We have had an earthshaking ten years since 1995, the last time we discussed China here at Camden. Andy Rheault was here then. Andy and I started out together in Asia in 1951 during the Korean War. Sarah, his wife, is here today; unfortunately, Andy is no longer with us.
You have in the next several sessions the cream of the crop talking to you about China. On China’s rising economy and commerce, Elizabeth Economy and Bob Kapp. On China’s military and strategy, Mike Pillsbury. The Renaissance man on China, David Shambaugh, who has written on the Chinese military, the struggle for China’s cultural relics, and China’s expectations for democracy. Philip Brown can deal with solutions. Michaael Tsin and Zhao Suisheng, who can penetrate Chinese thinking and offer in-depth comments. And that superb journalist, John Pomfret, who enlightened us all with his perceptive reporting and insights. John and I shared a common experience in China--we both departed prematurely and both returned to do bigger things. These bona fide experts will cover important issues I can only signal.
What do the last ten years, then, tell us about what has happened in China and what we might be facing in the future? Numbers alone can illustrate what is the most rapid sustained economic growth possibly in history--the only comparable ruse was Japan after World War II.
- China’s GDP growth went from $700 billion U.S. in 1995 to $1.65 trillion U.S. It more than doubled with an average of 9 % growth for this whole period. China became the most important manufacturing base for the world. The World Bank estimates 400 million Chinese were lifted out of poverty in the past 2 decades.
- Foreign exchange reserves went from $75 billion in 1995 to over $600 billion, and the Chinese have become the largest purchaser of U.S. Treasury Certificates, which lower our interest rates, help cover our budget deficit, and contribute to our own economic growth.
- Trade between China and Taiwan, the “designated flashpoint,” has gone from $3 billion in 1995 to $57 billion in 2005. Almost by a factor of 20--a trend which integrates them economically. But at the same time China has deployed over 800 short range ballistic missiles opposite Taiwan and the rhetoric remains sterile and hostile.
- The Chinese military budget is more opaque, but by its own statistics, which tell only part of the story, the budget has doubled from $15 billion in 2000 to $30 billion in 2005. China’s military budget does not however cover foreign purchases, and paramilitary costs, which have ominous overtones for us as many purchases such as advanced cruise missiles are targeted at us. On the other hand, Taiwan’s budget has decreased from 6% of GDP to 3.5% of GDP. Have we become the sole protectors of Taiwan?
What else has changed? The U.S. has had three troublesome confrontations with China.
- In March of 1996 Chinese conducted major live fire exercises in the Taiwan Strait and fired SRBMs off the North and South coasts of Taiwan in apparent response to what China considered Taiwan’s provocations and U.S. compliance. The U.S. sent in two carrier battle groups and the crisis wound down. It was a close call.
- The U.S. accidentally bombed the Chinese Embassy in Belgrade in 1999, resulting in large-scale anti-American demonstrations in Beijing as well as violent attacks on our embassy there.
- An American reconnaissance plane collided with a Chinese fighter in April 2001, 60 miles off of China’s southern coast--demonstrating again we have conflicting interests off China’s coast. Chinese propaganda was replete with “anti-hegemonic” outcries--a code word for U.S. unilateral action which is detrimental to China’s basic interests. Our answer was we were in international waters and China was interfering with Rights of Passage.
On the economic side, there was both progress and potential for confrontation. China joined the World Trade Organization and hopefully became a “stake-holder” in the new economic order. China’s exports are now 40 % of its GDP. China became the third largest U.S. trading partner and the U.S. was China’s second. The Chinese trade surplus with the U.S. surpassed $200 billion, while China became our fastest growing export market. The U.S. Chamber of Commerce in Shanghai had grown to over 2000 members with an increase of over 50 per month. Most businesses there claimed they were making a profit.
On the negative side, China was accused of currency manipulation, massive intellectual property rights violations costing the U.S. billions of dollars, our access to the Chinese market was restricted. There was secrecy in the Chinese managing of commercial matters dominated by administrative fiat, and indifference to foreign complaints. The U.S. Congress was gunning up some extreme measures while pressuring the executive branch to do more. All this was flavored by a good dose of partisan politics.
China, despite its sustained growth, was dogged by huge disparities of wealth between coastal areas and inland China, leading to growing peasant dissatisfaction. Violent demonstrations by China’s own statistics topped 80,000 last year. There was large-scale corruption and pollution of water and air. The down side of economic growth--for instance 1/3 of China’s water was not suitable for agricultural purposes. And, as in Japan, the construction industry went wild, paving over farmland, building huge factories, residences, with very limited control. Bad loans to non-performing industries were accompanied by corruption of the whole process.
During this time period a new leadership emerged in China after the CCP 16th Party Congress in November 2002. It was younger, better educated, seasoned in the provinces--they were committed communists, of course, with Chinese characteristics. These new leaders were flexible in economic policies, tough on political dissent, and had fashioned a new China consensus--authoritarian single party rule in politics, pragmatic commerce so long as it was clearly in China’s interests, China was more open on international epidemics--SARS, HIV/AIDS, avian bird flu.
And China burst onto the world scene in sports and culture--a major charm offensive reaching a high point in the 2008 Olympics in Beijing. Yao Ming of the Houston Rockets was a worldwide sports icon, Lang Lang a virtuoso on the piano, Tan Dun in music (an Academy Award for the Crouching Tiger score), Zhang Ziyi was by some standards, including mine, the most beautiful girl in the world.
Perhaps equally important was the sprouting of 2-year MBA programs--more than 20 in Shanghai alone, most connected with Western institutions and a two-year course. China’s educational establishment was filled with returned Chinese from overseas--Li Cheng of Hamilton College estimates over 50 % of China’s senior educators, university presidents, tenured professors, and provosts are trained abroad, most in the U.S.
Our competition with China for energy resources sharpened--China’s oil needs are skyrocketing--they have moved into Iran, the Sudan, Venezuela, Nigeria, and Kazakhstan. Darfur is not a political problem for them, nor are the mullahs in Iran. Chavez and Castro are heroes--both for energy availability and for standing up to the U.S.
Perhaps I can leave you with this image. In northwest Beijing there is a VIP area, Diao Yu Tai, where foreigners are both housed and negotiated with. Kissinger, Nixon, Chirac, and Putin were all there. Last year a senior State Department participant described it this way: “In the first villa, Robert Zoellick, Deputy Secretary of State, was negotiating with his Chinese counterpart on international economic issues. The Chinese were tough, sophisticated, very well-informed on market access, currency manipulation, and intellectual property. In the second villa the 6 party talks on North Korea were taking place--a dangerous regional problem. The Chinese chaired the session, developed compromises, and drafted a joint agreement. Again, they were sophisticated, well-informed, and very conscious of China’s national interests. In the third villa was Robert Mugabe of Zimbabwe, just honored by the Chinese with an official visit. Mugabe, the brutal dictator of a failed state in Africa which he had led to disaster. Before him the Chinese pinned a medal of Karimov of Uzbekistan, who had just gunned down as many as a thousand of his own people in sustaining himself in power. The list goes on to Pol Pot, the genocidal ruler of Cambodia, who was a China favorite, as was Milosevic of Yugoslavia, now in the World Court for war crimes. Contradictions, yes. As my wife said, “If you can’t deal with contradictions, get out of China.”
James R. Lilley is a senior fellow at AEI.
