Tuesday, 17 March 2009


China flexes, and the US catches a chilly reminder

Sydney Morning Herald
Peter Hartcher
March 17, 2009

In the old days countries threatened each other by
sabre-rattling - moving armies, positioning navies,
making physical threats. In the past few days we have
seen the modern way to intimidate another power.

The Chinese premier, Wen Jiabao, expressed concern about
his country's $US1 trillion ($1.5 trillion) holdings of US
government bonds.

"We've lent a huge amount of capital to the US, and of
course we're concerned about the security of our assets.
And to speak truthfully, I am a little bit worried."

That was all it took.

It marked a threshold moment in relations between the
current superpower and the potential one - Beijing
demonstrated that it is prepared to use its financial power
over the US as an instrument of pressure.

US officials, including Barack Obama himself, hastened to
reassure the Chinese over the weekend. "Not just the
Chinese Government, but every investor can have absolute
confidence in the soundness of investments in the US."

Wen's remark was not random. It was made in answer to a
pre-approved question at his annual news conference. It
came just as his Foreign Minister, Yang Jiechi, was in
Washington to negotiate with the US the approach the two
countries would take to the Group of 20 summit in London on
April 2.

And it emerged a few weeks after Hillary Clinton went to
Beijing and explicitly called on the Government to keep
buying US bonds - the Obama Treasury is hoping to sell the
world another $1.7 trillion in treasuries this year to pay
for the US Government's deficit.

In other words, the US, the world's biggest debtor, finds
itself unusually vulnerable. And China, the world's biggest
creditor, is newly powerful.

It is the culmination of the different ways the US and
China have pursued power. In 1992 China formally adopted a
new concept of the national interest it called
"comprehensive national power."

This is officially defined as "the totality of a country's
economic, military and political power". Among these,
economic power has held priority as the basis for all other
forms of power. And this has been the national strategy
ever since.

By contrast, the US, especially under George Bush, put
increasing emphasis on its military as its preferred
instrument of power. Fiscal prudence was not just
overlooked but violated. When Bush's first treasury
secretary, Paul O'Neill, warned the vice-president Dick
Cheney against tax cuts because of the looming deficit,
Cheney said: "Reagan proved deficits don't matter."

O'Neill's resistance cost him his job. Of course, he was
right. The deficit has emerged starkly as a vulnerability
of the US state. It was in Reagan's term that the US went
from being the world's major creditor to becoming its
biggest debtor.

Bush, his ideological and political heir, has left the US,
at the end of a boom, with a deficit of half a trillion
dollars. To fight off recession, Obama is putting the
country into much deeper deficit.

One of China's most influential strategic thinkers, Yan
Xuetong, observed some years ago that China had put its
communist ideologies aside in pursuit of economic growth,
while the US increasingly based its economic policies on
political ideology: "Which is the ideological country now?"
he asked.

The jostling of a US Navy survey vessel by five Chinese
ships in the South China Sea last week provided a timely
illustration of the weakness of America's narrow concept of

The Chinese ships crowded around the US vessel and put
wooden barriers in the water; the US ship turned its
firehoses on the Chinese sailors.

The US might have decided to press its case. But it would
then have to face the reality that its defence budget is
crucially supported by the very country it wanted to

China's options for retaliation would include abandoning US
government bonds. It could even dump its existing US
treasuries, which could seriously damage the country's
ability to finance itself on reasonable terms. Obama's
recovery plans could be at risk.

But, of course, if Beijing waged fiscal war on Washington,
it would rebound. Twenty-one per cent of Chinese exports go
to the US. By sabotaging the US recovery, China would be
crimping its own.

This is the financial version of the doctrine of "mutually
assured destruction" that kept the US and the Soviet Union
from launching their nuclear arsenals at each other during
the Cold War.

Wen made exactly this point in his news conference: "On the
foreign reserves issue, the first consideration is our
national interest. But we also have to consider the
stability of the overall international financial system, as
the two factors are interlinked."

The market reaction to Wen's remarks took this into
account. Investors read the comment as a negotiating ploy.
Already, Obama has agreed to support China's demand for
voting power in the International Monetary Fund, and no
doubt other demands are under negotiation in Washington
right now.

Still, the world nearly came to an end twice in the Cold
War, during the Cuban missile crisis of 1962 and Operation
Able Archer in 1983. The deterrent power of mutually
assured destruction depends on rationality and sound flows
of information, never assured in a real crisis.

As Lawrence Summers, the chairman of Obama's council of
economic advisers, said five years ago: "It surely cannot
be prudent for us as a country to rely on a kind of balance
of financial terror." Yet that is exactly the calculus
holding together what is left of the global economy.

Peter Hartcher is the Herald's international editor

Friday, 13 March 2009


US warships head for South China Sea after standoff

The Times

A potential conflict was brewing last night in the South China Sea after President Obama dispatched heavily armed American destroyers to the scene of a naval standoff between the US and China at the weekend.

Mr Obama’s decision to send an armed escort for US surveillance ships in the area follows the aggressive and co-ordinated manoeuvres of five Chinese boats on Sunday. They harassed and nearly collided with an unarmed American vessel.

Washington accused the Chinese ships of moving directly in front of the US Navy surveillance ship Impeccable, forcing its crew to take emergency action, and to deploy a high-pressure water hose to deter the Chinese ships. Formal protests were lodged with Beijing after the incident.

On a day that Mr Obama and his senior officials met the Chinese Foreign Minister, Yang Jiechi, in Washington, Beijing showed no sign of backing down. Its military chiefs accused the unarmed US Navy ship of being on a spying mission.

The US keeps a close eye on China’s arsenal, including its expanding fleet of submarines in the area. Washington says that the confrontation occurred in international waters, but Beijing claims nearly all the South China Sea as its own, putting it in conflict with five other nations that have claims over different parts of the waters.

The episode complicated fragile military relations between the US and China, which appeared to have improved after the two held defence talks in Beijing last month.

Mr Obama yesterday urged more military dialogue with China to avoid similar incidents after talks with Mr Yang, the White House said. “The President also stressed the importance of raising the level and frequency of military-to-military dialogue,” it said.

A hotline was established between the Chinese Defence Ministry and the Pentagon in April last year, but it was not used during or after Sunday’s standoff, defence officials said. The US Government immediately protested to Chinese authorities after the incident, about 75 miles south of Hainan Island.

Beijing has rejected the US account and demanded that the United States cease what it calls illegal activities in the South China Sea. The Chinese maintain the area is part of the country’s exclusive economic zone.

Washington insists that the area is part of international waters and that US ships have a legal right to operate there.

Tuesday, 10 March 2009


China says US navy ship 'illegal'

English Jazeera

A US navy mapping ship that the Pentagon says was
"harassed" by Chinese ships over the weekend, was
conducting illegal operations in the South China Sea,
China's foreign ministry has said.

In Beijing's first formal comment on the incident,
spokesman Ma Zhaoxu said the US claim was "totally
inaccurate and confuses right and wrong and is unacceptable
to China."

Speaking to reporters in Beijing, Ma said the USNS
Impeccable "broke international and Chinese laws in the
South China Sea without China's permission."

On Monday US defence officials said five Chinese ships
surrounded and harassed the unarmed navy vessel in
international waters on Sunday.

At one point they said a Chinese ship had come within 8
meters of the Impeccable strewing debris in its path.

The Impeccable's crew resorted to spraying one Chinese
vessel with water from fire hoses to force it away,
officials at the Pentagon said.

But despite the impact of the water, Chinese crew members
stripped to their underwear and continued closing in.

'Dangerous proximity'

A statement from the US defence department said the ships
"shadowed and aggressively manoeuvred in dangerously close
proximity" to the navy ship in international waters 120km
south of China's Hainan Island.

The incident is the latest in a series of confrontations
between US surveillance craft and Chinese coastal defences

The US Embassy in Beijing said a protest had been lodged
with the Chinese foreign ministry as well as with the
Chinese Embassy in Washington.

It said the Impeccable had been conducting "routine
operations in the South China Sea in accordance with
customary international law."

"The actions of the Chinese vessels put both sides at risk
and are inconsistent with the obligation for ships at sea
to show due regard for the safety of our ships," the
statement said.

"Our Navy will continue to operate in international waters
in accordance with customary international law and we
expect China to exercise due regard for the safety of our

Chinese claims

The Impeccable is one of five US navy surveillance ships
designed to use sonar to compile information the navy can
use to steer its own submarines or track those of other

China views almost the entire South China Sea region as its
territory – a claim which has put it at odds with at least
five South-East Asian nations.

Based on its claim, Beijing has argued that any
intelligence gathering by foreign governments within its
exclusive economic zone is illegal.

The US and other nations however say that only exploitation
of economic resources such as undersea gas deposits is

Tensions last spiked between the Chinese and US militaries
in 2001 when a US spy plane and Chinese fighter jet
collided in international air space off Hainan.

The pilot of the Chinese jet was killed while the US plane
was forced to make an emergency landing at a Chinese air

The crew of the plane and the aircraft itself were only
returned to the US after several days when Washington
delivered a carefully-worded apology to Beijing over the