States of Play with Sam Olsen

Hello and welcome to the Episode 5 of the What China Wants podcast.

The impact on the world economy from Covid and the Russian invasion of Ukraine has been heavy, creating the worst cost of living crisis in the West in years. Yet this is only an amuse bouche compared to what could happen in the near future. There is a strong chance that China, which is central to the world’s supply chains and the second largest economy, could be about to force unification with Taiwan - an event that could trigger a “Great Split” between it and the West. The results would likely be catastrophic to the world economy and the world political order.

Sam and Stewart discuss how the Great Split could happen, and what the rest of the world would think of such an event.

You can also listen to the podcast on Apple, Amazon, or Spotify.

As always please do share, comment, and subscribe. We’ll be back next week to discuss what the Great Split means for the economies of the Western Alliance.

Many thanks for listening.

***

Here is the episode transcript:

Sam Olsen: "Once the National Congress of the Communist Party of China is over in the fall of 2022, the scenario of armed unification [with Taiwan] will move toward becoming a reality. It is very likely that the leadership will move toward armed unification by 2027, the 100th anniversary of the PLA's founding."

Do you know who that was Stewart?

Stewart Paterson: I have no idea, Sam.

SO: That was Jin Canrong,a professor in Renmin University School of International Studies in China, and apparently, one of Xi Jinping's foreign policy advisors, talking about the fact that China is going to, by the sounds of it, start to plan an invasion of Taiwan within the next five years. That, of course, will lead to what we are terming, the “Great Split” between China and the West, which is the subject of this podcast, episode five of What China Wants - the first of a couple of podcasts we're going to do on the looming decoupling of China and the West.

Stewart, what's your thoughts about all this? Do you think that we're going to see a “Great Split” in our lifetime?

SP: Very much so. In fact, I'd argue that it's already started. The gradual decoupling has certainly started; maybe the total split requires a cataclysmic event like the invasion of Taiwan. What we've been seeing over the last three, four years has been a gradual drifting apart as the clash of systems has become more evident. The decoupling has been going on for several years, and is not really connected to the purported or possible invasion of Taiwan.

My sense is very much that we're witnessing a clash of political systems, a clash of economic systems. I think it's very clear in the economics case, that China is a mercantilist, statist, non-market economy, that has become the largest trading country in the world with the largest market share of exports, and that the ramifications of a non-market economy trading with the market economy have been very detrimental to economic outcomes, and that that has been the key driver of decoupling so far.

Taiwan will be the icing on the cake, that might lead to war, and will finish off any remaining linkages, but the decoupling started several years ago, and has upset the equilibrium with regards to Taiwan. That is saying that the “Great Split” is not the same as decoupling. Decoupling is the gradual process of the clash of economic systems whereas The Great Split is the final phase of that, which is caused by a catalyst, and the most likely one is the invasion of Taiwan.

SO: Well, hang on, I thought the whole point was that China was increasingly important in the world economy. When you say it's decoupling already, what is the evidence? And where is that actually happening?

SP: So the evidence is in declining interdependencies between the larger developed economies and China, so the United States and the EU, and the reorientation of China's trading patterns away from its traditional export customers, towards the developing world, its immediate neighbourhood in geographical proximity, and in particular, towards more authoritarian states.

The US is still obviously a very large trading partner for China, as is the European Union, but not relative to their overall size within the global economy. If you look at the way China is, for example, sourcing its key strategic resources, so food and energy, what you're seeing is a rising importance from either what might be described as non-aligned countries, or authoritarian regimes or pariah regimes, such as Venezuela, or Iran or Russia, for that matter.

SO: Yes, I saw that China and Iran last year or the year before, did a $400 billion deal for 25 years’ worth of oil to China, and obviously with Russia, they've become much closer since the Russian-Ukrainian war. So what you're saying is that China is re-orientating its economy away from the West, and has been for a while?

SP: Indeed, and these sort of resources in return for investment deals are increasingly common. You've got to remember that China saves more than the United States, Japan and Germany put together, and despite the fact that China has a very high investment to GDP ratio, and has done for multiple decades now, it still saves more than an invest and, therefore exports capital to the rest of the world.

China is using that capital to try and do is secure its strategic interests. One way it's doing that is through the building of infrastructure and the opening up of land routes to try and circumvent the sort of pinch-point of the Malacca Strait. But in another way, it's using that capital to procure long term contracts long term supplies of critical materials that it sees as necessary to immunise its economy from any action that the liberal democracies might take against it.

SO: So this is the Belt and Road Initiative - and what you're saying is that the Belt and Road is mainly focused on the developing world, rather than the developed world?

SP: Almost exclusively, and it's heavily focused in resource-rich areas, which China wishes to cultivate influence in, in order to secure its supplies.

SO: So this really ties in politically to a lot of the initiatives that Beijing has been making, especially over the last few years, in the realms of politics and diplomacy. For example, the announcement recently of the Global Security Initiative, and before that their Global Development Initiative, and lots of bilateral and multilateral initiatives where they've been actively courting countries in Africa and Asia and trying to create strong diplomatic ties. They do that, for example, through the building of military infrastructure; there's lots of evidence about China building defence academies and training ranges in Africa, or in Commonwealth countries in Africa.

And it seems to me that this is very much related to something that people told me before, to the Maoist concepts around capturing the countryside to capture the cities which they used during the Chinese Civil War. What we mean by that is that from a political point of view, the Chinese have been looking to really dominate the developing world (the countryside) and thereby cutting the developing world (or the city) off from the developed world.

SP: Could you give us some examples of success, their success in this? How's that manifesting itself?

SO: That’s a good question, Stewart. Well, the most obvious answer to that is Barbados, which recently became a republic, and moved away from hundreds of years of commonality with the UK. It is still in the Commonwealth, but the fact that became a republic was seen as a move away from British influence. It's no surprise that China has been very active in supporting development within Barbados, and I think most people on the diplomatic circuit regard that decision by Barbados as a victory for China in wrenching apart British influence there.

However, it's also happened in many other countries in Asia; for example, in Thailand, the Chinese have been really looking to flip Thailand, which remember, is a treaty ally of America,

SP: And notoriously independent, right?

SO: Yes, very independent. And China's now got more influence there than America in many ways. So politically, there is a strong move to dominate the developing world. And they're putting much more effort into doing that than trying to dominate the developed world, according to our research.

SP: Okay, so Sam, you've given a good explanation there of China's rising political influence in some developing countries. Is it true to say that America's political influence in similar countries is diminishing?

SO: Yes, it is; in many ways, America is a former shadow itself.

SP: And why would you say that is?

SO: Well, from an economic point of view, as you know well, America is not the same trade partner today as it was in 1980. But from political terms, which obviously is very connected to the economics, America just doesn't seem to be putting much effort into cultivating its ties with the developing world as it did at the height of the Cold War. At that time, there was an obvious reason to do so, which was to keep communism at bay. But these days America seems to have lost its way in terms of the reason it wants to have any relationship with these countries in the first place. And into that void has slipped very easily, the looming spectre of Chinese influence pushed by Beijing.

There is an economic element, and you know far more about that than I do. But there is a political element too, when people actually sit there and say, "Well, China wants to talk to us, and America doesn't really want to talk to us." And the fact that there's still many American ambassador posts not filled under President Biden shows that diplomacy doesn't have the same level of influence within Washington than it did when, as I said, there was more purpose to keep communism at bay. Ironically, China is a communist country, and you might think that they want to keep this type of communism at bay as well, but it doesn't seem to be reflecting into their actions.

But from an economic point of view, Stewart, I mean, you must see American economic influence around the world decreasing as well?

SP: I think that's right, certainly on a relative basis. But U.S. multinationals are still very prevalent around the world and are large employers, the largest US multinationals employing about 15 million people, I think overseas.

SO: Is that more than the Chinese companies?

SP: Much more, because actually China's multinationals are few and far between in terms of manufacturing presence in third countries. You obviously have sales outlets for companies such as Huawei, and white goods companies like Haier, for example, that have modest manufacturing overseas. But China's auto industry hasn't internationalised in the same way as America's has. Its consumer brands are not really internationalised. And so, Chinese multinationals' largest overseas exposure is really through construction. And that construction obviously flows from the Belt and Road Initiative and from state bank capital being invested.

So it seems to me that China is getting far more political clout for the money that it spends overseas, and of course, there's far less of a distinction between a Chinese company and the Chinese government than there is between an American company and the American government, both literally and in the eyes of, of the would-be consumers. So clearly, China's overseas investments seem to be bringing it significantly more political influence in developing countries than America's overseas investments, which are largely designed to satisfy consumer needs of the host country, rather than necessarily to satiate the greed of the elite, or meet the country's infrastructure requirements, which are where China is focusing its attention.

If we are witnessing a sort of a clash of systems, then one would have to say that the third countries, the countries that are not closely aligned with China and not particularly closely aligned with the United States, are we concluding that China is offering a better package for these countries at the moment? And is it the case that that package is better for everyone in that country? Or it's simply the case that it's better for the ruling elite in that country?

SO: So I think, interestingly enough, we have a direct example from a few weeks ago, and Biden had that summit with ASEAN and Southeast Asia, when America announced about $102 million of funding, which is way less than what China has been putting into the region.

As we spoke about in one of the previous podcasts, that shows either a lack of interest or it could be that they just think that that's all it takes to buy Southeast Asia without realising that China's put a lot more in. So you do have this clash of expectations and clash of results as well between China and America. But the reason that I'm interested in this is because if we've got this decoupling between China and the West, the battleground is going to be those third countries, especially in the developing world.

SP: Yes, especially if we come back to your initial quote, and the invasion or potential for China to actually invade Taiwan. Now, what we seem to have learned from the Russian invasion of Ukraine is that there are a few countries in the world that care deeply about the territorial integrity of Ukraine, but there are not as many as one might have thought. And that when it comes to incurring costs, in order to preserve the territorial integrity of Ukraine, very few countries seem to be prepared to incur significant costs in order to try and make that happen.

Now, if China were to invade Taiwan, and to try and take it by force, any kind of economic sanction against China -which would be hugely expensive for the global economy - for it to work, for it to have any feasible chance of working, given the diversification of China's supplies, the support of what we might loosely call non-aligned countries, will be absolutely crucial.

SO: Yes, exactly, and the way to view is it by looking on a map and seeing which countries supported sanctions on Russia, and it’s quite simple. It's Europe, it's North America. It's Japan, South Korea, Singapore, Australia, New Zealand and one or two others. But for the vast majority of the rest of the world, they either abstained or actively sided with Russia when it came to sanctions.

That is a pattern that I'm pretty convinced we will see from a political point of view, as and when China does something which incurs the wrath of the West, and they put sanctions on China. This is because the vast majority of the world is either non-aligned or is allied with China, either allied because they love the West, or allied with China because they've become a client state, or an effective client state with China because China has so much economic or other influence on them.

SP: It's probably worth pointing out though here, Sam, that actually if you took the United States, the EU, plus the UK, and then close liberal, democratic allies of those…

SO: The same countries that have put sanctions on Russia?

SP: Yes, but together with Japan and South Korea, that actually accounts for about 60% of world GDP. What hasn't happened in the Ukraine-Russia conflict has been a situation whereby if you don't apply sanctions to Russia, you will be sanctioned yourself, we haven't had those secondary sanctions.

If in the case of a Chinese invasion of Taiwan, you were forced to take sides, because you could only trade with one side, then I would say a lot of the non-aligned countries would end up aligning with the West simply because, at the end of the day, China and its close allies account for about 20% of GDP, while the United States and its relatively close allies would account to between 50 and 60% of GDP - and the large number of countries that make up the gap between the two, would much rather probably be rolled up with the majority rather than just with China. Is that not fair?

SO: Yes, well you know more about the economic side than I do. But from a political point of view, though, I think there will be enormous pressure because China has made great strides in what we call capturing the elites of many countries and saying that "we'll look after you, as an individual and you and your families", to be blunt, through corrupt methods, but also, by offering things that the country needs or wants, i.e. an investment from the Belt and Road, which is not corrupt, but they're getting investment from China, whereas they're not getting the same investment from the West.

So either through corrupt or non-corrupt ways, the elites have been captured in many countries, and that means that if there was going to be a big decoupling or a “Great Split”, there would be a lot of pressure in those countries to side with China, whether or not it was actually in the economic best interests of the country to do so if, for example, it affected whether they were allowed to use the dollar still.

So it's very difficult to be able to predict what would happen, but I suppose Stewart one of the things we haven't done actually is talking about how this Great Split might happen. So, just to back up a little, what you're saying is that there is already a decoupling between China and the West, and we've spoken a lot about the way that the developing world has been looking at that. But, if there is this decoupling between China and the West, what we're saying, I suppose, is that this will be really accentuated by something that happens with Taiwan. I can talk a lot about the politics and the military side, but do you want to talk about the economic side of how a “Great Split” would happen?

SP: Well, I mean, I think if China were to invade Taiwan, there would have to be economic sanctions put on China, by the US.

SO: Why would we have to do that? I keep being asked that by people.

SP: Well, not to do so would be to just accept the fact that a population of 20 million or so democrats with a per capita standard of living four to five times higher than that in China could just be taken over with complete impunity.

I would say that the economic response will be more robust than that against Russia for its invasion in Ukraine. Maybe I'm misjudging that, but I think that the costs for us would certainly be higher, but I don't think anyone would wish to ally themselves with the United States again if the United States didn't do anything if China took over Taiwan.

SO: Yes, I agree. We can come back to that maybe, but just on the economic side, what would happen sanction wise?

SP: Well China has a foreign anti-sanctions law, which was put in place in the last year or so, which basically makes it illegal for an entity in China to enforce foreign sanctions on China, so you couldn't comply. For example, Nike China could not comply with US sanctions on China without being in breach of Chinese law, and that would mean it would be impossible for any multinational in China to do business in China and comply with both American law and Chinese law. And so the “Great Split” at that point would be total.

That is why I think that multinationals are now thinking twice about China and trying to reorientate their supply chains and look for ways to restructure their businesses in China, either by selling them, or completely splitting them away into separate legal entities, so that there isn't this crossover effect, and that's what the more forward-looking ones are looking to do.

But the other point I would make about China, and the potential for an invasion of Taiwan, is that given how our conversation has evolved today about China's growing influence in the rest of the world, and the likelihood that a large part of the non-aligned countries would find it very hard to choose sides, even looking at it dispassionately as to what is in their self-interest would find it hard to choose sides because of China's growing economic power.

That begs the question, if the Chinese narrative about the growth in their economy is correct, then what's the rush to invade Taiwan? Because surely giving it another 10, 15, or20 years, if China's growth trajectory is as they would forecast it to be, then this question, this ambiguity disappears, because China's economic hegemony will be total for a large part of the world. What I think is bringing the timetable forward and is creating this period of maximum danger for Taiwan, is the fact that China's economic narrative is falling apart, because the economy's growth model is broken. And if they leave it too long, what they will find is potentially that their economic influence in third countries actually starts to diminish.

SO: So Stewart, is the conclusion we've got after this session that the Great Split is likely coming, and the catalyst is likely to be Taiwan, but that there is already a big decoupling going on economically and politically between China and the West, with the developing world very much the battleground for which countries are going to support which side.

If that's the case, my question to you is from an economic point of view, what is the West and what is China doing to prepare for the “Great Split” happening?

SP: And I think, Sam, that that's where we should pick up next week.

SO: Okay, great. Well, until next week, and let's hope that nothing happens with Taiwan between now and then.

SP: Thanks, Sam.

Get full access to States of Play by Sam Olsen at samolsen.substack.com/subscribe

Hello and welcome to the fourth episode of the What China Wants podcast.

Southeast Asia - an area of 680 million people, countless raw materials, and located in a strategically important corner of the world - has long been fought over by foreign powers. In this week’s episode, Sam and Stewart ask if it is still true today: is the region being contested by China and America, and if so, why? And what does this mean for the superpowers’ wider struggle?

You can also listen to the podcast on Apple, Amazon, or Spotify.

As always please do share, comment, and subscribe. We’ll be back next week to discuss the impending Great Split between China and the US.

Many thanks for listening.

***

Here is the transcript for the podcast:

Stewart Paterson: "The China ASEAN relationship has grown into the most successful and vibrant model for cooperation in the Asia Pacific, and an exemplary effort in building a community with a shared future for mankind."

Those are the words of Xi Jinping, and welcome to What China Wants. My name is Stewart Paterson, and I'm joined by Sam Olsen. Hello, Sam.

Sam Olsen: Hello Stewart.

SP: The subject today is Southeast Asia and the relationship with China and other great powers and the role that Southeast Asia might play in great power competition going forward. In terms of Southeast Asia, what people tend to mean by that is ASEAN - the Association of Southeast Asian Nations - with 10 Member States, there is, of course, also East Timor, which is not yet a member of ASEAN.

Sam, China and Southeast Asia, they have a long history, don't they of interaction engagement, whatever you wish to call it?

SO: Yes, China and Southeast Asia have been entwined for thousands of years now. And the first interplay, so to speak was definitely around trade. If anyone's been to Singapore, they might have seen the amazing Tang Dynasty boat that sank near there in about 830 AD, full of amazing porcelain and gold and silver objects, and intricate workmanship, which just shows the level of sophistication of trade at that time between Southeast Asia and China.

Politically, it's a bit more difficult. The first big sort of large scale interaction was an invasion by the Chinese under the Mongols in 1292 into Java, when the Javanese leader stopped paying tribute. There's been a sort of bumpy ride politically ever since in many ways. What's also interesting apart from the political side and the trading side is the cultural exchange. Confucianism, Buddhism have all come down over the millennia down into Southeast Asia from China. But there's been massive emigration from China too, starting off from the sort of 1400's and 1500's and particularly reaching a height, bizarrely enough, under European colonial rule when, as one historian put it, Chinese immigrants followed the imperial flags of Europe, and you saw huge amounts of Chinese leave, especially from the coastal provinces, into Southeast Asia, to the extent that now 10% of Southeast Asia's population is ethnically Chinese.

SP: And Sam, would you describe the relationship as being symmetrical? Or was it very much an asymmetric relationship between China and Southeast Asia?

SO: Well, good question. It was very much China looking at Southeast Asia as a source of trade, and for the individual Chinese person coming out of China, a place to live and to work. There was never really much input into China from Southeast Asia. But if you if you look at America, America is very similar as well that the relationship historically between Southeast Asia and America is quite asymmetric too, although the Americans, first of all, looked to Southeast Asia as a conduit into China.

Then, in 1899, when they conquered the Philippines from the Spanish, they became a colonial power, and that led them eventually into conflict with Japan. In the Cold War, Southeast Asia was considered to be a major area of dispute over communism or capitalism. America certainly went in hard with many countries like Vietnam and Indonesia, Thailand, and the Philippines as they tried to stop the domino effect. So yes, for both America and China, it's been very much asymmetric, but that doesn't mean that Southeast Asia hasn't been an important place for both powers to express their political and military power.

SP: Okay, so Sam, the asymmetry of the relationship with between China and Southeast Asia, this must be linked, is it, to China's view of itself as the Middle Kingdom and the history of the sort of tribute system? Can you explain that a bit?

SO: Yes, the tribute system, which people talk about, is where countries pay China tribute, whether it's in money or goods; often it was just in exchange for the ability to trade with China actually. And that has lasted for quite a long time.

There are people, especially Chinese scholars, who will dispute there was ever such a thing as the tributary system. But I think most people think that there was some kind of system in place, and the most famous countries were Korea, which was obviously fought over with the Japanese in the 20th century, but the Southeast Asian Nations definitely were on the front line of that too, if you take the tributary system as existing in the first place. But that raises an economic point for you Stewart. What is the current economic relationship between Southeast Asia and China; is it very equal because I know they're meant to be very important trading partners for each other. But what's the relationship like?

SP: Well, they are important trading partners for each other. The modern evolution of the economic relationship really goes back to the Asian financial crisis, I would argue and this is where the asymmetry began to open up. Because back in 1994, the combined GDP of what are now the 10 ASEAN member states was actually larger than China's - about equal size, but the ASEAN countries had a slight edge. You fast forward to today, and China's economy is actually five times larger than ASEAN's, and I think one of the reasons why that gap has opened up has been because, to put it bluntly, China has eaten ASEAN's lunch, in terms of global trade, particularly in manufacturing, so that the industrial policy that China pursued, post its devaluation of the RMB, in 1994, has meant that China has grown its manufacturing capability extremely rapidly, and at least part of that has been to the detriment of ASEAN.

In terms of current trade, what's quite surprising, actually, given the size of China's economy - it's about 16-17% of global GDP - and its proximity to Southeast Asia, is that actually only about 20% of Southeast Asian trade is with China. So it's big, it's very significant. It's in fact, as significant as intra-ASEAN trade, trade between Asian nations. But it's not quite as dominant as one might expect, given the size of China and its proximity.

There are though other dimensions to this, other than trade. There has been recently a very large increase in investment from China into Southeast Asia, and this reflects partly the migration of lower value-added industries from China, out into Southeast Asia, such as textiles, for example.

SO: What about America, the relationship with America? How does that compare economically?

SP: So it's a very different kind of relationship actually. The trade pattern between Southeast Asia and China is really typified by primary commodities leaving ASEAN and going to China. Whereas what ASEAN imports from China, are capital goods and components that go into ASEAN exports, largely speaking.

The relationship with America is really more of America being an end customer for ASEAN-produced goods, and a part of the value of those goods is actually originated in China. So a great example would be mobile phone exports from Vietnam, where Vietnam has grown its telecommunications industry very, very rapidly. But most of the components that go into those phones come from China, and the phones themselves end up all over the world, but Western Europe, and the United States are big end markets. So ASEAN tends to run a trade surplus with the West and a trade deficit with China.

SO: So does this mean that the inputs into ASEAN's, well Southeast Asia's economy, mainly come from China and if China cut off the raw materials or the manufactured goods into Southeast Asia, then Southeast Asia's economy would basically cease to function? Is that how it works?

SP: Up to a point. I think one point we have to make very clearly here is that, although we talk about Southeast Asia as one kind of geopolitical block, it's not a homogeneous grouping of countries at all. The economies are very different from one another, both in size and in structure. And of course, the political regimes are very different from each other.

And so it is true, for example, that if we look at say, Cambodian textile exports, a lot of the inputs into those exports come from China, and I've already mentioned Vietnam in terms of telecommunications equipment. Indonesia, on the other hand, is a trillion-dollar economy in its own right, and it's much more autarkic, by which I mean self-sufficient. And so it's hard to just generalise between Southeast Asian nations, certainly on the economics front, I mean, on the political front, I imagine Sam, you would have something to say about the diversity there.

SO: So yes, you're correct. The countries of Southeast Asia are definitely not united, politically or militarily and ASEAN, which is the regional group in the sort of EU equivalent, in theory, is actually very different to the EU because it has very limited centralised powers unlike the EU, and it is the region is still very much a collection of independent, independent states. So, politically though, the relationship with China is fascinating because some countries are much closer to China than others.

But that said, China is making a real push to be a friend to the region as a whole, to almost every country there. And if you look at the political outreach to Southeast Asia, then you see that proportionately, there's a lot more trips from senior politicians, for example, Wang Yi, the foreign minister, than there are to other parts of the world. And that's not surprising in many ways, because it is on their doorstep, but still, it does show how important the region is.

And a big part of that is economically, of course, but politically, and militarily, Southeast Asia is the gateway into China. And if you're sitting in Beijing, and you don't want to be encircled, then a big part of your worries will be about Southeast Asia being not entirely 100% friendly to China, which does give foreign powers, i.e. America, potentially the Europeans and the British as well, access to strategically important routes in towards China. And the desire to politically and militarily dominate Southeast Asia, for its own purposes, is a big reason behind the seizure of many parts of the South China Seas by China, which over the last 10 years or so, actually started under the nose of the Obama administration.

SP: Can you actually just elaborate on that, Sam, because what our listeners might not be aware of is that quite a large number of ASEAN member states actually have territorial disputes with China don't they? We're all used to hearing about the ambiguity over Taiwan's status. But actually, it's not just Taiwan that has a territorial dispute with China, is it?

SO: No, in fact, I think I’m right in saying that China has more territorial disputes than any other country in the world. And some of them are very long standing, some of them quite recent. But the South China Sea area, Southeast Asia is full of them, and countries like Vietnam, Malaysia, Indonesia, the Philippines, they've all suffered from Chinese encroachment on what those countries believe is their sovereign territory.

But what you see is that China is carving out of control of the South China Sea, whether or not these countries put up any resistance, and ASEAN has been quite slow to come out against China, as an entity, and individual countries have tried and failed to get China to abide by a 2016 ruling, done by the United Nations, which said that their moves into the South China Sea were unlawful. But it's very difficult, Stewart, because you don't have the homogenous political units and China finds it very easy to divide and conquer.

SP: And so within Southeast Asia, because ASEAN is obviously a very consensus driven organisation, by definition, which of the countries seem to be doing Beijing's bidding the most?

SO: Well, I think, as you'd agree, there's a big overlap into the economic relationships. So, if you look at Cambodia and Laos, I think you'll be happy to say that they are the most economically intertwined countries with China, right?

SP: That's correct. Yep.

SO: Yes, and they also are the countries that are most politically intertwined with China too. But countries like Malaysia, Indonesia, Singapore, they all have good-ish relationships, and they have their ups and their downs with China. But politically, they try and find ways to work together in areas of commonality, but they're stronger than the countries like Cambodia, Laos, Myanmar, etc, which are increasingly dependent, by accident and by design, on China politically, and as you will back me up, I'm sure, economically.

SP: So going forward, what we're painting a picture of here is a region, in the case of ASEAN, of 10 countries, 680 million people, a $3 trillion economy in aggregate, and this area of the world seems to be the front line in the geopolitical rivalry between the US and China, but actually, in many ways, it's broader than just the United States, isn't it? Because the UK has undertaken its sort of pivot to Asia, France is espousing a policy of greater engagement in the Asia Pacific, and obviously, the other Pacific powers such as Japan, Australia, etc, have a very strong interest in the development of Southeast Asia. So Southeast Asia seems to be becoming this sort of front line in the competition between ideologies and great powers. So what could the Western or the democratic sort of Alliance, if you like, do to help increase their influence in the region?

SO: Well, it first of all, it's important to note that during the Cold War, as I've already mentioned, Southeast Asia was on the front line communism and capitalism.

SP: That's why ASEAN came into existence didn't it, it was actually an anti-communist Alliance.

SO: Yes exactly, which is not so much the case anymore, if you look at communism being headed by China. But I think that today, you're seeing very much that every single country in Southeast Asia has got a pro-Western and pro-Chinese faction, and they're both struggling for power and influence within those countries, and they want to push their country towards one side or the other.

The Philippines is a great example where you've seen President Duterte, who's been in power since 2016, pushing his country more towards China. Now, it might be said that that's a rational decision, or some people will say that it's what's so-called elite capture. And his daughter who's the mayor of Davao, a big city in the south. She is following in her father's footsteps by actually creating four twinning arrangements, the four different cities between her city and in places in China. She is now the new vice president of the Philippines, and of course, it's likely that she's going to try and force a continuation of her father's policy towards China.

But I suppose the most important thing that the Western Alliance can do is to show the region more attention. For a long time, I think, people in the West have considered Southeast Asia to be a bit of a backwater. You haven't historically heard much about it in conversation, especially when it comes to businessmen and women sitting in Europe or America, looking east or west as the case may be.  But that is beginning to change. And the UK, for example, has put a lot of store, because of its integrated review, into furthering ties with Southeast Asia. And now the UK has become an official dialogue partner with ASEAN, and it's got a trade commissioner in place, Natalie Black, who by all accounts is doing a fantastic job at raising the profile of British investment into the region. Other countries in the West are looking at Southeast Asia to France, Germany, etc.

But there is one country which is already doing so, and that's Japan. It has a rather complicated history with the region because of the war, but over the last few decades, has really been putting a lot of investment into Southeast Asia. And it fiercely competes against China for contracts all over the region, for example in Indonesia, or Vietnam or Thailand, Cambodia, there are a lot of new factories going in from Japanese companies, even though there is a lot of work also being done by the Chinese to extend their influence there.

SO: So at the end of the day, parts of the West, especially including the UK, and Japan, are showing a lot more attention, a lot more love to the region, and that should pay dividends. But there is one country which doesn't seem to be doing that much more and that is America. Stewart, did you see the Biden summit, on the 16th of May a few weeks ago, when he brought together the Southeast Asian leaders?

SP: Yes. So this was obviously, Sam, an American attempt to push back against Chinese political influence in Southeast Asia, wasn't it? And you'll have stronger views than I on the on the political side. I haven't seen much commentary that's been very positive about it. Was it the disaster that it's been painted as or was it a constructive first step?

SO: I mean, economically as we've said before, China has replaced America as the leading trade partner in the region, and this has been very much reflected in some countries in the region in political terms. Biden was trying to recalibrate American political power in the region by bringing people together to celebrate 45 years of ASEAN-American ties, which, as you just pointed out was started in the midst of the Cold War.

But I think the reality is, is that it was a damp squib. And reading the local press in the various countries of Southeast Asia, there's really no one that's been very enthusiastic about what was said. I mean, other than the fact that it shows willing. But the actual measures, the very poor amount of money being promised, are far less than what China has been pumping into the region, and also far less than what Japan has been pumping into the region as well. Because don't forget, Japan looks at the region, as a strategically important part of its overseas engagement, too. But America under Biden just doesn't seem to be really grasping the nettle. And I don't know whether that's because they don't have the capacity or the willpower to be able to really step up to the plate, or whether they just have misread the room and think that they can give a little bit and everyone will fawn over them.

In reality, it was a nice thing to have done, but it really didn't hit the mark in terms of trying to reinforce the thought that America is back in the region after many, many years of decline. In fact Stewart, America hasn't even appointed an ASEAN ambassador, that post has been vacant for a long time now. And that, I think, just shows the importance that America places in Southeast Asia compared to other places in the world.

SP: So if America is not stepping up to the plate, as it were, to counter China in the region, aggressively, I suppose the other sort of factor that might keep a balance of influence in the region is if China's importance to the region actually slightly diminishes, particularly from the economic side. And here, I would point to a couple of factors.

I mean, clearly, in Southeast Asian economies generally, tourism is an important industry, right? And a lot of the growth in tourism in Southeast Asia in the last 10 years or so, has been driven by China's outbound travellers. And obviously, since COVID, that's completely disappeared. And with China continuing to pursue a zero COVID policy, there's no indication that those Chinese tourists will return anytime soon. And so that has obviously had a very debilitating impact on some economies, Thailand, in particular, but I would throw Cambodia in there as well as a country that was very dependent on Chinese tourists and Chinese visitors. And so that will diminish the importance of China somewhat.

The other issue, I think, is quite interesting here is that a lot of China's perceived economic influence, I think comes from the narrative that China creates around its economy, that in the future, it will be X, Y, or Z, and that your economic future as a third country is tied to China's future success. So it's all about jam tomorrow, rather than actually delivering today. And I think that's certainly been ASEAN's experience in terms of exports to China over and beyond just primary commodities.

So there must be a sense, I would think, that the current economic malaise that China finds itself in with a shrinking economy, as we discussed a couple of weeks ago, and really quite an ambiguous long term outlook for economic growth, that this change in dynamics, which is new, might well have quite a big impact on perceptions of China in ASEAN going forward over the next few years.

SO: You raise a very good point there about the perceptions of China, because the polling  continues to show that across the region, with a few exceptions, but for the majority of countries in Southeast Asia, the populations there would prefer to be more allied to America than they would be to China. It is the elites that are driving the closeness; as I mentioned, there are elites within each country which are choosing the pro-China path. If the economic carrot is not there for closer integration then you're right Stewart, I think that China does not necessarily have set in stone a rosy future in Southeast Asia if the economic relations degrade.

SP: So that's an interesting point. Perhaps one of the issues this raises is that China's trade necessities are changing as their economy changes. So as China's alternative energy, for example, generation picks up, as it becomes more energy efficient, maybe the Straits of Malacca, or, the transfer of hydrocarbons through the Straits of Malacca become less important. Obviously, China has tried to circumvent the Straits of Malacca, through pipelines across Myanmar, for example, in the pipelines into Central Asia and from Russia.

And obviously, commodities such as lithium and cobalt, out of Africa, have become more important to China. So it could be that China's trade patterns are evolving in a way that puts a greater emphasis or a greater importance on other areas of the world. And it's noticeable that BRI, the Belt and Road Initiative, which is China's Great overseas, push in development infrastructure, seems to be being concentrated in Central Asia and in Africa, up to a reasonable point. And perhaps what this suggests is that we should do a podcast on the way Belt and Road is spreading out across across the world into other areas beyond Southeast Asia.

SO: Yes, I completely agree. The developing world is certainly in the political and military sights of China, and it's worth exploring that more. But, just wrapping up Southeast Asia, it's obvious that China puts a huge amount of emphasis onto developing relationships - political military, and by the sounds of economic relationships - there. The question is, I suppose what we're asking is, how long is that going to be successful if their economy starts to splutter? But also the other thing is true, which is that, does America have the interest or the capacity to really push away Chinese influence? And I suppose time will tell on that.

But in the meantime, thanks very much for listening. And we'll be back next week with one of the many podcasts that we've been suggesting over the last few weeks Stewart.

SP: Thanks very much to our listeners, and thanks, Sam, good to chat.

Get full access to States of Play by Sam Olsen at samolsen.substack.com/subscribe

Hello and welcome to the third episode of the What China Wants podcast.

Beijing has long said it will reunite with Taiwan, apparently whether or not the Taiwanese want to do so. But do Russia’s difficulties in Ukraine change China’s calculations and make such an adventure less likely? Sam and Stewart talk the economic, political, and military calculations involved.

You can also listen to the podcast on Apple, Amazon, or Spotify.

As always please do share, comment, and subscribe. We’ll be back next week discussing how Southeast Asia is faring squeezed between Chinese and American ambitions.

Many thanks for listening.

***

Here is the transcript of today’s podcast:

Sam Olsen: "No one should underestimate the Chinese People's staunch determination, firm will, and strong ability to defend national sovereignty and territorial integrity. The historical task of the complete reunification of the Motherland must be fulfilled, and will definitely be fulfilled." So said Xi Jinping, the President of China, in 2021, before Russia decided to invade Ukraine.

Welcome to episode three of What China Wants. Today we're going to be talking about whether the Russian invasion has made it more, less, or about the same likelihood, that China will invade Taiwan to seek what it claims is its national policy of reunification, and to do so I'm here with Stewart Patterson, as always, hello, Stewart.

Stewart Paterson: Hi, Sam, and welcome to our listeners. Why don't we kick off Sam by just going straight to the core of of the matter? What do you think? Do you think that the Russian invasion of Ukraine makes an invasion of Taiwan more likely, or more imminent, or neither?

SO: It's a good question, because many people in the West seem to think that watching Russia's travails in Ukraine has made it less likely that China would do such a thing with Taiwan. After all, it is 100 miles across the sea, it would be one of the biggest amphibious invasions ever, and it's difficult to get that many men across that large a stretch of water. And if you see the Taiwanese defend in the same way the Ukrainians have, then of course, from a purely military point of view, it would make things less likely; and certainly, that's the message a lot of people in the West have been saying in the last few months.

But that is a problem, because I think people are looking at it through Western eyes. When we look at what China is saying about its stance on Taiwan, which we look at every week, we have seen no change whatsoever in the desire to reunify, in whatever way is deemed necessary, with Taiwan in order to achieve the great China Dream. And so I don't think it's made much difference at all in the overall strategic vision of things.

What has changed, I think, is the way that China will do so because,  rather than learning the lesson that it's a good or a bad thing - to invade or to forcefully unify if needed with Taiwan - what they're doing is they're looking at the American and the Western response, and the military response by Ukraine, and trying to work out how to best do it rather than whether to do it at all. What do you think?

SP: So I suppose the obvious point I'd just make there, Sam, is you mentioned the Ukrainian valiant defence, is there any evidence to suggest that Taiwan would (a) have the same spirit in defence and (b), have the military capability and hardware to pull it off?

SO: In terms of hardware, if you're looking from the outside, you'd think that the 1950s tanks, the 1960s and 70s planes that make up the backbone of the of the Taiwanese Armed Forces aren't necessarily up to the job. But recently, America has been selling more and more special munitions, the type of which have been very effective in Ukraine against the Russians. So there is that, plus the fact that Taiwan has got a really good high tech sector, which can develop and has developed missiles and other things like drones, etc, which can be used to great effect against any Chinese invaders. But, in reality, you've got the PLA, the People's Liberation Army which is a huge military machine that in theory could go over and wipe out the defenders quite easily.

Whether they could in reality, as we spoke about last week, well they haven't had a war since 1979 - so they're completely untested. But I think that in terms of morale for the Taiwanese, what is important to note is that the majority, the vast majority of Taiwanese do not want to be reunified. The latest polling in December last year revealed that just 11% or 12%, something like that, wants to be unified at all, and only 1% now. And over 70% of respondees said that they are prepared to fight to keep the status quo. So it's a good question Stewart, but I think generally the Taiwanese would put up a fight, even though they are outgunned by the PLA.

SP: And Sam, in terms of the Western response to the Russian invasion of Ukraine, how do you think Beijing is interpreting that? Because the narrative that we read in the Western media is largely about how unified we've been and how the Russian invasion has solidified opinion. And yet, you could draw different conclusions, couldn't you if you wanted to? Because you could say, well, actually the two things that the West - using a loose terminology - could actually have done, which would have made a very big difference were firstly, to actually intervene themselves militarily, and secondly, to cut off Russian gas. And actually we've done neither, we've done everything short of the two things that would perhaps really have swung it in Ukraine's favour.

SO: So you're completely right. The West seems to have convinced itself that it has done everything it can against Russia, whereas actually, we all know, there's an awful lot more they could do, for example, cutting off all oil and gas straightaway.

The other thing is that America has made it quite clear that it's not going to intervene against a nuclear armed state, in a direct military confrontation. And I think that's an incredibly important lesson that China is learning, which is that they can really do what they want, because America, if Russia and Ukraine is anything to go by, is going to be limited on its sanctions, and is not going to intervene militarily directly. It will provide arms and munitions, etc, but getting those to Ukraine is much easier than getting them to Taiwan.

After all, Ukraine has different NATO countries on his border, you just need to ship stuff across by road or train, whatever. But Taiwan is isolated by lots of sea and trying to resupply them whether it's military resupply or food or medicine whatever, is incredibly difficult.

So I think that if you're looking at the lesson that China is learning about the West, everything you said is true. There is not as much pushback as there could have been; the West is united, of course, in that they have done something, but it's not to the ends of the earth, and also they're not going to intervene directly.

But the other thing, which is really important to know is that the rest of the world's viewpoints about this is quite different to that of the Western alliance, in the sense that many countries, India being a prime example, have refused to toe the Western line, and actually, have said, "You know what, it's none of our business really", or worse, have said that they will support Russia because they need Russian oil and gas or because they don't want to be seen as helping the West who they don't typically like. And China is intent on building its defences with those countries.

I'm talking about this from a political point of view, but what about you Stewart? Do you think that from an economic point of view, China's (a) learning lessons from the Ukrainian war and (b) using that to better prepare its defences against any action that the West might take economically against them?

SP: Yes, I would, I would say both. So the first point I would make, obviously, is that sanctioning China in the same way that the West has sanctioned Russia would carry a much, much higher cost economically, for the West than the Russian sanctions have. So, to put it in perspective, China's economy is literally 10 times larger than Russia's. About 15% of global exports come from China, and a not dissimilar percentage of global exports go to China. So, not short of 30% of global trade is either into or out of China. And obviously, that's a very different scenario from the situation in Russia.

The other point I suppose I'd make is that foreign multinationals have much more at stake in China than they do in Russia. The stock of FDI in China runs into trillions. And we have this situation where about 40% of China's exports actually are made by foreign invested companies in China. So, the whole degree to which the Chinese economy is enmeshed in the global economy, is very, very different. So, one conclusion that the Chinese might draw is that if Western Europe in particular was loathed to embargo Russian hydrocarbons straightaway, for fear that it might have inflicted a 2 or 3% hit to Western European economies, they might take some solace from the fact that a similar approach to China would have an impact that I would imagine would easily double that.

And of course, China has a monopolistic grip on quite a lot of important production. Okay, so China's manufacturing value-added, its global share, is now just over 30%. In particular, China absolutely dominates the personal computer market. It dominates the sort of photovoltaic production line, so anything to do really with solar power. It has a pretty entrenched monopoly on rare earths, refined rare earth minerals, and clearly these are critical industries, partly for our hopes to transition away from fossil fuels to more sustainable energy sources, but also just for the continuance of everyday life.

SO: So Stewart, on that, people might say that they're not that critical. I mean, we can do without PV in the sense of you could rely on wind farms or turn the gas or the coal back, and personal computers - how many do we need? You know, that would be the argument against that. What about critical supplies? I mean, is there anything that China is central to which would lead to Western economies grinding to a halt in the same way that Germany feels that if it cuts off the gas and the oil, its economy will grind to a halt with Russia?

SP: Well, I slightly disagree with you on the computer side, I think computers are pretty critical. I mean, we wouldn't be doing this podcast without them. And they do need replacing, right? So if you think about the embedded stock of PCs around the world, outside China, and you assume that 20% of them need replacing each year, for a five year, sort of useful life, productivity would very quickly drop off if they weren't being replaced. Likewise, telecommunication technology, so phones, for example, although a lot of these are now made in Vietnam, a lot of the component parts come out of China, and therefore, some of the supply chain diversification that's taken place, or the end product diversification, I should say, does not actually exclude China from the supply chain. And clearly, you know, mobile phones without the components aren't going to work. So actually, the degree to which China is critical to modern manufacturing should not be underestimated. And so there would be a very heavy cost, particularly if a conflict in Taiwan or the sanctions were to remain in place.

I think that part of the gamble that the Chinese would be taking, would be that their own society, whether through patriotism, or through coercion, was much more resilient to the disruptions to everyday life that would occur, than Western society would be. I mean, do you remember when COVID struck and you know, there was a chance that Father Christmas wouldn't be able to pay his annual visit? Because we were going to be running out of toys. I mean, that merited front page news; there is very little tolerance and resilience, I would argue in Western societies for even moderate levels of disruption. Whereas clearly in an authoritarian state, I would say that resilience runs deeper.

SO: Well on the surface, yes, until you break it, and then at that point, it gets a bit tasty.

SP: Well, that's right. And of course a Chinese invasion of Taiwan would be a make-or-break event for the regime, because if it failed, one would imagine that the regime would fall, and particularly if it failed, with severe loss of life and with economic disruption.

We must remember that China's economy is very fragile at the moment, and China is very dependent on the rest of the world for demand. Exports make up 20% of GDP, it's much lower than it used to be. But equally, it's quite possible that the GDP is overstated, as well. And China, certainly, although it would be very inconvenient and damaging to the rest of the world to be cut off from China, China without export markets and China without an ability to import freely from the rest of the world... I mean, obviously, there would be regimes around the world that would align with China. But, if the US Navy, in particular, were to be put to work to actually blockade China, economic life would become pretty intolerable there very fast as well.

SO: You make good points there. One of the things that we've noticed in the wake of the invasion, is that basically Russia has become almost like a semi-client state to China in many ways - in terms of its economic dependencies, and the fact that China is kind of looking after it, putting it under his wing in a role reversal from how it used to be 50, 60 years ago, before the Sino-Soviet split in the early 60s.

But here's a point from a political point of view. You can see why the lesson that China is learning about this debacle is that it has managed to take advantage to coerce in essence, Russia. But is there anyone that could do the same to China, is there anyone that's got theoretical dependency that could be switched on if China found itself isolated from the West? Or is China just too big to be put in the corner by anyone?

SP: Well, I think it's a question of willingness, isn't it? Because China is very dependent on hydrocarbon imports, and Russia does not really have the ability to meet that demand in its entirety or anything close to its entirety. So for example, in 2020, which is before the invasion of China's sort of $400 billion of mineral fuel imports, only about $53 billion came from Russia. The Saudis are big exporters to China as well, Angola is a relatively big exporter too, and the amount of the hydrocarbons that are arriving overland, and therefore, not necessarily subject to US naval power, is relatively small.

So if a Western-led pushback against a Chinese forced reunification of Taiwan, or an invasion of Taiwan, was to result in a broad coalition, stretching into the sort of non-aligned movement, then China might have bitten off more than it could chew. But given the muted reaction in some quarters to the Russian invasion of Ukraine, we can't take it for granted that everyone's going to fall into line behind a sort of Western push-back.

SO: What's interesting is that, from a political and even military point of view, is that China has spent a lot of time in recent years trying to build out a global alliance. It's coming from behind, obviously, with Western soft power and alliances everywhere. But it's launched the Belt and Road, which has gone down very well with certain countries. It's launched recently, the Global Development Initiative, and it's now launched the Global Security Initiative. And, these are all designed basically to reach out to countries and say, "Look, we'll be your friend, but you just look after us at the same time, by allowing us to export our goods there or allow our companies to work there, etc. Surely, this is a political part of the economic defences that they're building out, but what else are they doing economically? I know that you and I have spoken about the internationalisation of the RMB, etc. But how's that going? How's de-dollarization going? How long is it until China is basically able to economically ride the storm of its own making?

SP: So I think that's a very good point, Sam. I mean, clearly, China's been developing its own international financial settlements and payments infrastructure for a while now. And the central bank digital currency is another prong in its defences there.

But one of the interesting things, I think, is that the central bank digital currency; one of the ways in which this was going to be internationalised was through tourism and Chinese overseas visitors. In a way, it was Chinese overseas tourists that led initially to sort of quasi private sector payment systems out of China like Alipay, WeChat, pay, etc, going abroad and gaining significant market share, particularly in Southeast Asia, but in other destinations too. But  obviously, with zero COVID tolerance, the number of Chinese leaving the mainland and going overseas has plummeted. I mean, we're down 85% or so in terms of visitor numbers. So that is going to slow down the rollout overseas of the central bank digital currency in a retail sense, at least.

There isn't a lot of evidence that actually the de-dollarization is going at a pace that necessarily suits the timetable that I think Xi Jinping thinks he's operating under with regard to Taiwan - so I think there's mixed bags there. But we do have an audit going on in China of its economic dependencies. And what's quite clear from a lot of the work that we've been doing, is that the trade patterns of China have been evolving in a way that makes their trading relationship very asymmetric. So they are attempting to trade much more with smaller countries, and in doing so creating a dependency and cultivating influence over the politics and the economics in those countries. And to some extent, I think that probably manifests itself in political alliances. I mean, I don't know, would you agree, Sam, that we're seeing voting behaviour in the United Nations and other measures of political compliance with China on the rise?

SO: Yes, definitely, we are seeing a lot more political alliance-making with China abroad. I mean, the Solomon Islands thing a few weeks ago is an obvious case. But it's not just there, it's in lots of the developing world. And it is a part of Maoist theory, which was descended from what they were doing with the Revolution and the Civil War in the 40s, which went against Stalin's advice to start the revolution in cities and go out to the countryside. The Chinese under Mao went for the countryside and then captured the cities. And this is something that I've spoken to people in Chinese foreign policy about before, which is that you go off to the developing world, and you secure China's relationship there, and you basically cut off the developed world from that. And we've seen that with, for example, Barbados, shifting away from the UK and becoming a republic. It's a small country, but if you do that with lots and lots of small countries, you suddenly find that China's got a lot more reach than it might have been thought otherwise.

From a political point of view, the Global Security Initiative, the BRI, and everything, these are all part of the same message, which is that "we're reaching out to you, and we'll give you investment. But in return, you support us." And you can see it very nicely tying into their preparations for whatever happens after the forced reunification, if indeed it does happen, which we think obviously is very likely.

SP: So in terms of a timetable, then Sam, no one likes to predict something that can be proved wrong imminently. But, it strikes me that China has a window of opportunity with Taiwan. I would argue that 10 years ago, the attitude of the CCP was very much that time was on their side, that given time, and given China's growth trajectory, the Taiwanese would eventually just fall into line, because it would be in their interest to do so because China would become such a powerful economy and such a powerful global player. And obviously, if the political reforms had continued, then unification with China might have become quite an attractive option. But perhaps now, given that China's economic growth model seems to be severely challenged, given that the demographics seem to be severely challenged, and given that a lot of the Western world at least, seems to have embarked on a policy of deliberately trying to immunise itself from dependency on China, but is at the very beginning of that process, and therefore has not been successful yet in doing so. Does this not all point towards a more imminent attempt to take Taiwan?

SO: We know that just before the invasion, one of Xi Jinping's foreign policy advisors was on record as saying that the planning for forced reunification with Taiwan would happen after this autumn's Party Congress where Xi Jinping is expected to be made president for life, but before 2027, so we're looking at sort of five years there. But, assuming maybe the Russian debacle will have put military planning back by a year or two, you know, by 2028 or 2029, something like that. And I think this is very important, the timeframe I mean, in terms of the lesson learned by China from the Russia Ukrainian war, in that there is a limited time. Because the West is powerful, is very powerful, and it has been able to rearm Ukraine and been able to give them succour. And it might be more difficult to do so for Taiwan, but Taiwan is also learning lessons from this, and the Zalenskyy-isation, you could call it, of Taiwanese politics ahead of the 2024 presidential election where you're very likely to see much more sort of talk about standing up to your neighbour, and perhaps people even pushing further down the independence route.

Moving forward into what China is learning around this is that there is a simple equation, which is that China needs to get its economic and political ducks in a row to properly defend itself from the West, versus Taiwan rearming with American and Western support to make any forced reunification a very very difficult prospect indeed. And so, are we looking at that as being a five-year balancing act, or a 10 year balancing act, probably sooner rather than later considering the amount of support that Ukraine has received.

I think that that at the end of the day this is the equation that's going through Beijing's mind. And I think that is the key lesson that's been learned, which is, as you said, there is not an infinite amount of time to make Taiwanese reunification happen. And the second point is that Taiwan can be and most likely will be supported, so therefore, there needs to be some pre-emption, in making sure that that support is pushed down or pushed away, and that China's chances of taking Taiwan enhanced rather than depressed by what's happening with Russia and Ukraine.

SP: Sam, I suppose one of the key areas in this contest is actually Southeast Asia, because if Southeast Asia spoke with one voice firmly on one side or the other, then that could act as a big deterrent to China, trying to exercise an aggressive takeover of Taiwan, I would think, and maybe what we should do in next week's podcast is look at the relative influence that China has brought to bear in Southeast Asia, relative to the Western powers and indeed, other Asian powers.

SO: Yes, good idea. We'll return next week with a discussion about Southeast Asia. Thanks very much Stewart.

SP: Thank you, Sam.

SO: Goodbye!

Get full access to States of Play by Sam Olsen at samolsen.substack.com/subscribe

Hello and welcome to the second episode of the What China Wants podcast.

Today Sam and Stewart are exploring China’s global military and security footprint, asking how much international reach it has here, whether its war-fighting and logistics are up to the job, and whether it is better to look at what its doing from a more general security standpoint than just counting naval bases.

Note that you can also listen to the podcast on Apple, Amazon, or Spotify.

As always please do share, comment, and subscribe. We’ll be back next week looking at the impact on China from the Russian invasion of Ukraine. Many thanks for listening.

***

In the meantime, here is the transcript of the podcast:

Stewart Paterson: Hello and welcome to What China Wants. My name is Stewart Paterson and I'm joined as ever by Sam Olsen.

Sam Olsen: Hello. 

SP: The subject of this week's podcast is an introduction to China's military and security global footprint. So Sam, you're the expert on this, but before you start I just wanted to read out a few quotes from China's paramount leader of the moment, Xi Jinping, and ask you for your thoughts on them. So there are a few things that strike me about these, but let me have a go here. 

“Always listen to and follow the Party's orders and march to wherever the Party points”.

That was Xi Jinping, addressing the PLA on their 91st anniversary. The head of the CMC [Central Military Comission], this article goes on to say - and this is from the Chinese People's Daily - it also urged the armed forces to bear in mind the sacred duty of fighting for the people as the country set out its military civilian integration as one of its key national strategies. 

“I firmly believe that our heroic PLA has the confidence and capability to defeat any intruder. Our heroic PLA has the confidence and capability to safeguard the nation's sovereignty, security and development interests.” 

So Sam, clearly the Chinese Communist Party and the PLA are very closely linked. Can you elaborate and explain that for our listeners a bit? 

SO: Yes, sure, thanks for those quotes Stewart, they do bring it home as to the closeness between the Peoples Liberation Army and the Party. And it is a very different model to that in the West.  To be sort of straight down the line, the PLA is the armed wing of the Communist Party and that is a very different relationship to say the UK, where that the armed forces swear allegiance to the monarch and not to the government of the day. Whereas in China they do swear allegiance to the Party, which is therefore the government. What this means is that the PLA, and the Air Force and the Navy associated with it, are in effect just tools of whatever the Chinese Communist Party want, and that has been the case since the establishment of the Communist Party in China in the 1920s. 

SP: So basically what you're saying is the relationship is as if the Conservative Party was in charge of our own military here or the Democrat Party were in charge of the military in the United States.  That's the kind of constitutional setup that China has, is that right? 

SO: Yes correct, I'm sure there are people within the Conservative Party and in the Labour Party, of course, who would like their own armed wings, but it's probably for the best that doesn't happen. That hasn't stopped it in China, and the whole raison d'être of the PLA is to do what the CCP wants, and to keep the CCP in power. 

SP: So Sam, Xi Jinping is the head of the Central Military Command, so that is presumably a very important title for him in addition to being President of the country and also General Secretary of the Communist Party. 

SO: Well, what's important when we are looking at what China is doing in terms of its military influence around the world, is that you have two parallel organisations, exactly as you did with the Communists in the Second World War in the Soviet Union. We have the military side, and we have the political side. This is being commented on a few times, the fact that within the Chinese Navy, the People’s Liberation Army Navy or the PLAN, they have the captain of the ship, but they also have a military commissar type person who can in theory, overrule what the Marine captain of the ship is doing. That makes it difficult when you're trying to work out if you've got American ship and the Chinese ship coming together, who is it that takes the final decision as to whether the ship should swerve, or crash into the American destroyer.  As with everything within the PLA, it's ultimately related to the CCP, and it's hard to know where one side starts when the other side doesn't.

That includes the economic side as well. There's been pushback a bit recently, but you know, in the last 20, 30 years we’ve seen an enormous amount of a crossover between the economic interests of the country and the PLA. For example the founder of Huawei, of course, was famously from the People Liberation Army.

SP: Of course, and we'll have more on Huawei shortly I'm sure. So, is China actually a global military power, how has their footprint expanded and should we be worried by it? 

SO: A good question. So there is a lot of worry about China's ability to conquer the world, but I don't think that is really the case. And to put it into comparison, China has only got a couple of overseas bases that we know of - well, one really, and a few others potentially. Whereas America has approximately 750, and the UK has many, with one report recently suggesting that the UK has 145 different military installations around the world. I'm not sure it's that high, but there's no doubt that the UK and even France, both have far more military bases around the world than China does.

But that doesn't necessarily mean that China doesn't want to be a global military power, and in fact they have specifically said over recent months and years that they do want to increase their footprint, for example, in strategically important chokepoints like in the Strait of Hormuz, they've said that they will actively manage those areas, including, we think, through military means if it impacts on China. 

This is the long answer, but to put it in shortened terms, they're not a military power of global note now, but that doesn't mean that they aren't actively increasing their footprint in the military sense, but also the military sense and the security sense. 

SP: OK, so let's look at things a little bit here through China's perspective. China is the largest trading nation in the world. It has a really quite chronic dependency on fuel imports, particularly oil through the straits of Hormoz and through the Malacca Strait. It's quite dependent on trade for food security as well and of course key inputs into its industrial complex, so wouldn't any country faced with these kind of strategic challenges quite naturally look to play a role, either collaboratively with other countries or on its own, to secure those sea lanes to ensure the continuing function of its society. It would be quite natural wouldn’t it?

SO: It really is, but a lot of people in the West are fearful of it because they see the fact that China is trying to push its influence, not just in military terms but in many other terms, especially in the economic sphere, and that the military side is just maybe the support for its other initiatives. I think that many in the West who think that are quite right to be worried if that expansion of China's military and security footprint does start to give it much more leverage and to undermine the West and the Western ability to control trade and to dominate international relations and the way it has done for last more couple of hundred years. 

SP: So in China expansion then overseas, it's expanding military footprint, what bases do they actually have and what bases or potential bases could you identify as ones that they would deem most desirable? 

SO: Officially the only base they've got at the moment is Djibouti in East Africa. People might know that Djibouti is also home to a French base and an American base, so it's making a lot of money, I suppose from that. But there are accusations that China is about to open a naval base in Cambodia in Ream, which is a port. There's so-called evidence of China dredging to make it a deep water port ready for their military vessels to come in. You also have accusations, by the Americans especially, that China is trying to open a military base in Central Asia and Western Africa, perhaps Equatorial Guinea, and even other places in Asia - although the list does seem to change quite a bit depending on who you talk to. But in reality Djibouti is the only place now.

Of course you have the South China Sea Islands, which are not necessarily military bases, but more military forts. The one that's been in the press recently is about the Solomon Islands, but that is not just a military base, that is very much a security relationship with China which may become a military base. I think that's an important note: China doesn't just look around the world and say we want to open a military base like a Royal Navy shipyard or something like that; they're very much looking to integrate defence and security and use one to help the other, and that is where you mention about the Military Civil Fusion bit comes in. 

SP: Yes, I'm glad you mentioned this Sam, because our listeners might well have read a certain amount about China’s sort of extraterritorial reach with regard to Uyghur dissidents, for example, or critics of the regime, or for that matter just straightforward criminals who fled justice in China, also sort of financial crimes - you know there are large number of reported perpetrators of financial crimes who have fled China. So what's that all about? 

I mean, listeners might well have heard of Operation Skynet. Does China actually have the ability to extract people and bring them back to the mainland to face justice and are there examples of that?

SO: So China's security focus, which is different to its military focus, has long being sort of ignored by many until the Uyghur stuff started to happen and people suddenly realised that China does actually have quite a long arm of the law around the world. There's a few things that need to be remembered. First of all, is that under Xi Jinping the concept of overseas Chinese had changed. It may sound a bit sort of pernickety, but it's important for this conversation because until recently, you had overseas Chinese who'd been living abroad for centuries maybe, and you might have had people that moved out of China the last few years. Now, of course, people who have moved out in the last few years, if they've done something wrong in China, it's quite legitimate for the Chinese authorities to request, and being extradited back. It's what we do, it’s what lots of other countries do, but the issue is that Xi Jinping has basically said that all Chinese living abroad, no matter how long ago your ancestors left the mainland, you are now, in essence, beholden to Beijing. This hasn't started to percolate down into active security measures as far as we understand, although if anyone got any evidence for that, let me know. But what it is, is laying the groundwork for China's long arm of the law to extend to basically anyone that it thinks it should be subject to Chinese laws.

That links very much into the national security law where Beijing’s been looking to bring all civilian and military firms under the control, or at least under the dominance of the Chinese central planners when it comes to building out the military. So there is a distinct trend being pushed by Beijing over the last few years to make sure that anything to do with China, whether it’s people or companies, that they all owe their allegiance and strength to supporting the Communist Party. It’s as simple as that.

SP: OK, So what you're saying here is that Xi Jinping is trying to put in place an apparatus that means that anyone of Chinese ethnicity, no matter what their actual nationality is can be held accountable to the Party. 

SO: That certainly seems to be the way that they're going, yes, and linking that back into their global defence and security footprint, if we just look at the military side, you might think, well, they're not that that successful, they've only got Djibouti, maybe a few other bases. 

But it's the security side, which you really need to look to. For the Solomon Islands, and we'll do a separate podcast on that, is interesting because it's about security cooperation and the Chinese may also have the ability to put ships down there. It really starts off by looking at the police deployments there by China and this is something that China has been doing in other countries as well, for example Cambodia or Laos or other countries in Southeast Asia, and they're trying to do elsewhere around the world too. And this is all about security arrangements, not necessarily defence arrangements. But if we just look at the military side it can be slightly deceiving in terms of their reach. At the end of the day, why are they doing all this? And that is a question that I think we need to explore a bit more as well. 

Is it because Beijing are looking to actively control people around the world of Chinese heritage just for the sake of it? Or is it actually part of trying to keep control at home? 

SP: OK. Now Xi Jinping often talks about the importance of digitalisation and technology, and we know that China has deployed a heavy industrial policy aimed at sort of cultivating the industries of tomorrow, as it were, and that China takes its self-sufficiency in these industries extremely seriously. What role does technology play in China's military and security footprint globally? Should we be viewing companies such as Huawei as being in the vanguard of spreading China's military footprint? Or are these simply commercial entities engaged in in global trade? 

SO: So as I mentioned earlier, the national security doors in China now mean that every single person in the company has to support the national security apparatus basically, and that includes Huawei. And so when a few years ago, there was all this talk by Huawei, especially in the UK, around the fact that was an independent company, and the fact that it would never sort of divulge any secrets, it was just not true. They are compelled by law, at the risk of their people going to prison or disappearing in a slightly less judicial way, of doing exactly what the Chinese authorities want them to do. And that's China is prerogative to be able to put that in place, but to deny it is slightly disingenuous. The important thing is that the security apparatus is very much linked now to the digital side and what we're seeing is a huge push by China to allow or facilitate its technology companies to spread around the world. There is a more innocuous side it - TikTok and maybe some e-commerce - but perhaps also a more interesting side, that is the use of surveillance cameras, of border control machines, etc, many of which are linked into the establishment and the building of national digital infrastructure. 

So the way it works is simple. China will say to Country X, “We’ll build out your 5G networks, we’ll build out your smart city initiatives, and within those initiatives we will put in surveillance technologies”. All of that together means that there is control by Chinese companies - and therefore the Chinese state by extension - on the digital infrastructure of that country. Where it becomes more nefarious is as the digital infrastructure spreads, and you get the adoption of China GPS equivalent, which is called BeiDou, into running transportation systems or into running security and military equipment whether it’s missiles or whether it's planes or whatever it is. You suddenly realized that the country has gone from just allowing a 5G network to be built to that country being wholly dependent digitally on China, which gives China huge influence in almost every sphere of modern life over that country.

SP: So what you seem to be saying Sam, is that the number of bases that a particular country might have overseas or the number of ships that a country might be able to deploy into any region is really a very poor measure of the military and security footprint because it's so multifaceted now through technology, data, etc that we need a new paradigm of measuring capabilities. Would that be fair?

SO: Yeah, and if you take Clausewitz, the German military theorist from many centuries ago, he said war is politics by other means, and what we're seeing now is the evolution of war and security concerns to be much more technology-led and to be spread around many different areas of life. If you look at the Russia Ukraine side, there something that's become very apparent is the impact on world grain and food security because of the outsized impact of Russia and Ukraine on grain exports. And so that obviously has massive security implications internally for countries. So you're right, we do need to move beyond just looking at how many bases abroad a country has to see what the impact is the influence of a certain nation is in terms of its ability to push and influence the national security autonomy of another state. 

SP: Now I'm sure there's been some listeners to this who are saying, well, look at Russia's performance in Ukraine relative to what the various intelligence agencies told us Russia was capable of and on the evidence so far it would perhaps suggest that people massively overestimated Russia's military capabilities. Is there a danger that we're making the same mistake here with China in terms of overblowing the importance of their global footprint? And I suppose that would also link to another question, which is when people measure defence expenditure between countries, they tend to do it in sort of nominal terms, but does China get a lot more bang for its buck when it spends a dollar on defence than America does? 

SO: We've got a few things there in terms of whether America or China is spending more. There are debates about what about the actual veracity of China's defence budget. But at the end of the day, the advantage in terms of spending power is certainly with America. China are in fact spending far more on internal security than external defence. But bear in mind also that America, as much as its critics, will tell you has spent the last sort of 50 years fighting wars in every corner of the world. Its military is very well adapted to fighting in different areas, different countries and China’s isn't. And the last major war the Chinese fought was in 1979 when it invaded Vietnam and got a very bloody nose as a result.  So there simply isn't the expertise in within China to compare and not only that, but it's logistics; now many people would have seen the struggles that Russia is having with its logistics in in Ukraine and, and that's certainly the case with China in terms of its abilities. America has far superior global logistics than China does in terms of ships in terms of air support, etc. 

SP: OK, so that's interesting, can I pull you up on that? Because presumably China’s commercial actors, particularly state-owned enterprises but more generally just commercial actors, are there to support any potential logistics operations that are required. If you look at China's ownership of ports around the world or their ownership of merchant shipping and Huawei’s development of logistics software and port solutions, I would have thought that the likes of Costco and other state-owned enterprises involved in logistics globally would have unparalleled reach and an unparalleled ability to support Chinese military operations around the world, is that not the case? 

SO: It might be, but there is no real integration at the moment because they haven't really had the experience between China’s private logistics capabilities globally and China’s military. Now it could be that as and when a war started that that was something that came together very quickly, but at the moment the advantage again is with America and the West, because we've just got greater experience in in terms of logistics and getting things moved around the world for military purposes. 

SP: So is that what Xi Jinping means when he talks about military civilian fusion or is there another meaning to that? 

SO: No, there is that, but it's also about the development of technology.  For example, dual-use technologies in self driving cars, which can also be used to guide missiles as well. And this is a bedrock of military development within China to make sure that they take as much as they can from the civilian world. And a great example is graphene, the new wonder material invented in the UK, but the National Graphene Centre made the mistake of employing an intern from the People’s Liberation Army and it wasn't the surprise that very shortly afterwards graphene started to be used within China. In fact there is now approximately 4000 companies involved with graphene and graphene production in China compared to perhaps a couple in the UK. Those civilian usages for graphene are very much being used by the People Liberation Army as well.

You have that in the West, the connection between civilian and military, but it is much more top down in in China and that’s a specific policy pushed by the Chinese to get their military ready to be able to withstand or even confront the West. 

SP: So what you're describing there really is a sort of militarization of the entirety of China's economy at an extreme. 

SO: In essence, it hasn't got to that stage yet, but as and when war happens, if indeed it does then China is expecting its whole economy to be quickly moved into warfighting mode. 

Whether that would work or not is a different matter, but at least that's the theory. 

SP: Well, that's a scary thought. 

SO: Well, I think the most important thing to note about China global security and military footprint is that it might sound big, but it's untried, untested, and the West very much has the advantage in terms of experience and in an accumulative spend.

But the question is, does China want to be a global military power or does it actually just want to be able to defend its core interests in part of the world? A really good quote that comes to mind always when I'm thinking about this is from Jack Ma when he was questioned about the fact that eBay was so much bigger and so much more resource laden than Alibaba. He said ues, well, eBay might be the great white shark in the ocean, but Alibaba is the crocodile in the Yangtze and we will defeat him if he ever comes on shore here, and I think that that is certainly what Chinese military and security planners looking at with regard to maintaining China’s position in its own backyard. It’s got a huge fleet. It’s got apparently very good missile technologies, although they're untested, and so if there was going to be something happening in its own backyard for example, Taiwan, I think that's a very different proposition to trying to imagine China conquering huge waves of Africa, or Europe or something like that, which is really unfeasible at this level. 

But at the same time, watching its security apparatus push abroad does mean that it is more likely it will be able to control what its own people are doing abroad, but also it gives it leverage over other countries in terms of especially domestic security situation and I think it's more important for commentators to look at that and the influence of China on the domestic security situations of country XYZ than just saying how many bases China has got, because that is meaningless. 

SP: So Sam, thanks very much for that, a fascinating introduction to China's military and security global footprint. Next week we will take this a bit further in discussing the impact of the Russian invasion of Ukraine on China and how that might play with China's interests. 

SO: And you might actually get a chance to do some answering questions that suits you, because I'm going to ask you a lot about the economic side as well. Are you prepared for that? 

SP: Absolutely, and I think the economic consequences are quite far reaching actually both in terms of a rejigging of global trade patterns, not just in energy, but in resources generally, but also in what reaction that the Ukraine-Russian war, has induced from the European Union, from Japan, and other democracies in terms of looking at the resilience in their supply chains. So that should be an interesting discussion. 

SO: Brilliant! Well thanks very much for listening and we'll be back next week with more What China Wants. 

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Welcome to our first What China Wants podcast. Sam Olsen and Stewart Paterson discuss whether, after decades of breakneck growth, China’s economy is now shrinking - and if so, what this means for the West.

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