Diplomacy & Crisis News

Chinese president Xi Jinping, speaking to the Chinese Communist Party’s (CCP) 19th Congress in October 2017, announced: “It is time for us to take center stage in the world.” Yet a funny thing happened on the way to China’s coronation as a superpower: the very policies Xi implemented to transform his country into a global juggernaut are precisely what is gradually driving China toward an economic implosion.

For certain, Xi had help. The coronavirus pandemic and subsequent lockdown slowed domestic growth in China, much like it did for the rest of the world. And China is still the top trading partner for more than 120 countries—so it may seem premature to predict China’s economic decline. But the signs are there.

The Signs

First, China’s Belt and Road Initiative (BRI)—a trillion-dollar infrastructure push that was supposed to cement China’s role throughout the Global South—has unleashed a flood of unbridled corruption, pointless airports, failing dams, deep debt dependency, and widespread backlash. Instead of building loyalty to Beijing among leaders around the world, Chinese corruption has led opposition candidates to rise to power in unexpected places like Malaysia, Sri Lanka, and Indonesia—all while riding a wave of anti-Chinese sentiment. China is now far less popular around the world than it used to be.

Second, Xi has implemented a series of “national security” laws that make investment and business operations in China increasingly difficult. For example, Chinese “anti-espionage” laws make it illegal for international companies to collect even basic information about China or Chinese citizens. As a practical matter, this criminalizes basic corporate due diligence and know-your-customer safeguards—protocols whereby multinational companies look into their counterparties for risks of corruption, sanctions evasion, or human rights abuses. American laws, like the Foreign Corrupt Practices Act and the Uyghur Forced Labor Prevention Act, mandate that companies conduct robust due diligence and that such information is directly shared with corporate leadership. Firms that learn about the use of bribes or modern slavery would need to either violate Chinese law, by reporting the information to their leadership, or violate American law by not engaging in customary due diligence. U.S. counterintelligence officials have issued fresh warnings to American businesses about the risks these laws pose to basic operations and safety for companies and executives operating in China.

Additionally, a recent spate of raids on Western companies and detentions of senior employees demonstrate that Beijing intends to act aggressively against legitimate businesses engaged in standard due diligence in the country—actions that are likely to have major chilling effects on multinational corporations in China. The incompatibility between Chinese laws and global business practices will be even more stark when the European Union passes the much-anticipated Corporate Sustainability Due Diligence Directive, which requires multinationals to conduct comprehensive human rights, environmental, and labor rights due diligence throughout their value chains—a huge percentage of which currently pass through China. As time goes on, these jurisdictional conflicts will increasingly make it impossible for Western companies to operate or invest in China or to route their supply chains through China.

Beijing’s statute claiming the right to examine information and data collected by any Chinese business anywhere in the world is equally damaging. This law applies not only to state-owned entities but every mom-and-pop business operated by Chinese citizens in every single country —in effect turning the entire 10+ million Chinese population living abroad into a massive spying operation. The result of this law will make multinational companies and governments less likely to engage Chinese businesses outside of China, given that such businesses are legally required to pass all information from the transaction directly on to the Chinese Communist Party.

Third, taking for granted China’s role as the world’s largest exporter, Xi has disregarded the opinions of leaders in the countries that buy most of China’s goods. On human rights, on dismantling of Hong Kong’s democracy, on the Russian war, on fentanyl production, and on countless other topics, Western governments have pushed Beijing to rein in its controversial practices—overtures that China has roundly rejected as attempts at interference in its domestic affairs. This attitude ignores that these same countries are China’s main customers—and it is never a good idea to ignore your customers.

Now, new and proposed laws in the United States and Europe are forcing companies to disengage from countries, like China, that continue to brazenly employ forced labor. Furthermore, an increasingly confrontational Beijing has led many Western companies and governments to actively decouple from China or pursue a “China Plus One” strategy by keeping some operations in China while creating supply chain redundancies in alternative locations. China’s economy is still export-dependent, with more than 20 percent of its GDP coming from exports and 40 percent of those being sent to North America and Europe. Ironically, the pandemic has increased dependency on exports to offset slowing domestic growth, putting a damper on the CCP’s objective of transitioning to a consumption-based economy.

Given its substantial domestic economic headwinds and its collapsing real estate market, exporting the economy out of trouble is often a central element of Beijing’s economic recovery plans. But its political intransigence now threatens those exports and, in turn, large portions of its economy. 180 million Chinese workers are employed in jobs that depend upon exports and trade—more than the entire U.S. workforce. This becomes doubly risky for China as it seeks to pivot further away from low-cost manufacturing to producing more high-tech goods and components that are primarily aimed at high-income countries’ markets. Piled on top of that, the Biden administration’s highly anticipated Outbound Investment Executive Order will likely further limit China’s access to critical technology that Beijing will require for this transition.

Possible Paths

At the most basic economic level, China needs the United States—a fact that Xi clearly either hasn’t yet realized or refuses to admit. As a weakening export-driven economy, amid a bursting real estate bubble, with an aging population, the accelerating movement of Western companies and critical supply chains out of China is going to hit a tipping point where China loses economic power slowly and then all at once. This, combined with the Global South starting to push back on the BRI and Chinese meddling in the domestic politics of dependent nations will narrow the potential options left for China to take its time on “center stage.”

With the status quo of the last thirty years eroding, what pathways does China really have left?

Path 1: Appeasement

Given Xi’s policies to date, his temperament, and the domestic popularity of antagonizing the West, this path is almost certainly not on the table for the Chinese Communist Party. And yet, the best and easiest way for China to truly claim its place in the world as a superpower is to play nice with others. If Beijing were to reverse course on its national security laws; engage constructively and meaningfully on Uyghur rights, Taiwan, and Hong Kong; take steps to rein in corruption, money laundering, fentanyl production, and intellectual property theft; and reduce its surveillance state and pro-authoritarian support of global dictators and strongmen, then there is no doubt that the United States and Europe would readily and happily welcome China back into the economic fold. This path is the only way to truly salvage the Chinese economic miracle. China can claim this is all Western-values-based bullying, but the fact of the matter is that we are their customer and we are well within our rights to refuse to buy goods from countries that engage in slavery and actively seek to disrupt the global order.

Path 2: Division

Xi’s preferred path is to divide and conquer Western democracies—fundamentally driving a wedge between the interests of the United States and Europe in hopes of exploiting each. French president Emanuel Macron’s recent statements that France and Europe should take a path of “strategic autonomy” between China and the United States has bolstered Chinese hopes that a fractious and divided Europe can be easily driven apart from a partisan and divided America. And there is truth to the fact that democracies are loud and raucous in internal dissent and international disagreement—particularly in hyper-partisan times.

And yet, Xi’s miscalculation is to underestimate the motivations of a multinational private sector that shares a single, overarching, and unifying goal: to manage risk. While Western politicians banter about divergent approaches to a bellicose China, it is cautious and calculating boards of directors that increasingly are recognizing the costs of doing business in or with China. And while American laws undoubtedly contribute to the compliance-driven decisions of the modern company, it is the imminent EU Corporate Sustainability Due Diligence Directive that will force private companies to seek alternatives to a regime that fails to embrace responsible corporate governance. Once that happens, China will be unable to attract higher levels of Western investment and economic engagement, irrespective of the number of statements by presidents and prime ministers to the contrary.

Path 3: Resistance

China has long advocated for a multipolar global order to challenge the United States. In reality, however, the United States is just a dominant player in a carefully negotiated international financial system and interwoven global economy. If China seeks to build an alternative to the global economy and order, it is well within its rights to do that. It is unlikely, however, that other major economies have anything to gain by signing on to that. Instead, China will find itself increasingly limited to a rogue’s gallery of autocrats leading weak economies. Russia, which every day inches closer to becoming a failed state, is currently China’s largest ally. And certainly, Iran, Syria, Venezuela, North Korea, and Cuba would love to continue to align with China—but all of those countries combined have a GDP less than that of the Netherlands. This axis of authoritarians is hardly the sort of economic behemoth to fundamentally challenge the global economic order.

Path 4: Regression

Finally, China could downshift its high-octane economy and return to its roots as a producer of low-cost goods for export to the economies that are still within its orbit—the emerging economies of the Global South. And while the citizens of Kenya and Ecuador may resent China’s role in building overly expensive or unusable infrastructure under opaque and corruption-laden conditions, they still may be willing to sign up for cheap Chinese-made consumer products.

All Eyes on Xi

Ultimately, much will turn on what Xi, himself, wants to become. Does he seek a Vladimir Putin-like role as the king of a crumbling kingdom, or as a savvy technocrat that pivoted his country away from disaster by reengaging with the West? As the recent reversal of China’s zero-coronavirus policy shows, it is not impossible for Xi to abruptly change course.

China, as a country of citizens, must also choose its path—does it want to be led by a short-sighted CCP into an axis of weak authoritarian states that are surely on the downslope of history or does it want to re-engage with the global order as an economic leader that constructively engages with the Western world?

If today, Beijing maintained the status quo with Taiwan, provided substantial rights to the Uyghurs and other ethnic minorities, and removed onerous laws aimed at appropriate due diligence, Xi could re-inject China into the global order and be a peer to the United States for the next fifty years. If, instead, he digs in his heels and pushes disengagement with the West, Xi is very likely to become the leader most responsible for destroying his own standing on the global center stage.

Elaine Dezenski is senior director and head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies.

The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of The National Interest or its editors.

Image: Shutterstock.

Autocratic producers, largely Russia, Iran, Saudi Arabia, the United Arab Emirates, Qatar, Venezuela, and China, and democratic consumers, fossil fuel-dependent nations, largely the so-called Global South, are convening and uniting over oil, gas, coal, petrochemicals, natural gas-derived fertilizers, and mined raw materials. This trend is detrimental for both the global climate and the United States.

China straddles both worlds as the largest producer and consumer of coal in the world and the second-largest consumer of all fossil fuels after the United States. The United States is the largest producer of oil and gas for now, but while government policies tamp down investment in future domestic production, U.S. energy companies scour the world to increase production to serve global markets.

It’s the autocratic countries who produce the fossil fuels that benefit from American production decline. This is due to the fact that the major democratic countries of the Global South— including India, Brazil, Indonesia, South Africa, etc.—who buy oil and gas products, need to feed their people, fuel their vehicles, and, in general, sustain, grow, and develop their economies at reasonable cost. 

Autocratic Russia, a giant energy producer, continues to sustain its economy and finance its war in Ukraine, playing defense and waiting for Western electorates to lose patience. Moscow counts on continued fossil fuel sales to consumer countries. Meanwhile, China is importing record amounts of oil and gas from Russia which makes China the largest financier of Russia’s war in Ukraine by far. China, courtesy of Saudi Arabia’s Aramco, is on the upswing in building new refineries, becoming a major petrochemical producer while U.S. energy policy to phase out fossil fuels has curtailed U.S. companies from making such investments.

Pursuing sweeping policies to address climate change, America and the West deride and downgrade the value of these lifeblood fossil fuel products for China (coal, oil, and gas), Russia (oil, gas, and coal), Saudi Arabia (oil and gas), and the relevant fossil fuel value of other producer nations. Western governments’ attitudes toward fossil fuels are derived from their fear of future climate change. Such attitudes create a deep and abiding conflict of interest over time between the West and both fossil fuel producers and consumers who see fossil fuel-dependent growth and development of their respective economies as paramount.

Herein lies the conundrum. If the United States and the West will not be major producers, where do consumers turn for their needed energy? Unfortunately, they turn to the producers who happen to be autocratic states—Russia, Iran, Saudi Arabia, the UAE, Qatar, and Venezuela— who respond to that need by increasing their oil and gas production to meet global demand while bolstering their economies and strengthening their governments in the process. Producers friendly to the West such as Saudi Arabia, the UAE, and Qatar are not the problem. Others are.

In a nutshell, the West’s cutbacks on fossil fuels are being replaced by fossil fuel production for consumers’ developing and expanding economies. And if producers make up for declining supply from America and the West to developing and growing consumers, which seems to be the case, the overall human contribution to climate change will remain essentially unchanged for now and actually grow into the future. 

Interesting to note that the United States is now importing environmentally-dirty crude oil from autocratic and adversary producer Venezuela, rather than expanding its own domestic production. Natural gas previously exported from Russia to Europe will soon be replaced by Exxon and Chevron from Algeria. 

Adding to the West’s dilemma regarding wind and solar energy alternatives, China dominates the world in the related technologies, manufacturing processes, and critical materials involved in the production of such “renewables” such as solar and wind energy. While U.S. politicians are ramping up talk about reducing dependence on China for critical items related to American economic and national security, a fossil fuels-denying West, ever more dependent on renewables like solar and wind, is subject to a new energy dependence on China.

It seems we are witnessing a geopolitical shift of historic proportions with fossil fuel-friendly China and the autocratic producers, the biggest winners, and fossil fuel-repressing democratic America and the West, the biggest losers. Plus, the democratic consumers are, more and more, beholden to the autocratic producers. You might think that energy supply and demand issues have something to do with some eighty nations staying neutral on the Ukraine war!

Russia and OPEC members have their single largest and ever-expanding market for their oil, gas, and raw material products in China, which in turn can increasingly manufacture whatever the producer nations need. China receives the fuels and raw materials to power and feed its vast energy-hungry, export-oriented industries and its immense agricultural economy. Other consumer nations will likewise purchase or trade for fossil fuel products from producers. The symbiosis between producers and consumers is clear.

And the West, including the United States, no matter how hard it tries, will continue to be dependent on fossil fuels from producers. The U.S. Energy Information Agency predicts that by 2050 the United States will still be 65 percent dependent on fossil fuels for its overall energy needs, as opposed to 79 percent today.

The Chinese manufacturing powerhouse and its rapidly advancing military will be enriched by an inevitable shift away from Western manufacturers who will see their costs and prices increase without reasonably priced fossil fuel-derived energy and derivative products. 

China’s 1.5 billion people, repressed, surveilled, and cajoled, are also disciplined, educated, and increasingly productive and wealthy. With the growing sophistication of its military, autocratic China is the biggest winner of all from the present Western strategy to abandon fossil fuels. And if the United States and the West continue along their present path of shifting away from fossil fuels, it is quite possible that autocratic producers will dominate the world, and China, soon to surpass the United States as their biggest consumer, will be the dominant player. 

Don Ritter holds a Science Doctorate from MIT and served fourteen years on the House of Representatives Energy and Commerce and Science and Technology Committees. After leaving Congress he created and led the National Environmental Policy Institute.

Image: Shutterstock.

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Editor Daniel Kurtz-Phelan and authors Samuel Charap, Fiona Hill, and Andriy Zagorodnyuk mark the launch of the July/August issue with a discussion of possible endgames in Ukraine.

A model designer’s theoretical possible future Air Defence weapon for Ukraine, using a Ukrainian made BTR-4E married to a variant of the Skyshield modern air defence cannon. – image from the Panzerfux.de catalogue.

 

Much like the difficulty Russia had in defeating Ukraine’s defensive positions in 2022, Ukraine is now having to deal with similar problems being on offense. Like Ukraine, Russia is a military that spent much of the Soviet era practicing defensive positions after the German invasion during the Second World War. It should have been expected that in 2022 Ukraine would not have been easy to conquer as their entire military infrastructure, planning, and equipment was designed to be the first barrier to invasions from the West during the Cold War. Now that Ukraine has adopted an offensive posture, the difficulty in attacking Russian defensive positions has been met with great challenges. This may mean the war will drag on for some time, and a permanent and effective defense structure to modern threats should be top of mind for Ukraine and those assisting in their conflict.

One error that would make it very difficult for Ukraine’s allies to maintain their support for the defense of Ukraine is public sentiments within allied countries. It is extremely important not to diminish the needs of the local populations or put them in competition with aid policy in helping the war in Ukraine. It has been shown that allied populations are very willing to help Ukraine, even taking Ukrainians into their homes, breaking bread, and sharing their table among their family. What is a big error and is now apparent in my own city are that funds that were promised to compensate the city from their added Covid emergency spending is being intentionally stalled by the Federal Government while weekly announcements of military aid to help Ukraine are freely being promoted well over the amount promised for local safety, healthcare and basic needs. Putting citizen’s tax dollars in direct competition with foreign aid of any type is a horrible policy approach as it destroys good will and future aid projects for very noble causes.

A long term defensive plan must be tied to a cost efficient and effective defense. It has been demonstrated that using high cost and high tech missiles against low cost drones may be a strategy to bleed Ukraine of advanced weapons in the long term. Such missiles take a long time to produce and even longer to develop, and drone attacks are currently manipulating this situation. Anti-air systems like Gepard, that uses a dated radar system and two 35mm Oerlikon rapid fire cannons, has proven to be a Cold War solution to a modern problem. The cost effectiveness of using cannon shells against drones will enable a long term defense against such targets, and more such solutions need to be implemented if NATO seeks a long term victory for Ukraine.

The Shilka solution should become a major step in addressing the lack of a long term defense of Ukrainian civilians and military. The Gepard itself was the response to the Soviet 1960s era ZSU-23-4 Shilka, a radar based anti-air system using four 23mm cannons fixed in a special turret, married to a radar and tracking system. This systems was produced in very high numbers for most of the Cold War and it is likely the case that many are in storage, along with 23mm ammo, all over Eastern Europe and abroad.

The Shilka did have some variants upgraded with newer radar and tracking technology, as well as smaller anti-aircraft missiles. These projects were done by Ukraine and another independently by Poland in order to upgrade their military to more modern standards. This lower cost upgrade of the old system would be a project that could be applied to other Shilka units, along with new computers systems and radar upgrades. Shilkas would be greater in number than the Gepards and could defend many more locations from terror drones. Such projects could also be promoted by technical and engineering schools so that older technology radars could be used as a platform for new technology solutions, even perhaps making the radar and cannon used with AI as is used in many modern missile targeting systems. If no actions are to be taken to attack the drone manufacturing facilities, this might be the best option in the intermediate to long term.

A solution may also be possible with the assistance of diplomats and power politics. China does not want to seem like an overt threat as it would diminish trade with Western countries, and has recently been promoting itself as being a third party peace negotiator abroad. Current relations with China and the US are challenging, and a response by China has been to not openly support either Russia or Ukraine while seeking an image of mediator for conflicts well outside its own traditional realms of interest. China, like India, is in a unique position however as China is not being pressured to the same degree as smaller nations when dealing directly with Russia while under sanctions. China would serve itself well to either show it is not selling any equipment to Russia in its war, or tack in the other direction and offer weapons sales to both sides. Doing the latter should be done with regard to defensive weapons only. This would blunt heavy criticisms from Russia as those weapons would be used to save civilian lives and not cost Russian lives. Western criticism would be less effective as well as weapons sales would be benefitting Ukraine and its allies through low cost air defense implemented in rapid time.

China’s 2008 military parade demonstrated the new military strength of China, and some of that equipment had already been replaced by very modern systems. China’s newest anti-air cannon system, the PGZ09, is very closely related to the Gepard. Although a lot newer with a modern radar, it also carries two Oerlikon 35mm cannons and is active in the PLA. China would likely not sell active units of the PGZ09, but it would certain open an export market for future sales of the system if they decided to do so. An effective demonstration of the PGZ09 would likely displace many of Russia’s export sales of weapons as a bonus to China’s arms export industry. While this industry coped many Soviet systems in the past and exported them with great annoyance to Russia, China can now use their own designs with Western licensed technology to compete successfully in the weapons export market.

An older system that was presented in 2008 is the PGZ95, a modern system with a modern radar that uses four cannons like the Shilka, but also carries four smaller surface to air missiles as well. China replaced many of these fairly modern systems with their PGZ09, and considering the size of the PLA, there are likely many PGZ95 units available. PGZ95 would likely be obtained and put on the field to defend Ukraine a lot faster than even upgraded ZSU-23-4 Shilkas could be modernised to shoot down drones. If China wanted to sell weapons while putting on a neutral face, the sale of military equipment for defense would be an option with many sides taking interest. The PGZ95 would likely be a great drone killer and could be sold with armoured cars, helicopters, radars and other systems that could be used in a purely defensive manner.

Modern systems designed to detect and destroy drones are coming, but systems like Skyshield are still at great cost, limited in number, need time to be produced, and may be subject to export restrictions like the ammo for the Gepard. The economic costs to the public should be considered with every decision as they are the ones actually paying for weapons systems with no payment for their donations being returned back into their communities. Suggestions above would be implemented faster and save more lives, while creating a longer term defense strategy that does not alienate supporters in Western nations and is more cost effective. Everyone wants to save innocent lives and help defend Ukraine, but leaders need to always do this in concert with keeping their own country’s families safe, healthy and employed.

Azerbaijani journalist Elnur Enveroglu recently stated, “France’s colonial policy is the biggest disgrace of the 21st century.   The fact is that the French state, which acts as the leading party for the democratization policy in Europe, is carrying out racism, violation of human rights, discrimination of language, and religion, both in New Caledonia and within the country, along with the colonial policy.  For this reason, there is great strife and turmoil within France today.”  

According to him, “Instead of regulating what is happening inside the country, French President Emmanuel Macron intervenes in the affairs of countries near or far from this country.  For example, let us take a look at the South Caucasus or the unresolved negotiations between Armenia and Azerbaijan.  Imagine that on the eve of the riots in France, he is looking for a remedy for the incurable pain of Armenia, which is 5,000 KM away, disrespecting the territorial integrity of Azerbaijan and even making inappropriate statements.   Within these statements, France is on the verge of an economic recession.”

Enveroglu added: “I should note that serious protests against the French company Total Energy have started in Africa recently.   It spread rapidly to other countries like a wave.   Even France embraced Armenia so much that it seemed to want to say that it is willing to end cooperation with Azerbaijan, one of the leading countries in the South Caucuses in the economic field, for the sake of the Armenians.  This might bring about the end of France.”

According to him, “By doing this, President Macron acts as if he is reporting to the Armenians and he has a kind of commitment to support separatists in Karabakh.  This is probably the compensation of his debt to Armenian lobbyists after the presidential election.”  However, he highlighted how this is not a wise policy: “Recently, Azerbaijan hosted the ministerial meeting of the Non-Aligned Movement in Baku and France’s colonial policy was on the agenda of the conference.   A Baku Initiative Group was formed against French colonialism.    This decision was made following the event ‘towards the complete elimination of colonialism’ organized in Baku by the Center for Analysis of International Relations within the framework of the ministerial meeting of the Non-Aligned Movement.  A document was adopted on the occasion of the 100th anniversary of the national leader Heydar Aliyev.”

Professor Nursin Guney noted that this meeting was held because “France in the 21st century continues to colonize certain African countries.   This is against human rights.   France is holding the third and fourth largest gold reserves in the world.  Even though it does not have gold mines, they were all obtained through a colonization strategy.”  

In the past, European countries, including France, were mainly in pursuit of colonies – the Dutch, the Germans, the British, the Spanish and the French also did this. In the past, the main goal of most European countries was to conquer as much territory as possible and turn it into a colony. This is how the Europeans used the natural treasures and labor force of those colonies and from that they got rich and obtained cheap labor. The colonies supplied the European countries with spices, different types of food, gold, metals, diamonds and more. It was quite profitable to own a colony at that time; you could say it was like a status symbol.

But during the world wars, both the first and second, the colonial industry was destroyed. The occupied nations began to demand independence and to separate from the European rule that was imposed on them by force. But the struggles for freedom were not easy or simple. France, for example, was very attached to its colonies and saw the colonial industry as a mission, because thanks to the colonies, the French could teach the “primitive ignorant people” over whom they controlled some culture. France did not give up the nations she controlled easily.

France did not give up Syria after the First World War, even though the founders of the Kingdom of Syria (the Hashem family from the Hejaz region of the Arabian Peninsula) helped the countries of the agreement to conquer Syria and Israel. France saw Syria as her private property and conquered it by force from the Arabs without mercy and without showing mercy to anyone.

And of course, there was Algeria, whose citizens took eight years to successfully remove French rule from their country. Algeria was an old and important French colony, it is actually the last colony that France liberated and gave independence. The French colonies are called overseas territories. For the French, the colonies were their way of spreading the values of the French Revolution and their worldview. According to them, they held the correct view of the world; they are the ones who became disillusioned and they wanted to pass on their new knowledge to other peoples.

These days, France still owns several overseas territories, including Guadeloupe, Martinique, French Guiana, Reunion, Mayotte and a few others. The aforementioned countries met in Baku, the capital of Azerbaijan, to discuss France’s attitude towards them. Among the delegations there were also representatives of New Caledonia, whose situation in relation to France is slightly different, it ranges between a province of France overseas and a sovereign state. The representative of New Caledonia claimed at the conference in Baku that France has controlled Caledonia for over 170 years and stated that the country’s history is written in blood.

The president of the parliament of New Caledonia said at the conference that “France calls itself a democratic republic of unity, equality and fraternity, but this is just a façade, this is all a lie.” He went on to say that “by participating in today’s event in Baku, we call not to repeat this bloody colonial history. The policy of colonization must stop.” The French government must allow a referendum to be held in New Caledonia to see if the New Caledonian people support separation from French rule or actually prefer to remain under the French. In the first referendum in 2018, the results decided that New Caledonia would remain under the French government. The supporters of the French government got 56.4% of the votes.

After the referendum, French President Emmanuel Macron visited the island and noted that the results of the referendum showed “confidence in the French Republic”. On the other side, a politician from the side of those who want to break away from the French government optimistically claimed that “we are one step before victory”. The second referendum took place in 2020, but also in it the supporters of independence for New Caledonia lost the elections. The supporters of the French government won 53.26% of the votes. Macron called for dialogue between the parties and hinted that France wants to say goodbye to its colonial past.

Macron added that there is a possibility of a third referendum. The third referendum, the president of the Parliament of New Caledonia claimed at a conference in Baku, happened during the Corona period. Although this referendum was illegal, France accepted its results anyway. The opponents of the French government wanted to decide in a way that was not a referendum, but this was the only option that France allowed them and it sent 2000 soldiers to enforce it. He calls the French conduct neocolonialism and demands from the UN to allow his country to say goodbye to its history and set out on an independent path.

Representatives of French Guiana were also present at the conference in Baku, the capital of Azerbaijan. The country’s representatives claimed that France appropriated the assets of French Guiana for itself and looted its natural treasures. French settlement in French Guiana began in 1604, the French used the area as a prison. Since French Guiana has been under French rule, its citizens have never experienced independence and never known what it’s like to be under a government that truly represents them. According to the representatives at the committee in Baku, French Guiana is in a state of colonization, with a 30% unemployment rate. Like the other countries that came to the conference in Baku, both French Guiana and New Caledonia demanded to say goodbye to France and start the path of an independent country, to say goodbye to their history and leave it in the past.

It may be that the disease of colonialism affects each nation in a different way and it takes each nation a different amount of time to heal from it in its own unique way. France is among the few countries in our time that still has colonies overseas that have almost no connection between them and France and between themselves (geographic connection, ethnic connection, cultural connection) at the base. Those French provinces overseas want to become independent countries, something they have never experienced in the flesh. It seems that they still need to work on this, both to prepare the opponents of separation from France for the day after and to work on a stronger France that will free them from its grip.

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The United States’ foreign policy toward the Middle East is a contradictory one. The United States maintains a system of strategic partnerships aimed at countering mutual threats and maintains a robust naval presence in the region that not only protects trade routes vital to the U.S. and global economy but routinely holds multi-partner exercises. At the same time, the United States seeks to pivot towards the Indo-Pacific. 

This has created a void that China seeks to fill by using its non-alliance policy with regional partners that are U.S. allies and foes alike. Initially, China fosters pragmatic economic ties with nations on a purely transactional basis to achieve security via development. This was epitomized by the China-Arab States Cooperation Forum’s Ambassador Li Chengwen, who in 2016 declared, “The root problems in the Middle East lie in development and the only solution is also development.” As these economic bonds deepen, China will seek to cement them with security ties that inevitably contradict U.S. interests. 

China’s attempts to displace the United States in the Middle East are likely to attract the latter’s long-term assets back into the region. In a testimony to the Senate Armed Services Committee, Gen. Michael Erik Kurilla, commander of U.S. Central Command, asserted in March 2023 that the United States was “in a race to integrate with our partners before China can fully penetrate the region.” Thus, trade ties or the tech race cannot be treated in a siloed manner and distinct from broader security concerns due to the direct spill-over from technology to security. Noting the organic nature of China’s economic, political, and strategic concerns, Kurilla declared, “The People’s Republic of China has chosen to compete in the region. The PRC is aggressively expanding its diplomatic, informational, military and economic outreach across the region.” 

China perceives development and trade as synonymous. In turn, China’s Belt Road Initiative (BRI) is committed to investing in both physical and digital infrastructure that includes connecting ports and facilities and adopting e-government platforms. By expanding Gulf digital sectors with advanced technologies, Huawei and Alibaba are actively contributing to the Gulf’s digital transformation that underpins the Digital Silk Road. The U.S. response has been to conduct a “clean network” campaign that dissuaded third countries from buying Huawei and ZTE 5G equipment. Furthermore, in July 2022, President Joe Biden signed a 5G and 6G memorandum of cooperation with Saudi Arabia. Yet, this is only a start, as China is Saudi Arabia’s largest trading partner and Riyadh is seeking to invest $50 billion into China.  The United States must explore the range of next-generation technologies to serve as a counterweight to China’s Digital Silk Road. This would prevent Chinese telecommunications and information technology from posing a security threat to U.S. forces and allies operating in the region.

In the absence of advanced U.S. technologies, China’s BRI is aligned with Saudi Arabia’s Vision 2030 which is committed to developing trade and technical hubs, manufacturing and logistics facilities, artificial intelligence, digital industries, and smart-city infrastructure. Saudi Arabia is diversifying its economy to attract foreign investments and enable it to be a central node that connects continents. This positions the Saudi kingdom as the BRI’s crown jewel due to its critical location on a pathway that allows China to access Europe and Africa via Iran, the United Arab Emirates, Egypt, and Algeria. This serves as the foundation for China to seek to establish comprehensive strategic partnerships with the Middle East.

China’s involvement in the region has evolved from being purely economic to engaging on regional political and security issues. In December 2021, it was reported that China was assisting Saudi Arabia with its ballistic missile program and manufacturing its own armed drones. China sought to build a military base in Abu Dhabi as well, but the venture was abandoned due to U.S. pressure. The risk exists that as China continues to deepen its economic and strategic ties, it may be in the position to advance its security interests to the extent that U.S. allies are less likely to succumb to U.S. pressure. This is due to U.S. inconsistency in its application of pressure and being perceived as non-committal toward the region’s security. According to one Iranian official, China oversaw the formation of a regional naval coalition that includes Iran, Saudi Arabia, the UAE, and others to reinforce maritime navigation and the security of shipping lanes, which directly confronts the mission of U.S. CENTCOM.

Yet China’s strategy of establishing economic ties as the foundation for security ties while maintaining a policy of non-alignment is unsustainable. It is not possible for China to advance its nuclear cooperation with Saudi Arabia and the UAE without raising the ire of the Iranian regime.

U.S. strategic partners across the region will continue to mirror the behavior of the United States. If the United States is perceived as strategically engaged in the region and willing to shore up the defenses of Gulf Cooperation Council states with advanced technologies to counter China’s Digital Silk Road, they are unlikely to hedge and orientate themselves toward Chinese naval and security coalitions. This is inextricably tied to the United States’ bid to prevent China from embedding itself in the region’s infrastructure and investing in advanced technologies such as clean energy that could be incorporated into Gulf economic diversification efforts. Just as China perceives economic and security ties as building blocks toward an overarching security architecture, the United States must follow suit.

Harley Lippman is a board member of the United States Agency for International Development's (USAID) Partnership for Peace Fund.

Image: Shutterstock.

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Bookending Treasury Secretary Janet Yellen’s recent fence-mending trip to Beijing were two largely overlooked, but nonetheless ominous, developments which demonstrated unambiguously China’s dominance over global supply chains for critical minerals needed for the energy transition because of their use is essential in various applications—including electric vehicles (EVs), wind turbines, and solar panels. Unless the United States and its allies can escape the pincer, their ambitions for net-zero carbon emissions—to say nothing of those for other future technological innovations—may well be stillborn.

China’s Rare Earth Metals Monopoly

On July 3, citing national security interests, Chinese authorities announced export restrictions beginning next month on gallium and germanium, two metals that are key to high-speed computer chips and fiber optic cables as well as some sensitive military uses like night-vision and satellite imagery. China produces 80 percent of the world’s supply of gallium and 60 percent of that of germanium. Beyond the implications for chipmakers and other manufacturers, the move sparked concern about supply chains for rare earth elements (REEs)—the group of seventeen metals with strategic applications in defense, aerospace, energy, and transportation technologies—over which China has an even tighter grip, controlling more than 90 percent of global output. After the Independence Day holiday, even President Joseph Biden tweeted, “China has dominated the production of raw materials needed for critical products for too long.”

But what is even more telling is what has happened with REEs, prized for their strong magnetic properties allowing for energy efficiencies in EVs and other electric devices as well as military uses, including lasers, missile guidance systems, aircraft, and satellites. Instead of rising as watchers might have expected given the export curbs on the gallium and germanium, the price of praseodymium neodymium alloy, for example, subsequently sunk to its lowest level since 2020, down more than two-thirds since January of last year. While part of this is attributable to a slackening of demand—new wind power installations are down globally—a significant part of this appears to be intentional policy. As one analyst told Reuters, “If you’ve got 90 percent market share of magnet processing capacity, there’s a goldilocks price where you earn a return but you don’t encourage anyone else in the rest of the world to build capacity.”

This market dominance is the greater challenge to efforts to secure reliable access to critical minerals like REEs because it remains an economic barrier to entry, even if geological resources are located elsewhere. China’s own natural resources endowment allowed the country to cultivate the mining and processing of rare earths, but it was the Communist regime that dictated the late 2021 merger of three of its biggest state-owned REE mining firms—China Minmetals Rare Earth, Chinalco Rare Earth & Metals, and China Southern Rare Earth Group—to form the China Rare Earth Group. This consolidation permits the regime to control the global market more easily by facilitating synergies to lower overall production costs even further (the new juggernaut controls almost two-thirds of China’s heavy rare earths production), thus deterring any potential foreign competitors from even entering the business and eventually competing with it.

The strategic implications of this de facto monopoly are not hypothetical. In 2010, in response to the detention of the captain of a Chinese fishing boat that provocatively rammed two Japanese coast guard vessels off the Senkaku Islands, Beijing blocked export to Japan of REEs. As I noted in a study last year for the Krach Institute for Tech Diplomacy, that embargo, while short-lived, underscored both the risks of dependence on China as a single supplier and China’s willingness to exploit its supply chain dominance for political leverage. Realizing the need to secure an alternative REE supply chain, the Japanese government teamed up with Japanese businesses to support rare earths mining at western Australia’s Mount Weld by Lynas, an Australian company that has subsequently become what is currently the only significant producer of separated rare earth materials outside of China. (Such is the Chinese comparative advantage in REE processing that the largest single rare earth mine in the world, the open pit at Mountain Pass, California, just southwest of Las Vegas, Nevada, has been sending its raw ore to China for processing before the metal returns to the United States as finished magnets used in EVs and other applications.)

A Three-Prong Plan

To escape this veritable trap of dependency, the United States—and, of course, its allies, including the European Union, which is currently elaborating its own critical minerals strategy—should adopt a three-pronged approach:

First, an “all-of-the-above” mindset is required to deal with the supply side of the equation. Where it makes geological and economic sense, domestic production should not only be cheered on politically but actually enabled by a rational and timely permitting process. The Biden administration, for example, has used a variety of existing federal programs and legal authorities to support the establishment of a facility by MP Materials to separate the heavy REEs from its Mountain Pass mine and manufacture permanent magnets without first exporting them to China for ore processing and mineral refining.

Where domestic supply chains are impractical or insufficient, new partnerships have to be developed to secure access to vital resources, such as a “buyers’ club” like the nascent State Department-led Mineral Security Partnership, which includes Australia, Canada, Finland, France, Germany, Japan, South Korea, Sweden, the United Kingdom, the United States, and the European Commission.

In other instances, the answer might be found in innovative approaches like the Lobito Corridor, championed by White House senior advisor Amos Hochstein, which aims to link Angola, the Democratic Republic of the Congo, and Zambia—three African countries with significant reserves of critical minerals and other strategic materiel—to global markets and catalyzing the African nations’ value chains with improved energy and other interconnections, supported by the G7’s flagship infrastructure initiative, the Partnership for Global Infrastructure and Investment (PGII).

Moreover, as I have argued here previously, given that the single most significant challenge is that any one country or entity so dominates supply chains that it is able, at will, to block others’ access to critical minerals, diversification of supply is the overriding priority and key to de-risking, even if it might entail having to do business at times with countries or firms that might otherwise not be viewed as preferred, or even desirable, partners.

Second, the United States and other countries should continue to facilitate the growth of new ventures with the potential to compete and even supplant the current Chinese monopoly, whether by bringing new sources of raw materials online or developing technologies to bypass the midstream processing (refining, alloying), both presently dominated by a Chinese firm.

Notwithstanding the political and diplomatic controversies over the enactment and implementation of America’s Inflation Reduction Act, the legislation not only provided numerous tax credits and other incentives for companies to invest in critical minerals and EV supply chains, but bolstered existing programs like the Department of Energy’s Loan Programs Office. Other existing agencies, like the Defense Logistics Agency and the U.S. International Development Finance Corporation (DFC) also have roles to play. While not all of these experiments will succeed, some will; a few might even prove transformative. (Full disclosure: I am a non-executive director of Rainbow Rare Earths which, with a modest indirect investment from the DFC via Ireland-based TechMet, has a pilot plant in South Africa to produce mixed rare earth sulfate from waste gypsum stacks that, in turn, at a second facility under construction in Florida, will be separated into rare earth oxides for eventual sale to permanent magnet manufacturers.)

Third, given that the sustainability of supply chains is dependent upon demand and the demonstrated power of the current Chinese monopoly over the global market for REEs, it is imperative that the United States and like-minded countries help level the playing field for emerging alternative suppliers via instruments like off-take agreements linked to national strategic reserves or incentives to private companies to enter into similar deals. Without this basic lifeline, it would be almost inconceivable for new entrants into the market to survive the cut-throat and uneven competition. The fate of the French firm Rhône-Poulenc, whose now closed La Rochelle factory at one time processed half of the purified REEs in the world, should be a sobering reminder of the raw power that Chinese state-owned enterprises can bring to bear in a yearslong price war to take down a rival.

Better Late than Never

For the moment, there is no denying that China has built a formidable position in the global quest for critical minerals in general and for very strategic rare earths in particular. But Beijing’s decision to lash out against U.S. curbs on advanced technology sales by both export restrictions of its own on select materials and a preemptive price war on others may have inadvertently alerted the world to the risks that its effective monopoly poses to vital supply chains. Late as it may be in the game, there is still an opportunity to shift the play.

Ambassador J. Peter Pham, a Distinguished Fellow at the Atlantic Council and a Senior Advisor at the Krach Institute for Tech Diplomacy, is former U.S. Special Envoy for the Sahel and Great Lakes Regions of Africa.

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