INSIDE AND OUTSIDE THE GREAT WALL

Clingendael 22 September 2004 INSIDE AND OUTSIDE THE GREAT WALL Reflections on China and Global Security Willem van Kemenade Website: www.willemvk.org E-mail: kemenade@xs4all.nl

Contents • China’s Rise as an Economic Superpower • China, the World Economy and the Global Energy Scene • China and Northeast Asia (Japan, Korea) • China and Southeast Asia (ASEAN) • China, South- and Central Asia • China, Russia, Europe and NATO • China and the United States

Regional Relative Weight in the World Economy • Europeans are recognizing that in terms of economic muscle and trading influence, the world is rapidly coalescing into three blocs: America, Greater Europe, and a China-centered Asia. • East Asian countries, including China, account for 54 percent of Japan's GDP. • In comparison, Central Asian countries Kazakhstan, Kyrgyzstan, Tadjikistan, Uzbekistan, Turkmenistan, Afghanistan account for 5 percent of China’s GDP. • Latin American countries account for 15 percent of the United States' GDP. • East Europe accounts for a mere 8 percent of the EU's GDP.

China’s 15 Neighbors (Russia has 12) 1 2 3 4 14 5 6 15 7 9 8 10 11 13 12

China: A Regional Power with some Global Influence and the Ambition to become a Two-Ocean Country

The World’s 15 Largest Economies 2000-2001 * Billion US$ Source: World Bank Atlasses, 2002, 2003 The Economist, Pocket World in Figures 2004

GDP of Newly Emerging Powers 2003 Source: IIF

Selected Indicators China-India World Bank Atlas 2003 + Various Internet Sources

RED HOT, now cooling down ? China and the World Economy • Sixth largest economy, perhaps second in PPP; fifth trading power. • 22 % of the world’s population but GDP of $ 1.4 trillion is 4 % of the world aggregate GDP of $ 36 trillion. Per capita income 2003 $ 1.090 • China is expected to match the US in coming decades as the “locomotive of world economic growth”. It now contributes 17.5 % to global growth. In 2003 China accounted for 60% of world trade growth • China’s huge import needs drive up prices of raw materials and its huge exports drive down prices of finished goods. • China has become a manufacturing hub for the rest of the world in low-end, labour-intensive goods. The rest of the world is becoming a manufacturing base for China in high-end, capital-intensive goods. • As a result of its new role in the global supply chain, China is now running trade deficits with East Asia and surpluses with America and Europe.

Trade Growth: No sign of Cooling 2004 Volume to exceed $ 1 trillion • Price hikes in raw materials and energy have made exports more expensive. But during first half 2004, exports still grew by 36 % to $ 258 bn and imports surged 43 % to $ 265 bn. Deficit $ 6.82 bn • China’s share of world trade has grown to about 7 %, almost triple the volume of a decade ago. China is the world’s third largest importer. More than half of China exports are produced by foreign-invested enterprises. • 70 % of China's exports are high class furniture, apparel, toys, plastics, appliances, and low-end manufactures. 30 % HighTech. Imports are 85 % capital equipment, IT, microelectronics and natural resources. • The value added content of the remaining 30 % is not very high. What matters is net trade. China is not a net exporter of electronic goods. Most of this trade is re-exports, involving labor-intensive processing and assembly.

Slowing Growth in Foreign Trade Chinese exports doubled in just over five years. In contrast it took British exports 12 years to double in the 1840s, Germany ten years in the 1960s and Japan seven years in the 1980s. Source: Mofcom

China’s Future Energy Needs • Exporter of oil until 1993; Net importer since 1996. In 1998 China still produced 76 % of its own consumption needs. In 2000 67 %. • By 2001 34 % of China’s oil need was imported. By 2030 that figure will reach 82 %. In 2002 China’s domestic production was 170 m tons and imports 70 m, i.e. 41 %. • Last year, China got 56 % of its crude oil imports from the Gulf, the bulk of it from Iran and S.-Arabia. • China has almost zero strategic oil reserves. It has no blue water navy to protect the oil lanes. Since the Iraq war, China has decided to build up an emergency strategic reserve of 44 bn barrels of crude. • The strategic decision has been made to buy closer to home: Siberia, Central Asia and buying into upstream assets elsewhere. Recent acquisitions have been made in Sudan, Azerbaijan and Indonesia. • Prime focus is on developing own resources at home: including coal gasification and exploiting barely financially viable oil-and-gas reserves.

Main Challenge for Asia and the World is to come to terms with China as a “Renovated Middle Kingdom” • China's growing economic and eventually military strength will cause dramatic shifts in power. A stronger China will undercut the economic pre-eminence of Japan, further marginalize Russia, challenge America's role as regional supervisor and rewrite Southeast Asia's economic and political course. • One of the trickiest challenges of China will be how to exert its economic and political clout without frightening its neighbors into hostile alliances. • Apart from its determination to plant the flag on Taiwan, China is not expected to behave in an expansionist way. • Washington's projection of military power in Japan, Korea, Taiwan, Singapore and now Central Asia, is stirring China into asserting its influence in its periphery. • China is trying to build a safety cushion around itself to relieve its security worries by economic means.

The Geo-Politics of Northeast Asia • NE Asia's troubled past reveals that most of the factors that led to such an unhappy 20th century do not exist in the 21st. • China will not be weak; it will almost certainly be unified and strong. • Korea will be a far cry from the hermit kingdom of the late 19th century, ripe for Japanese imperialist plucking. • It is hard to imagine a return to Russian imperialism even if democracy falters • In terms of conventional military power in NE Asia, a reversal in military fortunes between China and Russia has taken place. China is in the ascendancy, while Russia is the sick man. But, unlike a century ago when China was the sick man, Russia's neighbors today are not poised to bite off the best portions of the Russian Far East. • One reason is that Russia's nuclear arsenal guarantees its continued territorial integrity.

Japan’s Economic “Decline” is being reversed by China • Japan has been in nearly permanent recession and deflation for a decade, due to an imploded bubble-economy, the highest public debt burden in history, insolvent banks, the highest labour cost in the world and a declining population and workforce. • China is the 6th largest and fastest growing economy with a population 10 times Japan’s and an expanding workforce, that is willing to work hard for 5% of the Japanese wage-level. • For much of the 1990s, China sucked manufacturing jobs out of Japan. But recently, China's boom is contributing to Japan's economic recovery and actually creating jobs in Japan. • While the U.S. trade deficit with China surged 20% to $124 billion in 2003, Japan's deficit with China shrank 24% to the equivalent of $19 billion. China accounted for 79 % of Japan’s export growth in 2003.

Japan has reoriented its Trade with the Rest of the World increasingly towards China • In 2003, China became Japan’s largest import partner • Japan imports from China exceeded those from ASEAN in 1991; From the NIC’s in 1997, the EU in 2000, the US in 2002. • Japan’s imports from China accounted for 18.3 % of its total imports in 2002. • Among China’s major trading partners, such as OECD members and East Asian countries with the exception of Hong Kong, Japan is most dependent on its imports from China. • FIE’s accounted for 51.7 % of China’s total exports and 54 % of imports in 2002. These figures are much higher for Sino-Japanese trade, with 61.8 % in exports and 66.9 % imports in 2002. • Nearly two thirds of Sino-Japanese trade is apparently in the form of intra-industry and intra-firm trade.

Will China outstrip Japan in 20 Years ? • In 1980, the Chinese economy was just one-twentieth of the size of Japan's, the world's second biggest economy. Today, China's gross domestic product is a third that of Japan. If the current growth rates of the two countries are extrapolated, China's economy might well outstrip Japan's within 20 years. • “Over the last 4.000 years of history, Japan has been a peripheral country to China, with the exception of this one last century. In the future, Japan will be to China what Canada is to the United States, what Austria is to Germany, what Ireland is to Britain.” (Kenichi Ohmae, Japanese Managament Guru and Author of “China Impact”)

Japan: Counterweight to China in (South-) East Asia ? • Prime Minister Koizumi has committed SDF ships to help the US in collecting intelligence “on terrorism” in Asian waters. • SE Asia and China have expressed concern over the expanded military role of Japan after 9/11. But at the same time, SE Asia quietly welcomes this development as a counterweight to China. • Jane’s Defense Weekly: “The countries in the region see an expanding Japanese role, as balancing over-dominant Chinese influence in the region. • The Chinese government has warned Japan to exercise utmost prudence in expanding its military role.

China’s Sense of Urgency over Taiwan • Chinese nationalists on both sides feel catastrophe will befall the country if Taiwan breaks away from China forever. It will shatter the great tradition of the indivisible “Big and One”. • If Taiwan’s separation becomes permanent, it may have uncontrollable implications for Tibet and Xinjiang. • Taiwan will never be a truly independent state, but a US (and Japanese) base to sabotage China’s rise as a Great Power. • “If Taiwan falls under Beijing's military control, that would threaten the sea lanes of East Asia, and Chinese forces wouldn't be very far from Japan’s Okinawa” a Japanese general says. • US hardliners: “Taiwan is the second biggest buyer of US arms after Saudi Arabia, a major military intelligence base and security link in world aviation and shipping”… “We will never allow China to control Taiwan”.

A-Symmetric, Unconventional, Unrestricted War • China has a school of “RMA”-advocates who presume that it can leapfrog current technology by focusing on “magic weapons”, designed to implement a traditional Maoist and Sun Zi (The Art of War) doctrine that the “inferior can defeat the superior”. One goal appears to be to develop asymmetric military capabilities with which China might beat the US. • Focus of advanced Chinese military studies are the weaknesses of the US, whose armed forces are vulnerable and even deeply flawed and should be defeated with the right pre-emptive strategy: “Information-intensified combat methods are like a Chinese boxer with a knowledge of vital body-points who can bring an opponent to his knees with a minimum of movement”. American C3I Systems should be crippled similarly. • Asymmetric approaches: space based anti-navy warfare, tactical laser weapons, disrupting naval logistics, nanotechnology weapons, micro- and ant-robots energized by sound. • PLA must avoid fighting in a predictable manner and plan to fight at an unexpected time and place. “We fight our way, you fight your way”. (Wo da wode, ni da nide ~ Sun Zi Qibing). • Two colonels published a book in 1999: “Unrestricted War” advocating 24 different types of war, including terrorism, drugs, environmental degradation, computer virus war, financial sabotage etc.

Crisis or War in the Taiwan Straits • If the US intervenes in a China-Taiwan military conflict, it may divide the region in two opposing camps. • The US has already ambiguous legal instruments to force Japan to support its war effort and US officials are regularly admonishing Australia to follow suit. • Asian governments and publics mostly blame Taiwan president Chen Shui-bian and his predecessor Lee Teng-hui for current tensions. • There would be little sympathy for Taiwan on the part of SE Asia, but there is bound to be grave concern over the economic fallout, because Taiwan, like China is a major source of trade and investment in SE Asia.

South-Korea’s Warming Relationship with China • Korea’s close historical relationship with China is deepening as the Cold War relationship with the US is further cooling, particularly after Bush’ derailing of the “Sunshine” policy and the “Axis of Evil” rhetoric. • In his Farewell address, president Kim Dae Jung said: “The two countries are going to enter a comprehensive partnership to become stronger allies.” • The strongest force dragging Seoul towards Beijing is trade. South Korea believes it is uniquely positioned, through geographical and cultural ties, to benefit from the opening of China's markets following its recent entry into the WTO. In contrast, South Korea is determined to reduce its reliance on exports to the US, and trade relations with Washington are plagued by disputes over proposed US tarriffs on steel and Korean restrictions on car imports.

North-Korea: Bluster and Blackmail • North-South Detente was derailed by Bush when in March 2001 he froze the US dialogue with North-Korea and aggravated this in January 2002 with his “Axis of Evil” Rhetoric. • The current crisis began in October 2002 when North Korea said it had nuclear weapons already. It expelled the IAEA inspectors, monitoring its nuclear facilities, restarted a reactor that could produce more plutonium, and withdrew from the Nuclear Nonproliferation Treaty. • At US urging China abandoned its policy of neutrality and pressurized Pyongyang into direct talks with the US in April 2003 in Beijing, • The US wants to cause the collapse of the Pyongyang regime by pressure, isolation and perhaps a strike on its nuclear facilities. • China wants to address Pyongyang’s security concerns. In June 2004 a Chinese official said that the US had no proof that North-Korea had an enriched uranium programme. (A.Q. Khan is their alleged supplier). • China perhaps sticks to its residual alliance with Pyongyang to put pressure on the US to end arms supplies to Taiwan.

Nationalities, Languages and Dialects of China

Background to Xinjiang’s “Terrorist Threat” : Sino-Pakistani-American Anti-Soviet Axis 1980~1989: • China joined the US-led “Holy War” against the Soviet-occupation of Afghanistan in 1980 and later paid a price for this. • Central tenet of US-China coalition was construction of two electronic intelligence stations in Xinjiang, monitoring Soviet missile tests and communications after Khomeiny’s men seized the CIA-installations in Iran. • The US and China jointly trained Uygur recruits to fight the Soviets. No indications have come to light that the Chinese considered the possible blowback on China of this risky policy. • Mainly Chinese arms were brought in by Pakistan’s ISI to supply Afghan, Arab and other Muslim volunteers to fight the Soviets. The Uygurs later returned to Xinjiang where their discontent with Chinese rule now culminated in an organized secessionist, occasionally violent movement. • China sent 300 instructors to training-camps in Pakistan and later set up camps in Xinjiang as well, training 55.000 in total without specifying their ethnicities. John K. Cooley, Unholy Wars: Afghanistan, America and International Terrorism, London 2000, Chapter 4.

The “East Turkistan Islamic Movement” • After “September 11”, China warned the Bush Administration that ETIM had ties to Al Qaeda. • The US, in response, in August 2002 put ETIM on the global terrorist list. No real evidence, only vague generalisations were given. The listing was widely seen as a sop to soften Chinese opposition to the impending US-led war on Iraq. • Many US experts and even some Chinese question the extent of ETIM’s terrorist activities and its links to global terrorism. • US information is coming from a handful of Uygurs, captured in Afghanistan and now detained in Guantanamo, Cuba. • China has presented its campaign against Uygur separatists as a flank in America’s global war on terrorism and have persuaded the US to drop its criticism of human rights violations in Xinjiang.

Sino-Russian Strategic Convergence during the 1990s • Frustrated and humiliated by US-hyperpower, China and Russia together with Kazakhstan, Kyrgyzstan and Tadjikistan, set up the “Shanghai Five” in 1996 to jointly stabilize Central Asia. • The “Shanghai Cooperation Organization” replaced the “Shanghai Five” June 15, 2001. Uzbekistan joined as a new member. The six signed the "Shanghai Treaty on Cracking Down on Terrorism, Separatism, and Extremism.“ . • This multilateralism was unsettled by the US intervention in Afghanistan in late 2001, which Russia welcomed. • China however, accused the US of using military action in Afghanistan “to seize the chance to expand its military presence in Central Asia”. in addition to the US-presence in Korea, Japan, Taiwan and in SE Asia. • The Secretariat of the SCO is based in Beijing.

The Impact of “9-11” on Chinese and Central Asian Security • The war on terror has loosened China's grip on the geostrategic zone to its west. China fears that the US will dominate the Eurasian heartland for the long haul. • By uprooting the al-Qaeda terrorist organization in Afghanistan, the Bush Administration has also seriously weakened China's influence in Pakistan and the Persian Gulf region. • The fact that president Putin moved closer to the West was also a set-back for China’s new strategic alliance with Russia. • However, presidents Putin and Hu Jintao have recently shown their dissatisfaction with the US military presence. • Beijing sees Manas and Kakaidy as US bases for the long term containment of China.

Common Interests are: “Beating Terrorism” but Politico-Military Strategies Diverge • Perhaps the single common interest of China, Russia and NATO is to prevent militant “Wahabist” Islam to achieve domination of the “Arc of Instability” (the Eurasian belt stretching from Xinjiang across Central Asia, Pakistan, Iran, the Caucasus, the Caspian region to the Middle East) and beat terrorism. • Russian-Chinese and US-European interests in the “Arc of Instability” diverge in the realm of human rights and democratization. This is not a priority for Russia and China and in their perspective, imposition of “instant democracy” like the US is aiming in Iraq will only trigger more instability.

Evolution of the NATO- China Relationship • 1972-1985: Partners in opposing Soviet-expansionism in Africa, Afghanistan and Indochina; • 1990-1999: After the end of the Cold War, Emergence of joint Chinese and Russian opposition against US-NATO unilateralism and “humanitarian” interventionism – Bosnia, Kosovo – and against NATO-expansion; • 1999: “Erroneous” bombing of the Chinese embassy in Belgrade; • 2002: Rome Declaration, establishing NATO-Russia Council, followed by Chinese request for a regular dialogue to discuss strategic perceptions, shared security threats, and NATO activities, including peace missions near China's border in Central Asia.

Russia’s “Warming” to NATO followed by China • Despite deep misgivings over NATO’s Kosovo Bombing Campaign Russia resigned itself to NATO’s Eastern expansion and signed the Rome Declaration on May 28, 2002, establishing the NATO-Russia Council. • With four members of NATO’s “Partnership for Peace” and of SCO on its borders, China’s strategic thinking is also evolving towards collective security. • Having joined the World Trade Organization, perhaps it was time to join the “World Security System” as well. • Beijing probably had also come to view NATO, at least in part, as a potential instrument for influencing its European members to slowing U.S. “hegemonic” aspirations.

The Rise of an East Asian Community“ and China’s Peaceful Ascendency” ? • China has been actively dismissing the warnings of right wing US and Japanese ideologues that there is an emerging “China Threat” but that its rise to superpower status will be peaceful. • China shelved territorial disputes e.g. the South China Sea, the Diao Yu islands for future generations to solve. • Chinese leaders promote pan-Asian prosperity and stress the “win-win” situation of their ascendency through their economic openness. China imports hugely, whereas Japan engaged in aggressive exports and no imports for decades. • Western countries have doubts about peaceful ascendency if China sticks to a non-transparent and un-representative political system.

Distrust Japan-China biggest Obstacle against Evolution of “East Asian Community” • There is a need for East Asia to have a global voice, alongside the voices of the EU and the US. • In case of regional conflict (Taiwan, North-Korea, the South China Sea), the US wants Japan (and Australia) to follow its lead but it is far from certain that Japan would want to support America in containing China. • This could have momentous consequences for Japan’s regional and global role, perhaps even resulting in the termination of the American presence in the Far East. • Koizumi’s (the “Tony Blair of Japan”) advisers have just (September 15, 2004) recommended that China be viewed as a “potential military threat”. • China is now building a safety cushion around itself to relieve its security worries by economic means.

From: Zbigniew Brzezinski, The Grand Chessboard: American Primacy and its Geostrategic Imperatives, Washington DC, 1997

After Three years of “ASEAN + 3” (China + Korea + Japan), China joined ASEAN “Treaty of Amity and Cooperation” • China became the first major power to accede to the Treaty of Amity and Cooperation in SE Asia (TAC) when premier Wen Jiabao attended the 9th ASEAN Summit in Bali in October 2003. • Besides promoting amity and cooperation, the treaty includes a "renunciation of the threat or use of force" and an agreement that all parties "shall not in any manner or form participate in any activity which shall constitute a threat to the political and economic stability, sovereignty, or territorial integrity of another High Contracting Party." • The accession can be seen as the political complement to China's breakthrough in economic relations at the 2002 summit in Phnom Penh, when the China-ASEAN Free Trade Area was adopted. • This promises a virtually tariff-free trade zone with a population of 1.7 billion people by 2010 (less developed ASEAN countries have a 2015 timetable).

China as a Global Player • China is now one of the “Gang of Four”:France, Germany, Russia and China emerging from opposition against the Iraq war and other US policies. • In this context its ties with Russia and Europe will surpass those with Southeast Asia, because of China’s goal of global “multipolarity”or even “multinodality” • The current war on terrorism is unsettling for China. “The U.S. has made Southeast Asia a second front without knowing where to land”. China is afraid the U.S. will try to build satellite allies in Southeast Asia. • If Bush gets reelected and the trans-Atlantic relationship continues its decline, China and the European Union may become partners in a coalition to “pre-empt” the US from getting further out of control.

The Rise of China and the Return of the US to Southeast Asia: • One of the unintended consequences of “9-11” was the return of the US to SE Asia, a region it had neglected since its defeat in Vietnam in 1975. Washington has declared the “Second Front in the War on Terror”. • The US is using the War on Terror as an excuse for active military engagements to prepare for any contingencies in the Taiwan Strait, Korean Peninsula and the South-China Sea, making SE Asia again highly vulnerable to great power politics. • The return of the US to SE Asia is also causing security anxieties in China because of the perception that American intentions in the war on terror aim not only at destroying terrorism, but also to strategically encircling China. • A recently published study of the Nixon Center states bluntly that the reinvigorated American presence in SE Asia not only aims to wage a war on terror, but to “hedge” against a rising China.

Lifting the European Arms Embargo • Washington is alarmed by EU moves towards lifting the embargo on arms sales to China. • France and Germany want to lift the embargo and the UK hasn’t made up its mind yet. • A China-EU strategic relationship, based on shared Galileo satellite technology and arms sales should give the EU more leverage vs. the US in a multi-polar world. • Blair is under pressure from Bush to veto the plan, while the US has arms deals for $ 18 billion in the pipeline for Taiwan. • Renewed tensions in the Taiwan Straits after the controversial March election have complicated the EU’s dilemma.

Is China’s Liberal Foreign Policy Tactical ? • China’s liberal foreign policy includes endorsing multilateral institutions, supporting freer trade, concerning themselves with trans-national issues, and sponsoring cooperative security arrangements. There is concern in some countries that this is too good to be real. • However, it may last simply because it works, and it corresponds to the realities of a world in transition from multi-polarity to multi-nodality, to poles of attraction rather than opposition. • China isn’t proposing to form an explicit counterbalance against the US. But its liberal foreign policy presents a more subtle challenge. US political influence will be eroded relative to China’s. Wherever president Hu Jintao goes, he leaves a good impression and Bush just looks bad. New organizations will be formed in Asia that exclude the United States; • Shanghai may become more attractive as a site for foreign business and as a center of culture than Tokyo, or even London.

China, the US and World History • When future historians look back on our time, I think they'll focus on the resurgence of China after 500 years of relative weakness — and the way America was oblivious as this happened. • The current Neo-Conservative ruling clique in Washington is intoxicated with the idea that it can block the evolution of world history by raw (high tech) military power. • For perhaps 18 of the past 20 centuries China has boasted the biggest economy in the world and still displays many of the reflexes and instincts of a hegemonic power. • Many Chinese see the past two centuries of underdevelopment and colonial occupation as an embarrassing aberration that must be redressed. Home to the world's oldest and one of its richest civilisations, the argument goes, China must now regain its rightful place in the sun.

INSIDE AND OUTSIDE THE GREAT WALL