The rise of China and its implications The most salient geopolitical factor in the Asia-Pacific region related to regional security is the rise of China. China’s GDP overtook that of Japan in 2010, placing it second after the US. China has become the centre of media attention since the global financial crisis that started in 2008. Even with China’s widening gap in income distribution, serious corruption and lower GDP per capita, if China maintains a 7-8 per cent annual economic growth rate in comparison to the US’s 2.5 per cent, China’s GDP will become the world’s largest by 2025-2030 (see Table 14.1) (Subramanian 2011: 69; Babones 2011: 79-80). China has long been the largest holder of US debt, with a total of US$1,144 billion in March 2011, US$1,169 billion in March 2012 and US$1,272 billion in March 2014.3 Bilateral merchandise trade between the US and the People’s Republic of China reached US$590.6 billion in 2014, with the US exporting US$124.0 billion to China while absorbing US$466.6 billion in Chinese goods (see Table 14.2). Noting the Chinese challenge, the US Secretary of State, Hillary Clinton, once asked ‘How do you deal toughly with your banker?’4 The same logic might be also applied to Taiwan. Taiwan is heavily dependent on

China’s market, with the two-way trade volume hitting US$198.3 billion in 2014, and Taiwan enjoying a surplus of US$105.5 billion (see Table 14.3). Despite being a much smaller economy, Taiwan’s exports to China have been larger than those to the US, resulting in a high degree of vulnerability for the island’s economic security (Pan 2014: 1). Beijing’s quota and voting shares in the International Monetary Fund have expanded, and it was set to become the member country with the third largest quota share after the US and Japan in 2013-2014.5 In October 2014, Beijing, which has pledged to contribute an initial US$50 billion in capital, announced the establishment of Asian Infrastructure Investment Bank (AIIB) to offer financing for infrastructure projects in developing countries across Asia, which has given officials in Japan and the US an entrenched suspicion of Chinese attempts. Speculation on a Group of Two (G-2) has been widespread in the Asia-Pacific region since March 2007 (Ferguson 2007). In China, senior state leaders have been cautious not to accept the invitation of co-management with the US over global issues, while younger experts and commentators are inclined to accept the G-2 arrangement. In the fourth round of the US-China Strategic and Economic Dialogue in May 2012, Beijing subtly declined the G-2 proposal and replaced it with a new name, urging more cooperation and coordination (C2) between the two countries.6 The rise of China has given the Chinese a sense of superiority, since they are enjoying the best-ever economic prosperity in Chinese communist history. Instead of being number two after the US, China is thought by some Chinese observers to actually be the number one among the developing countries not dominated by the US. For some observers, the ‘Beijing Consensus’ and Chinese methods of national development could serve as a model for other countries, in contrast to the ‘Washington Consensus’ (Wang 2011: 76). The PRC is wielding its economic power by promoting an amicable, tranquil and prosperous neighbourhood policy. The former President, Hu Jintao, has established strategic

partnerships with other major countries with the exception of Japan and the US. China’s strategy may not feature a revisionist international agenda, but the critical question is whether China and the US ‘are able to rise to the challenge of managing their inevitable disagreements in a world where China plays a more prominent and active role’ (Goldstein 2005: 216). For the first time in Sino-Japanese history, China’s rise has placed the two countries on a more equal footing, and they have entered into a bumpy relationship in almost every dimension. After the Yasukuni Shrine visits under the Koizumi government, Japan and China released a joint statement with regard to building a strategic and reciprocal relationship, but Beijing and Tokyo have increasingly been protesting against each other’s intentions and activities in the disputed islands in the East China Sea. In addition to an unstable governmental relationship, the animosity between the peoples of China and Japan has increased into the twenty-first century. A series of surveys released by Japan’s cabinet office indicated that Japanese affinity toward China dropped dramatically from 32.4 per cent (2009) to 20 per cent (2010), 26.3 per cent (2011), 18.0 per cent (2012), and 18.1 per cent (2013), a record low since the first survey in 1978.7 The survey might have been affected by an incident when a Chinese fishing boat collided with a Japanese Coast Guard ship within twelve nautical miles of the Diaoyutai (Senkaku) Islands in September 2010. A series of protests erupted in both China and Japan. Beijing sometimes links the disputed Dokdo (Takeshima) Island that lies between Japan and South Korea with the Diaoyutai issue, portraying Japan as a nation with territorial ambitions. For Japan, Chinese naval activities in waters surrounding Japan’s remote islands to the southwest are most alarming (Kachi 2012). To make matters worse, since Japan’s nationalization of the Senkaku/Diaoyutai Islands in September 2012 and China’s announcement with regard to establishing an Air Defence Identification Zone (ADIZ) in the East China Sea, these two countries have been on the brink of armed conflict in the overlapping ADIZ or Exclusive Economic Zones (EEZs). The People’s Liberation Army (PLA) Navy fleet has been increasing its training drills by passing through waters between Japan’s Okinawan islands and the Miyako Strait. In April 2010, a total of ten Chinese warships and submarines travelled from the East China Sea through the above-mentioned Strait to waters off the disputed Okinotori Islands – the southernmost point in Japan – in the Western Pacific Ocean. In July 2010, a destroyer and a frigate belonging to the Chinese Navy passed through these waters again. In addition, eight Chinese warships were detected in June 2011, six were spotted in November 2011, and three were detected in the same water areas in May 2012. These increasing Chinese naval activities have confirmed the US Pentagon’s prediction in 2010 that by 2015-2020, ‘it is likely that China will be able to project and sustain a modest sized force – perhaps several battalions of ground forces or a naval flotilla of up to a dozen ships – in low-intensity operations far from China’ (Office of the Secretary of Defence 2010: 29). It seems that the Chinese moves are taking place more quickly than expected and that China will be able to project and sustain large forces in high-intensity combat

operations far away from China, particularly in the waters between the first and the second island chains.8 China’s thirst for oil to fuel its economic powerhouse has driven Beijing’s leaders to tackle the Malacca Strait dilemma. Beijing has developed a string-ofpearls strategy to avoid its oil supply routes being blockaded by the US. The PLA Navy has increasingly projected power beyond Chinese EEZs. The PLA has conducted a series of opaque military exercises including satellite interception (January 2007), missile interception (January 2010) and a J20 flying test (January 2011), all of which gave rise to a great deal of international concern and debate. Five Chinese vessels blocked and surrounded a US surveillance ship, the Impeccable, in the South China Sea in March 2009. This indicates that China and the US have different interpretations regarding the military use of the EEZs (Zha 2011; Godement 2010: 21). In April 2009, Hu Jintao and Barack Obama decided to build a positive, constructive and comprehensive relationship between the two countries. Nevertheless, Beijing has argued that this relationship has been undermined by US arms sales to Taiwan and constant US military intervention in Chinese EEZs. In 2010, Beijing reportedly included the South China Sea as part of its ‘core interests’ related to China’s sovereignty and territorial integrity. In the summer of 2011, a ship belonging to China’s State Oceanic Administration cut the cables of a Vietnamese oil exploration ship in the South China Sea, which led to a series of antiChinese protests in Vietnam, followed by an exchange of diplomatic fire between China and the US at the ASEAN Regional Forum annual meeting in Hanoi. In April 2012, the most serious maritime and diplomatic conflict between China and the Philippines erupted in waters around the Scarborough Shoal in the South China Sea. China was again portrayed as bullying its much weaker neighbour. In May 2014, China’s placement of its first oil rig in disputed waters south of the Xisha (Paracel) Islands led to anti-China riots and the looting of foreign factories in several Vietnamese cities, where Taiwanese business people and Chinese migrant workers suffered the most direct consequences. The rise of China is not always perceived in negative terms, and Beijing might have played an active role on the Korean Peninsula. China has been perceived by international observers as the key aid donor and economic partner of North Korea; for example, more than 80 per cent of North Korean consumer goods and crude oil come from China (Kim 2011: 136). Beijing has also acted as mediator and initiator of the Six-Party Talks in defusing crises on the Korean Peninsula. China and other parties, such as the US, Russia, Japan and South Korea, viewed the Six-Party Talks statements in September 2005, February 2007 and October 2007 as key documents which have laid the foundations for making the Korean Peninsula nuclear-free. After the sudden death of the North Korean leader, Kim Jong-il, in December 2011, Beijing dissuaded other concerned parties from taking provocative measures, while serving as the protector of Kim Jong-il’s youngest son, Kim Jong-un (Glaser and Glosserman 2010; Bilefsky 2011). The North Korean nuclear dispute and the political succession have increased the opportunities for China to play an active role in Northeast Asia and

for South Korea to seek security through cooperation with China (Ross 2010: 531). For the US, Sino-American co-management of any future crisis concerning North Korea could be a viable option or a test case for the two countries in maintaining stability in Northeast Asia, particularly with reference to the Taiwan Strait. Beijing has sometimes tried to convince the US that China does not have any intention of challenging US leadership, since the overall Chinese weapons capability is lagging 20 years behind that of the US (Hodge 2011). However, China is developing the capability to attack at long range as well as military forces that could deploy or operate within the Western Pacific, which the US Department of Defence characterizes as ‘anti-access’ and ‘area denial’ (A2AD) capabilities. In order to respond to China’s rapidly growing military capabilities, the US is pursuing an air-sea battle concept (ASBC) in its Defence Strategic Guidance released in January 2012 (Manyin 2012: 16). The application of ASBC comprises a variety of air, sea, undersea, space, counter-space and information warfare systems and operational concepts to counterbalance China’s A2AD. In 2010, the former US Pacific Commander Robert Willard stated that ‘China’s rapid and comprehensive transformation of its armed forces is affecting regional military balances and holds implications beyond the Asia-Pacific region’ (Gertz 2010). Additionally, the US and Japan set a common strategic objective to ‘encourage China’s responsible and constructive role in regional stability and prosperity, its cooperation on global issues, and its adherence to international norms of behaviour’, and to ‘improve openness and transparency with respect to China’s military modernization and activities, and strengthen confidence building measures’.9 With the inauguration of the China-friendly President Ma Ying-Jeou and an anti-independence KMT government in place, Beijing and Washington have been temporarily relieved to see improved cross-Strait relations taking shape. China has taken advantage of the US preoccupation with wars in Iraq and Afghanistan and the détente across the Taiwan Strait by undertaking efforts to weaken US influence in Taiwan. Beijing regards Ma’s presidency as a golden opportunity to further develop cross-Strait relations. The Chinese government has warned Taiwan and the US that the improvements in cross-Strait relations could be reversed if the Democratic Progressive Party (DPP) is returned to power on the island. Therefore, Beijing has not given a green light for the expansion of Taiwan’s international space. The threat of Chinese pressure and the domino effect of diplomatic allies falling away will cast a shadow over Taiwan’s international space. With the ‘back to Asia’ policy espoused by the Obama administration, Beijing has encountered a hostile security environment along its southern borders, both in the East China Sea and the South China Sea. For Beijing, relations with the US are too comprehensive and pivotal to be handicapped by US arms sales to Taiwan, human rights issues or naval standoffs in China’s EEZs. Since 2009, China and the US have been conducting an annual Strategic and Economic Dialogue that is aimed at building a cooperative partnership in

fighting the global financial crisis and reducing regional instabilities from the Korean Peninsula to the Gulf of Aden. The Taiwan independence problem has been temporarily marginalized in the dialogue, but it is far from being resolved, and the arms sales issue continues to be a source of friction between Beijing and Washington.