International Forecaster Weekly

Will China Long Game Pay Off

China, too, is playing its growing clout on the international stage with an eye on the long game.... Economically, politically and militarily, China has begun the process of turning its resources to the task of feeding and equipping a rising superpower.

James Corbett | October 26, 2013

There is an oft-repeated story that former Chinese Premier Zhou Enlai, when asked about the impact of the French Revolution, responded that it is “too early to say.” The idea that the Chinese, a civilization that has persisted for thousands of years, think events like the French Revolution of the 18th century so relatively recent that they can't yet be commented on seems to describe so much about China and its way of thinking.

Of course, like so many other famous quotes, it isn't quite true. The “too early to say” remark arose, according to Nixon's Chinese interpreter, out of a misunderstanding. Apparently he thought that the question about the “French Revolution” and the “Paris Commune” referred to the student uprising of 1968, then just a few years past, not the storming of the Bastille in 1789. Still, however spurious the remark's popular interpretation may be, it seems an apt description of Chinese foreign policy and economic thinking in our current era. It's the geopolitical long game, and the Chinese and Russians are masters at it.


Take 9/11. The world collectively held its breath as the US made its determination of which boogeyman to blame for the attacks and how they would respond. On September 20th, Bush announced the war on terror and Russian President Vladimir Putin, against the advice of his top generals, threw his support behind the project. For the intervening 12 years, Putin (and his puppet Medvedev) have been content to sit back and allow the US to overextend itself in Afghanistan, Iraq, Pakistan, Libya, Yemen and elsewhere in the pursuit of that fictional war, not because these interventions have not hurt Russian interests in those regions, but because Putin is playing the long game. If his strategy is to weaken the unstoppable juggernaut of the American empire without firing a single shot, all the while bolstering his own justification for suppression of terror groups in the Caucasus, his strategy has worked brilliantly. The US has bankrupted itself in Iraq and Afghanistan, and bankrupted its political capital to wage more unilateral wars of aggression (just look at the recent Syria debacle). Zbigniew Brzezinski himself couldn't have advised a better strategy.

China, too, is playing its growing clout on the international stage with an eye on the long game. Some have been surprised at its seeming reticence to become more actively involved in the Security Council (refusing to use its Security Council veto to block the NATO invasion of Libya, for instance), but look at the remarkable transformation in China's position over the past decade. Economically, politically and militarily, China has begun the process of turning its resources to the task of feeding and equipping a rising superpower. It is a long way to go before China could conceivably pose any serious threat to American interests, even in the Asia-Pacific region, but all things being equal, it will get there. China is already slated to overtake the US to become the world's largest economy by GDP as early as 2018.

Of course, a lot can happen between now and then. Just ask Japan. In the 1980s everyone was forecasting the Japanese takeover of America, but 10 years later the Japanese bubble had popped and the Land of the Rising Sun has limped along ever since. Fast forward three decades and the very same fears that were being raised about Japan are now reserved for China, almost verbatim. In August 1987 it was the sale of the Mobil Building in New York to a Japanese company that unsettled Americans. When Mitsubishi bought a 51% interest in New York landmark Rockefeller Center in 1989, the takeover seemed inevitable. Compare this to the nearly identical handwringing that Americans are undergoing over JP Morgan's sale of another Rockefeller-connected New York landmark, Chase Manhattan Plaza, to Chinese industrial giant Fosun for $725 million just last week.

The move has sparked the expected round of soul-searching over the rise of the red dragon that one would expect from the New York Times, Bloomberg, and MarketWatch. Few and far between are those sane voices in the wilderness asking whether this move actually makes sense for China's long game. As The Asian Century points out, the Chase Manhattan Plaza acquisition and other real estate deals like it that are occurring more and more frequently of late is not some grandiose Chinese buyout of America, but an indication of China's own problems keeping the lid on its own real estate bubble. Housing prices in Shanghai, Beijing, Shenzhen and Guangzhou all jumped markedly in September, with the dreaded “b” word now being raised in China's overheating property markets. As the government attempts to clamp down on domestic real estate markets, excess capital is looking for somewhere safe to pour the fruits of China's economic growth, and prime New York real estate seems a safe as bet as any.

But such nuance aside, the Fosun takeover has given the American media a chance to once again raise the question of just how far the Chinese economic invasion will go. The first wave of dread crashed on the shores of public opinion in 2005, with China's state-owned China National Offshore Oil Corp.'s (CNOOC) $18.5 billion bid for Unocal, a bid that was roundly squashed by populist politicians in Washington. But a similar bid actually came to fruition earlier this year as CNOOC sealed the deal with Calgary-based oil and gas company Nexen Inc. CNOOC's $15.1 billion dollar acquisition of Nexen was signed in February, the largest foreign acquisition by a Chinese company in history. Once again, the headlines generated by this takeover mirror those of the Japanese bubble era (“Japanese firm to buy Firestone in cash deal!”) almost perfectly.

Militarily, too, China has been showing signs that it is ready to start asserting itself more on the world stage. From a farcical naval force of two dozen poorly-equipped ships in 1949, the People's Liberation Army Navy is now a modern fighting force with over 500 ships and 400 aircraft with increasingly sophisticated gadgetry. The PLA Navy's first aircraft carrier entered service last year, and the Air Force's increasing drone capabilities were enough to force Japan to formulate a new policy on blasting drones that violate their airspace out of the sky. Meanwhile the DF-21D anti-ship ballistic missile that China deployed in 2010 has generated enough “aircraft carrier killer” headlines to drown an aircraft carrier (ironically enough). And perhaps that's the point. Although China has so far not actually engaged any of its South China Sea or East China Sea adversaries militarily, the rhetoric around China's potential military threat is undoubtedly changing. While this potentially works against their interests, drawing the US into the region in the much-ballyhooed Asia-Pacific pivot, it could be part of a long game pivot of China's own, from a country that cares only about itself and its immediate neighbors to one that is increasingly set to take on the role of regional superpower.

And where there is economic and military power, monetary dominance is not far behind. Or at least that's the way every imperial power throughout history has operated, the US included. So what about China's role in the construction of the next global monetary paradigm? There has been consternation in the west for years now about China's growing tendency to ink bilateral trade deals with its trading partners in local currencies, bypassing completely the de facto international monetary unit of the US dollar. This is nonsensical in the short term, of course, as China holds $1.3 trillion dollars in US debt and thus stands to lose a lot if and when the plug is pulled on the dollar as the global reserve currency. But in the longer game, setting itself up for the seemingly inevitable next monetary paradigm, China is in a prime position to excel. If the dollar is to be replaced by some basket of currencies, perhaps facilitated through an IMF-administered Special Drawing Rights scheme, China will be well-positioned with trade in a number of different currencies. Add to this the furious gold hoarding that the rising dragon has been undergoing in recent years, and all signs point to China wanting to step up to the plate as one of the nation's represented in that SDR basket of the future.

Of course, if we are in the middle of a transition from China the Developing Nation to China the Rising Superpower, there are a number of questions that remain unanswered. Will they be able to sustain the economic growth of the past decade at all, or will the Chinese Dragon turn out to be another paper tiger, like the Japanese bubble era? Will the country be able to pull off feats like the planned transplantation of 250 million Chinese rural dwellers into cities over the next decade? Will Chinese society be able to handle the stresses of such a transformation, or will the strange admixture of Maoist government and capitalist enterprise disintegrate under the pressures of the country's changing roles? Will China's long game approach to this transformation pay off, or would it be better served by a more assertive role in the international arena? Will the yuan form one of the building blocks of the next monetary paradigm?

Make no mistake, these questions will be answered one way or another over the course of the coming decades, and, depending how they are answered, could be decisive factors in shaping the future structure of global geopolitics. But, in keeping with the long game sentiments of the Chinese mentality, for the time being our best answer to these questions might simply be: it's too early to say.