By John Thornhill
FT.com site; Dec 02, 2002

A spectre is haunting Asia, the spectre of capitalist China. Over the past two decades, China's neighbours have watched in awe as the most populous nation has re-emerged as the "factory of the world" and the most dynamic economy in the region.

The leaders of the 10-country Association of South East Asian Nations (Asean) who met in Cambodia last month certainly seemed haunted by this spectre as they watched China engage in a diplomatic tussle with Japan to assert leadership in east Asia.

Zhu Rongji, the veteran Chinese premier, set the agenda by pushing China's plan to create a free trade area with Asean - excluding Japan - by the end of the decade. Not wishing to offend China, most Asean countries supported the proposal in public - although privately they have deep misgivings about exposing themselves to the full force of Chinese competition.

Since Deng Xiaoping embraced capitalism and opened up the country's economy in the 1980s, China's growth has been astonishing. It continues to outstrip the rest of Asia, which is still recovering from the 1997-98 financial crisis.

In 1980, the Chinese economy was just one-twentieth of the size of Japan's, the world's second biggest economy. Today, China's gross domestic product is almost a quarter that of Japan. If the current growth rates of the two countries are extrapolated, China's economy might well outstrip Japan's within 20 years. "China's economy is potentially 10 times the size of Japan's," Goh Chok Tong, Singapore's prime minister, predicted in his national day address last year. "Just ask yourself: how does Singapore compete against 10 postwar Japans, all industrialising and exporting to the world at the same time?"

Many analysts argue that it is only a matter of time before this economic power is translated into military muscle. Iraq aside, east Asia is a likely theatre for a major war, they argue. Teeming with expansive ambitions and fuming at past humiliations, China is at the centre of many of these war-gaming scenarios.

A recent report from a US Congressional panel flagged fears that China's rise could threaten regional stability. The US-China Security Review Commission concluded that Washington might be mistaken in helping China build up its economic strength unless Beijing conducted reforms to transform its political system, too. "If China becomes rich but not free, the United States may face a wealthy, powerful nation that could be hostile toward our democratic values, to us, and in direct competition with us for influence in Asia and beyond," it said.

"The combination of Chinese leaders' perceptions of America as an adversarial hegemon, and the lack of solid bilateral institutions for crisis management response, is potentially explosive," the authors concluded. "In the worst case, this could lead to military conflict."

China protests that its overwhelming priority is economic prosperity - or in the words of Deng Xiaoping, the former leader, "development is the core truth".

"China is not a superpower and does not want to be a superpower. China will never be a hegemonic power and will never expand," says Zhou Wenzhong, China's assistant foreign minister. "People have seen in their dealings with us that we want common prosperity and mutual benefit. In a nutshell, we want to be friends with everyone."

But China's neighbours feel they have good reason to be wary of Beijing's growing power. For perhaps 18 of the past 20 centuries China has boasted the biggest economy in the world and still displays many of the reflexes and instincts of a hegemonic power. Many Chinese see the past two centuries of underdevelopment and colonial occupation as an embarrassing aberration that must be redressed. Home to the world's oldest and one of its richest civilisations, the argument goes, China must now regain its rightful place in the sun.

Moreover, with 15 neighbours by land and sea, China borders more countries than any other and, at different times in its history, has had strained, if not hostile, relations with almost all of them. Since the Communist revolution of 1949, China has intervened militarily in the Korean peninsula and in Indo-China. China also fought fierce border wars with India in 1962 and with the former Soviet Union in 1969. In 1996, it tested missiles off Taiwan's coast before the island's first direct presidential election.

During Mao Zedong's era, China earned the ill will of much of south-east Asia by sponsoring communist insurgency movements throughout the region. And some Asian politicians are suspicious that the 50m ethnic Chinese diaspora scattered around the rest of Asia could act as a "fifth column" for Beijing - no matter how fanciful this idea seems to many Chinese living abroad.

This fear of China is already palpable in Tokyo. The Japanese know many Chinese still nurse a visceral hatred of them for the brutalities they committed during the occupation of China in the 1930s - in spite of Tokyo's massive postwar aid programme, which was viewed by many Japanese as de facto war reparations to China.

Hisahiko Okazaki, a conservative Japanese foreign policy commentator and former ambassador, compares the current situation in east Asia to that of 19th century Europe when Germany, under Kaiser Wilhelm, emerged as the continent's dominant power. Just as historians argued that Germany was too big for Europe, some strategists argue that China could become too big for east Asia.

"In strategic and security policy we have to expect a change in the balance of power in east Asia. It is gradual but inevitable," says Mr Okazaki. "In 15 years China will be a very significant power."

Mr Okazaki fears that China's growing strength will eventually lead it to take control of Taiwan, thus threatening Japan's strategic supply routes. About 80 per cent of Japan's oil supplies come from the Middle East; most of that passes through the Taiwan Strait. Mr Okazaki is also concerned that China's development of a more powerful navy will strengthen its grip on the South China sea, forcing south-east Asia into a de facto alliance.

China's voracious demand for energy resources has already led it into a contest for the sovereignty of the Spratly Islands in the South China Sea, which are thought to be rich in underwater oil reserves. Although China has agreed with Asean to resolve this dispute by peaceful means, it has not abandoned its claims. Beijing also has outstanding territorial disputes with other neighbours, including Japan over the Senkaku islands.

Fears of China's growing assertiveness have prompted some Japanese politicians to argue for a strengthening of Tokyo's alliance with the US and the abandonment of the country's pacifist constitution. Ichiro Ozawa, a leading opposition politician, has argued that China's bullying could even provoke Japan into developing its own nuclear bombs - an idea previously regarded as anathema in the only country to have suffered a nuclear attack.

Concern about China is no less acute in Russia. Indeed, one leading Russian scholar has described China as the most formidable geopolitical rival Moscow has faced on the Eurasian continent since the Tartar-Mongol invasion in the 13th century. The diverging economic fortunes of the two countries in the 1990s have prompted fears that China might seek to exploit Russia's weakness by taking control of Siberia.

In the late-1990s, the economy of the Russian far east was shrinking fast while that of neighbouring north-east China was expanding at an even faster clip. The population of north-east China has rapidly swollen to 104m people while that of far eastern Russia has shrunk to just 5m. No wonder Russians worry about the massive flows of Chinese migrants across the border; some estimates put the number of illegal Chinese workers in Russia at anything from 200,000 to more than 2m.

"There is no other country of which Russians are more afraid than China," says Dmitry Trenin, author of The End of Eurasia. "If the Russians fail in the far east and there is further depopulation and deindustrialisation and degradation then the chances are that we will lose de facto control of what is happening in the territory."

India, too, which was battered by China in a brief war in 1962, also has deep misgivings about the rise of her eastern neighbour - especially given Beijing's strong military and economic support for India's arch-rival, Pakistan. George Fernandes, the defence minister, has used the threat of China's rising military might to justify the development of India's nuclear bomb, sparking concerns about a future arms race across Asia. Fears of China's long-term strategic ambitions run deep in India, where economic expansion has for the past two decades lagged far behind that of China.

"In my perception the Chinese are very, very clear about what they want," says P. R. Chari, director of the Delhi-based Institute of Peace and Conflict Studies. "What they want is to rival the US. Their economic power will translate into military power.

"Already there is some dialogue between the US and India about what is codenamed 'the stabilisation of Asia'. But what that really means is how you deal with the problem of China," he says.

Another school of China scholars in Asia puts a different slant on the likely impact of the rise of the Middle Kingdom. View the world from Beijing, they say, and China's great power neurosis becomes a lot easier to understand. Rather than fretting about China's potential strength, the outside world should perhaps be more concerned about its weaknesses, such as the growing divide between the rich coastal cities and the poor countryside, and the rickety state of its financial system. "Historically, China has not been a unified country all the time. It has had a history of integration and disintegration," says one senior Japanese diplomat. "It does not matter whether China is strong or weak so long as it is stable."

Chinese strategists already see themselves as surrounded by menacing US forces. Beijing also faces wrenching internal changes as it transforms a planned, and largely rural, economy into an industrialised market economy. At about $10,000bn, US GDP is currently 10 times that of China. Washington's military budget is at least six times Beijing's while the US holds a seemingly unassailable technological lead and is threatening to militarise space. Moreover, the US maintains 37,000 troops in South Korea and an additional 40,000 in Japan. How could China ever be a military threat to the world's only hyperpower?

Vasily Mikheev, director of Russia's Institute of the Far East, argues that China faces so many domestic challenges that the attention of its political leadership will remain focused inward for the foreseeable future. In any event, its integration into the world economy is increasing its interdependence with other countries and transforming China into a more pluralistic and less militaristic society. "My thesis is that China is not aggressive. And it is more of a constructive factor in building the world community than a destructive factor," he says. "China does not like the US presence in the region but it will not fight it."

This view is echoed in Tokyo by a younger generation of analysts, who believe China's economic expansion could be the motor of growth for the whole region without disrupting political stability. China's neighbours can throw so many economic skeins over the Asian Gulliver that they will be able to constrain the waking giant.

Akio Takahara, politics professor at Tokyo's Rikkyo University, argues that strategic tensions in Asia can be managed so long as a sensible multilateral security structure is developed for the region. The Japanese public's concern about China "arises from a lack of confidence in the Japanese themselves", he says. "Once the economic situation improves in Japan then more people will feel comfortable with China. The objective fact is that Japan can benefit from a rising China. We live in an era of globalisation and China is being integrated into the regional and global economy. It is unthinkable that China will be as aggressive as Nazi Germany or imperialist Japan in the 1930s," he says.

But Mr Okazaki doubts the argument that economic integration alone will tame China. He remembers those analysts in the early 1900s who argued that Great Britain and Germany could never go to war because they were each other's biggest trading partners. The chief difference between then and now, though, is that the US is already engaged in the region. "The British, French and Russians could not cope with Germany in the first world war and had to ask the Americans to come in," he says. "But at least in east Asia, [US involvement] is a given condition."