guinea's (PNG) defence force, in 2004. It is currently doing the same for Government House, the official residence of PNG's governor-general. The Chinese government has also paid for PNG soldiers to attend the National Defence University in Beijing, the Army Command College in Nanjing and the Infantry College in Shijiazhuang. Its interests in PNG include mines and logging.

Chinese nationals increasingly work for Chinese companies abroad. In Afghanistan in 2004, construction and engineering group China Railway Shisiju had about 100 Chinese nationals employed on the construction of three World Bank-funded highways in projects valued at $21 million; Chinese companies were also awarded roles in the reconstruction of Iraq after Saddam Hussein's overthrow in 2003.

Thousands of Chinese are flooding the commercial centres of Africa, both legally and illegally. What if they were to be expelled and their assets expropriated as happened to ethnic Indians in East Africa in the early 1970s? How would China respond? A precedent exists: China sent 'rescue' ships to Indonesia in the 1960s to collect local Chinese amid rioting and massacres in which hundreds of thousands died.

China has also started to participate in international military operations. It held joint military exercises in Kyrgyzstan in October 2002, with 1,000 troops from China, Russia, Kyrgyzstan, Tajikistan and Kazakhstan. Its navy has increasingly engaged in joint exercises: in 2004, the Australian and Chinese navies engaged in an exercise off the north-eastern Chinese port of Qingdao. More joint exercises were held in 2005 in waters near Shanghai. Why the Australian navy? Australia has become a major supplier of natural gas and iron ore to China, and so both countries have an interest in keeping open the sea lanes between them.

Is the intervention in Sudan the beginning of a new role for China's military in other countries? How will China respond if governments of countries in which it has investments call for military help to maintain control? Alternatively, might China try to topple regimes that act against its commercial interests in the way that the CIA is alleged to have done? It will have the capability for such interventions and it has the incentives. As it is, China is developing 'client' states around the world - typically, states with which the West prefers not to deal.

India and China have long been rivals, but India does not face the arms embargoes that China does. India was the biggest purchaser of arms from Israel in 2006, and has significantly ramped up its defence purchases in recent years. The government's 11th Plan allows for India to spend more than $30 billion on foreign-made weapons over 2007-2012, including 126 multi-role fighters at a cost of more than $6.5 billion.

India is building up its naval capabilities in part because of China's build-up. It announced in 2006 that a new naval base would be established on its east coast, near Visakhapatnam; the base is expected to berth two aircraft carriers, support ships and submarines. Part of the rationale for the new base is to counter China's emerging naval power in the Bay of Bengal and to exert control over India's sea lanes, which are becoming more important as it too becomes more important in world trade. Like China, India is dependent on the Malacca Straits - about half of all its international goods trade passes through it. It is also developing its own aircraft carrier that will be capable of operating 30 aircraft, including naval light combat planes and Sea Harrier jets, and is working on its own indigenous design nuclear submarine.

China's increased defence spending and restructuring of how it allocates its military spending will give it a greater capacity to defend its growing commercial interests abroad and protect the supply of raw materials that it needs. India is boosting its expenditure to counter China's growing military strength. The picture is more complex than a simple desire to challenge the US' strategic position in Asia.

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