China is flexing its strategic muscles. Some argue that China's military modernization program is the biggest threat to Asia and the Pacific, while others worry that the nation's growing economic might is the central strategic issue for the foreseeable future. They cite Beijing's failed attempt to acquire the U.S. energy company Unocal as Exhibit A, a stark example of the Chinese government's growing sophistication and desire to be a player in "The Great Game" the battle to control a finite, strategic resource: petroleum.
Under political pressure, Unocal recently accepted a bid from Chevron that was lower than the $18.5 billion unsolicited tender from the mostly state-owned China National Offshore Oil Co. (CNOOC). The failed bid nevertheless underscores several looming problems for Washington, Europe and the rest of Asia. China is awash in dollars and foreign direct investment and is looking everywhere for places to spend it. When not building new skyscrapers and chip fabs, it is seeking out strategic assets around the globe. Unlike Japan in the 1980s, which snatched up American icons like Rockefeller Center or Hollywood studios, China has been targeting key industries such as electronics, telecommunications and, now, energy production.
Beijing's recognition that it possesses the economic leverage eventually to buy into the global energy market is what has China watchers nervous about the security implications. China wants to solve its own serious energy problems by gaining control over proven oil reserves and exploration technology Unocal's deep-drilling technology in the Gulf of Mexico is considered a major prize.
China's leaders claimed to be surprised at the intense U.S. opposition to CNOOC's failed bid for Unocal. Isn't this the way capitalism is supposed to work, they asked? The apparent answer: It depends on what it is you are buying. Either way, the Unocal saga is likely just the beginning of a concerted Chinese effort to acquire strategic assets it needs to become a global power.
The other part of the strategic equation is China's military modernization and, more important, the intentions of the leaders of the People's Liberation Army. There is little doubt that China has launched a focused military reform program that will transform its forces from the largest standing army on Earth to a technologically sophisticated force that uses electronics as a "force multiplier." Analysts say the key to this effort is establishing a military-industrial base similar to that of the United States presumably without the acquisition scandals that seeks to retain access to dual-use technologies while developing homegrown ones. The fancy name for this effort is "civil-military integration," and you'll be hearing a lot more about it.
Beyond Taiwan, where Beijing brooks no external criticism of what it considers an internal political matter, Chinese military intentions are exceptionally difficult to divine. One reason is a lack of transparency. Moreover, it's not entirely clear whether inflammatory comments by China's military hard-liners are little more than a smoke screen thrown up to confuse Western analysts. China is clearly seeking to extend its military reach beyond its own shores by developing long-range precision weapons, but does this necessarily mean it wants to threaten Asian neighbors like Japan? A nuclear-armed North Korea seems a much more immediate threat to the region.
Even as Beijing was blowing hot over a Pentagon report to Congress on China's military, it moved to thwart critics on Capitol Hill with a carefully timed revaluation of its currency, the yuan. The effect of this purely political move will be negligible for U.S. manufacturers, which have been pressing the White House to persuade Beijing to float its currency. Beijing signaled currency traders last week that the minor revaluation is as far as it is willing to budge. As a result, the heat is off China's leaders for now, and it loses little leverage in global currency markets.
The episode also illustrates that China's leaders are learning to play the public relations game. That, and its growing economic power, are among the reasons likely to make China a formidable rival, eventually capable of challenging U.S. power around the world.
By George Leopold (email@example.com), online news director and Washington bureau chief for EE Times