The ICAS Lectures

2006-1011-SxZ


China's Rise:
Its Implications for Asia and the U.S.


Shao Zheng



ICAS Fall Symposium
The Korean Peninsula Issues
October 11, 2006 12:30 PM -- 4:30 PM
United States House Rayburn Office Building Room 2200
Capitol Hill, Washington D.C. 20510
Institute for Corean-American Studies, Inc.

965 Clover Court, Blue Bell, PA 19422

Email: icas@icasinc.org
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Biographic Sketch & Links: Shao Zheng






China's Rise:
Its Implications for Asia and the U.S.


Shao Zheng
First Secretary
Chinese Embassy




There are all sorts of views on China's rise. Some claim that the 21st century is an Asian century. People even have invented the word "Chindia", claiming that China and India have changed the geopolitical landscape of the world. While most people welcome the changing China as an opportunity, some cite its challenges to argue that it is a threat or challenge. Ironically, there seem to be plenty of facts and figures that one can use to support either view. To some, getting used to something that is moving so fast is not always easy. The visual and psychological impact can be disturbing just like a driver seeing a large trailer coming from behind at a high speed.

As China grows stronger, we often hear talks that an emerging power is bound to challenge the existing international order and harm the vested interests of the existing powers. Disciples of such a theory even compare China to Germany or Japan at the beginning of last century. They conclude that China's rise will lead to a reshuffle of the world order and harm the interests of all, including other Asian countries and the United States. In summery, the much talked-about theory of "China's challenges" can be divided into five categories: "China's challenge to regional and global peace", "China's military challenge", "China's economic challenge", "China's challenge to energy resources" and "China's challenge to Western value". In my view, although it is useful to make comparisons between past and the present, it is more important to base one's conclusions on correct understandings of the fundamental facts. Now, I want to offer my views on the so-called "China's challenges". Threat to Regional and World Peace

What does China's development mean to Asia, to U.S. and the rest of the world? Will China be a troublemaker or a peacemaker?

In short, China will pursue an independent foreign policy of peace, so as to build a peaceful, amicable and harmonious new world. China is a new comer in terms of industrialization and modernization. It is determined to blaze a path of peaceful development, rather than repeating the history of chaos and unrest accompanying the rise of an emerging power.

In Asia, China is committed to building good neighbourly relations. It has played an important and active role in maintaining regional peace and promoting common development in Asia. China has proven itself to be a good neighbour, good friend and good partner of its surrounding countries. Some people foresee a clash between the main established power and the main rising power in Asia. As a matter of fact, China respects US interests in the Asia-Pacific region and welcomes its active and constructive role in Asia. China has no intention to drive the United States out of Asia. China is a part of Asia. However, Asia is not a backyard of China. China does not and will not pursue a Monroe Doctrine in Asia. China's rise will, for sure, change the existing landscape of Asia. But with its amicable relations with other Asian countries, with the growing interdependence among regional nations, there is no reason whatsoever to fear of China's rise or call for the hedging against China. With China's rise, there will inevitably be frictions or problems with the United States and other countries in economic, trade, regional and world issues. However, they should be handled through consultations and dialogue. China welcomes any institution or structure in Asia that will contribute to its peace and prosperity. China stands for the peace co-existence among countries with different social systems, cultural background or ways of development. There is no need to fear a so-called red communist China. China is by no means another Soviet Union. China's top priority is economic development. It would be na´ve and irrational to try to encircle and counter China. China, together with the U.S., Japan, India, the Asean countries, can work in partnership for Asia's peace and prosperity. In 2005, China imported $440 billion dollar worth of goods from other Asian countries and regions. 80% of China's investment overseas is in Asia. Making the best of China's development has become the unanimous choice of many Asian countries. Gone are the days when there must be rivalry between two powers in Asia. We do not need to stick to any Cold War mentality. Towards the middle of the century, China, India and other Asian countries will become more developed and stronger. This will improve the well being of almost 40% of the world's population. We can make greater contributions to world peace and prosperity. The rise of Asia is a blessing to the world.

In the international arena, we are pushing for South-South cooperation and North-South dialogue. We are also working with the major developed countries to safeguard world peace and promote common prosperity. China is also actively involved in multilateral diplomacy and international cooperation. Over the past 15 years, China has participated in 15 UN peacekeeping operations. It has dispatched a total of 3,000 non-combat troops, police forces and civilian staff.

On the questions of Iraq, Sudan, Iran, North Korea and other issues, we have played a constructive role by upholding the principle. China is also actively participating in international cooperation in the fields of arms control, human rights, Bird flu control, anti-terrorism, Aids, Tsunami prevention, environment protection, fight against human trafficking, etc. Achieving complete unification of China is the common aspiration of the Chinese people throughout the world. In recent year, we worked hard to promote peace and development in the cross-Straits relations and to maintain stability in the Taiwan Straits region. Thanks to the concerted efforts of the compatriots on both sides of the Taiwan Straits, positive elements in the Straits situation that help curb the secessionist activities aimed at "Taiwan independence" have increased and peace and stability have taken on a stronger momentum in the cross-Straits relations. We will firmly focus on what we believe are the themes for cross-Straits relations, namely peace and development. We will continue to display maximum sincerity and exert utmost efforts to move the cross-Straits relations toward peace and stability. But at the same time, we will never sway in our opposition to "Taiwan independence" and never tolerate any attempt to seek "de jure independence" for Taiwan through the so-called "constitutional reengineering". Anyone who attempts to make Taiwan secede from China through any means will surely end up in shameful failure.

China's rise is not a zero-sum game. It is a win-win for Asian countries. It is a win-win for China and the United States. It is also a win-win for the world at large. In this interdependent world village, we should put aside our differences and seek common ground. Differences of social system and model of development should not be excuses for confrontation and obstacles for exchanges. Frictions and problems among nations are inevitable. However, we should seize the opportunities and meet our common challenges together for a more harmonious world.

Military challenge

China is a peace-loving country that is unswervingly following a road of peaceful development and pursuing a defensive military policy. It is recognized by the international community that China is an important force making for peace in the Asia Pacific and the world at large. As a sovereign state, China has every right to defense build-up in order to maintain its national security and safeguard its territorial integrity. Transparency has been a key U.S. demand in recent years as China modernizes its 2.3 million-strong military. When Rumsfeld visited China last October, he toured the strategic command headquarters in Beijing. Adm. William Fallon, commander of US forces in the Pacific, was invited to visit and sit in the cockpit of a twin-engine FB-7 fighter-bomber, China's most advanced domestically produced warplane during a visit to China's 28th Air Division, based near my hometown Hangzhou in May. It was a high point in his week-long tour of Chinese military installations. At a windup briefing, Fallon said the visits marked a significant step forward in his drive to increase contacts between the U.S. and Chinese militaries as a way to dissolve suspicions and reduce chances that the two Pacific powers will go to war. He also invited senior Chinese officers to observe U.S.-led joint military exercises (Valiant Shield) near the Pacific island of Guam June 19-23, which involve three US aircraft carrier groups. This is the first time that US military has invited observers from the Chinese side to a solely-organized US military exercise. The Chinese Navy recently also made port calls at several U.S. ports, including in Hawaii and San Diego. This is beneficial to mutual understanding and confidence building.

China's defense budget for 2006: $35 billion, 2005: about $30 billion, 2004's budget of 26 billion accounted 1.6% of GDP, 7.76% of the fiscal expenditure. It was only 5.7% of the US defense budget of 460 billion, 64% of Japan's defense budget of 42 billion. The US defense budget accounted for 4% of the GDP and 20% of the fiscal expenditure in 2004, and about 48% of the world total. According to the Stockholm Institute of International Peace, China's total defense budget increase for the past decade only equals to U.S. defense budget increase for the year of 2005.

China's economic challenge What does China's rise mean to the United States' economy, the Asian economy and the world economy?

Threat to U.S. jobs: On June 8, the AFL-CIO filed a trade complaint, which claims that the low labour cost in China has caused the loss of more than 400,000 factory jobs in the United States. As a matter of fact, China's cheap products have benefited U.S. consumers. According to Morgan Stanley, in 2004 alone, quality yet inexpensive Chinese goods saved U.S. consumers 100 billion U.S. dollars, and trading with China created over four million jobs in the United States. If you look at the larger picture, in 1978, China accounts for less than 1% of the world's economy. Today, China contributes to more than 10% of the global economic growth and more than 12% of the global trade growth. China's GDP increased by 9.6% on average over the past 27 years. Last year, China's total foreign trade reached 1.4 trillion. It imported $660 billion worth of foreign good and has provided business opportunities to more than 550,000 foreign investments in China. The $620 billion foreign direct investment in China comes from more than 190 countries and regions. Among them, 450 out of the Fortune 500 top enterprises are operating in China. There are about 50,000 U.S. investment projects in China worth 112 billion dollars in contract. U.S. companies are welcome to make new investment in hi-tech, modern agriculture, service, environmental protection, infrastructure and other industries in China. They are also welcome to participate in the development of China's central and western regions and old industrial zones. .

China is America's third largest trade partner. Last year, the two-way trade grew by 25% to break the 200 billion dollar benchmark. China is America's fastest growing export market. U.S. export to China went up by 21%, which means more jobs for the Americans. The two countries derive substantial benefits from this relationship.

When our critics say China threatens to eat the entire pie, we will say China is making the pie bigger. Trade is not a zero sum game. Roughly 350 million Chinese have been lifted out of poverty in the last ten years but not at our expense. We had a 3.5 percent growth rate last year -- 4.8 percent growth rate for the first quarter of this year -- unemployment at a low 4.7 percent, lower than the average of the past four decades. Two million jobs created last year alone. (Rob Portman, USTR to the Chicago Council on Foreign Relations. May 19 2006)

Our bilateral business cooperation is built upon "mutual benefit and win-win results". By doing business with China, U.S. companies are making good profits, enhancing their global competitiveness and strengthening their positions in the U.S. market. In 2005, total sales of American invested companies in China came to 100 billion U.S. dollars. A survey conducted by the American Chamber of Commerce in China shows that 86% of U.S. companies operating in China have registered increase in earnings, and that the profit margin of 42% of them is higher than the global average.

Today, the United States and the economies of Asia have strong and growing trade relationship. U.S. goods trade with South and East Asia today accounts for one-third of total U.S. trade, up almost 70% over the past 10 years. U.S. investment in the region has more than tripled in that time frame. American consumers enjoy the fruits of trade with Asia, with access to more goods at lower prices.

It is expected that by the year 2010, China will become the second largest market of the world, with the value of its domestic market exceeding 5 trillion U.S. dollars and its import of good exceeding one trillion dollars.

China is also contributing to the world tourism industry. Last year, 120 million people came to China for business and sightseeing, while 31 million Chinese went to overseas in 2005. China used to have only 7 international air routes. Now 233 international air routes have linked China closer to the world. By the year 2020, China will need over 2,000 new aircrafts. Most of the planes, of course, are Boeing aircrafts.

China is the largest potential market for the car industry. Last year, 3 million cars were sold in China; many of them were American cars. I myself bought a Buick, one of the most popular brands in China. The U.S. automaker American Motors Corp. is the first foreign enterprise to set up a joint venture with the Beijing Automotive Company in 1983 to make Jeeps. Many other companies soon follow suit. In 2005, GM produced 350,000 cars in China, second after the Volkswagen. Along with the fast growth of the auto-industry, China is trying its best to control car emissions and promote fuel-efficient and low-polluting vehicles.

With the rapid growth of China's economic ties with the United States, it is hardly avoidable that problems will occur. We understand the American concerns over the trade imbalances, the protection of the intellectual property rights and the market access. We should proceed from a strategic point of view and take effectively measures to resolve the issues. Trade imbalances: China pursues a policy of boosting domestic demand, which means that we will mainly rely upon domestic demand expansion to further promote the economic growth of the country. We do not pursue an excessively high trade surplus. As a matter of fact, China has trade deficit with Japan, the Republic of Korea and Southeast Asian countries. Many factors have contributed to China's trade surplus with the United States. But fundamentally speaking, it has to do with the industrial restructuring of our respective economies and the accelerated international division of labor driven by economic globalization. At least 90% of U.S. imports from China are goods that are no longer produced in the United States. Even if not from China, the United States will still have to import these products from other suppliers. In recent years, China has given priority to expanding import from the U.S. and promoting trade and investment. A series of practical and effective measures have been taken. During last month's JCCT meeting, the Chinese business delegation signed over 16 billion dollars worth of commercial contracts and agreements with U.S. companies to purchase, among others, soybean, cotton, poultry, software, aircraft and spare parts, automobile and spare parts, medical equipment and other electronics and machineries. According to U.S. statistics, U.S. export to China increased by 118% in four years from 2001 to 2005, or 21.5% annually. That is 4.9 times the increase of U.S. export to the whole world. China will further open its market to American goods and services. We also hope the United States will take vigorous steps to ease the restrictions on export to China so as to allow more U.S. products to reach the Chinese market.

RMB exchange rate: Proceeding from China's economic and social realities and in the interest of regional and global economic and financial stability, we have all along adopted a highly responsible attitude in formulating an exchange rate regime that is suitable to our national conditions. Last July, China put in place a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. After this reform, the RMB exchange rate is no longer fixed. Instead, it floats voluntarily in response to the supply and demand in the foreign exchange market and the fluctuation of the exchange rates of major international currencies. Over the year, the RMB has appreciated by 3% against the dollar and 7% against the Japanese yan. China has also taken a series of measures in support of this reform, including first, vigorously promoting the reform of the financial enterprises, in particular, the share-holding reform of the state commercial banks, in order to provide better guarantee for financial stability; second, speeding up the development of the financial market and increasing the diversity of the financing structure; third, cultivating and developing the foreign exchange market and increasing financial instruments for avoiding risks; fourth, improving the foreign exchange management and gradually harmonizing the relations between demand and supply of foreign exchanges. Since its establishment, the new exchange rate regime has been operating smoothly. With increased flexibility, the RMB exchange rate has been moving in both directions and maintaining basic stability at an adaptive and equilibrium level. This serves the interests of China, the interests of the United States and the common interests of all countries in Asia and the world at large.

Market access: We will continue to expand the market access and increase the import of American products. As a matter of fact, Chinese businessmen recently signed more than 100 contracts with U.S. companies, with a total value of over $16 billion dollars. We hope that the United State government will be able to relax or ease restrictions imposed on its exports of high-tech products to China. We also hope that the U.S. government will be able to create a level playing field for Chinese businesses that want to enter the American market (CNOOC/LENOVO). This will certainly help bring down the trade deficit of the United States.

IPR: China pays much attention to the protection of IPR. Almost 30% of the price of Chinese computers is paid to the patent holders. China has adopted a series of effective measures in recent years to further intensify IPR protection, which include:

  • establishing and improving IPR tribunals in high courts throughout the country,

  • establishing 50 IPR infringement reporting centers in 50 key cities within three years,

  • requiring PC manufacturers to preload their products with licensed operating system software,

  • formulating and implementing the enterprise legal software program, and

  • cracking down on pirated compact disc production lines


Meanwhile, we must not lose sight of the fact that IPR infringement remains a global problem. Even developed countries with a hundred or over a hundred year-old IPR protection system are still finding it an outstanding problem to effectively combat the crimes of IPR infringement. (According to the statistics of a U.S. entrusted survey agency, in 2004, the percentage of pirated software available in the U.S. market remained as high as 24%.) Thus, IPR protection requires concerted effort of all global partners. I believe that promoting solution of the problems through dialogue and cooperation will be more helpful to China and the rest of the world in effectively protecting IPR. The Chinese Government is positive about having closer and more extensive cooperation in IPR protection with the United States to contribute to the shaping of an effective global system for IPR protection.)

Challenge to Energy Resources : A recent Wall Street Journal article claims that China has accounted for 40% of the rise in demand for oil over the past four years. It also accuses China of locking up its own energy sources, propping up troublesome regimes, and developing a global military reach that threatens others.

Recent years have seen extensive interest in, and to some extent, concern over China's need for energy among the international community. I think this question should be viewed against a larger backdrop and from a historical perspective. Without energy, there is no economic development. This applies to all countries without exception. Therefore, it is entirely normal that, as China's economy grows quickly, the demand for energy increases accordingly. Some people are trying to attribute the price hike in world oil markets in recent years to the so-called "shock" from China's growing demand for energy. This argument is neither convincing nor fair.

China's per capita consumption of primary energy was a little over one ton. This is only 66% of the world average, 13.4 % of the U.S. and 26.8% of Japan. On average, people in the United States would each consume 14-time as much oil as people in China. In 2004, China's import of oil was only 120 million tons, or 7% of the total oil trade in the world. In addition, China is rich in coal reserve. Coal accounted for 76% of the energy production and 67% of the energy consumption.

China's external dependency rate is so low that its oil import is not capable of major impact on the world oil markets. 94% of the demand for energy was supplied by domestic markets. China's demand for oil import had been almost stagnant. Yet during the same period, the price of oil still soared from 45 dollars to 70 dollars per barrel. This clearly shows there are other factors that were causing the price hike.

In view of the dramatic fluctuation in the world oil markets, China has adopted corresponding measures. Saving energy is given top priority in the process of industrialization and efforts are being made to transform the economic growth model, build a energy-saving society, optimize the industrial structure by relying on scientific and technological progress, and rein in the blind expansion of industries with high energy consumption. These efforts are proven effective and fruitful. In 2004, China's energy consumption per ten thousand yuan of GDP dropped by 48% compared with that of 1990. That equals to a total of 700 million tons of standard coal saved. We are also catching up on world advanced level in unit coal consumption in thermo-power generation, energy consumption per unit production of steel and comprehensive energy consumption for cement production, which now stand at 11.2%, 29.6% and 21.9% respectively.

Facts show that China has not posed any threat to world energy supply. It is not posing any threat now, and will not pose any threat in the future.

Both China and the U.S. are major producers and consumers of energy. Our two countries have a huge potential to cooperate with each other in securing the supply of energy, developing energy without damaging the environment, stabilizing the world oil market and finding alternative energy. China is willing to work together with the United States in all the above areas.

Threat to Western Value

China now pursues a "people first" policy. People's living quality and happiness are top priorities.

China is still a developing country. This fact should be well known to the outside world. But there are still some, opinion leaders included, who seem to have overlooked this fact. This mistake they often make is to exaggerate the achievements of China to the neglect of its many domestic challenges:

Uneven economic development: We have increased our annual per capita GDP by 7 times over the past 27 years, from merely $226 per capita per year to $1700 per capita last year. Even in Shanghai and Beijing, the per capita GDP is only $5,000-6,000 dollars a year. Every effort has been made to increase people's income, while efforts are being made in improving the social welfare system. It is rumored that there is going to be a big salary rise in July. Our objective is to reach the per capita annual GDP to $3,000 by 2020. However, it is still well below the international average, not to say that of the United States.

Poverty: We have alleviated more than 250 million people out of absolute poverty, accounting for 75% of the people out of poverty in developing countries. However, there are still 24 million Chinese living in absolute poverty. A lot more are living under the $1 a day standard.

Unemployment: Every year, 17 million babies are born in China. More than 20 million new jobs have to be created for the college graduates, rural immigrant farmers and laid-off workers.

Pollution: The NY Times carried a front-page article on June 11, entitled "Pollution from Chinese Coal Casts Shadow around Globe". Serious pollution, terrible waste and low recycling rate have become a bottleneck in China's economic development. China is doing its best to reduce pollution. However, this will be a long-term task.

Medicare: Proper medical care and welfare system are yet to be developed in many parts of China.

Shortage of Resources: China's per capita water and arable land account for only 25% and 40% of the world average. Low efficiency in resource use in a major problem for China. For every million US dollars of GDP, our energy consumption is 2.5 times that of the US, 5 times that of the EU and 9 times that of Japan.

Inadequate social undertaking development

We have always believed that if there is no democracy, there will be no modernization. Since China's reform and opening up in the late 1970s, China has, on the one hand, vigorously promoted economic reform, and on the other, China has also been actively moved forward the political restructuring process. In the future, Chinese citizens will be in a better position to exercise their democratic rights in terms of democratic supervision, democratic management and democratic decision-making. The development of China's democracy will proceed from China's national conditions. China is a member of the newly established Human Right Council of the UN. It is ready to work with other countries of the world to advance the human rights endeavor of the world.

Future: Seize the Opportunities and Meet the Challenges

President Bush noted during President Hu's visit to Washington that the United States welcomes the emergence of a China that is peaceful and prosperous, and that supports international institutions.

China and the United States share extensive, common strategic interests. There is a broad prospect for the mutually beneficial cooperation between the two countries. A good China-U.S. relationship is of strategic significance to the maintenance and promotion of peace, stability and development in the Asia Pacific region and in the world at large. We should not only be stakeholders, but also constructive cooperators.

During President Hu's recent visit to the United States, China and the United States agreed to view and address the bilateral relationship from a strategic and long-term perspective. Both agree to comprehensively move forward the constructive and cooperation relations in the 21st century, to the benefits of the Chinese and American peoples, and peoples around the world.

To meet its challenges and sustain its economic development, China needs a peaceful environment, instead of war or turbulence. It calls for cooperation, instead of confrontation. It calls for a win-win situation, instead of a lose-lose situation. It is ready to work with U.S. and other countries of the world to seize the opportunities and meet the challenges.





This page last updated 10/26/2006 jdb




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