Japan’s relative fall and China’s rise — trends that will continue for the next two decades at least — have fundamentally changed the geopolitical and geostrategic positions of both these countries vis-à-vis their principal counterpart, the US. Of particular importance here is the scale and scope of China’s global trade and financial engagement, manifested in its accumulation of more than US$1 trillion in US Treasury, agency and other securities.
The US has accepted China as its principal geopolitical partner in East Asia, giving rise to ‘Chimerica’. And so, in the future, other regional relationships — not least with Japan — will be subordinated to this partnership.
A defining moment of Chimerica was the second US–China Strategic and Economic Dialogue, held in Beijing in May 2010. US Secretary of State Hillary Clinton and Chinese State Councilor Dai Bingguo chaired a secret session at which China communicated its ‘core national interests’. By all accounts China got everything it wanted, and the US was also satisfied. The strategic framework in Asia was ‘reset’ at this meeting. Tellingly, Clinton spent a total of five days in China, but she was able to justify only three hours in Japan to meet with soon-to-resign Prime Minister Yukio Hatoyama. In Chimerica the position of Japan has been and continues to be marginalized and downgraded.
The US–Japan alliance lost its reason for being when the Soviet threat ended in 1991. Since then it has served no purpose and has actually harmed Japan’s security by providing an excuse and impetus for the capture of budgetary resources by the military industrial establishment in China. China is not a military threat to Japan. Even if it were, the US could not be relied upon to aid Japan in a conflict with China because of the leverage China has over the US economy. Rather than potential US–China conflict, what is evolving is a potential US–China regional protectorate arrangement, possibly including a 1920s Washington Conference-style naval power limitation agreement.
But what about China’s territorial claims? Surely these constitute a military threat to Japan? A careful analysis of China’s claims and self-described ‘core national interests’, such as that recently published by Susumu Yabuki, reveals that Japan need not fear Chinese aggression in these areas because China will not use military force to enforce its claims.
In July 2009 China called its ambassadors back to Beijing for a conference where Hu Jintao declared that China would henceforth seek active engagement and aggressively promote its ‘soft power’ in foreign relations. This meeting marks the turning point from Deng Xiaoping’s doctrine of ‘keeping a low profile and biding one’s time’ (韬光养晦). The key strategic message was that China’s long-term interests now require cordial and cooperative relations with trading partners to secure sources of energy and industrial raw materials, and potential targets for Chinese FDI. This change in international posture suggests disinclination towards military aggression.
In the context of this paradigm shift, what should Japan be doing to advance its own interests?
The right way forward for Japan is an orderly abrogation of its defense treaty with the US and withdrawal of US bases, clearing the way for the use of active diplomacy and the pursuit of win-win resolutions of disputes, including territorial disputes.
Japanese leaders must also pay closer attention to the shifting relationship between political power and economic policy in China. Far from being a triumph, China’s massive accumulation of foreign exchange reserves and US government debt is an extremely costly and unnecessary Chinese policy failure. The failure dates from 2003, when China chose an economic growth model defined by cheap labor, low-end export promotion and import suppression, and an undervalued exchange rate. China has stuck to this model even as current account surpluses and foreign exchange balances grew far beyond justifiable limits.
Another serious policy mistake has been Beijing’s failure to achieve full convertibility for the renminbi. An increasingly proud China must now rely on foreign currencies — particularly the US dollar — in its international financial dealings. The associated undervaluing of the renminbi and the inevitable accumulation of massive amounts of US dollar reserves comes with a range of attendant risks. China is now vulnerable to the devaluation of the US dollar and US government debt, a situation that inevitably limits China’s options.
A related concern is the capture of political power in China by the ‘princeling’ children of Communist party elites. These individuals constitute a ‘new class’ wielding enormous political-bureaucratic-technocratic power within a system of ‘state capitalism’ or ‘bureaucratic capitalism’. This system has produced enormously distortive and inefficient resource allocation to the state-owned or controlled sector.
The new class leadership has had no incentive to restrain the demands or reduce the autonomy of China’s military and military-industrial establishment. It has instead found its interests and priorities well served by supporting the expansion of the People’s Liberation Army. As a result, China is in danger of yielding to militarism.
These factors must be recognised not just by Japan but by all nations. Significantly more thought must go into determining how changed relations between the world’s two increasingly co-dependent superpowers — the US and China — will drive changes in global politics, especially in Asia.
Stephen M. Harner, a former U.S. Foreign Service Officer and banker in China and Japan, is the author of the ‘Whither Japan’ blog on Forbes.com.
This is an abridged version of a review of Chimerica — the US–China Collusion and the Way Forward for Japan, first published here by Forbes.com.
Japan’s currency has been fully convertible in the international market decades ago, but, the amount of Japanese US currency reserve is not much less than China.
The truth is, the world has been forced to hold the US currency because of the lack of alternative world currency.
The US is destroying its own future by being irresponsible in its money printing policy. Now that the world has lost confidence in the US, a replacement currency will emerge in no time. The RMB may stand out within the next few years.
As for the princeling issue. The American government inter departmental analysis produced by the U.S.-China Economic and Security Review Commission Staff Research Report acknowledges in the introduction and conclusion that, the CCP cadres on track to assume senior positions in 2012 are “not selected by the Elders of the CCP’s revolutionary generation” and that “It will also mark a greater institutionalisation of the processes for the leadership turnover in the CCP.” The selected cadres are also “better educated than their predecessors; they have all gained experience in provincial government administration; and arguably have outlooks that are more technocratic and less ideological than earlier generations of CCP leaders.” Internal party democracy means that the power of the individual has been “constrained by the consensus nature of CCP elite decision making.”
China is a huge country, simply because some of the children or relatives of the CCP official are successful in their careers, we then created the so-called princeling story for them. How about President Bush Senior and Junior? How about about the Kennedy family in the US? How about the family financial and investment record of the current Queensland Premier Newman?
The author of the princelings mentioned in this article is a master of rumour journalism, please read the evidence produced in this article: [ http://outcastjournalist.com/index_files/boxilai_rumour_journalism_western_prejudice_and_china.htm ] for the detail of how news rumour being spread by that journalist from thin air without any evidence as backing.
I have received a number of e-mails from academics commenting on the above article including a Professor in the US. It is unfortunate that many of the reports in our media are not evidence based.
Thank you for your comment. I believe that you also commented on the post by Professor Yabuki. You are clearly well informed and thoughtful on these issues. As you suggest, the issues can and should be considered relatively. Japan is indeed second to China in its accumulation of U.S. currency reserves. However, Japan’s accumulation has been over a much longer time than China and not–at least since 1985–been due primarily to market intervention to manage its exchange rate.
The extent and importance of the power of “princelings” is a complex issue. Family connections are part of power dynamics in every society. The particular political economy of a society can amplify or dilute the power to be derived from family connections. I would venture to say that China’s political economy through centuries has been such as to allow–if not also encourage–maximum exploitation of connections for the acquisition of power and wealth. But the same can be said of France. I prefer to think that the U.S. and Australia are less afflicted, but I could be wrong.