Manila, Philippines, March 1996

U.S. First Lady Hillary Clinton readied herself to testify in Washington, D.C., amid the spreading Whitewater scandal. On the other side of the globe, I was living in Manila, capital of the Philippines and “Pearl of the Orient.” In both capitals and at discos around the world blared the pop song Macarena by one-hit wonder Los del Río. Schoolkids and adults alike shook to the Spanish beat in synchronized dance.

It was one of those searing hot days in Manila, where you can fry an egg by cracking it open onto the scorching black tar of the street. I had just finished lecturing at Trinity College of Quezon City, where I was spending the semester, when I made my way to the Manila Hotel. Built at the behest of American President William Howard Taft (1909–1913)—soon to assume the position of the Philippines’ first civilian Governor-General—the hotel was officially opened on July 4, 1912. In celebration of America’s Independence Day, the hotel’s inauguration underscored the Philippines’ closeness to the U.S. To this day, many Filipinos call their country America’s 51st state.

Two decades later, the Manila Hotel continued to serve as a site for U.S. government involvement. Holding court as Military Advisor and Field Marshal to the Commonwealth Government of the Philippines, United States Five-Star General Douglas MacArthur operated out of the Manila Hotel from 1935–1941. From his penthouse suite, MacArthur built a blueprint for the Philippines’ future and laid the groundwork for American hegemony in Asia, plans that began enactment under his dominating gaze.

Awed by the hotel’s history, I entered its stately lobby doors. I wondered how many military planning sessions General MacArthur must have held within these walls, strategizing with Filipino leaders such as Manuel L. Quezon1 or House Speaker Benigno Aquino Sr., whose grandson and namesake would become the Philippines’ president seven decades later. Few buildings in the world stood as a greater testament to American power abroad.

While most Americans do not think of their country as a colonial power as they would the British, Dutch, or French empires, the United States effectively colonized the Philippines during the 20th century. MacArthur, Taft, and other American officials cherry-picked families like the Aquinos to dominate generations of local politics. English became one of the nation’s two official languages, right alongside Filipino.

Flooded with thoughts of the site’s significance, I made my way to a table in the corner of the room where Commodore Al Santos and his wife Ester waited for me to have afternoon tea. Dressed in a simply embroidered, cream-colored Barong,2 Al Santos extended his hand to welcome me in a warm embrace. Having been a key figure in the navy under Ferdinand Marcos’ regime (1965–1986) in the 1960s and 70s, the now-retired Commodore Santos had notably stood out for his incorruptibility. Well-liked by both his superiors and subordinates, the Commodore had risen in the ranks despite refusing to bribe his way to the top.

The Commodore’s wife, Ester—previously in charge of running Trinity College of Quezon City and St. Luke’s Nursing School—had brought me to Trinity’s high school division to teach 9th grade English for a semester. With a petite frame and short hair that circled her face, Ester sat next to the retired Commodore, beckoning me to sit. Exuding warmth, Mrs. Santos seemed to wear a perpetual smile that curled from one ear to the other. To this day, I do not think I have met a finer couple that did more to help people find their paths in life. Regardless of someone’s affluence or upbringing, the Santos’ always had a kind and encouraging word to leave.

Slated to return soon to the U.S. to pursue my own university studies, I wanted to thank Ester and Al for arranging my semester of teaching. Moved by my experience and cognizant of the population’s needs, I wanted to know what I could do for the Philippines on an ongoing basis. Keen to learn from the Santos’ expertise, I also sought their advice in determining the next step in my career.

“What should I study and do next?” I asked them both. The Commodore touched his perfectly coiffed, jet-black hair, and looked me directly in the eyes with an unwavering gaze. “China,” he said, then took another sip of his tea. “We are all going to have to learn how to deal with China politically, economically, and militarily. They are regaining power and will become an unstoppable force, the way they were during Imperial times. The whole world will have to know about how to deal with a rising China, so that is what you should study.”

Until then, I hadn’t given much thought to the country that was home to my mother’s ancestors. I only knew of China as having a crazy big population, dim sum, and those White Rabbit candies I enjoyed scarfing down when visiting my aunt’s house. But that was about it. In the mid 1990s, most Americans were still talking about the rise of Japan as if it were a bogeyman whose business acumen would threaten the American way of life. Hollywood and the business papers presented Americans with a new warning—whether a book hitting the shelves, movies a la Sean Connery and Wesley Snipe’s Rising Sun, or a red-in-the-face pundit—cautioning Americans that they might soon be slaving away for Japanese companies. Many feared the rise of a nation America had so decisively defeated at the end of World War II, a mere five decades before. Few predicted that Japan would soon embark on a multi-decade phase of sluggish growth, losing prestige in international affairs.

By contrast, whenever anyone thought of China, they thought of ping pong diplomacy, hunger, Mao Zedong, the disastrous Cultural Revolution, and the more recent Tiananmen Square Incident of 1989, in which hundreds of protesting students and military soldiers alike were killed in pitched battles on June 4th. Americans hardly thought of the Middle Kingdom as an up-and-coming nation, ready to compete for hegemony in the Asia-Pacific region, let alone in the rest of the world.

This disregard of China was not unique to the American public. Not until President Bill Clinton’s second term—five years into his presidency—did Clinton finally make an official trip to China in 1998, visiting from June 24 to July 3. When hosted at Peking University, China’s most famous institution of higher learning, Clinton chastised China’s leadership for a lack of democracy in the country. Aside from insulting his hosts—a common, if misguided, strategy adopted by American politicians when traveling abroad—Clinton’s speech neither mentioned the South China Sea nor China’s relations with Southeast Asian countries like the Philippines and Indonesia. Instead, the American president focused on the Korean Peninsula and on Indian-Pakistani relations, given that the latter two countries seemed to be on the brink of war. On May 28, barely one month before Clinton’s visit, Pakistan had launched Chagai-I, five simultaneous underground nuclear tests in the Ras Koh Hills of Balochistan Province’s Chagai District. Atop escalating tensions, Pakistan’s move struck fear throughout the world that India would seek military retaliation to counteract Pakistan’s armament.i

Listening to the Commodore, I was struck by the weight of his forecasts, particularly regarding the potential for conflict in the strategically invaluable South China Sea. If America’s leaders were not even considering China and its role in regional waters—an expanse of vital importance to China’s neighbors—I had better travel throughout the region and learn as much as I could about Chinese culture and history. It was then and there that my career as a China observer was decided. After my stint in the Philippines, I lived in South Korea for a while, where I taught English. In South Korea, I also engaged with the political and business elite who echoed Commodore Santos’ views about China’s rise, guiding my career in a similar direction. Gaining further insight into Asia-Pacific dynamics while there, I learned that much of America’s foreign policy establishment was twenty years behind in its understanding of the region, rendering its analyses woefully simplistic and naive.

***

2016

Twenty years later, at the edge of glistening aqua blue waters, I gazed out at the South China Sea, a shimmering 1,351,000 square-mile expanse of the Pacific Ocean. Home to some of the world’s top scuba diving sites, the South China Sea has also been the scene of major disputes, the most bitter battled out between China and the Philippines. But other nations are also party to the bickering: Taiwan, Malaysia, Brunei, Indonesia, and Vietnam all vie against China and the Philippines for access to the sea’s potential crude oil deposits, natural gas, and fishing zones.

Estimates of oil quantities under the South China Sea range from a mere 11 billion barrels to a whopping 213 billion. To put the size of these deposits into perspective, Saudi Arabia has confirmed reserves of 268 billion barrels, Iraq has 144 billion. Yet most of the South China Sea’s potential oil is buried so deep under the ocean that even the largest oil giants like Exxon-Mobil and PetroChina still lack the necessary technology to bring this black gold to the surface. Furthermore, while involved countries certainly seek control over these potential oil fields, oil is currently neither the primary contested goal nor the biggest cause of regional friction.ii

Skirmishes over control of the South China Sea essentially boil down to interregional competition for the creation of buffer zones in case of war, and exertion of power over shipping zones. And these competing interests are indeed well founded. Over $5 trillion USD worth of global trade—or one-third of total global shipping—flows through the South China Sea every year. In times of war, anyone controlling these shipping lanes has the power to enact a trade blockade, swiftly starving enemies into submission. Currently, China seems most intent on controlling the shipping lanes, dedicating more efforts to asserting authority than any other nation.

Over the past decade, China’s primary medium for controlling the sea has been its bolstering of the People’s Liberation Army Navy (PLAN). Realizing that domination of the sea was critical to increasing China’s regional power overall, President Xi Jinping accelerated the country’s naval expansion in earnest after assuming power in 2012. Dovetailed with the president’s anti-corruption crackdown, China’s naval expansion has been a clear priority. Arresting more senior army officers for corruption than naval ones, Xi has also installed more senior naval officers that are loyal to him, confirming the Navy’s position as China’s premier fighting power. In its expansion, PLAN further demonstrated the nation’s prowess when it elected to build its first domestically built aircraft carrier over similar models from abroad, launching the Type 001A Shandong on April 26, 2017.iii

Intraregional military attacks between Chinese Coast Guard ships and fishing trawlers of different nations have been fairly minor, albeit regular. Yet the risk of military engagement continues to rise as both China and America become more aggressive in asserting their control of the area. In 2012, for example, China evicted Filipino fishermen trawling near the reclaimed island Scarborough Shoal, drawing heavy protests from Manila, which threatened deployment of more Filipino naval patrols. Nations have also sent military ships to patrol the seas and anchor near reclaimed islands, further increasing tensions. On October 21, 2015, the U.S. destroyer USS Lassen (DDG-82) navigated within 12 nautical miles of the Spratly Island. Less than a year later, on April 22 2016, the Americans sent four A-10 Thunderbolts and two HH-60G Pave Hawks to fly near Scarborough Shoal. In both operations, the U.S. was essentially telling China that neither it nor other nations recognized Chinese sovereignty in these areas. Unbowed to American might, China seized an American underwater drone at the end of 2016.

Amidst this escalating tension, Chinese fighter jets have also been more frequently deployed to intercept American spy planes. On May 17, 2017, two Chinese Sukhoi Su-30 jets intercepted a U.S. WC-135 spy plane, closing to within a 150 feet (45 m) radius. The U.S. immediately lodged protests complaining that China’s fighter jets flew perilously close to the American plane.iv

Competition for control of specific island chains, such as the Spratly and Paracel Islands, certainly accounts for much of the escalating tensions. Yet the chief cause for heated hostility lies in nations’ dredging of the sea to build reclaimed islands like Scarborough Shoal. Adopting a methodical approach, China has outpaced its competition, building reclaimed islands greater in size and number than any other regional player. Having already built seven artificial islands, China has further installed airfields, ports, and lighthouses on the reclaimed landmasses. To put these figures into perspective, Vietnam, Malaysia, the Philippines and Taiwan have reclaimed about 100 acres in the past 45 years, combined. China, on the other hand, has reclaimed a total of 3,000 acres in the Spratlys in the past three years alone.v

***

Commodore Santos had shown prescience that day in the Manila Hotel. Twenty years after his prophecy, China’s unprecedented rise now sees the nation flexing its muscles to neighbors, particularly in its growing control of the South China Sea. Exacerbated by the proximity of China’s seven reclaimed islands, neighbors worry these might readily be converted to military bases were war to break out. The disputed Scarborough Shoal, for instance, lies a mere 130 miles from the Philippines, reachable by a swift missile attack.vi

Aggravating regional anxiety in December of 2016, the Asia Maritime Transparency Initiative (AMTI)—part of the Center for Strategic & International Studies (CSIS)—claimed it had satellite imagery of Chinese-installed weapon systems on all seven of its artificial islands. Referencing the pictorial evidence, AMTI further claimed that China has installed antiaircraft weapons, essentially transforming the islands into “unsinkable aircraft carriers.”vii

The sheer speed and magnitude of China’s oceanic expansion produces mounting fear throughout the region. Asserting that its development is defensive in nature, China pooh-poohs the expressed concerns of neighboring countries, reminding them that China is neither alone in reclaiming islands nor in bolstering its naval capabilities. Yet no other nation has been as systematic in its buildup of reclaimed islands. Regional neighbors seem almost haphazard in their planning. Why have they not put up more of a resistance, and why has China’s expansion skyrocketed so suddenly?

Previously, many nations looked to America for support, granted a bulwark against Chinese expansion by U.S. policies under Presidents Bill Clinton and George W. Bush. But this reliability began to change under President Barack Obama, as China seemed to view the U.S. as a pushover during his presidency. Apart from deploying 1,250 marines in Darwin, Australia—thousands of miles away from the main scene of tensions in the South China Sea—President Obama merely issued a few words of warning to counteract China’s efforts. The president’s Pivot to Asia seemed more like window dressing than an initiative with any teeth. In an opportune climate, China sped up construction of the reclaimed islands. They felt it best to move in swiftly lest a more rigid and hawkish president—as Hillary Clinton might have been—crack down on the region soon.

Fortunately for China, President Donald Trump has sought to forge strong economic relations with China, taking a low-key approach to battling China in general and in the South China Sea dispute. Chiefly seeking to extract better business deals with China, such as resuming American beef imports into the country after fears of mad cow disease halted the influx or lessening restrictions for America’s banks and electric vehicle makers to expand in China, Trump has also dedicated efforts to obtaining Chinese assistance with the Korean peninsula crisis.

Yet perhaps the greatest enabler of China’s long-term ambitions was the tragedy of September 11, 2001. America’s operation to dismantle al-Qaeda and hunt for Osama Bin Laden diverted tremendous U.S. resources away from the Asia-Pacific region, leaving China relatively unobstructed in its expansionist efforts. The relinquishing of America’s regulatory oversight left many countries in the region unsteady in the face of China’s upsurge.

This newfound absence of American power leaves little clarity when determining how to mitigate China’s reclamation of the sea, not to mention its growing power across the region. While the political and business elite of most regional neighbors are undoubtedly wary of China’s long-term ambitions, and frightened of Chinese expansion in the sea, they need nonetheless to remain close to the neighborhood’s economic superpower. Of those with whom I spoke during my travels, none dared risk all-out war, cognizant that their strength was insufficient to resist Chinese might alone. For most regional players, China had emerged as their largest or second largest trading partner.

Further complicating matters, the elite benefit most from China’s rising trade with their home countries. Typically in command of the large, family-owned conglomerates that dominate local markets, these elites hold a significant proportion of their nation’s wealth. They also often have ethnic Chinese ancestry and Chinese language skills which makes it easier for them to navigate both political and business circles in China. For example, Thailand’s Charoen Pokphand Group (CP Group), run by Dhanin Chearavanont, Thailand’s second wealthiest person with a net worth of $6.8 billion USD who traces his ancestry back to China, is the largest shareholder in China’s Ping An Insurance and is a major shareholder in CITIC Group, a leading Chinese financial services conglomerate. Similarly, Henry Sy, founder of SM Investments Holding and the wealthiest person in the Philippines, traces his ancestral lineage back to China. He has also made significant investments into China in the retail space.

While Southeast Asia’s middle class has experienced remarkable growth in recent years—notably in Thailand and Indonesia—there still exists an enormous wealth disparity separating many in abject poverty from a handful of affluent elites like the Chearavanonts and Sys. Experiencing the growth of personal riches, these elites have become more pro-China in recent years, especially now that Donald Trump focuses on domestic American issues at the expense of intervention in foreign lands (which are perceived as marginal in their impacts on American national interests). Without the reliability of U.S. support and mediation, the South China Sea region has now experienced a power vacuum. And in its swift occupation of this void, China is taking great strides to present itself as a friendly partner, opening up trade relations on an unprecedented scale.

To counteract criticism of its moves in the region, China doles out carrots in the form of long-term loans and infrastructure investments in regional countries, targeting specifically those regions and conglomerates that benefit the ruling elite the most, thus building critical support from domestic forces.

In light of China’s takeover and America’s exodus, perhaps the only institution capable of stopping Chinese ambitions is the Association of Southeast Asian Nations (ASEAN). Resistance would require the all member nations of this organization to agree to a united front. Averse to arguing against multilateral bodies, however, China prefers to divide and conquer, convincing nations of its intentions individually. In these bilateral attempts to deal with Southeast Asian nations, China has successfully used its powerful wallet to smooth out relations, thus rendering ASEAN largely ineffectual in containing Chinese expansion.

***

In weathering the power imbalance, countries have adopted disparate tactics to manage China’s growth. Hot Partners like Cambodia and Laos have found that politically supporting the Chinese government by blocking critical statements on China by ASEAN serves them profitably, earning them quid pro quo long-term low interest loans and infrastructure investments. Other countries, such as the Cold Partner Philippines, have been punished economically for taking a more aggressive stand against China’s expansion in the region, as we shall see later, by having its mango exports into China blocked.

Much of the dispute lies on China’s “Nine-Dash Line,” the demarcation line China uses to claim control of large swathes the South China Sea and which overlaps with competing claims by other nations. The area includes the Paracel Islands, the Spratly Islands, Scarborough Shoal, and all of the reclaimed islands in the Sea.

Cambodia, for instance, has long supported China’s Nine-Dash Line in ASEAN summits, deeming China’s long-term infrastructure investments a worthy reward. After preventing ASEAN from criticizing China over the South China Sea Dispute in June 2016, Cambodia was proved right. In just a few days, China doled out another $600 million USD in low-interest loans to Cambodia.

But China not only uses its wallet to build support in Southeast Asia. It has also found takers in Europe, where Hot Partners Greece, Croatia, and Hungary have similarly done China’s political bidding in return for investment. In June 2017, for example, Greece blocked a European Union Statement at the United Nations that chastised China for its human rights record, calling the attack on China “unconstructive.” Like Cambodia, Greece has received massive Chinese investment in the post-Great Recession period. In 2016, for instance, China’s COSCO Shipping (China Ocean Shipping Company)—owner of a giant container fleet—took a 51 percent stake in Greece’s largest port.viii Following its divide and conquer logic, China has learned to isolate countries, benefit them economically, and thus earn their political support in intergovernmental associations—a manipulation of the multilateral system that weakens its very foundation.

In addition, China has specifically appealed to the personal ambitions of the political elite, either through direct financial support or through creation of jobs. Importantly, given the nature of its political system, China is not bound to two-year election cycles. The Chinese government can spend years, if not decades, cultivating relationships, thereby building unwavering political support abroad, especially from nations whose election cycles are similar to China’s. This is one reason why China has forged closer relationships with countries in Africa and the Middle East, for example, whose leaders are also unburdened by regular election cycles.

China’s long-term, continual support of Cambodian incumbent prime minister Hun Sen, for example, has gradually secured Cambodia’s role as a hatchet man for China and moved the country from Cold Partner to Hot Partner and displays China’s long-term strategy for building alliances. Only thirty years ago, in 1988, the long-standing Prime Minister called China “the root of everything that is evil.” Yet less than a decade later, Hun Sen seemed to change his mind entirely, calling China Cambodia’s “most trustworthy friend” in the 1990s. What could have possibly accounted for such a dramatic 180ix degree turn?

In July 1996, President of China Jiang Zemin welcomed Prime Minister Hun Sen for a state visit to China, going as far as to pick him up in a Chinese airplane and shower him with compliments. Viewing Hun Sen as a man with whom they could do business, the Chinese chose to ingratiate themselves through flattery—a more welcome tactic than that of U.S. politicians, who had lectured Cambodia and others nations to embrace American ideals of democracy for decades.

In contrast to its U.S. counterpart, the Chinese government has taken a nolecture, stay-out-of-internal-affairs approach in dealing with other countries. As a result, many states without democratic elections prefer working with China to powers like the United States, which consistently condemn their lack of democracy.

Unlike China’s savvy business approach to building support in Cambodia, America’s tactic has done the opposite, straining relations even more. In March 2017, the U.S. demanded that Cambodia, one of the world’s poorest nations—with 18.9 percent of its population living under the poverty line3—repay $500 million USD in loans to the United States, home to the world’s greatest nominal GDP. Adding insult to injury, much of what Cambodia borrowed from the U.S. during the Vietnam War was used to help feed refugees displaced precisely because of American bombing. Contrast that with China’s strategy of giving out low interest loans—and often forgiving those loans—to co-opt the Cambodian elite and create general goodwill. As one Cambodian I interviewed in Siem Reap told me, “We always get support from China. We love them. The Americans on the other handx always seem to be telling us what to do and telling us we are wrong.”

Using a combination of its Wallet as a tool of diplomacy along with military action has become a well-worn playbook for Chinese policy makers. Target poorer nations whose strained economic circumstances make their elite more susceptible to seeking profitable business deals. Co-opt the elite of these nations for whom such deals will be personally enriching. Dole out the desired business contracts to effectively convert these nations to vassal states. Then use them in international associations like ASEAN or the UN to block criticism of China.

It is important to remember, however, that many countries gravitating toward China’s orbit aren’t merely attracted by the economic benefits of being a Hot Partner with China. Apart from the fiscal pull, many also feel pushed into working with China by an overly critical U.S. that condemns their political systems or human rights violations. This deterrent will become increasingly strong as much of the world rejects democracy or elects political leaders that prefer isolationism to globalism. We have even seen this latter trend in the United Kingdom where Brexit has emphasized protectionism, a gentle indication that even European nations may appreciate China’s policy of non-interference.

***

Countries that antagonize China politically can quickly move from being a Hot Partner or Warm Partner to a Cold Partner. China swiftly uses its wallet to punish these countries that move from Hot or Warm Partner to Cold Partner in order to try to bring them back into line and to warn other nations thinking of becoming less supportive.

This happened in 2016 to Singapore which suddenly found itself falling into the Cold Partner category. Previously, under Prime Ministers Lee Kuan Yew (1965–1990) and Goh Chok Tong (1990–2004), Singapore managed to be friendly both to the United States and to China. Prime Minister Lee played his Chinese ethnic race card to build trust with China’s leaders, starting with Mao Zedong, Zhou Enlai, and Deng Xiaoping. He showed China’s leaders how a culturally Chinese-dominant nation, such as Singapore, can be controlled by a strong arm political leader, yet also use elections and capitalist ideas to become accepted by American policymakers. After all, despite elections, Singapore has been ruled by one family, the Lees, for over 35 years, longer than any Chinese figure.

But friendliness to China began wearing off under Lee’s son Lee Hsien Loong, who became Prime Minister in 2004. He notably has less of a personal relationship with China’s leaders.

Enraging China in 2016, Singapore under the junior Lee resolutely disputed China’s moves in the South China Sea and supported the Philippines. Attempting to issue a communiqué by the Non-Aligned Movement (NAM)—a 120 member nation organization started by countries during the Cold War that wanted to align with neither the Soviet Union nor the United States—Singapore sought multilateral condemnation of Chinese initiatives to reclaim islands and dominate sea channels.

Singapore has also enraged China by attempting to buy military weapons from Taiwan. Singapore had nine armored vehicles it bought from Taiwan seized by Hong Kong customs in November 2016. By seizing the vehicles, China continued to show its displeasure with both Singapore and Taiwan and exert more pressure on them.xi

Relations between China and Singapore froze. In a noticeable show of the cold relations, the Singaporean Prime Minister was not invited to attend China’s May 2017 kick-off summit for its One Belt One Road (OBOR) initiative. Instead of sending a presidential delegation as dozens of other countries in the region, Singapore was represented by a significantly lower ranking National Development Minister, Lawrence Wong.xii

As a result of its actions, Singapore has lost billions of dollars in potential deals with China, its largest trade partner.

Starkly contrasted with Singapore’s moves in recent years are Malaysia, Indonesia, and Vietnam, whose delegations to the OBOR summit were led by Malaysian Prime Minister Najib Razak, Indonesian President Joko Widodo, and Vietnamese President Tran Dai Quang. Seeking closer ties with China despite escalating tensions in the South China Sea, these neighbors have tremendously profited from their support.

All three were amply rewarded for making the trek to China. Malaysian Prime Minister Najib Razak signed $7.2 billion USD worth of deals and said ties between the two nations were at their “best ever.” In the same vein, Indonesia established a $5 billion USD loan facility, and Vietnam inked five agreements with China on economic and technological cooperation.xiii

***

Nations like the Philippines that do not support China, on the other hand, lose out on billions of dollars of trade, as Singapore has painfully experienced. A clear demonstration of this loss was witnessed in the Philippines’ confrontational stand against China’s maritime claims. Under President Benigno Aquino III (2010–2016), the Philippines took China to arbitration under Annex VII to the United Nations Convention on the Law of the Sea (UNCLOS). Vehemently protesting China’s territorial claims in the South China Sea, the Philippines demanded a determination of the legality of China’s “Nine-Dash Line.” Indicative that China’s overall threat played prominently in neighbors’ retaliation, the Nine-Dash Line was initially put forth by Taiwan but elicited nowhere near the same extent of protest as when China adopted it.

China’s reaction to the Philippines’ legal maneuver was swift. Imports of Filipino mangoes plummeted, and Chinese tourists flocked in greater numbers to more pro-China countries like Cambodia and Thailand, halting tourism to the Philippines en masse. As might be expected, the Global Times fanned the flames. Reporting fruit sellers’ boycotting of Filipino mangoes, the paper quoted one anonymous source, “our online shop will not sell Cebu mangoes from the Philippines and will not sell any snacks imported from the country any more.”xiv

Of its Southeast Asian neighbors, the Philippines have historically stood farthest from China and closest to the United States. Now that China is forcing countries to stake out a position, nations must decide whether to orbit China or the U.S. While a handful of nations have managed to remain relatively neutral, as Thailand has succeeded in doing, it is increasingly difficult to remain impartial without antagonizing either side.

These decisions are not easy—siding with one nation over the other typically uproots decades of alliances, unearthing heated historical tensions. The Philippines’ decision to favor China over the U.S. has been particularly vexing given its historical closeness to America. The country has never occupied a vassal state relationship with China as the Koreas or Vietnam had done in imperial times. Perhaps more importantly, Filipinos lack the same cultural and racial ties. Only 1.8 percent of the population has Chinese ancestry—similar levels to Indonesia’s 1.2 percent, vastly differentiating Filipinos from Malaysians (24.6 percent Chinese) and Singaporeans (74.2 percent Chinese) that share China’s same cultural and trade links. On top of this, Filipinos have long considered themselves the 51st state of America, a self-designation legitimized by America’s essential colonization of the Philippines under MacArthur. Serving as a seat of various American military bases in Subic Bay and Clark Airbase in Angeles City, the Philippines only closed these in 1991 and 1992 as a result of growing local opposition in the 1990s.

In adapting his policy, Duarte has provided a guidebook for other countries to figure out how to benefit from both China and America. Considering the Philippines closeness with America, it is useful to see what Duterte has done. The warming relations between China and the Philippines also shows just how coercive China’s wallet can be in the face of an American power vacuum in the region.

The post-Marcos years (1965–1986) proved fairly chaotic politically for the Philippines. Incarcerated for plundering $80 million USD from state coffers, the Philippines’ 13th President, Joseph Estrada (1998–2001), was soon followed to jail by his successor. Caught in electoral fraud, former President Gloria Macapagal Arroyo (2001–2010) was also found guilty in the alleged theft of $8.8 million USD from the state lottery. In the case of Filipino presidents that haven’t been arrested, including Fidel Ramos and Benigno Aquino III, these have been hampered by one-time 6-year term limits, effectively rendering them lame duck presidents.

In the early- to mid-2010s, President Benigno Aquino III (2010–2016)—son of former President Corazon Aquino and offspring of political royalty—moved the Philippines closer to America. After generations of Filipino reliance on American power, Aquino further confirmed the Philippines’ pro-U.S. stance in its rejection of Chinese power—demonstrated in the president’s decision to take China to arbitration at the UN. In the early 1980s, senator Benigno Aquino Jr. (Aquino III’s father), was assassinated upon his return to Manila after exile in America, precipitating the downfall of Ferdinand Marcos’ regime. Aquino III’s grandfather, Benigno Aquino Sr., had served as speaker of the Philippine House from 1943–1944, well known also in American political circles. This also shows how America essentially cherry-picked Filipino leaders for the past century. Circumstances in the Philippines reversed dramatically when Rodrigo Duterte was elected president in 2016. The hard-charging, foul-mouthed former Mayor of Davao City called President Barack Obama “the son of a whore,” and has implicitly sanctioned rape in unabashed jokes. He also said he would never visit the “lousy” U.S.4 A stark divergence from the “American-crowned” Aquino clan, Duterte stands well apart from the political elite classes represented by these former pro-America politicians.

Taking a far more pragmatic stance in dealing with China, Duterte has been handsomely rewarded. Immediately responding to Duterte’s criticism of the U.S., and of President Obama in particular, China offered the Philippines billions in low-interest loans (much as Japan had done in the decades following World War II). Duterte had even joked before he got the loans that he would get closer to China if it gave him billions in loans. He therefore has been able to signal publicly that essentially his friendship and loyalty could be bought—a viewpoint well-understood and accepted by China.

As demonstrated with the Philippines, China has refined its use of economic punishment as a method of coercing Cold Partner countries into the Warm Partner category.

The minute a country suspends its support of China, no matter how long it had been a Hot Partner, it gets banished to Cold Partner status—an experience keenly felt by Singapore. But China’s newly polished statecraft has perfected the art of rewards, too. Granting carrots to newly minted Warm Partners or Hot Partners, like Duterte’s Philippines or Razak’s Malaysia, China knows how to keep its neighbors close.

***

The battle for control of the South China Sea is just beginning. Yet unless all countries in Southeast Asia somehow manage to coordinate with the United States in mounting a united front against Chinese incursion, China’s victory seems relatively certain. Continuously refining its new form of statecraft, China cleverly singles out countries like Cambodia and Laos, influencing Hot Partners within multilateral systems like ASEAN or the UN.

Aside from tension in the South China Sea, perhaps the most contentious area is that on the Korean Peninsula. President Donald Trump has taken a more strident approach to cajoling China to help resolve the tensions and risks of a nuclear-capable North Korea. That is our next example to see how China operates and projects power (Chapter 2).

*****

Dialogue:
Parag Khanna, Managing Partner, Hybrid Reality Pte Ltd.

I first met Parag in 2013 on one of his visits to Shanghai and enjoyed hearing his insights on a wide range of subjects, from politics, to economics, to how we view the world. He is a Senior Research Fellow at the Lee Kuan Yew School (at the National University of Singapore), CNN Contributor, and the author of several bestselling books including Connectography: Mapping the Future of Global Civilization and The Second World: Empires and Influence in the New Global Order.

Rein: It is arguably natural and in some ways necessary for superpowers to establish a military presence for the purpose of exerting power globally and safeguarding economic and security interests. As China emerges as the world’s second superpower, do you think China’s dominance of the South China Sea is inevitable, just given China’s sheer size? Can Asian nations without U.S. backing put up an effective resistance against China’s claims? If it is indeed possible for smaller Asian nations to push back against China’s claims, how should they go about doing so without running the risk of being economically punished as the Philippines was after taking China to arbitration for its “Nine-Dash Line”?

Khanna: It is indeed natural for a country to follow the pattern of import substitution, mass industrialization, generating export-led growth and large surpluses, accumulating massive currency reserves, and investing those assets in national infrastructure and modernization—including of the military. That is precisely the story of America in the 19th century and China in the late 20th and early 21st centuries.

Because China is so dependent on foreign inflows of oil, gas, and food, it needs to secure these supply chains not only through overseas trade and investment—it is now the world’s largest trading power and an ever larger foreign investor—but also through certain military relationships and precautions.

To “put up resistance” to what China is doing is to assume that the prior status quo of the U.S. dominating Asia’s waters through its Cold War alliance system is the “natural” state of affairs. But there is no such thing in geopolitics. There is only constant adjustment based on power and ambition, diplomacy, and strategy. China’s military investments from anti-ship ballistic missiles, stealth submarines, and fortifying disputed islands in the South China Sea will surely continue more or less unabated.

That said, the fate of the South China Sea is not an all-or-nothing proposition. The fact that China is making expansive claims does not mean it will achieve all of them or that they will all at once require accession, or none at all, sparking counter-balancing and conflict. There is no fixed end state to the South China Sea and different disputes will evolve at different speeds.

Some aspects of China’s claims such as the Air Defense Identification Zone (ADIZ) may be ignored by neighbors, while other measures such as accepting Chinese naval ship escorts in specific territories may be accepted. The Philippines has given ground (literally) on the Scarborough Shoal but not on more minor coastal islands, while Vietnam is not giving way at all, and instead has signed oil and gas exploration agreements with Exxon in the Paracel Island cluster to make clear that it will not back down.

For its part, the U.S. is helping concerned allies strengthen their defense capabilities and better coordinate with each other. Vietnam, Indonesia, Japan, India, and Australia are all countries that—whether or not they are claimant states in the South China Sea—are expanding their naval cooperation to show some common resolve.

History shows that it is useful to take a firm line with China to “draw a line in the water” as it were. China would not want to unnecessarily engage in uncontrolled military escalation in such a situation. With such deterrence in place, it opens the door to negotiating potential energy extraction and marketization cooperation agreements, which I strongly advocate, especially since this maritime body truly is shared among nearly a dozen important powers whose thirst for energy will not be quenched through conflict that disrupts major global supply chains.

Rein: Singapore has received the cold shoulder from China after it supported claims by the Philippines against China’s “Nine-Dash Line.” Do you think Singapore will be able to revive ties with China? If so, how?

Khanna: Technically, Singapore’s position was to support international arbitration in the name of a peaceful settlement of the dispute, not to take the Philippines side as such—though indeed this is how the move has been interpreted in China. Despite the current diplomatic tensions between the two, there is no doubt that China and Singapore have a special relationship. Many still remember Lee Kuan Yew’s guidance for China, which has been utterly invaluable in making China what it is today. Furthermore, it is still a major investor in China and technology provider in key areas such as infrastructure services. The credibility of many Belt and Road Initiative (BRI) projects, for example, will surely hinge on Singaporean participation. Of course, China does not need Singapore in the coming decades the way it did in the past forty years, but there is still a very mutually beneficial symbiosis.

Rein: China has claimed that its reclamation of islands in the South China Sea is essentially defensive in nature. Yet it is installing weapon systems on these islands. How do you view this build-up of weapon systems on China’s reclaimed islands? Should we trust that China’s intentions are indeed defensive?

Khanna: In any situation where countries deploy weapons, they declare it to be defensive in nature. That is nothing new. Installing weapon systems on reclaimed South China Sea islands can be justified on the grounds that they are monitoring strategic yet otherwise ungoverned waters and thus providing collective benefits (public goods) against piracy, for example. In reality, such weapons can be used to attack adversaries maneuvering in the region such as Vietnamese or American warships. We cannot say how this will play out, but it is not unprecedented in the sense that this is also how the U.S. uses Pacific Islands such as Guam.

Rein: Vietnam and Taiwan have also reclaimed islands, yet China has received the brunt of America’s criticism. Why do you think this is? Do you see a difference between China’s reclamation of islands and that by Vietnam and Taiwan? Is there a legal difference?

Khanna: While many islands in the South China Sea have long been disputed, it is the changing of the status quo through China’s de facto island build-up and positioning of military assets that has led to China being fingered by other claimants and the international community. It has taken “first mover advantage,” so to speak. Most legal experts concur that while the Philippines has a stronger legal case, it is of course much weaker militarily than Vietnam, which is much stronger militarily but has a weaker legal case. Despite this paradox, both situations will play out very differently because of Vietnam’s history of standing up to China (they fought a brief border war in 1979) versus the Philippines kowtowing approach. Taiwan’s claims are the weakest because in various historical settings they have been subordinated to mainland China’s, and also because Taiwan is not formally recognized as a state by many countries and is increasingly isolated diplomatically if not economically.

Rein: As referenced above, the Philippines under President Aquino took China to arbitration over China’s exerted “Nine-Dash Line.” By contrast, President Duterte has taken a more accommodating approach in addition to criticizing American hegemony, and in return has received billions of dollars in low-interest loans and infrastructure investments from China. Do you believe Duterte’s is a wise long-term plan?

Khanna: Duterte’s response to China’s offers of effectively ceding islands in exchange for economic benefits is predictable, though it is too soon to tell if it will work. He has quickly followed up by ordering the military to strengthen its position and fortify residual islands, which will give the country slightly more confidence that even as it de facto abdicates the Scarborough Shoal, its territorial losses will stop at that. In the meantime, Dutuerte certainly should maximize the benefits of Chinese infrastructure loans and grants to implement his national economic modernization agenda, as other countries are also doing. This ultimately will make the Philippines a stronger nation. But around the corner may lurk scenarios where future investments are made contingent on further rejecting America’s military presence in the country, and this could lead to a renewed round of escalation and threats.

Rein: After President Trump abandoned the Trans Pacific Partnership (TPP) and reiterated his commitment to an “America First” strategy, China has moved to fill the economic power vacuum by promoting free trade and expanding its One Belt One Road Initiative. How much unease do you see in the region as a result of Trump’s rise, and to what degree are Asia-Pacific nations still willing to consider America the world’s policeman? Has there been a shift in political leaders’ ability to rely on America? If so, do you think it likely that many would now put their lot with China, either because they are essentially forced to or seek the inherent economic rewards, or both?

Khanna: Trade is not a zero-sum game, and in truth there was no vacuum to be filled by Trump’s withdrawing the U.S. from the TPP. Trade expansion has been enormous across Asia in the past two decades, and particularly the past ten years. All countries that were part of the TPP negotiations were also simultaneously negotiating the Regional Comprehensive Economic Partnership (RCEP) as well, while also participating in the One Belt One Road discussions. Most are also founding members of the Asian Infrastructure Investment Bank (AIIB). The point is that the choice is not between TPP and RCEP or OBOR, but rather that trade is expanding in all directions, the only difference being the speed and degree. For example, even without TPP, China’s energy imports from America are skyrocketing.

In trade, countries are very mercurial and always playing all sides. This is, quite frankly, a very good thing. More trade and openness is better, and countries choose which agreements they participate in or don’t. If America chooses not to join TPP, TPP will move forward without America—as is indeed the case. My prediction is that the U.S. will realize that it is losing Asian market share in key areas and that trade agreements are the only way to impose the kinds of standards American exporters need to penetrate markets. The only question is how much market share will America have already lost once it comes around to this realization.

Rein: How should President Trump deal with China’s growing ambitions in the South China Sea? Should he send more troops to act as a deterrent, as President Obama did in sending marines to Darwin, Australia? Should he take an even stronger approach by sending American troops directly to the disputed territories, having them land on and occupy some of the disputed islands and reefs? And in either of these cases, how do you think China would react?

Khanna: Because the U.S. has expended such tremendous and irrevocable resources into military activity in Iraq and Afghanistan over the past nearly two decades, the military is stretched and there is little appetite for conflict involving further large-scale loss of American life. This is why Trump’s general approach has been to combine promises of greater military funding with simultaneous demands for greater burden-sharing among allies. Placing many more Americans in Japan, South Korea, the Philippines, or elsewhere as “tripwires” to conflict would not be consistent with this approach, and there is little appetite for it.

Indeed, most American leaders and members of the public would prefer to see Asians sort out their own disputes with America playing a largely deterrent role in the background. This is the path I would like to see as well. During the Cold War, the U.S. security umbrella provided the stability for Europe to integrate its political and even military institutions such that conflict between European nations was unthinkable. Given Asia’s particular history of rivalries and diversity, replicating that accomplishment will certainly be far more difficult, but it is certainly the end state that we should aspire toward.

Case Study: Appoint the Right Ambassador or Country Head

For countries seeking to benefit from trade with China, it is critical to appoint well-versed senior level envoys capable of positioning their represented nations advantageously within China’s Hot, Warm, and Cold Partner framework. Opening up regular dialogue with Chinese senior officials is key, much as the U.S. did in 2006, when President George W. Bush and China’s then President Hu Jintao launched the Strategic Economic Dialogue (SED). Under the SED, the U.S. and China respectively appointed U.S. Treasury Secretary Hank Paulson and Vice Premier Wu Yi to meet twice a year, offering clout to their negotiations. Trusted officials geared with experience and gravitas, Paulson and Wu Yi were equipped to handle even the toughest of issues and compromises.

By appointing such senior officials, both parties significantly lessened mutual suspicion and established major trade deals as a result. An immense success, the SED has moved America into a warmer subset of the Cold Partner category—likely as close as two superpowers can get. Facilitated by the SED and similar bilateral efforts, China-US trade has soared in the past decade. American exports to China have more than doubled from less than $50 billion USD in 2006 to $113 billion USD by 2016. Barring a radical shift in relations, growth of U.S. exports to China are expected to continue as the Chinese ease restrictions on American beef and remain interested in U.S. agricultural products.xv

Conducting regular senior level meetings is key to fruitful trade relations like those enjoyed by the U.S. and China. However, it is equally critical for countries to select the right ambassador to represent them adeptly on a daily basis and secure favorable trade deals. Conversely, emissaries prone to gaffes and excessive criticism of the Chinese government and its people will leave a great deal of damage in their wake—both political and economic. States must therefore strike a careful balance, appointing an ambassador qualified to represent home nation interests; able to push back against China in key areas—even in the challenging realms of border disputes, protectionism, and human rights; but all the while remaining tactful in forging friendly relations.

Although Sino-U.S. relations have undergone ups and downs in recent decades, both Republican and Democratic administrations have chosen fairly wise ambassadors, from Clark T. Randt, Jr. (2001–2009), to Jon M. Huntsman, Jr. (2009–2011), to Gary Locke (2011–2014), and finally Max Baucus (2014–2017). Each showed remarkable prowess in forging stronger economic deals for the U.S. while simultaneously pushing back against China when it threatened American interests—both economic and ideological. Ambassador Huntsman, for instance, attendedxvia few of the 2011 Jasmine Revolution’s pro-democracy protests in support of freedom of speech and democracy, and fought resolutely for better intellectual property protection. Simultaneously, however, he was keenly able to ingratiate himself with the Chinese by speaking Mandarin and praising China’s government when needed. Perhaps most importantly, he was never seen as talking down to the Chinese people or their government. As Professor Jin Canrong, associate dean of Beijing’s Renmin University School of International Relations, has told the South China Morning Post, “Huntsman knows how to deal with China, including its people, and he has done a pretty good job.”xvii

Contrast the outcomes of these diplomatic efforts with those experienced by Mexico after President Felipe Calderón appointed Jorge Guajardo as Mexico’s ambassador to China in 2007, a position he held for six years. Guajardo’s consistent animosity and criticism of China’s political system have debilitated Mexican exports to China and damaged independent business relations. After leaving his post, Guajardo has heavily chastised the Communist Party and its one-party state in speeches and on Twitter. Adding insult to injury, he has compared the CCP to Mexico’s Institutional Revolutionary Party (PRI)—one Guajardo’s own party replaced and often vilifiesxviii. Drawing parallels between the PRI’s political dysfunction and China’s governmental corruption, Guajardo has suggested that the Communist Party may be on its way to collapse, wracked with corruption and factional infighting, and having lost legitimacy among its people. Guajardo has time and again argued for Chinese political reform and even a replacement of the system. Understandably, such savage and relentless denigrations of the Chinese government have left a bad taste in the mouths of everyday Chinese, subsequently damaging the image of Mexico in the minds of Chinese consumers.xix

Leaving few unscathed, Guajardo’s constant criticisms—during both his ambassadorship and his later work as a consultant for McLarty Associates, helping firms expand and deal with China—have indeed riled key people in China. As was expressed to me by a well-connected Beijing insider, “All he does is criticize. He has severely set back Mexico-China relations.” Echoing this sentiment, one member of Mexico’s Foreign Service complained, “We’re always cleaning up his messes. Even now, years later.”

Consequently, while Sino-Mexican trade grew under Guajardo’s ambassadorship, growth was far from what it should have been considering China’s booming economy at the time. If Mexico had been positioned as a Warm Partner, rather than garnering the Cold Partner status induced by Guajardo, Mexican businesses would have benefitted enormously. Instead, Mexico only exported $4.87 billion USD of products to China by 2015—a figure just slightly greater than the $3.35 billion USD of Mexican exports to a significantly smaller Spanish market. After cancelling a $3.75 billion USD train deal with China, Mexico further damaged its reputation, tarnishing its image as a trustworthy country in the eyes of everyday Chinese. One of the reasons tequila sales are so low in China is precisely this damaged image—Chinese consumers now view Mexican brands not only as cheap and untrustworthy but also as representative of a Cold Partner nation. Many have therefore flocked to French cognac or Scottish whiskey, favoring Warm Partner countriesxx instead.

Particularly in light of America’s U-turn in dealing with Mexico under the current Trump administration, Mexico would do well to increase its trade with China and thereby cease reliance on its largest trading partner to the north. Growing closer to China would additionally help offset any political and economic risks posed by a more volatile President Trump. However, Mexico has a long way to go in repairing the damage inflicted on Sino-Mexican relations, both by hurtful policies and diplomatically ruinous ambassadors such as Guajardo.

Key Action Items