Iran

A few months ago this column raised the issue of China’s growing discomfort in a world where long standing norms and basic diplomatic civility were upended by President Trump’s brash and abrasive style.   Since then the daily reality show of Presidential power where you could wake up to find literally anything has happened or been said by Trump has continued.  It is too early to truly understand the impact of much of what he has been responsible for but there is little reason to think that the leadership in Beijing are relaxed by the events of the past weeks and months.

By far the most daring, perhaps surprising, and tactically successful has been the military strike on three Iranian sites critical to the Iranian uranium enrichment activities.  Iran has been a strong supporter of both China and Russia and the countries often spoke out about the evils of Western Capitalism and America.  Along with North Korea, the four countries are sometimes referred to as CRINK, China, Russia, Iran and North Korea. In relation to Ukraine Iran has been a major supplier of military equipment, especially drone technology to Russia and North Korea has provided thousands of troops to the Russia effort but China still claims that it does not provide lethal military equipment to Russia.

Economically China has long provided a lifeline to Iran by buying most of its oil exports and China’s facilitation of the reestablishment of Saudi Iranian diplomatic relations was hailed as a Chinese success, and one which only China was uniquely positioned to bring about.

The reasons behind Trump order to bomb Iran are not the concern of this column.  Did the Israeli government trick him into action?  Was there intelligence to justify the strike?  What is somewhat irrelevant at this time, the key immediate takeaway is that Trump acted as he did, the US was able to expertly execute a precision bombing raid direct from the lower 48 states and then diplomatically knock Israeli and Iranian heads together to force a ceasefire between the two countries.  The situation could well deteriorate in the coming weeks and months, but that outcome was unexpected, and a triumph for Trump.

But how does China view what has happened?  CRINK is a handy shorthand to describe the four countries, but this remains a relatively loose association and certainly not military allies.  China will be frustrated to see its anti-Western partner being largely neutered in the Middle East, first by Israel and then decisively by Trump.  The Iranian regime has not fallen, and nor will it simply by a few bombing raids but Iran’s leadership and standing have been knocked, hardly a welcome development for Beijing.

That Trump bombed the country at all must have come as a surprise.  Trump has repeated stated how he hates wars and will not allow America to be dragged into overseas conflicts yet he relatively early in the process decided to take military action.  And that action was impressive.  The logistics of the operation could only have been carried out by American forces.  36 hours of flying by the bombers, multiple mid-air refuelings and multiple precision strikes of 13 tons bombs in of itself sends a signal to any country thinking that America is finished.

Has the Iranian nuclear program been “completely obliterated” as Trump claimed?  Certainly not.  Has the already enriched uranium been located?  No.  Is this story over?  No.  But Trump did steal the initiative and got unexpected results.  China must be wondering now how Trump might respond to a Taiwan Straits incident.  American passivity cannot be assumed however much Trump dislikes war.

Trade wars

China was the chief target for Trump’s tariff war and remains so even after two rounds of negotiations and agreements in Geneva and London.  The tariff rates of both countries have fallen from the unworkably high triple digits levels of April but as July 9 approaches the 3 month pause announced post Liberation Day could see trade policy come roaring back as a real bone of contention.  Even the terms agreed between the two countries in the past few weeks is still not fully published but nothing yet has been done to properly address the very real imbalances in global trade driven in large part by the industrial policy and mercantilism of China.  Trump might claim a deal has been done with China but it’s a very thin one generally only ironing out issues which he himself largely caused.

The markets have decided that Trump’s trade tirade is broadly over, with US stockmarkets at near all-time highs but China clearly doesn’t feel as comfortable.  Liberation Day did not provide a rush of trade deals for the White House but there have been some.  Significantly the US and Vietnam just signed a deal which reduced proposed tariffs from 46% to 20% but kept a 40% tariff rate on trans-shipped goods from third countries.  This is seen to particularly affect China which has engaged in trans-shipping through third countries to hide their Chinese origin.  The deal didn’t explicitly mention China but clearly the Chinese authorities understood it to target them, their response was clear, the Commerce Ministry responded, “We firmly oppose any party striking a deal at the expense of China’s interests.” “If such a situation arises, China will take resolute countermeasures to safeguard its legitimate rights and interests,” the ministry added as reported in the Financial Times.

This does not sound like a country at ease with the direction of travel of trade policy regardless of what was agreed in Geneva and London.  Trade and being the factory of the world has been China’s calling card for the past 20 years.  That isn’t just going away or can be hidden from view.  The first Trump administration took the initiative to call out China for the trade abuses and regardless of the domestic political shambles which is US congressional politics no issue can unite congress the way China can.  China is right to be concerned still.

Keep fighting

Later this month there is a China EU summit and in preparation for that Chinese Foreign Minister Wang Yi met with EU officials in Brussels.  During what was reported as a “grueling” encounter by the South China Morning Post Wang Yi made a remarkably frank admission.  In conversation with European Commission Vice-President Kaja Kallas Wang Yi admitted that China didn’t want Russia to suffer a loss in the Ukraine conflict as that could possibly lead to the US turning away from Europe and Russia and focus on (containing) China.  Such a stance has been considered by China watchers but it diverges with China’s official position on the war and certainly makes a mockery of any Chinese calls for peace or respect for the sovereignty of nations.  Whether such a real politick stance would lead to Beijing actively providing weapons to Russia is yet to be tested.

Wang Yi has a wealth of foreign policy experience, and this is a stark admission, and probably not planned on his part.  For a lower ranking official to make such an admission could be dismissed but from such a senior figure it must be taken seriously.  It clearly shows that China is not interested in peace for either its ally Russia, nor for peace and security for the Ukrainian people, but most significantly it shows that the Chinese leadership are seriously concerned about a US which seeks to contain China.  For all the political leadership’s big talk about being a global equal with the US they are clearly very anxious about the new global geopolitics.  It also begs a what if scenario from a decade ago.  If only Obama had followed through with his pivot to Asia strategy, then many of the trade imbalance issues, along with the Taiwan and South China Sea tensions might never have been allowed to grow to the state they are in now.

Xi’s disappearance

Amongst all the global turmoil rumours abound about the possible weakening of Xi Jinping’s grip on power.  Elite levels politics in China is notorious opaque which fuels rumours and conspiracy.  The slightest wording difference in a news report or the attendance or not of a senior figure gives rise to dozens of theories and rumours of the rise or fall of some senior figure.  In Xi’s case he had largely been absent from public view for a couple of weeks in late May and early June.  Even this month he will not be attending the BRICS forum in Brazil and China will be represented by Premier Li Qiang.  A slew of PLA related sackings of senior figures appointed by Xi has only stoked the rumour mill that Xi is being challenged for power.

The most likely answer is that the 72 year old Xi has needed some sort of medical attention and that has kept him out of the headlines and reduced his foreign travel.  For leaders in other countries such episodes are hardly unusual but in China medical treatment is seen as a sign of weakness and is never going to be shared publicly.

But under the circumstances it is hardly surprising that rumours are rife.  Today’s China is Xi’s China.  It is comical to think that Xi came to power in late 2012 and was hailed by some as a reformer.  The 2 volume World Bank report China 2030 laid out a blueprint for reform which would move China forward away from its export and subsidy model it had followed for decades.  That report was jettisoned and Xi struck out in his own direction, centralized political and economic control in the hands of a rejuvenated communist party.

It has been Xi who has weaponized islands and atolls in the South China Sea.  It is Xi who has overseen a huge military build up across from Taiwan.  It is Xi who initially downplayed covid and then weaponized trade during the global lockdown to maximize political gain.  It is Xi who has driven the Made in China 2025 policy of self-reliance which has penalized foreign companies and deliberated created chokepoints in global trade for China’s benefit.  It is under Xi that political and humanitarian clampdowns have occurred in Hong Kong and Xinjing.  It is Xi who has driven the Belt and Road Initiative across the globe resulting a wave of infrastructure building which had left many countries in debt in China but with little ability to pay.  It is Xi who had fostered relations with Russia and failed to condemn Putin’s illegal invasion.  It is Xi who had developed relations and dependency on Iranian oil.  If others in the Communist Party elite are worried about America turning it focus on containing China then many of the problems start with Xi Jinping’s leadership and decision making.

As Wang Yi’s comments show, the leadership in Beijing is concerned about the new chaotic environment Trump leaves in his wake.  China’s rise came about in a stable Pax Americana world where little was asked of it politically and economics and trade dictated engagement terms.  Trump’s unpredictability leaves the PRC leadership scrambling to understand what could come next and that only adds to a slew of domestic problems such as a slowing economy, a quickly aging population and a broken property market.

But Trump’s overseas triumphs of late hide very real and worrying domestic trends.  The gutting of the Federal government strikes at the heart of modern American society as does the ever-growing number of detentions of immigrants for the slightest immigration infractions.  What America looks like come the next election isn’t clear but domestic American weakness does not result in Chinese global strength.  The relationship between the two countries is not a zero-sum game.  China’s leaders are clearly anxious in this new world.  Their traditional friends are under pressure and their economic model is no longer welcome across the globe and the daily unpredictability of President Trump leave Chinese leaders on the back foot trying to plan for what they can’t predict.