As the curtain rises on the G-20 meeting in London, there is great anticipation that the countries represented, particularly China, will lead the process of replacing the current global economic and financial system, which dates back to the so-called Anglo-American Atlantic Charter of World War II, with a more democratic and efficient system. The proposed systems range from the so-called G-2 built around China and the US to the G-20, with a greater say for countries such as China, India and Brazil, to a number of combinations (G-12 and G-14) in between. There are also calls, led by China, to replace the US dollar as a global reserve currency with another more equitable system. Sadly, all these great expectations are likely to be dashed.
The G-2 remains merely a glint in the eye of Washington playing the role of an eager suitor, while Beijing is behaving like a coy maiden rebuffing this indecent proposal. There are several reasons why China is reluctant to take centre stage with the US, ranging from concerns of being responsible for the entire global economic well-being to worries of its uneven bilateral relations with the US. Similarly, the G-20 remains a disparate and inchoate group, which still does not share a common vision of the new global economic system, apart from it not being the same as the current system. Consequently, the quest for a new reserve currency system, which would require greater cohesion and most likely be based on a basket of currencies, is presently also beyond the practical realm. At best, the G-20 might achieve a better regulation of the current financial system. This is the good news.
The bad news is that the London G-20 summit could suffer the fate of the 1933 London Economic Conference whose collapse not only failed to stem an economic and financial crisis, but was also a significant factor in the outbreak of World War II. While 2009 is not 1933 and there are many more international institutions to manage crisis and globalization, albeit with mixed results, there are several areas of concern which might exacerbate the tensions between China and the rest of the world, particularly the US.
First, there is the concern over the rationale behind China’s military modernization, best articulated in the Pentagon’s annual report on the military power of the People’s Republic of China. This report notes that the People’s Liberation Army (PLA) “is pursuing comprehensive transformation of a mass army designed for protracted wars of attrition on its territory to one capable of fighting and winning short-duration, high-intensity conflicts along its periphery against high-tech adversaries...” In addition, PLA is also developing longer range capabilities which “could allow China to project power to ensure access to resources or enforce claims to disputed territories”. These latter objectives are particularly significant in the current economic crisis.
This assessment, coming within weeks of the confrontation in the South China Sea between the US Navy Survey Ship Impeccable and Chinese vessels, the most serious of its kind since 2001, highlights not only the lack of trust between the two sides, but also the potential for future crises.
The report also notes that in addition to modernizing its nuclear arsenal, China has also invested heavily in new technologies for cyber and space warfare. The cyber-warfare capability was apparently exposed this week by a group of Canadian experts who revealed that a vast electronic spying operation controlled by computers based almost entirely in China were responsible for infiltrating the offices of the Dalai Lama in India, Brussels, London and New York. Even the Indian embassy in Washington, DC was attacked.
The snooping on the offices of the Dalai Lama on the 50th anniversary of the spiritual leader’s flight to India also reveals a particular sensitivity on the part of Beijing towards the Tibetan issue. Despite China being the biggest holder of the US treasury bonds and debt, it still does not feel comfortable enough with Washington’s quiet acquiescence on the Tibet issue.
While the Pentagon report “welcomes the rise of a stable, peaceful, and prosperous China, and encourages China to participate responsibly in world affairs by taking on a greater share of the burden for the stability, resilience, and growth of the international system”, Beijing was not placated. The official Chinese spokesperson called the report a “gross distortion of facts and interference in China’s internal affairs”. In an unusual move, the official spokesperson for the Chinese ministry of defence, Hu Changming, expressed anger over the report and cautioned that the report “can only add new negative factors to the restoration and development of those military ties”.
Apart from these bilateral points of friction, there are also concerns about how the US and China would respond to challenges posed by a third country. The impending satellite launch on the Unha-2 rocket by North Korea, which might also serve as a cover for a long-range Taepodong-2 missile (capable of reaching Alaska), will pose the most immediate challenge. How China, which played a significant role in earlier six-party talks to deal with the North Korean nuclear and missile issues, responds might also adversely affect relations with the US, which is keener to press ahead with rolling back the missile and nuclear programme of North Korea.
Clearly, there is a pressing need for greater engagement between China and the other key powers, particularly the US, to resolve these potential flashpoints and avoid future crises. Otherwise, the ghost of 1933 might come to haunt.
W. Pal Sidhu is vice-president of programmes at the EastWest Institute, New York. Your comments are welcome at email@example.com