Mid-East conflict gives Xi room to maneuver, but can he? plus the good, bad and ugly from the Biden-Xi summit, and new trouble in the SCS -- China Boss News 11.17.23
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What happened
Harvard University professor Stephen M. Walt wrote a compelling argument in Foreign Policy last week on how Israel-Hamas war "will have widespread geopolitical effects" likely to outlast it.
Things before the conflict began were hardly optimal: A NATO proxy war with Russia in Ukraine that "was not going well," and Washington's "de facto economic war against China” to curb exports with its “small yard, high fence” that kept growing.
But the war, as Walt says, has “put a monkey wrench in the U.S.-led Saudi-Israeli normalization effort," and "will interfere with U.S. efforts to spend less time and attention on the Middle East and shift more attention and effort farther east in Asia.”
The conflict has also exposed the frailties of plans for a rail and shipping network that would bypass the congested Suez Canal, linking the UAE, Saudi Arabia, Jordan, Israel and Europe. The India-Middle East-Europe Economic Corridor (IMEC), which was announced at the G20 summit earlier this year was backed by the US as an alternative to China's Belt and Road Initiative.
“It’s a question of bandwidth: There are only 24 hours in a day and seven days in a week, and President Joe Biden, Secretary of State Antony Blinken, and other top U.S. officials can’t be flying off to Israel and other Middle Eastern countries every few days and still devote adequate time and attention elsewhere,” he said.
And that, Walt concluded, “is not good news for Taiwan, Japan, the Philippines, or any other country that is facing growing pressure from China.”
“Beijing’s economic woes haven’t halted its assertive actions against Taiwan or in the South China Sea, including a recent incident where a Chinese interceptor reportedly flew within 10 feet of a patrolling U.S. B-52 bomber. With two aircraft carriers now deployed in the eastern Mediterranean and attention in Washington riveted there, the ability to respond effectively should matters deteriorate in Asia is inevitably impaired.”
His argument, more simply, is that Beijing can use the distraction to make new attempts to upset the status quo in Asia.
That may be, but it’s hard to see to what extent under the circumstances - beyond following Russia’s playbook for causing general chaos and disruption - that China could truly take advantage.
Why it matters
Beijing gets a little breathing room
Beijing is clamoring for a little breathing room as it tries to revamp its Belt and Road Initiative (BRI) and manage a spiraling debt crisis at home.
AidData, a research center at William & Mary university, earlier this month released its astounding report which revealed that "nearly 80% of China’s lending portfolio in the developing world is currently supporting countries in financial distress," as CNN reported.
Xi Jinping’s flagship BRI, launched a decade ago, saw Chinese money flow freely into developing nations, powering the growth of some, while putting others into debt.
“Now, 55% of China’s official sector loans to developing countries have entered their repayment periods, according to the analysis of more than two decades of China’s overseas funding across 165 countries released by AidData. Those debts are coming due during a new and challenging financial climate of high interest rates, struggling local currencies and slowing global growth,” CNN’s Simone McCarthy wrote.
Concerned over the bank exposure, Beijing, now the “world’s largest debt collector,” unveiled a leaner BRI model at it's 10-year anniversary party last month.
“It’s going to be smaller, greener and more technologically advanced. It will also be more targeted, as Beijing focuses its ambitions in areas where it still feels welcome, wrote Bloomberg’s Karishma Vaswani. “This is a sensible change that will help China’s economic and geopolitical goals in the long-run,” she added.
That seems thick on the positives, however, since, according to the New York Times, “[i]nstead of lending money for highways and bridges, China has shifted to providing emergency rescues for previous borrowers.”
Worse, as AidData researchers said, China doesn't grant the emergency bail-outs to just anyone. Rather, it is keeping the heftiest debtors "sufficiently liquid" so they can "continue servicing outstanding BRI project debts."
“Beijing is ultimately trying to rescue its own banks. That’s why it has gotten into the risky business of international bailout lending,” Carmen Reinhart at AidData said.
Leveraging pandas
Xi Jinping’s trip to San Francisco this week to attend the APEC summit and meet with U.S. President Joe Biden is seen by pundits as an attempt to convince countries and investors across the globe, as well as folks at home, that China hold its own as an alternative to a U.S.-led world order.
Experts told CNN the "optics of a warm welcome and the display of a commanding presence next to Biden” during his trip “are critically important for Xi,” who is “not only keen to stabilize a complicated relationship at a time of economic weakness, but also to present himself to his domestic audience as skillfully helming China’s foreign affairs.”
Expectations for "a significantly postive swing in relations" during the summit were low, but progress was made on climate change, fentanyl production, and military-to-military communication issues.
The event that got the most attention, however - and something Xi curiously took extra care to announce at a $2,000-per-plate dinner with American business executives - was that China "may" keep sending pandas to the U.S.
China had gifted the creatures to other countries from the 1940’s until 1984, when policy changed in favor of leasing the poor things. Panda Diplomacy, therefore, as a symbolic act of friendship between China and foreign states is hardly original, and, worse, yet, Xi didn’t even commit to it.
Said differently, while a broken world looks desperately to leadership for peace in Europe and the Middle East - China, under Xi Jinping, is using panda bears as diplomatic clout and leverage in its most important geopolitical relationship.
It’s one of a host of ways, too numerous to count, that show how China wastes opportunities for face value. It also illuminates a significant nuance that Walt misses by arguing that troubles in the Middle East may turn in China’s favor.
The difficulty for China is the same despite the latest upheaval.
“China has two paths to global domination,” Jake Sullivan and Hal Brandt wrote in 2020.
It can ascend to global power status by "building regional primacy as a springboard to global power," or by "outflanking the U.S. alliance system and force presence in the [Western Pacific] by developing China's economic, diplomatic, and political influence on a global scale."
But what happens when China’s economy and market opportunities erode so that its global influence wanes? What’s then left to establish Beijing’s single leadership in the Pacific region?
As would seem so incredibly obvious by Xi's willingness to travel to a hostile country in a desperate bid to stem bipartisan efforts at plugging foreign capital flows - China is not, as Wall Street Journal's Nathan Taplin also last week said, "an endless font of investment capital for Middle Eastern economies.” Nor can it indefinitely support insolvent BRI partners in the Indo-Pacific and other regions.
In this new era, where, it appears, that China is losing its trump card - the lure of its vast markets - ultimately, Xi will have to decide between strategic influence and China’s banks and economy, and it’s unclear, however, how the leveraging of even small, symbolic acts of friendship, like sending pandas to a geopolitical rival, can possibly help.
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