Friday, 23 October 2015

A Gathering Perfect Storm

As may have been noticed the Chinese President, Xi Jingping, was in Britain on a four-day state visit. The reason behind this is fairly obvious; the government is desperate for cash in order to fund its needed infrastructure projects for the Norther Powerhouse and the nuclear plant deals. Rather than going to the market, where they could borrow the money for a 0.6% interest rate, they have instead gone to other companies and China to get the funding - at inflated interest rates. The reasoning is the same as what led Gordon Brown to PFI: utter paranoia about public debt leads to taking on more debt at inflated rates, with less oversight and control, that will provide a real burden for future generations. But at least the numbers will look nice.

This was why the Chancellor, George Osborne, was in China not so long ago. It is also seen as a re-balancing act of realpolitik. China is seen as a rising power and the United States of America is seen as a declining power. It thus makes some geopolitical sense to improve ties with China and that is exactly what the British government is going for. They want to be China's best friend in the West; the entry point for their dealings, the voice on their side[1]. The benefits we'll glean from this are, supposedly, greater links, more access to their economy, investment in our own economy, which will help us out in many varied ways - with the nuclear deal being seen as a chief example of those kinds of benefits.

I rather suspect that the benefits to derive from this will mostly be marginal. Not to mention that there are other, image problems being created, namely the government being very hush-hush about human rights (although, in fairness, the Conservative government is lukewarm on human rights anyway). This is damaging in some ways. As a country that likes to think of itself, and promote itself, as one of the good guys going silent on these things looks bad. It also raises problems of how do you then complain about abuses in other countries? After all, if we're silent about human rights in China we can't very well go and give a smaller country a kicking over them because that would look hypocritical (not to mention bullying).

There's been mention of rift forming between the UK and the US and some of our other Western allies as well; I wouldn't put too much by this. A geopolitical reorientation is obviously going to irritate some people but it's not going to have much of an effect. I doubt the US is suddenly going to start cutting us off after all (not that it really matters; the Obama administration, like the EU, doesn't even bother to pretend that their including or listening to us anymore).

So this whole thing shouldn't have any adverse consequences geopolitically. Except... well it might...

Remember that Country called Taiwan?

Well they're having an election in January 2016, and the polls are pointing towards a thumping victory for the Democratic Progressive Party's (DPP) Tsai Ing-wen. She currently has more support than the Kuomintang (KMT) and the People First Party (PFP) combined. It's so bad, in fact, that the KMT have made the unprecedented move of dumping their presidential candidate, Hung Hsiu-chu, and replacing her with Eric Chu, the mayor of New Taipei City. In all probability it won't make much difference. The damage has really been done by the current, KMT, President Ma Ying-jeou.
A bit of an elaboration is probably necessary. The DPP is, effectively, the Taiwan independence party. For a long time their policy proposal was for Taiwan to declare itself and independent nation. They've softened this approach, since Chiang Ching-Kuo relaxed the rules of party formation, to being merely seeking a seat at the United Nations, as most Taiwanese don't want independence. In any case the DPP is clearly the 'distancing from Beijing' party. The KMT, meanwhile, is the nationalist party, which in this case means the reunification with China party. However the KMT policy has always been to reunify on the KMT terms. Back when Chiang Kai-Shek fled China, with his supporters, the plan was to relaunch an invasion of the mainland. When this rapidly proved to be an absurd idea, not helped by the fact that, in spite of various disasters, Mao Zedong and the Communist Party managed to maintain their control on the mainland, the KMT opted to devote themselves to a political rapprochement - essentially play a waiting game for China to become more similar to them and then reunify. This started to move in that direction with the reforms instituted by Deng Xiaoping, but of course political reforms did not come and Taiwan stayed away. Overtures were made with the 'One Country, Two Systems' proposal, but it came to nothing (though had Ching-Kuo not passed away when he did it's possible that it would have happened; he was negotiating with Deng about it). [2]

The problems for the KMT sprung from the fact that President Ma seemed to be moving too close to integration with China. Taiwan much prefers the current status-quo (particularly, I'd imagine, after seeing the shenanigans in Hong Kong). It could be argued that, facing an economic slowdown, Ma didn't have much choice, but in any case its been badly handled and corruption allegations have not helped. So the pendulum looks very likely to swing to the DPP in order to distance away from China again.

China also views reunification as its ultimate goal and is paranoid about Taiwan declaring independence. For this reason they don't like it when the DPP wins power in the presidential elections. As part of this as well they attempt to diplomatically isolate Taiwan; hence why if countries want to have diplomatic relations with China they have to cut off ties to Taiwan (that is, not recognise them as a country and maintain no embassies). The US is the exception to this rule (because their strong enough geopolitical to be so); whilst recognizing China, they maintain relations with Taiwan (less than in the past) and also keep a continual commitment to defending it from any Chinese aggression.

At this point you might be thinking: what has this got to do with Britain?

Well I'm glad you asked...

The Perfect Storm

China is going through some economic trouble. Whilst growth of 6.9% is the stuff of Western treasury ministers wet dreams, for China, which has ridden on growth of 9-10% this is bad. The reasons for the slowdown are not complex, but many varied. This video from Tyler Cowen gives a good enough summary. In brief, China is attempting to make a transition from a resource intensive economy, towards a more service based economy. Part of this problem rests on attempting to reform the State Owned Enterprises (SOEs), many of which are bloated and inefficient and survive on cheap credit from the state banks. The problem is reforming these might significantly damage the economy in the short-run, if not handled well. Likewise there is also a problem that a lot of municipal government regions have piled up lots of debt, from the cheap credit available (and were encouraged to do so by the government). This money has not been spent wisely, hence the problems. [3]

The slowdown looks like it will continue to go on. This is problematic for the regime as, essentially, they're likely forgiven a lot of their political repression on the grounds that, for most Chinese, they maintain them at an affluent standard of living [4]. If the slowdown persists, and gets worse, grumblings might start to appear among the populace. Beijing is well known to be paranoid of witnessing uprisings of the likes of Tienanmen square again, because they worry that this time they won't be able to put them down or control them.

What is the oldest trick in the political book for gleaning support from the populace when you hit bad times? Well, it's declare a war and win it, but that's off the table. So instead we usually get nationalist sabre rattling of one sort or another, to support the regime by the power of patriotism.

Enter Taiwan. If the DPP win, which is likely, and the Chinese economic slowdown continues, which is also likely, its not implausible that we could see some tightening and sabre rattling and military maneuvers across the strait (there are already worries about this). This would be an attempt to distract the population from the internal problems. Geo-politically, however, this presents a problem for us. If this were to happen the US would get involved, as it maintains a protection around Taiwan. And then enter us, Britain. What are we supposed to do in such a scenario? If we do anything other than take China's side we're likely to pee off our new bestest pals, with the predictable knock-on effects (remember Cameron was diplomatically frozen out of China for over a year for the offence of having met the Dalai Lama). On the other hand, jumping to take China's side will likely irritate the US and every other ally that we have.

Now, of course, all of this might not happen and I might just be running away with it. On the other hand, it is possible to see it happening. And if it does Britain will have unnecessarily dropped itself into a right old pickle that, whatever happens, we're not going to come out of looking good. And this stuff matters; remember Britain is not a powerhouse on the world stage. We've already lost tons of influence in the world, thanks to Cameron's inept foreign diplomacy (basically, ignore it unless there's a vote boosting opportunity to take part in). This matters. Another blow and our image and influence will be further diminished, which will tie us even more strongly to China.

China. Which is currently going through economic difficulties, and which our Chancellor has just dumped a significant chunk of our economic future on in a gamble. Rather like in the manner of someone on roller-skates who hooks a cable onto the back of a car about to go off a cliff. If this goes wrong, it's going to go wrong very, very quickly and very, very badly. [5]

[1] Bluntly; we're ditching a 'special relationship' with America that's not worth the imaginary paper it's printed on, for a 'golden friendship' with China, that's not worth the imaginary paper it's printed on. One of these pieces of imaginary paper is still better than the other though...

[2] For an account of the Taiwan political scene and parties see Shelley Rigger, Politics in Taiwan: Voting for Democracy; for a biography of Chiang Ching-Kuo, that also gives a good general political history of Taiwan and its relations to China, see Jay Taylor, The Generalissimo's Son: Chiang Ching-Kuo and the Revolutions in China and Taiwan.

[3] This article by Paul Krugman, whilst not specifically about China, also explains what the problem is. China has achieved spectacular growth by largely putting idle resources, that is the population, to work, whilst also improving efficiency. The trouble is that this has diminishing returns; you start to reach a point where everyone who can work is working and the more inputs that are done, the less outputs are gained (one tractor on a farm will improve efficiency immensely, but ten won't improve it all that much because you can't use all of them at once). This part of the problem that China is running into and that they are attempting to shift away from (hence their focus on nuclear and solar engineering, which they see as an area they can branch into).

[4] Ernest Gellner, in Thought and Change and other works essentially makes the point that maintaining economic affluence is, for industrial societies, the key factor for maintaining legitimacy of a regime. If that starts to look shaky...

[5] And even if it goes right there's not much guarantee that they'll be any major long-term benefit to it.

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