President Biden’s Approach to China: Reading 46’s Tea Leaves

Yash Johri, Research Assistant, ICS

Biden foreign policy will focus on renewing the American position as the chief consensus builder and underwriter for a rule based international order. While this doesn’t portend a new beginning or a wiping of the slate, it does mean making an attempt to restore the effectiveness and trust enjoyed by world and regional institutions that helped the world prosper in the post World War Two phase as well as recommitting to and developing new methods to deal with multilateral problems such as that of climate change and technology governance. While the primary focus will undoubtedly be on healing the socio-economic divide at home we are likely to see a return of America projecting the values of democracy to the world as it has done in the past. All this will undoubtedly be in the face of the somewhat multipolar environment that has come to develop with an aggressive China and highly unequal and divided societies across the world.

The President-Elect in a conversation earlier this week with Thomas Friedman of the New York Times stated that he would not make any immediate moves to change Trump policy toward China, including on the Tariffs until he had conducted a full review of United States’ China Policy and consulted allies in the United States and Europe.  Biden went on to state that it was required for America to create far greater leverage when it came to dealing with China, such leverage is to emerge from generating domestic and international consensus in their approach to the China challenge. While, only once the full spectrum China policy review concludes will observers be able to gauge the real direction of the administration on China, in the meantime, we can glean further into the thoughts and writings of persons the President-Elect is expected to involve in these consultations as principle stakeholders.

Anthony Blinken has been nominated by the President-Elect to serve as his Secretary of State. In the Obama administration, he served as Deputy National Security Advisor (2013-2015) and Deputy Secretary of State (2015-2017). In a conversation with Walter Mead organized by the Hudson Institute on the 9th of July, 2020, Blinken echoed his new boss’s aforementioned words that the United States relative to China had to regain a strategically advantageous position. While specifically stating that a lack of reciprocity in the Sino-US relationship was unsustainable, he stated that the United States needed to renew and strengthen its various alliances, re-engage with global institutions and re-commit to holding up its values. Given that the US’s erstwhile leadership position was receding, the situation was not only allowing China to act with impunity but also leading to a general world fragmentation. Blinken went on state that it was when the United States re-established this position of strength, only then would it be conducive to engage with the Chinese upon issues, which both nations share overlapping interests on such as Climate Change.

Jake Sullivan has been nominated by the President-Elect to serve as National Security Advisor. Sullivan in the past served as VP Biden’s National Security Advisor, as well as the Head of Policy Planning under Secretary of State, Hillary Clinton, at 43 he will become the youngest person to serve in this capacity since the Eisenhower Administration.

In an October 2019, Foreign Affairs piece titled ‘Competition Without Catastrophe’, Sullivan along with Kurt Campbell (Secretary Clinton’s Assistant for East Asia) while differentiating the Cold War from the US-China situation and arguing against similar containment strategies wrote, “…the goal should be to establish favorable terms of coexistence with Beijing in four key competitive domains – military, economic, political and global governance – thereby securing US interests without triggering the kind of threat perceptions that characterized the US-Soviet rivalry. Washington should heed the lessons of the Cold War while rejecting the idea that its logic still applies.” The piece further critiqued the National Security Strategy of 2018 by stating that the term ‘Strategic Competition’ contained in it reflects uncertainty about what the competition is over and what it means to win and further stated that the “starting point for the right US approach must be humility about the capacity of decisions made in Washington to determine the direction of long-term developments in Beijing. Rather than relying on assumptions about China’s trajectory, American strategy should be durable whatever the future brings for the Chinese system.”

The piece is a preliminary analysis dissecting the relationship from all angles, it urges a middle path between outright competition and a Chamberlain-like Grand Bargain. At the conclusion, Sullivan and Campbell echo Biden and Blinken that the United States can certainly not go it alone and needs to regain the confidence of its allies. More recently in May, 2020 Sullivan and Hal Brands have detailed in Foreign Policy, China’s two paths to power, one, a bottom up regional dominance narrative and the other a top down method by developing global political influence. An interesting and very detailed analysis that helps show the mirror to not only the American strategic community, but to all around the world dealing with the China challenge.

From Blinken and Sullivan’s views as well as President-Elect Biden’s recent statements, we can certainly expect a far more engaged United States. A running trope across the three views has been the need and desire to regain the United States’ strategic leverage across the world in order for it to not only secure its own economic position in the world but also to continue having a major say in setting the rules of post-pandemic world order. While the two aforementioned functionaries have so far been nominated, a recent Financial Times article states that Biden is expected to name China hawk Ely Ratner, Former Deputy NSA to a senior role as well as Kelly Magsamen to a prominent Asia role. Expect the Treasury Secretary nominee, Janet Yellen (erstwhile governor of the Federal Reserve, US Central Bank) to have a prominent say on China policy as well.

Professor Da Wei of Tsinghua University during an ICS Wednesday Seminar on the 29th of April was asked his preference between Biden and Trump, he replied that it didn’t matter who the principal was, what mattered greatly were the subject area policy makers. About Trump’s advisors he stated, “The team in DC running China policy are not mature enough, I think they are not stable or predictable…”. While 46’s advisors may put forth challenging propositions for Chinese persons like Da Wei to argue with, from their qualifications, past experience and Biden’s track record of trusting experts one can say that the management of the relationship will certainly be more predictable.

China’s Railway Network: A roadmap to change Iran’s status quo in the Gulf

Neha Mishra, Research Intern, ICS

The perception of the Persian Gulf countries about Iran has been built across two time frames – Pre and Post-Islamic revolution. The Pre-Islamic revolution Iran was seen as a preserver of regional stability and an agent of the USA in the region. Mohammad Reza Shah (1941-79) played an important role in this context as he tried to dismantle every challenge to the regional stability whether it was Iraq’s regional hegemonic aspirations or any rebellion unrest in the Gulf monarchies, along with sustaining US legitimacy in the Persian Gulf. Ironically, the Islamic or Iranian Revolution (1979) led to a revolutionary wave in the other Gulf monarchies that made Gulf rulers perceive Iran as a threat to the regional solidity and, weaken the US-Iran ties as well. The events including- Islamic Revolution, Iran-Iraq war (1980), Gulf crisis (1990-91), and regional conflicts or disputes over Abu Musa, Tunb Islands, annual Hajj pilgrimage, and so on, contributed further to change the relation between Iran and Gulf states.

The Post-Islamic revolution Iran began to be perceived as a threat to the Gulf security, despite all the efforts made by President Muhammad Khatami and President Hassan Rouhani including the JCPOA agreement, to bring back the pre-revolution status of Iran. Broadly speaking, the securitization of Iran in the region has been the outcome of two developments: – a) the US-Israel Alliance that portrayed Iran’s nuclear program as a threat to the regional security; b) the insecurity of the neighbors about Iran, having a high amount of reserves and overpowering them. The regional security, peace, and cooperation are imperative for the domestic stability and economic recovery of Iran, but the above-mentioned developments had made it difficult for Iran to resolve the issues with its Gulf neighbors.

In this context, it could be argued that being a part of China’s BRI railway network could help Iran not only in establishing itself as a trade hub for the region, but also to boost its bilateral connection with the neighbors, thereby restoring its preserver status.

Iran became an integral part of the Chinese BRI program in 2016 when President Xi Jinping declared his intentions to help Iran in the facilitation of long-term peace and stability in the Middle East, claiming that Chinese planning to build railway network connectivity with the region will certainly improve the regional integration of the region as well.

The interest of China in the Persian Gulf region evolved majorly due to its geostrategic and geopolitical significance. The involvement of China in the Gulf region increased further during the 1970s to counteract the augmented Soviet presence in the Indian Ocean region, since Gulf is connected to the Indian Ocean through the Strait of Hormuz. Iran with domination over the Strait consequently became geopolitically important for China. Furthermore, Iran’s uneasy relationship with the USA and the strategic interest of India in Iran were the other factors that shaped Sino-Iran interactions.

The opportunity to be a part of BRI came as an advantage for Iran when it declared the plan to expand its railway network and connectivity to the Gulf neighbors as well as the other powerful actors. The Railway Restructuring/ Revolution plan of Iran invited major foreign investors including China, India, Russia, and others to participate in the progress. The Projects like- International North-South-Transport Corridor (INSTC), Eastern corridor, and Ashgabat agreement will connect Iran to India, Pakistan, Afghanistan, Central Asia, and the Gulf country Oman, but might not contribute enough to change the regional equations of Iran. Chinese BRI railway connectivity project, on the other hand, is more likely to facilitate the geo-strategies of Iran in the Persian Gulf. For instance- in 2016, the first freight (Cargo) train was launched to transport goods in bulk between Iran and China and this developed the chances of turning Iran into a central hub of the Eurasian region. The hopes of connectivity continued to develop with launches of second, third, and fourth train services from 2016 to 2018, connecting China to Tehran passing through Central Asian countries and former Soviet Union Republics as well.

Besides these freight trains, Chinese Railway Engineering Corporation has approved loans for two important railway networks- a) The Tehran-Qom-Isfahan railway network- a $1.2 billion loan agreement on 400km double-tracked railway lines, to connect these three cities of Iran to develop Iran’s transporting capacity and speed, b) The Urumqi-Tehran-Mashhad railway network- this route will start from Urumqi (China), passing through Yining and Almaty (Kazakhstan), Bishkek (Kyrgyzstan), Tashkent and Samarkand (Uzbekistan), Ashgabat (Turkmenistan), then crosses Tehran to reach Mashhad (Afghanistan). This project will help China as well as Iran to deal with the incompatibility of the Persian Gulf neighbors since the benefits attached to the networks will certainly magnetize Gulf monarchies towards Iran as well as BRI railway projects. In addition, the Chinese railway networks being a gauge for its Silk route plan have the efficacy to improve the regional solidity and interaction for Iran. For instance:- the proposed Khorramshahr-Basra Railway network between Iraq and Iran is receiving aid from China, considering it as a potential route to connect Silk Road with regional rail system of Gulf Cooperation Council (GCC) countries, as Basra is only 154 km away from the GCC country, Kuwait that would extend the connectivity further. As the Chinese railway project in Iran will not only make Iran a giant crossroad of the trade routes but also in boosting its economic as well as regional connectivity, thus largely viewed as a win-win collaboration.

However, the outspread of the Covid-19 Pandemic in the Iranian holy city of Qom has halted the work of railway network projects. On the one hand, there has been a considerable increase in the anti-Chinese sentiments in Iran, with a certain section of populace claiming that Iran contracted the virus in lieu of the economic and trade support from China. The spread of the virus has also affected the somewhat improving relations of Iran with the Gulf countries, as reports allege that Iranian travelers had spread the virus to these countries. While on the other hand, the unwillingness of majority Iranian politicians to accept Chinese workers/ travelers as a source of the virus, due to the importance of China to Iran is also noteworthy. Moreover, the latest removal of India from the Chabahar-Zahedian line project citing continuous delay in the funding is going to fuel up the Sino-Iran interactions, as the involvement of India in the Chabahar Project remained a critical concern of China and challenge to its Gwadar port project in Iran.

The BRI railway network has the potential of not only bridging the infrastructure and connectivity gap at the global level, but also at the regional level for Iran. However, Iran should not be excessively dependent on China, as it can lead to a situation reminiscent of pre-revolution era when it shared a skewed power dynamic with the USA. Moreover, China has certain unilateral goals through the BRI railway network and any conflicting stance of Iran can be a major setback to achieving its regional aspirations.

The Business of Civilizations in Modern Times

Asma Masood, Associate Member, Chennai Centre for China Studies (C3S)

“Let’s make America great again” or “The Chinese Dream”?

Xi Jinping’s “Asian Civilization” or Donald Trump’s “America First”?

As the spread of coronavirus ebbs and rises, waves of opposing political narratives and ideological clashes continue to flow. Civilizational contrasts are observed as American calls for liberty clash with Chinese assertions on non-interference. As US condemns Chinese treatment of Uyghurs by sanctioning high-ranking Chinese officials, Chinese officials also face visa restrictions over the US insisting on greater autonomy for Tibet. Chinese media did not hold back on coverage and op-eds on the race riots in US after George Floyd’s killing.

While political and strategic analysts ponder on the above, queries also arise on how cultural contours have merged with commercial aspects and the significance of this interlinkage.

Cultural curiosity is no longer a forerunner to new market ventures, as was in centuries gone by. Instead, trade with upcoming markets has been leading to enhancement of cultural linkages since recent decades. Nevertheless, inquisitiveness about lifestyles in Western countries is a major factor in determining consumer behaviour in many developing states. This in turn helps drive international trade ties. However, there are occasions when these linkages fall short of translating into mutual success, as demonstrated by two scenarios. It is important to understand such shortcomings, as they offer a peek into how international relations can be managed in the coming decades.

Take the case of when Aung San Suu Kyi’s National League for Democracy (NLD) won the 2015 elections in Myanmar. At the time, there was global interest in the scope for the country’s fledgling industries such as finance, telecom and hospitality. Myanmar subsequently sought to develop cultural realms such as tourism. Fast forwarding to 2020, and the ongoing Covid-19 crisis, pressures from USA due to the Rohingya issue and a shaky outlook for the government have reverted Myanmar to uncertainty, with foreign investors stepping back. The US views that Myanmar’s conceptualization of democracy is not all-inclusive as in the case of the Rohingyas, hence leading to USA’s ‘financial distancing’ from the country.

While Western historians and cultural scholars keenly study ancient Persian culture, they would face challenges in carrying forward this interest into the Iranian ethos today. Geopolitics block not only prospects for commercial forays into Iran, but also shape perceptions and impede communication pathways. Intriguingly, this has not dampened Iranians’ appetite for American goods. This is in spite of strategic tensions with the US, current American sanctions and an influx of Chinese goods.  The US is scoring domestic points in alienating the Iranian leadership, however, Iran’s common citizens continue to complain of narrowed access to American supplies, including medical supplies for treating coronavirus.US sanctions also led to Iranians losing access to electronic goods fromJapan and South Korea.

In either matrix, it is clear that China is gaining an edge. The country is ensuring that its energy needs are met, while it exports not only goods to Iranian and Myanmarese markets but also its own cultural manifestations. One cultural component is coaching in Mandarin, which is also an essential business tool. This will be increasingly sought after, especially as Iran and China cemented their strategic and trade partnership in July 2020. In Myanmar, although the government is looking to balance China’s overwhelming presence by focusing on India among other countries, the military which has high stakes in the country’s commercial sectors, has strong ties with China. This acts as a gateway for increasing popularity of Chinese language and entertainment productions among Myanmar’s population. 

While Iran and Myanmar are within Chinese spheres of commercial and cultural influence, the West proclaims that China is facing challenges from various other fronts. These include tensions with the US over trade, the pandemic crisis, and the status of Hong Kong. Other fissures are visible as seen in the UK’s rejection of Huawei, Japan largely diverting automobile manufacturing from China to Vietnam, and the Indian rethink on Chinese investments before and after the recent border stand-off. The spread of coronavirus is another reason for widespread criticism of China.

However, a parallel narrative is emerging, that of China moving closer to Russia and reiterating relations with Iran, as well as its economic growth after containing the pandemic within its borders. This means that it is attempting to balance its economic losses on one scale with gains on the other. China also continues to maintain relations with other energy exporting states and markets worldwide. It is clear that state economies worldwide are intensely intertwined with China, and these ties cannot transform overnight.

On a parallel note, American nationalism is rising, but not diluting US commercial presence across the globe. Private companies are well aware of the consequence of ignoring American and Chinese realities. Evidence of this is apparent in the New York Times shifting its Hong Kong staff to South Korea in light of the US stand on the HK status. It mirrors an entrenched tendency among private players to adapt to the laws of both the homeland and wherever they hold shop.

Consequently, the demand for key language skills will remain, as will the interest to imbibe cultural etiquette while dealing with American and Chinese businesses. It is easier for the US to draw strength from the international knowledge base of the English language and know-how of American customs. On the other hand, China’s Confucius Institutes (CIs) were shut down in Sweden and in the US. For now, these are isolated incidents, which are not reflected in the rest of the CIs across the world. Similarly, rivalry between leadership in China and other countries has not changed the existing social linkages between them, be it in Japan or ASEAN member states. The Chinese government realizes this, and has long established a ministry dedicated to cultivating relations with the country’s diaspora who are also crucial investment channels for China.

The ‘Chinese takeaway’ from these facets is that Xi Jinping wants to match, if not outrace, the US in global cultural influence. ‘Pepsi culture’ which may sound cliched, is a stark reminder on the success of American brand values. Incidentally, the hit US beverage brand has reinvented itself for Chinese consumers. A slow march lies ahead for China in the quest for equal prominence of its cultural symbols and brands. Meanwhile, Beijing will attempt to employ the umbrella of geographical commonalities as a binder via the ‘Asian Civilization’ dialogue. Calls of global unity are promoted under the banner of ‘community of shared future of mankind’. One cannot help thinking that the key is the packaging. The US markets its services and products in internationally appealing cultural wrappers. Chinese goods have to depend on the lower priced tags to push sales. The ‘Chinese Dream’ is ambitious, but it is a dream for China. The American Dream which inspired millions of immigrants until recently is losing shimmer. But the world still ‘needs’ iPhones as much as Xiaomi mobiles. It is not immediately clear whether the US and China will outmanoeuvre each other in the political realm or find a way for co-existence. Until then, consumerism will stay as the cross-continental culture of our times.

India’s Strategic Choices to Engage China

Amb. Biren Nanda, former High Commissioner/Ambassador to Australia, Indonesia & ASEAN

What are the Key elements of the Chinese world view at this Juncture?

China perceives the current phase as demonstrating increasing multi-polarity and a decline in US power after the Global Financial crisis of 2007-08. This is seen as giving rise to a period of ‘great strategic opportunity’ to seek the realization of China’s key goals, including challenging the dominant position of US power in Asia, aggressively pursuing maritime and continental territorial claims, pursuing a rapid expansion of maritime power, seeking to dominate its periphery through the BRI and pushing a new Asian Security Architecture that seeks to diminish the role of outside powers. China’s assertiveness has resulted in a pushback from the United States and some regional powers.

How is India reacting to these developments?

First, from a strategic perspective India has moved closer to the United States. Second, India has pursued comprehensive engagement with China based on the belief that there is enough strategic space in Asia to support to support the phenomenal rise of China and the accelerating rise of India. The two countries can emerge without becoming adversaries if they are aware of each other’s’ red lines and make sure that these red lines are never crossed.

Third, India has actively sought to counter Chinese actions in our South Asian and India Ocean neighborhoods, particularly those that have adversely affected India’s national security. Fourth, India has developed closer strategic ties with other powers in the region including Japan, Vietnam and Australia. These growing relationships are based on a convergence of views on the prevailing threats and opportunities in the Indo-Pacific. Fifth, with its “Act East Policy” India is working vigorously to strengthen relations with ASEAN countries bilaterally, and through active participation in ASEAN dialogue forums.

What are the broad trends that characterize the present phase of India China Relations?

Within the emerging US-China bipolar system China is aggressively diminishing India’s Strategic space in its neighborhood and shaping India’s strategic choices in engaging with China. India’s strategic tilt towards the United States is a response to aggressive Chinese actions inimical to Indian interests and a source of growing concern for Beijing. The United States has characterized China as a ‘revisionist power.’  which seeks to challenge the United States’ dominant position in Asia. As long as there are continuing tensions in Sino-US relations, China will make positive overtures towards India, without any assurances that it will not revert to a confrontationist posture under different circumstances in the future. The two summits embodying “the Wuhan Spirit” and the “Chennai Connect” are an attempt to reinvent bilateral relations in order to bring stability to the relationship. They rest on the foundation of maintaining respect for each other’s’ core interests and aspirations.

Closer Strategic Communication between the two leaders has been an overarching objective. Understanding each other’s national visions, developmental priorities, aspirations and red lines that must be respected in order to maintain stability in the relationship has been the priority. The India China trade deficit has continued to grow despite years of discussions between the two sides. While the Chinese side views it as a ‘structural problem’ that cannot be resolved in the short term, we regard it as an issue of ‘market access’ requiring Beijing to address non tariff barriers.

On the RCEP India’s core concern is the same – the impact of the agreement on the bilateral trade deficit. The decision to elevate the trade dialogue to the ministerial level signals the resolve of both sides to find some common ground to address the issue. An important issue for China is the US targeting of major Chinese technology firms to prevent them from getting global business in the 5G roll out. China is keen that India resist US pressure. The Indian government is caught between competing demands. Telecom companies want Huawei to bid because it keeps prices down. But the Government must address the security risks of exposure to cyber threats in the future and the ‘potential US sanctions risk’ of being caught up in increasingly fractious US-China trade tensions.

While China seeks to move towards a Sino-centric Asian Order, India’s vision is that of a multipolar Asia. Within a Sino-centric order China would regard cooperation with India as a priority. India’s growing economy, its importance to China as a trading partner, its role in Asia centric governance institutions like the AIIB and the BRICS Bank and its accretion of strategic capital through its strategic partnerships make it an important Asian interlocutor from China’s point of view.  The Indian Ocean is witnessing a rapid rise of Chinese naval presence on the high seas and in bases and places along the littoral. India’s challenge is to counter the expansion of Chinese presence and influence without appearing too provocative. At Mamallapuram Xi continued to urge Prime Minister Modi to cooperate in China-India Plus projects and connectivity networks in South Asia, Southeast Asia, Africa and the BRI. Beijing may regard India’s participation in BRI essential for its characterization and success as an Asian project but India remains cautious because of BRI’s strategic intent which to create a Sino-centric Asian order. China seeks to diminish the strategic space for India in South Asia and the Indian Ocean region. India is concerned at China’s growing investments and influence in South Asian countries and the IOR. The strategic collusion between China and Pakistan exacerbates security challenges for India in the region. China is unlikely to be flexible on key issues affecting India’s National Security including the boundary dispute or its expanding footprint in South Asia and its growing strategic ownership of Pakistan. Nor will it cooperate on issues India regards as key milestones in India’s rise as a great power – as for example our quest for permanent membership of the UNSC or membership of the Nuclear Suppliers Group. While a combination of external circumstances and summit level diplomacy appear to have stabilized India-China relations, it remains to be seen how long India and China can sustain the process without substantial progress on the core issues that divide them.

Natuna Crisis: Is South China Sea a Fisheries Dispute?

Mahesh Kumar Kamtam, Research Intern, ICS

The recent crisis in the South China Sea erupted in December 2019, when a group of nearly 30 Chinese fishing vessels, accompanied by the Chinese Coast Guards (CCG) intruded the “exclusive economic zone” (EEZ) of Indonesia around the Natuna Islands, a part of the sovereign rights guaranteed by the “United Nations Convention on the Law of the Sea” (UNCLOS). China’s aggressive posturing in the South China Sea, accompanied by its large fleet of fishing vessels and maritime militia, brings new challenges to the region and the sustainability of South China Sea.

South China Sea has been at the centre of dispute since China began asserting its sovereignty over the entire sea as part of its historical claim of the “nine-dash line”. This claim not only makes it an expansionist power but presents a challenge to the sovereignty of the neighbouring coastal states with overlapping jurisdiction (see the map below). The Natuna crisis and China’s aggressive postures has irked the eye of many ASEAN member states. Nevertheless, I would argue that the crisis presents not only a security threat for the neighbouring coastal states but also challenges the sustainability of the entire South China Sea ecosystem.

South China Sea Ecosystem

Source: South China Morning Post

The South China Sea dispute must be viewed from the perspective of fisheries development and the conflict for fishing grounds in the region.  A report by the Centre for Strategic International studies (CSIS) has shown that the region is dangerously overfished and over-capacitated with the fishing boats. For instance, the report cites a paradoxically worrying trend with South China Sea accounting for 12% of the global fisheries and more than 50% of the gross fishing boats of the world present in the region. Synthetic Aperture Radar (SAR) images captured by Asia Maritime Initiative depict this trend in the region (see image below). This shows that there is sheer overcapacity in the region in terms of fishing which has further led to aggressive behavioural tactics by countries involved in the South China Sea dispute.

SAR images

          Source: White Shipping Data, Asia Maritime Initiative

Tactics to intimidate the fishing community are adopted frequently by the CCG in the region to deter the non-Chinese fishers from fishing in the South China Sea region. Chinese fishermen, with the support of CCG and Chinese Navy, have also displayed aggressive behaviour in the cross-fishing activities in the disputed waters. One of their tactics includes ramming foreign boats and sinking them. For instance, a Filipino boat was sunk by the Chinese fishermen leaving 30 Filipino sailors at the mercy of others for rescue. Gregory Poling, Director of Asia Maritime Initiative describes this approach as a “constant exercise of low-intensity warfare”.

The Natuna crisis comes in the context of the departure of Indonesia’s Minister for Maritime Affairs and Fisheries, Susi Pudjiastuti, whohas a strong track record of adopting tough policies on the protection of ocean ecosystem and the crackdown on illegal fishing activity in the Indonesian waters. With the departure of Susi, China is probably testing Indonesia’s ability to confront CCGs in the Natuna Sea. However, it is also aware that Indonesia stands as the fulcrum that connects the Pacific and the Indian Ocean. Therefore, it is seeking not to escalate the dispute further which can lead to a “crisis situation” in the region. Moreover, Indonesia has no conflicting claims in the South China Sea, unlike its neighbours.

China has for long claimed sovereignty over the entire South China Sea by arguing that “it is part of Chinese historic traditional fishing grounds” and expanded its naval presence through aggressive tactics. The Chinese Navy and the CCG are at the forefront by providing security and accompanying the Chinese fishing vessels, survey ships, and other mineral exploration activities in the South China Sea. Nevertheless, these activities are not confined to the “traditional fishing grounds” alone. Chinese ships have often crossed the established “nine-dash line” to either assert their control over fishing grounds by driving out foreign fishers or to test the neighbouring states’ potential and their capabilities in handling the crisis in a “matured” manner. Both the tactics are working in China’s favour to steadily extend its influence in the region.

Chinese activities in the South China Sea have expanded in the recent past with an expansive military build-up, transforming the “ecologically fragile coral reefs” into a military outpost in order to establish their continuous presence in the region as a strong naval power. The modernization of the Chinese Navy and the inclusion of the indigenously built aircraft carrier, “Shandong” is an example of China’s growing capabilities in the region and its quest to become a “naval superpower”. Nevertheless, the disrespect for international laws and non-compliance with international norms can have possible implications not just for the maritime security in the region but also severely affects the livelihood of fishing communities who are solely dependent upon the ocean resources. The data compiled on the marine fishery production in the region by the Pearson Institute of International Economics shows dangerous levels of fishing activity in the region (see graph below). The Chinese fisheries community along the coast, being overwhelming dependent on fishing as their sole occupation, has put China in a compelling position to venture into the extra-territorial waters of other countries.

Fishing activity in the region

    Source: Pearson Institute of International Economics

So, where are we heading towards in the South China Sea dispute? It seems, for the time being, China is trying to carve out its extra-territorial geographical expansion through a multi-prolonged strategy, with CCG and fisheries at the forefront of China’s expansionist agenda. However, the military escalation and the disturbance to the ecological fragility in the region may bring many livelihoods to standstill, ultimately affecting the region’s ecology and economy alike. This presents a long-term challenge to the region that risks human security at the cost of national security. Countries in the region and especially China, should be cognizant of the consequences that follow. Therefore, countries need to redefine the concept of security in the context of growing livelihood challenges.

Chinese Steel Industry: How Did the World’s Largest Steel Producer Protect Itself from Global Slowdown and a Trade War?

The US-China trade war and rising environmental concerns have led to a slowdown in global infrastructural projects in 2018. The objective of this short piece is to understand the impact of these global phenomena on the Chinese steel industry.

Vidushi R Singh, Research Intern, Institute of Chinese Studies

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How Did the World’s Largest Steel Producer Protect Itself from Global Slowdown and a Trade War?

China has been the world leader in steel production since 2008, with about half of the total world steel exports originating in China. The US-China trade war and rising environmental concerns have led to a slowdown in global infrastructural projects in 2018. The objective of this short piece is to understand the impact of these global phenomena on the Chinese steel industry.

Economic logic follows that excess supply and reduced demand, as have been observed in recent times, would lead to falling prices. The inelasticity of supply should have meant low prices for the Chinese steel market. As can be observed in the following graph, prices dipped following the first steel tariff announcement from the United States Trade Representative’s (USTR) office on 1 March 2018. However, while prices did fall, they also rebounded much sooner than initially predicted. This trend can also be observed in the graph, with prices rising back up April 2018 onwards. However, the prices crashed again in November 2018, due to falling demand in downstream sectors, such as infrastructure and manufacturing industries, as a speculative response to rising tariffs between the US and China. Chinese steel manufacturers also registered losses for the first time in the last three years, in November 2018. Despite this, the Chinese steel economy remained largely immune to economic shocks.

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Source: Trading Economics

The Chinese conduit to coming out unscathed lies in the supply side reforms, initiated by the government in 2015. The end of the Chinese construction boom in 2014 had instigated the government to carry out reforms to cut down on steel production. As the growth rate of the construction industry fell from 10% in 2014 to just 2% in 2015, steel production was reigned in, with the growth rate actually falling to a negative value in 2015 (National Bureau of Statistics of China). The government decided to intervene at this point so as to ensure the survival of the steel industry and avoid mass layoffs that would have resulted from a slowdown in the industry. The goal decided in 2015 was to reduce capacity by 45 million tonnes, a target that was attained by the latter half of 2017, much before the set deadline of 2020.

Thus, when the demand growth rate fell, the Chinese steel industry had already moved on to capacity optimization and did not face grave overutilization. This allowed for the industry to shift supply rapidly, and safeguard itself from future tariffs as well. This success of the Chinese steel industry is evident in the fact that since 1 January 2019, Chinese steel prices have increased consistently. The shift from high-grade iron ore to lower grades has also allowed manufacturers to increase margins by cutting costs.

One interesting factor in this situation is the ability of the Chinese steel manufacturers to divert inventory to Chinese infrastructural projects under the ‘Made in China 2025’ initiative and the Belt and Road initiative. While it is hard to ascertain the exact amount of steel inventory being fed into these initiatives, they do provide the steel industry with a reliable sink to use up inventory, while cutting down on any overutilization, thus stabilizing prices in the short run. The government’s plans to expand on infrastructure development in the coming years also provides support to investor speculations and have played a role in stabilizing the Chinese steel economy.

The 25 per cent tariffs imposed on steel imports by President Trump, thus, fall short of having a real impact on the Chinese steel industry, in part due to China’s relatively unimportant position in US steel imports (China is the 25th largest exporter of steel to the USA), and in part because of the foresight of the Chinese government.

So while the Chinese steel industry did face multiple shocks over the course of the 2018 trade war and global infrastructural slowdown, the government’s preemptive measures of securing a strategic sector allowed it to come out of the tussle relatively unharmed. While the opacity of government and industrial operations make it tough to analyze the situation in greater depth, one can say that the Chinese steel industry has been able to cope with the changing world geopolitical scenario with ease.

What will China do if there is an India-Pakistan War?

In a hypothetical scenario of a new India-Pakistan war, what would China, the ‘deeper than deepest sea and sweeter than honey’ friend of Pakistan, do?

Muhammed Kunhi, Research Associate, Institute of Chinese Studies, Delhi

As a total shift from its conventional approach towards Pakistan sponsored terrorist attacks, days after Jaish-e-Muhammed (JeM) attack on Central Reserve Police Force (CRPF) convoy in Pulwama which killed over 40 paramilitary personnel, India responded with airstrikes on biggest terrorist camp in Balakot in the Khyber-Pakhtunkhwa province of Pakistan.

Indian media reports stated that the retaliatory action for Pulwama, carefully planned with credible intelligence, occurred in the early hours of 26 February and killed more than 350 terrorists by dropping 1000 kg Israeli Precision Guided Munitions (PGM). Some of them claimed that India destroyed at least six terrorist camps inside Pakistani territory and Pakistan Occupied Kashmir (PoK) by employing 12 Mirage 2000 jets, made by Dassault Aviation of France.

In an official statement, government of India declared that Pakistan’s persistent denial of existence of terrorist training camps inside its territory had forced India to take a “non-military preemptive action” against JeM camps in the light of a credible intelligence on JeM’s plan for conducting “another suicide terror attack in various parts of the country”.

Though Pakistan rejected India’s claim of heavy casualties as its “self-serving, reckless and fictitious claim” in the context of its upcoming general election, Pakistan accepted that the Indian military aircrafts violated the Line of Control (LoC) and dropped some amount of payload inside its territory. The director general of Pakistani Inter-Service Public Relations (ISPR), Major General Asif Ghafoor, tweeted that the “Indian aircrafts’ intrusion across LoC in Muzafarabad Sector was 3-4 miles. Under forced hasty withdrawal aircrafts released payload which had free fall in open area. No infrastructure got hit, no casualties.

India’s use of air power – unconventional

Whatever was the casualty and damage to Pakistani military, Indian Air Force’s breaching of LoC to attack a terrorist camp inside Pakistan is a total diversion from India’s conventional approach towards employing air power against terrorist threats from Pakistani territory. It is for the first time since 1971 war that the Indian Air Force has crossed the LoC to attack a target inside Pakistan. In the past, even during the Kargil War in 1999 and when Pakistan sponsored terrorists attacked Indian parliament in 2001, India exercised restraint in employing air power against Pakistan.

Many observers are arguing that India’s airstrike in Balakot will send a clear message to Pakistan that the continuation of proxy war against India would come at a price. Whether Pakistan is willing to learn that lesson is a major question. Definitely, Indian Air Force’s crossing of LoC is a declaration that there will be serious repercussions if Pakistan is planning to continue its proxy war against India.

Challenges dominant discourse

Interestingly, India’s new airstrike on Pakistan, which is theoretically a ‘military action’, though India claims it is a ‘non-military action’ as it is not carried out against any military. The latest developments directly challenge the dominant discourse that India and Pakistan must refrain from challenging each other militarily given the imminent threat of escalation and nuclear war.

Former Pakistan President Pervez Musharraf’s recent statement that “if we would attack India with one atomic bomb, then the neighboring country could finish us by attacking with 20 bombs” clearly shows that the nuclear-war against India is not a popular option within Pakistani strategic thinking as many in India assume. They (Pakistanis) are well aware of India’s military capability and, now, also its willingness to take any risky military action.

Setting aside the nuclear conundrum, the important question is what would a humiliated Pakistan respond? Assessing the current mood of the nation and approach of the present government, it can be said that if Pakistan chooses any retaliatory military action for Indian airstrike on Balakot it would escalate the situation in the subcontinent. At the same time, India will not consider nuclear war as an option until there is a survival threat to it. Hence, we need not expect more than a conventional war, or perhaps a limited border war.

What would China do?

In a hypothetical scenario of a new India-Pakistan war, what would China, the ‘deeper than deepest sea and sweeter than honey’ friend of Pakistan, do? Expressing concern over growing tension in the subcontinent, various countries, including China and the United States, urged both India and Pakistan to “exercise restraint”. In his regular press conference, responding to a question of Chinese response to Indian airstrike on Pakistan, Chinese Foreign Ministry spokesperson Lu Kang said “we hope the two sides will exercise restraint and take actions that will help stabilize situation in the region and improve bilateral relations instead of doing the opposite”. He added that “terrorism is a global challenge that calls for cooperation between countries so as to create enabling conditions and a favorable atmosphere for necessary international cooperation”.

Past experiences tell us that unless there is a credible challenge to its core interests, China will not militarily intervene in another country’s war. In the past, even in 1965, when the tension between India and China was at its maximum, China’s military involvement in India-Pakistan war was limited to creating some disturbances in India’s Himalayan frontier. This time, China has enormous economic and strategic interest in Pakistan, which includes multi-billion dollar China-Pakistan Economic Corridor and Gwadar Port. Additionally, in terms of numbers, China’s trade with India is many times larger than its trade with Pakistan. Since India is not a grave threat to China, it would not consider harming a well-developed trade relationship with India by getting embroiled in the Indian subcontinent’s conflicts.

Considering the depth of Sino-Pakistan friendship and its strategic value for China, it may be assumed that China will not totally abandon Pakistan if the new tension in the subcontinent leads to a war, especially when a growing proximity between the United States and India is quite evident. It will not be a direct military involvement either. The Chinese help to Pakistan will be in the form of weapon-supply and in various other forms of non-military assistance. China will use the opportunity to increase its arms exports to Pakistan without risking its trade relationship with India.

A Renewed push by Japan and Russia to resolve their bilateral dispute: Assessing the challenges

Dr. Shamshad A. Khan, Visiting Associate Fellow, Institute of Chinese Studies, Delhi

Japanese Prime Minister Shinzo Abe has given utmost priority to sign a peace treaty with Russia as well as gaining back the control of the Northern Islands (known as Kuril in Russia). There have been 24 rounds of one on one interaction between Prime Minister Shinzo Abe and Russian President Vladimir Putin, and the most recent was held on the sidelines of the G-20 Summit in Buenos Aires. During Abe-Putin meetings, signing a peace treaty and resolution of the territorial dispute, an issue lingering between the two countries ever since the end of World War II, has been on the agenda. Following their talks, they set up a consultative framework, termed as a “new framework” which is expected to speed up talks to resolve the issue as also consolidate bilateral ties.

The Japanese media reports suggest that Abe may settle for two islands instead of seeking the return of all four. If that be so, it could be interpreted as a departure from Japan’s long held stance which states that Peace Treaty with Russia will be signed “contingent on the resolution of the Northern Territories issues.” Continue reading “A Renewed push by Japan and Russia to resolve their bilateral dispute: Assessing the challenges”

The USMCA, China and the Politicisation of Economic Intercourse

Uday Khanapurkar, Research Intern, Institute of Chinese Studies

Strategic competition between the USA and China continues apace in the economic domain with tit-for-tat tariffs and strengthened investment regulations. This reassertion of sovereignty has irredeemably politicised economic intercourse. The market share that a state’s productive agents command has, akin to a conventional resource such as oil, emerged as a veritably prominent component of national power, thus bringing the zero-sum character of the international system to the fore. So much so, that the restructured Free Trade Agreement (FTA) between the US, Mexico and Canada, or the USMCA, also reflects the adversarial tenor in US-China relations.

Much attention has duly been afforded to article 32.10 of the USMCA since it quite explicitly targets China. According to this provision, should any signatory to the agreement enter into an FTA with a non-market economy (read China), the other parties reserve the right to dismantle the USMCA following a six-month notice. Continue reading “The USMCA, China and the Politicisation of Economic Intercourse”

Re-emerging importance of South Pacific Islands

Ms. Prarthana Basu, Research Assistant, Institute of Chinese Studies

At the Pacific Islands Forum in September this year, Nauru, a ‘small’ island country, accused China of heavy-handed behaviour in its attempts to ‘buy’ its way through the region. This brings into sharp focus the increasing centrality of the South Pacific region in the tumultuous geopolitical landscape of the Indo-Pacific. The South  Pacific islands have come into prominence owing to two main factors: climate change, and several layers of power tussles, the most significant of which is between China and the US.

Climate change has had a devastating impact on several island countries of the region, including but not limited to flooding and tsunamis, which has also fuelled fears about its future consequences. On the strategic tussle front, China has invested heavily in these islands to counter Taiwan’s growing relationships in the region, such as with Nauru, Continue reading “Re-emerging importance of South Pacific Islands”