Rising China’s greatest risks lie close to home

Analysis

China's population, economic activity and armed forces are heavily concentrated along its coast. So are its principal military objectives and most fraught international relationships.

Taiwan

Decades of propaganda have committed the Chinese Communist Party to a version of Chinese territorial integrity that includes Taiwan. It is axiomatic to most Chinese that Taiwan is 'an inalienable part of China' that was split off by Japan in 1895 and is kept separate today by the United States in order to keep China weak.

If Beijing allowed Taiwan de jure independence this would undermine the Party's legitimacy, perhaps fatally.

Taiwan is also an ideological threat, because its political system disproves Beijing's claim that liberal democracy is a 'Western' system incompatible with Chinese culture.

Control of Taiwan would cement China's grip over traffic through the South China Sea, weaken Japan's ability to defend itself and provide a base for projecting power into the Pacific.

Beijing has threatened Taiwan with invasion should it declare independence and warns that unification 'cannot be put off forever'. However:

• Beijing probably cares less about achieving unification than about preventing secession;
• Taiwan maintains a powerful military;
• China's military has no recent or relevant combat experience; and
• there is a credible threat of US military intervention.

Beijing builds economic leverage over Taiwan by offering Taiwanese businesses favourable market access, and seeks to shape Taiwanese public opinion by co-opting elites and exploiting social media.

Some Taiwanese business leaders and opposition politicians openly campaign for closer cross-Strait relations or unification in some form. However, the public overwhelmingly opposes unification.

The prospect of Taiwan willingly unifying with China is dwindling along with the older generations of Taiwanese with emotional or family ties to China. Younger cohorts tend to feel a separate Taiwanese national identity and want greater autonomy in international affairs.

Taiwan's current government under President Tsai Ing-wen refuses to support the '1992 Consensus' that Taiwan and mainland China are parts of a single 'China'. Beijing has punished Tsai by terminating contact between the two governments, cutting cross-Strait tourism and trade, and pressing other governments and international organisations to limit or reduce engagement with Taiwan.

Beijing generally gets what it wants from other countries on the issue: Taiwan matters hugely to Beijing and little or not at all to most other governments.

However, the Trump administration has increased US support for Taiwan's autonomy to an unprecedented level, with legislation, official visits and larger arms sales (see TAIWAN: Chinese action depends on US policy - September 14, 2020).

Taiwan is both the most likely and the most dangerous flashpoint for a full-scale war between China and the United States. Beijing does not want this, but might view a pre-emptive attack as worth the risk if it sees Washington as simultaneously weak in its commitment to Taiwan's defence and to restraining Taiwanese moves towards independence.

Japan

Many ordinary Chinese people feel deep animosity towards Japan -- a product of received accounts of wartime atrocities and decades of propaganda that publicises and sometimes exaggerates them. Envy of, interest in and grudging respect for Japan are not uncommon, but generally coexist with the hostility.

The animosity is not reciprocated, but fear and distrust are, as polling confirms.

Beijing has made the Diaoyu/Senkaku islands in the East China Sea into symbols of anti-Japanese nationalism. Its attempts to gain control of the Japan-administered islands make them a flashpoint.

Despite Japan's 'pacifist' constitution, its defence forces are well-trained, well-funded and well-equipped, and Washington has said explicitly that the islands fall under its treaty commitment to defend Japan (see JAPAN: F-35s will confer air superiority - June 14, 2019).

Frequent incursions by Chinese coastguard and fishing vessels into nearby waters feed Japan's sense of insecurity and drive a more active defence policy that involves:

• upgrading Japan's defence forces and fortifying outlying islands specifically to counter China;
• cooperating with Australia, India and South-east Asian countries that have maritime disputes with China; and
• making Tokyo a more valuable ally to Washington while simultaneously strengthening Japan's independent capabilities.

The Japan-US alliance remains robust, despite China's attempts to undermine it, Trump's complaints about its cost, and speculation that Japan may one day 'bandwagon' with a rising China.

Popular animosity towards Japan means Chinese leaders cannot afford be seen as friendly to Tokyo, and there is no reason to think they do not share the public's sentiment.

However, in dealing with Tokyo they are often pragmatic.

Trade and investment stabilise the relationship by increasing the cost of conflict.

China values Japanese investment as a source of technology in particular, and sees Tokyo as a reliable economic partner, less constrained than the West by values-based considerations.

China is Japan's largest trading partner and a leading consumer market for Japanese goods, giving it leverage over Tokyo. Beijing's record of restricting trade to threaten or punish other countries is driving Japanese efforts to reduce dependence. Tokyo led the creation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a regional trade agreement that excludes China, and this year launched a subsidy programme to help Japanese firms in China shift production elsewhere.

Korean Peninsula

Beijing values North Korea as a buffer and a distraction to Washington and its allies. War or regime collapse in Pyongyang could lead to North Korea's absorption into a US-allied liberal democracy on China's borders. Beijing wants to ensure it has a say over unification, should it ever occur.

China does not like Pyongyang having nuclear weapons, but values stability more than denuclearisation. It has supported and implemented UN sanctions, but is reluctant to apply so much economic pressure that North Korea might implode.

Beijing views US troops in South Korea as a latent threat. It wants the alliance downscaled and ultimately dismantled.

China tried to coerce Seoul away from its 2016 decision to host the US-operated Terminal High Altitude Area Defense (THAAD) anti-ballistic-missile system by cutting imports of South Korean goods and disrupting the operations of South Korean companies in China.

The tactic backfired. Seoul deployed THAAD anyway, public distrust of China rose and South Korean manufacturers relocated from China.

Beijing's concern over the Seoul-Washington alliance is reduced by:

• Seoul's preoccupation with Pyongyang and refusal of most US invitations to broaden alliance missions beyond the Peninsula; and
• Seoul's animosity towards Tokyo, which prevents the two US allies cooperating against China.

South-east Asia

Beijing's top priority in South-east Asia is access to markets and natural resources. The region is critical to China's industrial supply chains. Indonesia, Malaysia, Singapore and Vietnam export substantial amounts of commodities to China, including refined petroleum, natural gas, coal and wood.

China's regional trade diplomacy has been successful:

• The ASEAN economies collectively would constitute China's largest trading partner, accounting for around 15% of its total trade.
• The 2002 ASEAN-China free trade agreement was upgraded last year to liberalise trade further.
• Negotiations on the Regional Comprehensive Economic Partnership -- which includes Japan, South Korea, Australia and New Zealand as well as China and the ASEAN states -- have nearly concluded.

Another regional priority for China is development of energy and transportation infrastructure in order to create China-oriented connectivity.

Since 2015, China has funded and constructed infrastructure as part of a major infrastructure push in the region, much of it organised under the label of the Belt and Road Initiative (BRI). All ASEAN states joined the Asian Infrastructure Investment Bank that China founded in 2015.

Beijing's infrastructure push is partially successful:

• China has financed and delivered major projects in Cambodia, Laos, Myanmar and Thailand that connect them to second-tier industrial centres in China.
• Projects in Indonesia, Malaysia and the Philippines have experienced delays, due to changes in government, political pressure or construction complications.
• Few BRI projects are planned in the latter countries; the largest is the USD10bn East Coast Rail Link in Malaysia.

South-east Asia also matters to Beijing as an arena of China-US competition. Beijing's goals here are:

• to weaken Washington's long-established security relations with Indonesia, the Philippines, Singapore and Thailand;
• to make South-east Asian governments accept China as the regional hegemon; and
• to establish unchallenged control of the South China Sea.

China equals or exceeds the United States in trade and investment in South-east Asia. It accounts for roughly 25% of all trade, equalled only by intra-ASEAN trade.

Concessional lending and the promise of export markets induce Cambodia and Laos, the region's poorest countries, to serve as China's proxies within ASEAN.

Beijing's regional influence is neither uniform nor static. It is determined foremost by bilateral relations, which a change in government can transform. For example:

• Philippine President Rodrigo Duterte sought to improve in relations with China when he took power in 2016, in a dramatic reversal of his predecessor's approach (see PHILIPPINES/US: End of pact will benefit China - February 26, 2020).
• Malaysia's relations with China deteriorated after the 2018 general election (see MALAYSIA: Autocratic governance will increase - August 16, 2018).

Except for Laos and Cambodia, ASEAN states generally maintain positive relationships with both Beijing and Washington and want to avoid taking sides.

Many look to Japan as their preferred economic partner, seeing Tokyo as more reliable and less concerned about liberal democratic values than the EU or United States.

Nationalism and ethnic tensions within South-east Asian countries also constrain governments from shifting more openly toward China.

Vietnam is a fellow one-party communist state but anti-Chinese sentiment is integral to Vietnamese national identity. The country has fought off repeated Chinese invasions over the centuries, most recently in 1979.

Relations with Vietnam do not have top-tier salience or sensitivity in China. However, Vietnam is the most likely adversary in a future war in the medium term:

• The two countries have the largest overlapping maritime claims.
• Vietnam's military is the most capable in South-east Asia, making Hanoi the government most able to stand up to China.
• Anti-Chinese nationalism at home would press Hanoi to fight.
• Vietnam is not a US ally, making conflict less risky for Beijing.

The ethnic Chinese population of South-east Asia numbers in the tens of millions -- the largest outside China.

Most descend from ancestors who migrated generations ago; they are not Chinese citizens, but often retain a Chinese ethnic identity, which can complicate their country's ties with China.

Malaysia, the Philippines and Indonesia have large ethnic Chinese minorities that are often targets of discrimination and occasionally violence, which can intensify their ethnic identity (see MALAYSIA: Mahathir will champion Malay Muslim causes - February 14, 2020). Beijing actively encourages them to maintain or re-establish ancestral, cultural and business ties with China.

Long-running racism towards ethnic Chinese in Indonesia has fuelled broad anti-China sentiment. To avoid hurting his re-election chances, President Joko 'Jokowi' Widodo only publicly solicited Chinese infrastructure investment after starting his second and final term last year.

South China Sea

Fishing, seabed hydrocarbons, nationalism and military strategy all play a role in the South China Sea dispute.

China has incrementally strengthened its position at sea and on disputed features over the past decade. No regional government nor Washington considers it worth the risk of physically interfering with China's construction and operation of military outposts on disputed reefs and islands. South-east Asian governments generally tolerate Chinse incursions, despite public or private protests (see CHINA: ASEAN will overlook Chinese maritime expansion - September 23, 2019).

Beijing incurs no penalty besides reputational damage for ignoring the 2016 international tribunal ruling against its claims (see CHINA/SOUTH-EAST ASIA: UNCLOS ruling may ease tension - July 15, 2016). Laos's and Cambodia's support for China prevents rival claimants enlisting ASEAN to push back collectively.

Nor does China's behaviour incur significant economic penalties. Rival claimants seek to diversify to reduce dependence on China, but also continue economic cooperation with Beijing.

Negotiations on a Code of Conduct for the South China Sea continue, but Beijing has no reason to agree to (or observe) one that damages its interests (see ASEAN/CHINA: Sides have far to go to agree key code - August 21, 2019).

Vietnam is modernising its navy and Indonesia has put military facilities on the Natuna Islands, though neither is a match for China's navy (see INDONESIA/CHINA: Tensions could escalate seriously - January 8, 2020).

Japan is offering alternative economic and security initiatives to prevent China becoming the dominant regional power (see SOUTH-EAST ASIA: Japanese engagement will be steadfast - September 25, 2020).

European governments do not see the South China Sea as a high priority, but have a stake in freedom of navigation. China's claims make them uncomfortable (see CHINA: New countries will challenge China sea claims - September 26, 2018).

Most seriously, US Navy 'freedom of navigation operations' challenge China's legal position and demonstrate that Chinese sovereignty is not exercised in reality. The US Navy holds exercises in the South China Sea and US surveillance vessels and aircraft approach China's coasts.

Beijing will therefore build its capabilities and strengthen its position further, and perhaps occasionally engage in brinkmanship in the hope of eventually frightening Washington into quietly scaling back.