Ch. 3: Crouching Tiger Serialization

Escaping a “Malacca Dilemma” and Guarding Trading Routes

Enjoy the read! The entire book is available on Amazon.

Question: Is China rapidly building up its military to guard the trading routes and global investments it needs for robust economic growth?

1.     No

2.     Yes

The answer to this simple question – they will get much harder – is of course yes; and China’s imperative to protect its trading routes begins with what former Chinese president Hu Jintao once described as China’s “Malacca Dilemma.”  Here, a little economic history is in order.  

For the first three decades after its communist revolution in 1949, the People’s Republic of China subsisted as a backward agrarian nation that traded very little with the world.  During this autarkic phase, China had no need to import foreign oil – it had its own significant reserves, relatively few cars, and very little manufacturing.  

In 1978, then Vice-Premier Deng Xiaoping began to create an entirely different reality with what he called China’s “second revolution.” This economic revolution would establish a particularly unique brand of state-run capitalism with very distinct Chinese characteristics.  The essence of Deng’s mercantilist strategy was to set up special economic zones for trading and then heavily subsidize China’s exports from these zones – all the while fiercely protecting China’s own domestic markets from foreign competition. 

At the same time, to ensure a cheap source of labor for Chinese enterprises, Deng smashed Mao Zedong’s so-called “iron rice bowl” system.  This iron rice bowl had been the hallmark of Chinese communism, guaranteeing jobs and housing and free health care and pensions for hundreds of millions of workers; but it was swept away in Deng’s bid to make China more competitive in world markets.

The results of China’s great leap forward into a mercantilist state capitalism would be nothing less than astonishing.  China’s economy would grow close to 10% annually, year after year, for more than three decades in what would be the most impressive economic expansion of any country in history – ancient or modern. 

This decades-long growth spurt has not just transformed China into the world’s undisputed factory floor – it surpassed the United States as the world’s largest economy in 2014. China’s rapid industrialization, coupled with its critical dependence on heavily subsidized exports to fuel its growth, has also made China just as heavily dependent on, and highly vulnerable to, a global supply and delivery chain linked by the major seas and oceans of the world.

Just consider that, as the world’s largest manufacturing nation, China has also become the world’s largest oil importer.  Today, over 70% of China’s petroleum imports – along with almost half of China’s energy needs – must travel first from Africa or the Persian Gulf and then pass through one of the most infamous maritime chokepoints in the world – the Malacca Strait.