From an historic point of view, when a city or a country develops and enriches itself, there is a tendency to couple this rise with territorial expansion.  The goals of this expansion can be different but mainly answer two purposes: the first one is to increase the access to resources or find outlets to pursue the economic development; the second objective of the expansionism is to annex new territories that will be used as a buffer to protect the “heart” of the country. These two goals can be cumulated into conquests or colonization. In this article, we will first go through these two expansion means.

Then, we will see that when it remains no territories to conquest, dominant powers tend to fight each other. It is an interesting fact for the present as all territories are explored and most of the borders clearly defined. From that point, we will analyze how new developing countries, especially China, can develop themselves abroad and what conclusions can be taken in terms of probability of conflicts.

Territorial expansion

The first reason why a country expands is its will to create a protective buffer around its historical territory, often its economic and political heart. Consequently, an enemy will have to fight and conquer the peripheral regions before reaching the vital part of a country.  We can find examples of this strategy for centuries all around the world. China annexed Manchuria, Xinjiang and Tibet as they represent vast arid areas around the Han populated Eastern regions. Russia, and the USSR during its time, conquered Siberia, the Baltic regions and central European countries during the 19th century, to put distance between its opponents and the Moscow-St Petersburg area.

The second reason explaining the expansion of a growing power is its need to access the natural resources required to pursue its production and development. This need is particularly acute in an industrial world, where consumption and transformation of raw material are the basis of economies. Nonetheless, this behavior as also been observed in the antic world, for example when the Romans settled colonies for trade and created capitals for the newly annexed regions. These colonies supplied the Roman Empire slaves and natural resources such as wheat from Egypt or fabrics from Middle East.

For the U.S., after its independence and during industrial revolution, the American frontier enabled to access new fertile agricultural lands and mineral resources such as coal, iron, gold and later on, oil.

At the end of the 19th century John Atkinson Hobson, highlighted characteristics of the modern industrial capitalist societies that lead to the conquest of new territories in two books (The physiology of industry: being an exposé of certain fallacies in existing theories of economics (1889) and Imperialism: A study (1902)),. He explains that when a country develops, oversavings tend to appear and the result is an insufficient demand for the economic outputs. It can create a recession, resources misallocation and excessive investments in distribution and marketing. Consequently, if a country wants to keep growing, it needs to find new outlets for its production and a use of its oversavings. Without going too much into details, in economic terms excess savings (total savings minus total investments) are always equal to exported production.

Finance exploration and expansion through colonization are an efficient solution as the newly conquered countries will import the goods made in the colonizing country. Moreover, domestic companies and the government will invest in these countries to “build the market” and access to new resources, creating a virtuous circle for the colonizing country and its companies.

Historically, it is the over savings of the Dutch that contributing to finance and develop the Dutch East India Company in 1602, which promoted trade and settled factories (trading posts) in other continents. This model was replicated at a larger scale during the 19th century, as industrial nations had more imbalances, needs and financial means.

In addition to the economic argument, a country can decide to launch exploration and colonization to compete with its main rival and avoid him taking a better geopolitical position. France decided to settle in North America and Africa few years after Great Britain began its expansion in these continents. Simultaneously to the economic consideration, the goal of France was to avert a complete domination of the world by its historical opponent.

It worth noticing that most of the events described above took place at periods when the world was not entirely explored, borders non-defined or inexistent, and some remained territories “unclaimed”.  What happened in a context, like nowadays, where these conditions do not prevail anymore?

An answer can be found in the context of the early 20th century that led to the First World War. At this time, the world has already been completely colonized by the main European powers, but Germany, the newly unified and fast growing country, did not have access to the other continents as did France and Great Britain, except for a few colonies sparsely located around the globe. Germany’s rise and thirst for colonies was worrying Great Britain who saw the central European powerhouse as a direct challenge to its domination of the world.

Consequently, as Henry Kissinger explains it based on the Crowe report, (Memorandum on the Present State of British Relations with France and Germany, written in 1907 by a British diplomat), the war was inevitable as the ‘defensive’ actions of each country was perceived as an aggression by the other one. Great Britain wanted to preserve its domination while Germany was building a fleet able to challenge them, partly out of fear of being at the mercy of Great Britain in case of a conflict, and partly because of its understanding that Great Powers throughout history had a powerful Navy able to protect its commercial lifelines and defend or attack any country at will.

From Germany’s point of view, it needed a fleet to promote itself and be able to go abroad to develop its international trade. From Great Britain’s point of view, this fleet was a threat to its domination. Assessing its geopolitical situation, Great Britain decided to take measures to curb Germany’s rise with a ‘defensive’ alliance with France and later Russia, and keep building ships to remain ahead of Germany’s navy. Germany perceived these reactions as a threat. The geopolitical tensions and mutual mistrust increased for six years before the Great War broke out.

The current context

Nowadays, we still live in a modern capitalist society but the Western countries have transitioned their economy towards more and more financialization. This fact is crucial to understand the evolution of the expansionism strategy of firms and States.

Some companies and countries still suffer from over savings leading to imbalances but the access to globalized, liquid and deep financial markets enables to reorient these over savings toward the countries needing money to consume or finance their domestic investments. Through financial markets, companies and countries do not need to invade or colonize foreign countries any more to recycle their savings, find new outlets and develop abroad. Financial markets improve allocation of resources and orient investment and consumption.

However, we can wonder if these mechanisms do not lead to a new form of colonization or dependence? When a country depends too much on foreign investments or settle of foreign policies, these foreigners acquire an influence, implicitly or not, on the policy of the hosting country. An inability to keep their attractiveness or the confidence of the markets can lead to financial movements able to destabilize a country.

Today, the main rising power is China and this country has an historical particularity: it never went abroad for economical reasons. The expansion phases always answered to security concerns leading to build a protective buffer. For further information, we strongly recommend Henry Kissinger’s instructive book, On China.

For instance, from 1405 to 1433, the Ming dynasty and admiral Zhang He, led seven maritime expeditions across the South China Sea and the Indian Ocean. It provided a better knowledge of the world, its geography, population and different cultures but conversely to the expedition that the European conducted later, it did neither lead to colonization nor boost international trade in the region. The main reason may be that the Middle Kingdom considered that it already possessed everything it needed and had nothing to learn or to gain from these newly discovered countries.

Zheng He Travels

Source: Wikipedia

Nevertheless, the situation today is different for China. The country needs a huge amount of natural resources to feed its development and doesn’t have them on its territory. Moreover, the Middle Kingdom has excess savings. Consequently, China goes abroad to access resources and find new markets. To do so, it creates strong partnership, especially with African countries.

In exchange of concessions for the exploitation of raw materials, from energy to minerals, Beijing finances the building of infrastructures in these countries. One of the worries is that these countries may fall under the dependence of China and slowing down their own development, with the risky perspective of becoming an “autonomous colony” of Beijing.

As we have seen, new forms of dependences can appear without military or political means, but merely by the use of the financial markets. Expansionism can take place without war. Nevertheless, the risk of wars does not disappear, especially considering the relation between the China and the U.S.. Some journalists and analysts make a parallel between the current situation and the relation between Germany and Great Britain a century ago.

Indeed: to protect and ensure the supply of natural resources from Africa and Middle East, while answering the more urgent threat of its immediate surroundings, China is building a military fleet and partners with some Asian countries (Pakistan, Iran, Myanmar, North Korea, Central Asia Republics). China imports most of its raw materials from abroad to answer its domestic needs, and the fact is that the U.S. dominates the key strategic points both away and near the Middle Kingdom. A string of straits and choke points located China’s main trading routes are under U.S. influence or direct control.

To answer this challenge, China is building a ‘string of pearls’, key strategic outposts including ports and trading posts to increase its influence. In this light, the increasing heating issue of the South China Sea demonstrates the determination of the Chinese leadership to secure its lifelines to foreign markets, precious energy and access outside its direct borders.

String of Pearls

Source: Wikipedia

In addition, the Chinese leadership is worried about both the threat of encirclement by potential rival powers, including the U.S., Japan or India, and is growing increasingly uneasy about the fact that China doesn’t have a buffer to cushion a potential blow from opponents. From China’s point of view, the First Island Chain, a string of islands located directly outside of their country and under control or influence from the U.S. and its allies, is a threat to its core that heavily constraints China in regards to its international development.

First Island Chain

Source: Wikipedia

To answer these various challenges, China is taking defensive steps, including increasing its influence throughout Asia, increasing its military budget to upgrade its military capabilities and find innovative solutions to immediate threats, while trying to assert control in its immediate surroundings.

As did Great Britain back then, the U.S. perceives these ‘defensive’ moves as a threat to its supremacy and acts to prevent China from becoming a serious challenger. Just like a century ago, these ‘defensive’ moves from both sides are perceived as aggressions and fuelling a vicious circle that may have dire consequences.

The rise of the Middle Kingdom also fuels tensions with its neighbours as it claims its sovereignty on islands in China Eastern and Southern seas. These seas are not only rich in resources that would be useful for China, they are also seen as an imperative to create buffer to protect the Eastern coast of China, where most of its population, industry and wealth are located.

This strategy is fuelling tensions throughout Asia, reflected in the territorial claims and the arm race between the various Asian powers, including South East Asia and Japan. As mentioned before, this situation is very similar to the competition before the First World War, when two powers uneasy and increasingly mistrusting each others created the conditions from which the only exit was war.

Conclusion

Economic development and expansionism are deeply linked. Economic considerations can explain a lot about wars and periods of colonization, while national security and strategic imperatives create the conditions in which they take place.

Notwithstanding, the world evolved as territories became more and more clearly defined and as financial markets provide a new way to vent out excess savings. Despite these facts, competition for access to resources and the rise of new major powers allows the risk of wars to lurk beneath the surface of economic integration. In the future, a deeper and more trustful communication between China and the U.S. is required to avoid misunderstandings creating the conditions for potential conflicts.

Sources

  • AUSTIN, Kenneth (2011), Communist China’s capitalism, the highest stage of capitalist imperialism, World Economics, Vol.12, No.1, January-March 2011.
  • HOBSON, J.A. (1938), Imperialism: A Study (3rd edition), London, George, Allen & Unwin Ltd (first published 1902).
  • HOBSON, J.A. & MUMMERY, A.F. (1889), The Physiology of Industry: Being an Exposé of Certain Fallacies in Existing Theories of Economics. London: John Murray Publisher.
  • KISSINGER, Henry (2011), On China, Penguin Books.
  • NYE, Joseph S. (2014), 1914 revisited?, Project Syndicate, January 13th 2014. http://www.project-syndicate.org/commentary/joseph-s–nye-asks-whether-war-between-china-and-the-us-is-as-inevitable-as-many-believe-world-war-i-to-have-been
  • WOLF, Martin (2013), China must not copy the Kaiser’s errors, Financial Times, December 3rd 2013.

Written by Nicolas Houilliez, with additional help from Carlito

About Nicolas Houilliez

Luxemburg based with strong analytical skills, I worked as market and strategy analyst in large multinational companies. Passionate about China, economics, geopolitics and finance.