Sunday, July 13, 2014

China's Geopolitical Trouble

In my previous post, I spoke about China's economic troubles. China is a large and diverse country where over 90% of its population lies inside the Han core near the South and East China Seas. The borderlands of China such as Tibet and Inner Mongolia are held as buffer states. Historically, China has gone back and forth between periods of strong centralized control and decentralized fragmentation.

Geographically, China's population lives very next to the coastline of the South and East China Seas, as discusses earlier. The borderlands of China aren't only sparsely population, but they also contain very harsh terrain. It's for this reason that these borderlands were held as buffer regions to protect from invaders and it's for this same reason why control over these regions has never been permanent. The buffer regions are difficult to hold and control.

One of China's major geopolitical problems will be to keep the borderlands under the control of the current Chinese government. In many of the borderlands, there are already separatist movements that're beginning to form. Large portions of these populations are Muslim and there're even radical Islamist movements in many of these regions. Keeping all of these regions under tight, centralized control will be a key geopolitical challenge for the Chinese government.

Another major geopolitical challenge will be natural resources. Over the past few decades, we've seen a massive surge in capacity in China. This massive increase in capacity has caused a need for China to import lots of natural resources. China is the world's largest consumer of many different natural resources--particularly industrial commodities. Attached to the right is a chart from GMO that shows how much China accounts for the world's usage in various industrial commodities. Note that the chart was taken in 2011 and virtually all of those numbers have gone up. Clearly, China consumes a disproportionately large portion of the world's industrial commodities, but it's more important to notice what these commodities are used for: infrastructure and investment. In other words, the massive infrastructure and investment boom in China is driving worldwide demand for these commodities, many of whom China has to import.

It's also important to note that China not only imports large quantities of industrial commodities, but it must also import large amounts of energy, like crude oil and natural gas, in order to provide energy for its population. This drive for natural resources has led China to make investments in Africa, a natural gas deal with Russia, and conflicts its neighbors like Japan, Taiwan, and the Philippines.

Due to these conflicts and disputes over natural resource reserves, we could definitely be seeing a geopolitical fault line develop on the East and South China Seas. Also note that as China has been gaining power on the international stage, it becomes economically critical to keep supply lanes and trade routes open for transport of these natural resources we're talking about. It's in the interests of Japan, Taiwan, the Philippines, Vietnam, and even Australia to prevent China from gaining strength not only in the East and South China Seas, but in the Pacific Ocean as well. In other words, the geopolitical fault line lies along the middle of the East and South China Seas. In the map above of the East China Sea, there is the territorial dispute over a certain region that contains critical oil and gas reserves that both China and Japan need access to. In the map to the right in the South China Sea, the territorial disputes between China, Malaysia, Brunei, Philippines, and Taiwan are disputed. In both cases, the disputes aren't about any set of islands, as claimed by many media sources. The disputes are about natural resources.

Due to the threat of China gaining power in these regions, the US has also taken the side of the countries on the other side of the East and South China Seas. There is a very realistic chance of the US supporting or taking up a containment policy with regards to China. The proposal of the Trans-Pacific Partnership (TPP) could be the first step to unite Japan, Taiwan, Vietnam, South Korea, and Australia against China.

There is a real threat of China getting engaged in wars (or proxy wars) with several of these countries. If China has to deal with separatist movements on its western borders while having to fight with the countries that lie east for naval control, it could be very difficult for China. Also note that China will be going through an economic transition wherein the economic growth model that the country uses must shift. Dealing with all of these issues at once will be a very difficult problem for China. If the conflicts to the East divert more of China's attention, there is a real possibility of China fragmenting over the next 15-30 years. China's central government will be tested and it will be difficult to maintain strong, centralized control over all of its modern day borders--especially if the economic transition takes place successfully.

Note that if China does fragment, the Han core will stay together. Throughout its history, China has gone back and forth between strong centralized control and fragmentation. Right now, we could be in the middle of a shift back towards seeing some sort of a fragmentation of the country. I'm not saying that a fragmentation will happen, but there is certainly a risk of fragmentation. And the risk of fragmentation increases as the amount of war the Chinese government takes on increases.

If China does go to war, maintaining control of those trade routes required for the importation of natural resources will become much more difficult. If China refuses to adjust economically in the necessary manner and instead chooses to become imperialistic in order to fund its desire for the natural resources needed to keep its current production and growth levels at current rates, it makes the likelihood of fragmentation more likely. What's happened to China over the past few decades has never happened in the same size, scale, or scope throughout world history. There are negative consequences for such actions, but it's difficult to know what they are. But rest assured, those consequences will display themselves and soon become obvious over the course of the next months, years, and decades.

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