THE CHINA OPENING: MOVING AT CROSS PURPOSES

by William R. Hawkins

The February meeting between President George W. Bush and Chinese President Jiang Zemin in Beijing was cordial, but uneventful. Beijing was clearly not prepared to give an inch on any of the issues which divide the two Asian powers. On key matters–proliferation of weapons of mass destruction, missile defense and Taiwan–the two sides remain at loggerheads.

Even benign statements, such as Jiang’s “we want the Korean Peninsula to have peace and stability,” indicated conflicting views. Beijing supports the survival of the heavily militarized North Korean dictatorship. China supplies North Korea with components and expertise for its ballistic missile program and uses Pyongyang to covertly smuggle Chinese missile technology to other rogue states.

Regarding Iraq, Jiang again endorsed the status quo saying, “I think as I made clear in my discussion with President Bush, just now, the important thing is that peace is to be valued most.” A number of reports indicate that Chinese experts are helping to rebuild Iraq’s air defense and radar systems, using advanced telecommunications to link them with underground command centers.

In the third “axis of evil” state, Iran, China has aided the development of nuclear and ballistic missile technology. It has also supplied Tehran with antiship cruise missiles, surface-to-air missiles, fighter aircraft and fast-attack naval patrol vessels. And America has sanctioned a number of Chinese firms sanctioned for supplying Iran with the means to develop chemical and biological weapons.

In the subcontinent of Asia, China has supported violence and instability, backing Pakistan’s confrontation with India over Kashmir. Pakistani strongman General Pervez Musharraf met Chinese President Jiang Zemin twice during the crisis that followed the attack on India’s parliament by terrorists based in Pakistan. Top Pakistani military commanders, including Joint Chiefs of Staff Chairman General Muhammad Aziz Khan, met with their opposite numbers in Beijing during the crisis. China also reportedly rushed fighter aircraft and other armaments to Pakistan as India deployed troops for possible retaliation against Islamabad.

Beijing has also provided substantial help in developing Pakistan’s ballistic missile and nuclear weapons programs. This aid is why Pakistan, a much less developed country than India, is considered to have the more advanced nuclear and missile capability.

AMERICAN CHESS: PERPETUAL CHECK

Beijing’s strategic calculations on the Asian chessboard have been thrown into turmoil, however, by the vigorous U.S. response to September 11. China sees the United States acquiring a new foothold in Central Asia and improving relations with Russia. The jihad in Kashmir has been damaged by American pressure on Islamabad to curtail the infiltration of guerrillas across the border, and by the elimination of the Taliban. American and Indian defense officials and military officers are discussing holding joint maneuvers.

Beijing views such a possible military alignment with horror. It, paired with the U.S.-Japanese alliance, would leave China exposed on two major flanks. Furthermore, the new Changi Naval Station in Singapore, the provision of new weapons to Taiwan, the reintroduction of American troops into the Philippines and U.S. discussions of collaborative work with regional allies on missile defense present Beijing with the specter of having its encirclement strategy boomerang.

Prominent Chinese military thinkers and Communist party leaders believe that Beijing needs to reassert its strength in the wake of America’s demonstration of power. Yet China lacks the economic development it needs to support the regime’s ambitions to dominate Asia and overthrow American “hegemony.”

Writing in the winter issue of the Cambridge Economics Journal, Peter Nolan argued that, while they have undergone extensive change, large Chinese enterprises are still behind American firms in such strategic sectors as aerospace, telecommunications, advanced manufacturing and energy generation. Nolan is Sinyi Professor of Chinese Management at Cambridge University and a consultant to many American corporations operating in China.

That China lags behind America should be a source of comfort to a White House concerned with Beijing as a “strategic competitor” in world politics. Instead, members of the Bush administration are working to facilitate the transfer of money, industrial capacity and technology to China in ways that will aid its development as a threat to the United States and its Asian allies.

CHINESE CHESS: PROMOTING PAWNS INTO ROOKS

Just before Bush left for China, U.S. Trade Representative Robert Zoellick spoke to the U.S.-China Business Council. First, he praised the council’s influence in Congress for keeping American markets open to Chinese exports. In 2001, Beijing earned over US$83 billion in hard currency from its American trade surplus.

Zoellick then laid out the benefits to China from “opening” to foreign investors. “One-quarter of the world’s desktop computers are already manufactured in China, and one-half of the world’s CD-ROMs. Within this decade, China will become the world’s largest supplier of IT [information technology] hardware. It will be the location of choice for IT assembly. It is becoming a design and development partner, and will challenge Taiwan as a semiconductor production center.” Rather than view these trends with alarm, Zoellick declared, “China’s spectacular growth in the last twenty-five years… could serve as a model to others.”

The new power of China’s economy is most keenly felt in Asia, where the Chinese mainland has swallowed up US$321 billion (45 percent) of the US$719 billion in foreign direct investment flowing (FDI) into the region since 1990. Half of this “foreign” investment is actually of domestic origin. An IMF report released in February found that in 1999 (the last year data was available), 41 percent of FDI came from Hong Kong and additional funds, difficult to estimate but considered substantial, came from other domestic Chinese investors seeking special tax breaks by disguising their capital as FDI.

The IMF reported that the United States, at 9.9 percent of total FDI, was ahead of Japan (7.2 percent) and only slightly behind the European Union (11 percent) as the source of truly offshore FDI in China. Most foreign investment (60 percent) goes into manufacturing. Only about half of this manufacturing is the low-end, labor intensive kind popularly associated with China. The other half is composed of heavy industry and technology-intensive sectors associated with the rise of a major power. It is in these strategic industries that offshore FDI is playing the leading role in transferring advanced capabilities. Beijing courts advanced foreign industrialists and extracts technology, which is then spread throughout the Chinese sectors of the economy.

China’s exports soared 27.8 percent, to US$249 billion, last year, far outstripping export growth in the rest of the region. The open U.S. market is the engine of export-led growth in Asia. Since 1989, China’s share of total U.S. imports has more than tripled, to 8.4 percent. Japan’s share fell by almost half during that period, to 11 percent, and the combined share of Asia’s four “tiger” economies–Hong Kong, South Korea, Singapore and Taiwan–shrank by a third, to 8 percent. Much of China’s success has therefore come at the expense of friends and allies of the United States.

Commerce Secretary Don Evans has announced a trade mission to China for late April. He will take business executives from a number of sectors, including telecommunications, energy, information technology and construction equipment to Beijing and Shanghai.

In January, President Bush appointed Christopher Galvin, CEO of Motorola, and Thomas Casey, a former CEO of Global Crossing still affiliated with the company, to seats on the National Security Telecommunications Advisory Committee (NSTAC). Motorola is perhaps the largest single foreign investor in China, with over US$1.5 billion committed to both production and research facilities. Its policy is to use “local suppliers for the key components of all equipment manufactured by the company’s ventures in China” which broadens and deepens Chinese capabilities.

In 1999, Global Crossing formed a joint venture with the Chinese conglomerate Hutchison Whampoa, whose chairman, Li Ka-shing, has extensive ties to the Chinese Communist leadership. Li is reported to have been a close friend of General Ji Shengde, the former director of the PLA’s military intelligence bureau. The new joint enterprise, which centers on Global Crossing’s broadband capabilities, has laid some 250,000 miles of fiber optic cable throughout China.

When Global Crossing filed a Chapter 11 bankruptcy on January 28, Hutchison Whampoa and Singapore Technologies Telemedia offered a US$750 million cash investment for a joint majority (79 percent) stake in the company. Global Crossing’s management welcomed the deal, but some shareholders and creditors have objected. If the deal holds up, it would put a major international communications network, one used by the U.S. military and other government agencies, into the hands of a potential foreign adversary. Chinese military doctrine stresses information warfare and sabotage of communications systems as a key to successful asymmetrical warfare against the United States. Thomas Casey’s seat on the NSTAC would thus seem inappropriate.

The Bush administration has not been able to choose between the need to protect American security interests from a rising China, and its desire to please influential corporations who are helping China rise. Without a settled strategy, even a strong position can be undone by a wily opponent who stays focused on the game.

William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.