War by Other Means

by Robert D Blackwill

  28. Saudi Arabian officials also delayed sending any new aid to Egypt until the results of the May 2014 presidential elections were announced. Al-Masry Al-Youm, “Saudi Arabia to Provide Aid to Egypt if Sisi Becomes President,” Egypt Independent, April 29, 2014.

  29. Homi Kharas, Brian Pinto, and Sergei Ulatov, “An Analysis of Russia’s 1998 Meltdown: Fundamentals and Market Signals,” Brookings Papers on Economic Activity no. 1, 2001, Brookings Institution, Washington, D.C.

  30. Reserves peaking at $600 billion was a short-lived success, as by October 2008 the start of the global financial crisis sent figures back down to $484 billion. Andrew Kramer, “New Anxiety Grips Russia’s Economy,” New York Times, October 30, 2008; “Russia’s International Reserves Gain Five Billion Dollars in Seven Days,” Pravda.ru, May 12, 2008.

  31. Russia’s use of financing power throughout the Ukraine crisis has left the United States strained to respond. “On the question of Russian money, yes, of course we are concerned about what is clearly a Kremlin strategy of trying to pick off, shall we say, the brethren who may be less committed or more vulnerable in the run-up to the June decision,” said the British foreign secretary, Philip Hammond. “It will not have escaped the Kremlin’s notice that this is a unanimity process and they only need one.” Andrew Higgins, “Waving Cash, Putin Sows E.U. Divisions in an Effort to Break Sanctions,” New York Times, April 6, 2015.

  32. Peter Baker, “As Russia Draws Closer to China, U.S. Faces a New Challenge,” New York Times, November 8, 2014.

  33. In Angola, pro-democracy forces were gunned down, and days later the government signed a $1.52 billion contract with China’s Sinopec Group for the purchase of one of Marathon Oil’s offshore oil and gas fields; see Fayen Wong, “China’s Sinopec Buys Marathon’s Angola Oil Fields for $1.52 Billion,” Reuters, June 23, 2013, and Dulce Fernandes, “Police and Military Crackdown after Women’s Protest in Lunda-Norte,” Maka Angola, June 18, 2013, http://allafrica.com/stories/201306181377.html. In Venezuela, Chavez openly remarked that Chinese assistance was enormously helpful in enabling him to pursue foreign policy ends, policy more often openly hostile to U.S. interests than not; see Evan Ellis, “China’s Cautious Economic and Strategic Gamble in Venezuela,” China Brief 11, no. 18 (September 30, 2011). Similarly, in Zimbabwe, Mugabe’s dictatorship allows Beijing to make investments beneficial to China, again to the detriment of U.S. interests; see Jera, “Chinese Republic of Zimbabwe,” The Zimbabwean, March 19, 2014, http://www.thezimbabwean.co/2014/03/chinese-republic-of-zimbabwe; Reagan Thompson, “Assessing the Chinese Influence in Ghana, Angola, and Zimbabwe: The Impact of Politics, Partners, and Petro,” Center for International Security and Cooperation, Stanford University, May 21, 2012.

  34. Nathan Gill, “China Loans Ecuador $1 Billion as Correa Plans First Bond Sale since 2005,” Bloomberg Business, January 24, 2012; Naomi Mapstone, “China-Ecuador: The Love-in Continues,” Financial Times, February 17, 2012; Felix Salmon, “How Ecuador Sold Itself to China,” Reuters, July 5, 2011.

  35. “China and Rio Tinto Complete Guinea Mining Deal,” BBC News, July 29, 2010; Tom Burgis, Helen Thomas, and Misha Glenny, “Guinea Reignites $2.5bn Mining Tussle,” Financial Times, November 2, 2012.

  36. On commentary characterizing Qatari Airways as a diplomatic asset for Qatar, see, e.g., Elizabeth Dickinson, “Qatar Punches above Its Weight,” The National, September 26, 2012 (“Qatar Airways has become one of the country’s most effective—if indirect—diplomatic tools”); Golnaz Esfandiari, “Qatar Conquers Iran’s Airspace,” Radio Free Europe/Radio Liberty, November 5, 2011; Jim Krane, “Flying High,” Foreign Affairs, September 18, 2014.

  37. Esfandiari, “Qatar Conquers Iran’s Airspace.”

  38. Ibid.

  39. Jake Rudnitsky and Stephen Bierman, “Rosneft’s $270 Billion Oil Deal Set to Make China Biggest Market,” Bloomberg Business, June 21, 2013; “China Signs $1.4bn Brazil Plane Deal to Kick Off Summit,” BBC News, April 12, 2011.

  40. Edward Luttwak, The Rise of China vs. the Logic of Strategy (Cambridge, Mass.: Belknap Press of Harvard University Press, 2012). China has been using aircraft purchases for geopolitical purposes since June 1990, when the Chinese government ordered 36 jets, totaling nearly $4 billion, from Boeing after President George H. W. Bush renewed China’s most-favored-nation trade status. China has since continued to purchase Boeing aircraft alongside high-level government meetings. In 2011, 200 Boeing aircraft were purchased during President Hu Jintao’s visit to the United States; in 2012, another 51 aircraft were purchased prior to the U.S.-China Strategic and Economic Dialogue in Beijing and during U.S. Treasury secretary Jack Lew’s visit. Most recently, after the Xi-Obama summit at Sunnylands in June 2013, Boeing confirmed delivery of the first of ten 787s to Hainan Airlines.

  41. Alison Smale, “Leaked Recordings Lay Bare EU and U.S. Divisions in Goals for Ukraine,” New York Times, February 7, 2014; Suzanne Lynch, “Unified EU Response on Ukraine Will Not Be Simple,” Irish Times, March 20, 2014; Naftali Bendavid, “Ukraine Wants EU to Be More Forceful,” Wall Street Journal, March 17, 2014.

  42. Andrew England and Daniel Schafer, “Standard Bank to Sell Control of London Arm for $765m,” Financial Times, January 29, 2014.

  43. Enda Curran, “Standard Bank Starts Legal Action over Suspected Qingdao Port Fraud,” Wall Street Journal, July 10, 2014; Thekiso Anthony Lefifi, “China Syndrome May Hit Standard Bank,” BusinessDay Live, July 13, 2014; Standard Bank Plc Consolidated Annual Report 2011, 7.

  44. “Limited Partnership: The Biggest Banks in China and in Africa Team Up Again,” Economist, February 1, 2014. (Asked why the 2008 Standard Chartered–ICBC deal “has … been so disappointing,” the article explains that “in part it is because many big Chinese investments in Africa are negotiated government-to-government or funnelled through state development banks, says Martyn Davies of Frontier Advisory, a research firm based in Johannesburg.”)

  45. “Trying to Pull Together: The Chinese in Africa,” Economist, April 20, 2011.

  46. Media reports offer a similar, if still less than fully clear account of the exact circumstances that led to the forfeiture of $230 million in fraudulent tax claims by Hermitage Capital. See, e.g., Luke Harding, “Bill Browder: The Kremlin Threatened to Kill Me,” Guardian, January 25, 2015 (“In 2005 [Browder] was deported from the country. A corrupt group of officials expropriated his fund, Hermitage Capital, and used it to make a fraudulent tax claim. They stole $230m.”); cf. Andrew Kramer, “Major Investor in Russia Sees Worldwide Fraud Scheme,” New York Times, July 30, 2009 (“Mr. Browder was expelled from Russia in a politically tinged visa refusal in 2005, and relocated his business, Hermitage Capital Management, to London. Later, he said subsidiary companies he had formed in Russia to invest in Gazprom, the Russian gas monopoly, were used by others to acquire a fraudulent tax refund of $230 million.”).

  47. Andrew Kramer, “Moscow Presses BP to Sell a Big Gas Field to Gazprom,” New York Times, June 23, 2007.

  48. Anders Aslund, “Rosneft Is Foundation of Putin’s State Capitalism,” Moscow Times, October 23, 2012. To take another example, in February 2008, the China Development Bank (CDB) backed a $14 billion secret raid by Chinalco, a state-owned mining firm, to acquire stock in Australian mining giant Rio Tinto. As Sanderson and Forsythe pointed out, “The dawn purchase of Rio Tinto shares, the largest overseas purchase by a Chinese company in history at the time, was followed by more CDB-backed purchases in a rights issue in 2009” (Henry Sanderson and Michael Forsythe, China’s Superbank: Debt, Oil, and Influence—How China Development Bank Is Rewriting the Rules of Finance [Singapore: John Wiley and Sons, 2013], 77–78). Reports suggest that the State Council apparently ordered these deals, leaving CDB’s board no say. While Chinalco’s 2008 and 2009 bids ultimately fell short of a takeover, Chinalco pursued a subsequent 2010 agreement that would have doubled Chinalco’s stake in Rio. When those talks collapsed, China imprisoned four members of Rio Tinto’s negotiating team—hinting at China
’s willingness to mix forms of market and state power in pursuit of a deal. Australian officials responded by insisting that the “Chinese investment must be commercial and business oriented investment and it must not be to advance strategic political ends” (Luke Hurst, “Comparative Analysis of the Determinants of China’s State-owned Outward Direct Investment in OECD and Non-OECD Countries,” China & World Economy 19, no. 4 [2011]: 75). But what the Rio Tinto episode suggests is it may not be that simple. Even when motives are primarily commercial, today’s states can use bargaining tactics that are largely unique to sovereigns.

  49. Elizabeth Economy and Michael Levi tackle China’s quest for fuel, ores, water, and arable land, examining how Beijing deploys any and all necessary means to secure resources. They rightly note that tying up all aspects of national power in China’s global resource quest will continue to have social and political ramifications within China. See their By All Means Necessary: How China’s Resource Quest Is Changing the World (New York: Oxford University Press, 2014).

  50. Rosemary Kelanic, “Oil Security and Conventional War: Lessons from a China-Taiwan Air War Scenario,” Council on Foreign Relations Energy Report, October 2013.

  51. Ian Bremmer, The End of the Free Market: Who Wins the War between States and Corporations? (New York: Portfolio, 2010), 104.

  52. Charlie Zhu and Jim Bai, “Argentine Move to Seize YPF Scuppers Sinopec Deal,” Reuters, April 18, 2012.

  53. Even after the emergence of OPEC, energy markets were driven by private forces of supply and demand, intermediated by mostly private (not state-owned) oil companies.

  54. “China to Increase Loans to Africa by $10 Billion,” Wall Street Journal, May 5, 2014.

  55. By far, the leading destinations for Chinese state-led FDI are resource-rich parts of Africa and Latin America. Behind them are major achievements, especially in Africa. Chinese-funded infrastructure projects are visible all across the continent: roads and bridges in Congo and Sierra Leone, railways in Angola and Kenya, power stations in Zambia, mass transit systems in Nigeria, a telecommunications network in Ethiopia, high-voltage power transmission lines to connect countries in southern Africa, and a $600 million dam in Ghana. By the end of 2010, China had invested some $40 billion in more than 2,000 enterprises in fifty African states. Chinese president Xi Jinping promised another $20 billion in financing to Africa in the spring of 2013. The bulk of this will be siphoned to infrastructure projects, the foundation for Africa’s industrialization and economic development (Yun Sun, “China’s Increasing Interest in Africa: Benign but Hardly Altruistic,” Brookings Institution, April 5, 2013). China has, for instance, stepped in to help a housing shortage in Angola’s capital city, Luanda. The Industrial and Commercial Bank of China, backed by oil revenues, built a million new homes twenty kilometers outside the city, fulfilling a promise Angolan president Jose dos Santos made to his people (“Kilamba City Flats Sold Out,” Agência Angola Press, September 4, 2013); and in Latin America, China has invested heavily in hydroelectric facilities and raw materials (Fernando Menédez, “The Trend of Chinese Investments in Latin America and the Caribbean,” China U.S. Focus, December 19, 2013).

  56. China has also supplied Harare with twelve jet fighters and one hundred military vehicles, worth an estimated $240 million; see David H. Shinn, “Military and Security Strategy,” in China into Africa: Trade, Aid, and Influence, ed. Robert Rotberg (Baltimore, Md.: Brookings Institution Press, 2008), 174. As for Venezuela, China established a $6 billion joint fund with Caracas in 2007, boosting the total reserves to $12 billion in 2009 as part of the “strategic alliance” with the Chavez government; see “Venezuela, China Boost Joint Investment Fund to $12 Billion,” Latin American Herald Tribune, 2009.

  57. Beth Walker, “China’s Uncomfortable Diplomacy Keeps the Oil Flowing,” China Dialogue, November 26, 2012. Also see Dambisa Moyo, Winner Take All: China’s Race for Resources and What It Means for the World (New York: Basic Books, 2012); Jacques deLisle, “China’s Quest for Resources and Influence,” American Diplomacy, February 2006.

  58. Sudan is China’s largest oil project and home to upward of 10,000 Chinese workers; in return, China is Sudan’s largest arms supplier. David Blair, “Oil-Hungry China Takes Sudan under Its Wing,” Telegraph, April 23, 2005; Jared Ferrie, “Sudan’s Use of Chinese Arms Shows Beijing’s Balancing Act,” Bloomberg Business, April 30, 2012; Peter S. Goodman, “China Invests Heavily in Sudan’s Oil Industry,” Washington Post, December 23, 2004; Yitzhak Shichor, “Sudan: China’s Outpost in Africa,” China Brief 5, no. 21 (2005).

  59. Peter Brookes and Ji Hye Shin, “China’s Influence in Africa: Implications for the United States,” Heritage Foundation, Backgrounder #1916, February 22, 2006; United Nations Department of Peacekeeping Operations, “Troop and Police Contributors,” March 2014, www.un.org/en/peacekeeping/resources/statistics/contributors.shtml; United Nations Department of Peacekeeping Operations, “UN Mission’s Contributions by Country,” March 31, 2014, www.un.org/en/peacekeeping/contributors/2014/mar14_5.pdf.

  60. As CDB advisor Liu Kegu put it in April 2012, well before the steep drop in oil prices that occurred in late 2014: “The more important metric is the debt service capability, not necessarily the absolute amount of debt-to-GDP … [O]il is very simple to drill. You drill a hole, put a pipe in the ground and it comes out! And then you ship it. So Venezuela’s debt service ability is very strong.” Erich Arispe of Fitch Ratings came to a far different and more prophetic picture on Venezuela the very same month: “The revision of the outlook to Negative reflects Venezuela’s weakening policy framework, which has resulted in increased vulnerability to commodity price shocks and deterioration in fiscal and external credit metrics as well as rising political uncertainty” (both quoted in Sanderson and Forsythe, China’s Superbank, 123). In other cases of CDB lending, though, commercial rates are very much in evidence. CDB extended a $10 billion credit to Argentina in 2010 at the London Interbank Offered Rate (Libor) plus 600 basis points (see Kevin P. Gallagher, Amos Irwin, and Katherine Koleski, “The New Banks in Town: Chinese Finance in Latin America,” Inter-American Dialogue, http://www.thedialogue.org/wp-content/uploads/2012/02/NewBanks_FULLTEXT.pdf). In the same year, the World Bank lent Argentina $30 million at Libor plus 85 basis points (see ZhongXiang Zhang, China’s Quest for Energy Security: Why Are the Stakes So High?,” Review of Environment, Energy and Economics, http://re3.feem.it/getpage.aspx?id=5296). See, e.g., John Rathbone, “China Lends More than $75bn to Latin America,” Financial Times, February 15, 2012.

  61. Charles Wolf Jr., Xiao Wang, and Eric Warner, “China’s Foreign Aid and Government-Sponsored Investment Activities,” RAND Corporation, 2013.

  62. Walker, “China’s Uncomfortable Diplomacy Keeps the Oil Flowing.”

  63. Ibid.

  64. Nathan Crooks and Jose Orozco, “PDVSA Receives $1.5 Billion Housing Loan from Chinese Bank,” Bloomberg Business, February 27, 2012; Sanderson and Forsythe, China’s Superbank, 138; Hogan Lovells, “Latin America,” http://www.hoganlovells.com/latin-america.

  65. Robert Kagan, “League of Dictators,” Washington Post, April 30, 2006.

  66. Ibid.

  67. Ibid.

  68. Ibid.

  69. Most date a change in Chinese behavior to early 2009, when Chinese ships engaged in multiple skirmishes with U.S. surveillance vessels in an effort to hinder American naval intelligence gathering efforts. See “Naked Aggression,” Economist, March 12, 2009.

  70. Former chairman of the Joint Chiefs of Staff Admiral Michael Mullen repeatedly averred that debt is the single greatest threat to national security; see Ed O’Keefe, “Mullen: Despite Deal, Debt Still Poses the Biggest Threat to U.S. National Security,” Washington Post, August 2, 2011. Also see Robert Zoellick, “The Currency of Power,” Foreign Policy, October 8, 2012; Regina C. Karp, Security without Nuclear Weapons? Different Perspectives on Non-Nuclear Security (Oxford: Oxford University Press, 1992).

  71. In the wake of the 2008 financial cri
sis, for instance, the future of U.S.-China relations was framed as whether U.S. leaders would be willing to “double down against American national debt to facilitate the economic rise of those insistent upon an export-led growth model.” Moreover, according to some analysts, as inauspicious as traditional prospects of U.S. financing for export-led growth may sound, insecurities after the last financial crisis have left the U.S. with decreasing ability to act unilaterally. See Matthew J. Burrows and Jennifer Harris, “Revisiting the Future: Geopolitical Effects of the Financial Crisis,” Washington Quarterly 32, no. 2 (April 2009): 27–38. Others have doubted those strategic effects; see Robert D. Blackwill, “The Geopolitical Consequences of the World Economic Recession—A Caution,” RAND Corporation Occasional Paper OP-275-RC, 2009. Also see Robert Zoellick, “After the Crisis?,” speech at Johns Hopkins University, Baltimore, Md., September 28, 2009, www.cfr.org/international-organizations-and-alliances/zoellicks-speech-after-crisis-september-2009/p20303.

  3. Today’s Leading Geoeconomic Instruments

  1. Robert E. Rubin and Jacob Weisberg, In an Uncertain World: Tough Choices from Wall Street to Washington (New York: Random House, 2004), 25.

  2. Those that realized what was going on called for a review of the Camp David accord itself. See “Muslim Brotherhood Calls for Review of Camp David Accord,” Bloomberg Business, May 6, 2011.

  3. T. J. Chisinau, “Why Has Russia Banned Moldovan Wine?,” Economist, November 25, 2013.

  4. Svante E. Cornell and S. Frederick Starr, The Guns of August 2008: Russia’s War in Georgia (Armonk, N.Y.: M. E. Sharpe, 2009); “Russia Bans Wine Imports from Neighboring Georgia,” National Public Radio, May 16, 2006.

  5. Vladimer Papava, “Economic Component of the Russian-Georgian Conflict,” Geo-Economics 6, no. 1 (2012): 66.

  6. Following the NATO summit in Wales in the fall of 2014, the Georgian president continued to make strong declarations about Georgia’s commitment to Eurasian integration: “I am here today in order to stand united and by means of relevant reforms, to accelerate implementation of our task—integration to EU and NATO.” Speech by President Margvelashvili to the Parliament of Georgia, November 14, 2014, www.parliament.ge/en/media/axali-ambebi/the-speech-by-the-president-of-georgia-mr-giorgi-margvelashvili.page.