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CommentInsight & Opinion

China is waking up to the benefits of good diplomacy in Asia

Lanxin Xiang says China, for so long blinkered by a puffed-up sense of self-importance, is finally seeing the value of engaging with its neighbours for peace and mutual gain

PUBLISHED : Tuesday, 05 November, 2013, 6:25pm
UPDATED : Wednesday, 06 November, 2013, 2:59am

Xi Jinping presided over a key conference recently on China's relations with neighbouring countries, or its "periphery policy" (zhoubian zhengce). The level of attendance, including all Politburo members working in Beijing, was the highest in recent memory.

Most important was Xi's tone-setting speech, calling for improved relations with all neighbours through a long-term strategic vision, summarised through principles expressed in four Chinese characters: intimacy, honesty, benefaction and tolerance.

This conference was long overdue. Although it was not the first time Chinese leaders have vowed to improve ties with neighbours, most statements have been presented in a condescending manner, as if China were a benevolent outsider. This conference reflected a quantum leap in Chinese diplomatic mentality.

For a long time, China has lacked a serious and integrated "periphery strategy" for dealing with its neighbours. Chinese diplomacy has focused on great power politics; the Asia-Pacific as a region was considered to have only secondary importance.

Two historical legacies contributed to this condescending mentality.

First, there was the traditional "middle kingdom complex", often demonstrating itself in an obvious nostalgia for the traditional and Sino-centric international relations system known as the "tributary system", in which neighbours went to China for help and the emperor would demonstrate paternal benevolence but would never travel abroad.

Second, there was the cold war legacy. The "grand strategic triangle" of Washington-Beijing-Moscow, a US-created diplomatic mechanism, dominated the great power relations from the early 1970s till the end of the cold war. This system further strengthened the Chinese "middle kingdom complex", for it satisfied Mao Zedong's ego by prematurely promoting China's international status to a level not commensurate with its real capacity. Thus, Beijing's policy towards neighbouring countries was one of neglect, arrogance and chauvinism.

Little thought or diplomatic assets were invested in the idea of an overall strategy in any "periphery policy". Indeed, the concept of a "periphery strategy" did not exist until recent years.

Every move had to be linked to great power relations, and the US factor dominated the thinking of Chinese policy-makers in regional affairs. But when America decided to abandon the Sino-US condominium approach in the region to promote its "pivot to Asia" strategy, China was not at all prepared.

Hence, its diplomacy has been a disaster since the Hanoi conference of foreign ministers in 2010. Indeed, China's habitual aversion to multilateralism and the preferred bilateral approach with each neighbour has blocked Beijing's vision of viewing the region as a whole.

At the Beijing conference, Xi signalled a crucial change in Chinese mentality. He stressed China's role in the region, rather than as an outsider. China's neighbourhood, full of vigour and vitality, boasts obvious advantages and development potential. The region is stable on the whole, and most of the neighbouring countries have a friendly and mutually beneficial relationship with China. Thus, in diplomacy, "one must understand the trend of the time, devise strategy and plan carefully", Xi emphasised.

How, then, should China put together a grand strategy for relations with neighbours? It must, first, abandon its cultural chauvinism in treating others as inferior civilisations.

The Sino-Indian relationship is a case in point. Although India is a major civilisation, many Chinese policymakers do not respect India, citing its lack of governing efficiency and adequate statecraft; they are complacent about their own Confucian model of rule while ignoring the successful dimensions of Indian democracy.

Secondly, China must differentiate the Sino-US relationship from its regional strategy, abandoning the long-held idea that, as long as this bilateral connection is on an even keel, nothing will go wrong.

Thirdly, China must try to solve or suspend territorial disputes with its neighbours. The shining example is, of course, the successful settlement negotiations with Russia and the former Soviet republics. There is no reason why such success in resolving border disputes, or at least in setting up effective conflict-prevention mechanisms, cannot be applied to other neighbours, including the Philippines and Japan.

Last but certainly not least, China needs to develop an overall economic strategy in the region. The US-led Trans-Pacific Partnership and the EU-initiated Transatlantic Trade and Investment Partnership are undoubtedly desperate Western responses to China's economic challenge to the existing liberal international order, but there is no reason for China to panic and overreact.

China has plenty of opportunities to construct building blocks for Asian economic integration, such as pan-Asian financial institutions and investment mechanisms. China also has a great advantage in securing its own neighbourhood in trade and investment.

At the global level, China has adapted well to the existing economic rules of the game. The Chinese experience with the World Trade Organisation has so far been a great success. And China has increasingly become a leading player in the international monetary system. With a gross domestic product growth rate of about 7.5 per cent, China is well poised for another round of structural reforms at home, which will have the enormous potential of releasing and creating purchasing power at home and abroad.

In any case, China's long neglect of its neighbourhood has resulted in numerous strategic distractions and unnecessary territorial conflicts.

With this conference, one may argue that China is finally stepping out of the "middle kingdom complex" and beginning to realise that, only through better integration of its interests with those of its neighbours can it create and maintain a more secure and prosperous environment around its borders and peripheries.

Lanxin Xiang, a professor at the Graduate Institute of International and Development Studies, Geneva, is currently in Washington as a senior fellow of the Transatlantic Academy at the German Marshall Fund



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Typical rubbish from brainwashed Lanxin Xiang who
deep in cognitive and intellectual comatose
simply can’t appreciate consistence
in China’s harmonious diplomacy
As was said by Chi Lo, 'China's export policy is indeed a social policy for maintaining systemic stability'. (Read: the continued rule by the Chinese Communist Party must be maintained.) So, export's manufacturing jobs (partly for the young people from the rural villages) must be ensured. Which means the importance of X can't be easily replaced by G, C or even I (aggregate demand is C+I+G+(X-M)). (It takes a long time for C to be big enough, and now investment seems too high already.) Which means China will continue to accumulate US$. The US Treasuries will fall in price if the future interest rates rise. China stands to lose. Which means she has to find other more sensible ways to fully use the US$. This time is really different.
If the infrastructure bank is set up here in Hongkong, there may be some conflict of interest problem. But we should look at the whole forest, not individual trees. Overall, it's a positive sum game.
Basel III requires banks to acquire more US Treasuries as part of the capital. But the infrastructure bank should mainly use US$ as capital , because interest rate will probably rise in the future.
Considering the market share of the US$ in the world, those of Renminbi is just trivial, both now and in the near future.
As was said by the Chinese writer, the potential money that can be earned from the US$ debt market is the main dish, while the profit that can be earned from the Renminbi offshore markets is just a small dish of dim sum.
It was said in the Recruit Magazine many many years ago that the United States has no need to fear China's rise as a competing power. Why? Because China had almost no genuine allies in Asia. Now this still seems to be the case --- not even North Korea can be fully trusted.
One way out for China is to buy friends, using money (mainly in US$ and partly in Renminbi). This may sound silly, but by doing so, China can buy decades of peace (without interference from others, of course) which must be needed for her further economic development.
What if the Vietamese doestn't borrow from us? Remember Godfather? Make an offer she simply can't refuse.
Japan recently has been eagerly making loans to those Asian countries. China had better start doing something now.
Like it or not, Renminbi is no US$, now and in the foreseeable future. Don’t believe me? Read Chi Lo’s recent book (The Renminbi Rises. Myths, Hypes and Realities of RMB), and you may be convinced. So, in addition to developing Hongkong into China’s most important offshore Renminbi centre, the Hongkong authority should also consider the AsianDollar market through the suggested infrastructure bank.
Diversification reduces risk. It may sound unpatriotic, but as an economic city, any political consideration should be subsidiary.
The article 'Hong Kong ideal to host infrastructure bank, says JP Morgan chief' was published by the morning post on 10 October, 2013. Unfortunately, almost no attention has been paid to it. (Certainly not in most Chinese newspapers). Actually a similar idea was suggested by a certain Chinese writer about a year ago. Perhaps Xi Jinping had considered his advice.
Helicopter Ben has been printing money like crazy recently. Why doesn't China use her earned US$ to her advantage? Why does China just continue to buy US Treasuries? Lending money to the US military to 'surround' us? This simply doesn't make any sense.
Instead of all buying US governent debt, Beijing can use some of its US dollar reserves to fund the infrastructure bank, which should best be set up in HongKong, and which provides loans to Asian countries and companies in need. Gradually this will develop Hongkong into the centre of Asiandollars, resembling Britain's Eurodollar market. If successful, Hong Kong is able to truly rival New York and London as the world's financial centre. Shanghai will be left far behind.
One way is to make US$ loan to Thailand to enable her to buy China's high-speed trains. Thailand should be allowed to repay part of her loan in rice.
As a future loan centre, Hong Kong should settle its current dispute with the Philippines as quickly as possible. Afterall, more borrowers means more business.


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