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American Diplomacy
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April 2005

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The author, a retired senior Foreign Service officer and co-author of Building ASEAN (1987), recently presented a paper at Bowie State College of Maryland from which this comprehensive overview of the topic is adapted. Amb. Palmer, a noted student of Southeast Asian affairs, claims only to have a deep amateur interest in China.—Ed.

George F. Kennan: A personal appreciation

“China is on the verge of achieving a renewed Great Power status it once had in the Ming Dynasty from the fourteenth to the seventeenth centuries."

“China will continue to be China whatever the United States does or does not do.”

I. Introduction
I am well aware that most blacks think we have enough to learn and worry about in these fifty United Red and Blue States, but the world is crowding in upon all Americans and we have no other alternative than to learn about the world environment in which we exist. I hope some of you will become interested in pursuing study of this great nation's past and its fascinating future.

The topic I was asked to address was "China's Global Ascendancy and the Future of U.S. World Leadership and Business." Since China's ascendancy has not yet been achieved and I can only offer guesses about the future, I have modified the topic as follows: "China's Global Ascent and Its Possible Impact on U.S. World Political, Economic-Commercial and Strategic Leadership."

This conveys a real distinction, namely, that China is still on the rise and no one presently knows whether this ascent will be successful. The predicate of even the modified topic is itself problematical since U.S. leadership of the categories cited is merely asserted. Many believe the policies of the present Administration in Washington are, in fact, eroding U.S. claims to such "leadership."

II Background
Lee Kuan Yew
That said, assuming a successful Chinese ascent, I believe Singapore Senior Minister Lee Kuan Yew's challenge to the Chinese leadership at the 1996 Twenty-first Century Forum at Beijing merits reflection. In summary, Lee said that Chinese “hard” power -- economic success, military power projection capability, etc. -- might achieve world class status by 2050, but its “soft power” -- political, cultural, psychological, and intellectual influence would be deficient in comparison with the West, especially the United States.

While the focus of this presentation will be on China's astounding economic progress, and its consequent ability to modernize its military establishment, I will point out evidence that China is also seeking normative changes in the way it presents itself to the world in an effort to increase its soft power, especially in the East, South, and Southeast Asian regions.

In a wry comment on the changing Chinese perspective, a senior Chinese official said in my presence once that in the early 1990s "China discovered it had neighbors and border relations with twenty-nine nations." One reflection of this was a change from its formerly prickly relations with members of the Association of Southeast Asian Nations (ASEAN) by to attending, beginning in 1991, the annual ASEAN Post-Ministerial Conferences. ASEAN has influenced China, but China has also influenced ASEAN. I'll have more to say about this in due course.

One thought to keep in mind, however, is that China's present authoritarianism is not new and reflects a historical determination by its leaders, past and present, to exert tight centralized control of this vast continental nation. In the past the leaders were the emperors and their retinues. The Chinese Communist Party leadership is today's version of traditional rule whether since 1949 the Emperor is, symbolically, Mao Zedung, Chou Enlai, Deng Hsiaoping, Jiang Zemin or. at present, Hu Yaobao.

China has an intimate relationship with its history. In times past China was called the Middle Kingdom, the center of all that was good, rich, wise and sophisticated in the world. Only barbarians lived elsewhere. The Ming Emperor in 1405 sent a large fleet under Admiral Cheng Ho (whose name is rendered Cheng Ze in modern Chinese orthography) to explore the Western Ocean. Cheng Ho made seven voyages between 1405 and 1432 and sailed to India, to the Red Sea region and south along the African coast as far as Zanzibar and perhaps even to Madagascar. After Cheng Ho's successful voyages, in which the admiral reported that there was nothing worthy of China's notice, the fleet was beached. This calls to mind that China had two prior major maritime adventures. One occurred in the reign of Kublai Khan, Genghis Khan's grandson, when a fleet sailing to invade Japan was turned back by extremely bad weather, the Japanese called this "the Heavenly Wind," or kamikazi. The other event also took place in the Mongol reign when a Chinese seaborne force was defeated in Java.

Great Wall of ChinaChina took the lessons from its maritime history to heart and was a land based continental power for most of its history. Also until the nineteenth century threats to the dynastic security were internal rather than external. Most dynastic changes came about because rebel or envious groups on the periphery of the Empire sought to overthrow rulers who had tasted too richly of the perfumed luxuries of imperial court life.

Once in power, sooner or later, the new dynastic leaders themselves fell victim to such soft and beguiling temptations and were forced to resort to repressive measures to hold their power which opened the way to for new vigorous successors to assert themselves. Emperors in these cases were said to have lost their legitimacy or "The Mandate of Heaven."

An aim of this presentation is to examine how the present Chinese Communist regime is seeking to retain its legitimacy, its Mandate of Heaven.

This is a useful moment to state that I am not a China scholar. I wish I were. I studied China in graduate school but I never learned the language. I was pleased to be selected for Mandarin Chinese language training by the State Department in 1959 but, there were enough officers to fill the Chinese language training quota and not enough assigned to Indonesian language training. So instead of Chinese I learned Indonesian. It was a life altering experience for me. In those days Chinese language officers could only be assigned to Hong Kong and Taipei, whereas Indonesian language officers could be assigned to three posts in Indonesia alone, as well as three posts in Malaya, and were considered well suited for assignment to the posts in the Philippines.

That's the way life works. I have never regretted the greater opportunities the Indonesian language gave me. but I have retained a deep "amateur" interest in China and it will be within that context that I shall attempt to address the topic.

For the benefit of those who may be interested in China, all the local institutions of higher learning belonging to the Association of Professional Schools of International Affairs (APSIA) have excellent China programs, especially George Washington University. Harry Harding, David Shambaugh, and Bruce Dixon among others are stars of China studies at GW.

China's Unfinished Economic RevolutionNicholas Lardy of the local Institute of International Economics is one of the leading scholars of the Chinese economy. His point of view is illustrated by the title of his excellent 1998 book, China's Unfinished Economic Revolution.

My own point of view is merely that, warts and all, China is obviously worth knowing.

The basic fact is that China has been where it is for a very long time and will continue to do so as long as any of us live. This has important ramifications for American policy. The U.S. interest in Asia may wax or wane, but China will be China whatever the U.S. thinks or does.

China was one of the most powerful nations in the world in 1700 based on agricultural technology. It fell behind in the development of other technologies in the Industrial Revolution and was not prepared for the aggressive intervention of the British in the nineteenth century. China was defeated by the British in the 1840-1841 Opium Wars and the Empire imploded by 1911. Chinese memories are fresh of the humiliations this proud nation endured in that century, the ensuing warlord anarchy, and the Japanese aggression that followed from 1931 to the end of the Pacific War in 1945.

The United States became the dominant power in East Asia when Japan was defeated in 1945. We retain a scattering of bases in Japan, including the 7th Fleet homeport at Yokuska. We have important facilities on Okinawa, where the 3rd Marine Division is based. There are 30,000 U.S. armed forces in Korea. The 5th Air Force is based on Guam. We have security treaties with Japan, the Philippines, ANZUS (the US- Australia-New Zealand organization), and we have various understandings and access arrangements with Taiwan, Thailand, Singapore, Brunei, Malaysia, the Philippines (where we formerly had huge air and naval bases), and Indonesia. Further, the United States appears to be seeking renewed access to facilities in Vietnam such as the Cam Ranh naval base.

In fact, the United States has been the stabilizing force in Asia since 1945 to the apparent satisfaction of the Asians, to date even including China. However, the worldwide engagements of the United States have led occasionally to only fitful attention to Asia by Washington. Meanwhile, China's stature has been growing. David Shambaugh has observed that China has largely regained its historical confidence and is less bedevilled by its lingering sense of being a historical victim and object of Great Power manipulation. See his article "China Engages Asia: Reshaping the Regional Order" in International Security, Volume 29, No.3 (Winter 2004-2005).

As this evolution proceeds, China appears to be realizing that it has a profound stake in stability in the world environment and, thus, is or is becoming a status quo power.

III. The Economic Dimension
To assess the economic change China has undergone it is useful to remember that in 1950 the GNP of Asia, including China and India, was equivalent to that of Africa, namely $50 per capita annually. U.S. economic involvement in East Asia in the past sixty years, especially in providing market access to Japan, Taiwan, South Korea, Southeast Asia, and China since the 1980s, has greatly boosted Asian development.

Currently, Japan leads Asia in GDP; China's GDP is half that of Japan and other Asian nations have also greatly increased their gross GDP and GNP. One answer to this disparity between Asian and African development is that there were centuries- old relatively effective regional and sub-regional political regimes in most of the area before colonial intervention. They included the Khmer Empire in Cambodia, the Sailendras Empire in Sumatra, the Modjopahit Empire in Java, the Malacca Empire in Malaya, Burmese and Siamese kingdoms and so forth. These ancient political systems existed within a trading system oriented toward China and India. 19th century Western imperialist intervention disrupted traditional regional trade patterns but overseas Chinese commercial communities, especially in Southeast Asia, kept active trade alive with the Chinese mainland.

Regional trade flourished in the American-dominated economic system in the 1950-2004 period. Japan was the chief beneficiary of this system and seemed prepared to take world economic leadership in the 1990s but fell into an economic recession that has lasted until the present.

The Communist Peoples Republic of China came to power in 1949. The initially doctrinaire Communist China broke with its Maoist past of market-antagonism and private sector condemnation by 1978. That year the Peoples Republic of China launched policies of modernization of agriculture, industry, science and technology and the military. Foreign Direct Investment (FDI) and technology transfer were encouraged.

In agriculture, large Maoist-inspired inefficient rural communes were dismantled and land was returned to peasants who were given long-term land-use contracts. Small-scale private industrial enterprises were encouraged.

Economic growth quickly mounted to an average of eight percent a year in the 1980s, reaching eleven-twelve percent or so annually in the mid-1990s. The basic economic plan was to integrate China more deeply into the globalizing economy. The key elements were to increase domestic demand by making heavy investments in infrastructure particularly to ease travel and enhance labor mobility; to speed up the development of all forms of industry, but especially heavy industry and to promote housing and other construction. FDI from the United States, Japan, Taiwan and elsewhere fueled this growth. China finally surpassed the United States as the largest recipient of FDI in 2003.

The trend in agriculture has been to sustain basic production, to achieve a decline in underemployment and to increase labor mobility. Underemployed farm workers have sought jobs in dynamic industrial centers. forty percent of the Chinese population now lives in cities. This shift took twenty-five years. A similar shift in America in the nineteenth century took fifty years.

Still, it needs to be remembered that sixty percent of the Chinese population lives in rural areas and will require careful attention by the Chinese leadership. There are already many signs of dissatisfaction of rural dwellers with the growing gap between their welfare and that of urban dwellers.

The Party has attempted to close this gap. Industrial development has spread inland hundreds of miles from such coastal dynamos as Shengzhen near the financial and commercial center of Hong Kong in the Pearl River delta. Equally dynamic development has surged in Shanghai and the Yangtze River delta.

Shengzhen has plans to develop a free trade area as far northeast as Shanghai and as far northwest as India. Shanghai-promoted development has reached inland as far west as the Yangtze River Valley and the hydropower grid created by the Three Gorges Dam.

Science and technology modernization has been greatly aided by FDI and technology transfers. China successfully launched and recovered its space vehicle "Shenzhou 5" in October, 2003. It made fourteen orbits. China plans to launch future missions to the Moon and to Mars. China obviously has the capability to launch nuclear-tipped intercontinental rockets.

On a no-less dramatic technological level, China is rapidly swallowing up U.S. low-tech industry, some of which was likely to migrate overseas anyway. Low-tech industry in Southeast Asia and Taiwan has also shifted to China. China-produced apparel, footware, electric appliances, plastic products, etc., now stock Target, Walmart, Home Depot and other outlets in the American market. At the same time, China is moving rapidly to challenge the United States and other producers in more advanced state-of-the-art production in automotive development, specialty steels, petrochemicals and plastics and microchips. These products are primarily aimed at the huge and growing 100 million-person or more domestic Chinese middle class market, but have obvious export implications. Chinese demand for resources is affecting markets worldwide, especially in oil. Chinese demand for steel has caused it to resort to a classic import substitution strategy; three huge new steel plants are to be built.

China already produces parts for locally assembled GM, Ford, Honda, Nissan, Volkswagen, and other automotive companies. thirty percent of these vehicles are presently exported. Honda and Nissan are planning substantial increases in Chinese production. automobile ownership by Chinese is rapidly growing. When the local market is satiated, American producers will be challenged as China turns vigorously to the foreign market.

Rapid economic growth has had heavy costs including severe issues of pollution, environmental degradation and unsafe working conditions in such sectors as coal mining. However, the political legitimacy of the CCP is highly dependent on continued growth. The Party is desperately trying to keep up with change and to cope with severe corruption problems involving lower and middle level party officials. The ambitious plans of the areas near Hong Kong and Shanghai to expand will require overcoming local, intra-provincial and intra-regional problems which the Party will have to adjudicate. The Party leadership will also have to find ways of cooling growth to avoid inflation. As noted, the Party will have find ways to satisfy the growing demands of the rural sector to participate more fully in the benefit of the economy. The Party will also have to find ways to meet growing demands for greater political and cultural freedom.

Perhaps the most daunting problem faced by the Party will be to ensure continued, even growing access to energy sources such as oil and natural gas. China is the fifth largest producer of such resources in the world but the third largest consumer of hydrocarbons after Japan and the United States. Chinese consumption is growing annually.

Existing oil resources in Eastern China have limited growth potential so Beijing is making a determined effort to gain control of such resources in Xinjiang on its western frontier. This has meant flooding this hitherto isolated Muslim area with Chinese immigrants from elsewhere. Chinese immigrants have also poured into Tibet, which has oil potential in the Qingzhang Highlands. Such immigration has created problems of resistance by local peoples.

China has also aggressively sought ties with such oil and natural gas producers as Kazakhstan, Sudan, Peru, Venezuela, Iran, Iraq, Australia, Indonesia, and anywhere such resources exist. This has brought it into collisions with Japan over offshore resources and Southeast Asian nations such as Vietnam, the Philippines, Brunei, and Malaysia in the South China Sea area.

China and Japan have longstanding disagreements over control over hydrocarbon resources near disputed island territories. A new development occurred recently when a Chinese nuclear submarine was detected in Japanese waters south of Okinawa and caused a diplomatic flap that finally resulted in a reluctant Chinese "apology."

In a spectacular nuclear energy development, the Financial Times reported on February 8, 2004, that China is poised to begin construction of a commercially operated "pebble bed" nuclear reactor in the eastern province of Shandong. The gas-cooled reactor would produce 195 megawatts of power and is scheduled to come on stream in five years. The Financial Times has commented, "If successfully commercially the pebble bed reactor would be the first radically new reactor design for several decades. It would push China to the forefront of development of a technology that researchers claim offers a ‘meltdown-proof’ alternative to standard water-cooled nuclear power stations."

Pebble bed reactors are fueled by small graphite spheres the size of billiard balls, with low-enriched uranium cores. The fuel is dispersed in hundreds of thousands of such spheres which supposedly would prevent a meltdown.

The method reportedly offers the hope of cheap, safe and expandable nuclear power stations. They can be made in small sizes appropriate for rural areas. The technology is reportedly also secure from proliferation fears because of the small amount of fuel in each sphere which are heavily encased in graphite.

South Africa is working on a similar technology and is seeking cooperation with China.

This, of course, is economic diplomacy and China has used such diplomacy adroitly in most areas of the world including the Caucasus, Southeast Asia, and Africa. China has devoted special trade and financial attention to Burma, which has allowed Chinese use of potential bases in the Andaman Sea. Similar diplomacy has enabled China to attempt to cool the North Korean nuclear crisis. China has handled North Korea gingerly, however, out of fear the regime might collapse and flood the region with refugees.

China views globalization as an inevitable fact of life in the current world situation to which it has no alternative other than to adjust. It has a positive view of participation in the multilateral organizations including the WTO and WTO Trade Rounds as a means of promoting its influence. Its particular aim is "democratizing" the international order by reducing American hegemony. Latin America, especially Brazil, Peru, Venezuela, and Cuba in the Caribbean, have been responsive to Chinese trade-based diplomacy.

In Africa, China has sought oil in Sudan but it has made no apparent moves to date to involve itself in the deep water oil deposits off the West African coast.

China largest diplomatic coup has been to reposition itself as a friendly neighbor to Southeast Asia rather than a menace. It gained friends as a result of keeping a steady course of currency stabilization in the 1997-1998 Asian financial crisis. This encouraged the region's ten-member multilateral organization, the Association of Southeast Asian Nations (ASEAN), to begin a policy of cooperating with China, Japan and South Korea of Northeast Asia in the so-called ASEAN Plus Three arrangement. Such negotiations resulted in the signing of an ASEAN Plus Three Free Trade Area Agreement to be effective by 2015 at the recent 2004 ASEAN Summit in Laos. Tariff reducations are to begin in 2005. China's courting of ASEAN has been warm and persistent.

Meanwhile, China's military development proceeds. It has a fleet of nuclear subs with missile launch capabilities. It is endeavoring to modernize its unwieldy million-person army; however it does not presently have a blue water surface capability. It also lacks a modern air force. China is petitioning the EU vigorously to have its fifteen-year restriction on arms exports lifted.

Nevertheless, China is on the verge of achieving a renewed Great Power status it once had in the Ming Dynasty from the fourteenth to the seventeenth centuries. Napoleon once spoke words of warning about dormant China, saying, "When she awakes, she will shake the world."

I'll end this section of the paper by citing the December 6, 2004, cover of Business Week. It reads

"The Three Scariest Words in U.S. Industry: The China Price: Cut your price at least 30 percent or lose your customers. Nearly every manufacturer is vulnerable. The result: a massive shift in economic power is underway."

We should remember finally that China and Japan hold huge amounts of U.S. Treasury Bonds. These have been helping finance the growing U.S. trade deficit of recent times. Facing a continuing decline in the value of the U.S. dollar, China, Japan and Europe may decide that U.S. bonds are no longer a good investment. The consequences would be historic.


NOTE: Many sources have been used to create this summary. However, the Economist magazine's continuing series of reports on China provide outstanding coverage. Its October 2, 2004, survey of the world economy is noteworthy. Nineteen of the report's twenty-six pages are devoted to China, whose GDP is now second only to that of the United States in Purchasing Power Parity (PPP). The New York Times estimates that China's economy will surpass that of the United States by 2040.

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