Author Archives: Asia Pacific Briefing

Tensions Rise between the Philippines and China in the South China Sea: What’s in a Name?

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Map of the Spratly Islands illustrating territorial claims

 

 

It seems that tensions are continuing to rise in the South China Sea.  Increasing Chinese assertiveness in the region has prompted complaints from Vietnam and the Philippines.  Vietnam has recently announced that it will carry out a live fire naval exercise in the region, a move widely seen as a response to China’s increasingly assertive posture, while there is a move in the Philippines to re-name the South China Sea.

A Filipino lawmaker, Walden Bello, has filed House Resolution 1350 calling upon the Filipino Congress to investigate the possibility of changing the name of the South China Sea to the Western Philippine Sea in an attempt to bolster Manila’s territorial claims in the region.  Such passions have been aroused by a number of clashes which have seen Chinese naval vessels harass Filipino ships around the disputed Spratly Islands.  In one of the most serious incidents, a Chinese naval vessel fire shots at Filipino fishing boats near the Jackson (Quirino) Atoll.

In addition, Manila has also claimed that China has constructed a military post near the Amy Douglas Bank, an act which could constitute a breach of the 2002 Declaration of the Code of Conduct of Parties in the South China Sea (DOC).  The DOC is a non-binding agreement between China and ASEAN which calls for restraint and the avoidance of occupation of uninhabited land.  Manila argues that this latter provision in particular has been “aggressively violated” by China.

China, for its part, argues that its sovereignty has been breached by Filipino vessels, though it is generally agreed that the clashes have taken place in waters within the Phillipines’ 200 kilometre Exclusive Economic Zone.

The problem is, of course, is how to determine ownership.  The United Nations Convention on the Law of the Sea (UNCLOS) gives a country sovereignty over seas up to 12 nautical miles (22.2 km/13.8 miles) from its coast, including of islands.  In addition, there is also a recognised 200 nautical mile Exclusive Economic Zone (EEZ).  This grants jurisdiction over natural resources found in the region, the right to conduct scientific research and to building structures. Recent incidents have been inside the EEZs of Vietnam and the Philippines.

China, however, argues that its historical sovereignty can be traced back to the 7th century and supersedes any contemporary claims to the sea, but says it is ready to cooperate with others on joint exploration.

In light of such disagreements, Manila has tried to internationalise the situation.  It has stated it intent to file an official protest over Chinese actions at the U.N. and has recently suggested that the Mutual Defence Treaty it signed with the U.S. in 1951 would be activated should any dispute with China escalate.

The U.S., however, seems less certain of this.  Its embassy in Manila stated that the “US does not take sides in regional territorial disputes”.  It outlined Washington’s concerns about recent incidents in the South China Sea and acknowledged that it shares a number of interests with the international community in the region, but refrained from mentioning the Philippines specifically, nor did it note the defence ties it shares with Manila.

This hesitation on the part of Washington has not, however, dissuaded Manila from pursuing its claims.  The Filipino military has confirmed that it refers to the South China Sea as the Western Philippine Sea, though Armed Forces spokesman Commodore Miguel Jose Rodriguez was also keen to add that other nations in the region also have their own names for the disputed waters.  Not to be outdone, the Filipino weather Bureau, Pagasa (the Philippine Atmospheric, Geophysical and Astronomical Services Administration) has announced that it, too, will henceforth refer to the region as the Western Philippine Sea.

It remains to be seen how China, and indeed other states which hold territorial claims in the South China Sea, will react to this latest move by Manila.

 

South Korea to Deploy Apache Gunships to Baengnyeong Island?

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An anonymous defence source has suggested South Korea will deploy Apache gunships to Baengnyeong Island

 

South Korea’s Yonhap news agency has reported that the country is considering the deployment of Apache gunships to Baengnyeong Island.  A hangar is currently under construction in preparation for the arrival of the helicopters.

Yonhap quotes an anonymous defence source who claims the deployment is intended to counter the possibility of a seaborne attack by DPRK commandos.  The North’s construction of a larger-than-expected naval base in Hwanghae Province has prompted these concerns. The base, situated a mere 50 kilometres from Baengnyeong Island, is thought to be capable of supporting around 60 hovercraft.

The helicopter hangar currently under construction is expected to be completed by the end of the year and will be ready to accommodate the gunships which are expected to be delivered in 2012.  South Korea is expected to purchase thirty-six Apaches in October 2012.

This move comes in the wake of the North’s shelling of Yeonpyeong Island in November 2010.  It seems that South Korea is making sure that Baengnyeong Island, located to the west of Yeonpyeong, has some teeth in case the North decides to push its luck again.

The 2011 Shangri-La Dialogue

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Shangri-La Dialogue member countries

 

June 5th saw the conclusion of the 2011 Shangri-La Dialogue.  Hosted by the International Institute for Strategic Studies in Singapore, the three day event brought together Defence Ministers and military figures from the Asia Pacific region.  What, then, were the main talking points of the weekend?

Perhaps predictably, the situation in the South China Sea dominated discussion.  Many countries, particularly Vietnam and the Philippines, are increasingly concerned by what they consider to be China’s belligerent behaviour in the region.  Vietnam points to cases of its fishing fleet being harassed by Chinese naval vessels.  More recently, May 26th saw a confrontation which allegedly ended with a Vietnamese survey ship’s seismic cables being cut by a Chinese vessel as it conducted an oil and gas exploration mission.

This dispute provoked protests in Hanoi and Ho Chi Minh City as Vietnamese expressed their anger, though it is unclear whether the protests were encouraged by the government.  While the Vietnamese government claims the survey ship was operating deep in its territorial waters and called the incident a “serious violation of Vietnam’s sovereignty”, the Chinese deflected criticism by arguing that Vietnamese oil and gas operations “undermined China’s interests and jurisdictional rights”.

This incident illustrates the potential for discord in the South China Sea, a situation exacerbated by the multitude of competing territorial claims held by such nations as China,Vietnam, the Philippines, Malaysia, Brunei and Taiwan.  The Spratly Islands, for example, are contested by all of the countries named above and are thought to be resource rich.  Ownership of the Paracel Islands, held by China, is also a matter of contention as Vietnam, which was evicted from the Islands by China in 1974, still claims ownership.

China, for its part, struck a more conciliatory note at the conference than it has been want to do when facing criticism from its maritime neighbours.  General Liang Guanglie, China’s Minister for National Defence, strongly reiterated China’s desire for a peaceful rise, stating that Beijing does “not intend to threaten any country with the modernization of our military force”. China, argued Liang, has no desire to seek hegemony in the region.  He painted China’s military budget, which is set to rise by an official 12.7% this year, as a natural improvement of its military equipment which, he highlighted, consists of “mainly second-generation weapons”.

Other countries in the region, however, remain unconvinced and continue to hedge against China’s military development, particularly its naval modernisation.  At the Dialogue, for example, the Vietnamese confirmed that their government has purchased six Russian Kilo class submarines at a cost of US$3.2 billion, Thailand is thought to be considering the purchase of second-hand submarines from Germany and even the Filipino navy, which can ill-afford such expensive platforms, is thought to be considering the pursuit of a submarine capability.

It is in the context of this burgeoning Asian arms race that Washington has been seeking to re-establish its presence in the region after years of neglect due to its adventures in the Middle East.  Robert Gates, the U.S. Secretary of Defence, spoke of his concerns regarding the possibility of a clash in the South China Sea unless all parties with an interest in the disputed waters agree on a mechanism with which to settle disputes.  Such clashes, he stated, would not serve anyone’s interests.

Reaffirming the United States’ role as the Asia Pacific’s security guarantor, he promised that the fiscal situation his country finds itself in will not affect its commitments in Asia.  Indeed, he wagered that over the next ten years the “U.S.influence in the region will be as strong or stronger”.  Assuring allies of America’s intentions, he highlighted that Washington continues to invest in stealth aircraft, drones, warships and cyber weapons.  Such capabilities, he argued, are the “most relevant to preserving the security, sovereignty, and freedom of our allies and partners in the region”.

Emphasising U.S.policy in the Asia Pacfic, he noted four “enduring principles” that should provide a framework for co-operation in the region: free commerce, the rule of law, open access to the global commons of sea, air, space “and now, cyberspace”, and peaceful conflict resolution.  The reference to cyberspace seemed particularly pointed given Google’s recent allegations about hacking attacks emanating from China.

Of the U.S.–China relationship, Gates, keen to downplay the notion that China’s rise poses a threat to the region, stated that the relationship currently enjoys “a more positive trajectory”, but remains “underdeveloped”.

In an apparent hedge against China’s increasing assertiveness, however, Gates also announced that the U.S. Navy will establish a new base in Singapore.  While Washington has maintained a facility there, the U.S.plans to permanently station one or two of its new Littoral Combat Ships in Singaporean waters, according to the Singaporean Defence Ministry.  This move is part of “a number of steps toward establishing a defence posture across the Asia-Pacific that is more geographically distributed, operationally resilient and politically sustainable,” outlined Gates.

U.S.military planners are keen to spread their forces more widely across the region in order to make it harder for an adversary to strike a knock-out blow in event of a conflict.  In addition, ongoing political troubles surrounding existing U.S.bases, such as Okinawa, makes spreading its assets around the region particularly attractive to Washington.  Indeed, noting this, some analysts in Australia, most prominently Ross Babbage, have called for U.S.troops to be based in Australia.

It would however, be a mistake to think that the situation in the South China Sea was the only issued considered at the conference.  The Japanese Minister of Defence, for example, spoke about the ongoing earthquake crisis in Japan, while Sergei Ivanov, the Russian Deputy Prime Minister, outlined the important of building strategic confidence in the region.  The Malaysian Prime Minister, Najib Razak, echoed this sentiment, highlighting the global trend toward integration and interdependence.  He also framed China’s rise as a cause for optimism rather than trepidation.

North Korea’s nuclear weapons program also merited discussion at the launch of a new book by Jonathan D. Pollack who has concluded that North Korea’s third nuclear test will probably be of a highly enriched uranium (HEU) bomb.  Depressingly, he also believes that neither China nor the United States can stop or reverse the North’s nuclear weapons program.

In conclusion, the primary focus of the Dialogue was on the possibility of future quarrels – and how to deal with them – as Asian powers with rising military budgets continue to contest often potentially resource-rich territory.  All parties agree that confidence building and co-operation is desirable.  What remains to be seen, however, is to what extent such sentiments are reflected in behaviour.  Will China continue to press its claims aggressively?  Will this drive other Asian powers toward America and will an arms race develop in the Asia Pacific as countries attempt to balance China’s rise?

Other issues also continue to exercise analysts.  The aftermath of the Japanese tsunami has crippled Tokyo.  As Prime Minister Kan attempts to bring the situation under control and begin reconstruction, he faces an uphill struggle in the wake of the recent no-confidence motion. North Korea, too, is a continuing cause for concern.  We certainly live in interesting times.

 

 

China Accused of Hacking Google Again

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Google has alleged that a recent hacking attack emanated from China

 

Google has, once again, alleged that it has been the victim of a hacking attempt emanating from China.  The internet giant claims that it has identified an extensive electronic surveillance campaign directed against hundreds of users of its Gmail email system, including senior American and Asian officials, journalists and Chinese activists.

This echoes Google’s 2010 claim that hackers based in China attacked the company’s own systems.  This led to Google refusing to co-operate with Chinese government censorship requirements.  Both this and the latest allegations have been vehemently denied by the Chinese government which has claim that China itself is actually a victim.  A spokesman for the Chinese foreign ministry argued that blaming China for such actions is “unacceptable”.  He continued to state the Chinese government’s view that hacking “is an international problem and China is also a victim. The claims of so-called support for hacking are completely unfounded and have ulterior motives”.

Whoever was responsible for the latest phishing attacks, it seems likely that they will prompt greater security awareness among U.S. officials, who, it seems, were tricked into disclosing their password details, allowing their mail to be followed by someone in China.  The U.S. Secretary of State, Hillary Clinton, expressed her concern regarding the allegations and one assumes that several memos have been sent reminding officials to stick to their work accounts when discussing official matters.

While China has declared its innocence, analysts agree that given the sophisticated nature of the attack and the identities of those targeted, financial gain can be ruled out.  Google did not discount the possibility that the attack may have been state-sponsored.

Why, then, has China been blamed for this attack?  Firstly, and most obviously, because Google claims to have traced the attack to a school in Jinan in Shandong province.  This is not the first time that Lanxiang vocational school has been implicated in such attacks.  While its national reputation is built upon its cookery and beauty industry training, the school, which has an annual intake of 20,000 students, also boasts a large computer studies class.  Indeed, the school makes much of its 10 large computer laboratories and at one time claimed to hold a Guinness world record for the room with the most computers.

In 2010 the school was named by the New York Times as one of two schools suspected of hacking attempts against American companies and human rights activists.  The other school was the prestigious Shanghai Jiaotong University.  Raising suspicions, the NYT reported that the Lanxiang vocational school was established with military support and trains some computer scientists for the military.

This, of course, is merely circumstantial evidence at best, but the Chinese military does have some form when it comes to hacking.  It sponsors hacking competitions between teams from rival provinces.  A team representing the Sichuan Military Command, for example, was implicated in attacks on the U.S. Department of Defence in 2006.

Moreover, Chinese strategists have written at length on the necessity of pursuing asymmetric strategies.  Acknowledging that U.S. military supremacy rest upon its networked command and control resources, the PLA has focused on tactics that will allow it to mitigate such an advantage by paralyzing American networks.  The most obvious manifestation of such a strategy is the 2007 missile test which saw China use a ballistic missile to destroy a weather satellite.  This was seen as a test of China’s ability to destroy American satellites should hostilities arise.  Without access to GPS, it would be much more difficult for U.S. forces to accurately strike Chinese targets.  Hacking, too, could also potentially be used to similar effect.  Such information warfare could attack the networked U.S military at its weakest point without firing a shot.

As for this particular attack, however, it seems unlikely that the culprit will ever be definitively identified.  Analysts have highlighted that the school’s computers could have been used by a third party, such as nationalist hackers unsanctioned by the government, or even by a third country hoping to camouflage its efforts.

Online nationalists have certainly taken it upon themselves in the past to attack those they perceive to be China’s enemies.  For example, in 1999, over 7,200 attacks were launched against Taiwanese websites in response to a statement by then President Lee Teng-hui.  Attacks were also launched against U.S. government sites in the wake of the accidental missile attack on the Chinese embassy in Belgrade.  In addition, a 2000 Osaka history conference which questioned the historical veracity of the Nanjing Massacre prompted attacks against Japanese sites, including that of the Bank of Japan which suffered 1,600 strikes within seven minutes.

Whatever their source, these latest attacks come as the Pentagon seems to be considering a more muscular policy toward hacking attacks.  The Wall Street Journal has reported on the existence of a classified document which suggests that the U.S. may respond to an online attack from a foreign country with traditional military methods.  The report points to concerns regarding U.S. infrastructure such as electrical grids and nuclear reactors.  It quoted one official as stating “If you shut down our power grid, maybe we will put a missile down one of your smokestacks”.

Such a policy, of course, raises all manner of thorny issues, such as how to identify the origin of such an attack and whether accusations of an attack may be used to justify a pre-determined military action.  It also raises the danger of being seen as indecisive if a hacking attack of considerable significance is not met with a military response.  It is difficult to imagine that an attack from China, for example, would prompt a military response, even if it could be proved beyond doubt that the attack was state-sponsored.    In addition, it is not altogether obvious that the leaders in Zhongnanhai are in complete control of subordinates in distant provinces.  An attack could be sponsored by official elements without permission from the centre.

Finally, it is unlikely that China is the only country involved in such activities.  Russia, too, has been accused in the past of at least turning a blind eye to, if not sponsoring, hacking attacks, while the recent Stuxnet attack on Iran’s uranium enrichment infrastructure implicated the United States and Israel.  The British government has also set aside £650m to deal with computer security.  As part of this, the Ministry of Defence plans to recruit hundreds of experts to protect British interests as adversaries threaten the networks the British armed forces depend upon.  Indeed, claimed the Ministry, future “conflict will see cyber operations conducted in parallel with more conventional actions”.

In short, it seems safe to conclude that the internet, if not already militarised, seems set to become so.

Naoto Kan Survives No-Confidence Motion

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Naoto Kan, the Japanese Prime Minister, has survived a no-confidence motion.  The challenge was launched by MPs critical of his response to the recent tsunami and nuclear crises.  However, while he has survived this test, he has been left a weakened figure, particularly as the motion was supported by elements within his own party, led by Ichiro Ozawa, who, along with 50 of his supporters, abstained from the vote having earlier threatened to side with the opposition.

Indeed, Kan seems to have conceded that he will leave office.  Before the motion was debated, he announced to his party that he intends to step down after the current crisis is brought under control.  This seems to have satisfied his party, at least for the moment.  He has survived opposition attempts to force him from office in the past.

The main opposition party, the Liberal Democratic Party (LDP) led the attack but was supported by the New Komeito party and the Sunrise Party.  Sadakazu Tanigaki, the leader of the LDP criticised Kan bluntly, stating that “You have no personal virtues or ability to unite your own party members. I’m telling you to quit.”  He also outlined his belief that with Kan’s departure, “there will be many ways for us to unite, to revitalise Japan beyond party lines.”

Kan seemed to acknowledge the necessity of revitalising Japanese politics when he told his own party that “I would like for the younger generation to take over various responsibilities once I fulfil certain roles that I need to, as I work on handling the disaster.”

However, while Kan has survived this motion, comfortably winning by 293 votes to 152, he remains unpopular among the public.  A poll run by the Pew Research Center found that 79% of the 700 Japanese they surveyed rated Kan’s handling of the crisis as “poor”.  This contrasts sharply with the International Atomic Energy Agency’s assessment of the Japanese response, which it believes has been exemplary.

In his attempt to stabilise the situation,Kan faces an uphill battle to agree emergency budgets in a hostile parliament.  He can also expect controversial tax increases to be keenly contested.

Such divisions are particularly unhelpful as Japan faces up to the massive cost of reconstruction which has been estimated by some to cost over US$200 billion.  An unstable political situation is likely to drag down stock prices and complicate reconstruction efforts.

Kim Jong-il Visits Beijing

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At the time of writing, the North Korean leader, Kim Jong-il, is visiting Beijingin order to meet with Hu Jintao, the Chinese President.

While both sides typically wait until such trips have been concluded before announcing any details, it seems likely that key topics of conversation will include the DPRK’s nuclear program, food shortages, the future leadership role of Kim Jong-un and recent accusations that the North has shared missile technology with Iran.  China, incidentally, has blocked the public release of the U.N. report that makes this claim.

This meeting coincides with the visit to North Korea of U.S. Ambassador Robert King, Special Envoy for North Korean Human Rights Issues, and Jon Brause, a representative of the US Agency for International Development, which will see them investigate the DPRK’s reported food shortage and human rights situation.

While the World Food Program has warned of food shortages affecting six million North Koreans, some analysts believe that the situation is not as bad as DPRK officials have suggested and that the Kim government is attempting to stockpile food to prepare for national celebrations in 2012 to celebrate the 100th anniversary of the birth of Kim Il-sung.  The shortage has been provoked by a number of factors such as heavy rain, a particularly harsh winter and an outbreak of foot and mouth disease.

King and Brause’s trip comes in the wake of former U.S. President Jimmy Carter’s recent remarks accusing the U.S. and South Korea of a “human-rights violation” for refusing food aid.  Valerie Amos, the U.N. Undersecretary General for Humanitarian Affairs and Emergency Relief Coordinator, has also emphasised the need to base aid on humanitarian requirements, not the political situation in the country.

However, it seems unlikely that South Korea will make a donation given recent events such as the North’s attack on a South Korean warship last year followed by its shelling of Yeonpyeong Island.  In addition, South Korean President Lee Myung-bak has also taken a strong stand since winning power in 2008.  Having ended the Sunshine policy of engagement pursued by his predecessor, he will not resume aid until the North abandons its nuclear weapons programme.  The U.S. is more likely to donate food, though it would seek assurances regarding the transparency of the distribution process.

Despite the veil of secrecy obscuring the trip, we do have some idea of Kim’s activities.  Yonhap, the South Korean news agency, has reported that Kim has toured special economic zones in China in an apparent effort by the Chinese to persuade him to adopt a modicum of economic liberalisation. China, fearing a large influx of North Korean refugees should the North collapse, would welcome any policy shift that would promise greater prosperity for North Koreans.

The South Korean President, Lee Myung-bak, meanwhile, has welcomed Kim’s visit, reasoning that such trips give the reclusive North Korean leader an opportunity to learn from China’s development and that such lessons “will bring about changes”.

Any changes, however, can be expected to be gradual and tentative.  In short, no matter what announcements follow this trip, the thinking of the North Korean government is likely to remain opaque as different factions vie for influence.

Japan May Drop the F-35

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F35

Japan may drop the F-35 as its next fighter

Due to a combination of delays, rumoured poorer than expected performance and an ever-increasing price tag, it has been reported that Japan is considering dropping the F-35 as its next-generation fighter.

The most likely alternative is said to be the F/A-18 Super Hornet.  The Eurofighter was also under consideration as of April, but was thought to be the third choice because Japan’s Self Defence Forces prize co-operation and co-ordination with the U.S. military.

Japan had earlier expressed its interest in acquiring the F-22 Raptor, but such hopes were frustrated by the export ban placed on the jet and its subsequent cancellation on cost grounds.

The final decision is expected to be announced toward the end of 2011 and will see Japan replace its existing F-15s and F-4s.  The F/A-18 Super Hornet would certainly be a cheaper – and combat tested – option than the F-35 which has seen its unit cost balloon to $122 million, roughly double the 2001 estimated price.

In addition, what this means for Japan’s indigenous Shinshin (Spirit) fighter remains unclear.  Originally conceived as a back-up to the purchase of the F-22, the Shinshin project took on greater urgency following the F-22 export ban. Since 2009, Japan has invested US$500 million in its development, though some reports have suggested that, in the wake of the tsunami, expensive military procurement programmes may be one area considered ripe for cuts by Japanese politicians.  Given that the Japanese Defence Ministry has estimated that the cost of the project will run to US$100 billion – compared to the US$60 billion Raptor project – such an outcome is extremely feasible.

It should, however, be noted that Japan traditionally pays more for its self-developed military equipment due to high material costs and small production figures given Japanese regulations prohibiting arms exports. Such factors conspire to ensure that Japan typically pays at least twice as much as the U.S for weapons systems.

While the Shinshin could give the Japanese air force an edge over such regional competitors as Russian and, in particular, China, off the shelf U.S. designed jets such as the moderately stealthy F-15 Silent Eagle or Super Hornet would most likely ensure continued parity for the foreseeable future.

Labour Disputes and the State of the Vietnamese Economy

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Vietnam has seen a marked increase in labour disputes in 2011 as the communist state attempts to cope with a high rate of inflation.

By the end of March,Vietnam had suffered 220 work stoppages.   This compares with 216 throughout all of 2010.  Official statistics testify to the severity of the problem.  Consumer prices rose by 17.5% from April 2010 to 2011.   Only Ethiopia and Venezuela saw a higher increase.  Such dismal figures have seen the dong devalued against the dollar six times since 2008.

As prices rise and the value of their wages decline, it is unsurprising that frustrated Vietnamese workers resort to wildcat strikes.  However, the abuse of workers’ rights has also played a role in creating discontent.  A recent survey conducted by the Institute of Workers and Trade Unions found that only 60% of contracts at foreign direct investment firms were compatible with Vietnamese labour laws.  Indeed, even the government recognises that poor enforcement of employment legislation has been a major source of grievances.  Pham Minh Huan, the Deputy Labour Minister, has agreed that the government needs to simplify labour regulations and enforce workers’ rights.

The government is also attempting to tackle inflation.  It is pursuing a package of measures knows as Resolution 11, which, in the words of the State Bank of Vietnam, require it “to implement several monetary and banking solutions to carry out such tasks in 2011 as pursuing a tight and prudent monetary policy, keeping credit growth below 20% and total liquidity of about 15%-16%, and interest and exchange rates at reasonable levels.”
The Resolution demands that private credit is curbed from its current 120% of GDP (up from under 40% in 2001).  In fact, the dong is at risk of becoming the third currency in Vietnam as Vietnamese flock to change their cash to dollars or gold.  Amazingly, in Ho Chi Minh City, DongA bank has unveiled an ATM that dispenses gold bars!

In order to make the dollar less attractive, the government has limited the rate of interest on dollar deposits to a mere 3%.  This compares unfavourably to rates as high as 14% on accounts in the Vietnamese dong.

In addition, the government is attempting to address the problem of waste in public spending.  Resolution 11 requires it to cut back on public investment which ran to 17% of GDP in 2009.  It has also raised energy prices.

Such policies, however, while promising to return a balance to government finances, also have negative side-effects.  For example, a considerable amount of growth has been create by state owned enterprises (SOEs) and real-estate investment (land in Hanoi has been recorded as selling for an astonishing US$60,000 per square metre – higher even than New York or London).  If growth slows as it is expected to there will likely be calls to kick-start credit growth which would in turn encourage inflation.

In short, the immediate future of the Vietnamese economy seems uncertain.  Nevertheless, growth that would be the envy of the developed world is still assured. The Asian Development Bank has recently reduced its forecast for Vietnam’s GDP growth in 2011 from the 7% it predicted in 2010 to 6.1%. Vietnam is also likely to benefit from further investment as the Chinese renminbi appreciates and Chinese wages rise.

Prospects for U.S. – China Military Talks

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Next week will see the resumption of military to military talks between the U.S and China.  Coming in the wake of the U.S.– China Strategic and Economic Dialogue, what can we expect from this exchange?

Since the last such talks in 2009, China’s domestic and foreign posture has become more assertive.  Domestically, the Chinese government has cracked down on dissidents with renewed vigour, most notably in the sentencing of Liu Xiaobo, the 2010 Nobel Peace Prize winner, for subverting state power, and the recent detainment of the artist Ai Weiwei, ostensibly related to as yet undetailed financial crimes.  In addition, the recent inchoate online calls for a Jasmine Revolution to mirror the current turmoil in theMiddle East has spooked the CCP who fear any example of resistance to authoritarian government.

China’s foreign policy has also displayed a harsher edge.  While for some time Beijing’s diplomacy won some prestige and plaudits through its involvement with the Six Party Talks on North Korea’s nuclear weapons programme, from 2009 China began to consciously lean toward Pyonyang.  When North Korea sank the South Korean corvette, Cheonan, the Chinese refrained from criticising North Korea, alienating Seoul.  This state of affairs was only exacerbated by Beijing’s muted response to the DPRK’s shelling of Yeonpyeong Island.

This has had the twin consequences of pushing South Korea closer to the United States and, surprisingly, given Seoul’s historical grievances against Japan, has even led South Korea to investigate the possibility of a military pact with Tokyo.

Japan was also taken aback by the Chinese response to its arrest of a Chinese trawler captain whose vessel rammed a Japanese patrol boat.  Although Japan ultimately repatriated the fisherman, China’s aggressive reaction – holding up the export of rare earth minerals, demanding an apology and detaining Japanese citizens resident in China in an apparent retaliatory gesture – concentrated Japan’s mind on the possible future threat represented by China.  Such thoughts are not reassured by the continued presence of Chinese submarines in Japanese waters nor by the buzzing of a Japanese destroyer by a Chinese military helicopter off Okinawa in March.

The Philippines has also complained about the treatment one of its survey vessels received in the resource-rich South China Sea.  According to Manila, Chinese patrol ships threatened to ram the survey ship.  Vietnamese fishing boats have also been harassed by Chinese vessels.

The issue of China’s maritime actions came to a head in the summer of 2010 when the PLA claimed “indisputable sovereignty” over the South China Sea, albeit with the caveat that it would allow others to freely navigate these waters.  The suggestion that the Chinese consider the South China Sea a core interest was of considerable concern to others who claim territory in these waters.  The Vietnamese, for example, continue to claim ownership of the Paracel Island Chain, from which China evicted them in 1974.  They also differ on ownership of the Spratly Islands, while countries such as Malaysia, the Philippines and Brunei also claim ownership over parts of the sea.

Finally, the Chinese also chose to unveil and test its J-20 fighter jet during the visit of U.S. Defence Secretary Robert Gates.

The reasons behind this new assertiveness are unclear, but it seems probable that it is the result of a number of factors, such as poor co-ordination between Chinese bureaucracies, a lack of control at the very top allied to the sense, particularly in the wake of the Global Financial Crisis and the relative decline of the West vis-à-vis China, that now Beijing is strong enough to adopt a more assertive and aggressive foreign policy.

The U.S. for its part has also been active.  In 2009, Vietnamese officials were invited to visit an American aircraft carrier, the USS John C. Stennis in an apparent attempt to continue to build links withVietnam as a hedge against China.

July 2010 saw U.S. Secretary of State Hillary Clinton give a speech at the ASEAN meeting in Hanoi in which she emphasised that Washington considered any territorial disputes in the region to have global implications because of its role as a trade route and source of natural resources.  She particularly irked Beijing by suggesting that the U.S.could act as an arbiter in any such regional disputes, offering support for smaller South East Asian states anxious about the prospect of bilateral disputes with Beijing. China’s Foreign Minister, Yang Jiechi, was particularly riled by this, stating that Clinton’s words were “an attack on China” and adding, in conversation with George Yeo, the erstwhile Singaporean Foreign Affairs Minister, that “China is a big country and other countries are small countries, and that’s just a fact”.  Such remarks further alienated China’s neighbours.

Clinton followed this trip with an October tour of a number of countries around the Asia Pacific, including China, aimed at re-affirming Washington’s commitment to the region.

This, then, is the background to the resumption of talks.  While both sides are unhappy at the actions of the other, they realise that they have common interests and that their relationship is too important to neglect.  As American power declines relative to that of the Chinese, such talks will become increasingly important.  Small and middle power countries in the region will look on with interest and hope that American engagement in the region will restrain the Chinese. Beijing may look at the resumption of these talks as a way to begin to undo the suspicion that its clumsy diplomacy of the last couple of years has created amongst its neighbours. Beijing is still keen to promulgate its narrative of a harmonious rise that promises no ill to its neighbours or the wider world.  While it is unlikely that these talks will result in any radical outcomes, it is to be hoped that their resumption will lead to further development and maturation of the most important bilateral relationship in the world.

The 2011 U.S. – China Strategic and Economic Dialogue

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The third annual U.S. – China Strategic and Economic Dialogue took place in Washington this week.  It afforded several hundred officials representing both countries the opportunity to discuss issues facing the most important bilateral relationship in the world.

 While no radical changes have resulted from the meeting, nor were any expected, both sides were keen to play up the positives. Hillary Clinton, the US Secretary of State, stated that such talks are contributing to greater understanding between U.S. and Chinese officials while the official Chinese news agency, Xinhua, was even more effusive, proclaiming that the dialogue was bound to usher in new opportunities for greater co-operation between the two countries.

 This may be so, but there remain significant differences between the two sides and the talks reflected this.  The U.S. pressed China on two key points:  the economy and human rights. In return, China promised to improve intellectual copyright protection.  It also promised to alter rules that U.S. companies argue make it difficult to compete for Chinese government contracts without making their technology available to Chinese companies. 

 U.S. concerns over the valuation of China’s currency, the renminbi (RMB), were also raised.  Though the RMB has risen by around 5% since last June, most analysts believe that it remains significantly undervalued, giving Chinese exports a strong advantage while simultaneously making American exports to China less competitive.  This imbalance resulted in a 2010 trade deficit of US$270 billion.

 China, however, had economic arguments of its own, blaming the U.S. for the trade deficit and encouraging the removal of controls blocking both the transfer of high-technology products to China and Chinese investment in the U.S.

 Human right, inevitably, were also a contentious issue given China’s particular sensitivity to what it considers meddling in its internal affairs.  Clinton announced that America remains concerned about the state of human rights in China and went further in an interview with The Atlantic in which she not only stated that China’s record is “deplorable”, but that the country is on a “fool’s errand“ to stop the flow of history.  This seems to be a clear reference to China’s recent crackdown on dissidents which has seen many activists detained, the imprisonment of Liu Xiaobo, the 2010 Nobel Peace Prize winner, and the disappearance of the artist Ai Weiwei.

In conclusion, while the Dialogue achieved little of substance, it remains a conduit through which both sides can build understanding and seek common ground.  As China’s wealth grows and its influence expands, the Dialogue will become increasingly important.