Asia Rising: The Increasing Relevance of East Asia in Foreign Policy

In late May, Putin and Xi Jinping signed a massive 400 billion dollar natural gas deal in Shanghai. For the next thirty years, new pipelines will pump trillions of cubic feet of natural gas from Russia’s Gazprom, the world’s largest natural gas extractor, to the China National Petroleum Company (CNPC). While the agreement certainly comes at a critical time for Putin strategically as he counters US and EU sanctions, it is representative of a larger global trend: an economic, political and defensive shift toward the East.

Putin has been pushing for an energy deal with China for nearly ten years, and rightfully so. China, and Asia more broadly, has a vast market for oil and natural gas with its megacities and booming economy. The deal between Gazprom and CNPC gives Russia a foot in the door of this profitable energy market. Providing up to 20% of China’s natural gas needs, the deal finally solidifies the Sino-Russian alliance that Putin has been advertising. What’s more, the two countries will be paying with their own currencies, the ruble and yuan, completely bypassing the American dollar, which is traditionally used in energy transactions. Although the dollar has long been the international reserve currency of choice, Russia’s VTB and the Bank of China’s decision to trade in domestic currencies stresses the exclusivity of the Eurasian trade deal; the US is not welcome. Although this alone does not significantly destabilize the petrodollar, it certainly undermines American relevance in the deal and indicates Putin’s increasing focus on relations with Asia.

Putin’s meeting with Xi Jinping also comes on the heels of Obama’s four-country Asia tour in April. After a canceled trip to Asia during the October government shutdown, Obama’s tour demonstrates the president’s desire to make good on his foreign policy goal to “pivot to Asia.” In his visit to Japan, South Korea, Malaysia and the Philippines, Obama focused on strengthening economic and military relationships. The trip resulted in increased numbers of American military personnel and equipment stationed in the region; yet, thus far, Obama’s plans for future economic partnerships have not been realized.

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President Obama is the first American president to visit Malaysia since Lyndon B. Johnson in 1966. 2014. (Flickr Creative Commons/The White House)

Neither the Malaysian nor Japanese leadership approved Obama’s Trans-Pacific Partnership (TPP) to increase connectivity between the Asian and American economies. Despite domestic backlash from Democratic Senators and Congressmen, Obama has continually pushed for more economic cooperation across the Pacific. Obama, like Putin, hopes to benefit from the expanding Asian markets; the TPP would eliminate tariffs between the US and several Latin American and Asian states. According to Don Emmerson, a political scientist at Stanford, “Americans cannot afford to deny themselves…the opportunities for trade and investment” present in Asia, but Asian leaders, however, seem less enthusiastic. In Japan, Abe refused to join the partnership due to the protected five sacred areas of Japanese agriculture. In Malaysia, political “sensitivities” and economic concerns also halted progress. The TPP has major implications for American and Asian economies (Japan is America’s biggest trading partner in Asia aside from China). Thus, although no agreement was reached during the tour, the American, Japanese and Malaysian leaders promised to continue negotiations. These promises give President Obama a glimmer of hope that soon the Asian governments will be more receptive to the partnership. It should be Obama’s mission, then, to adjust the TPP to be more beneficial for all states involved, especially those with heavily protected domestic industries.

TPP negotiations were also designed to reestablish American’s military presence in East Asia. The US military will continue to maintain operational control of the Demilitarized Zone between North and South Korea. This agreement gives the US command of South Korean troops in the event of war with North Korea. In Japan, Obama reassured Prime Minister Shinzo Abe that the Senkaku Islands (or the Diaoyu Islands, as they are known in China) would fall under American protection in the case of a threat. These uninhabited islands have long been disputed by Japan and China, who both claim ownership of them. Obama’s declaration of support for Japan’s sovereignty in the maritime dispute is a signal of disapproval to China, whose military actions in the East and South China Seas concern many Asian states. As expected, China was not pleased by Obama’s remarks.

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The Senkaku/Diaoyu Islands, located in between Japan and China. 2012. (Wikimedia Commons/Voice of America)

Obama’s actions in the Philippines were also bad news for China. The United States and the Philippines, which has experienced their own territorial disputes with China, responded with a 10-year defense treaty, the first since the 1990s. The treaty again serves as a counterweight to China. Yet, none of Obama’s military agreements should come as a surprise considering the staggering growth of China’s military budget. In 2014, China plans to spend $132 billion on defense, a 12.2% increase from 2013 – although most critics agree that the real number is significantly higher.

These figures make China impossible to ignore. Combine the country’s military expansion with its rapidly growing GNP and it becomes one of the greatest forces in the world today. China’s enormity and consequent impact on its neighbors, from Japan to the Philippines to Russia, have forced other world powers to readjust. Putin and Obama have played their hands, each trying to get ahead in the Asia-Pacific. Putin’s natural gas deal has created a buffer for conflicts in Europe and Obama’s efforts to increase economic cooperation and American military presence in Asia also indicate increased interest in Asia. It remains to be seen how other world leaders will react to the growing relevance of East Asia in global issues.

In early May, European Union (EU) leaders met with Shinzo Abe to reaffirm their positive relationship. At the meeting, the leaders discussed further economic and political ties, although no specific agreements were signed. The leaders of the EU and the Association of Southeast Asian Nations (ASEAN) will also hold a summit in October. Will Europe, like Russia, turn to China, Asia’s largest power, or invest in ties with other East Asian nations alongside President Obama? Regardless, it is clear that the “turn to Asia” is a legitimate and global phenomenon.

The views expressed by the author do not necessarily reflect those of the Glimpse from the Globe staff and editorial board.

The Bear and the Dragon

An hour outside of Mandalay in upper Burma (Myanmar), construction of the Sino-Burma pipeline tears through the thick jungle. The pipeline is a joint venture between China National Petroleum Corporation (CNPC) and Myanmar Oil and Gas Enterprises (MOGE) and is designed to ease China’s dependence on oil/gas transfers through the Strait of Malacca. (Photo Credit: Reid Lidow, All Rights Reserved 2012).

An hour outside of Mandalay in upper Burma (Myanmar), construction of the Sino-Burma pipeline tears through the thick jungle. The pipeline is a joint venture between China National Petroleum Corporation (CNPC) and Myanmar Oil and Gas Enterprises (MOGE) and is designed to ease China’s dependence on oil/gas transfers through the Strait of Malacca. (Photo Credit: Reid Lidow, All Rights Reserved 2012).

In recent months, international news has focused intensely on ominous developments in the East and South China Seas, along with the bloody sectarian dramas engulfing the Middle East. Conflicts across Africa, from Somalia to Nigeria to the Central African Republic, have also captured attention, though they remain largely under-reported in the Western press. Major political shifts between Iran, its neighbors, and the West, along with the confusion and unrest in the Ukraine as it seeks to define its relationship with its Eastern (i.e. Russia) and Western neighbors, rightly command the bulk of our attention as of late.

But in the midst of all this, beneath the eyes of a world preoccupied with clashes worthy of box office films, far subtler power plays are at work that will likely matter far more to the course of history than the flashpoints in Syria, Egypt, Somalia, and Ukraine. Consider foreign policy developments in Moscow and Beijing – though both states are plagued by internal unrest and beset by international humanitarian pressure, both states are clearly ascendant in their respective, and overlapping, neighborhoods. Their maneuvers in Asia will increasingly bring them into tension, and perhaps conflict, in the years to come. This is a development Americans should watch closely.

The tense relationship between the Bear and the Dragon in Russia’s Far East and China’s Northeast is legendary, from the days when exhausted Cossacks dealt with (and stole from) the Qing Dynasty. The Soviet Union propped up Communist states in Xinjiang and Mongolia while warlords, Nationalists, and Communists all squabbled over the ruins of China. When a Communist victory became apparent, the Soviets sought to make Red China essentially an arm of their global strategy, a relationship which Mao and his followers deeply resented. As the People’s Republic came into its own, it grew increasingly autonomous vis-à-vis patrons in Moscow, which would precipitate a series of violent border clashes in the late 1960s. Nixon and Kissinger’s skillful manipulation of this rivalry has been recorded in the history books. So fraught has been the relationship between the authoritarian giants that they only resolved their border disputes along the Ussuri River in late 2008.

The start of the 21st Century has seen a cooler, and on the surface more cooperative, Sino-Russian relationship. While the United States was distracted in Iraq and Afghanistan prior to 2011, both Beijing and Moscow began asserting themselves in their historic borderlands and defending each other’s positions. Their mutual condemnation of international interference in internal affairs, as seen with respect to Syria and Iran, seems to have pushed them closer together. Additionally, their alignment in the Shanghai Cooperation Association grants them at least hollow Eurasian authoritarian solidarity. Xi Jinping’s first foreign trip as President of the PRC was to Moscow; the diplomatic import of this visit should not be lost on us.

But the story does not end there. Important fractures continue to underlie the relationship, though they are far less tense in their present iteration. Russia and China remain powerful states with rising ambitions. Chinese-born workers and contractors take up a large share of the labor market within the Russian Far East province, and analysts estimate that the population of China’s border provinces is at least four or five times that of Russia’s border provinces. The immense resources of Russian territory are assuredly a powerful strategic draw for Chinese planners, and wary Russian policymakers strive to develop these resources without surrendering a total monopoly to the Chinese. What happens in this strategically critical region matters to Beijing and Moscow’s relationship.

Looking further afield, the Chinese and Russians are looking to balance their resources in the region to offset the other’s gains, though not explicitly. Russia has been working to improve its relations with South Korea, signing arms deals and free trade agreements far more generous than those it shares with its client states in Eurasia. To the South, Russia extended an invitation Vietnam, an old Soviet ally, to join its Eurasian Customs Union. To sweeten the pot, Russia has sold Vietnam refitted Soviet submarines. Looking West from Vietnam, the Kremlin is increasingly engaging with India, continuing to supply much of its military hardware while simultaneously negotiating bilateral energy deals. It is important to note that each of these three countries fought savage wars with China in the 21st Century and continue to engage in strategic competition with the dragon.

Russia’s grand strategy looks like a classic case of power politics. The ancient Indian strategist Kautilya argued that border states would always be enemies, and therefore states separated by a buffer would be natural allies. A brief glance at the map shows that China separates Vietnam and India from Russia, while South Korea borders China through North Korea, long China’s client state. Russia’s strategy is not necessarily bellicose, however as prudent statesmen have long recognized, when the time comes to exert pressure on another nation, it helps to have friends on that nation’s borders who fear and envy it.

Meanwhile, China continues its economic expansion and integration of the Asian continent. As has been widely reported, it initiated oil drilling in Afghanistan last year, making it the first energy investor in the war-torn state. Its pipelines crisscross Russia’s sphere of influence in Central Asia, traversing Kazakhstan, Uzbekistan, and Turkmenistan. China’s pipeline and highway projects in Myanmar stand poised to modernize that nation, while connecting the Indian Ocean’s trade directly to the Chinese heartland. Beijing also continues to provide security assistance to a Pakistan increasingly distrustful of the United States, and Pakistan hosts a Chinese port at Gwadar.

It is clear that the Chinese are concerned with boosting international economic development; foreign trade, especially in energy sectors, will be essential in sustaining China’s remarkable economic growth story as it seeks to pivot away from unhealthy domestic infrastructure spending sprees that have defined the last decade. But aside from being a mere cash cow, these foreign assets provide China with leverage in the host countries. That’s the power of the purse.

The new great game in Asia is not a particularly violent one, but it is an important one. As Russia and China rise and balance against each other, not unlike two scorpions in a jar, their interests are bound to clash. Policymakers in the US should continue to monitor these developments carefully as such problems will surely present challenges and opportunities. It is not hard to imagine American policymakers working with their Russian counterparts to contain a rising China while simultaneously working against an advancing Russia in contested regions such as Eastern Europe and the Middle East. American policymakers may even find themselves working more closely alongside their Chinese colleagues if the Xi Jinping era presents such an opportunity. The shifting geopolitical fortunes of Russia and China demand our statesmens’ most vigilant attention.

Xiaomi’s Expansion and the Test of Chinese Soft Power

Xiaomi is outselling Apple in the Chinese smartphone market, and recently announced its plans to expand globally. You may be asking: “Xiao-who?” Well, here is an introduction to the hottest tech company in China, their blueprint for expansion, and what this means for China’s growing “soft power” – a construct that emphasizes a state’s economic and cultural influence.

Xiaomi Founder at the Fortune Global Forum 2013. (via flickr: Fortune Live Media/ Creative Commons some rights reserved)

Xiaomi Founder at the Fortune Global Forum 2013. (via flickr: Fortune Live Media/ Creative Commons some rights reserved)

Ascent to Stardom

Xiaomi Inc. is an Internet service and consumer electronics company founded in April 2010 by Steve Job’s Asian twin, Lei Jun (see photo). Selling high-end smartphones at near production costs, Xiaomi has challenged Asia’s top smartphone providers in the Chinese, Taiwanese, and Hong Kong markets. In the second quarter of 2013, Xiaomi became the fifth-largest supplier of handsets in Mainland China. In August, Lei poached top Google executive Hugo Barra to orchestrate Xiaomi’s global expansion. And shortly thereafter, a “flash sale” of 100,000 Hongmi-model smartphones ($135 compared to the $750+ iPhone) sold out in 90 seconds. In October, Xiaomi sold 100,000 of the luxury Mi3-model smartphones ($327 for 16GB or $410 for 32GB) in 83 seconds. Less than four years after incorporation, Xiaomi has gained Apple-like popularity and a market valuation at $10 billion (equal to Lenovo or double that of Blackberry). Xiaomi executives project smartphone sales in the neighborhood of 20 million units by year’s end.

International Expansion

But they aren’t satisfied. At a recent media event in Taiwan, Lei and Barra announced their expansion into the Southeast Asian market, specifically Singapore and Malaysia. Why? Singapore and Malaysia have the necessary technological (network coverage) and regulatory (welcoming governmental and legal institutions) infrastructure for Xiaomi’s entry. Further, the people of Singapore and Malaysia are smartphone fanatics. Smartphone penetration in Singapore and Malaysia is at 87% and 80% respectively. Comparatively, the United States is at 60%.

Xiaomi may succeed in its initial expansion—despite entering a saturated market—for four reasons:

  1. Fandom: “Flash sales,” and the social media blitzkrieg surrounding these events, have generated frenzy among middle-class shoppers eager for the newest smartphone. Further, Xiaomi allows its customers to actively shape its software platform. Miui, a spinoff of Google Android software, is updated nearly every week based on the suggestions of its 5.1 million members. Client-customer collaboration has boosted Xiaomi’s popularity in China and promises to do the same in Southeast Asia.
  2. Increased competition: Samsung has run a near monopoly in the Southeast Asian smartphone market. But three Asian companies, Huawei, Lenovo and LG, are challenging its dominance and eating away at its market share each successive quarter. Xiaomi could benefit from an increasingly diverse market.
  3. Subsidies: Singaporean and Malaysian telecom operators offer smartphone subsidies. Thus, Xiaomi phones could be free with the purchase of a contract—an enticing offer for those who disheartened by the larger sticker price of a Samsung or Apple handset.
  4.  Apps: Singaporeans and Malaysians love apps. In fact, they score highly (Singapore at number one) in the World Mobile Readiness Index, a metric that calculates a population’s willingness to pay for mobile apps. Singaporeans’ and Malaysians’ willingness to pay for apps perfectly accommodates Xiaomi’s business model. Xiaomi has razor-thin profits on smartphones (compared to a company like Apple that has a 55% profit margin on the iPhone) and therefore relies on apps and accessories to generate profit.

Litmus Test

Xiaomi’s success in Singapore and Malaysia will be indicative of its potential success outside the Chinese mainland. Xiaomi has thrived in the Chinese market where Apple holds less than 5% market share and Google Play (Google’s “App Store”) is not officially available. How Xiaomi competes in areas where Apple and Google have a stronger grip will be telling. If unsuccessful, Xiaomi will likely retreat to China. If successful, look for Lei and Barra to deepen expansion in Southeast Asia, particularly in the Philippines—a country with a higher Mobile Readiness score than Malaysia and Hong Kong yet with only 15% smartphone penetration. The Filipino market would be wide open to an injection of Xiaomi products.

China’s difficulty in accumulating soft power has been well documented. However, much to the chagrin of some Americans, China’s soft power, particularly its global economic influence, is on the rise. A burgeoning tech market has begun to stimulate international growth for a number of Chinese companies (think Lenovo, Baidu, and Haier). Xiaomi’s success in Southeast Asia could demonstrate or precipitate greater success of Chinese companies in foreign markets. As a result, Chinese communication technology may attain the “cool factor” of Apple or Samsung products—which are widely regarded as fashionable and reliable. In short, Xiaomi may trigger consumers of Chinese tech products around the world to begin prizing the “Made in China” tag rather than associating it with mediocrity. And such a rise in economic influence is a necessary characteristic of any great power.