Canada Cozies Up to China

Tom Velk, Olivia Gong, 08/31/12

American politicians, political activists and special interests have been kicking sand in the eyes of Canada for the past several years. It is a reversal from the days of North American free-trade agreements signed by leaders who sang duets about smiling Irish eyes.

With pressure to secure votes in the November election, President Obama, to the delight of environmental activists, once again halted the TransCanada’s Keystone XL pipeline project, intended to move oil from central Canada to the Gulf. The move, for reasons beyond oil supplies or employment, is costly and hurtful to both U.S. and Canadian national interests. The Canadian angle in American foreign policy has been only a small part of election rhetoric, and the focus has been on energy and employment. But the issue could be of greater significance if voters understand the more important question: Is there a threat to America’s long tradition of easy relations across the forty-fifth parallel?

A shared national interest has always been a "no-brainer" in North American relationships. U.S.-Canadian strategic discussions have not always been easy, but they have been conducted against a backdrop of neighborliness. It helps that cross-border economic relationships are also defined by the rule of law. Not only does Canada supply 25 percent of American energy needs, but there also are treaty-level obligations, binding both sides, ensuring that such essential flows will be maintained even in the face of unexpected surprises. In the North American free-trade arrangements, Canadian energy supplies are specifically singled out in treaty language as secure and guaranteed.

Supporters of the NAFTA treaty claimed that such a binding of the special North American partnership had clear long-run benefits greater than any potential loss of sovereign authority. But this North American tradition of security of supply and a rule-of-law environment is now at risk.

Canadians were surprised by the American reaction to Keystone XL precisely because it was so contrary to the North American tradition of trust and reliability. Truly dependable contractual guarantees must be established once again and made secure if trust and security between Canadian and American economic and political agents are to be restored.

Cozying up to China

The United States buys three-quarters of Canada’s aggregate exports. Thus, the recent U.S. recession so diminished Canada’s cross-border shipments that the smaller northern neighbor also experienced an economic slowdown despite its otherwise solid fundamentals. Canada’s long-time economic integration with the United States began to look like unwise dependence rather than profitable specialization. “We would like to see the trade dependence on the United States fall, and it has been falling gradually,” Canadian prime minister Stephen Harper said. Quebec even wants to reverse the flow in a pipeline connecting Montreal with Maine, changing it from a means of importing foreign oil into an export vehicle for fracked oil and gas intended for overseas buyers.

Canada is opening more discussions with China as Harper assures that there will be more cross-Pacific exports of energy and other products. China has been buying energy operations in Canada for the past six years. Its portion of foreign investment in Canada is relatively small, but the new North American tension makes Chinese expansion easier.

U.S.-Canada relations may now be weakened by the junior partner, with external opportunities both rich and attractive. There are incentives for Canada, which can restore export stability and diversify the source of its overseas profits by pursuing relationships with China. U.S. critics of Canada’s flirtations with China, such as Senator Charles Schumer (D-NY), have discovered that their angry remonstrance does nothing to change Harper’s new strategy.

Unlike past Canadian leaders, Harper can more easily deal with China for the same reason Nixon could go there: Harper has vaccination marks to prove he is an authentic conservative who is not carrying water (though Canada even has export potential in bulk water) for the Left. A stable and diversified export earnings stream is in Canada’s national interest. And China has a fundamental interest in a diverse collection of economic links with G7-level nations.

A Three-Nation Partnership

Canada can both expand business relationships with China and maintain a strong relationship with the United States. In fact, it is in the long-term interest of the United States to encourage Canada to do more business with this emerging economic power in the East.

With the lightning speed of economic developments in China in recent decades, Beijing needs to increase its energy imports from more diverse sources. Chinese reliance on North American resources -- north of the border or otherwise -- will ultimately mean more leverage for Washington. As a world leader, the United States sometimes needs to play hardball and be the tough guy; meanwhile, it can have its little brother play the nice guy while achieving common goals.

Washington and Ottawa should come together and offer to help China develop the rule of law while insisting that it promise to behave better on questions such as intellectual property. There are rewards for all sides. For China, an internal move toward rule-of-law habits will serve its true national interest by making future domestic instability less likely. For the North American partners, oil exports will stabilize domestic needs and accelerate internal evolution in China.

Chinese involvement in North America will only grow over the next fifty years. Private players already see angles. Bechtel and Rio Tinto, U.S. and Canadian corporate powerhouses, are revamping British Columbia’s Pacific port facilities in Kitimat to better enable exports of oil sands bitumen that is soon to be directed away from the Keystone route.

Therefore a three-nation partnership, consisting of mutual promises to apply rule of law, will serve the long-term national interest of each partner. Mutual interdependence, a recognition of each other’s property rights, secure contract conditions and equal treatment under shared rules for business deals would provide economic and political dividends for all.

The U.S. presidential campaign has been focused on domestic issues: jobs, energy and personality factors. Foreign-policy questions, to the extent they play a role, are confined to the war with radical Islam and other problems in the Middle East. But the rise of Asia, and restoration of trust and good feelings with America’s most important trading partner, are every bit as important -- even more so for the long run. Let us hope someone stumbles over this reality before the electoral contest ends.

Tom Velk is an economist and director of the North American Studies program at McGill University. Olivia Gong is a research assistant at McGill University with experience in Chinese banking and finance.

http://nationalinterest.org/commentary/canada-cozies-china-7402

China thrives in soft corner with two-track U.S. strategy

BRAHMA CHELLANEY, 09/03/12

NEW DELHI — The U.S. strategy long has been geared against the rise of any hegemonic power in Asia and for a stable balance of power.

Yet, as its 2006 national security strategy report acknowledges, the United States also remains committed to accommodate "the emergence of a China that is peaceful and prosperous and that cooperates with us to address common challenges and mutual interests."

Can U.S. policy reconcile these two seemingly conflicting objectives? The short answer is yes.

The U.S., in fact, has played a key role in China's rise. One example was the U.S. decision to turn away from trade sanctions against Beijing after the 1989 Tiananmen Square massacre and instead integrate that country with global institutions — a major decision that allowed China to rise. Yet, paradoxically, many in the world today see China as America's potential peer rival.

Often overlooked is the fact that U.S. policy has a long tradition of following a China-friendly approach.

In 1905, for example, President Theodore Roosevelt — who hosted the Japan-Russia peace conference in Portsmouth, New Hampshire, after the war between the two countries — argued for the return of Manchuria to Manchu-ruled China and for a balance of power in East Asia.

The Russo-Japanese War actually ended up making the U.S. an active participant in China's affairs.

After the Communists seized power in China in 1949, the U.S. openly viewed Chinese Communism as benign and thus distinct from Soviet Communism. In more recent decades, U.S. policy has aided the integration and then ascension of Communist China, which began as an international pariah state.

It was the U.S. that helped turn China into the export juggernaut that it has become by outsourcing the production of cheap goods to it. Such manufacturing resulted in China accumulating massive trade surpluses and becoming the principal source of capital flows to the U.S.

America's China policy has traversed three stages. In the first phase, America courted the Mao Zedong regime, despite its 1950-51 annexation of Tibet and its domestic witch hunts, such as the "Let a Hundred Flowers Bloom" campaign. Disappointment with courtship led to estrangement, and U.S. policy then spent much of the 1960s seeking to isolate China.

The third phase began immediately after the 1969 Sino-Soviet bloody military clashes, as the U.S. actively sought to take advantage of the open rift between the two communist states to rope in China as an ally in its anti-Soviet strategy.

Even though the border clashes were clearly instigated by China, as the Pentagon later acknowledged, Washington sided with Beijing. That helped lay the groundwork for the China "opening" of 1970-71 engineered by Henry Kissinger, who had no knowledge of China until then.

Since the 1970s, the U.S. has followed a conscious policy to aid China's rise — a policy approach that remains intact today, even as Washington seeks to hedge against the risks of Chinese power sliding into arrogance. The Carter White House, in fact, sent a memo to various U.S. departments instructing them to help in China's rise.

In the second half of the Cold War, Washington and Beijing quietly forged close intelligence and other strategic cooperation, as belief grew in both capitals that the two countries were natural allies. Such cooperation survived the end of the Cold War. Even China's 1996 firing of missiles into the Taiwan Strait did not change the U.S. policy of promoting China's rise, despite the consternation in Washington over the Chinese action.

If anything, the U.S. has been gradually withdrawing from its close links with Taiwan, with no U.S. Cabinet member visiting Taiwan since those missile maneuvers. Indeed, U.S. policy went on to acknowledge China's "core interests" in Taiwan and Tibet in a 2009 joint communiqué with Beijing.

In this light, China's spectacular economic success — illustrated by its emergence with the world's biggest trade surplus and largest foreign-currency reserves — owes a lot to the U.S. policy from the 1970s, including Washington's post-Tiananmen decision not to sustain trade sanctions.

Without the significant expansion in U.S.-Chinese trade and financial relations since the 1970s, China's economic growth would have been much harder.

From being allies of convenience in the second half of the Cold War, the U.S. and China have emerged as partners tied together by close interdependence. America depends on Chinese trade surpluses and savings to finance its supersized budget deficits, while Beijing relies on its huge exports to the U.S. both to sustain its economic growth and subsidize its military modernization.

By plowing two-thirds of its mammoth foreign-currency reserves into U.S. dollar-denominated investments, Beijing has gained significant political leverage.

China thus is very different from the adversaries the U.S. has had in the past, like the Soviet Union and Japan. U.S. interests now are so closely intertwined with China that they virtually preclude a policy that seeks to either isolate or confront Beijing. Even on the democracy issue, the U.S. prefers to lecture some other dictatorships rather than the world's largest and oldest-surviving autocracy.

Yet it is also true that the U.S. views with unease China's not-too-hidden aim to dominate Asia — an objective that runs counter to U.S. security and commercial interests and to the larger U.S. goal for a balance in power in Asia.

To help avert such dominance, the U.S. has already started building countervailing influences and partnerships, without making any attempt to contain China.

Where its interests converge with Beijing, the U.S. will continue to work closely with it. American academic John Garver, writing in the current issue of the Orbis journal, sees a de facto bargain between Washington and Beijing in the vast South Asia-Indian Ocean Region (SA-IOR): "Beijing accepts continuing U.S. pre-eminence in the SA-IOR in exchange for U.S. acceptance of a gradual, incremental and peaceful expansion of Chinese presence and influence in that region."

For the U.S., China's rising power helps to validate U.S. forward military deployments in the Asian theater, keep existing allies in Asia, and win new strategic partners. An increasingly assertive China indeed has proven a diplomatic boon for Washington in strengthening and expanding U.S. security arrangements in Asia.

South Korea has tightened its military alliance with the United States, Japan has backed away from a move to get the U.S. to move a marine airbase out of Okinawa, Singapore has allowed the stationing of U.S. Navy ships, Australia is hosting U.S. Marine and other deployments, and India, Vietnam, Indonesia and the Philippines, among others, have drawn closer to the U.S.

The lesson: The rise of a muscle-flexing power can help strengthen the relevance and role of a power in relative decline.

Let us not forget that barely a decade ago, the U.S. was beginning to feel marginalized in Asia because of several developments, including China's "charm offensive." It was worried about being shunted aside in Asia.

Today, America has returned firmly to the center-stage in Asia, prompting President Barack Obama to declare his much-ballyhooed "pivot" toward Asia.

To lend strategic heft to the "pivot," the U.S. is to redirect 60 percent of its battleships to the Pacific and 40 percent to the Atlantic by 2020, compared to the 50-50 split at present.

Despite the "pivot," the U.S. intends to stick to its two-track approach in Asia — seek to maintain a balance of power with the help of its strategic allies and partners, while continuing to accommodate a rising China, including by reaching unpublicized bargains with it on specific issues and Asian subregions.

Brahma Chellaney is the author of "Asian Juggernaut" (HarperCollins) and "Water: Asia's New Battleground" (Georgetown University Press).

http://www.japantimes.co.jp/text/eo20120903bc.html

如我在另一文中所說：「我沒什麼悟性或靈性。」

France's China Challenge

Francois Godement, 08/30/12

Can France still afford to have its own "China policy"? Economic anxiety can produce wrong policies. China is now indeed at our doorstep, both as an unavoidable salesman and as a buyer on the lookout for opportunities. But the European market is also vitally important for the Chinese - as an outlet for its overabundant exports, as an alternate option for their currency reserves and as a target for investment diversification.

Are these compelling reasons for France to court the People's Republic? Viewed from the perspective of the euro crisis, it is unrealistic to think that Chinese leaders will base their lending and investment decisions on the quality of their political relations with Europeans. Their nagging fear is the eventuality of losing the stash of cash that a quarter of a century of mercantilist policies have brought to China. Ultimately, for France, it is the prospect of a successful leadership and coordination role among European countries in the relationship towards China, the possibility to establish new links with other big emerging countries, and a constant openness to Chinese proposals, whenever they include implementation of international rules, which will lead to a successful China policy.

Engaging with China is a perilous exercise, which has put to the test successive French presidents. Valery Giscard d'Estaing dared to redefine France as a large medium power ("une grande puissance moyenne") in 1975. Chinese diplomacy skilfully kept alive the French hope for a privileged relationship with China, based on De Gaulle's recognition of the People's Republic in 1964. Jacques Chirac, an unabashed admirer of China as a "grande puissance", held the illusion of politically based trade - big business deals founded on good intergovernmental relations. His predecessor, François Mitterrand, had remained fairly indifferent to China; he was however unable to find a suitable trade policy or the international partnerships that would have enabled France to balance the relationship.

Two opposite stances have defined the terms of the debate for a China policy. The first one is adaptation, and eventually compliance, to China's requirements. The choice doesn't bear much relation with domestic politics: in the UK and Germany in fact, the conservative governments of Merkel and Cameron haven't been shy in their political criticism of China, while Schröder, Blair or Brown were much more inclined to praise Beijing. In private, many large European companies fret about China's increasing economic clout. But the fear of retaliatory measures is so great that no CEO dares to publicly share his/her concerns. German industry figures, who have captured a 50% share of European exports to China, are an occasional exception, as they do not practice this kind of self-censorship when their direct interests are at stake.

The other stance is about reassertion - and in some cases, openly voicing criticism. It is easier to practice this attitude from the benches of the opposition. Indeed, nothing should deter us from speaking about democracy and the rule of law in China. Chinese leaders occasionally maintain that these are empty lessons coming from an arrogant and exhausted West, but the truth is that they are sensitive to an evolution their own reformers believe to be inevitable.

Nicolas Sarkozy tried to forge a new path. He inherited Jacques Chirac's quest for big business deals mindset but widened the effort to India and Brazil - two major emerging economies and competitors of China. He tried to separate politics from economics, and the warnings he voiced during the violent events in Tibet in 2008 were not that different from the position adopted by France in 1989 during the Tiananmen crisis. On the economic front, Nicolas Sarkozy made two new choices: firstly, a necessary Europeanization of China policy (none of the EU member-states can afford any longer to go it alone), and secondly, an open attitude towards China on issues of global financial governance. Indeed, it is not realistic to ask China for major changes of behaviour on the one hand, yet to deny it more international leverage and standing on the other. All this included as well a measure of doublespeak: France has been pushing in Brussels for reciprocity on public markets and investments. But at the same time, it had already welcomed Chinese investments in its energy companies despite the sensitive issue of national sovereignty. In 2011 France has in fact become the first destination of Chinese investments in Europe.

France and Europe find themselves in a triangular relationship with the U.S and China. Washington has better tools than Brussels both to find the right opening to Chinese investments and to put the necessary safeguards in place. Building a Chinese policy requires an opening to its capital while at the same time engaging in a battle for more regulation and transparency. This may imply working towards a standardization of European legislations in several fields, going from railway infrastructure to banking legislation, which are of a disconcerting complexity to newcomers. In return, China should give up its tradition of state support for its firms on the global market, and start opening more widely its own companies to foreign alliances and cross-participation.

Europe and France will only be able to reclaim a position of strength if they demonstrate their ability to coordinate economically. From this perspective, the Franco-Chinese relation is a strategic case-study.

François Godement is Professor of political science at Sciences Po in Paris, Director for strategy of Asia Centre, also in Paris, Senior policy fellow of the European Council on Foreign Relations, and non resident Senior associate of the Carnegie Endowment for International Peace (Washington).

http://www.realclearworld.com/articles/2012/08/30/frances_china_challenge_100213.html