Will Economic Decline Mean Political Upheaval in China?

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Kevin Rudd was last week rebuked by the Chinese Foreign Ministry for his rebuke to Chinese authorities over the detention of four Rio Tinto employees — and Malcolm Turnbull was braying about the need for Rudd to use our "special relationship" with China to press for their release.

Turnbull’s nonsense aside, the Rio Tinto case is high stakes stuff.

According to the Chinese Government, the Rio Tinto employees "stole state secrets and breached national economic security". The debate over whether the Chinese Government was out for revenge after the collapse of the Chinalco deal is, however, marginal.

More important are suggestions that the arrest of Stern Hu is indicative of the Chinese Government’s recognition of the links between the nation’s economy and security — and a wider role for the security apparatus within the country, particularly the Ministry for State Security. The Sydney Morning Herald‘s Asia Economics correspondent, John Garnaut, writes that "the ministry and the Public Security Bureau have significant new roles — the former focusing more on international economic dealings and the latter on domestic political unrest that might flow from economic instability."

The Chinese view large international economic deals as relevant to national security — something that Michael Klare, author of Blood and Oil, raised many years ago when he described the resource wars being played out between the West and China in Africa, Latin America and of course, mineral-rich Australia.

This state of affairs has long been in the sights of policy-makers in the US. Fareed Mohamedi, Head of Control Strategies at PFC Energy in Washington sums up the attitude of the Americans: "The policy of Wolfowitz and Cheney going back to the first Bush administration — and in fact the strategic reviews they did back then reflected this sort of thinking and that is in 1991 or 1992 — they said ‘we are at a historical crossroads. The Soviet Union has collapsed, we are the sole superpower, and we can remain the sole superpower for ever and a day. And who is the only threat on the horizon?’ And that’s China."

Back then, China was seeking to increase its influence globally and acquire resources to maintain and increase its double digit growth rate. The so-called China miracle was rewriting the international trade history books, and both China and America were passing laws that clearly identified the acquisition of energy as a "national security" endeavour. A quick perusal of the May 2001 report of the National Energy Policy Development Group — headed by Dick Cheney — that laid the framework for the legislation gives you a sense of what is at stake.

Now, as the global economic situation worsens, so the Chinese position becomes more precarious and the game more intense. The Chinese were snubbed on a range of deals — from as far back as the UNOCAL bid — that if successful would have enabled them not just to access resources but also to use their clout to lower the prices. Viewed in this light, there is no doubt that the Rio Tinto case indicates that the Chinese have had enough.

With economists predicting hard times ahead, China is keen to stockpile resources — not only to stimulate domestic demand through building activities and infrastructure projects, but also to guard against North Asian security taking a turn for the worse. North Korea has made that scenario a little less fanciful of late and there are few Asian strategic analysts not openly discussing worst case scenarios today. The framework for the new Lowy Institute MacArthur Foundation Asian Security Project suggests as much.

China is also in the precarious position of holding the largest amount of US foreign exchange reserves, its holdings recently hitting an all time high as the US dollar continues to depreciate. While US Treasury Secretary Timothy Geithner has maintained that the vast Chinese dollar holdings are safe, the recent public criticisms of the US currency by a Chinese official reflect the difficulty of the Chinese position as the international system holds fast to the security of the greenback. Chinese leaders will have no doubt raised this with the US Commerce Secretary Gary Locke who has been in China this past week — and who has promised to raise the Stern Hu case with Premier Wen Jiabao. 

Australia, of course, cannot claim that national security factors were out of play in the Rio-Chinalco deal. The uproar over a possible acquisition by the Chinese often sounded like a set of renovated Yellow Peril arguments that had their root in our strategic interests. Every nation has a strategic stake in ensuring certain resource ownership — see, for example, these reports of individuals locked up by the Russian Government for challenging Russia’s national interests in the field of oil and gas — and none more so than an aspiring China.

What these events do clearly suggest is that China is worried about the economic climate. It is so worried, in fact, that it will detain Australian employees to protest a range of decisions made by a country that once proclaimed its "special relationship". Negotiating steel prices during an economic downturn is heady stuff — especially if you have one eye on the ramifications for other strategic arenas ranging from railroads to space advancement. The failure of the Chinalco deal comes after a long line of failures to secure stakes in resource-based Western companies that would help it attain great power status.

Then there is the second part of the new role of the security apparatus: looking at the "domestic political unrest that might flow from economic instability", to borrow Garnaut’s phrasing. The protests in Urumqi may portend future domestic unrest if the economic situation spirals out of control. The Chinese leadership is all too aware of possible cracks in its territorial integrity — with Chinese reports claiming the violence was the work of "extremism, terrorism and separatism at home and abroad".

Chinese claims that the ringleader of the riots, Rebiya Kadeer of the World Uyghur Congress (WUC), has US links and is funded by the National Endowment for Democracy (whose activities in Haiti, Tibet and the former Soviet republics have been well documented) only increases fears of external forces — and conveniently posits the Government as battling outside interference.

Chinese reports have also highlighted the links between the unrest and geopolitics and energy in the Western region. China’s energy deals and burgeoning trade relationships within the Shanghai Cooperation Organisation, an organisation that brings together crucial energy producers like Kazakhstan and Russia with energy hungry China, is a matter of national security. Unrest in this area is enough for Beijing to push for new critical security measures.

There is no greater fear for the Chinese leadership than massive civil unrest followed by sovereignty issues. The country is surrounded by neighbours who are often less than civil regarding China’s territorial claims and great power ambitions: Japan, Tibet, and India. Any loss of China’s territory on its periphery could trigger a domino effect that might radically redraw China’s borders.

In the lead up to the planned celebrations of 60 years of Communist rule in China in October, the question remains: what if the economic situation in China deteriorates and unrest erupts? How will the leadership ensure its legitimacy if the social fabric threatens to unravel?

The Rio Tinto case is a serious indication of the economic problems facing China — and the desperate need for the leadership to maintain a semblance of control. It is highly doubtful whether this ongoing diplomatic fracas will improve their global bargaining position. If anything, it will unite those already concerned about China’s behaviour and further tarnish the image of Asia’s rising power. Any increased security measures will only mobilise those already questioning the leadership’s relevance.

New Matilda

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