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THE PANGOAL REPORT
Apr 16, 2018
Pangoal International Situation Monthly (Vol.12)
Pangoal International Situation Monthly (Vol.12)

Pangoal Institution

International Situation Monthly

March 2018 (Vol.12)


Stable Development of China is in Line with the World’s Expectations

US Economy in Real Recovery

Another “Putin Cycle” in Russia

Taiwan Travel Act Takes Effect in the US

US-Japan-India-Australia Quasi-Alliance Unable to Contain China

Upheavals of the Peninsula Situation Put US and Chinese Strategic Choice to Test





In early- and mid-March, following the Second Plenary Session and the Third Plenary Session of the 19th Central Committee of the CPC that had been held in Beijing in mid-January and end-February, respectively, the First Session of the 13th National People’s Congress and the First Session of the 13th Chinese People’s Political Consultative Conference were held in Beijing.


After these important meetings, major theoretical viewpoints and policies defined by the 19th CPC National Congress have been included in the fundamental law of China, particularly the Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. In addition, reforms on party and government institutions have been deepened, and new leadership has been elected. Party Secretary and Chairman of the Central Military Commission, Mr. Xi Jinping, has been unanimously elected as President and Chairman of the Central Military Commission of the PRC.


These great achievements demonstrate that the will of the CPC, the people, and the nation is highly unified and represents the common wish and voice of the whole Party, the nation, and all Chinese people. The acceleration of the reform on the government structure and modernizing governmental approach is of both practical and historical significance for enhancing the Party’s governance and leadership, mobilizing the initiative and creativity of the whole society, ensuring effective governance, and advancing the development of the Party and the nation.


2018 marks the beginning of the implementation of the spirit of the 19th CPC National Congress, and the 40th anniversary of Reform and Opening Up. It is also a key year for building a moderately well-off society in an all-around way, and the implementation of the 13th Five-Year Plan.


These meetings have identified a clear approach to accomplishing the three tough missions—guarding against and defusing major risks, carrying out precision poverty alleviation, and preventing and addressing environmental pollution—for building a moderately well-off society.


These meetings have sent a message, to people both at home and abroad, that the Chinese government will adhere to the principle of seeking progress while maintaining stability. To realize this goal, China will press ahead with the supply-side structural reform by cultivating new growth force and accelerating optimization of the economic structure. Innovation will be given a leading role in stimulating growth and we will draw on the creativity of the whole of the society.


Regarding foreign policy, China will remain committed to the path of peaceful development and continue to contribute to the establishment of a community of shared future for mankind and a new type of international relations. “We will adhere to the principle of broad consultation and joint efforts to share the benefits in our promotion of the Belt and Road Initiative. We will not sway from pushing forward economic globalization, and trade and investment liberalization and facilitation. China will actively make its contribution to improve global governance and build an open world economy. We will advance our coordination and cooperation with major countries, deepen friendly and common development with our neighbors, and strengthen our ties and cooperation with other developing countries.” Valiant efforts will be made to ensure the success of China-hosted foreign events, including the annual conference of the Baoao Forum for Asia, the Shanghai Cooperation Organization Summit, and China-Africa Cooperation Forum. China will continue to live up to its role as a country at the forefront of settling international and regional hotspot issues.


China’s stable development against the background of strong politics is in line with the international community’s expectations. Shortly before the two sessions of the NPC and CPPCC began in China, the World Bank said in a newly released country-specific report that today’s China is the result of previous reforms. To achieve more inclusive and sustained development, China still needs reform. In the medium and long run, China’s economy growth, to a large extent, depends on how deep and wide the reforms can reach. From 2020 to 2024, China can grow at an annual average rate of 6.8% if major reforms are carried out successfully.



On February 21st, the Trump administration submitted to the US Congress its first presidential annual economic report, which says that the US economy is in one of the best periods in history.


The report forecasts that the US economy will grow by 3.1% this year and that the US will see a 3% annual average growth rate in the coming 10 years if President Trump’s economic plan is fully implemented.


In the first three quarters of 2017, the US economy’s annualized rates were 1.2%, 3.1% and 3.2%, making 2017 the first year since 2014 with growth rates higher than 3% in two consecutive quarters. According to the US Department of Commerce, the US economic growth rate was 2.3% in 2017, lower than the 3% promised by Mr. Trump, though higher than 1.5% in 2016, and on par with the annual average rate since 2010 of 2.2%.


In 2017, 2.1 million non-agricultural jobs were created in the US (compared with 2.2 million in 2016 and 3 million in 2014); the unemployment rate dropped to 4.1%, the lowest level in the past 17 years; the Dow Jones index increased by 25%; and the Standard & Poor’s 500 index increased by 19%.


On December 13th, 2017, the Federal Reserve made a more modest forecast than the White House on US economic growth, estimating the growth in 2017 and 2018 at 2.5%, 2019 at 2.1% and 2020 at 1.8%. In mid-March, the Federal Reserve adjusted its forecast, estimating the US real GDP growth rate of 2018 at 2.7%, 2.4% for 2019, and 2.0% for 2020.


A Gallup poll done in January 2018 showed that 58% of respondents had positive views about President Trump’s economic performance, 12 percentage points higher than that of President Obama at the end of his presidency.


The US economy, all indicators have shown, is in real recovery. There are two main driving forces: First, the Federal Reserve started phasing out quantitative easing policies in the second term of the Obama administration. In the first year of his presidency, Mr. Trump further reversed previous trends in monetary policies by starting to raise interest rates and shrinking the balance sheet. Years of efforts in redressing the structural distortion of the factor market have begun to pay off. Second, loosened regulation and reduced taxes resulted from US supply-side reform have boosted private investment and attracted overseas capital back to the US soil, which further increases corporate productivity and expands domestic growth.


The Federal Reserve ended QE in October 2014. There have been five rate hikes (each of 25 base points) since December 2015. In 2018, three interest rate spikes are expected (faster raises are not unlikely), bringing the deposit interest rate up to 2.0%-2.25% by the end of 2018 and 3.0% by the end of 2019. In October 2017, the Federal Reserve began to shrink the balance sheet, planning to cut down to three trillion dollars by 2021.


This expansionary cycle in the US economy has lasted 105 months since June 2009. The longest expansionary cycle in US history was 120 months, starting from March 1991 and lasting until March 2001.


Strong economic recovery in 2018 and 2019 relies on good implementation of Trump administration’s tax cut plan and infrastructure building plan. Tax cuts are likely to raise the US GDP by 1.3%-1.6% in the next three years and American household income by over 4,000 dollars on average. Mr. Trump’s 1.5 trillion-dollar infrastructure plan is yet to be approved by the Congress.


Having said that, the US economy has not completely shaken off impacts of the financial crisis, and slight recession is still likely after 2019. In a report in early January 2018, the Wall Street Journal said that the International Monetary Fund forecasted that the US economy could grow faster at a rate of 2.7% in 2018, but the rate would drop to 2.2% and 2% in 2019 and 2020. Risks include:


First, the US national debt has ballooned. By the end of 2017, US total national debt has reached 20.6 trillion dollars, representing 110% of the GDP, far above the 60% redline.


Second, a great deal of money has shied away from the real economy. Of the 3.96 billion dollars injected into the market by the Federal Reserve during the three rounds of QE, only 76 billion dollars has flowed to real economy.


Third, few people have benefited from the economic improvement. All growth in net wealth of US households has occurred only among the top 20% households, while the rest has seen their wealth stagnate or even shrink.


Fourth, a decreased unemployment rate does not mean full employment. Employment statistics does not include long-term unemployed people and those who did not even bother registering for unemployment benefits because of low confidence. A total of 2.089 million new jobs were created from January to November 2017 (with a monthly average of 189,900), fewer than the 2.61 million during 2016 (with a monthly average of 217,500). The employment rate was 63.1% in September 2017 and 62.3% in June 2016, far lower than the pre-crisis level.


In addition, the protectionist “America First” trade policy advocated by the Trump administration is of no help to US economic recovery in the medium and long run.


On March 6th, the White House confirmed that Gary Cohn, Director of the National Economic Council, planned to resign. The direct cause for Mr. Cohn’s resign, a free trade supporter, is his dispute with President Trump over the administration’s decision to impose tariffs on metals. His post will be filled by conservative economic commentator Larry Kudlow, a sign that the hawkish side has had a full win.


On March 8th, President Trump singed proclamations to impose, based on the results of the Section 232 investigations, a 25% duty on steel and a 10% charge on aluminum. On March 23rd, Trump signed bills to exempt the EU, Australia, South Korea, and Brazil from these tariffs. Canada and Mexico are also exempted as they are under renegotiations on North America Free Trade Agreement with the US. At the same time, Trump signed memorandums of understanding to announce another 60 billion-dollar tariff slapped on Chinese exports. The US Trade Representative Office claimed in the Section 301 investigation announcement that it would slap a 25% tariff on at least 50 billion dollars-worth of Chinese goods exported to the US. The first group of goods includes aerospace and telecommunications products and machinery. China, in response, vowed to play along and has announced a plan to charge three billion dollars of tariffs on US nuts and wine as retaliation.


The Chinese and US ministries and departments of finance and commerce have been busily engaging with each other to avoid a trade war. On March 24th, Mr. Liu He, Vice Premier of the State Council, Director of the General Office of the Leading Group for Financial and Economic Affairs, and head of the Chinese side in the China-US Comprehensive Economic Dialogue, had a telephone conversation with US Treasury Secretary Steve Mnuchin.


If the Trump administration triggered a trade war with China despite all the opposition, 400 billion dollars-worth of goods on the global value chain would be impacted, which would inevitably generate higher global inflation pressure. The US stock market and the dollar could suffer long-term downward pressure, which could make it more likely for the world economy to return to a deep recession.


Real recovery of the US economy is the most important driving force for global economic recovery. China must gain an accurate understanding of US economic recovery and make a precise judgment about whether the US has entered another “golden development period”, which is of great importance for us in planning and implementing our own development and reform strategies.


When the US economy and the global economy are both in recovery, China needs to keep pushing forward with its reform to achieve long-term and sustained growth. We have every reason to believe that there are bright prospects for China’s reform and development, but it is worth pointing out that to have these bright prospects, we must maintain and strengthen exchanges and coordination with the US on macroeconomic policies.


In the short run, China is able to deal with challenges caused by capital return to the US, major economies race to cut taxes, and the rise of trade protectionism. In the medium and long run, it is in the interests of both China and the US, and the whole world that the two countries create a win-win situation by coordinating their supply-side reforms.



In the Russian presidential elections held on March 18th, the sitting president Mr. Putin, who is 65 this year, was reelected as the president with 76.67% of the votes cast.


On December 6th, 2017, Putin announced to run for president while meeting with a group of workers from Gorkovsky Avtomobilny Zavod, a Russian automaker, in Nizhny Novgorod, in western Russia. He said, “Russia will keep moving forward, and it will not be stopped by anybody, at any time.”


This is Mr. Putin’s fourth run for president. According to the Russian constitution, Putin would hold office until 2024.


From what he did after announcing to run for the presidency, during his campaign, and after being re-elected, we can see Mr. Putin, with no real rival, draws support by playing up Russian revivalism and patriotism. At the same time, Russian state media focused on praising Russian leadership’s determination and ability to deal with medium and long-term issues which can be seen in Russia’s economic recovery, its efforts to defensively end the Syrian war, and its high-profile response to changes in US defense strategies.


On December 11th, 2017, Mr. Putin met with Syrian president Bashar al-Assad during Putin’s surprise visit to Khmeimim air base. Following the meeting, Mr. Putin ordered a withdrawal of Russian troops from Syria, announcing that the Russian and Syrian military forces had defeated the toughest international terrorist group, and that “Russian soldiers will come home.” He also said that any resurgence of terrorist groups in Syria would be met with an unprecedented military strike from Russia.


On January 31st, 2018, at a meeting with economic representatives of the French-Russian Chamber of Commerce and Industry, Mr. Putin said Russia’s GDP grew by 1.4% in 2017, that the country’s inflation rate was only 2.5% last year, the lowest point in its history, and that it would continue to fall this year. From January to November last year, Russia’s foreign trade increased by 25%; and its gold and currency reserves climbed to 442.8 billion dollars. In the first three quarters last year, foreign direct investment attracted by Russian non-financial sectors stood at 23 billion dollars, a 100% year-on-year increase and the highest level in the past four years. On February 16th, the Russian central bank announced that it might lift its forecast of 1.5% of GDP growth rate for 2018.


In late February, Mr. Putin signed Russia’s new state arms procurement program for the years 2018-2028. Russia will spend 19 trillion rubles (2.14 trillion yuan) in the coming 10 years on military equipment procurement and upgrade. Russian Deputy Prime Minister Dmitri Rogozin, who is in charge of the development of military equipment, said that, the biggest difference between this program and previous ones was that much of the equipment about to enter mass production had been tested in Syria, and over 200 kinds of equipment had been successfully used in the harsh cold of the North Pole.


On March 1st, in his State of Union address, Mr. Putin said his administration had strengthened Russia’s economic stability, cut its reliance on fuel prices, and driven down the inflation rate to a historical low. Russians’ life expectancy has increased by over seven years to 73. The number of the population in poverty has declined by 22 million. He aimed to increase Russia’s per-capita GDP to 150% of the current level by 2025, reduce the number of poor population by another 10 million in the next six years, and increase life expectancy to above 80 by 2030. Mr. Putin also declared other goals in his next term including making re-investment, expanding export, improving people’s livelihood, and increasing the volume of freight of master railways in eastern Russia and shipping lanes to the North Pole.


Mr. Putin, through videos, unveiled some of the latest super weapons developed by Russia including the Sarmat intercontinental ballistic missile, a nuclear-powered long-range cruise missile, a nuclear-powered underwater drone, a hypersonic aeronautical weapon, a hypersonic glide missile, and a new type of military laser weapon. The nuclear-powered cruise missile, with unlimited range, launched from Russia, can bypass US air interruption over the Atlantic Ocean and hit a target near Hawaii.


On March 2nd, Mr. Putin, during his supporters’ rally held at the Luzhniki Stadium, said, “We hope to see a stronger Russia with a bright future because this is the land where our founding fathers lived…Our children, grandchildren and generations to come will continue to live here, so we will do everything we can to give them happiness. There is nobody else other than us that can accomplish this mission. If we succeed during the next 10 years, the 21st century will be marked with Russian glory and success. And we will succeed!”


Since December 31st, 1999, Mr. Putin and his colleagues have led the country for over 18 years. He has made many achievements and conquered many daunting challenges. He reshaped the Russian political system into a vertical hierarchy and cracked down on oligarchs. He put Russia on the path of state capitalism and, with the help of high oil prices, led the country to fast growth for nine consecutive years. He tackled terrorism and separatism with an iron fist, bringing Russia from chaos to order. He made tough but pragmatic foreign policies and moved up Russia’s international standing by playing regional strategic games without any delay.


However, Russia has experienced difficult times since 2014. Domestically, the cause was primarily that economic restructuring was not going well, and the middle class in big cities began to be tired of Mr. Putin. Internationally, the main cause was the slump in oil and other commodities’ prices along with rising tension with the US and other European countries over geopolitical disputes in the Middle East. Due to internal and external factors, including western sanctions, Russia’s economic growth rate was only 0.5% in 2014, which further dropped to -3.7% and -1.7% in the following two years while its GDP fell from 2.079 trillion dollars in 2013 to 1.499 trillion dollars in 2017, sliding to the 14th place in the world. In May 2017, Bureau of Statistics of Russia admitted that real income of Russian households decreased by almost 10% from 2014 to 2016 and nearly a third of Russians were living in poverty with an average monthly income running below 9,956 rubles.


However, thanks to their strong resilience and great diplomatic skills as well as the global economic recovery, the unyielding Russian government and people climbed out of their difficulties. Russia’s economy is expected to grow by 1.6%-2% in 2018, and back to 3% by 2020, according to Russian authorities and the IMF. Though 3% is still lower than the global average, it will still be a feat considering the domestic and international challenges Russia faces today.


In the years to come, Russia will continue to make adjustments to its economic structure and diplomatic focuses. As time goes by, this work will become more pressing and the effectiveness and limitation of Mr. Putin’s policies will be apparent.


Mr. Putin will focus on finishing economic restructuring, promote innovation-fueled growth, support the development of agriculture, the light industry and the deep processing industry of natural resources, develop modern financial industry, and maintain Russia’s status as a big arms exporter while continuing to increase exports of natural resources. However, Russia’s economic reform will be held back for a time by a great deal of problems including excessive path dependence on its energy mix, divorce from market and bureaucracy in corporate philosophy and day-to-day operations, monopoly by elites with power, persistent rent-seeking and corruption, shortage of labor force, low agricultural productivity, overemphasis on the agricultural market with neglect of logistics, and sluggish development of the service industry. On the other hand, Russia has a fairly negative view toward global economic integration, as it believes that it is at a marginalized position in economic globalization and has suffered from it, which will stand in Russia’s way to a more open economy.


Mr. Putin will continue pushing international order in the direction he wants. In the documentary World Order 2018, he said that it was necessary to make the new world power center feel obligated to take more of the responsibilities that come with more power. “The No.1 country” will inevitably have to give its position away, but it should be done in a decent and generous way instead of a hysterical one. An important aspect of this vision of world order for Russia is to maintain stable relations with the US and Europe and shift its diplomatic pivot to the East, strengthening its co-development with the Far East and West Siberia, and carrying out cooperation with China, Japan, South Korea, and ASEAN countries. Having focused too much on geopolitical competition, it could be difficult for Russia to find its rightful place in the world immediately.


In the foreseeable future, the prospect of better Russia-US and Russia-EU relations is not rosy. It is mainly because, first, the Trump administration has written sanctions against Russia into law and made new national security, defense, and nuclear policies with competition between major countries at the center. Second, Russia is more of a “secondary country” and an “international order revisionist country” to the US and the EU strategy research community. The entrenched cold war mentality toward Russia, the prolonged investigation on Trump’s alleged links with Russia, and the ensuing scandal of user data leakage on Facebook mean that there is a lack of political base for better US-Russia relations in the US and the EU.


On March 14th, British Prime Minister Teresa May, based on the results of the investigation on a nerve attack allegedly launched by Russian agents against the former Russian double spy Skripal and his daughter, and also harming British polices officers, announced the decision to expel 23 Russian diplomats, a move followed by more than ten Western and East European countries, including the US.


On March 15th, the US Treasury Department announced sanctions against five Russian organizations and 19 individuals for their malicious cyberattacks against the US, including attempts to influence the 2016 US presidential elections.


However, after Mr. Putin was re-elected, President Trump called him to for congratulations. Preparations for the meeting between the two leaders are already underway.


The biggest challenge for Mr. Putin in his fourth term is how to deal with the growing urban middle-class fatigue, dissatisfaction, and changing trends of thought. He will also have to face the issue of finding a successor who can bring prosperity to Russia in the long run.



On March 16th, US President Donald Trump signed into law the Taiwan Travel Act (H.R.535) previously passed by both houses of Congress.


Between March 20th and 22nd, Huang Zhihan, Assistant Secretary for East Asian and Pacific Affairs of the State Department, was in Taiwan on an official visit. From March 22nd to 27th, Shi Yien, Assistant Secretary of US Department of Commerce, was also in Taiwan as a visiting US official.


The Taiwan Travel Act was passed in the House of Representatives and the Senate on January 9th and February 28th respectively, and was forwarded to the White House on January 6th. The act is dedicated to the goal of promoting exchange at all levels between the US and Taiwan. It reiterates various objectives outlined in the Taiwan Relations Act formulated and enacted in 1979, laying down three policy directions to be pursued by the US administration.


First, US officials at all levels, including cabinet members, are allowed to come to Taiwan and meet their counterparts. Second, high-ranking Taiwan officials have access to the US and proper treatment in the country when meeting with their US counterparts. Third, the Taipei Economic and Cultural Representative Office and other Taiwan-established agencies in the US are permitted to undertake activities including those attended by members of Congress as well as federal, state, and local government officials or any high ranking official from Taiwan.


The Chinese government has made an immediate and stern representation with the US administration and spokespersons of the Chinese foreign ministry. The Ministry of National Defense and the State Council have made successive statements in firm opposition to the move.


There have been troubling signals concerning the Taiwan issue in Sino-US relations ever since Trump took office. He not only picked up a congratulatory phone call from Taiwan’s leader Tsai Ing-wen, but also went as far as tweeting “Why be held down by the one-China policy.” To make things worse, the Taiwan leader had a clandestine meeting with members of Trump’s presidential campaign in Houston as part of her visit to Central America.


The Trump administration has focused its energy, from the very first day, on improving relations with mainland China and has asked for China’s support and cooperation on a number of issues. There was a time when the Taiwan issue died down and the President went on, on several occasions, reiterating the administration’s commitment to the one-China policy. However, there have been continuous developments in the Taiwan-US relationship where pro-Taiwan forces in Washington colluded with independent forces within Taiwan by constantly poking at the Taiwan issue and trying to make “two Chinas” and “one China, one Taiwan” a reality.


On June 29, 2017, the State Department gave authorization and asked the Congress to sell seven types of weapons to Taiwan, valued at 1.42 billion dollars. It’s the Trump administration’s first arms sale project launched with Taiwan. On December 12th, Trump signed the National Defense Authorization Act for fiscal year 2018 which contains an additional term (Section 1259) for strengthening defense relations between Taiwan and the US Specifically, the term stipulates that the US administration should consider inviting Taiwan to be part of “Red Flag” exercises and normalizing US arms sales to the region.


The Taiwan Travel Act is co-proposed by the Senate and the House of Representatives. According to the standard lawmaking process, the act will take effect ten days after being sent to the White House, excluding the weekend, even if the president chooses not to sign it. If the President vetoes it, both houses of Congress can still cast a ballot and push it through into law with a two-thirds majority vote. The act was passed unanimously in both houses and, instead of waiting for it to become a law automatically or vetoing it, Donald Trump took the initiative and signed the act, a move catalyzed by the internal political atmosphere and external strategic adjustments. Republican officials holding posts in the White House and key administrative positions, as well as right-wing figures, have played a major role in this.


First, 2018 was the US mid-term election year. The focus for the President before that was to reduce, as much as possible, the hurdles in the way of his re-election, and to maintain a not-so-hostile relationship with Congress, so as to pave way for his re-election. Therefore, it is safe to assume that he doesn’t want to pit himself against Congress over foreign policies.


Second, as China rises and the rhetoric against China rumbles across the US, there has been a common understanding in the country to increase its checks on China. Playing to the public, the Trump administration has designated China as a strategic competitor and made adjustments to policies concerning issues that include the Taiwan issue. Trump, as well as his aids, understands that the Sino-US relationship is a complex one and that the US should increase flexibility in dealing with the Taiwan issue and bump up its leverage in negotiations surrounding trade and the North Korean nuclear issue.


Third, in light of the changing dynamics across the Taiwan Strait and military strength leaning lopsidedly towards mainland China, the US administration has to reaffirm that the country does not support Taiwan independence, but in the meantime, it has to show its pro-Taiwan stance in politics and military and thereby enhance the country’s relationship with Taiwan.


Fourth, as an update of the former policy of pivoting towards Asia-Pacific, the Trump administration is stepping up its formulation of Indo-pacific strategy, geared towards maintaining and strengthening the country’s military advantage in the east wing and the south edge of the Eurasian continent. It features a quasi-alliance, made up of Japan, India, Australia, and the United States, that has set the containment of China as one of its goals. An inexplicable part of it is to maintain Taiwan’s defense at a certain level, making it more convenient to give the green light to personnel with certain purposes.





Since the US officially announced the Indo-Pacific Strategy, the US-Japan-India-Australia quasi-alliance, the core of the strategy, has taken shape. China has been closely following the development.


Neither the Indo-Pacific Strategy, nor the four-party security dialogue mechanism is entirely new. Instead, they have been in the making for over a decade and are products of the four countries’ efforts in expanding, connecting, and coordinating their bilateral or trilateral strategic dialogue channels, military quasi-alliance, and security cooperation platforms on the basis of common values and strategic security vision.


US Pacific Command (USPACOM), as one of the nine US geographic unified combatant commands, is responsible for a region that sits astride the Indian Ocean and the Pacific Ocean, which covers an area of over 50% of the Earth surface.


Since the first foreign minister-level strategic dialogue among the US, Japan, and Australia was held in as early as March 2006, there have been seven such dialogues. At the seventh dialogue held on August 7th, 2017, the three countries reaffirmed the importance of the strategic partnership among them for the rule of law, freedom, openness, peace, stability, and prosperity of the Asia-Pacific region, the Indian Ocean, and the world.


The director-level dialogue between the US, Japan and India was started in December 2011, held for four times altogether, and then upgraded to a three-way ministerial-level dialogue in September 2015. At the second minister dialogue held in New York on September 18th, 2017, ministers discussed the importance of a free and open Indo-Pacific region underpinned by a resilient, rules-based architecture, and agreed to strengthen economic cooperation in the region, especially to improve regional infrastructure connectivity.


Since 2015, Japan has participated in Exercise Malabar held by the US and India. During the eight-day Malabar Naval Exercise-2017, the three countries dispatched 17 naval ships and over ten fighter jets, including aircraft carriers (such as Japan’s Izumo-class helicopter aircraft), making the exercise the largest and most high-profile one in recent years.


The vice foreign minister-level meeting between Japan, India and Australia, which was first launched in New Delhi on June 8th, 2015, has now been held four times. At the fourth meeting held on December 13th, 2017, senior officials from the three countries exchanged their views on Indo-Pacific affairs, all concerning the trilateral cooperation and common interests in the region.


The four-party security dialogue between the US, Japan, India, and Australia was first launched by the Abe cabinet in 2007, while Abe was still in its first term, with the aim of creating an alliance with common values to contain China under the name of building an Arc of Freedom and Prosperity. During the 2007 ASEAN forum meetings, director-level diplomats from the four countries held a four-party security dialogue. After the second meeting in 2008, however, due to China’s protest, change of administration in Australia, and India’s receding interest, no more meeting had taken place.


In 2016, Shinzo Abe, almost four years into his second term, proposed his free and open Indo-Pacific strategy. In October 2017, when addressing the Center for Strategic and International Studies (CSIS), US former Secretary of State Rex Tillerson noted in his first speech about India policies that “we are benefiting from our trilateral partnership with Japan and India. When we look into the future, we realize there is room for other countries including Australia in our common goal and initiative.”


In November 2017, President Trump first raised the concept of an open and free Indo-Pacific region during his trip in Asia, marking the beginning of the Atlantic-Pacific cooperation between the US, Japan, India and Australia. In the same month, the four countries restarted the Quadrilateral Security Dialogue or QUAD and discussed Asia’s basic rules and order, freedom of navigation in high seas and sky above, respect for international laws, stronger connectivity, maritime security, the North Korea nuclear threat, non-proliferation, and terrorism.


On December 18th, 2017, the Trump administration released its first US National Security Strategy Report. Though it did not directly refer to US Asia policies as the Indo-Pacific Strategy, the report put the Indo-Pacific at an important position again. This shows that the awareness of regional connectivity has been included in the US official approach to making regional strategies.


On January 18th, 2018, at the Raisina Dialogue held in New Delhi, military representatives from the US, Japan, India and Australia discussed the maintenance of maritime order in the Indo-Pacific region as well as the implications of China’s rise in this region. They implicitly accused China of damaging the region’s prosperity, openness, and inclusiveness, and explicitly expressed their concerns about the expansion of China’s military power. They also insinuated that there were military purposes behind China’s Belt and Road Initiative and called for all parties to work together to create an environment that force changes from China.


On January 19th, 2018, the Trump administration released its first US National Defense Strategy Report. The report said the US armed forces would maintain their advantage in core areas by strengthening frontline deployment and improving their alliance and cooperation with other countries. It also said that the US would make better use of its allies’ power, forging partnerships based on mutual respect, organic coordination, and shared responsibilities with allies in Indo-Pacific, Europe, the Middle East, and the western hemisphere.


The US and Japan, however, have strengthened their bilateral dialogues and cooperation on strategic security with India beginning with the George W. Bush administration, and their cooperation has become closer in the Trump-Abe-Modi era.


Now, the four-party security cooperation is moving faster to become a quasi-alliance with common values that crosses the Indian Ocean and the Pacific Ocean, which brings home the importance of this alliance for each of the countries and their common Indo-Pacific Strategy.


The main driving force contributing to the formation of the Indo-Pacific Strategy and the restart of the four-party security cooperation is bilateral interaction between the US, Japan and India based on separate yet common strategic considerations. Another catalyst is that India has been worrying about China’s westward move into the Indian Ocean, which India believes might undermine its geopolitical dominance in South Asia.


It is with the aim of responding to China’s rise, and containing and countering China’s fast-growing influence, that the US and Japan proposed the Indo-Pacific Strategy, and the four-party security cooperation was restarted as it was in their common interests to do so.


The main focus of the four-party cooperation now is maritime security on the border of the Indian and Pacific Oceans. The four countries will continue cracking down on pirates, providing humanitarian assistance, tightening their control over key lanes in the Strait of Malacca under the name of protecting freedom of navigation, and enhancing military cooperation and coordination so as to strengthen their presence in the South China Sea.


According to the Reuters, the Australian Financial Review reported on February 19th that a senior US official said that the US, Japan, India and Australia were discussing an alternative program to the Belt and Road Initiative, so as to counterbalance China’s increasing regional influence. On the same day, Lianhe Zaobao, a Singaporean newspaper, said that Australian Foreign Minister Julie Bishop confirmed that senior officials from the four countries were discussing a grand plan on the joint development of infrastructure.


As for whether the quasi-alliance would be further developed, an important barometer is, first, whether there will be a 2+2 dialogue mechanism involving foreign and defense ministers from the four countries to coordinate their defense policies and China policies and, second, whether Australia will join the Exercise Malabar held by the other three countries.


In the face of expansion of US Asia-Pacific strategy and a possible diamond-shape containing network in the future, China should have strong strategic confidence, remain composed, and avoid a new Cold War mentality by keeping itself from being dragged into geopolitical competition and a maritime arms race.


First, China’s rise in Asia, the world even, is already a fact, and it needs a favorable domestic and international environment to keep pushing its reforms forward.


Second, the core of the Asia policies of China, a country committed to peaceful development, is to strengthen cooperation in its economy and livelihood by promoting the Belt and Road Initiative, which has already been carried out on a large scale and has become unstoppable and irreplaceable.


China is the biggest trading partner and investment partner of almost all Asian countries, and the top priority of almost all countries in the region is growing their economies and improving people’s living standards. Logically, connectivity programs represented by the Belt and Road Initiative are becoming more and more popular. Nearly all of China’s neighbors don’t want to be distracted by prominent manmade security disputes, to take sides in a strategic competition between major countries, or to support a new regional cold war. Cooperation between China and its neighbors will not be disrupted or stopped by any country or group of countries.


Third, developing countries and emerging markets in Asia have been closely watching China’s successful experience of development according to its own national conditions. There is no market in Asia for dividing countries on the basis of values.


Australia is the weak link in the US-Japan Indo-Pacific Strategy and the four-party security cooperation. As a country that sits between Asia and the West, both geopolitically and culturally, Australia is highly dependent on the Chinese market, but often swings between “distancing the US to join Asia” and “relying on the US to contain Asia” in its foreign policies. So, it’s been refusing to openly take side between the US and China, hoping to benefit from China-US cooperation. Australia can be a US partner and China’s friend at the same time, which has become less likely in recent years as the US has adjusted its China policies and tension has risen in Asia Pacific. Another question, however, is ringing louder for Australia: Is the US, which keeps withdrawing from global leadership, still reliable?


In late February 2018, Australian Prime Minister Malcolm Turnbull paid a state visit to the US. Though the two sides reached a wide range of agreements on strategy, military, security, and trade and economic cooperation, Australia failed to persuade the US into returning to the Trans-Pacific Partnership or TPP and, disputes still exist.

Before his visit to the US, Mr. Turnbull said in an interview with the Guardian that the threat was a combination of capability and intention, and refused to see China as a threat, as Australia did not detect any hostility from China. He also said that Australia and the US would not view the Asia-Pacific region with the obsolete Cold War mentality, and President Trump understood the economic significance of and opportunity brought by China’s rise.


An article on the website of the Sydney Morning Herald said that China’s military rise had turned the US military presence in the Asia-Pacific region into a hollow posture and that the US would not dare to scuffle with China on the South China Sea or the Taiwan issue.


India now has strong strategic suspicion toward China because India, which sees itself as a global power and the number one country in South Asia, cannot sit comfortably while seeing China expand its economic clout in South Asia and its military presence in the Indian Ocean. As a result, it has been teaming up with the US and Japan to gang up on China and moving its policy eastward. Its China policies are mainly problem-oriented. Apart from competition, however, the Modi administration has also been seeking cooperation with China and avoiding confrontation. The old vision of supporting Asia, or even the whole developing world, with China-India cooperation has been completely put on the shelf. For China to dispel India’s suspicion, it does not entirely hinge on China’s India policies and their effectiveness but also the results of the Belt and Road Initiative yielded in South Asia.


The move of the US, Japan, and India to woo Vietnam to join the quasi-alliance is also noteworthy. In recent years, US-Vietnam defense cooperation has been breaching restricted zones and has been strengthened. In January 2018, US Secretary of Defense James Mattis visited Vietnam. On March 5th, US aircraft carrier USS Carl Vinson arrived at Da Nang, a port in central Vietnam, together with a fleet of guided missile destroyers.


In the long run, to have peace and development of the Asia-Pacific region, countries need to give up the obsolete zero-sum Cold War mentality and replace the check and balance strategy with the philosophy of building a community of a shared future and common security. In this sense, the “grand plan” that is being conceived by the US, Japan, India and Australia cannot displace the Belt and Road Initiative. If China can strengthen strategic dialogues and policy coordination with the four countries, it might help to create a situation where each country draws on its own advantages to boost Asia’s development and create common prosperity.



On March 5th, South Korean President Moon Jae-in sent special envoys on a private plane which flew directly towards Pyongyang bypassing the military demarcation line above the west of the Korean Peninsula. The delegation included Suh Hoon, Director of the National Intelligence Service, and Jeong Ye Yong, the National Security chief. They were going to have a two-day visit in North Korea. That evening, the delegation talked and dined with North Korean leader Kim Jong Un in the Korean Workers Party headquarters for over four hours. Jeong gave Kim a letter handwritten by Moon Jae-in. Kim agreed to Moon’s proposal delivered by his envoys for leaders of the two countries to meet. They also talked about denuclearization of the peninsula.


This sent the Korean Peninsula into a series of upheavals in March. First, the Koreas agreed to have their third summit meeting in history on April 27th in the Peace House at the South Korean side of Panmunjom. Second, having met with Moon’s delegates, Trump decided to accept the olive branch extended by Kim and meet with him at the end of May in “a third place”. The summit among North Korea, South Korea and the US was also put on the agenda. Third, Kim paid an unofficial visit to China between March 25th and 28th and met with President Xi Jinping. Later, Russia announced that Kim would pay an unofficial visit to Russia in late April.


In his contacts with South Korea, and the message he delivered to the US, Kim expressed the willingness to renounce nuclear weapons and talk with the US, saying that during the US-North Korea dialogue, it will not conduct nuclear or missile tests, for as long as its regime security is guaranteed, the country has no reason to own nuclear weapons. South Korean officials also said that during the meeting, Kim even demonstrated an understanding of the US-South Korea joint military exercise which will be restarted in April.


In his meeting with Xi, Kim said that “denuclearization of the Peninsula is in line with the teachings of the late Kim Il-sung and Kim Jong Il, and is the unwavering stance of North Korea. We are determined to transform the South-North relations into reconciliation and cooperation by meeting with the South Korean leader. We are willing to talk with the US and make a summit possible between us. If South Korea and the US respond to our efforts in good faith, create a peaceful and stable environment, and take measures in sync and in stages towards peace, the Peninsula’s denuclearization issue will be resolved. In this process, we wish to enhance strategic communication with China so as to continue to talks and safeguard peace and stability on the Peninsula.”


To explain the unusually frequent contacts among these parties, we hereby present four possible perspectives to consider.


First, North Korea. Since the beginning of 2016, North Korea’s nuclear missile program has entered a “home stretch”. Its intensive missile tests have invited four harsher-than-ever sanction resolutions from the UN Security Council. Unilateral sanctions and a naval blockade have been constantly tightened by the Trump administration and its allies. Although North Korea has appeared tenaciously unyielding towards outside pressures and conducted rounds of personnel cleaning-up and adjustment in order to consolidate central control, the delayed effect of international sanctions after the end of 2016 has revealed itself faster than before. Over 90% of North Korea’s foreign trade has been cut off; annual import ceilings of crude oil and oil products were reduced to 4 million and 0.5 million barrels respectively; domestic energy, medicine, and other supplies for people’s livelihood are running short; many of its citizens working abroad have been repatriated; channels for foreign exchange earnings are narrowing.


Pressed hard, the North Korean regime, which is known for its roughness, increased its efforts to complete “the great cause of strengthening the country with nuclear and rocket power”. Seeing that South Korea is having a change of government and that the Pyeongchang Winter Olympic Games are underway, it decided to break international sanctions from the south by easing its relations with South Korea and dispersing the anti-North Korea network led by the US, so as to push the US into a direct dialogue. It sought to exchange its established nuclear missile power for diplomatic recognition, security assurance, and financial aid from the US.


Second, South Korea. After Moon Jae-in took office, the South Korean politics began to show signs of returning to the “forward policy” of Kim Dae Jung and Roh Moo-hyun. Moon’s strong sense of calling inherited from his two “teachers”, as well as his sense of responsibility to build a “new South Korea” which transcends the era of Kim and Roh, have prompted him to make bold moves in adjusting its relations with North Korea and in internal reforms, translating to his attitude that “we are capable of building peace” and “establishing a South-North peace community” which he made clear in public on different occasions.


The Moon government approached North Korea in an unconventional manner and even made consecutive moves in specific arrangements without fully communicating with the US. This is, on one hand, due to the strong sense of national independence in its blood, and, on the other, to contain the escalation of show of force from the US towards North Korea which could harm South Korea’s interests. Moon knows too well that once the US and North Korea go to war, his country will be the first to bear the brunt. South Korea will take greater security risks than any other country or even become “cannon fodder”.


Third, the US. The Trump administration has abandoned Obama’s “strategic patience” and shifted to “maximum pressure” towards North Korea. All possible options including using force are on the table. Although the US has not ruled out the possibility of talks, it has been focusing on strengthening strategic deployment and tightening sanctions against North Korea, and unscrupulously making verbal threats. This clear yet vague strategy has indeed produced deterrence and led the international community to believe that the US may actually go to war. All this has increased the sense of urgency for South and North Korea to “make the move”.


For Trump himself, the primary goal in 2018 is to make some short-term achievements in domestic and foreign policies so as to minimize unfavorable factors to the White House and the Republicans during the mid-term election and provide a foundation for his reelection two years later. Therefore, although offended by South Korea’s discretionary reconciliation moves, Trump still took the ball thrown by Moon and Kim in a highly resilient and pragmatic manner. At the same time, he noisily proclaims the positive effects of the sanctions, trying to claim the credit for making North Korea willing to hunker down for a talk.


Fourth, the international community. As nuclear tensions continue to escalate in North Korea, which could lead to an outbreak of geopolitical wars, a break of global strategic balance, spread of nuclear missiles and contamination, and a refugee crisis, the international community has been highly consistent in pushing for denuclearization of North Korea and safeguarding global nuclear order. All four resolutions related to North Korea of the UN Security Council in 2017 were passed unanimously and immediately. This indicates that the country’s nuclear issue is not only a conflict between North Korea and the US, but something that puts the country on the opposite side of the international community at large. This is a price North Korea is not able to pay. As a result, it has been forced to consider a diplomatic turn. Meanwhile, China and Russia are standing shoulder to shoulder. Having identified common interests, the two countries have been firm in their position that North Korea should abandon nuclear weapons, implement UN resolutions, and enhance talks with South Korea. They also encourage and support South Korea to promote talks between North Korea and the US. Both China and Russia are broad-minded on this issue, with neither of them having the intention of taking credits.


In a nutshell, various factors combined the Pyeongchang Winter Olympic Games, effective international sanctions, South Korea’s positive policy towards its northern neighbor, and the highly pragmatic leaders of relevant countries—have produced a rare historic turn, and things would not work if any of the factors are missing. It is also very rarely seen in history that reconciliation and turnabout in the Korean Peninsula are no longer controlled by the major powers. Instead, North and South Korea themselves are leading the way. The fact that Trump has inspired South Korea to push the three-party summit forward shows that the US is eager to seize the dominant role as the peninsula situation changes.


Experience of past decades shows that unexpected changes always lurk in the corner each time the North Korean nuclear issue comes to a turning point.


Lesson 1: Each time there’s hope for the North Korean nuclear issue and the peninsula situation, disruptive factors suddenly come out from the dark and cause stagnation or even retrogression.


Lesson 2: There’s always a lack of reasonable plans for talks, and the problem of “what” and “how” to talk never finds proper answers. Sometimes the threshold is set too high for talks to be resumed, and sometimes the parties involved are not sincere enough to solve the problems. Talks for the sake of buying time, easing sanctions, or temporarily improving domestic political situations are worse than no talks at all.


Lesson 3: Even if US-North Korea or inter-Korean talks do produce results, materializing those results is a different thing. The failure to do so would cause the situation to go back and forth, which would bring even greater damage.


For now, it seems that the third summit between the Koreas, and the first ever summit among North Korea, South Korea and the US, will actually happen and will actually produce “major results”. Kim has already gained the unilateral security guarantees and financial support from China and Russia.


However, it is not the desire for peace and sense of historical responsibility of the three countries that have made the talks possible. Rather, their own interests differ and mutual trust is even thinner than paper. It remains to be seen whether their appeasement policy would once again cause greater potential crisis or bring true peace to the peninsula.


The North Korean nuclear issue is only a part of a series of the peninsula problems but, undoubtedly, a key one. Kim promised only that he would suspend nuclear missile tests during the talk. What he said about “honestly want to abandon nuclear weapons” and “having no reason to own nuclear weapons as long as the system security is guaranteed” is nothing but lip service. It is still a far cry from the threshold set by the US for accepting the invitation for a talk. On March 8th, Trump met with the South Korean envoys and confirmed that a US-North Korea summit was “in the planning”. Then on the next day, the White House added that “Trump will not meet with Kim unless North Korea takes substantial and credible actions towards denuclearization”. The US has since repeatedly emphasized that “our willingness is rock solid” and will not ease sanctions on North Korea until an agreement is reached. On March 13th, Trump abruptly announced the removal of Tillerson as the Secretary of State who supported the US-North Korea meeting. He was replaced by CIA Director Pompeo. This makes the whole thing all the more confounding.


Also, the position of North Korea cannot convince the international community, which is very concerned with the nuclear issue, that it is going back to the starting point of “abandoning nuclear weapons to trade for security”. It just seems impossible. Is North Korea simply putting on a facade to buy time and space for the integration of nuclear missiles to be completed, or is there a bigger strategic target behind all this? Despite North Korea’s repeated announcement that it has finished the “historic cause” of building nuclear missiles, the international community knows too well that it still needs several tests before achieving the “final technological breakthrough”. Once North Korea completes the integration of nuclear missiles and starts deploying them against the US, the nature of the peninsula situation will see a fundamental change, and a real crisis will occur.


CNN reported on March 3rd that, according to a recent assessment, the CIA believes that North Korea’s current ballistic missile technology has been improved to the point that it can hit a specific target with a guided missile, despite some technical difficulties. It is believed that North Korea is now trying to improve its technologies for the manufacturing of rocket engines, mobile launchers, and miniaturized nuclear missiles, but the country’s mass production capacity of missile parts remains unknown.


With the witness and supervision of directly relevant parties, and under the precondition that North Korea and the US make reliable safety commitment to each other, the only feasible way to realize sustainable peace and prosperity in northeast Asia is to solve the peninsula nuclear issue and normalize the relations among parties directly related once and for all during the transformation from truce to peace. Everything has to be practical, and there can be absolutely no mistakes or errors.


China was a direct participant and a contracting party of the truce agreement during the Korean War. The peninsula issue bears directly on China’s major strategic interests and practical security interests. It would be unimaginable to make any arrangement for the future of the peninsula without China playing a part. Of course, China should support this hard-won peace opportunity. At the same time, it has the right to demand direct participation in the talks among South and North Korea and the US when the time’s right, which is also necessary.






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