January 23, 2011
We all learned at school how the status quo powers mismanaged the spectacular rise of Germany before World War I, a strategic revolution so like the rise of China today.
And we all learned how the Kaiser overplayed his hand. That much was obvious.
Yet it is difficult to pin-point exactly when the normal pattern of great power jostling began to metamorphose into something more dangerous, leading to two rival, entrenched, and heavily armed alliance structures unable or unwilling to avert the drift towards conflict. The Long Peace died by a thousand cuts, a snub here, a Dreadnought there, the race for oil.
The German historian Fritz Fischer has in a sense muddied the waters with his seminal work, Griff nach der Weltmacht (Bid for World Power) . He draws on imperial archives in Potsdam to claim that Germany’s general staff was angling for a pre-emptive war to smash France and dismember the Russian Empire before it emerged as an industrial colossus. Sarajevo provided the “propitious moment”.
Kaiser Wilhelm’s court allegedly made up its mind after the Social Democrats (then Marxists) won a Reichstag majority in 1912, seeing war as a way to contain radical dissent. This assessment was tragically correct. War split the Social Democrats irrevocably, allowing the Nazis to exploit a divided Left under Weimar.
The Fischer version of events is a little too reassuring, and not just because the Entente allies had already fed Germany’s self-fulfilling fears of encirclement and emboldened Tsarist Russia to push its luck in the Balkans. A deeper cause was at work.
"The only condition which could lead to improvement of German-English relations would be if we bridled our economic development, and this is not possible," said Deutsche Bank chief Karl Helfferich as early as 1897. German steel output jumped tenfold from 1880 to 1900, leaping past British production. Sound familiar?
Is China now where Germany was in 1900? Possibly. There are certainly hints of menace from some quarters in Beijing. Defence minister Liang Guanglie said over New Year that China’s armed forces are “pushing forward preparations for military conflict in every strategic direction”.
Professor Huang Jing from Singapore’s Lee Kwan Yew School and a former adviser to China’s Army, said Beijing is losing its grip on the colonels .
“The young officers are taking control of strategy and it is like young officers in Japan in the 1930s. This is very dangerous. They are on a collision course with a US-dominated system,” he said.
Yet nothing is foreordained. Which is why it was so unsettling to learn that most of the leadership of the US Congress declined to attend the state banquet at the White House for Chinese President Hu Jintao, including the Speaker of House.
Senate Majority Leader Harry Reid called Mr Hu a “dictator”. Is this a remotely apposite term for a self-effacing man of Confucian leanings, whose father was a victim of the Cultural Revolution, who fights a daily struggle against his own hotheads at home, and who will hand over power in an orderly transition next year?
Or for premier Wen Jiabao, who visited students in the Tiananmen Square protests of 1989, narrowly surviving the “insubordination purge” that followed? These leaders may be wrong in their assessment of how much democracy China can handle without flying out of control, but despots they are not.
President Barack Obama has bent over backwards to draw China into the international system through the G20, the World Bank and the IMF, in practical terms recognizing Beijing as co-equal in global condominium.
You could say Mr Obaba has won little in return for reaching out, but as Napoleon put it, “a leader is a dealer in hope”. What, pray, would a policy of crude containment do to China’s psyche?
Heaven protect us from unreconstructed Neo-cons such as ex-UN ambassador John Bolton, who wants to send aircraft carrier battle groups into the Straits of Taiwan, as if we were still living in that lost world of American pre-eminence in 1996, when China was still too weak to respond, and did not have operational missiles able to sink US carriers far at sea. Yet variants of the Bolton view are gaining ground on Capitol Hill.
Yes, China’s leaders should be careful not to succumb to the Wilhelmine illusion that economic and strategic momentum is the same as actual power.
There is a new edge to Chinese naval policy in the South China Sea, causing Japan, Vietnam, Indonesia, and the Philippines to cleave closer to the US alliance. Has Beijing studied how German naval ambitions upset the careful diplomatic legacy of Bismarck and pushed an ambivalent Britain towards the Entente, even to the point of accepting alliance with Tsarist autocracy?
Factions in Beijing appear to think that China will win a trade war if Washington ever imposes sanctions to counter Chinese mercantilism. That is a fatal misjudgement. The lesson of Smoot-Hawley and the 1930s is that surplus states suffer crippling depressions when the guillotine comes down on free trade; while deficit states can muddle through, reviving their industries behind barriers. Demand is the most precious commodity of all in a world of excess supply.
The political reality is that China’s export of manufacturing over-capacity is hollowing out the US industrial core, and a plethora of tricks to stop Western firms competing in the Chinese market rubs salt in the wound. It is preventing full recovery in the US, where half the population is falling out of the bottom of the Affluent Society . Some 43.2m people are now on food stamps. The US labour force participation rate has fallen to 64.3pc, worse than a year ago. Only the richer half is recovering.
The roots of this imbalance lie in the structure of globalisation and East-West capital flows – and no doubt the deficiencies of US school education – but China plays a central role, and this will not tolerated for much longer if Beijing is also perceived to be a strategic enemy. China’s economic and military goals are in conflict. One defeats the other.
The undervalued yuan is merely the visible tip of the mercantilist iceberg, and is a diminishing factor in any case as leaked dollar stimulus from the Fed’s QE drives up Chinese wage inflation.
What matters is that China’s entire credit, tax, and regulatory system is geared towards subsidised capital for exporters.
Professor Michael Pettis from Beijing University argues that a key reason why Chinese consumption has collapsed from 48pc to 36pc of GDP over 12 years – and therefore why China cannot eliminate the trade surplus with the US – is that the banking system has been bailed out with an interest rate subsidy extracted from depositors, shifting income from the people to corporate debtors. Unfortunately, this is about to happen again.
A cocky China needs to watch its step, as does a rancorous America, before resentments feed on each other in a Wilhelmine spiral.
The Chinese have no recent history of sweeping territorial expansion (except Tibet). The one-child policy has left a dearth of young men, and implies a chronic aging crisis within a decade. This is not the demographic profile of a fundamentally bellicose nation.
The correct statecraft for the West is to treat Beijing politely but firmly as a member of global club, gambling that the Confucian ethic will over time incline China to a quest for global as well as national concord. Until we face irrefutable evidence that this Confucian bet has failed, 'Boltonism’ must be crushed.
Appeasement, your hour has come.