The military exercises held jointly with the Philippines off Scarborough Shoal in the South China Sea were, if not provocative, certainly thought provoking. We have made public this new strategy of "re-balancing", that is an increased military presence in the Pacific aimed at China. Of course, we can bury China in nuclear rubble, and they can us. So, why the saber rattling? Yes, there are minor territorial issues with China's neighbors, and some feel overwhelmed. But that is by China's economic clout.
China has now surpassed Japan as the world's second largest economy, and at its current rate of growth, relative to the U.S., it will overtake it within a couple of decades. India, our champion in the emerging states rivalry, is also growing fast but is hobbled by mismanagement, endemic debilitating corruption, and a kind of laissez faire capitalism that has further impoverished the already poor, including farmers and peasants, to the point where there is a Maoist rebellion in 20 out of its 28 states.
The economic issue is mind boggling. The Chinese hold over $3 trillion in foreign exchange reserves of which an estimated $1.75 to $2 trillion is in U.S. debt. However, China is increasingly trading in their own yuan or local currencies. This, and China's diversification of its reserves into gold and other currencies, are major reasons why the dollar's role as a reserve currency has diminished from 85 percent of global reserves to now nearer 60 percent. And, it has been the dollar as a reserve currency that has maintained its demand, allowing us to pump out money without becoming an Argentina of the past or a Greece of the present.
It is one thing to be borrowing this money for worthwhile investment that will pay off in the future — infrastructure or education and training for example — quite another, if we borrow to satiate the addictive appetites of our consumer culture, or pour it down the sinkhole of war and the military — both ineffective as we have seen in Iraq and Afghanistan.
After a trillion dollars, Iraq is a virtual Iranian satellite serving as a conduit for arms and goods traffic between Iran and Syria. The Chinese have won the lucrative Iraqi oil contracts legitimately by bidding successfully for them. And we are left with warmongers like Bill Kristol of The Weekly Standard, and others, who helped get us in the Iraq mess, now waving their arms wildly at Iran and yelling "fire" once again.
So the soldiers popped their shooters by Scarborough Shoal (Huang-yan Dao to the Chinese) and Secretary Clinton added a bellicose speech. The main Spratly Island is occupied by the Philippines, and the archipelago's worth lies in the resources within its territorial limit. It is probably irrelevant to the Chinese who develops them as long as they have access … at a fair price. Surely, all that can be negotiated without saber rattling.
By the way, are the Chinese planning a tit-for-tat, and holding joint military exercises with the Cubans in the Caribbean? No, they are too smart for that. They spent their energies building a pipeline from gas-rich Turkmenistan to Xinjiang supplying gas that they need to fuel their phenomenal growth, and in the process shut us out of Central Asia.