'In India, there is very little trust in China'

Kenneth Lieberthal, senior fellow in Foreign Policy and Global Economy and Development at think tank The Brookings Institution and an expert on China, talks to Aditi Phadnis on the changes China is likely to see under the new leadership

What does the change of guard in China mean for the nation internally? What does it mean for the outside world?

There has been a 70 per cent turnover of the leadership of the Communist Party of China, government and military in November last year and March this year. They have a good idea about the challenges China faces. But whether the new leadership has the political capacity to meet these challenges is the question.

The leadership understands that the development model on which China has been operating its economy for the last few decades is no longer viable: it was a natural resources-intensive model that has led to deepening inequalities, environmental destruction and corruption. 

The assumptions on which the model was based are no longer valid. The assumptions were that China can develop based on continuing to expand exports rapidly, leveraging a large, cheap, young and flexible pool of labour, and counting on social tolerance of various problems such as inequality, corruption, and pollution as the inevitable costs of transitioning from plan to market.  

The new model is significantly different. It sees a bigger contribution to the Chinese economy from services - versus manufacturing -- and visualises a bigger contribution by the Chinese private sector. It envisions a much bigger social safety net, accelerated urbanisation and an increase in domestic consumption as a driver in the domestic economy. It wants to see the Chinese economy become innovative and high quality.

Today, while everyone knows what the objectives are, if the political capacity is missing, these objectives cannot be achieved. Will the changes in the political leadership produce the necessary changes in the economy?

It sounds strange that a strong, single party authoritarian system should lack the political capacity to bring about changes in the old model and replace what doesn’t work with what does. But despite a one-party system, there are vested interests that resist change, especially the largest state-owned enterprises and the leaders of localities. So, the new leadership will require a lot of political courage to force change. We don’t know yet whether the new leadership will have the required courage and the capacity.

The second part of your question relates to the changes in China and the external world. The US generally welcomes the directions of change envisaged in China’s new development model: reduced emphasis on exports, greater development of high value-added services, high technology, and domestic household consumption.  These are areas in which US firms are highly competitive. The US would also like to see China contribute positively to climate change and environmental protection. So, we in the US, wish the new leadership well. But whether China will make significant moves in this direction remains to be seen.

India and China are colliding in the world as two rising economic powers. This coincides with their naval ambitions and the clash is most evident in the South China Sea. What will be the strategies adopted by the new Chinese leadership? 

Overall, China-India relations see growing economic ties, but are full of tension in the geo-strategic sphere. In India, there is very little trust in China. However, the naval interests of the two countries in the Indian Ocean are not completely contradictory. Both need the free flow of reasonably priced energy resources out of the Persian Gulf, and thus their naval interests are in part potentially compatible. China needs the MalaccaStrait to be secure: 70 per cent of its imported oil comes via the MalaccaStrait, essential for its growing economic needs. China is also developing the capacity to ship oil and gas across Myanmar in order to circumvent the MalaccaStrait.

While China has necessary security needs in the Indian Ocean regarding energy coming out of the Gulf, it does not see India as having comparable needs east of the Malacca Strait.  China’s own maritime territorial claims in the South China Sea are based on the vaguely demarcated ‘9 dash line’, which does not stand up in international law. I believe there is now a debate in Beijing as to whether to abandon the ‘9 dash line’ claim and replace it with a claim to land features throughout the South China Sea.

The US and India want to retain the freedom of navigation in the South China Sea. India has some offshore oil interests off Vietnam. China’s position is: the Exclusive Economic Zone confers on the littoral states not only exclusive economic rights, but also the right of approval for military activities in the zone. The US believes the littoral states have no right to approve military activity, so long as the activity is not kinetic action directed against the littoral state. Thus, the US and China disagree over what constitutes “freedom of navigation” in the EEZ.

China has some quite dodgy friends: North Korea and Pakistan; and it has neighbours that are undergoing a profound transformation themselves: Myanmar and Mongolia. How does China’s new leadership look at the (relatively) new leadership of North Korea? How does it see Pakistan and Afghanistan after the summer of 2014 when the western military forces begin withdrawing? And how will its interests be best served in Myanmar and Mongolia with whom it shares a border, access to natural resources and shared ethnicity? Mongolia has taken a strong position against multinational mining giants and Myanmar is undergoing a restructuring of its political elite.

What you are saying is: China lives in a difficult neighbourhood.

The Chinese have been and continue to be perplexed about North Korea because almost everything that the country is doing runs against China’s interests.

China’s trade with South Korea is exponentially larger than with North Korea. And North Korea’s policies have provoked the Republic of Korea, Japan and the US to deepen their defence capabilities in northeast Asia, which is the last thing that China wants. Beijing does not want unification of the two Koreas for two reasons: the resultant unified Korea will be a powerful state with nuclear weapons; and this state may be allied with the US. So it would not want North Korea to disappear but the debate is on in Beijing about how to manage North Korea. Pyongyang is effectively blackmailing China and is in essence saying “if you don’t help us, we will collapse”. 

And the rest of the world assumes China has leverage with North Korea: but, in reality, China has little effective influence on that country. It asked North Korea to implement reforms. But North Korea stood fast. So China is boxed in, with an ineffective policy and no good options. 

Mongolia is another matter. Over three million people are sitting on a lot of natural resources. They want to limit outsiders from exploiting them; but they can’t exploit these themselves. And they can’t move anything out without crossing Chinese or Russian territory.

The latest Mongolian standoff against mining companies is hard to understand: it may have something to do with domestic politics. As for Myanmar, the Chinese thought it was doing well with the junta, which helped them exploit minerals in exchange for corrupt payments. But when the junta changed, China’s position there eroded. It sees the US as in part instigating these changes in Myanmar. But the reality is the US had very little to do with it. 

In Pakistan and Afghanistan, the US and the North Atlantic Treaty Organisation handled the security side, while China has invested in exploiting Afghanistan’s mineral wealth. China is not interested in a resurgence of the Taliban in large part because it fears Muslim unrest in its own northwest. So now the situation is more complicated: it no longer just supports Pakistan, as it fears Pakistan may in turn lend too much support to the Taliban in Afghanistan. Again, China has its own restive Muslim minorities to worry about. 

So, the new leadership in China will have to take foreign policy decisions that will require more than simply continuing past policies. At the same time, it will have to do so while trying to deal with an enormous domestic agenda.