I was gone for 5 minutes...

I'm back - just in time to see global relations collapse. Does AUKUS mark the beginning of a new Cold War or is it already dead in the water?

Sep 29, 2021

Seriously, I was gone for 3 months and now the world (as defined by this newsletter) is coming to an end.

Hong Kong is officially over; Taiwan is apparently about to be invaded; the US, UK, and Australia have decided to try and tackle an increasingly belligerent China with a cheesy acronym; China’s economy might be about to collapse; and more Chinese activists have mysteriously disappeared.

There are so many things to talk about, but let’s face it, everyone’s sick of hearing about Evergrande by now. (If you’re not, just read this thread, it will tell you everything you need to know).

Sahil Bloom @SahilBloom

Evergrande is the train wreck that the financial world and media can’t help but watch. Here’s breakdown on the story:

So let’s talk about AUKUS instead I guess.

While the three nations involved have avoided coming out and stating directly why they’ve made this historic deal, it seems the world is under no false impression as to what is going on. As relations between China and the rest of the world’s major powers continues to deteriorate among accusations of imbalanced trade deals, bad faith politics and virus tampering, it’s perhaps little wonder that the first world is teaming up to protect its global authority from a wobbly but still rising China.

So let’s take a look at what the Aukus deal is, why China is pretending not to be intimidated by it, and why everyone suddenly cares so much about the South China Sea.

What is AUKUS?

According to the UK government website, the pact between the UK, US, and Australia will “protect and defend our shared interests in the Indo-Pacific,” allowing for “the development of joint capabilities and technology sharing,” and “ensuring our people are kept safe from harm and reinforcing our shared goals.” The first step is to help Australia develop nuclear powered submarines for their navy, promoting “stability in the Indo-Pacific” to protect “our shared values and interests.”

The statement is about as vague and boring as you would expect, but there’s a lot that can be inferred from the short outline. The UK clearly hopes that the deal will help create more STEM jobs, and there is hope that the geographical gap between the US, UK and their ‘shared interests’ (read: allied nations) in the Asia Pacific region will be closed.

What the website fails to mention, however, is the true purpose of the deal, which everyone else seems to know instinctively. A BBC headline reads ‘Aukus: UK, US and Australia launch pact to counter China’, while the FT goes for the more dramatic ‘Aukus: How transatlantic allies turned on each other over China’s Indo-Pacific threat’, describing at length how the Australians have betrayed a former deal with the French, damaging relations between all four nations possibly for the long term. These headlines point out what everyone seems to know without anyone needing to say it: China scary, please help.

AUKUS have the overall numbers, but China has home field advantage

The main purpose of the new fleet appears to be a deterrent against China making moves against nations, islands, or territories in the Indo-Pacific. Of course, China’s fleet is concentrated in one area, whereas the AUKUS have their assets spread out globally, meaning a potential advantage for China if things ever came to a head. But for the US - the obvious leader of the group - having Australian ships at least in the area provides some sort of a buffer if China were to decide to take action.

Australia’s sudden change in tactics has stirred up controversy, with most outlets focused on the French angle and how Australia has betrayed their previous ally out of fear of China. Australia’s ripping up of their previous contract with France is apparently an indication that the US has no respect for the EU and does not see them as a major partner in global affairs moving forward. But hurt feelings aside, the deal has also set alarm bells ringing in China and Southeast Asia. So what exactly is the impact of this deal on relations in the Pacific, and what is this ‘Indo-Pacific threat’ everyone keeps talking about?

China’s claims to the sea

In its “Law on the Territorial Sea and the Contiguous Zone” declared in 1992, China asserted its rights to essentially the entirety of the South China Sea based on maps dating back to the Xia dynasty (c. 2205–1558 BC) and history books written during the Han dynasty (202 BC–220 AD). (I’m being serious, they don’t recognise any changes that took place unless it involves China gaining more territory).

This means that China has competing claims with basically everyone with so much as a toe in the region: Taiwan, Japan, South Korea, Malaysia, The Philippines, Brunei, Vietnam and Singapore. We already know about their claims over Taiwan, but other major disputes include:

Senkaku/Diaoyu islands: Disputed by Japan, who lost de facto control over the islands in 2012. China now maintains that it can take military action against any aircraft flying near the islands.
Paracels: Occupied by Chinese forces since the end of the Vietnam War, Chinese claims of the island chain are disputed by Vietnam.
Spratlys: A chain of around 120 islands claimed by China, Taiwan, the Philippines, Malaysia, Brunei and Vietnam. Most of these countries have also installed garrisons on one or more of the islands

As you can see from the map, none of these nations are quarrelling with China alone. The sea space claimed by all nations listed overlap with at least one other territory, and in most cases with multiple territories. The difference is that China is probably the only major power in the region with the actual power to enforce their agenda (unless Brunei has a much bigger navy than I imagined).

It’s not just a case of military might either. Satellite images have shown that China has actually created new islands in disputed territory, destroying coral reefs around the Spratlys in order to build new land and install military bases. Again, while other nations are also engaged in artificial construction, the pace and scale of China’s efforts far outstrips that of their rivals.

This is exactly where the Aukus deal comes into play. While other nations have tried banding together to deter China, the few military ships held between Japan, the Philippines and Vietnam are not enough to deter China by themselves. The combined power of some of the world’s largest navies collaborating in a very public and high profile deal sends a much clearer message to China’s leaders.

But why are these major Western powers now so interested in tiny islands disputed mainly by developing countries?

What would China gain?

Unsurprisingly, the members of Aukus are not just worried about the people of Taiwan losing their independence, tragic as that would be.

As with most important issues, there’s money at stake here. Around 90% of global trade is carried via sea, and between 40% and 50% of the world’s liquified natural gas resources, and between $3 and $5 trillion in trade, pass through the South China Sea every year. The area also provides around 12% of the world’s fishing, employing around 3.7 million people.

Of course, it wouldn’t be an international dispute if there wasn’t oil involved. There is supposedly 11 billion barrels of untapped oil and 190 trillion cubic feet of natural gas to be found in the sea bed and islands in the region.

There is also, of course, the military question. Many of the countries in the region are allies of the US, including Taiwan, Japan, South Korea and The Philippines. The US routinely carries out naval exercises in the South China Sea, a practice to which China strongly objects and is seeking to ban claiming that they promote neither peace nor stability. (No doubt increased Chinese presence in the region would do just that).

Thus people stand not only to lose profits, but also general freedom of movement and trade. Skirmishes provide opportunity not only for profit but to essentially show who’s boss in the region. If the situation changes drastically, then most of the world’s trading, fishing, and military vessels would have to ask China’s permission to even be in the region. Permission which, of course, could be denied. With control over such a large and important area, there’s no doubt that the balance of power would shift inexorably in China’s favour.

The South China Sea provides fertile breeding ground for conflict to establish control over the world’s resources, as well as sure ground from which to launch any military manoeuvres. The question is, under what circumstances would it come to that?

Cold War part 2?

The AUKUS pact is just one part of a larger, unfolding dynamic that seems to some to be a New Cold War, marked mainly by tensions between the US and China.

China is currently acting both non-chalantly while ringing alarm bells, accusing AUKUS of scaring ASEAN nations, who are worried about an arms race. Rather than intimidated, China just seems a bit pissed off, with foreign affairs spokesman and epic Twitter troll Zhao Lijian accusing the nations of having an “outdated Cold War zero-sum mentality and narrow-minded geopolitical perception” and harming international efforts for the non-proliferation of nuclear arms.

But is the idea of a Cold War really that outdated? Or is it beginning to see a revival after never really going away?

I’m no Cold War expert, but we’ve discussed some of the major events from China’s perspective on the Sinobabble podcast, and most of us know about the major events such as the Cuban Missile Crisis, the Space Race, and the fall of the Berlin Wall. I believe we’re beginning to see a similar give and take between major powers in an attempt to keep the peace while still asserting their dominance in strategic regions.

There’s also same use of language that we see in Cold War statements. What else could the UK gov mean when they talk about their ‘shared values’ with Australia and the US? Though the wording of the Aukus deal doesn’t name names, it can’t help but hint at problems the major powers have had (and are continuing to have) with China, including pollution and hacking:

the Indo-Pacific is at the centre of intensifying geopolitical competition with potential flashpoints including unresolved territorial disputes; to nuclear proliferation and miscalculation; to climate change and non-state threats from terrorism and Serious Organised Crime. It is on the frontline of new security challenges, including in cyberspace.

As Xi turns China back towards its socialist roots, we’re essentially back to tackling the same problem: a battle over which ideology (read: superpower) will dominate, except this time the main adversaries have been shuffled a bit. China has essentially replaced the USSR, taking charge in the fight against US hegemon, which ironically is exactly what Mao Zedong wanted all the way back in the 1960s. But instead of using ideological ties, China is increasingly using economic and - during the pandemic - resource relations to win friends and influence leaders.

At the same time, China’s tactics for undermining the enemy have also evolved. Much like during the Cold War, Western powers fear Chinese espionage, but instead of Tinker, Tailor, Soldier, Spy it’s more like Huawei, Trade Routes, Universities, Backdoor Business Deals.

We’re also seeing a number of stalemates and back and forths, as with the recent case Meng Wanzhou and the two Michaels. This sordid and very public affair shows that both sides willing to engage in hostage diplomacy, strong-arming each other until either or both parties concede something.

Soon we’ll also see seemingly unrelated nations having to pick sides. Not everyone in Southeast Asia is happy with Aukus, as they have their own interests to think about. Both Indonesia and Malaysia have voiced concerns over an arms race. Both nations are connected to China through the Belt and Road Initiative, but it doesn’t mean they’re necessarily pro China either. However, when it comes to picking one side or the other, it may be that economic factors end up being the most persuasive, especially when coupled with the idea of security.

Stale, mate.

Much like the Cold War, I think it’s unlikely that full-scale war will break out, the rush to nuclear armament probably meant to be more of a deterrent than a means to an end.

At the moment, economic warfare is the main weapon of choice, especially for China. The US’ trade war with China was one of the hallmarks of the Trump regime, and we’ve already talked about China’s battered trade relations with Australia in a previous newsletter. China may not have the upper hand in this issue forever, however, that’s a topic for another day…

Perhaps we’ll see some proxy wars, like a Third Taiwan Strait Crisis, or a standoff in the middle of the South China Sea, or the gunning down of planes flying too close to disputed territory. In my opinion, the most likely situation is a continued stalemate, where everyone maintains their claims but no one acts upon them.

But never say never. It could be that the AUKUS deal could lead to a mainly sea-based battle like we’re fighting the Opium Wars again or something. This is certainly the conclusion that some analysts are drawing. I’m just glad I chose this moment to bring a child into the world, just as relations between global superpowers are beginning to destabilise once again.