George Friedman

by The Next Decade: Where We've Been --;Where We're Going

  CHAPTER 10

  FACING THE WESTERN PACIFIC

  The Western Pacific is a region that does not present an immediate crisis for the United States, but this happy state of affairs will not go on indefinitely. Asia was one of the key trouble spots in the world for a good part of the preceding century, and the relative tranquillity of the past thirty years has been the exception, not the rule. That is why the president’s task during the next decade will be to prepare carefully and at leisure for the inevitable crises that loom just over the horizon.

  There is a great deal of concern about the Indo-Chinese balance of power, but India and China are divided by a wall—the Himalayas—that makes sustained conflict and high-volume overland trade virtually impossible. Their interaction is economic and by sea. The central and long-standing opposition in this region is actually that between China and Japan, the two nations locked in a tie for the world’s second largest economy. There is substantial economic competition. Economics affect a balance of power only when geography permits other kinds of competition. All other regional powers—including South Korea, a substantial economic force in its own right—exist within the framework of the China-Japan-U.S. balance. It is in terms of maintaining and manipulating that balance that the United States will define its policy during the next decade.

  It is difficult to imagine two nations more different than China and Japan, and economic friction has made them hostile to each other since their first modern war, in 1895, when Japan defeated China’s navy. Japan is a maritime industrial power, utterly dependent on imports of raw materials for its survival. China, with its huge population and geography, is wedded to the land. From the moment Japan first began to industrialize, it has needed Chinese markets, raw material, and labor and has wanted these on the most favorable terms. The Chinese have needed foreign capital and expertise but have not wanted to fall under Japanese control. This wary interdependence of two economies led them into a brutal war in the 1930s and 1940s, during which Japan occupied a good deal of the Chinese mainland. The relationship between these two countries never fully recovered from that war, and hostility and distrust have been kept under control in part by the presence of the United States.

  During the Cold War, the United States maintained complex relations with each country. It needed Japan’s industrial power to support the U.S. in the Korean War and beyond, as well as its geography to block the Soviet fleet from entering the Pacific. Japan willingly gave both. In return, the United States gave the Japanese access to American markets for its industrial products and did not require Japan to make a military commitment to American ventures around globe.

  During the same era, the United States spent nearly thirty years in marked hostility to Communist China. Then, when it had dissipated its global power in Vietnam and needed a counterweight to the Soviets, it turned to China. China, afraid of the Soviet Union and seeing the United States as a guarantor of its own security, accepted the overture.

  Neither China nor Japan was comfortable with the U.S relationship with the other, but the United States managed the triangulation without difficulty, because each country had more important issues to consider. China’s concerns were geopolitical: largely the fear of the Soviet Union. Japan’s were economic: its postwar economic boom. Each country needed the United States for its own reasons.

  When the Cold War ended, the nature of the balance changed. Japan’s period of rapid growth stalled out as China, having adopted Japan’s focus on economics, was undergoing a prolonged boom. Japan remained the larger economy, but China became the most dynamic—a situation that the United States saw as quite satisfactory. Focused primarily on economic issues, the United States did not look at either country from a genuinely geopolitical point of view. In general, Asia was a matter for the Treasury Department and for managers of trade relations, not something of concern to the Department of Defense.

  The stability of the western Pacific and southeast Asia since the 1980s is all the more notable when we consider that from Indochina to Indonesia, China, and elsewhere, Asia appeared to be one of the most unstable and unpromising regions in the world, a caldron of war, civil war, and general instability throughout the 1960s and ’70s.

  The president must bear in mind that Asia is an extraordinarily changeable place, and in the next ten years we will undoubtedly see some things that are now regarded as immutable being utterly transformed. For example, the Chinese economy will face harsh tests while Japan begins recovering from its failures. The consensus in 1970 was that Asia was inherently violent and unstable; the consensus today is that it is peaceable and stable. These contradictory assessments suggest the challenges in determining what Asia will look like over the next decade, how the Sino-Japanese dynamic will play itself out, and what American policy should be toward the region.

  CHINA, JAPAN, AND THE WESTERN PACIFIC

  When we talk about east Asia, we are really talking about a string of islands stretching from the Kuriles to Indonesia, as well as their relations with one another and with the mainland. When we talk about the mainland, more than anything else we are talking about China.

  Western Pacific

  China stretches twenty-five hundred miles inland and borders on fourteen countries. While China faces an ocean on only one side, it may be useful to think of it as a fairly narrow island clinging to the edge of the Pacific, isolated to the north, west, and south by virtually impenetrable barriers.

  The image of an island holds up when we consider that the vast majority of China’s population lives in the eastern part of the country, within about four hundred miles of the coast. The reason for this concentration is the availability of water. The area between the line bisecting the map (facing page) and the coast marks the area in which more than fifteen inches of rain a year falls—the minimum needed to maintain large numbers of people. Since the western part of China is too arid to maintain a large population, more than a billion people are crammed into a region about the size of the United States east of the Mississippi, not including New England. This is Han China, the land of the ethnic Chinese.

  Western China is a vast and quite empty near-desert surrounded by four non-Chinese buffer states: Tibet, Xinjiang, Inner Mongolia, and Manchuria. These anchor China at its geographical limits, with the Himalayas to the southwest, minimally passable but certainly not by armies and not by trade in any volume. Siberia lies to the north, a huge wasteland with no north-south transportation. Jungles and rugged hills lie to the south, stretching from Myanmar to the Pacific, isolating China from southeast Asia.

  Geographically, Japan is a much simpler place, consisting of four main islands and a series of much smaller islands to the north and south. It is being an archipelago that makes Japan by necessity a maritime nation, a fact compounded by an extraordinary geological reality: Japan is almost entirely devoid of the minerals needed by industry. Industrialization has always meant importing resources, including oil, which Japan gets primarily from the Persian Gulf. This means that Japan, by definition, has widespread global interests and vulnerabilities. Unlike China, which imports raw materials but has enough supplies of its own to survive if necessary, Japan would collapse in a matter of months if its imports were disrupted.

  Chinese Rainfall and Population Density

  China’s Terrain

  Partly because of its isolation and partly because it industrialized rapidly in the nineteenth century, Japan avoided the experience that China suffered at the hands of Europeans. The Europeans provided Japan with assistance in the form of industrial technology and military training. The British organized the Japanese navy, the Germans the army, and thus Japan evolved rapidly into a power that could challenge Europeans. Indeed, it defeated the Russians in 1905.

  The country most alarmed by Japan’s sudden emergence was the only other industrialized power in the Pacific: the United States. Prior to World War II, the Japanese imported raw materials mostly from southeast Asia and the East Indies. In order to secure access to th
ese supplies, Japan needed a substantial military force, particularly a navy. The United States, which became a significant maritime power only at the end of the nineteenth century, saw Japan’s naval buildup as something that might one day drive the U.S. out of the Pacific. Simply by becoming an industrial and naval power, Japan appeared to threaten the security of the United States. By expanding its naval force to defend itself against Japan, the United States threatened the security of Japan.

  The result of this mutual intimidation was World War II in the Pacific. The United States defeated Japan not just because of the atom bomb and the success of its island-hopping strategy, but because its submarines cut off the supply of raw materials from the south and crippled Japan’s ability to wage war. Japan continued to resist, but once the U.S. submarine campaign placed a stranglehold on its supplies, its position was hopeless.

  Today Japan is just as dependent on maritime trade as it was in the 1930s and ’40s. It still must import all of its oil, and it must do so through waters controlled by the United States Navy. That means that Japan’s industrial position depends on the willingness of the United States to guarantee the sea-lanes. It also depends on the United States’ willingness not to take risks along Japan’s line of supply—particularly through the Strait of Hormuz.

  Thus Japan is trapped in a subordinate relationship with the United States. It cannot afford to alienate the United States without first building up a military force able to secure its own supply lines, but this is an undertaking far more ambitious and expensive than Japan wants to attempt during the next ten years. Nonetheless, its inherent insecurity because of import dependency, along with American unpredictability, will certainly drive Japan to become less dependent and exposed than it has been.

  Like Japan, the Chinese can ill afford to alienate the Americans. They depend on the United States less for the flow of raw materials (although Chinese ships also pass through waters controlled by the United States) than as a consumer of Chinese industrial products. China, like Japan before it, has become a huge exporter to the United States, so much so that the ability and willingness of the United States to buy is one of the foundations of the Chinese economy along with the European market. China must have access to both. Over the next ten years, China, like Japan, will be focused on preparing for what it sees as the worst-case scenario vis-à-vis its American trading partner, a political decision to limit Chinese access to the American market.

  To the extent that the regional balance will continue, it will do so not so much because of Japanese-Chinese relations but because of the relationship each Asian nation has with the United States. As China and Japan both become stronger, each will inevitably notice the other’s rise and become concerned.

  All other things being equal, Japan’s relationship with the United States will remain stable, but with China the story will be different. Exports stabilize China’s economy and society, but it is not enough to have buyers; it is also essential that the sale of exports build Chinese prosperity. If exporting to the United States no longer fits Chinese requirements, then Chinese interest in the relationship with the United States will shift and China will move away from dependency. Over the next decade, as China becomes more of an economic free agent, although not always a particularly prosperous one, Japan will have to have the United States guarantee its interests against China or shift its posture as well. Thus the balance that rests on the U.S.-Chinese relationship actually depends on how the Chinese economy functions over the next several years.

  CHINA AND JAPAN

  Part of the reason China was able to grow so dramatically in the 1980s is that Mao restrained growth just as dramatically up until that moment. When Mao died and was ultimately replaced by Deng Xiaoping, the mere shift of ideology freed China for an extraordinary growth spurt based on pent-up demand, combined with the native talents and capabilities of the Chinese people.

  Historically, China has cycled between opposites: either isolation combined with relative poverty or an openness to trade combined with social instability. From the 1840s, when Britain forced China to open its ports, to 1947 and the Communist takeover, China was open, prosperous in at least some regions, and violently fragmented. When Mao went on the Long March and raised a peasant army to expel the Westerners, he once again imposed relative isolation and reduced the standard of living for everyone, but he created a stability and unity that China had not experienced in almost a century.

  This oscillation between openness and instability and enclosure and unity is based in part on the nature of China’s primary economic asset, cheap labor. When outside powers are allowed to invest in China, they build the kinds of factories and businesses that take advantage of China’s abundant human capital. And yet the primary purpose of these factories is not to sell in China but to produce goods that can be sold in other countries. Accordingly, the primary focus of investment is near large ports and in areas with good transportation to these harbors. Because the population is concentrated in the coastal region, there is little reason to build infrastructure deeper within the country. Indeed, the vast majority of the factories are within a hundred miles of the coast. Even as China prospered and the factories became Chinese-owned, the pattern continued.

  According to the People’s Bank of China sixty million Chinese—a population equivalent to that of a large European country—live in middle-class households (those earning more than $20,000 a year). But with China’s population of 1.3 billion people, 60 million middle-class citizens represent less than 5 percent of the total population, and the overwhelming majority of those live in the coastal region or in Beijing.

  Six hundred million Chinese live in households earning less than $1,000 a year, or less than $3 a day for the family. Another 440 million Chinese live in households earning between $1,000 and $2,000 a year, or $3 to $6 a day. This means that 80 percent of China lives in conditions that compare with the poverty of sub-Saharan Africa. Even in the belt within one hundred miles of the coast, home to the 15 percent of Chinese who are the industrial workers, China is an extraordinarily poor country. Its narrow zone of prosperity creates a chasm that is social as well as geographic. The region around the ports profits from trade, and the rest of China does not. The coastal region’s interests are in fact much more closely aligned with those of China’s foreign trading partners than with the interests of the rest of the country, or even with the interests of the central government.

  It is along these fault lines that China fragmented in the nineteenth century, and it is here that it may fragment in the future. Beijing balances between the impoverished majority and the prosperous minority. Supported by foreign interests, the well-off Chinese in the coastal areas will resist the central government. Attempts to transfer wealth either weakens the central government or forces it to become dictatorial. The Qing Dynasty weakened after the British incursion. Mao’s solution in the 1940s and ’50s was extensive repression, the expulsion of foreigners, and the expropriation and redistribution of wealth to the impoverished interior.

  During periods of relative prosperity and growth, the problem can be managed by the state. Even as inequality increases, the absolute standard of living for most Chinese rises, and that increase, however minimal, goes a long way toward keeping people passive. But what happens when the economy weakens and standards of living decline overall? For those in the middle class and above, this is inconvenient. For the more than one billion Chinese living in abject poverty, even a small contraction in living standards can be catastrophic. That is where China is heading in the very near future—toward a relatively small decline of growth, but one that will pyramid economically and socially, generating resistance to the central government.

  Given that China has a producer economy completely out of proportion to its consumer economy, the problem is inevitable. The iPods and clothing that China manufactures are not sold to its own impoverished masses. And yet China no longer has a wage advantage over countries like Pakistan and the Philippines. Given a li
mited pool of semiskilled labor (as opposed to its limitless supply of untrained peasants), the price of labor has risen. Pressed by competition, China has reduced prices, which has decreased the profitability of exports. In the face of increasing competition and of sluggish growth among some of its customers, China’s ability to compete will decline, increasing the difficulty of repaying business loans and thus increasing pressure on the entire financial system.

  The stark reality is that China simply can’t afford unemployment. Large numbers of peasants have moved to the cities to get jobs, and if they lose their jobs, they either stay in the cities and cause instability or return to their villages and increase the level of rural poverty. China can keep its people employed by encouraging banks to lend to enterprises that should be out of business, by subsidizing exports, or by building state-owned enterprises, but these efforts hollow out the economic core.

  Over the next decade, China will have no choice but to increase its internal security. The People’s Liberation Army is already huge. In the end, the PLA is what will hold the country together, but this assumes that this force, drawn heavily from the poorest segments of society, will itself hold together and remain loyal. To quell class resentments, China will have to tax the coastal region and the 60 million well-to-do Chinese, then transfer the money to the PLA and the peasants. Those being taxed will resist, and the revenues will be insufficient for those the government intends to benefit, but it should be enough to retain the compliance of the army.

  The long-term question, which will be answered in the decade to come, is whether the Chinese will attempt to solve their problem as Mao did—by closing off the country and destroying the coastal businessmen and expelling foreign interests—or by following the pattern of regionalism and instability of the late nineteenth and first half of the twentieth centuries. The only certainties are that the Chinese government will be absorbed with internal problems, working carefully to balance competing forces and increasingly paranoid about the intentions of the Japanese and the Americans.