U.S. Struggles to Adapt to China’s Economic Strategy

The tiny desert town of Abeche, in eastern Chad, offers a curious sight: Sandwiched between the mud huts that most people call home and the compounds belonging to international aid workers is a humble Chinese restaurant catering to Chad’s growing population of Chinese engineers and managers. Significantly, no equivalent American-style restaurant is to be found.

The same holds true across the resource-rich, institution-poor developing world, in countries as remote as East Timor and as dangerous as Somalia. While much of the military establishment in Washington continues to plan for a possible conventional war with China, Beijing is studiously avoiding a direct confrontation, instead expanding its influence through means other than traditional warfare. Principal among them is the deployment of Chinese technocrats abroad on profit-seeking missions for the world’s third-largest economy.

A series of events in Washington in March and April highlighted the ways in which the U.S. is struggling to come to terms with a rising China, whose greatest strength — even during a global recession — is not military, but rather economic in nature. Therein, too, lies its greatest threat to U.S. interests.

Two weeks ago, Defense Secretary Robert Gates announced a series of military reforms meant, in part, to prepare the U.S. for asymmetric threats, including economic warfare. Supporting these reforms, the Pentagon hosted a war game in March to test how Beijing might use its financial clout as a weapon by leveraging its global investments and huge portfolio of U.S. debt to destabilize the American economy. The exercise coincided with the release of the Defense Department’s controversial annual report on old-fashioned Chinese military power: its ships, tanks, airplanes and missiles.

The report stated that the U.S. “welcomes the rise of a stable, peaceful, and prosperous China,” but also emphasized Washington’s concerns over China’s rapidly modernizing and expanding military, and how it might be used. Those concerns have been echoed across the military-industrial-media complex.

In March, Rebecca Grant, a defense industry consultant, argued in her syndicated newspaper column that the U.S. must continue to buy F-22 fighters — the most expensive tactical aircraft ever built at $150 million per plane — in order to counter increasingly sophisticated mobile Chinese missile launchers as well as new Chinese jets that are a “near-even match with current U.S. fighters.”

The rumored existence of these sophisticated next-generation Chinese missiles has largely driven recent overhauls of the Navy’s shipbuilding plans, including the cancellation — after more than $10 billion in research — of a $5 billion destroyer perceived to be particularly vulnerable to such missiles, and plans to add more anti-missile defenses to defend existing ships against them.

The shifts reveal a military culture largely fixated on a perceived conventional military threat from China. But this threat is grossly exaggerated, even according to some of the Pentagon’s own experts. “China’s ability to sustain military power at a distance remains limited,” the DOD’s 2009 China report states, adding that Beijing’s forces remain tailored for “anti-access,” or defensive, missions.

In Africa, for instance, China “has limited military presence besides the assignment of personnel to U.N. peacekeeping operations, occasional training and exchange programs and the assignment of defense attachés to Chinese embassies,” the Washington, D.C.-based Jamestown Foundation reported earlier this month. “China rarely sends its naval ships to African ports; its last naval visit took place in 2002.” The Pentagon, by contrast, has 2,000 soldiers deployed on combat operations in Africa, in addition to warplanes and several warships.

Instead of challenging U.S. military dominance on the continent, Beijing has long focused on forging economic ties. “China’s investment in Africa is rising sharply, and Beijing boasts a proactive record on aid and debt relief, having given more than $5.5 billion in assistance and canceled the debt of 31 countries,” Japanese Africa analyst Hisane Masaki wrote this month in the trade journal Japan Focus. Meanwhile, the growth rate for Chinese investment in Africa has far exceeded the growth rate for U.S. investment, leaving the two countries’ two-way trade in Africa roughly equal today, despite the U.S. having a much larger economy.

“China’s approach to securing minerals in Africa has been to sign agreements to build huge projects in exchange for minerals,” the New York Times reported in March. As one example, “China won oil interests off the coast of Angola after wooing that African country with a . . . $2 billion credit line,” Masaki wrote in his report.

China also seems to favor African countries that many American businesses find too dangerous. In 2007 alone, Chinese civilian technical teams came under attack by rebels and insurgents in Nigeria, Ethiopia and Sudan — all countries where few Western nationals operate. The same year, death threats from Islamists drove Chinese engineers in Somalia to briefly seek refuge in a heavily guarded hotel. Not until this year, with the deep global recession, did Beijing balk at potentially dangerous projects in Congo and Guinea.

Still, the daring investments of previous years have helped feed China’s growing appetite for imported energy resources, and given Beijing the diplomatic heft to cut off energy supplies to its main symbolic rival, Taiwan. In 2006, oil-rich Chad ended formal ties with Taiwan “under pressure from Beijing,” Masaki recalled. It was this kind of maneuver that the Pentagon’s March war game tried to model.

That’s not to say Beijing’s economic strategy is always successful, whether in Africa or elsewhere. The world recession has caused some marginal investments in Africa to turn sour, particularly in Guinea. And in Asia, Chinese attempts to gain a foothold in East Timor’s expanding energy sector have “made little headway,” Jamestown reported in March — despite Beijing investing millions of dollars in infrastructure in the capital of Dili, establishing scholarship programs for Timorese students and even deploying teams of doctors to deliver free medical care. Surely to Washington’s relief, Dili has preferred to collaborate with Western governments to exploit its oil and gas reserves.

Still, Beijing’s successes outnumber its failures. In light of this, Defense Secretary Gates is fighting to reorganize the U.S. security apparatus to reflect, among other things, China’s economic strategy. In early April, he announced deep cuts to traditional military hardware, and a shift in funding towards cyber security, assistance to allies and “soft power” approaches. Among these are nontraditional measures relying heavily on partnerships with the State Department, private industry and the nonprofit sector — in many ways mirroring the way that China’s security rides on the backs of its engineers and state-owned companies.

To meet rising challenges, including that posed by China, Gates’ Pentagon “supports institutionalizing whole-of-government approaches to addressing national security challenges,” according to the January Role and Missions Review Report.

But Anthony Cordesman, from the Center for Strategic and International Studies in Washington, said in an April statement that Gates’ announced reforms don’t go far enough towards achieving this “comprehensive” approach. Furthermore, old-fashioned firepower is still favored over economic measures as a means of advancing U.S. interests by the individual military services, powerful industrial lobbies and many members of Congress.

As long as that is the case, China will continue to outmaneuver the U.S. on the economic battlefield.