Dancing with a dragon

Dr. Norman Bailey

China's economy is moving in directions favorable for Israel, but its conduct is problematic.

China has rapidly risen to third place among Israels export markets. In terms of other economic relations, however, such as joint ventures and acquisitions, it could be argued that China is now second only to the United States in economic importance. These relations extend to education, with a new campus of the Technion in China

Thus it behooves the Israeli government, media, academia and business to pay close attention to the Far East, despite the temptation to focus on the Middle East and Europe.

In this, there is good news and bad news.

The good news is that China has embarked on a series of profound economic and social reforms dedicated to flexibilizing the economy, providing for a reasonable social safety net, addressing air and water pollution, and aggressively combatting waste, inefficiency and corruption at the local as well as national levels.

Chinas decades-old concentration on heavy industry and cheap consumer goods production has given way to emphasis on high-tech developmenthence Chinas interest in Israel, which is second only to Silicon Valley in this area, and more accessible to China because less concerned with security.

The success that these reforms have had, in a remarkably short time, is reflected in the first quarter 2014 economic statistics. Old economy sectors were down both in production and profits, by substantial margins, compared to a year ago. In contrast, new economy sectors were soaring, some by as much as 30%.

Additionally, China and Russia appear near to a deal over the gas pipeline from the Urals to China, which will probably be signed when Putin visits Beijing next week. This will be part of a general rapprochement between the two Eurasian giants, a geo-political development that is undoubtedly the most significant since the end of the Cold War.

The bad news is that, rather inexplicably, China has chosen this moment to flex its military muscles in the South China Sea, sending a flotilla of naval vessels to accompany the ships and equipment to begin oil drilling in Vietnams exclusive economic zone (EEZ). When Vietnamese coast guard vessels intervened, two were rammed by Chinese ships, an incident that had the potential to develop into a shooting confrontation. At the same time, when the Philippine coast guard arrested two Chinese fishing ships, China demanded their immediate release, saying that if the demand was not complied with, there would be serious consequences, clearly threatening military action.

Coupled with Chinas prior assertion of authority over wide expanses of open ocean in the east and south China seas, including vast areas of other countries' EEZs as well as island groups claimed or even occupied by other countries, these incidents have constituted an offensive political/military strategy seen as a threat by a good part of Asia. To what purpose?

The rumor that the Peoples Liberation Army (PLA) is acting on its own authority, perhaps as retaliation for the governments arrest of high-ranking generals on corruption charges, along with an overall reduction of the PLAs business empire, can be discounted. The PLA is under the firm control of the civilian authorities. But the very existence of such a rumor is an indication of general confusion regarding Chinas motives and strategies.

Whatever the case may be, Chinas economic and political trajectory is of great interest to Israel and needs to be watched closely, with at least as much attention as other matters of lesser importance.

Norman A. Bailey, Ph.D., is Adjunct Professor of Economic Statecraft at The Institute of World Politics, Washington, DC, and teaches at the Center for National Security Studies and Geostrategy, University of Haifa.

Published by Globes [online], Israel business news - www.globes-online.com - on May 15, 2014

Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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