China Tests the Waters

By PHILIP BOWRING

HONG KONG — China is testing its influence in every direction, trying to balance its need to be seen as a fair global player with its nationalist instincts, to balance a genuine internationalism against the paranoia that comes naturally to a closed political system.

This week the locus has been the Ural city of Yekaterinburg, host to the first official meeting of the BRIC — the catchy acronym invented by Goldman Sachs to make a group from the four largest emerging markets, China, India, Brazil and Russia. If the meeting showed anything it was that their strategic economic interests are very different, though tactical alliances do occur.

The one thing they appeared to agreed on was that however much they would like to reduce the role of the dollar in the international financial system, doing so was another matter. So much for the BRIC as a coherent group rather than a stock salesman’s slogan. China will continue to play along if the others want but is under few illusions about BRIC.

Next, also in Yekaterinburg, was the annual meeting of the Shanghai Cooperation Organization that brings together China, Russia and the Central Asian republics, with India, Pakistan and Iran as observers. Founded as a counter both to U.S. influence in the region and to radical Islam, it is publicly seen as a example of Sino-Russian cooperation.

In practice, however, its relevance may be declining. The United States is being less pushy in Central Asia; Sino-Russian rivalry for influence in that region is clearer than ever; and there is more worry than anger over the U.S. predicament in Afghanistan and Pakistan. And all are wary of an Iran combining theocratic nationalism with domestic power plays.

More significant than these talk-fests for China and the U.S. are the minor confrontations that have been occurring in the South China Sea. In March, the U.S. complained of the harassment of an unarmed naval vessel that was in international waters, but within China’s exclusive economic zone. The U.S. claimed right of “innocent passage”; the Chinese alleged that the vessel was interfering with its economic rights.

In another encounter last week, a Chinese submarine hit a sonar device being towed by a U.S. naval vessel near the Subic Bay naval base but outside Philippine territorial waters, where it was taking part in joint exercises. The United States has chosen to play down the incident as an “inadvertent encounter,” but it again gave notice of China’s long-term goal of making the South China Sea a Chinese lake.

The incident drew mixed responses in the Philippines, which sum up the dilemma among China’s small neighbors of how to respond to its power and its ability to enforce its territorial claims. Some Philippine voices called for strengthening of their own defenses and their alliances with the U.S. and Japan. Others suggested that its Visiting Forces Arrangement, under which the exercises were taking place, was an unnecessary provocation to China.

On the economic front, China has had to face the harsh realities of the limits of its buying power and cash in the international marketplace, as exemplified by the failure of the bid by state-owned Chinalco to acquire a major stake in mining giant Rio Tinto.

Instead of getting influence in the world’s No. 3 iron ore producer, China, as chief customer, now finds itself facing two groups dominating global iron ore trade — a new alliance between Rio Tinto and fellow Anglo-Australian miner BHP-Billiton, and Brazil’s Vale do Rio Doce. The Brazilians are unlikely to get into a price war with the Australians for the sake of their BRIC partner.

Although Chinese Internet chat rooms were abuzz with nationalist resentment at Chinalco’s rebuff, official Beijing took the news calmly, acknowledging that its enterprises were often poorly equipped for big international forays. However it is threatening a challenge to the Rio-BHP alliance on monopoly grounds. China would deserve sympathy on that score but for its own preference that state-owned oligopolies control the commanding heights of the economy.

China is finding that domestic and international policy on competition and ownership issues can no longer be separated.