I sometimes place an over emphasis on individual leaders and how their decisions and interactions can shape and dictate global events. Please allow me to do so once more. For this article, I want to pick a few quotes from Emmanuel Macron and Xi Jinping during Macon’s recent trip to China that I believe capture the aims and attitudes of both men.

I have written in the past about Macron’s grand plans for France and Europe. I believe he sees himself as heading a France that is on the cusp of regaining its place as joint leader of the European Union, after allowing Germany to dominate proceedings since the financial crash in 2008.

To do so, while he tackles legacy domestic issues at home, he must also present a dynamic and confident France abroad. A large part of his election manifesto was to make France competitive again. To do this, he must increase French exports. China is naturally the most attractive market so this trip was a major test and opportunity for Macron.

For Xi Jinping, a man who has the world at his feet, Macron’s visit was an opportunity to host a leader of a still influential European nation while not being overawed as the realities of their respective economic strength becomes more evident each day. This visit carried a lot less pressure for XI Jinping but did give him the chance to project Chinese prestige and strength to Europe as it continues its Belt Road Initiative project.

Macron started his three-day tour in Xi’an, the ancient starting point of the Silk Roads to show his commitment to China’s “new silk road”, the afore-mentioned Belt Road Initiative.

“After all, the ancient Silk Roads were never only Chinese,” ……  “By definition, these roads can only be shared. If they are roads, they cannot be one-way,”

This was a clear message to China that current trade imbalances cannot continue indefinitely. He later referenced the exact figures of French imports and exports to China and it was a recurrent theme throughout his trip.

Macron pulled out all the stops in terms of flattering the Chinese with Chinese literature quotes, a visit to a very important but virtually unknown Buddhist pagoda in Xi’an and the gift of a white horse, Vesuvius.

Unfortunately for Macron, despite his Gallic charm offensive.  he struggled to deliver many major deals or positive “results” on the trip. He had urged caution before the trip and justified this on the trip stating;

“I don’t want to give the impression that we made this trip to obtain as many contracts as possible,” ……“We have secured unprecedented openings ... which are the result of much hard work.”

This did come across as a little Trumpesque and all it was missing were a few ‘great’, ‘tremendous’ and huge’ adjectives strewn in. France simply doesn’t have the economic strength to dictate favourable trading terms with China. While Macron believes he represents the undivided European Union position, this is simply not, yet at least, the case.

Only this week I wrote about the divisions emerging in the European Union. I failed to mention the economic divergence which became apparent in a summit hosted by Viktor Orban last November. It included leaders of China and sixteen eastern European nations (Hungary, Bulgaria, Romania, Poland, Bosnia and Herzegovina, Serbia, Croatia, Slovenia, Slovakia, Albania, Macedonia, Montenegro, Czech Republic, Lithuania, Latvia and Estonia).

China has already benefitted from these divisions by making major investments in peripheral EU countries like Greece, Hungary and Poland. It’s a smart move designed to create divisions in Europe (not dissimilar to what Putin’s Russia often orchestrates) and also to create exit and entrance points for the Belt Road Initiative in Europe. The major difference with Russia though is that China has the financial clout to build and sponsor major infrastructure projects. It’s a tired cliché but money still talks…

Macron and other EU leaders are aware of this. Macron went as far as almost rebuking Xi Jinping for this by stating the below, although it was very veiled criticism and probably aimed more at the leaders of sixteen nations who attended the November summit in Budapest;

“Europe has often shown itself divided about China,”….“And China won’t respect a continent, a power, when some member states let their doors freely open.”…“China, which is a great power, does not respect a country that sells its essential infrastructures to the lowest bidder,”

Ultimately this trip was a little underwhelming. It delivered little in terms of concrete results. Macron can console himself slightly by acknowledging that he did show a lot more sophistication and understanding of China than Donald Trump managed to back in November. However, this does not make up for the lack of political and economic power Macron has compared to the US.

While Macron clearly believes he represents both France and the European Union, I believe Xi Jinping saw him as a leader of a country of 67 million people, which would be the equivalent of the seventh largest province in China. When Macron returns to France and tries to follow up on some of the initiatives discussed in China, he may also come to this realisation pretty rapidly…
 
 
 
 
 

Donald Trump's first trip to Asia was an eventful, colourful affair that encompassed ​visits to Japan, South Korea, China, Vietnam and the Philippines. There were a few excellent pictures, including Trump massacring Japanese Carp (see picture directly above) and Abe Shinzo taking a tumble on a golf course.

The trip was met with mixed reviews both domestically and across Asia. My personal view is that Trump managed to not cause any major diplomatic embarrassment to the United States but achieved very little from a strategic perspective. The inflective moment when China openly overtakes the US is accelerating towards us, as I discussed recently. This trip reinforced the view held by many that America, while a crucial partner for many future projects and plans in Asia, will not be the driver and leader of this region.

This is best captured in recent events concerning the Trans-Pacific Partnership. The overarching aim of American foreign policy over the past decade has been a strategic pivot away from the Middle East towards Asia, with a key objective being the creation of the Trans-Pacific Partnership.

This would have been a free trade agreement between the United States and eleven different Pacific Rim states. The talks began in 2010. Trump withdrew the US from the discussion earlier this year, stating that individual trade agreements with each state would be of greater benefit to the US. The remaining eleven states agreed to the framework this weekend. While Trump will not see this as a failure, China may see it as a success. It is not currently a part of the agreement but may in time seek to join on its own terms and eventually dominate it.

The 19TH Chinese Communist Party Congress that took place in the weeks preceding Trump’s visit was a powerful demonstration of the political unity of the Chinese leadership under the President, Xi Jinping. There was no apparent heir to the throne announced and I think this shows that Xi Jinping is now the most powerful man in the world. The checks and balances of the US political system are increasingly limiting Trump’s preferred course of action on many of his campaign pledges.

However Trump’s hardline rhetoric on North Korea would have been welcomed by both South Korea and Japan.

"NoKo has interpreted America's past restraint as weakness. This would be a fatal miscalculation. Do not underestimate us. AND DO NOT TRY US."

To be honest, at this stage all this appears as is bluster by both sides. Petty squabbling between two insecure leaders who see potential enemies everywhere. The pettiness was surmised by Trump himself in this tweet;
"Why would Kim Jong-un insult me by calling me 'old,' when I would NEVER call him 'short and fat?'"
Since the escalations in the summer I have always been of the view that it will not come to violence and that China is pulling the strings and using the situation to gain maximum leverage in future Sino-US talks…

One thing that has become obvious is that Trump is quite easy to manipulate. Sycophanyc and public displays of affection and loyalty will earn his trust, irrespective of the true underlying intentions. . A notable example of this was Trump’s behaviour in the Philippines. Despite some aggressive back and forth comments between Presidents Duterte and Trump in the past, Duterte put on a bit of a show and Trump loved it, summing up the relationship between them as ;

"We've had a great relationship. This has been very successful."

In summary, Asian leaders learned a lot about Donald Trump over the last twelve or so days. Despite his often-bullish rhetoric and strongman image at home, I think they have finally realized what Putin figured before the US presidential election had even finished. He is a man that has a very limited attention span, cannot focus on an issue over a period of months and years so is always acting reactively and not strategically and that through some grand gestures and displays can be easily manipulated…

There is speculation from a few news sources that China will “compel” Saudi Arabia to pay for oil in Yuan. This would change the face of the global economy and could potentially be looked back on in years to come as one of the first examples of Beijing emerging as the lynchpin of the global economy.

Currently the global oil industry is run through dollars. If you want to buy oil from an OPEC (Organization of the Petroleum Exporting Countries) member you pay in dollars. This has been the case since the agreements of the early 1970s. It gives the US a lot of influence and leads to many oil-exporting nations currently pegging their currency to the dollar (Saudi Arabia and the United Arab Emirates are two examples).

This has been a strategic objective for China for many years now. As their percentage of global demand grows, and exceeds that of the US, they are increasingly dissatisfied with having to manage their outgoing in dollars. I think a number of factors have convinced them that now is the time to up the ante on this bid.

The US has hugely expanded its oil production over the last ten years. In 2006, according to the BP Oil Review 2016, the US was producing 6.8 million barrels of oil daily. By 2016 this figure was 12.4 million. China wants the clout that comes with being the world’s largest oil importer. The US production looks set to continue to rise as Trump is a big advocate in deregulation, which should lead to increased production from fracking.

Trump’s presidency is a factor in other ways as well. His scatter gun approach to diplomacy, and his lack of focus and clear strategic aims have not gone unnoticed in Beijing. A key doctrine of Obama’s foreign policy was a pivot away from the Middle East to Asia Pacific. This hasn’t been fully executed and I think China believes it is possible to increase its influence in the Middle East (commercially for now) while defending its own interests in the Pacific.

There have been other moves afoot recently which seem to indicate that a lot of talks and jockeying for position is happening in global diplomacy behind the scenes. King Salman of Saudi Arabia visited Moscow last week. Must of the global press fixated on the malfunction of his solid gold elevator as he descended from his plane. However, a Saudi King visiting Russia was almost unbelievable until recently.

Russia and Saudi Arabia have been on opposing sides of almost every conflict over the last thirty years, the most recent example of which is the Syrian War. Saudi Arabia now looks to be carving a new niche in the world, under the indirect leadership of the Crown Prince Mohammad bin Salman. It evidently sees good relations with China as the future cornerstone of this policy.

China has prudently decided to test this non- dollar trading with a key ally initially, Russia. Last Monday, China established its first payment versus payment system for Chinese Yuan and Russian Rouble transactions. This is an early test for further PVP systems with key trading partners on its Belt and Road Initiative.

Moving the global oil economy to Yuan will not be a simple task. The US will not take this lightly and may see it as an act of economic war. There is already a lot of tension simmering between the US and China over claims of “unfair trade practice” by the Chinese. I genuinely believe China has allowed the US/North Korea spat to simmer to distract Trump from this issue.

Attempts to trade oil in Euros by other nations in the past have met with thinly veiled threats (Iran) and perhaps may even have been one of the causes of violent action (Libya).
 
Ultimately though, China is a completely different beast. The US will not be able to intimidate or threaten them into backing down if China believes now is the time to openly challenge US hegemony in such a direct way. The “if” here is crucial. China may continue to discreetly conduct trade agreements, projects and further PVP systems until their power is further consolidated.
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Currently, with the US being pulled in a hundred directions by an aimless President, China’s power relative to its great rival grows every day without having to do anything. China’s ascent has been built on a singular vision fuelled by trade agreements and discreet investment. They will not reveal their hand until they are certain their position and economic power is unassailable. They only thing certain is that China’s hegemony of the global economy is getting closer every day…

North Korea has featured a lot recently in global media outlets. Their testing of an inter-continental ballistic missile on Friday prompted strong condemnation across the globe. I recently remarked how after every major terrorist attack there is a similar pattern of condemnation followed ultimately by a shrug of the shoulders.

In the past, that has often been the case with US approach to North Korea. Strongly worded messages delivered through the United Nations or even by the President themselves. Economic sanctions often followed. China typically have a more measured response and seek to mitigate the economic fallout. There was a comfortable familiarity to this process. A mini cold war where all sides knew when they could poke and prod and when to back down. However, this changed in 2011 when Kim Jong-un came to power after the death of his father, Kim Jong-il.

News and reports from North Korea will always be hazy and unreliable but if even twenty percent of the reports are true then Kim Jong-un has little of the political nous of his father, a wily survivor who ruled for seventeen years. He does seem to have excelled in violence against potential rivals. The 2013 arrest and execution of his uncle-in-law by flamethrower was a grisly announcement to the world of his modus operandi. There have been reports of moves against him in recent times but as of today the latest view of most intelligence agencies is that Kim Jong-un is still the boss. His announcement after the missile test on Friday that North Korea can strike the US “at any place and any time” seems brash at best and suicidal at worst.

President Trump's tweet yesterday that China is doing nothing to curb North Korea will invariably draw focus on the Chinese-North Korean relationship and probably leading to a stinging rebuke from China.

Where do China stand here? This is arguably the most challenging aspect of this escalating crisis to speculate on. China is North Korea’s largest trade partner and accounts for approximately 90% of its exports. China has more leverage with North Korea than any other country. Across the globe, particularly in Africa, China has major trade links with a host of countries that have questionable foreign policies etc. China says little about their policies, builds their infrastructure and extracts their resources. However this is different, this is their neighbour openly telling the world's military superpower that they can hit them with a  nuclear weapon at any time.

There are a few points to speculate on here. Firstly does China really have the influence to curtail the North Korea regime or is Kim Jong-un so unhinged and disconnected from reality that he doesn’t see the potential results of his words and actions. Secondly does China want this to stop immediately?

On the first point it is hard to believe that China does not have the necessary clout  with numerous senior members of the regime. There is a Chinese economic zone just inside North Korea where China uses cheap North Korean labour to import coal and other basic goods. This a valuable source of foreign currency for North Korea. Furthermore many members of both regimes clandestinely benefit from this arrangement financially.

In many ways it is in China’s interest to keep maintain the status quo. I believe they may even have secretly given the North Koreans covert approval to test the foreign policy resolve of Donald Trump. The timing couldn’t be more opportune. Trump is struggling to generate any momentum with his domestic policies and is currently under investigation for illicit ties with Russia. China may want to gain some further leverage with the US and seek some guarantees on the South Pacific  and/or trade before reining in the North Koreans. If this is the case they are playing a very dangerous game. Kim Jong-un is a very unpredictable and dangerous character. The more slack he is given now, the more challenging it will eventually be to rein in.

So if this failed to work and things escalate any further we could be facing a very serious situation. The last thing China wants or could tolerate is US airstrikes in North Korea. However before anyone suggest I am predicting WW3, I see another scenario playing out.


With these trade links there must be numerous channels of communication between the Chinese and senior North Korean officials without the knowledge of Kim Jong-un. If things get much more serious I can envisage a Chinese-led coup displacing the Korean leader with a military council who are willing to tone down the missile tests while continuing to publicly condemn the US.

The US will not want this situation to escalate and Trump has so many matters on his mind I believe he will pay a lot for a deal, despite his numerous boasts about his negotiating power. While I believe claims of the US decline are overblown, at this moment the US is a state of limited turmoil and Trump strikes me as a very exacerbated character who can’t comprehend how he is suffering so many setbacks domestically.

Finally I want to mention that if this is the case this is a very, very dangerous game to play. Recent history is littered with examples of major powers initially using regimes for their own aims only to ultimately suffer in the fallout. The US arming the taliban springs to mind. The Chinese obviously believe that they can both rein in North Korean nuclear tests when they want and that that the US will get involved militarily. However if they have miscalculated either factor we could be in a for a very tense and potentially dangerous few years...

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