U.S.-China Trade

The reemergence of China as a great power is arguably the single most important development in the post-Cold War world. The rapid economic growth of the People’s Republic of China (PRC) over the past decade, coupled with its high level of defense spending, have stimulated much interest as well as trepidation among policy-makers and analysts across the world. Although the continued augmentation of Chinese power is not predetermined, the profound effects of China’s growing process cannot be underestimated.

When analyzing a state’s trade expectations one must also take into account the effects of diplomacy and bargaining, as Copeland suggests. A state can make some economic, political and military concessions to induce its trading partners to relax trade restrictions, thus raising its expectations for future trade. If the price for a higher level of trade is seen to be reasonable, the state would be willing to pay it, but if the price is unacceptable because it would undermine the state’s `internal stability or its external power position’, there would be very little that the state could do to improve its trade expectations.

If Chinese decision-makers’ expectations for future trade are high, they will be less likely to use force to deal with unresolved disputes with neighboring countries. If, however, they have a negative view of their future trading environment, they will be likely to take measures, including military actions, to remove any obstacles that might forestall the pursuit of great-power status (Segal, 70). For the moment, China’s expectations of future trade are by and large optimistic, but there is evidence of growing Chinese suspicion of a Western `conspiracy’ to contain China which may alter Beijing’s future perceptions.

To ensure that the rise of China will not cause regional and global instability, the outside world should seek to integrate China into the international community by pursuing policies that will have a positive influence on China’s expected value of trade. Since the late 1970s China has gradually emerged as a major trading nation in the world, and its economic and trade relations with most countries have broadened considerably. Indeed, China has been actively involved in global economic activities, and is fully integrated into the Asia-Pacific economy.

The PRC is now a member of most major international and regional economic organizations, including the World Bank, the International Monetary Fund, the Asian Development Bank, and APEC. (Segal, 70) From 1980 to 1997 the Chinese government approved 162 foreign financial institutions to develop business in China. (Segal, 70) Over 200 of the world’s top 500 companies have now invested in the country. (Segal, 70) As a result, there has been a huge growth in China’s foreign trade over the past two decades. From 1978 to 1997 China’s export grew from US$9. 8 billion to US$182. 7 billion, and its imports grew from US$10.

9 billion to US$142. 4 billion. Between 1983 and 1997 actual foreign direct investment in China increased from US$916 million to US$45. 3 billion(Segal, 70) In 1997, according to the World Trade Organization, China became one of the top 10 trading countries in the world. (Segal, 70) China has also benefited from its involvement in a regional division of labor and economic cooperation in East Asia. It is integrated into a number of sub-regional economic groupings or ‘growth triangles’ such as the Hong Kong-Guangdong-Shenzhen triangle and the Northeast China-Korea-Japan triangle.

In addition, China is closely involved in the development of two new sub-regional groupings: the Yellow Sea Economic Zone that includes Liaoning and Shandong provinces, Japan and South Korea; and the Tumen River project that seeks to promote economic cooperation between China, Japan, North Korea, South Korea, Mongolia and Russia. (Rachman, 129) No doubt, China’s integration into the world economy has brought about much benefit to the country, but it has also increased Chinese vulnerability in a world of growing interdependence. Indeed, foreign direct investment has become the single most important source of foreign capital for the PRC.

(Rachman, 132)It is estimated that ‘foreign investment may now account for one-quarter of all Chinese exports’. (Rachman, 132)In 1996 the total value of foreign-funded firms’ import and export trade reached US$137. 1 billion accounting for 47% of the national total of foreign trade. (Rachman, 136)According to a Beijing Review report, 18 million people, about 10% of China’s non-farming population, are employed by foreign-funded firms. The investment by these firms covers a whole range of areas that are vital to Chinese economic modernization, including infrastructure, energy, communication and high-tech projects.

(Rachman, 143)The Chinese government has also relied heavily on foreign investment to develop the central and western regions of China that are still very poor. In 1996, for example, a total amount of USS 1. 34 billion of foreign government loans was utilized for 69 projects in these underdeveloped regions. In addition, 125 key projects in the PRC are supported by foreign government loans that include the construction of metropolitan underground railways, power plants, airports, telephone networks, and other large-scale development plans. (Rachman, 171)

In the past decade China has increased its foreign borrowings substantially. Its total external debt is believed to have risen from US$24,000 million in 1987 to US$116,280 million in 1996. (Rachman, 183)Besides, many of China’s reform projects, such as enterprise restructuring, infrastructure improvement, financial reform, poverty reduction, human development and environmental protection, are currently supported by the World Bank. (Lieberthal, 36) Of all the major sectors of the Chinese economy, energy is probably the most critical one in terms of sustaining the PRC’s modernization program.

In this sector the role of foreign capital is becoming more significant. For example, a joint venture has been established at the Pingshao coal mine, and the construction of a power station in Guangxi Zhuang is financed entirely by foreign investment. In the areas of petroleum and natural gas, a greater effort has also been made to attract foreign capital. By 1997, China had signed 126 contracts with 65 foreign oil companies. (Lieberthal, 36) Moreover, the progress of Chinese reform is dependent on the availability of advanced foreign technology and equipment.

The contract value of Chinese technology imports amounted to US$159. 23 million in 1997. Indeed, imported technologies play an important part in major Chinese industries ranging from energy, electronics, computer software to telecommunications, information and other high-tech industries. (Lieberthal, 36) Clearly, Chinese leaders are aware that the success of China’s economic modernization rests ultimately with its access to the global market and with inflows of external funding.

If, for political or security reasons, the world were to reduce the level of economic interactions with or apply trade sanctions against China, it would have a devastating effect on Chinese economic development. For the moment, China’s expectations of future trade with both its Asian neighbors and Western nations are by and large positive. In a speech to an academic symposium in Beijing, Chen Jian, a senior official of the Chinese Ministry of Foreign Affairs, said that ‘the international situation has moved at a speed faster than expected in a direction favorable to China ….

The ongoing reform and opening up policies and the economic development in China… are based on the judgement that world peace can be maintained and a new world war will not erupt for the near future’. (Yahuda, 22) Similarly, Wu Yi, Minister of Foreign Trade and Economic Cooperation, has noted: ‘We are immersed in the irreversible general trend toward worldwide economic integration… economic cooperation with various countries makes it easier than any time in the past to reach a common view, and can be carded out in a wider area and at a higher starting point.

This in turn portends that possibility for successful cooperation is much greater in the future’. (Yahuda, 22) This type of optimistic assessment of the future trading environment is echoed by many Chinese leaders, officials and scholars. (Yahuda, 56) Despite the recent financial turmoil in East and South East Asia, they believe that the economic dynamism in the Asia-Pacific will continue into the twenty-first century and that China will benefit from further economic growth and cooperation in the region.

“For example, citing the view of a Chicago professor and Nobel Prize winner, a Chinese commentator maintains that ‘the prospects of most rapidly growing economic entities of East Asia are still bright. ” ‘Even if the economy of these countries stops growing in the coming five years’, it is argued, ‘their average speed of economic increase in the next 25 years will surpass that of the world’. (Yahuda, 101) In any case, Chinese leaders know that the potential market and business opportunities that the PRC can offer to the outside world are so attractive that no country would like to miss them.

(Yahuda, 193) It is therefore unlikely that any countries would want to sever trade relations with China in the near future. To raise its expectations for future trade China has been and will be willing to make economic and political concessions when negotiating contracts and trade agreements with its trading partners. Thus, the outside world will have some leverage to steer China in a certain direction, and it should take the opportunity to encourage further economic reform, openness and trade liberalization in the country.

As liberals rightly argue, economic liberalization will gradually lead to greater political liberalization and democratization in China that will, in turn, help preserve peace and stability in the Asia-Pacific region. However, the international community must be patient with the pace of change in China and more sensitive to Chinese security perceptions. This is not to say that the outside world should accede to any Chinese demands or policies.

On the contrary, it should be prepared to raise its concern over particular Chinese policies, debate with China on issues of fundamental disagreement, and stand firm on matters of principle. For example, the outside world must not ignore human rights issues in China for the sake of short-term commercial benefits. Western countries should try to persuade the Chinese government to improve its human rights record through dialogue and diplomatic channels rather than by economic coercion.

They must recognize that the process of democratization in China will be a lengthy and thorny one, given the lack of democratic tradition in Chinese history. An evolutionary path toward democracy is preferable to a violent change of regime in China that will be likely to produce an unstable and ineffective government which would be incapable of handling the crises and upheavals associated with rapid political transformation in such a vast country. A chaotic China could not possibly pursue a rational and coherent policy toward other countries.

In this regard, the warning of some liberal scholars of the linkages between democratic transition and war should be heeded. Whether the reemergence of China as a great power in the post-Cold War international system is caused by structural factors (as the realist argues) or by unit-level decisions (as the liberal suggests), the challenge that China presents to the rest of world is formidable. The best way of abating the likelihood of military conflict between the great powers, as Copeland suggests, is to `alter leaders’ perceptions of the future trading environment in which they operate’.

(Harris, 151) China’s current expectations of future trade are, on the whole, positive, but there are growing suspicions among Chinese leaders and intellectuals of external forces seeking to `contain’ China. Such a fear could magnify at a time when nationalistic sentiment is rising in Chinese society (Harris, 151) that might lead to low expectations of future trade. To ensure that China’s rise will not cause regional and global instability, the outside world should pursue policies that would enhance Chinese decision-makers’ confidence in their future trading environment.

This will not be a simple task due to China’s innate distrust of other great powers as a result of its unpleasant encounters with Japan and Western powers in the nineteenth century. Given the complexity of Chinese domestic politics and enormous ideological and institutional constraints, China may not always respond to external efforts positively, (Harris, 151) but if China’s trading partners hope to integrate the country into the international community peacefully, they must do what they can to raise PRC leaders’ expectations for future trade.

In the case of China, it has made some economic and political concessions to induce the outside world to trade with and invest in China. On most issues, Chinese leaders find the price of higher trade level reasonable and are willing to make compromise. The concept of `one country, two systems’, for example, was basically formulated to assure the Western world that China’s priority was economic development. In order to retain the confidence of foreign investors in Hong Kong, Chinese leaders have promised that the territory’s capitalist system will remain unchanged for at least 50 years from 1997.

(Harris, 151) China’s decision to shelve temporarily the issue of sovereignty in the South China Sea also reflects its desire to maintain harmonious relations with the United States of America that are propitious for China’s trading environment. Works Cited Gerald Segal, `Tying China into the international system’, Survival 37(2), (Summer 2004), p. 70. Gideon Rachman, `Containing China’, The Washington Quarterly 19(1), (Winter 1995), p. 132. Hans J. Morgenthau, Politics Among Nations: The Struggle for Power and Peace, revised 5th edition (New York: Alfred A.

Knopf, 1978), p. 29. Kenneth Lieberthal, `A new China strategy’, Foreign Affairs 74(6), (November/December 1995), p. 36. Michael Yahuda, ‘How much has China learned about interdependence? ‘, in David S. G. Goodman and Gerald Segal, eds. , China Rising: Nationalism and Interdependence (London: Routledge, 1997), p. 22. `Stay back, China’, The Economist, (16 March 1996), p. 15. Stuart Harris, ‘China’s role in the WTO and APEC’, in Goodman and Segal, eds. , China Rising, p. 151.