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Common Cents

The China Pivot

Ralph Murphy

(8/1/2014) On 7 May of 2014, Chinese President Xi Jinping broached the idea of a "new Asian security concept" as summit chair of the Conference on Interaction and Confidence Building Measures in Asia (CICA) which met in Shanghai. The organization has been in existence since its inception was proposed to the United Nation's General Assembly by Kazakhstan on 5 October, 1992. Fifteen states were involved in the initial 1999 Ministers of Foreign Affairs grouping whose goals were defined as "promoting peace, security, and stability in Asia. The group spanned from China to Turkey and even included intractable enemies, Israel and Palestine (not defined), among its founding members.

Observer states included the United States and Japan as well as organizations such as the Organization for Security and Cooperation in Europe (OSCE), the Arab League, and the UN. Its mandate was initially so broad and embodied such disparate groups that the CICA gained little international attention, nor fulfilled a role drawing effective action or concern. China might use the body to change that equation having assumed its chair in 2014 with a leadership mandate to 2016. There are now 26 members of the body and it includes among other; Iraq, Syria, Afghanistan, Russia, Israel, Palestine, and west to Egypt.

China's accession follows Kazakhstan's rule between 2002-2010 and Turkey's from 2010-2014. Along with a nascent Asian Infrastructure Investment Bank (AIIB), it is being viewed by cautious western observers as the "China Pivot" to counter President Obama's "Asia Pivot" of military capacity in the Far East from traditional concerns in Europe and the Middle East. The AIIB, with initial proposed funding, would rival World Bank and Asian Development Bank (ADB) projects, the latter two dominated by the United States and Japan respectively. It would give China more leverage in international infrastructure projects for which that nation would benefit, while masked as a multi-sourced provider though the PRC would be the primary contributor. They've proposed an initial 50 billion dollars for the endeavor.

The Obama Pivot was first announced in 2011 by the President to Australia during a state visit to that country. It highlighted a Ballistic Missile Defense (BMD) treaty that would include Asian nations from Japan to Australia. Billed as a counter weight to North Korean belligerence, it didn't include Chin, and appears to have been eclipsed by bi-lateral deals and trade interests. Asian nations are key providers of commodities used in China's domestic production, currently the world's second largest economy at 8.3 trillion dollars in annual output. Tokyo also sends finished goods to that nation, though ties are strained by territorial disputes in the East China Sea.

Japan and Australia are finalizing defense agreements which would upgrade the latter's aging submarine fleet with Tokyo providing Sorys Class (conventional) subs fitted with Swedish air independent propulsion systems to be produced in Adelaide or Japan itself. Japanese Prime Minister, Shinzo Abe, has promoted a domestically popular vision of a "non-pacifist" constitution which would allow for a military build up. Beijing appears worried about the developments.

The United States currently provides just over 40% of the world's military spending. Its economy generated 16.2 trillion dollars in 2012. Its current debt approaches congressionally mandated levels of 17.3 trillion dollars. Debt is 106% of annual earnings per International Monetary Fund (IMF) statistics, but 72% of earnings per a stubbornly insistent CIA report. The latter doesn't include debt held by intra-government agencies in US securities broaching the novel concept that one can "write off" debt owed to oneself. Service providers dependent on future payments such as the defense industry would be sorely affected, but per the CIA if the funding is not available and deficit spending a "high risk" basis for production, it could happen.

CICA members in Afghanistan and Iraq have remained intractably divided along sectarian lines for centuries and remain so despite the allied military campaign which could cost upwards of 6 trillion dollars given the sophisticated weapons systems employed against what was largely a primitive opposition. The Taliban appear to control much of the divided nation while Push-tan tribes fight them in opposition there much as they always have. July 2014 election results confirm this division.

Iraq was effectively neutralized militarily after it invaded Kuwait in August of 1990. The Second Gulf War was briefly contested with then President Bush declaring all hostilities had ceased there within a month of the March 2003 intervention. US troops remained until 2011, and advisors have recently returned, mostly Marines to guard the American embassy amid al-Qaeda linked battlefield gains in Sunni areas of that nation and Syria. The CICA, UN, nor any other player in the region has changed the hostility conflicting Muslim groups hold for each other as they continue to fight.

China while historically generally insular has been in direct economic conflict with neighboring Vietnam over oil interests, and the Philippines and Japan over fishing and territory disputes respectively. The nation has a powerful economy as described, but is hampered by a population of over 1.35 billion people somehow coexisting and competing for available resources.

The AIIB is an international banking effort apparently more transparent than the domestic structure which has incurred a "Shadow Banking" element, never clearly defined and of questionable assets. It can be viewed here as domestic entities which employ banking functions such as deposits and lending, but are not accountable to overt central government regulation. China's national debt to GDP ratio is quite low per CIA data at 31.7%, but again higher per other sources which use differing accounting, and doesn't take into account regional debt up to 3 trillion dollars much of which appears used for functions western governments would consider federal.

Per China's National Audit Office (NAO), the local debt (regional) rose "70% to 17.9 trillion yuan, or 2.9 trillion dollars over three years" to December, 2013. Enter shadow banking and there's "Wild West" dimension to that nation's economy Beijing appears to increasingly want to control. Foreign investors there and elsewhere are highly vulnerable to domestic politics and business practices. They can find their investments simply "written off" per need and orientation with little recompense if no obtainable collateral is included in the dealing.

Where the CICA and Chinese banking "pivot" lead is largely conjecture at this point, though the economic component is more likely of international impact than the budding security alliance. It's of interest they can retain such heated enemies in a body outside the UN, but the alliance has a broad mandate, limited enforcement potential, or likely global impact. The banking component could lead to new infrastructure abroad and even eclipse traditional investment providers if it proves profitable to the PRC. Militarily and economically, the region continues to grow. Potential for growth or conflict can't be discounted.

Ralph Murphy is a former member of the CIA Headquarters Staff in Langley, VA.

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