China has just finished celebrating the beginning of the Year of the Snake. Just like a snake, China has also begun to recoil discreetly to the west. As the US makes a push for the Pacific, China responds by strengthening its position on the continent, as Sun Tzu would have wanted, and with some success. The strategy involves the procurement of resources, energy, installing infrastructure, signing strategic agreements for up to 20-30 years, all in key area like the Middle East and Southern and Central Asia, all according to the “Look West” doctrine illustrated by Wang Jisi late last year.
We can look at some examples, some of which are heavily commented in the media, and others less. Burma (or Myanmar) is being heavily courted by the US as they seek to foster its democratization and pushed for the return of Lady Aung San Suu Kyi, who was warmly greeted by Obama during his visit last November. China, however, responds with hard facts as they announce the impending Sitwe-Yunnan oil pipeline. It will be a grand piece of infrastructure, crossing the northern part of Indochina and will allow China to bypass the Strait of Malacca, through which passes 80% of all oil destined to Beijing. Burma itself stands to gain significant strategic importance.
While they scramble to regain ground in Burma, America seems to be losing it in Pakistan, a long-time regional ally. Ties between Islamabad and Beijing were initiated by General Musharraf, who sought to “escape” being conditioned by the US. He did not fare well, partly due to this decision, but friendship between Pakistan and China has endured. Beijing is Pakistan’s second most important trading partner and has just bought the critical deep water port of Gwadar, built years ago by a Chinese company but managed since then by the Port of Singapore Authority. Gwadar is located at the mouth of the Persian Gulf and is the closest to the energy rich countries of Central Asia. An enviable position that the Chinese did not let get away from them. Better yet would be to link the port with China via rail, road, and pipeline, all things the Chinese government knows how to do well, and with the right dose of patience (Pakistan will be holding elections this year, for example).
Moving west, we see that China has by now become a crucial actor in the Middle East as well, where Beijing’s atheism has historically been at odds with the religious monarchies of the Gulf. After September 11, and especially after the Arab Spring, the lords of oil no longer feel safe with Washington and have begun to make deals with Beijing. Saudi Arabia is China’s principal supplier of oil, and following visits by King Abdallah to China in 2005 and Hu Jintao to Riyadh in 2006 and 2009 the partnership has been extended to defense and armament. Could Riyadh be losing faith in the USA? China has also become a crucial partner of United Arad Emirates, where it has signed energy and construction agreements, and recently announced that Dubai main bank, NBD, will begin to offer accounts in Renminbi. Is this the beginning of the end for Petrodollars?
The snake has not only slithered into Burmese pipelines, Pakistanii ports, or Dubai banks. It has gone much farther west, very close to the US. Last July, Chinese petroleum company CNOOC bought Canada;s Nexen for roughly $15 billion. Canada, besides its proximity to the US, is also a member of NAFTA, the North American Free Trade agreement signed between the US, Canada, and Mexico. Even Greenland, a land rich with rare earth metals currently extracted by Canadian and Australian companies, will soon see a proposal from the Chinese government worth $2 billion. Rare earth metals are an integral part of high tech manufacturing.
As Chinese investments multiply, especially in the energy sector, Europe and the US seem to be looking for a direction. The US has been pushing a “pivot to Asia” for months, but they appear to lack a clear idea and real political initiative, which has been limited to just some increased military spending, which portends the risk of a new Cold War. The Americans have already stumbled in the Middle East, where even a traditionally stable country like Tunisia is now experiencing the drama of a hasty and ill-timed transition towards democracy.
The European Union, for its part, is becoming ever more relegated to the sidelines and is now “objectively” much weaker. The most recent Council, with which Italian PM Monti said he was satisfied, has passed a historic series of budget cuts, which also had the support of UK PM David Cameron. IN the very year that the Euro crisis was supposed to be resolved, the EU has cut back on its ammunition. And if the one to truly gain an advantage was the Chinese Yuan? Asian stock markets, like Thailand’s or the Philippines’, are experiencing a boom similar to 1997-1998, but back then the Euro seemed like the more credible alternative to the dollar. Everyone today is asking themselves if and when the Yuan will be able to challenge the greenback, to the detriment of the Euro. After all, there have already been talks of an Asian currency area in progress in Eastern Asia, and as we have seen, the Yuan has already silently uncoiled in Dubai.