The West has to stop giving China a free ride

By Ambrose Evans-Pritchard

The longer that Houthi missile attacks continue in the Bab al-Mandeb Strait, the less they work to the geopolitical advantage of Xi Jinping.

Beyond a certain point, this conflict starts to pose a serious risk to China’s long-term economic and strategic interests.

Xi Jinping is playing a very risky game.
Xi Jinping is playing a very risky game.Credit: AP

That point may have been reached this week as Tesla and Volvo announced temporary closures of plants in Europe, in both cases because the Red Sea crisis has held up critical components from China.

It exposes Xi as the de facto patron of a truculent Iran, putting him at loggerheads with Saudi Arabia, Egypt, and an alliance of nine Sunni states that together fought a long war trying to stop the Houthis taking control of Yemen.

The collapse in revenues from the Suez Canal is pushing Egypt deeper into a financial crisis, putting at risk the welfare subsidies that keep a lid on that political powder keg, and threatening to provoke the beginnings of a backlash against China within the country.

It would be an exaggeration to say that the Anglo-US bombing strikes in Yemen do Xi’s work for him, but ultimately it is China that has built up an existential economic dependence on stable supplies of oil and gas from the Middle East and on the free flow of global shipping.

One could, of course, make the same point about Europe, home to a great number of equivocating free-riders that have refused to take part in the US-led Operation Prosperity Guardian – a decision they may regret if a vindictive Donald Trump is re-elected in November.

China is the world’s biggest importer of crude oil by far, barely able to cover 28 per cent of its needs from domestic supply, a key reason for the frantic switch to electric vehicles. It is also the biggest importer of liquefied natural gas (LNG).

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China has filled its strategic petroleum reserve and can weather a short-term shock. It would face something close to an economic “sudden stop” if Middle East tensions were to escalate into a wider conflagration, spreading to hydrocarbon facilities in the Gulf and severing seaborne supplies of crude and LNG beyond a few weeks.

America would suffer too, but the risks are not symmetric or of the same nature. Fracking technology has turned America into the world’s top producer of oil and gas by a wide margin.

China has presented itself as a defender of free navigation through the Red Sea and the Suez Canal for the good of all.
China has presented itself as a defender of free navigation through the Red Sea and the Suez Canal for the good of all.Credit: Getty Images

The US does not need any OPEC oil, though it imports some heavy crude out of convenience to balance its refineries. In extremis, it could retreat to fortress America, ensuring adequate internal energy supply by restricting US crude exports, as Jimmy Carter did in the late 1970s.

China has sat on the sidelines over the last two months as the Houthis have stepped up missile and drone attacks on 23 vessels in or near the Red Sea. These include the Hong Kong-flagged Maersk Gibraltar, owned by Greater China Intermodal Investments, on its way to the Saudi port of Jeddah.

Chinese officials have never uttered the word “Houthi”. They have not condemned the attacks beyond pro forma evasions. Nor have they ever condemned Hamas for the original massacre of Israeli kibbutzniks on October 7, for that matter.

Xi has so far paid no more than lip-service to the freedom of navigation, instead presenting the Houthi attacks as a spillover from the war in Gaza and the nefast consequence of US policies in the region. Controlled social media in China portrays the Houthis as heroic and righteous fighters. The collusion is total.

This plays well to the media in the global south, but in pushing this line, he is endorsing Iran’s neo-imperial adventurism and threatening a core national interest of Saudi Arabia. This is a very risky game.

“The Houthis want to use the crisis to improve their position in negotiations with the Saudis, gain recognition as a real resistance movement, and assert themselves as a central pillar in Iran’s ‘axis of resistance’,” said Ahmed Aboudouh from Chatham House.

Needless to say, such a promotion of the Houthis is abhorrent to the Sunni bloc. It threatens to undo everything that China has achieved in the region through brokering the Saudi-Iranian truce and the Yemen peace process, the result of painstaking diplomacy that stunned diplomats and turned China into a major player in the Middle East.

The Chinese navy has had a base at Djibouti and takes part in the anti-piracy task force fighting pirates off the Horn of Africa. Beijing has made much of this in the past, presenting itself as a defender of free navigation through the Red Sea and the Suez Canal for the good of all.

This rhetoric rings hollow today as 30 per cent of global container traffic has to run the Houthi gauntlet or take an extra 18 days round the cape, quadrupling the Drewry freight rate index for the Shanghai to Genoa and Rotterdam routes, and leading to the havoc of misaligned ships in ports at both ends.

The larger point in this saga is that China is the chief beneficiary of globalisation. It relies to an extraordinary degree on foreign markets, and therefore has the most to lose if geopolitics destroy confidence in maritime supply lines.

As I wrote last week, the country accounts for 31 per cent of global manufacturing but just 13 per cent of global consumption. Furthermore, China is acutely vulnerable right now because it is trying to export its way out of a deflationary economic crisis – that is to say by offloading even more of its excess capacity onto the rest of the world.

The US is a mirror image. Its trade deficit in goods has ballooned to $US90 billion ($137 billion) a month, or 4 per cent of GDP.

If globalisation unravels because supply chains have become unsafe, the American economy would be cushioned to some degree by the reshoring of factories and the repatriation of demand currently leaking out to the advantage of China.

Personally, I am a free trader, but there is a brutal historical logic to Trump’s protectionism.

Could Britain have stayed out of the US strikes on Houthi targets given that much of the world’s maritime insurance market is based in London, and given that Britain has sought to uphold free navigation as a fundamental principle for two centuries? Rishi Sunak had no real choice.

My objection is that the US and the UK acted too soon – taking the Iranian-Houthi bait, so to speak – before the glaring contradictions of China’s position had been fully exposed.

It is time to hold Xi’s feet to the diplomatic fire. Is China a co-defender of the world trading system? Is it a great power – a “major country with influence”, to use its own terminology – or is it still a free-riding opportunist?

Telegraph, London

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