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China’s Rise: Economic Implications for U.S. Foreign Policy and the Asia Pacific Region

Senator Dianne Feinsten (feinstein.senate.gov)

Senator Dianne Feinsten (feinstein.senate.gov)

Senator Dianne Feinstein addreses the Asia Society at the Asia Society's Second Annual Dinner

San Francisco
June 4, 2005

The Rise of China

The “rise of China” is one of the most remarkable transformations the world has ever seen. It is truly a testament to Chinese history, Chinese culture, and the Chinese people themselves.

I can remember on my first visit 25 years ago the poverty and debilitation from the Cultural Revolution and the machinations of the Gang of Four. A great pall hung over the nation. The amount of goods and food available for one had to be shared by five people. Modern infrastructure was non-existent. No large country on earth has changed more dramatically in the past quarter century than China.

Today, China, Japan, and the United States are the three most productive economies on Earth, but China is by far the fastest growing at an average annual rate topping 9 percent over the past two decades.

U.S. economic forecasts project that China's GDP will equal Britain’s this year, Germany’s in 2009, Japan’s in 2017, and the U.S.’s in 2042.

A visitor to one of the cities in Eastern China will see a state-of-the-art transportation infrastructure: a Maglev train that covers 20 miles from Pudong to the Shanghai Airport in just 7 minutes; modern highways and boulevards; beautiful parks and newly-constructed housing; five-star hotels and cutting edge architecture; international banks and ATM machines everywhere.

Nanjing Road in Shanghai now rivals Nathan Road in Hong Kong, and for many Chinese citizens the quality of life and their personal freedoms and rights of expression have greatly improved.

Tonight I’d like to discuss the security component of this development and what it means for the Asia Pacific region in general and the United States in particular.

China’s Military Modernization

Chinese military spending will rise by 16 percent this year, following a decade of double-digit growth.

And although the Chinese budget number of US$25 billion (DoD reports suggest actual spending could be up to 3 times that amount) is just 6 percent of U.S. defense spending, it represents a significant increase in Chinese military power.

China is also in the process of developing a “blue water” Navy and building up its amphibious assault capabilities with: 4 Kilo-class diesel submarines and 2 Sovremenny destroyers purchased from Russia, 13 new attack submarines added to its fleet since 2000, and 23 new amphibious landing craft. This naval power is augmented by an Air Force that has been upgraded with hundreds of Russian-made fighter aircraft (Su-27s and Su-30s).

Not able to match the U.S. in terms of its defense budget, China has also worked to develop asymmetric force capabilities.

Through the use of laser weaponry, precision strike munitions, anti-satellite warfare, and devices to disrupt the defense communications systems employed by more powerful nations, China hopes to protect its territory and deter any response in a cross-Strait conflict. In some Chinese publications this strategy has been called the “Assassin’s Mace.”

As CIA Director Porter Goss recently pointed out, Chinese military power is at or near a point where it could tilt the balance of power in the Taiwan Strait – and of course Taiwan remains China’s number one security concern.

While it is premature to suggest that China is now a military threat to the U.S., it is not in our interest to allow the Mainland to develop the capability to coerce or force Taiwan to reunify. Only a peaceful solution is acceptable.

Taiwan

More than any other issue, the “Taiwan Question” has the potential to rapidly erode the progress that has been made in U.S.-China relations over the past three decades and bring us into direct confrontation with a rising China.

Conservative estimates indicate that China now has 700 short-range ballistic missiles targeting Taiwan, and is in the process of deploying at least 200 cruise missiles that could be used to deter American forces in the region from responding to a conflict in the Taiwan Strait.

This missile buildup presents a major challenge for cross-Strait relations – a scenario that makes reconciliation difficult and threatens peace in the region.

As both the economic and military dynamics continue to shift across the Taiwan Strait in China’s favor, I believe it is vital that the U.S. play the role of a “counterbalance” in the region, while shaping and defining the “status quo.”

That is why the U.S. must continue to communicate to both Beijing and Taipei on a consistent basis that it will not tolerate actions by either side which would unilaterally alter the status quo.

Recently, in a renewed effort to marginalize President Chen and highlight the ruling party’s rejection of One China and the 1992 consensus, Beijing put on a red-carpet welcome for the leaders of Taiwan’s opposition parties, Lien Chan and James Soong, who support eventual reunification.

This has put President Chen Shui-bian in the increasingly difficult position of trying not to be outflanked on one side by the opposition parties with regard to cross-Strait policy initiatives while not losing his pro-independence base on the other.

I recently met with Yu Shyi-kun, the Secretary-General of Taiwan’s Presidential Office, and encouraged the Taiwan government to find a way to begin cross-Strait discussions and commit itself to maintaining the status quo.

From talking with the leadership from both the Mainland and Taiwan, it is clear to me that neither side will ever agree on some symbolic phraseology. It seems that all preconditions, whether it be the “One China, Two Shores” idea, or the One China Principle, take on definitional lives of their own. In my view, pushing these prerequisites is simply counterproductive to initiating dialogue.

The best option, rather, is to focus on enhancing non-political ties such as trade, tourism, and cultural and educational exchanges.

More than any other influences, the increase of trade and the integration of the economies on each side of the Strait have played a vital role in bringing the Mainland and Taiwan together.

Taiwan’s economic relationship with the Mainland is growing dramatically. Today about 50 percent of Taiwan’s foreign direct investment goes to the Mainland, and some 1 million Taiwanese, mostly businessmen and their families, reside in China – 400,000 in Shanghai alone.

The two sides have become virtually integrated in the production of information technology and electronics equipment. For example, Taiwanese firms now produce 70 percent of China’s electronics.

Ultimately, over time I believe that this economic assimilation will solve the differences and could provide an opportunity for the Mainland and Taiwan to reconcile and unify if they so wish, whether it be as a federation, state, or commonwealth.

However, I continue to fear that unless we protect and define the status quo, that some provocative action, statement, visit, or other event will unnecessarily precipitate a conflagration in the Taiwan Strait.

China-Japan Relations

Today Sino-Japanese relations are probably at their lowest point since Japan first recognized China in 1972. Both sides point to a litany of “offenses” in trying to make the case that tensions are caused by the other side.

While the hostility appeared to have quieted somewhat following the two weeks of protests in China in April, the recent snub of Japanese Prime Minister Koizumi by Chinese Vice Premier Wu Yi has only set back reconciliation efforts.

For Beijing, the problem begins – and often ends – with history, and what it sees as Tokyo’s lack of a sufficient apology for Japan’s atrocities during World War II. The animosity has been fueled by a number of actions:

  • Mr. Koizumi’s annual visit to the Yasukuni Shrine where a number of war criminals are honored;
  • The publication of educational textbooks that gloss over the Japanese abuses of the Chinese and Koreans during the war;
  • Japan’s changing defense posture that includes China as a potential threat; and
  • U.S.-Japanese military cooperation with policy statements calling for preserving stability in the Taiwan Strait.

For its part, Japan points to an equally long list of slights:

  • Complaints in the late 1980s by China about Japan’s trade surplus;
  • China’s refusal to halt nuclear testing in 1994 and 1995;
  • The counterproductive visit of President Jiang to Japan in 1998; and
  • The numerous and repeated incursions of Chinese submarines into Japanese territorial waters.

It is inevitable that there will be competition between Japan and China: a strong China and strong Japan each complicate each other’s geopolitical ambitions for regional dominance in political, economic and other matters.

But both China and Japan – with U.S. assistance if necessary – must redouble efforts to put in place a functioning mechanism to resolve these differences.

The use of nationalistic gestures by both sides is counterproductive to the building of a positive bilateral relationship. Without this relationship, and with little substantive high level contacts, otherwise manageable disputes have become unnecessarily magnified.

Korean Peninsula

Perhaps the most pressing need for U.S.-Chinese security cooperation is ensuring that North Korea does not continue to develop, test, or deploy nuclear weapons.

North Korea may have had one nuclear weapon a decade ago; today it is believed to have several. And efforts to stop this buildup have not been successful.

Pyongyang appears adamant in its refusal to reengage with the Six Party Talks. China has admonished both the United States and North Korea for the current diplomatic imbroglio, while, for their part, the U.S., Japan, and South Korea have all publicly urged China to “do more.”

But it is clear to me that the strategy pursued by the Bush Administration over the past four years regarding North Korea needs to change.

Today the U.S. faces a far more dangerous and uncertain situation on the Korean Peninsula than it did in 2000, and the Administration appears to have no clear policy to deal with it.

The stakes on the Korean Peninsula are too high for the United States – or China – to allow the situation to continue unchanged and without resolution. Clearly, the U.S. must make a more complete and forceful diplomatic effort.

Recent discussions last month between the U.S. and North Korea at the United Nations may be a start of a new diplomatic initiative. The U.S. assured the Koreans that it has no plans to invade their country and urged a return to the Six Party Talks.

Clearly economic reciprocity and a non-aggression agreement are a possibility for development. The North Koreans will hopefully respond in a positive way and allow the impasse to be broken.

Nevertheless, the danger remains that North Korea may never return to the Six Party Talks. The Bush Administration, for its part, refuses to rule out the use of force and continues to state that “all options are on the table.” Last month, in what was seen by many as a provocative move, it deployed 15 additional F-117A Nighthawk stealth fighter-bombers to South Korea.

These sorts of actions, along with the highly-charged rhetoric often employed by the U.S. against North Korea greatly concern South Korea, which is proceeding unilaterally with its own Sunshine policy.

Without a successful diplomatic effort our relations with South Korea in particular could worsen, and we might find ourselves isolated from our allies in a post-Six Party Talks era. This is why I believe it is incumbent on the U.S. to work closely with our friends in the region and use all diplomatic means to address the tensions on the Korean Peninsula.

Southeast Asia and India

In addition to its growing clout in Northeast Asia, China has also attempted to increase its influence in Southeast Asia, and more recently with India.

Much of its economic outreach to Southeast Asian nations has been undertaken with the goal of protecting future energy resources, as 50 percent of the world’s oil passes through Southeast Asia’s shipping lanes. Some experts believe that securing energy will be the driving force behind China’s national security policy in the future, and that competition for these resources could well be a catalyst for future conflicts in the region.

More recently, we have seen both China and the U.S. take steps to improve economic and security ties with India. Following U.S. Secretary of State Condoleezza Rice’s visit to New Delhi in March, the Bush Administration offered “to help Indian become a major world power in the 21 st Century” and proposed upgrading India’s naval forces by selling it F-18s.

Not to be outdone, Chinese Premier Wen Jiabao traveled to India in April calling it the most important stop on his regional itinerary. These two neighbors, which together account for 1/3 of the world’s population, have begun attempts to reconcile their historic animosity towards each other – based on previous border disputes – and engaged in $14 billion of trade in 2004.

India has welcomed the outreach from both the Chinese and American sides, while carefully positioning itself to avoid antagonizing either side.

New Leadership

How China’s new leadership under President Hu Jintao and Premier Wen Jiabao handle these growing security challenges and its relationship with the U.S. will be critical to defining China’s future.

In my view, it is still very unclear what direction the new leadership will take.

While many of us had hoped that the Hu-Wen team would build on their predecessors’ reforms and bring a new openness and transparency to the government, I have been disappointed by many recent actions including:

  • Passage of the Anti-Secession Law;
  • Increased regulation over NGOs, think tanks, and the Internet; and
  • The tightening of controls over public opinion and the media on the Mainland (as well as Hong Kong) – exemplified by the recent arrest of a well-known journalist for the Singapore Straits Times on spying charges for attempting to secure a manuscript believed to have been written by former Premier Zhao Ziyang criticizing the Party.

Additionally, China’s new leadership remains sequestered from the West and largely unknown. Whether by design or because of insecurity, the opaqueness of the Chinese decision-making process causes concern for those of us who visit and watch China.

When this opaqueness is accompanied by tightened controls on Hong Kong, indifference to the plight of minorities (i.e. Tibetans), and the passage of a law which makes an act of war against Taiwan legal under certain circumstances – China’s rise, combined with the buildup of its military, is of growing concern to the United States.

Conclusion

Meeting the challenge of managing the U.S.-China relationship successfully is certainly worth the effort.

An East Asia where the United States and China have a hostile relationship, or in which China and Japan fail to overcome the legacy of the past could open a regional powder keg.

Conversely, a constructive Sino-U.S. relationship that contributes to the preservation of mutually-accommodating and beneficial ties must form the basis for a prosperous and peaceful Asia Pacific region.

As I conclude, I would like to offer several ideas that might be fruitful as we seek new and better ways for managing the U.S. relationship with China:

First, we need to create institutions for crisis management. We have all lived through enough crises – the 1995 and 1996 Taiwan Strait crises; the 1999 Belgrade embassy bombing; the 2001 Hainan Island incident – to name a few.

I believe it is critical that there be regular contact between the highest levels of the government and military on both sides to prevent miscommunication.

Secondly, I believe greater leadership transparency is the key if we are going to be able to bring about a convergence in the understanding of the U.S. and China regarding regional security issues.

The Chinese military, for example, is extraordinarily isolated from their colleagues in the West.

Enhancing military-to-military exchanges and other confidence and security building measures can go a long ways towards alleviating the fears and anxieties that each nation harbors about the other’s intentions.

Additionally, these exchanges enable flag officers from both sides to develop relationships and provide a forum for the sharing of views and solving of problems.

William Perry, as Clinton’s Secretary of Defense, was the first to initiate these military-to-military exchanges, and I believe, found them constructive.

It is unfortunate that Secretary Rumsfeld has yet to visit China, and that the highest-ranking PLA officer has not traveled to the U.S. since General Zhang Wannian’s trip in 1998.

Lastly, I believe that one of the great challenges we face with the rise of China is convincing Beijing to buy into international institutions, treaties, and norms of behavior that allow for the peaceful management and resolution of disputes – be they economic, political, or security in nature – in other words, to encourage China to become a full and responsible member of the international community.

As Americans travel to China and begin to understand its complicated 5,000 year old history, and as China transitions from the rule of man to a rule of law society, the relationship between our two great countries will grow. But this growth will only take place if we are committed to nourishing the relationship at all levels.

I strongly believe that the U.S.-China relationship is, and will be, America’s most important bilateral relationship. We must not let differences, security or otherwise, derail the progress that has already been achieved over the past three decades.