BISMARK´S LESSONS FOR BEIJING / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( VERY HIGHLY RECOMMENDED READING )

Bismark’s lessons for Beijing

By Wen Liao

Published: April 13 2010 22:38

Both America and China have blinked in their dispute over the renminbi’s exchange rate. A fortnight before Tim Geithner was due to pronounce on whether China manipulates its currency, the US Treasury secretary postponed the report. The decision followed President Hu Jintao’s announcement that he would attend this week’s US-led nuclear disarmament summit for forthright discussions on imposing new sanctions on Iran and curbing North Korea’s nuclear weapons programme.

Although putting the renminbi on the back-burner serves the interests of both Washington and Beijing, the world’s response to the debate suggests the dangers of such brinksmanship. America received almost no support for its tough stance, save for some mild words of rebuke from Dominique Strauss-Kahn, the managing director of the International Monetary Fund, and a soft joint letter of protest from five leaders of the Group of 20. There was a deafening silence from Japan and South Korea, both of which have massive investments in China. Their most powerful companies’ profits are linked to China’s export success, which a stronger renminbi would undermine.

But Beijing should not take comfort from this because its neighbours are increasingly jittery about Chinese power. Evidence can be found in India’s efforts not only to forge an alliance with the US but, during Vladimir Putin’s recent visit, to revive military ties with Russia. A call from Yuriko Koike, the former Japanese defence minister, for a strengthening of Japanese-Indian military ties also suggests that the region’s powers are looking for ways to contain China.

The critical moment came last year. In providing military aid and advice to Sri Lanka as it crushed the Tamil rebels, China revealed a willingness to wield its military might outside of its traditional sphere of influence, dramatically challenging India.

Moreover, by extending credits to prop up former Soviet states in central Asia and eastern Europe – demonstrating in financial terms its rejection of Russia’s claim to an exclusive “sphere of influence” in its near abroad – China showed its determination to maintain the post-cold war settlement across Eurasia.

China’s rapid economic growth over 30 years, combined with its military build-up, has made it Asia’s strongest power. After centuries of dominance by powers outside Asia or on its periphery – Russia, Britain, the US and Japan – China is reasserting the sway it held for most of its history and is exerting pressure in new areas, as in Sri Lanka.

Leaders in Beijing will need to become foreign-policy jugglers as they seek to prevent regional coalitions to keep China in check, maintain tolerably amicable relations with the US and develop an “Ostpolitik” to keep smaller neighbours – such as members of the Association of South-East Asian Nations – happy.

This juggling act is reminiscent of that required of Otto von Bismarck, the 19th century’s master diplomat-conjuror, after he united Germany. Bismarck strove ruthlessly to achieve unification and what he considered Prussia’s rightful place among the great powers. Having achieved these aims, he sought to preserve a new European equilibrium through prudence and restraint. But Germany had so mobilised its resources and nationalist sentiments that it terrified its neighbours. Soon, Bismarck was speaking of “the nightmare of hostile coalitions”. For all his efforts, it was a nightmare that would come true.

China’s dilemma is that, like Bismarck’s Germany, it surpasses in power all its neighbours combined (save for Russia with respect to its nuclear arsenal). To avoid the fate of the Second Reich, China must recognise and publicly accept that it is no longer a developing country but a global power with responsibilities that extend beyond its immediate national interests. It will need to explain its actions and factor other countries’ interests into its policies.

The dispute over the renminbi is a wake-up call for Beijing. But pulling back from the brink with the US is not enough. Nor can China rely on Asia’s “great chain of production” providing it with a secure and stable region. As with the Asian crisis of 1997, when China shunned beggar-thy-neighbour currency policies, what is needed above all is a commitment to neighbourly multilateralism.

Wen Liao is chairwoman of Longford Advisors, a political, economic and business consultancy


Copyright The Financial Times Limited 2010.