^[1]China’s ADIZ extension certainly got everyone’s attention ^[2]. Externally, the consensus was overwhelmingly negative ^[3] and in encouraging other states to balance with the US against China, the ADIZ decision seems an ‘own goal’ ^[4], at least to us. Inside China, the converse appears true. The new policy seems to be playing well ^[5] in the public sphere. This striking difference though points to a flaw—a potentially tragic incoherence—at the heart of Chinese grand strategy.

Many nations seek to maintain their political system but in the case of authoritarian states this means the continuance in power of a particular political group. For China, safeguarding the Chinese Communist Party (CCP) leadership and the socialist system is the primary core interest ^[6]. Being unable to gain societal legitimacy through electoral means, the CCP relies on demonstrating good governance through being highly effective economic mangers.

Chinese grand strategy has accordingly been focussed towards achieving high GDP growth rates, cooperating with other states on economic matters, embracing globalisation, becoming a major trading state and shunning war. This continues, with the third round ^[7] of free trade talks between China, Japan and South Korea beginning just three days after the ADIZ announcement. China also remains interested ^[8] in the US-led Trans-Pacific Partnership with insiders ^[9] advocating involvement (and here ^[10]) and South Korea’s Deputy Minister recently stating that China ^[11] has ‘now swung to a positive position on participation’. And of course the Australia–China FTA remains in play ^[12].

This stands in stark contrast to a darker strand in Chinese thinking that sees conflict rather than cooperation as the best way forward. While seemingly geopolitical in embracing a ‘might makes right’ approach, this view has more complex roots. In the early 1990s, shaken by the Tiananmen Square experience, the CCP promoted a nationalist view of history ^[13] and shaped the national education system accordingly. Twenty years later, a generation has internalised a history that sees China from 1840 until 1945 suffering a century of humiliation ^[14] inflicted by outsiders. It’s an ‘us versus them’ approach, with the CCP presenting itself as the best and most legitimate vehicle to avenge these ancient wrongs.

In this perspective, China isn’t driven simply ^[15] by raw power balances when extending its ADIZ but has moral virtue on its side ^[16]. Others have extensive zones—Japan’s is indeed impressive ^[17]—so China as a big power should have a big ADIZ too, as part of repairing old wrongs. And to ensure the point isn’t missed, China intends to keep on extending ^[18] its ADIZs.

In thinking about both aspects, it seems China’s grand strategy suffers from a certain amount of cognitive dissonance. The notion of cooperation central to being part of the global market-based economy is sharply at odds with the virtues attributed to righting old wrongs through conflict. There are duelling narratives ^[19] (PDF).

China believes the market and its territorial claims can be kept separate; that economic relationships can be isolated from military spats. But China’s actions are starting to test the boundaries, and its ‘aggressiveness’ is starting to draw everyone’s attention, including the practitioners of economic matters and financial trading. A simple example: in the 30 November Financial Times printed in Europe, most of the second page ^[20] was devoted to the ADIZ matter. China’s newfound belligerence is about to reach page one financial press news.

Arguably as this continues, the ‘market’ may start to draw the conclusion that China is becoming an actor whose actions are increasingly unpredictable. Gradually, outside financial markets will increase risk premiums, charge higher interest rates, move out of currency holdings, restrict credit and restrain new lending. The inward business investment profile will change, with a focus on having fallbacks in place, choosing investments that allow a quick withdrawal if needs be and less focus on building for the long term.

China has many problems ^[21] that are currently mostly overlooked, but which could cause financial markets spooked by worries over conflict to move quickly from taking a glass-half-full view of China to a glass-half-empty one. Trouble in an economy as large as Japan and France combined would cause considerable economic disruption and distress globally—not least to Australia ^[22].

What can be done? The incoherence in Chinese grand strategy isn’t just a problem for the Chinese but for all of us. The internalisation and socialisation of national humiliation is already being used to explain why ^[23] the CCP can’t adopt more rational and more sensible policies. The problem is that changing ideas requires the old idea to first collapse. For now, there’s little sign of that.

Should we perhaps engage with a counter narrative? China’s chosen view of history is rather unbalanced—especially for Americans and Australians. Western powers objected to Japanese actions in China and Manchuria throughout the 1930s. The Second Sino-Japanese war ^[24] that began in 1937 led to a series of escalating American economic sanctions that eventually culminated in the Pacific War (PDF) ^[25]. Chinese military forces didn’t remove Japanese forces from China; Western nations and the USSR did. In 1945 Roosevelt wanted China as one of the world’s four policemen ^[26] guiding future international order. At this time, when the current Chinese view of history sees the nation at its lowest ebb, the Western powers made China a permanent Security Council member ^[27] of the new United Nations. Australia should’ve been so lucky! Chinese history can be seen differently.

The incoherence in Chinese grand strategy between cooperation and conflict is becoming more apparent. Over time, it may cause unintended outcomes that the CCP unquestionably doesn’t want. Some alternative futures were discussed in an earlier post ^[28]. Worryingly, given this grand strategic incoherence, there now seems a greater chance we’re heading towards a ‘Cold War Redux’ future.

Peter Layton is undertaking a research PhD in grand strategy at UNSW, and has been an associate professor of national security strategy at the US National Defense University. Image courtesy of Wikimedia Commons ^[29].