[Senate Prints 110-46]
[From the U.S. Government Publishing Office]
110th Congress
2d Session COMMITTEE PRINT S. Prt.
110-46
_______________________________________________________________________
CHINA'S FOREIGN POLICY AND
``SOFT POWER'' IN SOUTH AMERICA,
ASIA, AND AFRICA
__________
A STUDY
PREPARED FOR THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
BY THE
CONGRESSIONAL RESEARCH SERVICE
LIBRARY OF CONGRESS
APRIL 2008
Printed for the use of the Committee on Foreign Relations
Available via World Wide Web: http:\\www.gpoaccess.gov/congress/
index.html
----------
U.S. GOVERNMENT PRINTING OFFICE
41-927 WASHINGTON : 2008
----------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
(202) 512�091800 Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC
20402�090001
COMMITTEE ON FOREIGN RELATIONS
JOSEPH R. BIDEN, Jr., Delaware, Chairman
CHRISTOPHER J. DODD, Connecticut RICHARD G. LUGAR, Indiana
JOHN F. KERRY, Massachusetts CHUCK HAGEL, Nebraska
RUSSELL D. FEINGOLD, Wisconsin NORM COLEMAN, Minnesota
BARBARA BOXER, California BOB CORKER, Tennessee
BILL NELSON, Florida GEORGE V. VOINOVICH, Ohio
BARACK OBAMA, Illinois LISA MURKOWSKI, Alaska
ROBERT MENENDEZ, New Jersey JIM DeMINT, South Carolina
BENJAMIN L. CARDIN, Maryland JOHNNY ISAKSON, Georgia
ROBERT P. CASEY, Jr., Pennsylvania DAVID VITTER, Louisiana
JIM WEBB, Virginia JOHN BARRASSO, Wyoming
Antony J. Blinken, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
(ii)
C O N T E N T S
----------
Page
China's Foreign Policy and ``Soft Power''
in South America, Asia, and Africa
Letter of Submittal.............................................. v
Letter of Transmittal............................................ vii
China's ``Soft Power:'' Overview and U.S. Policy Challenges...... 1
Definitions of Soft Power.................................... 2
Presumed PRC Foreign Policy Goals............................ 4
Competitive Advantages of PRC ``Soft Power''................. 9
Limitations on PRC ``Soft Power''............................ 10
Implications for U.S. Interests.............................. 12
Options...................................................... 13
Latin America and the Caribbean.................................. 16
Overview..................................................... 16
Diplomacy.................................................... 16
Economic Ties................................................ 20
Foreign Assistance........................................... 26
Implications for U.S. Policy in Latin America and the
Caribbean.................................................. 28
The Southwest Pacific............................................ 32
Overview..................................................... 32
Diplomacy.................................................... 33
Trade and Investment......................................... 36
Foreign Aid.................................................. 37
Pacific Views Toward China................................... 38
Implications for U.S. Policy in the Region................... 40
Japan and South Korea............................................ 42
Overview..................................................... 42
International Trade Flows.................................... 42
Investment, Financial, Aid, and Cultural Flows............... 45
China's Relations With Japan................................. 51
China's Relations With South Korea........................... 54
Regional Trade Arrangements.................................. 58
Implications for U.S. Policy in the Region................... 63
Central Asia..................................................... 65
Overview..................................................... 65
Bilateral and Multilateral Diplomacy......................... 66
Economic Ties................................................ 71
Foreign Assistance........................................... 78
Implications for Central Asia................................ 79
Implications for U.S. Interests.............................. 83
Southeast Asia................................................... 88
Overview..................................................... 88
Diplomacy.................................................... 89
A Comparison of U.S. and Chinese Economic Relations With
ASEAN...................................................... 91
Foreign Aid.................................................. 97
U.S. Policy Implications..................................... 101
Sub-Saharan Africa............................................... 105
Overview..................................................... 105
China's Current Africa Policy................................ 107
PRC ``Aid'' and Trade Finance in Africa...................... 113
China-Africa Trade and Investment............................ 119
Sino-African Engagement: Implications........................ 125
LETTER OF SUBMITTAL
----------
April 15, 2008.
Hon. Joseph R. Biden, Jr., Chairman,
Committee on Foreign Relations,
United States Senate, Washington, DC 20510.
Dear Mr. Chairman: In response to your request, I am
submitting a comprehensive memorandum examining the People's
Republic of China's (PRC's) activities and ``soft power''
projection in Asia, Africa, and Latin America. The work was
prepared by members of CRS's Foreign Affairs, Defense, and
Trade Division. My understanding is that you may distribute the
memorandum as a committee print.
The study addresses the questions you posed when you first
asked us to prepare a lengthy study of the topic: How much is
China really doing in these regions, and how much do we know
about its motivations? What do these widespread PRC activities
mean for the United States and for U.S. global influence: are
the implications necessarily bad and therefore a demonstrable
threat to U.S. interests across the board, or might the
implications be benign or in some instances even positive for
U.S. interests? How has this increasing engagement affected
China's own policies? Finally, what are the economic and
political costs and benefits to China of such international
engagement, and are they likely to be influences for greater
pragmatism and nuance in PRC policies or serve instead to
reinforce more hardline and nationalistic sentiments?
The study opens with an overview section discussing China's
presumed foreign policy goals, the attractions and limitations
of China's ``soft power,'' and the implications and options for
the United States. The memorandum proceeds to an analysis of
China's relations with countries in Latin America and the
Caribbean, the Southwest Pacific, Japan and South Korea,
Central Asia, Southeast Asia, and Sub-Saharan Africa.
Kerry Dumbaugh, CRS Specialist in Asian Affairs,
coordinated the study, developing its framework, overseeing the
work of the eight other contributors, and writing the overview
section. Specialist in Asian Affairs Thomas Lum assisted in
overseeing the project. Other authors were CRS analysts Nicolas
Cook, Wayne Morrison, Dick Nanto, Jim Nichol, Mark Sullivan,
and Bruce Vaughn. Information research specialist Susan Chesser
provided assistance obtaining data. Asian affairs analysts
Shirley Kan and Michael Martin provided in-depth peer review.
Jared Nagel, of CRS's support staff, provided invaluable
administrative assistance.
Sincerely,
Daniel P. Mulhollan, Director.
LETTER OF TRANSMITTAL
----------
United States Senate,
Committee on Foreign Relations,
Washington, DC, April 29, 2008.
Dear Colleague: China's emergence as a global power has
profound implications for the security and economic interests
of the United States. The pace and scale of China's development
is unprecedented, and poses a host of issues that have made
China the image of globalization in the minds of the American
public. Yet for all of the attention being paid to China's rise
and its attendant economic, environmental, security, and
political consequences, the United States still has a very
imperfect understanding of China's power and motivations or how
the rest of the world is responding to China's integration. The
debate in our country over how best to respond to China can
quickly become polarized between those who view China
principally as a threat and those who see China's rise as
essentially benign. The truth is that China's rise presents
both challenges and opportunities for the United States.
Last year I asked the Congressional Research Service to
prepare a comprehensive report examining China's growing ``soft
power'' in Asia, Africa, and Latin America. Harvard professor
Joseph S. Nye, Jr. first argued in 1990 that the United States
must wisely deploy its soft power--the non-military tools of
our foreign and national security policies--to complement its
``hard power,'' or military force, if it is to advance its
interests in the era of globalization. He and others have since
refined this original concept and have testified before the
Committee on Foreign Relations on the application of ``smart
power'' to address the challenges confronting the United States
in the 21st Century. My objective in requesting this study was
to provide the Congress with a better factual understanding of
China's use of soft power, including: international trade and
investment, development assistance, cultural influence,
humanitarian aid, travel and tourism. CRS has produced an
analysis that not only takes stock of China's soft power, but
also illuminates the options open to the United States to
respond to China's ``invigorated activities around the world.''
Pulling together a distinguished group of China specialists
and other regional and functional analysts, CRS delved deeply
into China's foreign policy and soft power, examining both the
strengths and weaknesses of China's approach to the world, and
the benefits and drawbacks for those countries most closely
integrated with China's growing economy. On the plus side, CRS
reports that China's involvement in Africa is spurring
investment, `` . . . in infrastructure and the financial
services, manufacturing . . . and market niches that non-
Chinese foreign investors have generally long ignored.'' China
provides the developing world access to cheap credit and
inexpensive consumer goods, and many countries are enjoying
rapidly rising revenues due to Chinese demand for their
exports. On the other hand, China's manufacturing strength
makes it difficult for industries in the developing world to
gain a competitive advantage, putting some out of business. And
China's investment in developing economies, particularly in
natural resource extraction, sometimes undermines international
efforts to link aid and investment to measurable progress by
recipient countries in combating corruption, improving
transparency, and respecting human rights. In Uzbekistan, for
example, CRS reports that U.S. criticism of human rights
conditions may have spurred Uzbekistan to re-evaluate its ties
with the United States and to improve its ties with China.
China has attempted to exploit its ``no strings attached''
foreign aid stance and its ability to deploy state-owned assets
to reap soft-power advantages. But CRS finds that China's
success has been mixed and its influence remains modest.
Contrary to some projections of China's ability to displace
American influence through the use of soft power, the CRS
report indicates that China must grapple with many limitations
on its influence. As China has become more engaged in world
affairs, it has also discovered that its foreign entanglements
may not always be popular at home or abroad. In some cases,
Chinese economic engagement has become the subject of intense,
xenophobic political debate, as in the Zambian election of
2006, when the main opposition candidate incited his followers
with vitriolic anti-Chinese rhetoric. And CRS found that
China's cumulative stock of foreign direct investment (FDI)
worldwide amounted to just $73.3 billion at the end of 2006--
0.58% of global FDI. Moreover, CRS found that China's soft
power achievements are built on a very narrow base, confined to
non-controversial issues where all sides are most likely to
agree. And even in those areas--such as disaster relief--
China's level of effort and its accomplishments pale beside
those of the United States. Finally, while China's state-owned
assets may be obedient to state authority, CRS found that
America's private sector leaves a ``substantial global
footprint,'' sometimes overlooked by those comparing only
government directed overseas initiatives.
It is my hope that this study will inform debate about
China and help point the way toward policies that will not only
respond to those Chinese actions that are at odds with U.S.
interests, but will also build on the many common interests
created by China's enhanced integration with the international
community. In the weeks ahead, the committee will conduct
hearings examining U.S.-China relations, China's use of soft
power, and the opportunities for the United States to
reinvigorate its own ``smart power'' by engaging China to work
with us to advance our common interests.
Sincerely,
Joseph R. Biden, Jr., Chairman.
China's Foreign Policy and ``Soft Power'' in South America, Asia, and
Africa
----------
China's ``Soft Power:'' Overview and U.S. Policy Challenges\1\
---------------------------------------------------------------------------
\1\ Prepared by Kerry Dumbaugh, Specialist in Asian Affairs,
Foreign Affairs, Defense, and Trade Division, Congressional Research
Service.
---------------------------------------------------------------------------
We begin this memo with several caveats about the limits on
a decisive analysis of the extent and implications of China's
international ``reach''--its soft power, a phrase we define
below. First, there is little consensus within the U.S. and
global China-watching communities on China's foreign policy
goals or on what motivates and informs China's decisions--
either decisions made in general terms or with regard to
specific regions or countries. Does China's international
engagement have a pragmatic, overarching strategy, or is it a
series of marginally related tactical moves to seek normal
economic and political advantages? Is Beijing interested in
supplanting the United States as a global power or focused
mainly on its own national development? Does the PRC feel
strong and confident internationally or weak and uncertain? No
one is sure.
Many have written on China's foreign policy decision-
making. Although China's foreign policymaking has become more
regularized in recent years, few claim to be certain about how
China's foreign policy decisions are made, about who makes
them, or about what long-term goals Chinese policies seek to
attain. Some profess certainty: however, they have not been
able to demonstrate that their convictions lead to any sort of
consistency in analyzing or predicting China's foreign policy
decisions. In the aftermath of incidents of Sino-U.S. tension
or confrontation--such as the case in 2001 when a Chinese
fighter jet collided with a U.S. EP-3 reconnaissance plane, or
the case in 2007 when the PRC suddenly denied Hong Kong port
visits to a series of U.S. ships--U.S. officials have remained
largely in the dark about the PRC's crisis management processes
and about why and how PRC leaders reached their decisions. The
number of unknown variables that still animate China's foreign
policy goals and decision-making processes is simply too great.
There appears to be no ``magic bullet'' then--no individual or
group with proven answers--that definitively can inform U.S.
views or prepare U.S. government and congressional actors on
how best to prepare for the challenge China could pose to U.S.
global interests.
Relatedly, a study of PRC international influence is
hampered by a lack of reliable data on Chinese foreign aid and
by lack of transparency on whether and how the PRC makes and
implements large, high-profile investment agreements. PRC
assistance to other countries comes from multiple government
agencies with little or no apparent oversight; it does not
appear to be tracked or monitored by one single government
entity. Many forms of PRC foreign assistance--loans, debt
forgiveness, the building of large public facilities, and trade
and investment agreements--do not meet the traditional
definition of ``development assistance,'' which is how most of
the world's donor countries provide aid. Furthermore, PRC
assistance is not provided in regularized annual allotments,
but appears to follow a funding schedule determined by
Beijing's diplomatic priorities. Beijing reportedly also is
reluctant officially to reveal the totals of its foreign
assistance for a variety of reasons--including out of fear of
domestic objection that Beijing is not spending its money at
home rather than abroad.\2\ In sum, the extent of PRC foreign
assistance to other countries cannot be determined accurately.
---------------------------------------------------------------------------
\2\ See CRS Report RL34310, China's ``Soft Power'' in Southeast
Asia, by Thomas Lum, Wayne Morrison, and Bruce Vaughn.
---------------------------------------------------------------------------
Finally, although U.S. Administrations for decades have
pursued consistent engagement with China, periodic questions
arise about whether the U.S. approach is based on a well-
articulated and coherent strategy or is simply an approach of
convenience that should be reassessed in the face of China's
rise. Outside the Administration, the U.S. policy debate
continues to be characterized by the strident dynamics that
arose in the mid-1990s, in which American hard-liners (self-
described as the ``Blue Team'') are pitted against those
advising cooperation and engagement with China (pejoratively
labeled as the ``Red Team'' by the opposing group). Thus, there
is little agreement about the degree of threat or challenge
China poses to the United States.
In the vocal minority are those who view China as a growing
military menace with malign intent. These hardliners have been
perceived sometimes by others as agitators whose counsel to
treat China as a major threat to U.S. interests is designed to
justify huge U.S. military budgets and is more likely to bring
about conflict with China than to deter it. The view that has
been pursued more openly by U.S. Administrations is one that
counsels cooperation and engagement with China as the best way
to integrate China into the prevailing global system as a
``responsible stakeholder''--a nation that has ``a
responsibility to strengthen the international system that has
enabled its success.'' \3\ But opponents of this approach
typically paint these as the views of ``panda-huggers'' who,
seduced by the potential of the China market, are oblivious to
PRC hostile intent, cave in to PRC wishes and demands
unnecessarily, and thereby squander U.S. strategic leverage and
compromise U.S. interests. The confrontational and highly-
charged dynamic between these two polar views continues to make
elusive the kind of pragmatic and reasoned policy discourse
that could create greater American consensus on how the United
States should position itself to meet the challenges China
poses.
---------------------------------------------------------------------------
\3\ ``Whither China: From Membership to Responsibility?'' Speech
by Deputy Secretary of State Robert B. Zoellick to the National
Committee on U.S.-China Relations, September 21, 2005.
---------------------------------------------------------------------------
definitions of soft power
As requested, this study focuses on China's ``soft power''
projection in the specified regions. The term ``soft power''
originally was conceived in 1990 by Harvard Professor Joseph S.
Nye, Jr.. Nye argued that the United States had reserves of
power and influence that were separate from ``hard power,'' or
military force projection. He expanded greatly on this concept
in his book, Soft Power: The Means to Success in World
Politics--partly, he said, from the frustration of watching
``some policy makers ignore the importance of our soft power
and make us all pay the price by unnecessarily squandering
it.'' \4\ According to Nye, soft power is crucially important
in today's world politics and is significantly more than just
the trappings of American culture:
---------------------------------------------------------------------------
\4\ Nye, Jr., Joseph S., ``Soft Power: The Means to Success in
World Politics,'' Public Affairs, NY, 2004, p. XI.
Soft power rests on the ability to shape the preferences of
others . . . . [It] is the ability to get what you want through
attraction rather than coercion or payments. It arises from the
attractiveness of a country's culture, political ideals, and
policies. When our policies are seen as legitimate in the eyes
of others, our soft power is enhanced. America has long had a
great deal of soft power . . . .\5\
---------------------------------------------------------------------------
\5\ Nye, Jr., Joseph S., p. 5, p. X.
More broadly speaking, the components of soft power also
are defined as including international trade, overseas
investments, development assistance, diplomatic initiatives,
cultural influence, humanitarian aid and disaster relief,
education, and travel and tourism. Although American soft power
remains formidable, by some of these measures it is seen to
have declined in the 21 century. In absolute terms, some
believe this perceived decline is the result of the United
States' own policies and actions. One former U.S. Government
official speculates that although America has massive remaining
reserves of soft power, they have become a ``non-renewable
resource'' given current U.S. policies.\6\ Others point to
multiple global survey results on international views of the
United States, saying ``the downward trend is unmistakable.''
\7\ As Nye himself puts it:
---------------------------------------------------------------------------
\6\ Conversation with former Ambassador Charles W. Freeman, Jr.,
2007.
\7\ Kurlantzick, Joshua, ``The Decline of American Soft Power,'' in
Current History, December 2005, p. 419.
Anti-Americanism has increased in recent years and the United
States' soft power . . . is in decline as a result . . . . A
Eurobarometer poll found that a majority of Europeans believes
that Washington has hindered efforts to fight global poverty,
protect the environment, and maintain peace. Such attitudes
undercut soft power, reducing the ability of the United States
to achieve its goals . . . . \8\
---------------------------------------------------------------------------
\8\ Nye, Joseph S., ``The Decline of America's Soft Power: Why
Washington Should Worry,'' in Foreign Affairs, May/June 2004, p. 16.
Others have attributed the perceived decline in American
soft power as relative--largely a comparative decline based on
the rise of other powers--in particular the rapid emergence of
China as a U.S. ``peer competitor'' and a growing source of
international influence, investment, and political and economic
power. China is seen to be trying to project soft power by
portraying its own system as an alternative model for economic
development, one based on authoritarian governance and elite
rule without the restrictions and demands that come with
political liberalization. Furthermore, according to this view,
``soft power'' is ephemeral; the United States has recovered
from loss of prestige and influence before (such as occurred
with the Vietnam War), and it will again. China's apparent soft
power gains, then, should not be blown out of proportion.
It is clear that China's foreign policy today has changed
fundamentally in the years since Chairman Mao Zedong's policy
of ``self-reliance'' greatly constrained the country's foreign
contacts and when the country's foreign policy goals centered
on promoting Maoist revolutionary parties around the world.
Under reform policies begun in 1978, China in the past 30 years
has openly sought and received substantial foreign investment,
technology, and expertise; has become an international export
powerhouse; has expanded its membership and participation in
international organizations; and increasingly has appeared
willing to embrace many norms and rules of the global economic
system of which the United States is the chief architect and
dominant player. Since 2000 in particular, there has been a
steady increase in the PRC's courting of foreign governments,
including high-level diplomatic exchanges, trade initiatives,
investment agreements, and tourism and cultural understandings.
Having progressed on a steady path in the last three
decades on multiple global economic and political endeavors,
China's robust international engagement since 2000 has caught
many by surprise and has prompted growing American disagreement
and debate over PRC motivations and objectives. The fact that
much of this international engagement has expanded while the
United States has been preoccupied with its military
involvement in Iraq and Afghanistan also is causing a growing
degree of American introspection. Moreover, many fear that
China's growing international economic engagement is going
hand-in-hand with expanding political influence. Although some
believe that PRC officials appear more comfortable working with
undemocratic or authoritarian governments, PRC outreach also
has extended to key U.S. allies or to regions where U.S.
dominance to date has been unparalleled and unquestioned,
leading some to conclude that Beijing ultimately intends a
direct challenge to U.S. global power.
PRESUMED PRC FOREIGN POLICY GOALS
Within the ongoing international debate about what China's
ultimate intentions may be for its growing global achievements,
it is possible to point to some fundamental objectives that
appear to be at least partial motivations for Beijing's current
international outreach. Adding to the uncertainty about PRC
policies, these presumed objectives at times are in
contradiction, suggesting either a lack of coherence or that
they reflect internal Chinese disagreements and compromise.
China's policy direction is that much harder to predict when
some of these key policy objectives are seen to clash, and
experience tells us that abrupt shifts in policy, shifts which
remain unexplained in many cases, still occur with a fair
degree of regularity in the PRC system.
Enhancing Sustainable Economic Growth
Strong economic development continues to be seen as the
core primary objective for the PRC leadership for a host of
reasons--not the least of which are to raise the living
standards of its enormous population, to dampen social
disaffection about economic and other inequities, and to
sustain regime legitimacy after the demise of communist
ideology as an acceptable organizing principle. China's annual
economic growth rates routinely are in the double digits; in
2007, they reached an annual rate of 11.4 percent--the highest
since 1994.\9\ This rapid and sustained economic growth has
created voracious domestic appetites for resources, capital,
and technology, as well as for markets for Chinese goods, and
these appetites have served as powerful drivers of China's
international trade and investment agreements.
---------------------------------------------------------------------------
\9\ Xie Fuzhan, Commissioner, National Bureau of Statistics of
China, ``The National Economy Maintained a Steady and Fast Growth in
2007,'' January 24, 2008.
---------------------------------------------------------------------------
In energy sources alone, for example, China became a net
importer in 1995--it became a net importer of oil in 1993--and
its energy demands are expected to continue increasing at an
annual rate of 4-5 percent through at least 2015, compared to
an annual rate of about 1 percent in industrialized
countries.\10\ China steadily and successfully has sought trade
agreements, oil and gas contracts, scientific and technological
cooperation, and de-facto multilateral security arrangements
with countries both around its periphery and around the world.
In all three of the regions discussed in this memo where China
is most active, access to energy resources and raw commodities
to fuel China's domestic growth plays a dominant role in
Beijing's activities. China has oil and gas exploration
contracts with Brazil, Ecuador, Bolivia, Colombia, Venezuela,
and Cuba; oil contracts and pipeline deals are a major part of
China's activities in its relations with Central Asian states
such as Uzbekistan and Turkmenistan, and China's oil
exploration interests extend to Burma, Vietnam, and Malaysia.
Imports of crude oil constitute the bulk of China's imports
from African states.
---------------------------------------------------------------------------
\10\ ``China's Energy Production and Consumption,'' Energy
Information Administration (EIA); Official Energy Statistics from the
U.S. Government. www.eia.doe.gov/emeu/cabs/china/part2.html
---------------------------------------------------------------------------
In pursuit of sustainable economic development, China also
is seen to have placed a priority in keeping stable and
relatively tension-free relations with its primary export
market, the United States. Some analysts suggest that this
priority is behind Beijing's decision in 2003 to tone down its
anti-U.S. rhetoric and criticism and instead to emphasize
China's ``peaceful rise'' on the world stage.\11\ According to
this view, Beijing calculates that even the appearance of a
more overt pursuit of its regional and global interests could
prompt the United States to strengthen its alliances and form
other groupings to counterbalance and deter China's
international outreach. Such a development could fetter China's
economic growth.
---------------------------------------------------------------------------
\11\ Sutter, Robert, Chinese Foreign Relations, Rowman &
Littlefield Publishers Inc., 2008, p. 82.
---------------------------------------------------------------------------
Squeezing Taiwan's International Space
In addition to economic and resource-related imperatives,
China's outreach into Latin America and the Caribbean, Africa,
and the Pacific incorporates the political dynamic of trying to
separate Taiwan from its remaining diplomatic relationships.
China claims that Taiwan is part of its sovereign territory,
and for decades has tried to make acknowledgment of this ``one
China'' policy a condition for receiving Chinese investment and
assistance. All but one of Taiwan's remaining 23 official
relationships are in the three regions that are the focus of
this memo. With China's dynamic economic growth in recent
decades, it effectively has been able to ``outbid'' Taiwan in
courting a number of these governments. Taiwan lost four of its
diplomatic relationships to this competition in the last three
years, including the loss of official relations with Malawi on
January 14, 2008.
The Taiwan factor is not uniformly significant in China's
relationships with the regions under discussion. While the
Taiwan issue is important in China's African relationships, it
is not important in China's relations with Central Asian
countries, where Taiwan has no official diplomatic relations.
It is a negligible factor in China's relationships with
Southeast Asian countries, where Taiwan has significant
economic interests but again no diplomatic ties. And Taiwan is
a very important factor--even perhaps the only one--in China's
courtship of the 6 tiny Pacific Island nations that still have
official relations with Taiwan. But Taiwan-PRC competition
looms large in China's relationships in Latin America and the
Caribbean. Not only is this where Taiwan maintains most of its
remaining official diplomatic ties, but the region's proximity
to the U.S. mainland allows Taiwan's president and senior
leaders to ask for controversial but symbolically meaningful
transit stops in the United States when making official visits
to these western hemisphere countries. A significant reduction,
or even the disappearance, of Taiwan's Latin America and
Caribbean relationships greatly could impair this convenient
Taiwan-U.S. connection.
On an entirely different level, Taiwan also is a
potentially important factor in China's activities with U.S.
allies in Asia--Japan and Australia, especially, but also Korea
and the Philippines. While all of these countries recognize the
PRC and not Taiwan, as U.S. allies they potentially could
become a factor in any U.S.-China conflict over Taiwan. In
2005, for instance, the United States and Japan declared for
the first time that Taiwan is a mutual security concern,
implying a new Japanese willingness to confront China over
Taiwan. It is in China's interests, then, to use its diplomatic
and economic activities to exert quiet pressure on these U.S.
allies to stay out of any possible conflict over Taiwan.
Maneuvering against Taiwan--and ultimately ``recovering''
it--provides one of the key contradictions in China's foreign
policy objectives as it is an issue that appears to be able to
trump other key policy goals. Chinese officials have said, for
instance, that they will ``pay any price'' to prevent Taiwan
independence, although this would jeopardize the otherwise key
imperative of assuring strong economic growth, not to mention
risking armed confrontation with the United States.\12\
---------------------------------------------------------------------------
\12\ This particular statement was made by defense attache Sun
Yifan on August 1, 2007, speaking in Cuba on the 80th anniversary of
the founding of the PLA. Xinhua, Aug. 2, 2007, but other PRC officials
similarly have stressed China's resolve on the matter of Taiwan.
Table 1. Taiwan's 23 Official Relationships*
------------------------------------------------------------------------
------------------------------------------------------------------------
Latin America and the Caribbean Belize, Dominican Republic, El
(12) Salvador, Guatemala, Haiti,
Honduras, Nicaragua, Panama,
Paraguay, St. Kitts and Nevis, St.
Lucia, and St. Vincent and the
Grenadines
Africa (4) Burkina Faso, Gambia, Sao Tome and
Principe, and Swaziland
The Pacific (6) Kiribati, the Marshall Islands,
Nauru, Palau, the Solomon Islands,
and Tuvalu
Europe (1) The Vatican
------------------------------------------------------------------------
* As of February 2008
Increasing Its International Stature and Competing With U.S. Supremacy
After decades of international isolation, PRC leaders are
presumed also to place a high priority now on expanding and
improving China's global stature and influence and, where they
can, on limiting or constraining the ability of the United
States to interfere with or adversely affect PRC interests.
Having come late to the global economic development party,
China is seeking multiple international partnerships and
groupings that make it, if not an indispensable player in the
global system, then at least one whose interests must regularly
be taken into account.\13\ Having embraced the international
system, Beijing is seen to be maneuvering deftly for space and
opportunities not already taken up by the United States--
opportunities where it can have greater freedom of action.
Lacking a formal system of alliances like those of the United
States, the PRC has devised numerous other frameworks. These
include efforts to act:
---------------------------------------------------------------------------
\13\ Goldstein, Avery, Rising to the Challenge: China's Grand
Strategy and International Security, Stanford University Press, 2005.
Through Bilateral Initiatives. --On a bilateral basis
throughout Latin America, Asia, and Africa, PRC leaders have
established Strategic Partnership Agreements, Friendship and
Cooperative Partnership Agreements, Friendship Associations,
and Free Trade Agreements, among other vehicles, to reinforce
the notion that special economic relationships exist between
China and the recipient countries. ``Chinese Friendship
Associations'' abound all over the world, including with
individual U.S. states. In 2004, PRC leaders created the
``Confucius Institute''--a non-profit program to teach Chinese
language and promote Chinese culture around the world.\14\
Beijing opened its first Confucius Institute in Seoul, Korea,
in November 2004; by the end of 2007, the PRC had 203 Confucius
Institutes around the world, including 40 in the United
States.\15\ China also has expanded the use of Approved
Destination Status (ADS)--a bilateral tourism arrangement with
other countries that facilitates Chinese tourism in groups.
---------------------------------------------------------------------------
\14\ The program is under the auspices of The Office of Chinese
Language Council International.
\15\ This from the Chinese Embassy in Washington D.C., January
2008.
Through Existing Multilateral Organizations.--In addition
to bilateral initiatives, China increasingly has grown more
active in international multilateral organizations that it
formerly viewed with suspicion as U.S.-dominated institutions
that would try to constrain and exploit PRC interests. China
now participates more confidently in the United Nations, the
World Bank, and other entities, even seeking to employ what one
specialist calls a ``Gulliver Strategy'' that tries to tie down
the United States giant in constraining international
agreements.\16\ China also has successfully sought entry in one
form or another to existing regional groupings in Asia and
Latin America and the Caribbean. These include:
---------------------------------------------------------------------------
\16\ Sutter, p. 62.
Asia Pacific Economic Cooperation (APEC) forum, where China
has been a full member since 1991 (the United States is
---------------------------------------------------------------------------
also a member)
ASEAN Regional Forum (ARF)--established in 1994, where
China is increasing its participation (the United
States has been criticized in recent years when
President Bush and Secretary of State Condoleezza Rice
skipped some ARF meetings, instead sending lower-level
officials)
Forum for East Asia and Latin American Cooperation
(FOCALAE)--established in 2001, where China is a full
member (the United States is not a member)
Organization of American States (OAS)--where China was
invited to be a permanent observer in 2004 (the United
States is a full member)
Through New Multilateral Institutions.--Finally, China has
sought to devise new multilateral organizations to support its
own interests and expand its international influence. Beijing
has not invited the United States to join these new
institutions.
East Asia Summit (EAS). In 2005, for instance, China took
part in the first East Asia Summit (EAS), a fledgling
grouping of 16 Asian and Pacific powers including
China, the ten members of the Association of Southeast
Asian Nations (ASEAN), Japan, South Korea, India,
Australia, and New Zealand, but excluding the United
States.\17\ Russia's President Putin attended as an
invited observer.\18\
---------------------------------------------------------------------------
\17\ First established in 1967, ASEAN in 2005 includes Brunei-
Darassalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), the
Philippines, Singapore, Thailand, and Vietnam. The United States
maintains military alliances with the Philippines and Thailand, and has
significant naval and air base arrangements with Singapore.
\18\ See CRS Report RL33242, East Asia Summit (EAS): Issues for
Congress, by Bruce Vaughn.
Shanghai Cooperation Organization (SCO). With the Central
Asian countries of the former Soviet Union, including
Russia, China has pursued both economic and security
arrangements through the Shanghai Cooperation
Organization another new organization founded in 2001
exclusive of U.S. participation.\19\ Within the SCO
context, China has cooperated on border enforcement,
signed pipeline and rail link agreements, and conducted
joint military maneuvers.
---------------------------------------------------------------------------
\19\ The SCO is a more recent expansion of the ``Shanghai Five''
formed in 1997. SCO members include China, Russia, Uzbekistan,
Kazakhstan, Kyrgyzstan, and Tajikistan.
Forum on China-Africa Cooperation Forum (FOCAC). In 2000,
China and African countries formed the China-Africa
Cooperation Forum proposing that the FOCAC meet every
three years to seek mutual economic development and
cooperation. Representatives from 45 of Africa's 55
countries attended the FOCAC's first Ministerial
Conference in October of that same year; the third
FOCAC meeting was in Beijing in early November 2006.
The United States is not a member of the FOCAC.
COMPETITIVE ADVANTAGES OF PRC ``SOFT POWER''
Whether one is reading press accounts and scholarly
treatises or traveling through the regions under discussion,
the PRC seems to be everywhere. It is tempting to begin to
think in alarmist terms, thereby magnifying presumed PRC
strengths as well as perceived U.S. weaknesses. Many concerned
observers focus on the competitive strengths that PRC soft
power has in relation to the United States, pointing out that
the PRC international approach is particularly strong in areas
where the U.S. political system and U.S. values make it less
competitive. Some suggest that these PRC strengths have a
brighter future in today's global economy, meaning that China
will have increasing economic and political soft power clout
internationally at the expense of the United States. Still, a
closer look at some of the PRC's presumed assets suggests that
they may have downsides as well.
No Strings
The recipient governments of PRC trade and investment are
particularly attracted to the fact that Chinese money generally
comes with none of the pesky human rights conditions, good
governance requirements, approved-project restrictions, and
environmental quality regulations that characterize U.S. and
other Western government investments. With an authoritarian
government that has few if any democratic imperatives, China
has capitalized on its willingness to make such
``unrestricted'' international investments as part of its
``win-win'' international strategy.
In response to the December 2006 military coup in Fiji, for
instance, Beijing promised to continue its aid programs on the
grounds that the coup was Fiji's ``internal'' affair. (PRC
leaders do not appear to define the recipient country's
adoption of the ``one-China'' policy as such a restriction.)
China markets this capacity internationally as a key
competitive advantage to Western capital--one that is both more
efficient and less intrusive for the recipients. And the
unrestricted nature of PRC investments resonates with many
foreign governments. According to one African leader, for
instance:
. . . I have found that a contract that would take five years
to discuss, negotiate and sign with the World Bank takes three
months when we have dealt with Chinese authorities. I am a firm
believer in good governance and the rule of law. But when
bureaucracy and senseless red tape impede our ability to act--
and when poverty persists while international functionaries
drag their feet--African leaders have an obligation to opt for
swifter solutions.\20\
---------------------------------------------------------------------------
\20\ Senegal President Abdoulaye Wade, in ``Time for the west to
practise what it preaches,'' Financial Times, Jan. 24, 2008, p. 6.
The World Bank and the U.S. and other Western governments
may be able to increase the efficiency of their international
investment processes and reduce attending red tape to compete
with these PRC advantages. But Beijing's willingness to make
unrestricted investments while holding the recipients to no
standards implicitly validates the policies of the recipient
(and often authoritarian) governments. Such a ``hands-off''
approach could have negative longer-term implications for how
the PRC is viewed within the countries in which it is
investing. Over the longer term, then, China's approach has
potential negative consequences that could counterbalance any
soft power advantages.
The Advantage of State-Owned Assets
The PRC also is thought to reap soft-power advantages by
having much of its foreign investment carried out by its strong
state-owned sector. These state corporations lack transparency,
have deep pockets backed by government assets, and operate
without the constraints that come with having to issue a
corporate annual report. Unlike U.S. corporations investing
overseas, who lack this close government patronage and in
addition must answer to their shareholders, PRC state-owned
companies have the luxury of being able to take a longer-term,
strategic view--one more closely integrated with national
priorities--without having to demonstrate immediate profits.
But again, there are negative consequences; there is a certain
discipline in having to adhere to the bottom line. PRC state-
owned companies, lacking this built-in discipline, sometimes
are seen to have paid above-market prices for their oil and gas
contracts and to have entered into unprofitable initial
arrangements in order to improve bilateral relations and
facilitate future contracts.
LIMITATIONS ON PRC ``SOFT POWER''
Even if its international outreach is entirely benign and
centered on economic growth, the PRC's potential to expand
quickly to consumption and production levels comparable to
those of the United States presents profound challenges to
American and global interests. But more alarmist projections
tend to minimize or overlook other limitations and
complications that confront China's overseas activities.
Recognition of these and other limitations of PRC influence may
help shape a more effective U.S. response.
Lack of Success
For one thing, PRC actions in a given country do not always
lead to Beijing's desired objective. Haiti in 2008 continues to
have diplomatic relations with Taiwan, for instance, despite
PRC efforts in 2005 to make severing Haiti's relations with
Taiwan a condition of Beijing's support for renewing the U.N.
peacekeeping mission there. In another example, the PRC's
efforts to extend its influence in Central Asia through
formation of the Shanghai Cooperation Organization did not
prevent individual SCO member countries from hosting U.S.
military forces after the September 11 terrorist attacks in the
United States. Moreover, PRC foreign policy success in
sometimes constrained by the fact that the countries Beijing is
courting have other, more complex foreign policy interests.
According to one study of U.N. voting records, for example, a
country's increased dependence on trade with China does not
appear to affect its willingness to vote against PRC interests
in the United Nations.\21\
---------------------------------------------------------------------------
\21\ The study, an examination of U.N. voting records from 1991--
2003, conducted in 2006 by the Inter-American Dialogue, is discussed
more fully in the Latin America section of this memo.
---------------------------------------------------------------------------
The Narrow Base of PRC Achievements
In general, China's new ``win-win'' approach to
international interactions is based on a self-interested
approach that focuses only on those issues on which all sides
supposedly can agree. Easy things are taken care of first,
while inconvenient and difficult things are postponed, possibly
indefinitely. Racking up trade and investment agreements in
this way, while creating symbolically significant headlines,
nevertheless leaves a lack of depth in China's overall
relationships. Moreover, as already mentioned, China's
lamentable lack of transparency raises consistent doubts about
whether the levels of aid and investment triumphantly announced
are the levels of aid and investment actually provided.
To cite only one example, China initially reported that it
pledged $63 million in assistance to Indonesia after the 2004
tsunami, a figure dwarfed by the $405 million pledged by the
United States. A later article in a PRC publication, however,
put the actual amount of PRC Indonesian assistance at $22.6
million.\22\ PRC foreign policy achievements will be
constrained if Beijing continues to short-change its intended
recipient governments in this way. U.S. observers need to be
cautious, then, about the initial headlines of PRC involvement
and more mindful of the degree of follow-through.
---------------------------------------------------------------------------
\22\ Xing Zhigang, ``China pledges to increase humanitarian aid,''
China Daily, January 19, 2006. Cited also in Sutter, p. 108.
---------------------------------------------------------------------------
Moreover, a ``win-win'' strategy is a slender reed for
maximizing comprehensive soft power. The soft power potential
that the PRC can hope to gain from such a strategy pales next
to the national capacity and willingness of the United States
to take on costly and forlorn global tasks such as
international disaster aid--to demonstrate a willingness, in
the words of Tony Blair, ``to be the recipient of every demand,
to be called upon in every crisis, to be expected always and
everywhere to do what needs to be done.'' \23\ Nothing in
Beijing's current soft power approach suggests it is willing to
embrace such altruism.
---------------------------------------------------------------------------
\23\ Prime Minister Tony Blair, ``Doctrine of the International
Community,'' in a speech before the Chicago Economic Club, April 22,
1999.The Complications of an International Presence. Even with a ``win-
win'' strategy, acquiring and maintaining an enhanced international
presence brings with it certain complications. Among other things, it
provides almost innumerable opportunities for international
misunderstanding, resentment, cultural backlash, kidnappings, hard
feelings, murders, and other assorted repercussions. Cultural backlash
and resentment may be heightened by the style that PRC overseas
investments and construction projects have pursued to date--involving
the import of Chinese workers instead of using the local population.
Chinese overseas operations already have begun to experience fallout
from their activities: PRC oil drilling sites and well-workers have
been attacked, kidnapped, or killed in Sudan, Somalia, Nigeria, and
elsewhere in Africa. Some Central Asia countries have grown concerned
about the level of energy assets that China has been accruing within
their borders and have moved to limit such acquisitions. In some Asian
countries with high ethnic Chinese populations, there has been push-
back against perceived ``Chinese'' businesses and other interests. As
China's international activities expand, confrontations along these
lines are likely to increase, possibly garnering unfavorable publicity
for the PRC and putting stress on the ``win-win'' approach.
---------------------------------------------------------------------------
Foreign entanglements also could raise political problems
at home for PRC policymakers. The increasing availability of
Internet and cell phone use assures that growing numbers of
Chinese citizens have more access to information, including
information about China's international activities.
Confirmation that China is investing millions of dollars in
overseas projects, while at home unemployment soars and
infrastructure development lags, may prove objectionable to the
hundreds of millions of PRC citizens still living below the
poverty line--much the way many Americans sometimes react to
U.S. overseas investment.
The ``Private Sector'' Calculation
As noted above, Beijing is seen to have advantages over the
United States in that its overseas activities and investments
are conducted by strong, well-funded state-owned companies.
These large PRC government activities attract much
international attention and give a ``hard'' edge to PRC soft
power. The United States has little to match such centrally
directed initiatives, particularly in the wake of years of U.S.
budget cutbacks in--and in the case of the U.S. Information
Agency, the termination of--high-profile U.S. international
public diplomacy programs. But comparing only government-
directed and funded activities overlooks the huge advantage the
United States has in the extent of its substantial global
private-sector presence. In addition to U.S. business
interests, American products, schools, newspapers, journals,
banks, movies, TV programs, novels, rock stars, medical
institutions, politicians, Chambers of Commerce, state
governments, culture, religious groups, ideas, NGOs, and other
American institutions and values are liberally scattered over
the global map. While this U.S. presence is diverse,
uncoordinated, not centrally directed, and at times triggers
anti-American feelings, it nevertheless leaves a substantial
global footprint.
IMPLICATIONS FOR U.S. INTERESTS
Certainly a case can be made for considering the
motivations behind the PRC's international activities to be
what Beijing claims them to be--a country's natural and
legitimate pursuit of peaceful global opportunities for
economic growth. Moreover, PRC interests appear to have
benefited more substantially by operating within the current
global system, of which the United States is the chief
architect, than by challenging it. The United States would be
served, then, by encouraging China's further integration into
the global system. Even so, it is clear that China's growing
international muscle, even if natural and benign, by definition
increasingly must compete with and even limit U.S. freedom to
pursue American global interests relatively unencumbered.
But it also is possible to support skepticism concerning
the ``benign rise'' notion by pointing to historical examples
in the 19th and 20th centuries of confrontation and outright
warfare between reigning powers such as the United States and
rising powers such as the PRC. Through this more skeptical
lens, the PRC presence in Latin America and the Caribbean has
particularly worrisome implications. It could help strengthen
anti-democratic and anti-U.S. political leaders and actors in
some countries; moreover, in the event of a possible U.S.
military conflict with China, PRC human and commercial
infrastructure in Latin America would be well placed to disrupt
and distract the United States in the hemisphere and to collect
intelligence data against U.S. forces operating in the
region.\24\
---------------------------------------------------------------------------
\24\ R. Evan Ellis, ``The Military-Strategic Dimensions of Chinese
Initiatives in Latin America,'' China-Latin America Task Force, Center
for Hemispheric Policy, University of Miami, February 16, 2007.
---------------------------------------------------------------------------
Whichever of the above policy directions the PRC is
traveling and whatever its ultimate intentions, its
international engagement and growing economic clout pose
demanding challenges and questions for U.S. policymakers. Some
of these include:
How will the United States deal with increasing competition
by China for leverage and influence, not only in terms
of new economic and political international
relationships, but for current U.S. relationships with
allies and other countries where U.S. influence to date
has been dominant?
How can the United States hedge against possible PRC
hegemonic ambitions in Asia without creating a self-
fulfilling prophecy?
How detrimental is PRC ``unrestricted'' investment and
assistance for U.S. efforts to promote good governance
around the world and to limit corruption? How
detrimental are the PRC's perceived advantages to the
ability of U.S. companies to compete for international
business, and what policies and agreements should the
United States put in place to mitigate these effects?
What are the implications for U.S. global objectives and
for institutions that are seen to espouse Western
values, such as the IMF and the World Bank, if the PRC
increasingly begins to compete directly as an
international lender offering less encumbered
assistance?
As the PRC increasingly expands its ``hard power'' assets--
naval and military power--to protect its growing
international interests, how much greater are the
prospects for Sino-U.S. military confrontation, either
deliberate or accidental, and how should the U.S.
prepare for and deal with these prospects?
What policies should the United States adopt to prepare for
increasingly robust U.S.-China competition for energy
resources, international commodities, and space
exploration?
What will it mean for the United States and U.S. interests
should Taiwan lose its remaining diplomatic
relationships around the world? Should the United
States seek to play a more active role in seeking to
improve Taiwan's international position--perhaps by
reassessing current U.S. policy toward Taiwan in light
of China's rise?
How should the United States respond, if at all, to any
global perceptions of U.S. disengagement around the
world?
OPTIONS
Should U.S. policymakers decide that the status quo is
sufficient protection for U.S. interests, then little if any
action need be taken. The status quo presumes that U.S. soft
power, complex and multi-faceted as it is, will be dominant
globally far into the future and sufficiently resilient to
weather temporary ups and downs; that the capacity for PRC
global soft power will remain limited, both by Beijing's own
policy predilections and by other countries' self-interests;
and that the PRC will remain too pre-occupied with resolving
its own significant domestic economic inequities,
infrastructure problems, political transformation pressures,
and social instabilities to focus significant effort on its
global presence.
Should U.S. policymakers decide that the PRC's invigorated
activities around the world require a U.S. response to offset
or better compete with China, there are innumerable policy
options that might be considered, in both the ``hardline'' and
``stakeholder'' categories. Each of these possibilities
involves policy trade-offs. These, discussed in more complete
detail throughout this memo, are briefly summarized below. They
include:
Reinvigorate U.S. engagement around the world to counter
PRC soft power, including the expansion of U.S. public
diplomacy. In Asia, this could include active
participation in building the emerging economic and
political/security architecture of the region. In
Africa, it could include increased and more efficient
U.S. bilateral cooperation, trade, and military
relations, including the prospect of directly involving
the PRC and African governments in bilateral and
multilateral dialogue with the aim of defining goals,
issues, and agendas of mutual interest. U.S.
policymakers also could work to achieve greater
efficiency and to cut red tape in U.S. and multilateral
institution assistance and investment in the regions.
Seek to counter PRC efforts to isolate Taiwan by making
support for Taiwan's greater international
participation a condition of U.S. assistance and
economic interaction with other countries.
Seek observer status within the SCO and the EAS, and urge
China and African countries to create an observational
status within the Forum on China-Africa Cooperation,
enabling the United States and other countries to learn
about the policy priorities of these groups and to
participate in consultations on time-sensitive, urgent
challenges in these regions, including armed conflicts,
humanitarian crises, and security threats to Chinese
and U.S. businesses.
Urge China to support an equitable, rule-based global legal
and business environment and help to develop the rule
of law in the regions in which it is investing by
signing up to public-private sector good governance
initiative and agreements.
Maintain and publicize an accurate calculus of actual PRC
assistance and investment that is delivered, as opposed
to that which is merely announced.
Encourage China to join in multilateral and country-level
donor foreign assistance dialogues and related efforts
to prioritize key goals related to African development
and coordinate aid efforts in order to create
synergies, avoid duplication, and maximize each donor's
strengths--including infrastructure construction in the
case of China.
Offer to work collaboratively with China to help it to
design, coordinate, and increase the efficiency of its
nascent institutional foreign aid structure, including
with respect to more clearly differentiating its
official grant-based aid from its subsidization of
trade and commerce credit; monitoring the effectiveness
of its aid strategies; harmonizing aid reporting with
other donor governments; and developing best practices
in support of transparency and accountability.
Focus on an assertive U.S. role in solving regional
problems, including health care to address HIV/AIDS,
malaria and other diseases; providing drugs, and
building clinics; alternative energy sources;
improvements in agricultural development capacities and
providing increased education and human resource
training.
Emphasize cooperation among Russia, China, the EU, and
other outside powers in assisting fragile states to
develop their independence and security.
Work harder to ensure that U.S. democratization and human
rights values are not seen by other countries as
encumbrances and prohibitions placed in the way of, but
instead as things that ultimately will improve, their
economic progress.
Re-think the current U.S. ``gold standard'' in regional and
bilateral Free Trade Agreements, especially when such a
standard requires substantial changes in domestic laws.
Reinvigorate the Asia-Pacific Economic Cooperation Forum
(APEC) as a vehicle for U.S. soft power influence in
Asia.
----------
Latin America and the Caribbean\25\
---------------------------------------------------------------------------
\25\ Prepared by Mark P. Sullivan, Specialist in Latin American
Affairs. This memo draws from CRS Report RS22119, China's Growing
Interest in Latin America, April 20, 2005, by Kerry Dumbaugh and Mark
P. Sullivan.
---------------------------------------------------------------------------
OVERVIEW
China's growing interest in Latin America and the Caribbean
is a fairly new phenomenon that has developed over the past
several years. Beginning in April 2001 with President Jiang
Zemin's 13-day tour of Latin America, a succession of senior
Chinese officials have visited Latin American countries to
court regional governments, while Latin American leaders also
have been frequent visitors in Beijing. China's primary
interest in the region appears to be to gain greater access to
needed resources--such as various ores, soybeans, copper, iron
and steel, and oil--through increased trade and investment. It
is also likely that Beijing's additional goal is to isolate
Taiwan by luring the 12 Latin American and Caribbean nations
still maintaining diplomatic relations with Taiwan to shift
their diplomatic recognition to China. While China's economic
linkages with Latin America have grown, the U.S. advantage of
geographical proximity means that the PRC presence is likely to
remain dwarfed by U.S. trade with and investment in the region.
Moreover, although many Latin American countries welcome
Chinese investment, some have viewed China as an economic
threat, and are concerned that both their domestic industries
and their U.S. export markets will be overwhelmed by Chinese
competition. Nevertheless, some analysts maintain that
Beijing's growing role in the region may have longer-term
implications for U.S. regional interests and influence.
DIPLOMACY
Bilateral Relations and Competition With Taiwan
Of the 33 independent countries in the Latin America and
Caribbean region, China currently has official diplomatic
relations with 21, while the remaining 12 nations maintain
relations with Taiwan (see Table 1). For ideological reasons,
Communist Cuba was the first nation in the region to recognize
China back in 1960, while Chile under Socialist President
Salvador Allende was the second in 1970. Mexico established
relations with China in 1972, and most South America nations
did so in the 1970s and 1980s, including Argentina and Brazil,
which were run by military dictatorships at the time. In
addition to Cuba, nine other Caribbean nations have diplomatic
relations with the PRC, five of which have had relations since
the 1970s.
Over the years, China has signed a variety of bilateral
partnership agreements with several countries in the region in
order to strengthen relations. The most politically significant
of these are known as ``strategic partnership agreements.'' To
date, China has signed such agreements with Brazil (1993),
Venezuela (2001), Mexico (2003), and Argentina (2004).
Additional ``cooperative partnership'' or ``friendly and
cooperative partnership'' agreements have been signed with
Bolivia, Chile, Colombia, Cuba, Ecuador, Jamaica, and Peru.\26\
In the 1980s, China began to augment its expertise on Latin
America through agreements for Chinese officials to travel to
the region to study Spanish, and through the development of
think tanks such as the Institute of Latin American Studies of
the Chinese Academy of Social Sciences (CASS) and the
Department of Studies about Latin America of the Chinese
Communist Party.\27\
---------------------------------------------------------------------------
\26\ Jorge Dominguez, ``China's Relations with Latin America:
Shared Gains, Asymmetric Hopes,'' Inter-American Dialogue, Working
Paper, June 2006, p. 23; Derek J. Mitchell, ``China and the Developing
World,'' pp. 126-127, paper prepared for May 2007 conference, The China
Balance Sheet in 2007 and Beyond, sponsored by the Center for Strategic
and International Studies; and ``China's Quest for Regional Influence:
A Balance,'' Latinnews.com, Southcom Strategic Paper, September 2006,
p. 3.
\27\ Dominguez, p. 22.
---------------------------------------------------------------------------
For many of the region's nations, particularly in the
Caribbean and Central America, there has been a political
dynamic in China's expanding economic linkages and foreign
assistance. China, with some success, has been trying to woo
countries away from recognizing Taiwan. Taiwan's official
relations in the region now include five Central American
countries, six in the Caribbean, and one in South America.
For decades, Taiwan was a consistent provider of financial
assistance and investment in Latin America and the Caribbean in
order to nurture its remaining official relationships, a policy
often referred to as checkbook or dollar diplomacy. But Taipei
now is hard-pressed to compete against the growing economic and
diplomatic clout of China, which in recent years has stepped up
its own version of checkbook diplomacy. Since 2004, three
countries in the region have switched their diplomatic
recognition from Taiwan to the PRC: Dominica in March 2004,
Grenada in January 2005, and most recently, Costa Rica in June
2007. Dominica severed relations with Taiwan in 2004 after
Beijing trumped Taiwan's $9 million in assistance with a pledge
of $122 million in assistance to the tiny country over six
years.\28\
---------------------------------------------------------------------------
\28\ ``Dominica severs ties with Taiwan,'' BBC Caribbean, March 29,
2004.
Table 2. China vs. Taiwan: Diplomatic Recognition in Latin America and
the Caribbean
------------------------------------------------------------------------
Countries Recognizing China Countries Recognizing the Republic of
(PRC) China, or ROC (Taiwan)
------------------------------------------------------------------------
Mexico
------------------------------------------------------------------------
CENTRAL AMERICA:
Costa Rica El Salvador, Guatemala, Honduras,
Nicaragua, Panama
------------------------------------------------------------------------
CARIBBEAN:
Antigua and Barbuda, Bahamas, Belize, Dominican Republic, Haiti, St.
Barbados, Cuba, Dominica, Kitts and Nevis, St. Lucia, St.
Grenada, Guyana, Jamaica, Vincent and the Grenadines
Suriname, Trinidad and Tobago
------------------------------------------------------------------------
SOUTH AMERICA:
Argentina, Bolivia, Brazil, Paraguay
Chile, Colombia, Ecuador, Peru,
Uruguay, Venezuela
------------------------------------------------------------------------
Grenada switched its recognition to China in the aftermath
of Hurricane Ivan that devastated the island in September 2004
and destroyed a new cricket stadium that Taiwan had helped
build. Disappointed about Taiwan's response after the
hurricane, Grenadian Prime Minister visited China and received
support for the rebuilding of the cricket stadium, with workers
supplied by China, as well as other grants, support for the
agricultural sector, and scholarships.
Most recently, Costa Rica under President Oscar Arias
switched diplomatic recognition to China in June 2007 in large
part because of growing trade relations in recent years and the
prospect for increased Chinese trade and investment. China is
now Costa Rica's second largest trading partner, after the
United States, and the two countries are considering a free
trade agreement.
China's overtures in the Caribbean experienced a setback in
May 2007 when St. Lucia switched its diplomatic recognition
back to Taiwan after ten years of recognizing the PRC. The
diplomatic switch was related to the ouster of Prime Minister
Kenny Anthony's St. Lucia Labour Party (SLP) from power in
December 2006, and the election of a new government led by the
United Workers Party (UWP). (In 1997, the ruling SLP government
under Anthony had orchestrated a diplomatic switch from Taiwan
to China.) Taiwan's promises of assistance to the new UWP
government in 2007 includes support for public health,
education (including the provision of computers and
scholarships), and development of the agricultural sector.
Regional Organizations
Despite the setback with St. Lucia, the PRC's ability to
develop and expand contacts with Taiwan's friends in the region
has been facilitated by a decision by the Organization of
American States (OAS) in May 2004 to accept China as a formal
permanent observer in the OAS. The OAS has 35 members,
including the United States and all 12 of the region's
countries currently conferring diplomatic relations on Taiwan.
Some 60 countries worldwide are OAS permanent observers, but
Beijing has strongly objected to Taiwan's efforts to seek
observer status.
In addition to the OAS, China has participated in several
other regional organizations. Dating back to 1975, China has
often sent its observers to the annual meetings of the Agency
for the Prohibition of Nuclear Weapons in Latin America and the
Caribbean (OPANAL), the organization set up in the aftermath of
the 1967 signing of the Tlatelolco Treaty prohibiting nuclear
weapons in the region. The PRC has been an observer since 1994
to the Latin American Integration Association (ALADI), a 12-
member regional organization focusing on trade integration and
the goal of a common market. China is a member of the East
Asia-Latin American Cooperation Forum (FOCALAE), an
organization first established in 2001 that brings together
ministers and officials from 33 countries from the two regions
for strengthening cooperation in such areas as education,
science and technology, and culture. The PRC also is a member
of the Asia Pacific Economic Cooperation (APEC) forum that
annually brings together leaders of 21 Pacific rim nations
(including Taiwan as ``Chinese Taipei'') as well as the Latin
American nations of Chile, Mexico, and Peru.
More recently, in March 2007, China signed an agreement
with the Inter-American Development Bank (IDB) to formalize
talks on the PRC's request to become an IDB member. The bank
has launched an internal discussion on whether to accept China
as a member. If accepted, China would join Japan and Korea to
become the third Asian country to join the IDB. China is
already a member of the Caribbean Development Bank based in
Barbados.
China has also helped support UN peacekeeping operations in
the region through its contribution of a ``special police''
peacekeeping contingent of 125 personnel as part of the United
Nations Stabilization Mission in Haiti (MINUSTAH) that began in
2004. This marked Beijing's first deployment of forces ever in
the Western Hemisphere. MINUSTAH's mission, which was due to
expire in mid-October 20007, was extended for another year
until October 2008. In 2005, China reportedly put pressure on
Haiti to switch its diplomatic recognition from Taiwan to the
PRC as a condition for supporting the renewal of the UN
peacekeeping mission, but Haiti has retained its relations with
Taiwan.\29\
---------------------------------------------------------------------------
\29\ Rowan Scarborough, ``China Seen Averse to Haiti-Taiwan Ties;
Blocks Extension of UN Mission,'' Washington Times, June 8, 2005; and
``Haiti: Extending Minustah's Mandate,'' Latin American Caribbean and
Central American Report, August 16, 2007.
---------------------------------------------------------------------------
Analysis
For now, it appears that China and Taiwan will continue to
battle for diplomatic recognition, using the prospect of
increased aid, trade, and investment to sway the decisions of
the remaining dozen nations recognizing Taiwan. Some observers
maintain that key countries to watch include the Central
American countries of Nicaragua and Panama, the Caribbean
nation of the Dominican Republic, and Paraguay, the sole South
American nation that continues to recognize Taiwan.\30\ In the
aftermath of Costa Rica's June 2007 decision to switch
diplomatic partners, Chinese officials predicted a domino
effect in which other countries would switch their recognition
to China, but Taiwan launched an initiative in the region in
order to counter China's attempts to tempt additional countries
to switch sides that appears to have been successful in the
short term. Nevertheless, over the long run, China's sheer
economic size and power bodes well for its ability to entice
Taiwan's remaining 12 allies in Latin America and the Caribbean
to switch diplomatic sides.
---------------------------------------------------------------------------
\30\ Central America: Daniel P. Erikson and Janice Chen, ``China,
Taiwan, and the Battle for Latin America,'' The Fletcher Forum of World
Affairs, Vol. 31:2 Summer 2007.
---------------------------------------------------------------------------
Beyond competition with Taiwan, China's diplomatic efforts
in the larger countries of the region appear to be geared at
strengthening relations and expanding cooperation with nations
that have potential resources and investment opportunities that
could help feed China's resource needs and expanding economy.
These diplomatic overtures in Latin America also satisfy
China's efforts to foster relations with other developing
countries worldwide and its promotion of South-South
cooperation.
A 2006 study by the Inter-American Dialogue examined the
1991--2003 UN voting records of several major Latin American
countries--Argentina, Brazil, Chile, Mexico, and Venezuela--and
concluded that the increased Chinese trade with the region in
recent years has had no discernable effect on the voting
behavior of these nations. The study also looked at several
countries having diplomatic relations with Taiwan--Costa Rica
(before it switched diplomatic relations to the PRC), Panama,
and Paraguay--and found little difference in voting coincidence
with China between countries that recognize China and those
that recognize Taiwan. Cuba, for political reasons, stands out
as the Latin American country with a high voting coincidence
with China, although increases in economic linkages do not
appear to have had an impact on Cuba's voting behavior.\31\
---------------------------------------------------------------------------
\31\ Dominguez, pp. 12-18.
---------------------------------------------------------------------------
While countries in the region that recognize Taiwan often
speak out in favor of its inclusion at the UN and its various
agencies, this is not always the case. During a vote in 2007 on
Taiwan's membership in the World Health Organization (WHO),
Panama and Nicaragua both abstained, while Costa Rica, which
recognized Taiwan at the time, voted against its
membership.\32\
---------------------------------------------------------------------------
\32\ ``China Seen Edging Taiwan in LatAm Diplomacy,'' Agence France
Presse, May 29, 2007.
---------------------------------------------------------------------------
ECONOMIC TIES
Trade
Much of China's interest in Latin America--especially in
South America--is economically motivated, with Beijing eager
for access to such commodities as iron and other ores,
soybeans, copper, iron and steel, integrated circuits and other
electrical machinery, and oil in order to meet the demands of
China's booming economy. Total trade between China and the
Latin America and Caribbean region rose from $8.2 billion in
1999 to almost $70 billion in 2006 (see Figure 1). During this
period, China's trade with the region as a percentage of its
world trade increased from 2.3% in 1999 to 4% in 2006. For many
countries in the regions, China has become a major trading
partner and ranks as one of the top four export and import
markets. China signed a free trade agreement (FTA) with Chile
in 2005, and in October 2007 China and Costa Rica announced
that they would explore the feasibility of an FTA.
China's imports from the region grew from almost $3 billion
in 1999 to almost $34 billion in 2006, more than an eleven-fold
increase in seven years.\33\ Because of this growth in imports,
China has run a trade deficit with the region for three out of
the past four years. While imports from Latin America are just
a small percentage of China's overall imports, they grew from
1.8% of total Chinese imports in 1999 to 4.3% in 2006. China's
top five import sources in Latin America in 2006 were Brazil
($12.9 billion), Chile ($5.7 billion), Argentina ($3.7
billion), Peru ($2.9 billion), and Venezuela ($2.7 billion).
Major imports from the region in 2006 included: iron, copper,
lead and other ores (30%); soybeans (14%); oil and other
mineral fuel (14%); copper (7.5%); and electrical machinery
(largely integrated circuits) 8.3%. For most countries in the
region, one or two commodities dominate their exports to China.
(See Table 3.)
---------------------------------------------------------------------------
\33\ Trade statistics are from the World Trade Atlas, which uses
official Chinese government data.
---------------------------------------------------------------------------
China's exports to Latin America have also grown
considerably in the last seven years, from $5.3 billion in 1999
to $35.8 billion in 2006. Major exports have included
electrical machinery; home, office, and other appliances,
including computers; woven and knit apparel; footwear; and
organic chemicals. During this period, the overall share of
China's exports to the region as a percentage of its worldwide
exports, although small, increased slightly from 2.7% in 1999
to 3.7% in 2006. China's top five export destinations in Latin
America in 2006 were Mexico ($8.8 billion), Brazil ($7.4
billion), Panama ($3.9 billion), Chile ($3.1 billion), and
Argentina ($2 billion).
Figure 1. China's Trade with Latin America and the Caribbean (LAC)--
1999-2006 (U.S. $millions)
Source: World Trade Atlas, which uses Chinese Government statistics.
Table 3. China's Imports from Latin America and the Caribbean (LAC) in 2006: Top Ten Source Countries
----------------------------------------------------------------------------------------------------------------
Percent of Total
Country Import Value (U.S. LAC Exports to Country's Major Exports to
$ billions) China China
----------------------------------------------------------------------------------------------------------------
Brazil................................... 12.9 38.0 Iron Ore (44%)
Soybeans (23%)
Chile.................................... 5.7 16.7 Copper Ore and Copper (79%)
Argentina................................ 3.7 10.9 Soybeans and Soybean Oil
(61%)
Peru..................................... 2.9 8.5 Copper, Iron, and other
Ores (53%)
Venezuela................................ 2.7 7.8 Oil (89%)
Mexico................................... 2.6 7.7 Electrical Machinery and
Machinery (57%)
Costa Rica............................... 1.7 5.1 Integrated Circuits (96%)
Cuba..................................... 0.5 1.6 Nickel (54%)
Jamaica.................................. 0.4 1.1 Aluminum Oxide (99%)
Uruguay.................................. 0.3 0.8 Soybeans (47%)
----------------------------------------------------------------------------------------------------------------
Source: World Trade Atlas, which uses Chinese Government statistics.
In terms of China's trade importance for the region, as
noted above, China ranks as one of the top four export markets
and import markets for many countries in the region. Looking at
Latin America and the Caribbean as a whole, almost $26 billion
or about 3.7% of the region's exports worldwide in 2006 were
destined for China while about $53 billion or about 8% of its
imports were from China.\34\ Table 4 shows the relative
significance of China as a trading partner for several
countries in the region in 2006.
---------------------------------------------------------------------------
\34\ Calculations derived from trade statistics presented in:
International Monetary Fund, Direction of Trade Statistics, 2007
Yearbook.
---------------------------------------------------------------------------
Investment
While China's trade flows have increased dramatically, both
globally and with Latin America, Chinese foreign direct
investment (FDI) abroad, while increasing, has not been as
significant. China's cumulative stock of FDI worldwide amounted
to $73.3 billion at the end of 2006--just 0.58% of global FDI
stock.\35\ Traditionally, a large majority of China's
investment abroad has been concentrated in Asia, largely Hong
Kong, although in recent years, investment to Latin America and
the Caribbean has been increasing.
---------------------------------------------------------------------------
\35\ UNCTAD, ``World Investment Report 2007,'' October 2007.
---------------------------------------------------------------------------
The cumulative stock of Chinese FDI in Latin American and
Caribbean rose from $4.6 billion in 2003, accounting for almost
14% of China's FDI stock worldwide, to $11.5 billion in 2005,
accounting for 20% of China's investment worldwide.\36\ Closer
scrutiny of China's FDI data for the region, however, shows
that the overall level could be significantly overstated. An
overwhelming majority of Chinese FDI to the region goes to
three British dependencies--the Cayman Islands, the British
Virgin Islands, and Bermuda--that are known as tax havens. In
2005, almost 96% of Chinese FDI in Latin America and the
Caribbean went to these three nations. These three nations are
also major sources of FDI into China, showing that the possible
intention of China's FDI into these jurisdictions could be so-
called ``round-tripping,'' whereby Chinese investors bring the
capital back into the country as foreign capital in order to
take advantage of preferences given to foreign firms.
---------------------------------------------------------------------------
\36\ He Li, ``China's Growing Interest in Latin America and Its
Implications,'' The Journal of Strategic Studies, Vol. 30, No. 4-5,
August-October 2007, p. 845, utilizes statistics from China's Ministry
of Commerce.
Table 4. Importance of China as a Trading Partner for Selected Latin American Countries, 2006
----------------------------------------------------------------------------------------------------------------
Exports to China Percent of Imports from China Percent of
Country (U.S. $ millions) Country's Exports (U.S. $ millions) Country's Imports
----------------------------------------------------------------------------------------------------------------
Argentina................... 3,473 7.5 2,150 6.3
Brazil...................... 8,399 6.1 7,989 8.7
Chile....................... 4,934 8.8 3,487 10.0
Colombia.................... 1,066 1.9 5,250 8.5
Costa Rica.................. 558 6.6 543 4.3
Mexico...................... 1,688 0.7 24,438 9.5
Paraguay.................... 20 1.0 1,412 26.9
Peru........................ 2,267 9.7 1,586 10.4
----------------------------------------------------------------------------------------------------------------
Source: World Trade Atlas, utilizing data provided by Latin American governments.
China also could be using these tax-friendly jurisdictions
to register companies and save money, with investment then
actually flowing to Latin America.\37\
---------------------------------------------------------------------------
\37\ ``China: Going Outside, Round-Tripping and Dollar Diplomacy:
An Introduction to Chinese Outward Direct Investment,'' Global Insight,
January 25, 2006; ``World: Chinese ODI in Latin America: A Convergence
of Interests,'' Global Insight, February 2, 2006.
---------------------------------------------------------------------------
Non-financial Chinese investment in Latin America has
focused on the extraction and production of national resources,
but also has included investment in manufacturing assembly,
telecommunications, and textiles. Outside of the Caribbean tax
haven jurisdictions, China's FDI in the region in 2005 was
concentrated in Mexico ($142 million), Peru ($129 million),
Brazil ($81 million), Venezuela ($43 million), Panama ($35
million), and Cuba ($34 million).\38\ Since the entry into
force of the North American Free Trade Agreement (NAFTA) in
1994, China has viewed Mexico as an access point to the U.S.
market, with a number of export assembly plants established in
the country. In Peru, Chinese investment has been concentrated
in mining (especially copper) and oil. In April 2007, China's
Zijin Mining Group agreed to buy a majority share of the UK-
based Monterrico Metals that operates exclusively in Peru, and
in July 2007, China's Aluminum Corporation of China (Chinalco)
purchased majority shares in Peru Copper, a Canadian mining
company, which owns a property that could become one of Peru's
largest copper mines by 2012.\39\ In Brazil, Chinese investment
has been concentrated in wood processing, mining, and energy.
In 2007, China's state-owned steel company, Baosteel, announced
that it would be a majority partner with Brazil's large mining
company, Companhia Vale do Rio Doce (CVRD), in building a steel
plant in southern Brazil.
---------------------------------------------------------------------------
\38\ He Li, p. 845, utilizing statistics from China's Ministry of
Commerce.
\39\ Marco Aquino, ``China Miners Keenly Eyeing Peru Resources,''
Reuters News, September 13, 2007.
---------------------------------------------------------------------------
The visit of Chinese President Hu Jintao to several Latin
American countries in November 2004 raised expectations of a
substantial increase in Chinese investment in the region in
coming years. During a speech to the Brazilian Congress, Hu
stated that China would invest $100 billion in Latin America
over the next 10 years. In Argentina alone, he said China would
invest $20 billion in the next decade. Latin American nations
welcomed the increase in foreign capital that the Chinese were
promising, especially since the region was experiencing a slump
in attracting FDI. Among the investment pledges highlighted in
the press during President Hu's trip to Latin America were:
railway, oil exploration, and construction projects in
Argentina; a nickel plant and oil and gas exploration in Cuba;
copper mining projects in Chile; a steel mill, railway, and oil
exploration projects in Brazil; and oil and gas exploration
projects in Ecuador, Bolivia, and Colombia.
Chinese promises of such high levels of investment in the
region have not yet materialized, and likely will total far
less than the promised $100 billion by 2014. Many of the
planned projects have not gone forward. At least one Chinese
official specializing in Latin America maintains that the $100
billion referred to bilateral trade, not investment.\40\
According to some observers, China's inexperience in investment
abroad, its lack of information about business in Latin
America, and concerns about the risks of investing in the
region all combined have limited China's investment in the
region.\41\
---------------------------------------------------------------------------
\40\ He Li, p. 846.
\41\ Claudio Loser, ``The Growing Economic Presence of China in
Latin America,'' China-Latin America Task Force, Center for Hemispheric
Policy, University of Miami, December 15, 2006.
---------------------------------------------------------------------------
Energy
Energy concerns have played a role in China's overtures
toward Latin America, with the PRC either concluding or
exploring various energy investments in Brazil, Ecuador,
Bolivia, Peru, Colombia, and Venezuela, as well as offshore
projects in Argentina and Cuba. The three major, state-owned
Chinese energy corporations making Latin American investments
are the China Petroleum and Chemical Corporation (Sinopec),
China National Offshore Oil Corporation (CNOOC), and China
National Petroleum Corporation (CNPC). In April 2006, Sinopec
signed an agreement with Brazil's Petrobras to build a natural
gas pipeline linking the northeast and southeast of Brazil.
Petrobras and CNOOC also reportedly are studying the
feasibility of joint operations in exploration, refining, and
pipeline construction around the world. In Cuba, Sinopec has
focused on onshore oil extraction in Pinar del Rio province in
western Cuba. In Venezuela, CNPC is partnered with Venezuela's
state-oil company, PdVSA (Petroleos de Venezuela, S.A.), for
exploration in development of the Orinoco belt oil reserves.
Despite these investments in oil production and assets,
observers point out that China relies relatively little on
Latin America for oil, which accounts for some 3% of China's
oil imports, and that while the percentage could rise a bit, it
is unlikely to change significantly in the future.\42\
---------------------------------------------------------------------------
\42\ Derek Mitchell and Chietigj Bajpaee, ``China and Latin
America,'' Background Paper, China Balance Sheet, Center for Strategic
and International Studies, July 2006.
---------------------------------------------------------------------------
Some U.S. observers have been particularly concerned about
China's activities in Venezuela, and question the reliability
of Venezuela, which supplied over 11% of U.S. crude oil imports
in 2006, as a major supplier of oil to the United States. They
are concerned that Venezuela is looking to develop China as a
replacement market, although Venezuelan officials maintain that
they are only attempting to diversify Venezuela's oil markets.
Venezuela exported about 1.4 million barrels per day (bpd) of
oil to the United States in 2006, almost 64% of its net oil
exports of 2.2 million bpd. For comparison, Venezuela's oil
exports to China are far lower, although there is discrepancy
about the actual level. The U.S. Energy Information
Administration estimates that Venezuela's oil exports to China
were about 80,000 bpd in 2006, while figures most often cited
in the press are that Venezuela exported 150,000 bpd of oil to
China.\43\
---------------------------------------------------------------------------
\43\ Energy Information Administration, ``Venezuela, Country
Analysis Brief,'' October 2007; David Luhnow and Peter Millard, ``How
Chavez Aims to Weaken U.S.--China to Get Preference with Oil from
Projects Now Under State Control,'' Wall Street Journal, May 1, 2007.
---------------------------------------------------------------------------
Venezuela has vowed to increase its oil exports to China to
1 million bpd by 2011, although energy analysts maintain that
there are two major difficulties with this ambition. First,
China does not have the capability to refine Venezuela's heavy
crude oil, and second, freight costs are high because of the
large distance between the two countries.\44\ Nevertheless, in
2006, PdVSA announced that it would buy 18 oil tankers from
China that would help Venezuela increase its oil exports to
Asia.
---------------------------------------------------------------------------
\44\ Andy Webb-Vidal, ``Chavez on Oil Export Mission in China,
Financial Times, August 24, 2006.
---------------------------------------------------------------------------
Tourism
Over the past four years, China has designated 16 countries
in Latin America and the Caribbean as approved destinations for
Chinese citizens to travel as tourists. Such agreements allow
the countries to take advantage of the increase in Chinese
tourist travel worldwide, which is expected to reach 100
million by 2020. Cuba was the first country in the region to
receive ADS status in 2003. Since 2005, 15 more countries in
the region have been designated: Mexico; the South American
countries of Argentina, Brazil, Chile, Peru, and Venezuela; and
the Caribbean nations of Antigua and Barbuda, the Bahamas,
Barbados, Dominica, Grenada, Guyana, Jamaica, Suriname, and
Trinidad and Tobago. Costa Rica appears to be a likely ADS
candidate since its 2007 switch in diplomatic relations from
Taiwan to the PRC. In November 2007, Costa Rica announced that
some 200 Chinese tour operators would visit the country over
the next several months as a step toward increasing Chinese
tourism in the Central American country. While Chinese tourism
to Latin America to date has not been significant, this could
change given the recent tourism agreements with the region as
well as the marketing campaigns undertaken by various nations
in the region to attract Chinese tourists.\45\
---------------------------------------------------------------------------
\45\ He Li, p. 848.
---------------------------------------------------------------------------
Analysis
While many press accounts focus on Latin American countries
welcoming Chinese trade and investment, this view is not shared
by all countries in the region. Mexico and many Central
American countries view China as a competitor, in terms of
supplying assembled goods to the U.S. market. They fear losing
their U.S. market share to China. Fear of competition from
Chinese apparel and textile exports was a major factor for
Central American nations and the Dominican Republic in
negotiating the DR-CAFTA agreement with the United States.
There has also been fear in other Latin American countries
about the impact of Chinese competition on domestic
manufacturing sectors. For example, Brazilian manufacturers of
footwear, toys, textiles, and consumer electronics have
suffered from competition with China.\46\ Because of the large
increase in Chinese imports, Brazil is poised to run a trade
deficit with China in 2007, the first since 2000, which has
raised considerable concern among Brazilian manufacturers. The
specter of a flood of Chinese manufactured exports to Latin
America has led some economists to question the future
viability for manufacturing in Latin America.\47\ Other
economists and observers contend, however, that increased
Chinese trade and investment can act as an engine of growth for
Latin American economies and could serve as an impetus for
reform in the region in order to increase the ability to
compete with Chinese imports.\48\
---------------------------------------------------------------------------
\46\ Dominguez, p. 30.
\47\ Maurico Mesquita Moreira, ``Fear of China: Is There a Future
for Manufacturing in Latin America?'' World Development, Vol. 35, No.
3, 2006.
\48\ Economic Commission for Latin America and the Caribbean,
``Latin America and the Caribbean in the World Economy, 2004-2005
Trends,'' p. 157; Javier Santiso, ``Can China Change Latin America?''
OECD Observer, July 2007; and He Li, p. 852.
---------------------------------------------------------------------------
As noted above, while China's economic linkages with Latin
America and the Caribbean have grown considerably in the past
few years, they represent only a small percentage of the PRC's
economic linkages worldwide. Moreover, U.S. trade and
investment with the region continues to dwarf that of China's
involvement. China's overall trade with LAC grew to about $70
billion in 2006, representing just 4% of its overall trade. In
comparison, U.S. trade with Latin America and the Caribbean
amounted to almost $555 billion in 2006, accounting for about
19% of U.S. trade worldwide.\49\ Moreover, the United States is
far more important as a trading partner for the Latin America
and Caribbean region than China is. In 2006, almost 38% of the
region's exports were destined for the United States, compared
to 3.7% destined for China; likewise, over 34% of the region's
imports were from the United States in 2006, compared to almost
8% from China.\50\ While China's reported cumulative stock of
FDI in the region amounted to $11.5 billion in 2005, the
cumulative stock of U.S. FDI in the region amounted to $366
billion in 2005, and grew to $403 billion by 2006.\51\ Many
observers are also skeptical about the prospects of Venezuela
significantly increasing its exports to China.
---------------------------------------------------------------------------
\49\ U.S. trade statistics are from the Department of Commerce, as
presented by World Trade Atlas.
\50\ Calculations derived from trade statistics presented in:
International Monetary Fund, Direction of Trade Statistics, 2007
Yearbook.
\51\ U.S. foreign investment statistics are from the ``Survey of
Current Business,'' September 2007, Department of Commerce.
---------------------------------------------------------------------------
An area in which China's economic overtures toward Latin
America have been successful is in securing ``market economy
status,'' a determination which makes it more difficult for a
country to initiate anti-dumping actions at the World Trade
Organization.\52\ In recent years, the PRC has secured this
designation from a number of Latin American countries,
including Argentina, Brazil, Chile, Peru, and Venezuela.\53\
---------------------------------------------------------------------------
\52\ The 110th Congress is considering legislation that would make
it easier to initiate countervailing duties against ``Non-market
economies.'' Bills include: H.R. 708; H.R. 1229; H.R. 2942; S. 974; and
S. 364.
\53\ ``China: Going Outside, Round-Tripping and Dollar Diplomacy:
An Introduction to Chinese Outward Direct Investment,'' Global Insight,
January 25, 2006; for information on congressional efforts to make it
easier to initiate anti-dumping actions against non-market economies,
see CRS Report RL33536, China-U.S. Trade Issues, by Wayne Morrison.
---------------------------------------------------------------------------
FOREIGN ASSISTANCE
The exact level of China's foreign assistance to Latin
America and the Caribbean is uncertain, but reportedly the
region receives about 10% of China's foreign aid worldwide, far
behind assistance that China reportedly provides to Asia and
Africa.\54\ Aid to the region appears to focus on bilateral
assistance rather than through regional or multilateral
institutions, with the objectives of strengthening diplomatic
relations and isolating Taiwan.\55\
---------------------------------------------------------------------------
\54\ Derek J. Mitchell, p. 117; Michael A. Glosny, ``Meeting the
Development Challenge in the 21st Century: American and Chinese
Perspectives on Foreign Aid,'' National Committee on United States-
China Relations, August 2006, p. 15.
\55\ He Li, p. 847.
---------------------------------------------------------------------------
Particularly in the Caribbean and Central America, China
has used assistance in recent years as part of its checkbook
diplomacy to entice countries in the region to switch their
diplomatic recognition from Taiwan, while a number of countries
in the region have been adept at playing the two countries
against each other in order to maximize financial benefits. As
noted above, Chinese assistance to Dominica and Grenada was
instrumental in those countries deciding to switch diplomatic
recognition. Costa Rica was also rumored to have been offered
substantial assistance, although Costa Rican officials maintain
the prospect of increase trade and investment was the primary
rationale for the switch.
In preparation for the Cricket World Cup 2007 played in the
Caribbean, China provided assistance and workers to build
cricket stadiums in Antigua and Barbuda, Grenada, Jamaica, and
even St. Lucia, which subsequently switched its diplomatic
recognition back to Taiwan. China also had built a cricket
stadium in Dominica in 2004.
China also has provided assistance for housing, education
(including scholarships as well as the construction of
schools), health (including the construction of hospitals), and
other infrastructure such as railways and highways.
In recent years, China also has provided additional types
of assistance to the region, including disaster assistance,
debt forgiveness, and concessional loans. In the aftermath of
such natural disasters as earthquakes, floods, and hurricanes,
China often has responded with assistance. For example, China
provided hurricane reconstruction assistance to Grenada in the
aftermath of Hurricane Ivan in 2004. In August 2007, China
provided support to Peru in the aftermath of a devastating
earthquake in the southern part of that country. While most of
China's debt forgiveness has been for low-income African
countries, China announced in July 2007 that it would write off
over $15 million in debt owed by Guyana, one of the poorest
countries in the hemisphere.\56\ In terms of concessional
loans, China's Export-Import Bank provided a $12 million loan
to Jamaica in the water sector in 2000.
---------------------------------------------------------------------------
\56\ ``China Cancels Debt Owed by Guyana,'' BBC Monitoring
Americas, July 11, 2007.
---------------------------------------------------------------------------
In addition to Jamaica, China has signed concessional loan
framework agreements with three other countries in the region--
Suriname, Venezuela, and Trinidad and Tobago.\57\ In September
2007, China announced that it would provide about $530 million
in favorable loans over three years to Chinese companies
investing in the Caribbean.\58\
---------------------------------------------------------------------------
\57\ Paul Hubbard, ``Aiding Transparency: What We Can Lean About
China Exim Bank's Concessional Loans,'' Center for Global Development,
Working Paper Number 126, September 2007.
\58\ ``More Chinese Investment Coming,'' BBC Caribbean, September
11, 2007.
---------------------------------------------------------------------------
In early November 2007, China and Venezuela agreed to
establish a joint development fund (with a $4 billion
contribution from China and a $2 billion contribution from
Venezuela) that would be used to finance loans for
infrastructure, energy, and social projects in both
nations.\59\
---------------------------------------------------------------------------
\59\ ``Venezuela, China Govts Create $6 Bln Joint Development
Fund,'' Dow Jones Newswires, November 6, 2007.
---------------------------------------------------------------------------
China also has increased student and educational exchanges
with the region. In 2006, it established the first Confucius
Institute in the region, in Mexico City, with the goal of
promoting Chinese language and culture.
While the lack of data on Chinese foreign assistance going
to the region makes it impossible to compare Chinese and U.S.
assistance levels, it is safe to assume that U.S. assistance is
far greater. Looking at 2005 statistics comparing foreign
assistance levels from developed countries to Latin America and
the Caribbean, the United States was by far the single largest
bilateral donor to the region, accounting for 29% of the $4.6
billion in bilateral assistance.\60\
---------------------------------------------------------------------------
\60\ Organization for Economic Cooperation and Development,
Geographical Distribution of Financial Flow to Aid Recipients, 2001-
2005, 2007, p. 260.
---------------------------------------------------------------------------
IMPLICATIONS FOR U.S. POLICY IN LATIN AMERICA
AND THE CARIBBEAN
China's increasing linkages with Latin America and the
Caribbean prompted growing concerns in Congress about China's
intentions in the region beginning in 2005. House and Senate
subcommittees held hearings that year on China's role in Latin
America, while the U.S. China Economic and Security Review
Commission, established by Congress, held hearings on China's
global expansion, including in the Western Hemisphere. A flurry
of other research studies emerged on the issue, examining a
range of issues related to China's growing involvement in the
region.
In congressional testimony and other statements, Bush
Administration officials have downplayed concerns about
potential threats to the United States emanating from China's
engagement with Latin American nations, although they have
maintained that the United States needs to be watchful of
China's actions in the hemisphere. In April 2005 testimony
before the House Subcommittee on the Western Hemisphere, then
Assistant Secretary of State for Western Hemisphere Affairs
Roger Noriega stated that ``China's influence in the region is
minimal today,'' and that while China's presence in the
hemisphere is growing, ``it is safe to say the United States
has been and will continue to be the long-term partner of
preference.'' \61\
---------------------------------------------------------------------------
\61\ House International Relations Committee, Subcommittee on the
Western Hemisphere, Hearing on ``China's Influence in the Western
Hemisphere,'' Serial No. 109-63, April 6, 2005.
---------------------------------------------------------------------------
At the same hearing, then Deputy Assistant Secretary of
Defense for Western Hemisphere Affairs Rogelio Pardo-Maurer
testified that there was no ``evidence that Chinese military
activities in the Western Hemisphere, including arms sales,
pose a direct conventional threat to the United States.''
Nevertheless, both officials cautioned that the United States
needed to be aware of China's actions in the region. Noriega
maintained that the United States would continue to monitor
China's outreach to Latin America, just as it monitors China's
outreach around the world. Pardo-Maurer maintained that the
United States needs ``to be alert to rapidly advancing Chinese
capabilities, particularly in the field of intelligence,
communications, and cyber warfare, and their possible
application in the region.''
U.S. officials have suggested that Chinese engagement with
Latin America could lead to increased U.S.-Chinese cooperation.
At a September 2005 Senate Foreign Relations Committee hearing,
Principal Deputy Assistant Secretary of State for Western
Hemisphere Affairs Charles Shapiro maintained that China's
engagement with the region could ``lead to increased
cooperation between China, the United States, and other Latin
American and Caribbean governments on matters affecting
regional stability, especially terrorism, transnational crime,
and counternarcotics.'' \62\
---------------------------------------------------------------------------
\62\ Senate Foreign Relations Committee, Hearing on ``Challenge or
Opportunity: China's Role in Latin America,'' September 20, 2005.
---------------------------------------------------------------------------
In April 2006, Assistant Secretary of State for Western
Hemisphere Affairs Thomas Shannon visited Beijing as part of
the first U.S. consultations with China on Latin America. Prior
to the trip, Shannon acknowledged that China ``is an
increasingly important player'' in Latin America, and that it
was important for the two countries to ``understand what each
other is up to in the region.'' He maintained that the United
States sees ``the region as having achieved a consensus about
democracy, free markets and protecting the security of the
democratic state,'' and that the U.S. ``interest is to make
certain that China respects this larger consensus.'' \63\
Shannon described the consultations as constructive and
positive, with China assuring the United States that it has no
plans to seek greater influence in the region beyond expanding
trade.\64\
---------------------------------------------------------------------------
\63\ Andres Oppenheimer, ``China Likely to Calm U.S. Fears on Latin
America,'' Miami Herald, April 9, 2006.
\64\ Tim Johnson, ``China: Our Goal is Economic; Despite
Strengthening Trade Ties, China Said It Had No Plans to Expand Its
Influence in Latin America,'' Miami Herald, April 15, 2006.
---------------------------------------------------------------------------
After several years of increased Chinese engagement with
Latin America, most observers have concluded that China's
economic involvement with the region has not posed a threat to
U.S. policy or U.S. interests in the region. In terms of
economic, political, and cultural linkages, the United States
has remained predominant in the region. U.S. trade and
investment in Latin America dwarfs that of China, while the
future growth potential of such Chinese economic linkages with
the region is constrained by the advantages conferred by U.S.
geographic proximity to Latin America. Moreover, migration
patterns to the United States from the region give the United
States greater cultural ties and longer-term economic
importance to the region than China could ever have. For
example, remittance flows from the United States to the region
amounted to $60 billion in 2006--a sum greater than both
foreign aid and portfolio investment flows to the region, with
remittances making a significant contribution to the economies
of several Caribbean and Central American nations.
In its policy toward Latin America, China has been careful
not to antagonize the United States in the region, and appears
to understand that the United States is sensitive to
involvement in its neighborhood. China has taken a low-key
approach toward the region, focusing on trade and investment
opportunities that help contribute to its own economic
development and managing to avoid public confrontation with the
United States.\65\ Even Chinese relations with Venezuela are
focused on oil resources rather than ideological rapport. China
reportedly does not want to become a pawn in a dispute between
Venezuela and the United States.\66\ Moreover, China reportedly
has concerns that Venezuelan President Hugo Chavez's efforts at
spreading his populist agenda to other countries in the region
could unleash instability and ultimately be detrimental to
Chinese trade and investment interests in the region.\67\
---------------------------------------------------------------------------
\65\ He Li, pp. 854-858.
\66\ William Ratliff, ``Beijing's Pragmatism Meets Hugo Chavez,''
Brown Journal of World Affairs, Winter/Spring 2006.
\67\ June Teufel Dreyer, ``The China Connection,'' China-Latin
America Task Force, Center for Hemispheric Policy, University of Miami,
November 8, 2006.
---------------------------------------------------------------------------
Nevertheless, other observers contend that China poses a
potential threat to U.S. influence and interests in the region.
First, some maintain that by presenting an alternative
political and economic model--rapid economic growth and
modernization alongside political authoritarianism--the PRC
undermines the U.S. agenda to advance political reform, human
rights and free trade in the region.\68\ According to this
view, the Chinese model could help strengthen anti-democratic
and anti-U.S. political leaders and actors in some countries.
Second, according to some analysts, China's regional presence
ultimately could have significant strategic implications for
the United States in the event of a possible military conflict
with China. In this scenario, China could use its human and
commercial infrastructure in the region to disrupt and distract
the United States in the hemisphere. According to this view,
China's increased presence in the region could also provide the
country with new opportunities to collect intelligence data
against U.S. forces operating in the region.\69\
---------------------------------------------------------------------------
\68\ ``Findings and Recommendations of the China--Latin America
Task Force, March--June 2006,'' Center for Hemispheric Policy,
University of Miami.
\69\ R. Evan Ellis, ``The Military-Strategic Dimensions of Chinese
Initiatives in Latin America,'' China-Latin America Task Force, Center
for Hemispheric Policy, University of Miami, February 16, 2007.
---------------------------------------------------------------------------
Figure 2. Map of Central America
and the Caribbean Region
Figure 3. Map of Latin America and the Caribbean
----------
The Southwest Pacific\70\
---------------------------------------------------------------------------
\70\ Prepared by Thomas Lum, Foreign Affairs, Defense, & Trade
Division, with the assistance of Susan Chesser, Knowledge Services
Group FDT, November 2007.
---------------------------------------------------------------------------
OVERVIEW
The People's Republic of China (PRC) has become a growing
political and economic force in the Southwest Pacific. Some
analysts argue that China has begun to fill a vacuum created by
waning U.S. attention since the end of the Cold War, when USAID
withdrew its aid missions. By comparison, Australia, Japan, and
the EU have maintained strong regional presences. In order to
garner political and economic influence for key objectives, as
well as to access raw materials, China has expanded its
diplomatic and commercial activities in the Pacific. By some
accounts, the PRC has become the third-largest source of
foreign aid to the South Pacific, which it largely provides
without the kinds of conditions or performance criteria that
have engendered resentment among some Pacific Island countries
toward their major benefactor, Australia. Aid and investment
from both China and Taiwan, which has diplomatic relations with
six Pacific Island nations, have generated both appreciation
and resentment among peoples of the region. Although China's
influence currently is largely limited to diplomatic and
economic ``soft power,'' some analysts worry about the PRC's
long-term strategic intentions.
The Pacific Islands can be divided into four spheres of
influence: American, Australian, New Zealander, and French. The
American sphere extends through parts of Micronesia, in which
lie two U.S. territories (Guam and the Commonwealth of the
Northern Mariana Islands) and the Freely Associated States (The
Republic of the Marshall Islands, the Federated States of
Micronesia, and the Republic of Palau), as well as Polynesia,
including Hawaii and American Samoa.\71\Guam and the Northern
Mariana Islands (CNMI), along with the Freely Associated States
(FAS), have been regarded as a security border of the United
States, the defense of which is considered to be key to
maintaining vital sea lanes in the Pacific. In addition to
being home to the Reagan Ballistic Missile Defense Test Site at
Kwajalein Atoll in the Marshall Islands, the FAS are located
strategically between Hawaii and Guam. According to some
military experts, the FAS provide a vast buffer zone for Guam,
which serves as the ``forward military bridgehead'' from which
to launch U.S. operations along the Asia-Pacific security arc
stretching from South Korea and Japan, through Thailand and the
Philippines, to Australia.
---------------------------------------------------------------------------
\71\ The Freely Associated States are former districts of the
United Nations Trust Territory of the Pacific, administered by the
United States. Under the Compacts of Free Association (entered into by
the United States and the Marshall Islands and Micronesia in 1986 and
the United States and Palau in 1995), the FAS are sovereign nations but
the United States is responsible for their security and economic well-
being.
---------------------------------------------------------------------------
Australia's regional interests focus on the islands south
of the equator, including the relatively large Melanesian
nations of Papua New Guinea (PNG) and the Solomon Islands as
well as Vanuatu. New Zealand has long standing ties with the
territory of Tokelau, former colony Samoa (also known as
Western Samoa), and two self-governing but ``freely
associated'' states, the Cook Islands and Niue. New Zealand
also has a large native Polynesian population of Maoris as well
as large numbers of other more recently arrived Pacific
Islanders. Australia and New Zealand often cooperate on
regional security matters. France continues to administer
French Polynesia and New Caledonia. Australia, Japan, New
Zealand, the United Kingdom, and the United States are the
major providers of official development assistance (ODA).\72\
---------------------------------------------------------------------------
\72\ Most U.S. assistance to the region is not development aid but
rather economic grants provided to the Freely Associated States
pursuant to the Compacts of Free Association.
---------------------------------------------------------------------------
Other than Australia and New Zealand, the only Oceanic
nations with significant defense forces are Papua New Guinea
and Fiji. Tonga and Vanuatu also have small forces. The United
States is obligated by treaty agreement to defend the Freely
Associated States. Several other Pacific states rely upon
Australia and New Zealand for their external security. In the
past several years, China has asserted increasing diplomatic
and economic influence across the entire region, but it lacks a
regional military role or ``hard power.'' \73\ China's military
assistance to Pacific countries reportedly is modest--mostly
training and logistical support rather than weaponry--but
increasing.\74\
---------------------------------------------------------------------------
\73\ See Scott Whitney, ``U.S. Pays Little Attention to Asia, Less
to the Pacific,'' Pacific Islands Report, July 2, 2003. For further
information, see Henry S. Albinski, ``External Power Engagement in
Melanesia,'' in Bruce Vaughn, ed. The Unraveling of Island Asia?:
Governmental, Communal, and Regional Instability, Westport: Praeger,
2002.
\74\ Bertil Lintner, ``China's Third Wave, Part 2,'' Asia Times
Online, April 18, 2007 [www.atimes.com].
---------------------------------------------------------------------------
DIPLOMACY
The China-Taiwan Rivalry and ``Dollar Diplomacy''
Competition for friends among Pacific countries has spurred
PRC and Taiwanese diplomatic and economic activity in the
region. While the United States does not maintain an embassy in
several Pacific Islands countries with which it has diplomatic
relations, the PRC has opened diplomatic missions in all
Pacific countries with which it has diplomatic relations and
has provided bilateral assistance, embarked on high profile
regional visits, and hosted lavish receptions in Beijing for
Pacific Island leaders.\75\ Of the 23 countries with which
Taiwan (or ROC) has diplomatic ties, six are in the Pacific, of
which two are Freely Associated States.\76\ China and Taiwan
have become major sources of trade, investment, immigration,
and tourism in the region.
---------------------------------------------------------------------------
\75\ China reportedly has more diplomats in the region than any
other country. Nick Squires, ``Pacific Persuasion,'' South China
Morning Post, July 21, 2005.
\76\ Taiwan (ROC) has diplomatic relations with the following
Pacific Island nations: Kiribati, the Marshall Islands, Nauru, Palau,
the Solomon Islands, and Tuvalu. China has diplomatic relations with
Cook Islands, Fiji, Micronesia, Papua New Guinea, Samoa, Tonga, and
Vanuatu.
---------------------------------------------------------------------------
The PRC and Taiwan both have begun to develop more
coordinated diplomatic and economic strategies in the Pacific.
In April 2006, PRC Premier Wen Jiabao held a summit in Fiji
(China-Pacific Island Countries Economic Development and
Cooperation Forum) with members of the principal regional
organization, the Pacific Islands Forum (PIF). At the meeting,
China and several PIF countries signed the China-Pacific Island
Countries Economic Development and Cooperation Guiding
Framework. Wen reportedly pledged $375 million in development
assistance and low interest loans as well as the establishment
of preferential tariffs for Pacific Island goods. The PRC also
has expressed interest in a free trade agreement with the
Pacific Island Nations. It was later reported that China had
allocated $600 million for soft loans for development projects
in the region.\77\
---------------------------------------------------------------------------
\77\ ``Fiji to Seek Development Loan from China after Donors
Threaten to Cut Funding,'' International Herald Tribune, July 5, 2007.
---------------------------------------------------------------------------
In September 2006, Taiwan President Chen Shui-bian held the
country's first summit with its Pacific allies, in which Taiwan
signed agreements on cooperative projects including law
enforcement, online government, tourism, public health, the
environment, energy, agriculture and fisheries. Taiwan and the
six summit participants (the six Pacific Island countries with
which Taiwan has official relations) signed a ``Palau
Declaration,'' recognizing Taiwan's achievements in political
democratization and economic development and supporting
Taiwan's bid to join the United Nations, World Health
Organization, and other major international organizations.\78\
In October 2007, President Chen visited the Marshall Islands
for the 2nd Taiwan-Pacific Allies Summit, in a new convention
center financed by Taiwan.
---------------------------------------------------------------------------
\78\ Lawrence Cheng, ``Chen Denies Chequebook Diplomacy,'' South
China Morning Post, September 5, 2006; ``Taiwan Allies Issue Palau
Declaration,'' PA CNE WS, September 6, 2006; Lilian Wu, ``Too Early to
Discuss Cost of Projects with Allies: MOFA,'' Central News Agency
English News, September 5, 2006. In addition to Taiwan, the six
participants were: Palau, Marshall Islands, Kiribati, Nauru, Solomon
Islands, and Tuvalu.
---------------------------------------------------------------------------
China and Taiwan receive direct diplomatic benefits from
their exertion of soft power. In return for economic aid,
Beijing and Taipei demand diplomatic recognition and support of
diplomatic objectives. China insists that its diplomatic
relations in the Pacific support the ``one-China'' policy, cut
off contacts with Taiwan, and oppose resolutions in the United
Nations (UN) that it feels would criticize unfairly China's
human rights record. Taiwan's Pacific friends support its
membership in international organizations, including the United
Nations and the World Health Organization.
Some experts argue that ``dollar diplomacy''--large amounts
of unconditional aid in exchange for support on international
issues--may exacerbate political instability and corruption in
recipient countries while not leading to broad economic
development. According to many observers, financial and other
benefits from Beijing and Taipei may exert undue influence over
the behavior of Pacific Island leaders who preside over limited
budgets, or undermine the aid, diplomatic, and political
efforts of regional powers such as Australia. Some have accused
the PRC and Taiwan of meddling in the domestic politics and
elections of several Pacific Islands countries, including Fiji,
Kiribati, Nauru, the Solomon Islands, and Vanuatu. Both Beijing
and Taipei have denied using aid primarily to advance
diplomatic or strategic agendas and have stressed the mutual
benefits of their Pacific Island relationships. Taiwanese
officials have stated that their aid programs also involve
health, education, rural development, and culture.
Many Pacific Island nations have welcomed the attention,
aid, and economic support from the PRC and Taiwan. Several of
these countries, such as Kiribati and Nauru, have switched
diplomatic alliances more than once reportedly in response to
enticements of assistance by China and Taiwan.\79\ Some Pacific
Island leaders argue that foreign assistance is not a ``zero-
sum game'' and that increased aid, trade, and investment from
the PRC and Taiwan neither exclude the influence of Australia
and New Zealand nor preclude U.S. re-engagement in the
region.\80\
---------------------------------------------------------------------------
\79\ Robert Keith-Reid and Samisoni Pareti, ``China Stirs the Pot
of Divided Pacific Loyalties,'' Pacific Islands Report, March 16, 2006.
\80\ ``Chinese Aid Won't Mean Chinese Influence: Sevele,'' Tonga
Now, May 22, 2007.
---------------------------------------------------------------------------
China, Taiwan, and the Freely Associated States
The FAS remain under strong U.S. economic and strategic
influence, despite growing economic assistance and investment
from China and Taiwan. There appears to be little, if any,
political pressure within the FAS to alter the economic and
strategic underpinnings of their relationships with the United
States. As in other Pacific Islands countries, some citizens in
the Freely Associated States have expressed concerns about the
possible adverse effects of PRC and Taiwanese influence.
Despite the strength of the U.S.-FAS relationships, the
former Trust Territory districts also have good relations with
Japan, China, and Taiwan based largely upon foreign assistance
and commerce. The Compact does not restrict the countries with
which the sovereign Freely Associated States may have
diplomatic relations. Micronesia established diplomatic
relations with China in 1989, while the Marshall Islands and
Palau recognize Taiwan, for largely economic rather than
ideological reasons. China is likely one of the largest
providers of foreign assistance to the Republic of the Marshall
Islands (RMI), after the United States and Japan, although
amounts are difficult to determine.\81\ PRC assistance to
Micronesia has included loans, grants, and the construction of
government buildings and a sports center. China also maintains
a large tuna fishing fleet in the country.
---------------------------------------------------------------------------
\81\ U.S. Government Accountability Office, ``Compacts of Free
Association: Development Prospects Remain Limited for Micronesia and
the Marshall Islands,'' June 2006.
---------------------------------------------------------------------------
The Marshall Islands switched recognition from the PRC to
Taiwan in 1998. According to the U.S. Government Accountability
Office, Taiwan is the second largest source of foreign aid to
the Marshall Islands (about $10 million annually) after the
United States (Japan is the third largest provider of
assistance).\82\ Taiwan has pledged $40 million over 20 years
for the Marshall Islands Trust Fund, which was established by
the United States and the Marshall Islands as part of the
amendments to the Compact of Free Association in 2004. A major
portion--over 50%--of the large businesses reportedly are owned
by Taiwanese, many of whom are naturalized citizens of the RMI,
which has caused some concern among the native business
community.\83\
---------------------------------------------------------------------------
\82\ Ibid.
\83\ ``Sale of Biggest Marshalls Business Shows Increasing Taiwan
Dominance,'' PA CNE WS, October 18, 2005.
---------------------------------------------------------------------------
Taiwan, which has had diplomatic relations with Palau since
1999, reportedly ``casts a huge shadow'' over the country's
economy, with estimates of $100 million in cumulative aid and
loans, causing some resentment among locals.\84\ Japan is also
a major aid donor. In addition, Taiwan and Japan are Palau's
top source of tourists: Taiwan supplied 34,000 tourists or 42%
of total foreign visitors to Palau, a nation of 20,000, in
2005.
---------------------------------------------------------------------------
\84\ Jennings, Ralph, ``Taiwan Patronage Buoys, Irks Ally Palau,''
Reuters News, September 6, 2006.
---------------------------------------------------------------------------
TRADE AND INVESTMENT
China is gaining upon the top countries and regions in
terms of trade and investment in the Southwest Pacific (see
Table 5). There reportedly are more than 3,000 Chinese state-
owned and private enterprises (including energy production,
garment factories, fishing and logging operations, plantations,
hotels, restaurants, and grocery stores) in the Pacific, witha
total value estimated at between $600 million and $1
billion.\85\ The governments of the largest Pacific Island
countries--Papua New Guinea (PNG), Fiji, and the Solomon
Islands--have welcomed investment from China or Taiwan as part
of their ``look north'' foreign policies. Papua New Guinea
(PNG) and the Solomon Islands, whose exports of wood to China
grew by 26% and 29% respectively in 2006, run large trade
surpluses with the PRC. PRC investments in PNG include the $1
billion Ramu nickel mine, logging, gas production, and tuna
processing. Chinese demand for timber reportedly has fueled
large-scale illegal logging in Indonesia and Papua New
Guinea.\86\ China operates a large tuna fishing fleet in Fijian
waters and has agreed to help develop a hydro power plant in
the country.
---------------------------------------------------------------------------
\85\ Kalinga Seneviratne, ``South Pacific: China Seen As
Alternative to Big-Brother Aussies,'' Inter Press Service, April 17,
2006; Alphonse Muapi, ``Investment Grows,'' Business News, April 6,
2006.
\86\ ``China's Demand for Timber is Destroying Forests in
Indonesia, PNG, Says Greenpeace,'' Associated Press, April 17, 2007.
---------------------------------------------------------------------------
The PRC government has designated seven western Pacific
nations--those with which it has diplomatic relations--as
``approved tourist destinations'' and pledged to encourage
Chinese tourists to visit the region, despite the relatively
high costs for Chinese travelers to fly there. China is the
only non-Pacific Island nation to be a member of the South
Pacific Tourism Organization (SPTO). In 2005, the SPTO
estimated that 45,000 Chinese tourists would visit the region
by 2007.\87\
---------------------------------------------------------------------------
\87\ SPTO Press Release, ``SPTO Identifies Significant Growth in
Tourism from Chinese Arrivals,'' May 17, 2005.
Table 5. Total Trade (Imports + Exports) Between Pacific Island Countries, the World, and Selected Countries, 2006
($ Millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
New United
World Australia Japan EU-25 China Zealand States Taiwan
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fiji........................................................... 2,200 467 101 210 69 281 206 13
Kiribati....................................................... 70 21 5 2* 1 4 3 n/a
PNG............................................................ 6,270 3,011 656 570 518 113 132 57
Samoa.......................................................... 430 83 26 10 13 65 23 20
Solomon........................................................ 460 62 41 20 130 14 9 0.5
Islands......................................................
Tonga.......................................................... 15011 9 20 4 37 20 1
Vanuatu........................................................ 520 53 80 0 19 22 11 .5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Totals....................................................... 10,100 3,708 918 832 754 536 404 92
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: IMF, Direction of Trade Statistics Quarterly, 2007.
* = 2005
FOREIGN AID
According to some experts, the PRC has become the third-
largest source of foreign aid to the South Pacific. In terms of
official development assistance (ODA), the main form of
assistance provided by the major donors in the region, China
provides relatively little aid. (See Table 6.) However, the PRC
administers a wider range of assistance that includes non-
development aid, loans, and trade and investment agreements.
According to some analysts, when these kinds of assistance are
added, China becomes a major donor in the region.
China's foreign aid to the Southwest Pacific, like its aid
to many other regions, is difficult to quantify due to a lack
of data and to the unique characteristics of Chinese
assistance. Furthermore, because China offers assistance
without the conditions that other donors frequently place on
aid (i.e. democratic reform, market opening, and environmental
protections), it often garners appreciation disproportionate to
the size of its aid, and thus can have a large impact on
recipient governments.\88\ China's policy of ``non-interference
in domestic affairs'' often wins friends not only among Pacific
governments but also by many peoples in the region because it
is regarded as respectful of their countries' sovereignty. Such
aid, announced at lavish receptions with toasts to the
recipient countries, also carries great symbolic value.\89\
---------------------------------------------------------------------------
\88\ China's conditions on aid are often international rather than
domestic--requiring aid recipients to support the ``one-China''
principle regarding Taiwan and China's agenda in the United Nations.
\89\ Jane Perlez, ``China Competes with West in Aid to its
Neighbors,'' The New York Times, September 18, 2006.
---------------------------------------------------------------------------
Many PRC aid projects, such as government buildings, public
facilities, and infrastructure, often built by Chinese
companies, are high profile efforts that primarily benefit
capital cities or the governments in power. Many foreign aid
experts, non-governmental organizations (NGOs), and local
groups have criticized Chinese aid for not promoting
widespread, sustainable development and for exacerbating
official corruption. Recent Chinese aid and funding projects in
the region include government buildings in Samoa, a sports
stadium in the Cook Islands, infrastructure in Niue, and
reconstruction efforts in Tonga following the riots and
destruction of 2006.
Aid to Fiji
In response to the December 2006 military coup in Fiji, the
United States and other powers in the region imposed sanctions.
The United States suspended military aid to the country worth
$729,000 in 2006 pursuant to Section 508 of the Foreign
Operations Appropriations Act.\90\ The Australian government
suspended foreign assistance with the exception of health,
education, and community development programs and aid to the
apparel and textile sectors. New Zealand suspended aid, defense
ties, and sporting contacts.
---------------------------------------------------------------------------
\90\ ``U.S. Cuts Aid to Fiji Army,'' Pacific Islands Report,
December 20, 2006; U.S. Suspends $3M in Military Aid,'' Fiji Times,
December 21, 2006.
Table 6. Official Development Assistance to the Pacific
----------------------------------------------------------------------------------------------------------------
Net Official Estimated
Major Official Development Foreign Aid as U.S. foreign
Population Development Assistance Assistance Percent of assistance
(ODA) Donors \1\ (2005) $ Recipients' GDP (2006) $
million \2\ million
----------------------------------------------------------------------------------------------------------------
Cook Islands........... 21,000 Italy, New Zealand, 32.0* 7.0 --
Australia.
Fiji................... 906,000 EC, Australia, Japan.. 64.0 3.0 2.5
Kiribati............... 105,400 Japan, Australia, EC.. 28.0 22.0 1.3
Marshall Islands....... 60,400 United States, Japan.. 57.0 35.0 31.0
Micronesia............. 108,000 United States, Japan.. 106.0 37.0 70.0
Nauru.................. 13,287 Australia, Japan, New 9.0 33.0 --
Zealand.
Niue................... 2,166 New Zealand, Australia 21.0 26.0 --
Palau.................. 20,579 United States, Japan.. 23.0 13.5 30.0
Papua New Guinea...... 5,670,544 Australia, Japan...... 266.0 9.6 0.3
Samoa.................. 176,908 Japan, Australia...... 44.0 7.5 1.4
Solomon Islands........ 552,438 Australia, EC, New 198.0 42.0 0.2
Zealand.
Tonga.................. 114,689 Australia, Japan, New 32.0 7.7 1.7
Zealand.
Tuvalu................. 11,810 Australia, EC, New 9.0 85.0 --
Zealand.
Vanuatu................ 208,869 Australia, France, New 39.0 11.0 2.2
Zealand.
----------------------------------------------------------------------------------------------------------------
Totals............... 7,972,090 .................... 928.0 140.6
----------------------------------------------------------------------------------------------------------------
Sources: CIA, The World Factbook, 2007; Organization for Economic Cooperation and Development (OECD).
* 2006
\1\ OECD members only.
\2\ Foreign Aid as a percentage of GDP based upon World Factbook ``economic aid'' figures (2004) and nominal GDP
data.
Note: China does not provide official data on foreign aid. According to some sources, Taiwan is a top provider
of foreign assistance to the Marshall Islands while China is a major source of aid to Papua New Guinea.
The EU suspended all non-humanitarian aid and threatened to
suspend assistance for the Fijian sugar industry to offset the
phase-out of EU price supports for imported Fijian sugar.
However, Fiji reportedly has sought a loan of up to $600
million from China if other aid sources are cut. The PRC
government promised that its aid programs in Fiji would
continue despite the coup, stating that ``the political
situation is an internal matter for the country.'' \91\
---------------------------------------------------------------------------
\91\ ``Envoy Stresses Fiji Still Eligible for Chinese Aid,'' BBC
Monitoring Asia Pacific, August 20, 2007; ``Fiji to Seek Development
Loan from China after Donors Threaten to Cut Funding,'' Associated
Press Newswires, July 5, 2007.
---------------------------------------------------------------------------
PACIFIC VIEWS TOWARD CHINA
Pacific Chinese
The ethnic Chinese population in the Pacific Island region
is economically influential but remains relatively small
numerically. Estimates of the ethnic Chinese population in the
Pacific (including French Polynesia and the U.S. territories),
range from 80,000 to over 200,000, or between 1% and 3% of the
total population. These estimates are based upon data that
generally do not break down ethnic Chinese populations by place
of origin.\92\ There reportedly has been an influx of Chinese
in the two largest Pacific Island nations, Papua New Guinea and
Fiji (with an estimated 20,000 Chinese in each country), along
with reports of illegal immigration and ethnic Chinese
involvement in organized criminal activity, including illegal
drugs, gambling, prostitution, and money laundering. However,
according to other experts, the PRC government has no
systematic policy to populate the islands and ``no real need''
to bolster its influence through such a policy. Rather, Chinese
immigrants in Pacific Island communities often complicate PRC
relations in the region by creating resentment among indigenous
citizens toward Asians in general or Chinese in particular.
Furthermore, some argue, Chinese populations in the Pacific are
not monolithic--they include ethnic Chinese from China, Hong
Kong, Taiwan, and elsewhere in Southeast Asia as well as
Pacific Islanders of Chinese descent who have resided and
intermarried in the Pacific region since the 19th century.
Where these ethnic Chinese populations originally came from and
how long they have been in their Pacific Island habitats
generally are determining factors in how these ethnic
populations view China and Taiwan.
---------------------------------------------------------------------------
\92\ Penny Spiller, ``Riots Highlight Chinese Tensions,'' BBC News,
April 21, 2006 and ``The Pacific Proxy: China vs. Taiwan,'' PA CNE WS,
February 9, 2007.
---------------------------------------------------------------------------
Anti-Ethnic-Chinese Riots
PRC and Taiwanese engagement in the region, coupled with
the ethnic-Chinese economic presence, while often welcomed by
Pacific Island Nation governments, has engendered some
resentment among indigenous peoples. In some cases, public
anger against the national government has spilled over into
anti-ethnic-Chinese activity. In November 2006, riots broke out
in Tonga's capital, Nuku'alofa, in which at least eight people
died and three-quarters of the commercial district were
destroyed, including 30 Chinese-owned businesses. More than 70%
of Nuku'alofa's grocery stores are owned by newly-arrived
migrants from China, according to one report.\93\ The riots
were sparked by anger over the perceived slow pace of political
reforms following the death in September 2006 of King
Taufa'ahau Tupou IV, and reflected frustration over political
and economic privileges enjoyed by the hereditary nobility,
unemployment and the reduction of civil service jobs, and the
growth of ethnic Chinese-owned businesses.\94\ Estimates of the
ethnic Chinese population in Tonga, many of whom are Tongan
citizens, range from 1,000 to 4,000 persons. Australia and New
Zealand sent 85 and 70 troops and police, respectively, to help
restore order and enforce martial law. Although stability was
restored, Tongan opposition groups criticized the foreign
troops as backing an undemocratic government.\95\ Approximately
200 300 Chinese nationals returned to China on an airplane
chartered by the PRC government.
---------------------------------------------------------------------------
\93\ Lintner, op. cit.
\94\ ``Not So Friendly--Tonga,'' The Economist, November 25, 2006.
\95\ Pesi Fonua, ``Tonga Gets Outside Help after Riots,''
Associated Press, November 19, 2006; Dan Eaton, ``Stop Backing Regime,
Troops Told,'' The Press (New Zealand), November 22, 2006; Peter Lewis,
``Australian Troops Go `Softly Softly','' Australian Broadcasting
Corporation, November 23, 2006.
---------------------------------------------------------------------------
In April 2006, an estimated 1,000 political demonstrators,
rioters, and looters clashed with police and set buildings on
fire in the business district of Honiara, the capital of the
Solomon Islands, where there is a concentration of ethnic
Chinese-owned businesses. Among the demonstrators' charges was
that both the former and newly-appointed governments were
corrupt and unduly influenced by local Chinese business
interests and Taiwan government money or ``assistance.'' The
ethnic Chinese community in the country is estimated to total a
few thousand,'' with about 2,000 in Honiara. Most ethnic
Chinese in the Solomon Islands reportedly are from Hong Kong,
Singapore, Indonesia, and Malaysia or are naturalized third or
fourth generation Solomon Islanders, with no links to Taiwan.
Taiwan, which has diplomatic relations with the Solomon
Islands, reportedly provides $11 million in annual assistance
to the SI and has been accused of exacerbating corruption
there.\96\ Taiwanese officials denied that they had ``bought''
any influence in the election of Snyder Rini to be Prime
Minister in 2006. The PRC evacuated 300 Chinese nationals
during the upheaval. Australia and New Zealand, which together
had approximately 300 military troops and police officers
already stationed in the country, a legacy of the 2003 peace-
keeping mission established to help quell ethnic violence, sent
additional personnel.\97\
---------------------------------------------------------------------------
\96\ Ashley Wickham, ``Taiwan Payments Cloud Solomons Democracy,''
Pacific Islands Report, May 19, 2006; Alfred Sasako, ``Taiwan Fund
Secrecy Dangerous for Solomons,'' Pacific Islands Report, March 30,
2006.
\97\ The Regional Assistance Mission to the Solomon Islands
(RAMSI).
---------------------------------------------------------------------------
IMPLICATIONS FOR U.S. POLICY IN THE REGION
According to some experts, unconditional and unregulated
foreign aid and business investment from China and Taiwan--
provided without goals related to democracy, sustainable
development, fair working conditions, and the environment--may
exacerbate underlying political, economic, and social problems
in the Southwest Pacific. Others argue that, on the whole,
assistance from the PRC and Taiwan has benefited the region.
Some specialists contend that China has devised a comprehensive
strategy to gain strategic influence in the Pacific within the
context of U.S. neglect. However, others counter that China's
main objectives in the region are to check and reverse Taiwan's
diplomatic inroads and to garner influence but not replace the
United States as the foremost military power.
Many regional specialists argue that the United States
should pay greater attention to or more directly engage Pacific
Islands countries, many of which are plagued by weak political
institutions, civil unrest, and persistent poverty. Some
analysts argue that addressing these issues would not only help
promote political stability and economic development but also
enhance U.S. security interests and counter possible adverse
effects of China's growing influence. In May 2007, the Bush
Administration may have signaled a move toward greater or
renewed involvement in the region when it declared 2007 the
``Year of the Pacific'' at the eighth Pacific Islands
Conference of Leaders.\98\
---------------------------------------------------------------------------
\98\ The Pacific Islands Conference of Leaders (PICL) is a
triennial meeting of Pacific states and territories sponsored by the
East-West Center, an education and research organization established by
the U.S. Congress in 1960 to strengthen relations and understanding
among the peoples and nations of Asia, the Pacific, and the United
States.
---------------------------------------------------------------------------
Figure 4. Map of the Southwest Pacific
Source: Map Resources. Adapted by CRS. 06/07
The conference, held in Washington, D.C. for the first
time, was attended by Secretary of State Condoleezza Rice.
Among the main topics, aims, and initiatives under discussion
were: expanding public diplomacy efforts through a new public
affairs office in Fiji; strengthening the Joint Commercial
Commission; Pacific fisheries management; the U.S. military
expansion in Guam and its impact on the region; global warming
and rising sea levels; and establishing a regular U.S.-Pacific
Islands dialogue. Other proposals included: enhancing
educational and cultural exchanges; expanding foreign aid
grants in the area of democracy-building; more fully utilizing
the Generalized System of Preferences (GSP) program; and
creating more welcoming business environments.\99\
---------------------------------------------------------------------------
\99\ U.S. Department of State, ``U.S. Engagement in the Pacific
Islands Region: 2007 Pacific Islands Conference and Core Partners
Meeting,'' Fact Sheet (Revised), May 8, 2007.
----------
Japan and South Korea\100\
---------------------------------------------------------------------------
\100\ Prepared by Dick Nanto, Foreign Affairs, Defense, & Trade
Division, November 2007.
---------------------------------------------------------------------------
OVERVIEW
In Northeast Asia, China's rise and its soft power are
causing fundamental changes in its relations with Japan and
South Korea. Both of these countries have well-developed,
democratic political systems, industrialized economies, export
oriented businesses, a well-educated populace, and relatively
high income levels. As such, they differ from certain
developing nations that may not be as well prepared to cope
with the growing influence of China and its use of soft power
to pursue its national interests.
Another difference with Japan and South Korea is that soft
power relations are mutual, much as they are between the United
States and China. While China's economic reach is affecting
policies in Tokyo and Seoul, the economic and cultural
influences of Japan and South Korea also are affecting policies
in Beijing.
As neighboring countries in Northeast Asia, Japan and South
Korea's relations with China after World War II and the Korean
Conflict have developed from open warfare to a period of
frigidity during the Cold War that was interrupted by
occasional chinook winds that warmed temperatures temporarily.
During the Cold War, bilateral security ties between the United
States and Japan and also with South Korea established pathways
for economic and cultural flows. Each of these countries came
to rely heavily on the U.S. market and viewed the United States
as its role model and provider of security in a hostile
regional environment.
Currently, Northeast Asia is undergoing a tectonic shift in
relations between China and both of its formerly hostile
neighbors. The countries have entered into a new era in which
the economic benefits of trade, tourism, investment, and
cultural flows may be gradually overcoming the inertia of long
harbored feelings of enmity, even though ``history issues''
still pop up at times and pour cold water on warming
relationships. Globalization is creating interdependence in
Northeast Asia in which domestic and global affairs have become
inseparably intertwined.
Trade flows, in particular, have forged the way for
rapprochement along political pathways. Japan and South Korea
gradually are turning from the United States toward the Chinese
economy for exports, imports, and for other interaction, but
the United States still plays a key role in the region because
of its military and economic might.
INTERNATIONAL TRADE FLOWS
Figure 5 shows Japan's imports of merchandise (not adjusted
for inflation) from China and the United States over the 1995-
2006 period. Whereas in 1995, Japan's imports from the United
States were twice those from China, by 2006 nearly the opposite
was the case. The shape of the lines in Figure 5 create an
``ominous X'' that illustrates the rise of China's economic
power and shift by Japan toward China and away from the United
States as a source of imports. The intersection point for this
``ominous X'' occurred in 2002. The crossing of these lines may
or may not portend future difficulties for the United States,
but it may challenge long held assumptions regarding the
dependency of Japan on the United States.
Figure 5. Japan's Merchandise Imports from the United States and China
Source: Data from Global Trade Atlas.
Figure 6. Japan's Merchandise Exports to the United States and China
Source: Data from Global Trade Atlas.
Figure 6 above compares Japan's exports of merchandise (not
adjusted for inflation) to China with those to the United
States. In Japan's exports, the ``ominous X'' has not yet
appeared, but the trends point toward a possible intersection
point in the future. Japan's exports to China are rising faster
than those to the United States. Whereas in 1995, Japan's
exports to the U.S. market were 450% more than those to China,
by 2006 they were 57% more. The gap has been narrowing, and in
the first eight months of 2007, Japan's exports to the United
States were only 11% more than those to China. At this pace,
the ``ominous X'' may occur in 2008 or soon thereafter.
With South Korea, the story is similar. As shown in Figure
7, an ``ominous X'' appears as South Korean imports of
merchandise from China exceeded those from the United States in
2004. Although Korean imports from the United States continue
to increase, those from China have increased more rapidly.
Korea now imports 30% more from China than it does from the
U.S. market.
For South Korean merchandise exports, the pattern is the
same. As indicated in Figure 8, the intersection of the
``ominous X'' occurred in 2003. South Korean exports to the
U.S. market continue to rise gradually, but those to China are
rising faster. In 1995, South Korean exports to the United
States were nearly double those to China. In 2006, South Korean
exports to China were 60% greater than those to the United
States, although some of those exports were components and
materials for manufacturing plants in China that export the
finished products to the United States.
Figure 7. South Korea's Merchandise Imports from the United States and
China
Source: Data from Global Trade Atlas.
Figure 8. South Korean Merchandise Exports to the United States and
China
Source: Data from Global Trade Atlas.
With respect to China's overall export markets, Figure 9
shows China's exports of merchandise (not adjusted for
inflation) to the United States, Japan, South Korea, and to the
Rest of the World. China's exports overall are rising rapidly.
As for the destination of those exports, China's exports to the
United States have been rising as a share of total exports
while the share going to Japan has been falling. China is
becoming less dependent on exports to the Japanese market and
more dependent on sales to the United States, even though Japan
is becoming more dependent on China for its imports (Figure 9).
This is an example of how soft power generates diverse results.
China is becoming less dependent on Japan as an export market,
but Japan is becoming more dependent on imports from China.
INVESTMENT, FINANCIAL, AID, AND CULTURAL FLOWS
Much of the trade between China and Japan and South Korea
is related either to investments made in China by Japanese or
South Korean companies or through a supply chain in which
business transactions tend to be relational--conducted between
buyers and suppliers with established business relationships.
Foreign invested companies, moreover, account for more than
half of China's exports of manufactured goods. Foreign direct
investment has contributed greatly to Chinese economic
development and plays an important role in drawing countries in
Northeast Asia closer together.
Figure 9. China's Exports to the United States, Japan, South Korea and
the Rest of the World
Source: Data from Global Trade Atlas.
Figure 10 shows the stock of foreign direct investment
(FDI) in China by the United States, Japan, and South Korea. In
1995, the United States and Japan each had about $18 billion in
FDI in China. South Korea had about a third as much. By 2005
the amounts invested for the United States at $48 billion and
for Japan at $47 billion had more than doubled and still were
similar. South Korea's FDI in China at $26 billion was smaller
but had more than quadrupled. Chinese data provide a somewhat
different picture of this investment. For 2005, China reported
the stock of FDI from the United States to be less ($30.6
billion) than that in the UN database, but from Japan ($65.3
billion) and from South Korea ($51.7 billion) the Chinese
figures are higher. The Chinese figures are for utilized FDI.
According to Beijing, both Japan and South Korea have
significantly more FDI in China than does the United
States.\101\ By sector, Japan's FDI in China is primarily in
the manufacture of motor vehicles, machinery and equipment, and
electronic equipment, as well as in wholesale and retail trade,
construction, transportation, and finance.\102\
---------------------------------------------------------------------------
\101\ A considerable amount of the FDI in China flows through third
parties such as Hong Kong and off-shore tax havens such as the Bahamas,
Virgin Islands, Cayman Islands, Bermuda, and Western and Eastern Samoa.
Also, some FDI may originate from companies abroad that are affiliated
with U.S. companies but not counted as such.
\102\ UN Trade and Development Agency. WID Country Profile: Japan.
---------------------------------------------------------------------------
Figure 10. Foreign Direct Investment in China by the
United States, Japan, and South Korea
Source: Data from United Nations Trade and Development Agency. Chinese
data from China Statistical Yearbook, 2006.
In private financial flows, Japan has invested or loaned
considerable sums to Chinese entities. Figure 11 shows
consolidated claims by Japanese banks on Chinese borrowers as
well as portfolio investments in Chinese securities by Japanese
investors. In 2006, Japanese bank claims totaled $17.6 billion
while portfolio investments were $4.1 billion. (Comparable data
for South Korea were not available.)
In development assistance and other foreign aid, the flows
in Northeast Asia go from Japan to China and not the other way
around. China also does not provide official development
assistance (ODA) to South Korea and vice versa. Japanese ODA to
China began as a form of reparations to compensate for Japan's
actions in World War II. Japan's ODA disbursements to China
declined after China's nuclear tests in 1993-94, rose in 1998
and 1999 then fell again before recovering by 2005.
Figure 11. Japan's Portfolio Investments in and Banking Claims (Loans)
on China
Source: Data from Bank for International Settlements and the
International Monetary Fund.
Over the 2004-2005 period, Japan was the top donor of
official development assistance to China with an average of
$1.7 billion per year in gross ODA disbursements. This was more
than four times that of the next larger donor, Germany ($470
million) and far more than that of France ($164 million). In
total ODA, China traditionally has been the largest recipient
of Japan's foreign aid, but in recent years Iraq has taken the
number one position with an average of $2.1 billion per year in
2004-2005. This arguably is a temporary exigent situation.
Japan's aid to India also is increasing as India has become
another rising power.
Figure 12 shows gross ODA disbursements by Japan to China
along with Japan's commitments by sector for the ODA it was
providing. Japan's aid to China is noteworthy because it shows
how soft power goes both ways. By sector, economic
infrastructure, which dominated Japan's aid in 1995, accounted
for only a small proportion of ODA commitments in 2005. The
major increase has been in aid for social infrastructure and
services--70% of which went for water and sanitation projects.
Figure 12. Japan Gross ODA Disbursements and ODA Commitments by Sector
to China
Source: OECD, Development Database, Country Reporting System.
Also increasing has been aid for multi-sector projects.
These primarily have been for environmental protection, for
support of organizations with interest in Japan, and for
training and education. Japan provides about 90% of its
official aid to China in soft loans rather than grants or
technical assistance.\103\
---------------------------------------------------------------------------
\103\ Organisation for Economic Cooperation and Development.
Development Database (CRS).
---------------------------------------------------------------------------
Japan has begun to use its aid to China to accomplish
broader political and diplomatic goals. Following the 1989
Tiananmen Square incident in Beijing and the 1995 Chinese
nuclear test, Japan temporarily cut off grant aid to China. In
the past, Japanese aid has been tied to its exports, but as
Figure 12 illustrates, social infrastructure and services now
dominate recent ODA commitments. Japan funnels some of its aid
funds to pro-Japanese non-governmental organizations in China.
Some in Japan have been questioning the need for continued ODA
to a country that now is an aid provider and who is seen by may
Japanese as a regional economic and strategic competitor.\104\
One suggestion has been to cut off all aid to China in 2008
when Beijing hosts the Olympic games. In September 2007, Japan
and China met to discuss China's aid to African countries.
Japan requested that China disclose more information about the
aid it is providing to countries such as Sudan.\105\
---------------------------------------------------------------------------
\104\ Emily Parker. ``Japan's Development Aid to China: The Long-
running Foreign Policy of Engagement.'' Far Eastern Economic Review,
June 2006, Vol. 169, pp. 55-56.
\105\ ``Japan, China Discuss Cooperation on Aid for Africa.'' BBC
Monitoring Asia Pacific, London: September 18, 2007, pg. 1.
---------------------------------------------------------------------------
Figure 13. Tourist Visits: Japan, South Korea, and the United States
with China
Source: China Statistical Yearbook/2006, Japan Tourism Marketing Co.,
U.S. Bureau of Economic Analysis.
In the cultural and social area, China also is drawing
closer to Japan and South Korea. For example, as shown in
Figure 13, there were about 3.5 million tourist visits to China
by both Japanese and South Koreans in 2005--more than twice the
1.6 million visits by Americans. South Koreans, in particular,
are traveling to China in record numbers. Tourist visits from
China are less frequent, but are rising. In 2006, there were
811,000 Chinese tourist visits to Japan and 320,000 such visits
to the United States. As with trade flows, tourist visits
illustrate the growing soft power ties between China and
northeast neighboring countries compared with such visits
between the United States and China.
Despite all the economic, cultural and political
interaction in Northeast Asia, in 2007 China, Japan, and South
Korea in 2007 still harbor overall negative attitudes toward
each other. A 2007 Pew Research Center survey of global
attitudes indicated that 67% of Japanese expressed an
unfavorable view of China--comparable to but down from the 71%
recorded in 2006. Among Chinese, 71% expressed an unfavorable
view of Japan--little changed from the 70% in 2006.\106\ (See
Figure 14) These were more negative than Chinese unfavorable
views of the United States (57%) and considerably worse than
the unfavorable views of South Korea. In both China and Japan,
South Korea is viewed favorably by about 60% of those surveyed.
---------------------------------------------------------------------------
\106\ Pew Research Center.``Publics of Asian Powers Hold Negative
Views of One Another,'' September 21, 2006, and ``Global Unease With
Major World Powers,'' June 27, 2007.
---------------------------------------------------------------------------
Figure 14. Chinese, Japanese, and South Korean Attitudes
Toward Each Other, 2007
Source: Pew Research Center. The Pew Global Attitudes Project.
For China and Japan, each country still appears to have
some distance to travel before underlying attitudes become
favorable toward each other. In this sense, soft power by both
nations appears to be changing underlying attitudes only very
slowly as measured by survey research. By way of comparison,
China views the United States more favorably than it does
Japan. The same also holds of Japan's views of the United
States which were 61% favorable. Despite the growing linkages
between China and South Korea, the people in South Korea still
indicated that they had a more favorable view of the United
States than of China.
CHINA'S RELATIONS WITH JAPAN
The bilateral relationship between China and Japan is
shifting dramatically. As indicated above, there is growing and
consistent interaction at the human and economic level shaded
by bouts of political friction and historic tension as well as
occasional naval tensions. As depicted in Figure 15, beginning
at the human and individual level, the temperature of
interaction is mixed. Communication and cultural exchanges tend
to be warm, but historical disputes dating back before World
War II have fanned nationalistic sentiments in China and riled
the Chinese people. These disputes include Japan's role in
World War II atrocities such as the Nanking Massacre, as well
as disputes over visits by certain Japanese politicians to the
Yasukuni Shrine in which war dead, including some war
criminals, are enshrined.
Figure 15. Temperature, Strata of Interaction, and Influence in
Relations Between the People's Republic of China and Japan
Source: Congressional Research Service.
At the economic and financial level, however, relations are
hot. These comprise the bulk of interaction, are self
motivating, and take place without much official notice or
fanfare. Japan's economic recovery has been maintained partly
by exports to China, and Japan's businesses have incorporated
China as an important manufacturing platform for their
products. Japan now trades as much with China as it does with
the United States. Statements by both Beijing and Tokyo
indicate the desirability of mutually beneficial trade. The two
nations also have been cooperating more in addressing
environmental and energy problems.
At the diplomatic and political level, Sino-Japanese
relations are tepid--not warm but not cold either. China is
supplanting Japan as the leader in Asia, and Japan is having to
cede diplomatic territory to Beijing. Many in Tokyo are taken
aback at what they consider to be high handed actions by
Chinese leaders and their use of historical animosities that
many in Japan feel are generated by the government-controlled
Chinese press and educational system.\107\ The two countries
had no visits by top leaders for five years after 2001
primarily because of China's objections to visits to the
Yasukuni Shrine by former Prime Minister Junichiro Koizumi. In
October 2006, former Prime Minister Shinzo Abe began his
administration with a trip to China (and South Korea), and on
December 27, 2007, Japan's Prime Minister, Yasuo Fukuda, made
his own visit to China in which the two sides pledged closer
cooperation on trade, climate change, and other issues. To
date, however, the warming ties have not brought a change in
China's opposition to Japan's bid for a permanent seat on the
United Nations Security Council.\108\
---------------------------------------------------------------------------
\107\ Interviews by the author in Tokyo, January 2005.
\108\ ``More on Japan, China Agree to Build Strategic Ties,'' Kyodo
News Service, Tokyo, April 11, 2007.
Taiwan in Japan-China Relations.--The Japan-Taiwan-China
triangle poses a vexing dilemma for both Beijing and Tokyo.
Japan's relations with Taiwan have been close since Taiwan,
then known as Formosa, was a Japanese colony for a half century
until the end of World War II. In 2005, 1.4 million Taiwanese
visited Japan, and 1.2 million Japanese visited Taiwan. Trade
and investment relations are also strong, but the two-way trade
of $60 billion in 2006 is only about a third the size of
Japan's two-way trade with China. The October 2006 joint
communique for former Prime Minister Abe's visit to China did
not mention the Taiwan issue. Beijing reportedly requested that
the communique include the phrase that ``Japan opposes Taiwan
independence.'' Japan, however, states that its policy is in
line the 1972 Japan-China Joint Communique that recognizes
Beijing as the only legitimate Chinese government. In a
subsequent visit to Japan by China's Premier Wen Jiabao in
April 2007, Abe reportedly stated that ``Japan does not support
Taiwan independence.'' \109\
---------------------------------------------------------------------------
\109\ ``Abe, Wen Agree on Ways to Realize Mutually Beneficial
Ties,'' Jiji Press English News Service, Tokyo, April 11, 2007. Also
see: CRS Report RL33436, Japan-U.S. Relations: Issues for Congress,
coordinated by Emma Chanlett-Avery.
---------------------------------------------------------------------------
In 2005 in a joint statement on their common strategic
objectives, the United States and Japan stated that a common
strategic objective was to ``encourage a peaceful resolution of
issues concerning the Taiwan Strait through dialogue.'' \110\
This was a rare statement by Japan of its interest in stability
across the Strait and was viewed in Beijing as ``brazenly
interfering in China's internal affairs.'' \111\ In the May
2007 joint statement of the U.S.-Japan Security Consultative
Committee, however, there was no mention of Taiwan.\112\
---------------------------------------------------------------------------
\110\ U.S. Department of State. ``Joint Statement of the U.S.-Japan
Security Consultative Committee,'' Washington, DC, February 19, 2005.
\111\ Xinhua Daily Telegraph as cited in U.S. Department of State,
INR, ``Issue Focus: U.S.-Japan Joint Security Statement: Concerns over
an `Emerging China.' '' February 24, 2005.
\112\ U.S. Department of State. ``Joint Statement of The U.S.-Japan
Security Consultative Committee.'' May 1, 2007.
---------------------------------------------------------------------------
Japan and China also share an interest in halting North
Korea's nuclear program and in maintaining stability in the
region. Each participates in the various regional institutions
and summits that have arisen in East Asia. These include the
East Asia Summit, the ASEAN Regional Forum, ASEAN + 3, APEC,
and the Six-Party Talks dealing with the North Korean nuclear
program.
At the military level, relations are cold as both countries
seek to establish their claims to offshore islands and energy
resources in neighboring seas. Japan is watching the Chinese
military buildup with apprehension, and China fears that the
U.S.-Japan alliance may bring Japan into any outbreak of
hostilities that China may have with the United States over the
status of Taiwan.
A Japanese observer of major trends sees China as the
single most formidable challenger to Japan. Although private
economic relations are thriving, he sees rising friction at the
government level. The two countries maintain a type of ``cold
peace,'' as China matures and attempts to reclaim its position
in the world.\113\
---------------------------------------------------------------------------
\113\ Tomohiko Taniguchi. ``Major Trends in Japan.'' Slide
presentation, December 2004.
---------------------------------------------------------------------------
In Japan, economics and politics always have mixed. In many
respects, the U.S. nuclear umbrella has allowed the country to
pursue ``checkbook diplomacy'' by which Tokyo has used its
trade, aid, and investments alongside of the strengthening of
its military to develop what they have called comprehensive
security. Japanese experience in the 1980s showed that while
economic interdependence may not deflect trade and political
friction, it puts incentives in place to resolve disputes
amicably. Economic and financial relations formed a base from
which Japan could approach diplomatic, political, and security
relations with other states.\114\
---------------------------------------------------------------------------
\114\ Ron Matthews. ``Business Focus Turning Point for Japan,''
Jane's Defence Weekly, May 29, 1993.
---------------------------------------------------------------------------
For both Japan and China, one key question is to what
extent the extensive economic interactions and diplomatic
sensibilities will prevent political tension from escalating
into outright hostility or even military conflict. Stronger
economic, financial, and cultural ties between the two
countries increase the potential costs of bilateral friction or
of regional instability. In a sense, what is evolving is a type
of economic realpolitik. Although each country uses its soft
power to attempt to influence the other, in essence, each
country appears to have warmed toward the other because of
practical and material factors. In short, economic interaction
appears to have induced the two sides to keep the nationalist
rhetoric to a manageable level and adroitly tiptoe around
potential military clashes. Chinese influence in Japan is
growing as China rises to become a major regional power. On the
other hand, Japanese influence in China also is growing as the
Beijing leaders come to rely more on delivering growth and
prosperity to underpin their claim to legitimacy.
CHINA'S RELATIONS WITH SOUTH KOREA
The relationship between China and South Korea (The
Republic of Korea or ROK) provides a model for how deepening
economic relations can bring two capitals together politically.
Figure 16 outlines the major strata of interaction, channels of
influence, and the temperature of relations between the PRC and
South Korea. Beginning at the bottom of the figure, as is the
case with Japan, the major daily interaction is in
communications and cultural interchanges while disputes over
historical issues occasionally cloud the relationship. At the
human and individual level, the temperature of relations is
mixed with rising warmth in cultural exchanges and
communications but occasional cooling in nationalistic
disputes. Cultural ties have also increased multifold: tourism
in both directions has increased markedly, and the number of
South Korean students studying Mandarin has skyrocketed.
Historical ties between China and South Korea are not as
fraught as those between China and Japan, but disputes still
surface.
Figure 16. Temperature, Strata of Interaction, and Influence in
Relations Between the People's Republic of China and South Korea
Source: Congressional Research Service.
The temperature of economic and financial relations has
been hot as China has displaced the United States as South
Korea's major trading partner, and South Korean businesses have
moved labor-intensive production processes to Chinese
factories. Each economy has grown increasingly dependent on the
other for trade and investments. In 2006, South Korea exported
$69.4 billion in goods to China, $43.2 billion to the United
States, and $26.5 billion to Japan, while importing $51.9
billion from Japan, $48.6 billion from China, and $33.6 billion
from the United States.\115\
---------------------------------------------------------------------------
\115\ Global Trade Atlas. Note that some South Korean exports to
China are components for finished products that are than exported to
the United States.
---------------------------------------------------------------------------
At the diplomatic and political level, relations have
generally been warm (cordial) since the normalization of ties
in 1992, but disputes over treatment of North Korean refugees
seeking passage through China and other issues have sometimes
cooled relations. Frequent reciprocal visits by top officials
have solidified the political relationship, and cooperation in
attempting to resolve the North Korean nuclear crisis has
gained Beijing further favor in Seoul.
Korea's history with China is not always viewed as a
positive influence on contemporary diplomatic and political
relations. In 2004, in a move that diminished its ``image'' in
South Korea, China sparked a major political dispute. The flap
arose because of a PRC claim that the Koguryo Kingdom (37 B.C.-
668 A. D.) was a part of Chinese territory and history, not, as
Koreans claim, an independent Korean entity that produced many
of Korea's long-standing traditions. Angry reaction in South
Korea came from many quarters, including the public, members of
the National Assembly from both parties, and the Ministry of
Foreign Affairs and Trade. Many claimed that the controversy
exposed Beijing's ``hegemonic ambitions,'' and erased an
earlier impression of China as a benevolent economic
partner.\116\ Officials on both sides scrambled to calm the
controversy and Beijing dispatched Vice Minister Wu Dawei,
former ambassador to South Korea, to negotiate a resolution.
The resulting five-point agreement soothed Korean concerns at
least temporarily. With the North Korea problem still at a
sensitive stage, government officials were relieved to patch up
the relationship. Still, the incident exposed strong underlying
sentiment in both populations and could indicate a shift away
from the cozy political relationship the two capitals have
enjoyed for over a decade since normalization.
---------------------------------------------------------------------------
\116\ Scott Snyder, ``A Turning Point for China-Korea Relations?''
Comparative Connections, 3rd Quarter 2004.
---------------------------------------------------------------------------
At the military and security level, relations are cool, but
warming. Despite China's intervention in the Korean conflict
(1950-53) and alliance with North Korea, security relationships
between Seoul and Beijing are improving. In 1999, China and
South Korea agreed to hold annual discussions on regional
security issues.\117\ China holds a large wild card in the
security relationship because of its influence with Pyongyang.
Similar to Japan, however, South Korea also is concerned about
the potential adverse behavior of China two or three decades
into the future when it is expected to achieve major power
status. South Korea also has turned a cautious eye toward
China's increasing trade with and investments in North Korea.
While South Korean investment in North Korea have been confined
to specific enclaves, China's businesses are allowed to invest
in existing enterprises. China's companies seem to be viewed as
less threatening to the North Korean socialism than those from
South Korea or other nations with market-oriented economies.
---------------------------------------------------------------------------
\117\ James A. Foley, ``China Hedges Its Bets on North Korea,''
Jane's Intelligence Review, November 1, 2004.
---------------------------------------------------------------------------
The threat of instability posed by the North Korean nuclear
program has induced the major powers in the region to cooperate
in bringing Pyongyang to the negotiating table. These Six-party
Talks build on common security and economic interests and have
brought the governments of China and South Korea into a loose
partnership. Both countries oppose the development of a nuclear
arms program by North Korea. Each fears the consequences of a
collapsed Kim Jong-il regime in Pyongyang which could create
instability on the peninsula and a flood of North Korean
refugees. Because Japan generally has hewed closely to what
(until 2007) had been a more hardline U.S. position, Seoul and
Beijing found themselves advocating a similar approach of
engagement and laying out in explicit terms what Pyongyang
could gain if it abandoned its nuclear weapons program.
Observers note the irony that with respect to the North Korean
nuclear issue, China's relations with the DPRK have become
somewhat of a burden for Beijing while their ties with South
Korea have become more economically beneficial.
As in the case with Japan, the U.S.-South Korean military
alliance weighs heavily on the growing ties between Beijing and
Seoul. In essence, both have been able to deepen the economic
relationship with full knowledge that the United States also
seeks stability in Northeast Asia. China and South Korea's
cautious political alignment on the Six-party Talks has taken
place, however, as cracks began to appear in the U.S.-South
Korea alliance.
However, both Washington and Seoul policymakers insist that
the alliance is strong as evidenced by Korea's support of the
Iraq war and by statements by President Lee, Myung-bak in 2008
indicating that unlike the previous Roh administration, his
would ``work to develop and further strengthen traditional
friendly relations with the United States into a future-
oriented partnership.'' \118\ Under former President Roh, Moo-
hyun, South Korea did respond to Washington's request to send
troops to Iraq to perform humanitarian work, but his
administration attempted to pursue a geopolitical strategy of
seeking to play the role of a balancing force and
transportation hub in Northeast Asia. Apparently, many in South
Korea wanted the country to act as a stabilizer for peace and
prosperity and to place exchanges with China at the same level
as those with Japan or the United States--despite concerns that
this strategy implied a shift toward China.\119\ The strategy
stemmed partly from the increased economic traffic in the
peripheral countries around China, partly from the chronic
tension between Seoul and Tokyo, and partly as an attempt by
South Korea to define itself in a region that increasingly was
becoming dominated by China. For some in South Korea, however,
even though China looked like an appealing alternative when
relations with the United States wavered, they did not have to
search far into the past to see that China had a history of
shifting alliances--not to mention its entry into the Korean
War in 1950 that ultimately preserved the division of the
peninsula.
---------------------------------------------------------------------------
\118\ Norimitsu Onishi. ``At swearing-in, Lee highlights U.S. ties
He calls for pragmatism over ideology in dealings with North and
Washington,'' International Herald Tribune, Paris: February 26, 2008,
pg. 1.
\119\ Sung-kyoo Ahn. ``Security Aide Explains Vision of Balancer
Role.'' Seoul JoonAng Ilbo (Internet version). April 14, 2005.
(Reported by Open Source Center) ``Seoul Downgrading U.S. Alliance in
Favor of Closer Military Ties with China, Russia.'' East-Asia-Intel.com
(subscription e-mail service), April 12, 2005. ``ROK Presidential
Committee Head Views ROK's `Balancing Role' in Northeast Asia.'' Chosun
Ilbo (Internet Version in Korean), April 12, 2005. (Translated by Open
Source Center).
---------------------------------------------------------------------------
Expert studies also point to the growing strength of the
economic relationship in Chinese foreign policy. One expert
concludes that since successful implementation of reform and
open-door measures for China requires stability, Beijing has
few options other than to pursue a pragmatic diplomatic policy
rooted in economic benefits, although clearly China shows no
intention of compromising or negotiating over matters related
to its sovereignty. In this respect, China regards peace and
stability on the Korean peninsula as indispensable to its
continued economic advancement. It seeks to preserve the
Pyongyang regime while taking measures to resolve the North
Korean nuclear problem. Also, the talk of reunification between
South and North Korea places pressure on Beijing to keep on the
good side of South Korea to avoid the prospect of a nuclear-
armed, unified Korea as an unfriendly neighbor. The PRC also
would like to wean South Korea away from its close military
alliance with the United States in order to weaken what it
views as an important link in the U.S. ``encirclement'' of
China. Beijing, therefore, has placed great importance on its
economic and trade relations with South Korea while maintaining
its support of Pyongyang and expanding diplomatic and political
contacts with Seoul.\120\
---------------------------------------------------------------------------
\120\ Kim, Taeho. The Rise of China and Korea's Strategic Outlook.
Korea Focus, 10 (3), May-June 2002, p. 79-81.
---------------------------------------------------------------------------
REGIONAL TRADE ARRANGEMENTS
In almost no other area is competition between China and
Japan for soft power influence in Northeast Asia manifested
more clearly than in the emerging economic architecture of the
region. The two countries are in a type of tug-a-war over who
will be the lead country in Asia. During the 1980s, Japan
claimed the lead based on its industrial prowess, export
successes, and its democratic political institutions. Japan,
however, could rely on the United States to maintain security
in the region. Now China is wresting the lead from Japan, and
China's new strength is being manifest in the manner in which
various regional trade and political/security arrangements are
evolving.
The growing economic interaction and interdependency in
Northeast Asia are leading to a spate of preferential trading
arrangements that also have spawned nascent regional economic
and political arrangements. This process is being helped along
by China's increasing diplomatic prowess and a rush by Japan
and South Korea to negotiate free-trade agreements of their own
so as not to place their exporters at a competitive
disadvantage. In an ironic twist, the rivalry between China and
Japan for leadership in building the new Asian economic and
security architecture has enabled the Association of Southeast
Asian Nations (ASEAN) to step forward and serve as the
organizing hub and as the nucleus for the resultant trade and
security structure.\121\ ASEAN is seen as a neutral party in
the Sino-Japanese rivalry.
---------------------------------------------------------------------------
\121\ The Association of Southeast Asian Nations or ASEAN was
established on August 8, 1967 in Bangkok by the five original member
countries: Indonesia, Malaysia, Philippines, Singapore, and Thailand.
Brunei Darussalam joined in 1984, Vietnam in 1995, Laos and Burma/
Myanmar in 1997, and Cambodia in 1999.
---------------------------------------------------------------------------
In 1992, ASEAN created an ASEAN Free Trade Area among its
member nations. This has become the base for a number of
arrangements with the neighboring countries in Asia. In 2002,
China signed an FTA (Framework Agreement) with ASEAN that would
create a zero-tariff market for China and the six original
ASEAN members by 2010 and in 2015 for the other four members.
This included an early harvest program that eliminated tariffs
on goods. Japan and South Korea followed with FTAs with ASEAN
of their own. Each country also is negotiating bilateral FTAs
with individual countries within A SEAN and with each other. In
addition, each country either has concluded or is negotiating
bilateral FTAs with numerous other countries both in Asia and
around the world. Meanwhile, the United States has concluded a
bilateral FTA with Singapore, has completed negotiations on the
Korea-U.S. FTA, and is still negotiating a FTAs with Thailand
and Malaysia.
For the future regional architecture in East Asia, China,
Japan, South Korea, ASEAN, and the United States each seem to
have competing visions, national interests, and long-term
strategies. Each is using its soft power to pursue its own
goals. The underlying questions with regard to the regional
architecture include: (1) who takes the lead--China, Japan, the
United States, or ASEAN; (2) should the Asian regional
organizations be confined to East Asia, or should they include
South Asia, Australasia, Russia, and even extend across the
Pacific to include countries of the Americas; and 3) how deep
should integration go? Is the ultimate goal something akin to
the European Community?
Competing Visions for East Asia
China's vision for East Asia appears to be to establish
itself as the leading regional power and to attain a status in
the world community of nations commensurate with its position
as one of the five permanent members of the United Nations
Security Council, a nuclear power, a successful explorer of
outer space, and the country with the world's largest
population. China sees a U.S. decline as the corollary to its
rise and seeks to displace Japan as the economic leader of East
Asia.\122\ China's strategy seems to be to foster favorable
conditions for continuing its modernization while also reducing
the perception that its arrival as an industrial power and
political force threatens the interests of others. China needs
peace and stability in the region while it grows and resolves
numerous internal economic, political, and social problems.
Beijing recognizes that the United States is perhaps the only
power that can thwart its plans to bring Taiwan under its
sovereign control or can impose a system of economic sanctions
that could cripple its economic--and military--ascent. Beijing
has preferred an exclusive East Asian regional organization
that would enable it to take the lead and place the United
States and Japan in secondary roles. Paramount in China's
vision is a region in which countries respect what it considers
to be its territorial integrity, allow for flows of trade and
investment necessary to sustain its high rates of growth, and
not interfere with what it considers to be its internal
affairs.
---------------------------------------------------------------------------
\122\ See, for example: Shen Qiang. ``New Developments in Evolving
Relationships among Major Powers,'' International Strategic Studies,
3rd Issue, 2005, p. 54.
---------------------------------------------------------------------------
Japan's vision for East Asia is one in which the United
States continues to provide a nuclear umbrella for the region
and in which Tokyo relies on its economic power and diplomatic
skills to exercise leadership. It seeks to be a ``normal''
nation without vestiges of its defeat in World War II,
particularly the self-maintained constraints on its military.
Japan would like to bury its World War II history and be viewed
as a peaceful nation and a force for betterment in Asia through
economic progress. Prior to the resurgence of China, Japan
characterized the countries of East Asia as flying in a wild
geese migrating pattern with Japan playing the role of the lead
bird. Tokyo recognizes now that Beijing is rapidly assuming the
leadership role in East Asia and that the Chinese economy is
becoming the regional center of gravity for trade and
investment activity. Japan, however, would like to maintain a
position of leadership in Asia, accommodate China's resurgence
without tinges of vassalage, and continue to be at the
forefront in economic and financial affairs.
For South Korea, the vision for the region is one in which
South Korea is a hub for transportation and economic activity.
With a relatively small economy when compared with those of
Japan and China and historical enmity against Japan, South
Korea has been cultivating relations with China while seeking
to strengthen its economic and security ties with the United
States. South Korea claims Japan has not offered to open its
agricultural market enough to continue negotiating a bilateral
free trade agreement. South Korea also views North Korea, the
other half of the Korean peninsula, as a possible partner in
manufacturing and a unified North and South Korea as a bulwark
against competition from China. South Korea also seeks a
nuclear-free Korean peninsula.
For the United States, the vision for the region begins
with its preeminent position as a keeper of the peace, a
wellspring for economic prosperity, an advocate for open
markets, and a role model for social, cultural, and political
values. Its goals in East Asia are to prevent any other single
power from dominating Asia, to maintain stability, to increase
access to markets in the area, to encourage development of
democratic institutions, and to protect basic human rights. The
United States shares leadership with other nations and
institutions and does not need to have a seat at the table each
time Asians meet. Washington, however, usually seeks a presence
when decisions are made affecting its vital interests in East
Asia (but it sometimes is absent--as in the inaugural meeting
of the East Asia Summit). The strategy of the United States in
the region has been to continue its hub and spoke system with
the United States being the hub and bilateral FTAs and security
arrangements spoking out with Asian nations. The United States
also has multilateral relationships with links to regional
organizations or sets of countries such as APEC (the 21-nation
Asia Pacific Economic Cooperation forum) and the proposed Free
Trade Area of the Asia Pacific (FTAAP) that calls for an APEC-
based trans-Pacific FTA.\123\ The United States also recognizes
that cooperation with China, Japan, and South Korea are
essential to resolving vital security issues, such as the North
Korean nuclear threat. Furthermore, the United States would
like a more balanced trading relationship with Asian nations.
In 2007 the United States incurred a merchandise trade deficit
of $256 billion with China, $83 billion with Japan, and $13
billion with South Korea (43% of the total U.S. trade deficit
of $816 billion). These three countries also hold more than a
trillion dollars in U.S. Treasury securities.\124\
---------------------------------------------------------------------------
\123\ See: CRS Report RL31038, Asia Pacific Economic Cooperation
(APEC) and the 2007 Meetings in Sydney, Australia, by Michael F.
Martin.
\124\ U.S. Treasury Department. ``Major Foreign Holders of Treasury
Securities,'' December 2007. (Japan--$581.2 billion, China--$477.6
billion, South Korea--$39.2 billion) See also: CRS Report RL34319,
Foreign Ownership of U.S. Financial Assets: Implications of a
Withdrawal, by James K. Jackson and CRS Report RL34314, China's
Holdings of U.S. Securities: Implications for the U.S. Economy, by
Wayne M. Morrison and Marc Labonte.
---------------------------------------------------------------------------
Shifting Regional Groupings
These alternate visions are played out in attempts at use
of soft power as a tactic to pursue strategic visions or goals
by the countries competing for traction in Asia. In regional
trade, China has promoted the ASEAN + 3 arrangement in which
the ASEAN-10 countries join with China, Japan, and South Korea
in what could lead to an East Asian trading bloc that would
exclude the United States. The ASEAN + 3 Unit has been
organized and helps coordinate the activities of the group. It
is located within the ASEAN Secretariat. The ASEAN + 3 group
holds its annual summit immediately following the ASEAN summit.
It has focused on trade facilitation, establishing
institutional structures for financial and monetary
cooperation, and on being a forum for discussing political and
security matters. Beijing apparently views ASEAN +3 as an
institution in which it can take the lead without competition
from the United States or Europe or the dilution of East Asian
interests by India or Australia.
In 2006, Japan proposed a 16-nation East Asian Free Trade
area to be coordinated by an organization similar to the
Organization for Economic Cooperation and Development (OECD).
The 16 nations would include the ten members of the Association
of Southeast Asian Nations, Japan, China, South Korea, India,
Australia, and New Zealand, identical to the membership of the
East Asia Summit.\125\ This larger grouping would dilute the
influence of China in the proposed free trade area.
---------------------------------------------------------------------------
\125\ ``Japan Aims to Launch East Asia FTA Talks in `08,'' Jiji
Press English News Service, Tokyo: April 4, 2006.
---------------------------------------------------------------------------
Japan's concept was welcomed by ASEAN and India, but China
and South Korea indicated that their first priority would be
the ASEAN + 3 FTA proposal.\126\ U.S. Ambassador to Japan
Thomas Schieffer has expressed some concern about the proposed
Asia FTA saying it could damage U.S. interests in the region.
He said that the United States is uncomfortable ``when people
start talking about somehow trying to exclude the United States
from Asia.'' The United States has tremendous interests there
and wants to be a part of Asia, he remarked.\127\
---------------------------------------------------------------------------
\126\ ``S. Korea, China Snub Japan's 16-nation FTA Plan,''
Organisation of Asia-Pacific News Agencies, August 24, 2006.
\127\ ``US Envoy Expresses Concern About Japan's Idea of East Asia
Free Trade Zone,'' BBC Monitoring Asia Pacific, London: April 19, 2006.
---------------------------------------------------------------------------
At the 2006 Leader's Meeting of the Asia-Pacific Economic
Cooperation forum the APEC members decided to study the
possibility of a Free Trade Area of the Asia Pacific (FTAAP).
This trans-Pacific FTA was promoted by the United States and
would encompass the 21 APEC economies and include the ASEAN-6
plus Vietnam, China, Chinese Taipei (Taiwan), Hong Kong, Japan,
and South Korea in Asia; the United States, Canada, Mexico,
Peru, and Chile in the Americas; Australia, New Zealand, and
Papua New Guinea in the Pacific; and Russia.\128\ As a start,
the United States has begun talks with the P4 (New Zealand,
Singapore, Brunei, and Chile) to possibly join that FTA with
the aim toward using that as a base for creating an FTA that
spans the Pacific Ocean. These actions reflect the U.S.
strategy of creating a trans-Pacific trading bloc rather than
one dominated by China or Japan. The FTAAP also addresses the
U.S. concern that Taiwan not be shut out of any emerging Asian
free trade area.
---------------------------------------------------------------------------
\128\ Asia Pacific Economic Cooperation, ``14th APEC Economic
Leaders' Meeting, Ha Noi Declaration.'' Ha Noi, Viet Nam, 18-19
November 2006. For information on APEC, see: [http://www.apec.org].
---------------------------------------------------------------------------
One issue in Asia that differentiates the Chinese from the
U.S. approach to FTAs is the U.S. insistence on a ``gold
standard'' template that provides for elimination of all
tariffs and addresses other barriers to economic interaction
such as liberalizing investment flows, enforcing intellectual
property rights, and increasing access for providers of
services. The purpose of this ``gold standard'' is to
eventually combine bilateral FTAs into regional FTAs that
include the United States and to avoid what is being called the
``spaghetti bowl'' of intertwining and overlapping free trade
agreements each with its own rules and special exceptions. This
helps U.S. companies to compete in this new world of disparate
sets of trading rules that are not necessarily convergent. U.S.
adherence to this ``gold standard,'' however, often creates ill
will as the United States is perceived to be excessively
intrusive in requiring reforms in FTAs. The Chinese approach is
to sidestep controversial issues (such as imports of rice) and
to maximize the good will aspects of FTAs. The Japanese
approach is somewhere in between the two extremes with
scrupulous avoidance of any opening of rice markets but
amenable to most other types of market liberalization.
Chinese recent economic and diplomatic successes, however,
should not be over emphasized. The United States still is the
world's preeminent military and economic power, and while many
global supply chains include China, they also include the
United States--particularly in product design, technology, and
marketing. Asian nations are seeking to broaden international
options with major powers, and they engage in a continuing
round of hedging and maneuvering for advantage and against
possible Chinese dominance. In this process, they are seeking
closer ties with each other and also with the United
States.\129\
---------------------------------------------------------------------------
\129\ Robert Sutter. ``China's Rise: Implications for U.S.
Leadership in Asia,'' East-West Center Washington, Policy Studies, Vol.
21, 2006. p. vii-ix.
---------------------------------------------------------------------------
IMPLICATIONS FOR U.S. POLICY IN REGION
The extent to which China relies on soft power in Northeast
Asia is different from that in either Southeast Asia or in
Africa and Latin America. China, Japan, and South Korea tend to
be peer competitors in trade and business relationships. Each
is jockeying for position and using the tools of soft power in
trying to influence each other and other countries in the
region. With trade and investments, though, international
interaction cuts both ways. Japan and South Korea are clearly
more dependent on China, but China also is more dependent on
Japan and South Korea. A question is whether this economic
interdependence combined with other interaction is having an
effect on political relationships, or whether the opposite is
the case--whether increased political and diplomatic relations
are affecting trade and investment flows.
One economic study examines this question through use of an
econometric technique to test causality in the relationship
between trade and political conflict among China, Japan, and
the United States. Conflict in the study is defined as an
unfriendly or negative political action or stance of one
country towards another (an index of cooperation minus
conflict). The study found that in the 1990-97 period, Japanese
net cooperation towards China was positively affected by
Japan's growing importance to China. In the 1998-2004 period,
Japanese net cooperation towards China was negatively affected
by China's growing exports to Japan as China's dominance grew
and became more visible. The study also found that growing
Chinese exports to Japan and to the United States were causing
a rise in the measure of negative sentiment towards China, but
for Japan the growth of exports to China seems to dampen this
effect. The large imbalance in trade with the United States,
however, was causing tensions to rise in the United States. The
study concluded that the stable and rapidly growing economic
relationship constrained antagonistic political behavior
between China and Japan. The authors of the study conclude,
``The rising interdependence between the nations and
concomitant opportunity cost of serious conflict has led to an
easing of political tensions and even some movement towards
increased cooperation. The structure of the political
relationship appears likely, from this analysis, to be
increasingly affected by the economic relationship.'' \130\
---------------------------------------------------------------------------
\130\ Peter Drysdale and Shiro Armstrong, ``The Effects of Politics
on Trade and Trade on Politics, Japan and China,'' pg. 25. Paper
presented at the Japan Economic Seminar, Washington, DC, November 16,
2007.
---------------------------------------------------------------------------
This study reinforces intuitive notions that increasing
interdependence and interchange between nations leads to a
lessening of tensions, unless the interdependence or
interchange is viewed as being tilted in favor of the other
party. This implies for China that its ``charm offensive'' and
soft power are likely to improve political relations with a
trading partner unless a large trade surplus in its favor
appears. Then the increased economic interaction is likely to
raise political conflict. In short, China may be gaining
friends now, but those friendships could sour later if the
economic interaction becomes unbalanced. By that time, however,
structures and institutions could be in place that solidify a
Chinese position of power.
To many observers, the policy implications for the United
States call for continued and reinvigorated U.S. engagement in
East Asia to counter Chinese soft power and active
participation in building the economic and political/security
architecture of the region. With Japan and South Korea, much of
Chinese soft power actually is being generated by Japanese and
South Koreans, themselves, through trade and investment flows.
Among these countries, soft power effects go both ways.
Although unlikely at this time, an East Asian organization
similar to the Chinese dominated Shanghai Cooperation
Organization is clearly not in the U.S. interest. The current
U.S. hub and spoke strategy of negotiating free trade
agreements and security arrangements with individual countries
in Asia is one way to ensure that the U.S. presence remains
strong, but the U.S. insistence on ``gold standard'' provisions
in its bilateral FTAs that require major changes in domestic
laws has caused resentment when compared with China's ``non-
interventionist'' approach.
Japanese and South Korean soft power in their dealings with
China may work to the U.S. advantage in raising the costs of
instability and rash military actions (such as conflict over
Taiwan) in East Asia. Despite the growing economic and
financial interaction, however, considerable distrust (stemming
from historical issues) still exists between China and Japan
and between Japan and South Korea. Currently, the probability
that a Northeast Asian trading bloc combining the economies of
China, Japan, and South Korea seems small, since those
countries have not made much progress on bilateral FTAs with
each other. If such a trading bloc were to emerge, however,
this could pose a significant challenge for the United States.
Currently, the three countries account for 43% of the U.S.
merchandise trade deficit and hold over a trillion dollars in
U.S. Treasury securities in their foreign exchange reserves.
Figure 17. Mainland China, Japan, and
South Korea in East Asia
Source: Adapted by CRS. Map Resources (11/07).
----------
Central Asia\131\
---------------------------------------------------------------------------
\131\ Prepared by Jim Nichol, Specialist in Russian and Eurasian
Affairs, Foreign Affairs, Defense, and Trade Division.
---------------------------------------------------------------------------
OVERVIEW
After the Soviet breakup, China focused on establishing
trade and other cooperative relations with the newly
independent Central Asian states and encouraging their efforts
to ensure regional and border security.\132\ The new
geopolitical situation permitted China to largely demilitarize
its borders with the new states, opened markets for Chinese
goods and investment, yielded better access to raw materials,
provided economic opportunities for China's Xinjiang Uighur
Autonomous Region, and promised to reinstate Central Asia as a
transit corridor (``Silk Road'') between China and Europe and
between China and the Middle East. The Soviet collapse also
confronted China with several security challenges, including
growing contacts between separatists in Xinjiang and their
supporters in Central Asia, the growth of Islamic extremism in
Central Asia, rising instability or even state failure in the
region, the possibility of the development of ties between the
Central Asian states and Taiwan, and Central Asian regional
cooperation that excluded China.\133\
---------------------------------------------------------------------------
\132\ As discussed here, Central Asia consists of the former Soviet
republics of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and
Uzbekistan.
\133\ Ablat Khojaev, ``China's Central Asian Policy,'' Central Asia
and the Caucasus, No. 3 (2007), pp. 26-39.
---------------------------------------------------------------------------
China's relations with Central Asia slowly evolved during
the 1990s and at first were largely limited to diplomacy and
merchandise trade. Diplomacy included exhortations to the
Central Asian states to crack down on support by citizens in
their countries of separatism by Uighurs (a Turkic Muslim
people) in Xinjiang, as well as negotiations over border
demarcation in order to facilitate trade and reassure the
regional states that China did not seek to annex them. During
his early 1994 visit to Uzbekistan, Premier Li Peng highlighted
China's interest in friendship and peaceful coexistence,
mutually advantageous cooperation, non-interference in domestic
affairs, and the promotion of regional stability. By the late
1990s, however, China had become increasingly concerned that
the ``three forces''--international terrorism, religious
extremism, and ethnic separatism--posed a growing threat to the
security and stability of both China and Central Asia. Also,
domestic energy shortages contributed to China placing
relations with the region at a higher priority level. A
stablesecurity situation in the region was viewed as necessary
for building energy transport links to China and for improving
Xinjiang's economy.\134\ See Figure 18.
---------------------------------------------------------------------------
\134\ Muratbek Imanaliev and Erlan Abdyldaev, ``Globalization
Challenges in Central Asia and Certain Aspects of China's Central Asian
Policies,'' Central Asia and the Caucasus, No.3 (2007), pp. 88-98;
Niklas Swanstrom, quoted by Jeremy Bransten, ``Central Asia: China's
Mounting Influence,'' Eurasia Insight, November 23, 2004.
---------------------------------------------------------------------------
Figure 18. Commonwealth of Independent
Central Asian States
This report focuses on mainly non-military types of
influence--sometimes termed ``soft power''--exercised by China
in its relations with the Central Asian states.\135\ The term
``soft power,'' generally has referred to influencing the
behaviors of other countries by attracting and persuading
others to adopt one's goals. Such influence includes
diplomatic, cultural, and economic relations. China's military
and security assistance also is included here. Multilateral
forms of Chinese influence are examined, primarily that
exercised through the Shanghai Cooperation Organization, as
well as bilateral forms of influence.
---------------------------------------------------------------------------
\135\ Joseph S. Nye, Jr.,``Bound to Lead: The Changing Nature of
American Power,'' New York: Basic Books, 1990; ``Soft Power: The Means
to Success in World Politics,'' New York: Public Affairs, 2004.
---------------------------------------------------------------------------
BILATERAL AND MULTILATERAL DIPLOMACY
China has pursued both bilateral ties with each Central
Asian state as well as multilateral ties through the Shanghai
Cooperation Organization (SCO), whose members include China,
Russia, and all the Central Asian countries except
Turkmenistan, which claims to be nonaligned. China's growing
bilateral and multilateral ties with Central Asia are the major
impetus to political and economic integration in the region,
according to some observers.\136\ China has concluded
Friendship and Cooperation Treaties with Kazakhstan,
Kyrgyzstan, Tajikistan, and Uzbekistan that provide a framework
for enhancing bilateral relations. The most recent Friendship
and Cooperation Treaty was signed with Tajikistan in January
2007 and contains features common to all the treaties. Both
sides foreswear forming alliances with or hosting troops from
countries or groups that might threaten the security of the
other party. Both sides agree to hold consultations if there is
a situation that threatens the peace or security of either
side. They pledge to create opportunities for investment and
trade, and to work both bilaterally and within the SCO to crack
down on terrorism, separatism, and extremism, and cross-border
organized crime, illegal immigration, and arms and drug
trafficking. Both sides promise to guarantee the legal rights
of each other's visiting citizens.
---------------------------------------------------------------------------
\136\ Adil Kaukenov, ``China's Policy Within the Shanghai
Cooperation Organization,'' Central Asia and the Caucasus, No. 3
(2007), pp. 62-76.
---------------------------------------------------------------------------
Some observers suggest that China may regard close
relations with Kazakhstan as the most important to achieving
its strategic goals.\137\ China and Kazakhstan proclaimed a
``strategic partnership'' in 2005, and in December 2006
concluded a strategy for ``deepening cooperation in the 21st
Century.'' This agreement proclaimed that both countries had
resolved border demarcation and called for expanding trade
turnover to $10 billion by 2010 and to $15 billion by 2015,
building pipelines and other transport routes, and cooperating
in oil and gas development.\138\ Despite these growing ties
between Kazakhstan and China, many in Kazakhstan remain
concerned about Chinese intentions and the spillover effects of
tensions in Xinjiang. Some have raised concerns about growing
numbers of Chinese traders and immigrants, and there are
tensions over issues like water resources. China's crackdown on
dissidence in Xinjiang creates concern in Kazakhstan, because
over one million ethnic Kazakhs reside in Xinjiang and many
Uighurs reside in Kazakhstan (some ethnic Kyrgyz also reside in
Xinjiang). Some in Kazakhstan fear that Uighur separatism in
Xinjiang could spread among Uighurs residing in Kazakhstan, who
may demand an alteration of Kazakh borders to create a unified
Uighur ``East Turkestan.''
---------------------------------------------------------------------------
\137\ Shi Ze, ``Relations Between China and Central Asian Countries
Face Opportunity of All-Round Development,'' China International
Studies, Winter 2005, p. 83; Open Source Center, Central Eurasia: Daily
Report (hereafter CEDR), September 7, 2007, Doc. No. CEP-950007.
\138\ Open Source Center, China: Daily Report (hereafter CDR),
December 20, 2006, Doc. No. CPP-442003.
---------------------------------------------------------------------------
While pursuing close ties with Kazakhstan, China also has
focused on bolstering the economic and security capabilities of
bordering Kyrgyzstan and Tajikistan in order to prevent
instability in these countries from affecting its own
territory. China's interest in close relations with Uzbekistan
derives in part from the country's large number of potential
consumers (it is the most populous Central Asian state) as well
as its role as a transit state to markets further west. Since
Kazakhstan is no longer taking on new public sector foreign
debt, Kyrgyzstan, Tajikistan, and Uzbekistan apparently were
the targets of loans that China announced in 2004 would be made
available for regional development (see below).
Among multilateral ties, China cooperates in the Central
Asia Regional Economic Cooperation program (CAREC; members are
China, Afghanistan, Azerbaijan, Mongolia, and all the Central
Asian states except Turkmenistan), initiated by the Asian
Development Bank in 1997 to improve living standards and reduce
poverty in its member states through regional economic
collaboration. Also participating in CAREC are the European
Bank for Reconstruction and Development (EBRD), the
International Monetary Fund (IMF), the Islamic Development
Bank, the United Nations Development Program (UNDP), and the
World Bank. For the period from 2006 to 2008, CAREC plans to
provide over $2.3 billion for more than 40 projects.
The Shanghai Cooperation Organization
Some observers argue that China increasingly has stressed
multilateral relations with the Central Asian region through
the mechanism of the Shanghai Cooperation Organization (SCO),
in which China plays the leading role.\139\ The genesis of the
organization was an April 1996 treaty among the presidents of
China, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan pledging
the sanctity and substantial demilitarization of the former
Soviet-Chinese borders. The presidents also signed protocols
that they would not harbor or support separatists, aimed at
China's efforts to quash separatism in Xinjiang. In April 1997,
the five presidents met again to sign a follow-on treaty
demilitarizing the 4,000 mile former Soviet border with China.
In May 2001, the parties admitted Uzbekistan as a member and
formed the SCO. The states signed a Shanghai Convention on
joint fighting against what President Jiang Zemin termed ``the
forces of separatism, terrorism and extremism.'' The SCO also
agreed to set up an anti-terrorism coordinating center in the
region. In theory, the treaty allows China to send troops into
Central Asia at the request of one of the states. Besides
security cooperation, China stressed the ``huge economic and
trade potential'' of regional cooperation.\140\
---------------------------------------------------------------------------
\139\ Shieves; Konstantin Syroezhkin, ``China in Central Asia: from
Trade to Strategic Partnership,'' Central Asia and the Caucasus, No.3
(2007), pp. 40-51.
\140\ CDR, September 10, 2002, Doc. No. CPP-131.
---------------------------------------------------------------------------
Some observers have viewed the creation of the SCO as
reflecting the common goal of Russia and China to encourage the
Central Asian states to combat regime opponents of the two
major powers. While cooperating on this broad goal, Russia and
China have appeared to disagree on other goals of the SCO and
to vie for dominance within the organization. Russia has viewed
the SCO mainly as a means to further military cooperation and
to limit China's influence in Central Asia, while China in
recent years has viewed the SCO not only as enhancing regional
security but also as an instrument to increase trade and access
to oil and gas.
China stressed economic initiatives at the June 2004 SCO
summit when President Hu Jintao offered $900 million in export
credits with a 2% interest rate for a period of 20 years to
Kyrgyzstan, Tajikistan, and Uzbekistan. The summit declaration
emphasized that ``the cornerstone of stability and security of
the Central Asian region and the adjacent countries lies in
their economic progress, in meeting the essential needs of the
population.'' \141\ Russia emphasized the security aspects of
the SCO in early October 2007 when the Russia-led Collective
Security Treaty Organization (CSTO; members include Russia,
Armenia, Belarus, and all the Central Asian states except
Turkmenistan) signed an information-sharing accord with the
SCO. According to some observers, China anticipates that with
its increasing economic and military power, it will gradually
eclipse the influence of Russia in the region. It is possible
that as China's influence grows in the region, Russia will
become more alarmed and will reduce its role in the SCO (see
also below, Implications for Central Asia).\142\
---------------------------------------------------------------------------
\141\ CEDR, June 17, 2004, Doc. No. CEP-335.
\142\ Konstantin Syroezhkin, ``China in Central Asia: from Trade to
Strategic Partnership,'' Central Asia and the Caucasus, No.3 (2007),
pp. 40-51.
---------------------------------------------------------------------------
For the Central Asian states, the SCO is seen as balancing
Russian and Chinese influence, since the regional states also
belong to the economic and security organizations that are part
of the Russia-led Commonwealth of Independent States.\143\ At
the same time, according to some observers, regional leaders
have preferred the economic and security cooperation offered by
the SCO over what they view as U.S. advocacy of democratic
``color revolutions.'' \144\ It may also be the case that
Central Asian leaders value the SCO's economic prospects more
than its security prospects, given the history of the group.
The regional leaders may have devalued SCO as a security
organization after September 11, 2001, when U.S. and Western
military activities in Afghanistan demonstrated the lack of
effectiveness of the SCO in combating terrorism. SCO members
did not respond collectively to U.S. requests for assistance
but mainly as individual states. Further challenges to the
prestige of the SCO as a collective security organization
occurred in 2005, when it failed to respond to the coup in
Kyrgyzstan or to civil unrest in Uzbekistan. Russia and China
have not used the SCO to channel significant amounts of
military training and equipment to the regional states. In the
case of China, relatively small amounts of security assistance
have been provided to the Central Asian states either through
the SCO or bilaterally, and largely has taken the form of
training in exercises.\145\
---------------------------------------------------------------------------
\143\ CEDR, August 22, 2007, Doc. No. CEP-25001; CDR, August 18,
2007, Doc. No. CPP-94003; Artyom Matusov, ``Energy Cooperation in the
SCO: Club or Gathering?'' China and Eurasia Forum Quarterly, Vol. 5,
No. 3 (2007) pp. 83-99. Tajik journalist Qosim Bekmuhammad has argued
that Russia's economy does not permit it to provide credits on the
scale offered by the Chinese, so it stresses political and military
activities in the SCO. CEDR, September 7, 2007, Doc. No. CEP-950141.
\144\ Konstantin Syroezhkin, ``China in Central Asia: from Trade to
Strategic Partnership,'' Central Asia and the Caucasus, No. 3 (2007),
pp. 40-51.
\145\ According to analyst Dru Gladney, security cooperation beyond
pro forma exercises has mostly involved ``the occasional repatriation
of suspected Uighur separatists.'' U.S.-China Economic & Security
Review Commission, Hearing on China's Role in the World: Is China a
Responsible Stakeholder? Panel IV: China's Involvement in the SCO,
China's `Uighur Problem' and the SCO, August 3, 2006.
---------------------------------------------------------------------------
During an early July 2005 SCO summit, the presidents of
China, Russia, Uzbekistan, Kyrgyzstan, and Tajikistan signed a
declaration that ``as large-scale military operations against
terrorism have come to an end in Afghanistan, the SCO member
states maintain that the relevant parties to the anti-terrorist
coalition should set a deadline for the temporary use of . . .
infrastructure facilities of the SCO member states and for
their military presence in these countries.'' \146\ The
declaration allegedly was strongly pushed by Russia and
Uzbekistan. Later that month, Uzbekistan requested that the
United States vacate an airbase near the town of Karshi
Khanabad, which was used for U.S.-led coalition operations in
Afghanistan, for reasons that included what Uzbekistan termed a
stabilizing security situation in Afghanistan.
---------------------------------------------------------------------------
\146\ CEDR, July 5, 2005, Doc. No. CPP-249.
---------------------------------------------------------------------------
According to analyst Stephen Blank of the U.S. Army War
College, China has fashioned ``the SCO as a template of the
future organization of Asia against the American alliance
system.'' He also states that China has resisted the Russian
``idea of the SCO being a military bloc.'' Taking a different
view, analyst Martha Olcott of the Carnegie Endowment for
International Peace has argued that China focuses more on
fostering regional stability than on using the SCO as an anti-
U.S. forum, and that Russia and the Central Asian states have
resisted Chinese efforts to expand security cooperation within
the SCO.\147\
---------------------------------------------------------------------------
\147\ United States Commission on Security and Cooperation in
Europe (Helsinki Commission), Testimony by Stephen Blank and Martha
Olcott, The Shanghai Cooperation Organization: Is it Undermining U.S.
Interests in Central Asia? September 26, 2006.
---------------------------------------------------------------------------
While China has held several military exercises with the
Central Asian states that it claims are under the aegis of the
SCO, some have appeared to be primarily bilateral exercises
held between China and one other Central Asian state. China has
also provided counter-terrorism training and border security
assistance to Central Asian countries under the aegis of the
SCO, including funding for radiation detection equipment at
border crossings.\148\
---------------------------------------------------------------------------
\148\ CDR, September 22, 2006, Doc. No. CPP-63007; CDR, September
23, 2006, Doc. No. CPP-706021; NDU
China and Kyrgyzstan held a joint military exercise in
October 2002 that China hailed as the first under SCO
auspices and the first by the Chinese People's
Liberation Army on foreign soil.\149\
---------------------------------------------------------------------------
\149\ CDR, December 15, 2003, Doc. No. CPP-91.
In August 2003, China's ground forces participated with the
forces of Russia, Kazakhstan, Kyrgyzstan, and
Tajikistan in Xinjiang in what China termed the first
SCO multilateral military exercise (another part of the
exercise was held in Kazakhstan without the
---------------------------------------------------------------------------
participation of Chinese troops).
In 2005, Russia and China held a joint military exercise in
northeastern China. The two sides claimed that the
exercises were aimed to combat terrorism or political
disorder in an SCO member-state, but some observers
suggested that the exercises had more in common with
``a conventional all-out assault.'' \150\
---------------------------------------------------------------------------
\150\ Roger McDermott, The Rising Dragon: SCO Peace Mission 2007,
Occasional Paper, The Jamestown Foundation, October 2007.
In August 2006, Chinese and Kazakh police and security
forces held their first coordinated anti-terrorist
---------------------------------------------------------------------------
exercises on their own respective territories.
In September 2006, Chinese and Tajik military forces held a
joint exercise at a Russian military base in
Tajikistan.
In August 2007, an SCO military exercise took place in
Xinjiang and southern Russia, the first that included
representatives of all member countries (although
Russian and Chinese forces predominated). The scenario
for the exercise involved defeating terrorists whom had
taken over a town in an SCO member-state.
The most recent SCO summit of the heads of state took place
in Bishkek, Kyrgyzstan, in mid-August 2007. A Bishkek
Declaration and a multilateral Friendship and Cooperation
Treaty were signed. The Bishkek Declaration appeared to refer
to the United States when it criticized ``unilateral actions''
by some countries and when it stated that ``Central Asia's
security and stability first relies on the efforts of various
countries in this region.'' It called for the members to
coordinate their energy security strategies. The Friendship
Treaty largely reiterated provisions of the bilateral
friendship treaties China has signed with regional states.
ECONOMIC TIES
Trade and Foreign Investment
Trade turnover between China and Central Asia has increased
from negligible amounts during the Soviet period to almost $12
billion in 2006, according to Chinese Customs Statistics (See
Table 7). Chinese officials have stated that trade with all the
regional states expanded in 2007. While China is becoming a
major trade partner for the Central Asian states, the region
still accounts for only a tiny percentage (about 1.3%) of
China's overall foreign trade.\151\ Most of China's regional
trade is with Kazakhstan, and Kazakhstan ranks along with
Russia as China's largest trade partners among the Soviet
successor states. Kyrgyzstan ranks second after Kazakhstan in
regional trade turnover with China, and this bilateral trade
may substantially increase in coming years after the Kyrgyz-
China border post at Irkeshtam is linked by an improved highway
(and possible railway) to Kyrgyzstan's southern city of Osh (at
the edge of the Fergana Valley shared by Kyrgyzstan,
Tajikistan, and Uzbekistan), and possibly to Uzbekistan's city
of Andijon (see also below).
---------------------------------------------------------------------------
\151\ Niklas Swanstrom, Nicklas Norling, and Zhang Li, ``China,''
in The New Silk Roads: Transport and Trade in Greater Central Asia,
edited by S. Frederick Starr (Washington D.C.: Central Asia-Caucasus
Institute & Silk Road Studies Program, 2007).
---------------------------------------------------------------------------
For the Central Asian states, trade with China has become
more significant in recent years. In 2006, Kazakhstan's main
export markets were Germany, Russia, and China, and its main
import markets were Russia and China. China is Kyrgyzstan's
largest trade partner. According to French analyst Sabastien
Peyrouse, up to 75% of China's exports to Kyrgyzstan are re-
exported to other Central Asian countries, and the profits made
by this re-exporting may constitute a notable part of
Kyrgyzstan's economy.\152\
---------------------------------------------------------------------------
\152\ Sabastien Peyrouse, ``The Economic Aspects of the Chinese-
Central Asia Rapprochement,'' p. 17. Although it is difficult to
estimate the amount of profits, a 10% return would yield some $160
million to the Kyrgyz economy. To compare to other sources of GDP,
labor remittances are estimated at between $200-$350 million annually.
According to the International Monetary Fund (IMF), Kyrgyzstan's
nominal GDP was $2.6 billion in 2006. IMF, Kyrgyz Republic: Enhanced
Initiative for Heavily Indebted Poor Countries: Preliminary Document,
IMF Country Report No. 06/4 17, November 2006; The World Bank,
Migration and Remittances: Eastern Europe and the Former Soviet Union,
2006.
Table 7: China's Trade with Central Asia, 2004-2006
(million dollars)
----------------------------------------------------------------------------------------------------------------
Percent Percent Percent
Share of Share of Share of Percent
Country 2004 2005 2006 China's China's China's Change
Exports in Exports in Exports in 2006 over
2004 2005 2006 2005
----------------------------------------------------------------------------------------------------------------
China's Exports to Central
Asia
Kazakhstan.................. 2,212.49 3,898.88 4,751.53 0.37 0.51 0.49 21.87
Kyrgyzstan.................. 492.76 865.92 2,113.03 0.08 0.11 0.22 144.02
Tajikistan.................. 53.49 143.87 305.70 0.01 0.02 0.03 112.49
Turkmenistan................ 84.80 90.44 162.45 0.01 0.01 0.02 79.62
Uzbekistan.................. 172.47 230.22 406.10 0.03 0.03 0.04 76.40
----------------------------------------------------------------------------------------------------------------
Total..................... 3,016.04 5,229.33 7,738.81 0.50 0.68 0.80 47.99
================================================================================================================
China's Imports from Central
Asia
Kazakhstan.................. 2,280.81 2,902.27 3,607.17 0.41 0.44 0.46 24.29
Kyrgyzstan.................. 109.45 104.56 112.79 0.02 0.02 0.01 7.87
Tajikistan.................. 15.37 14.20 18.00 0.00 0.00 0.00 26.81
Turkmenistan................ 13.88 18.99 16.01 0.00 0.00 0.00 (15.68)
Uzbekistan.................. 402.70 451.02 565.85 0.07 0.07 0.07 25.46
----------------------------------------------------------------------------------------------------------------
Total..................... 2,822.21 3,491.04 4,319.82 0.50 0.53 0.54 23.74
================================================================================================================
China's Total Trade Turnover
with Central Asia
Total Turnover............ 5,838.25 8,720.37 12,058.63 1.00 1.21 1.34 38.28
----------------------------------------------------------------------------------------------------------------
Source: World Trade Atlas.
Roads and railways have been the focus of investments to
provide the infrastructure for increased commercial ties
between China and Central Asia. In 1997, China also decided to
place greater strategic significance on obtaining access to
world energy resources, including the purchase of oilfields and
the building of pipelines in Central Asia. China has reported
that it has funded 127 projects since launching its $900
million SCO funding initiative in 2004. Although offered under
the SCO framework, each country has to negotiate separately
with China about specific projects.\153\ Under the western
development strategy of China's 11th Five-Year Plan (2006-
2010), the government aimed to open Xinjiang to foreign
investment and to encourage Chinese firms to carry out economic
and technological cooperation with Central Asian nations.
French analyst Sabastien Peyrouse argues that China carries out
investment projects in Central Asia that Western investors
might consider too risky, in part because China is looking
long-term and is interested in fostering stability in the
region, and perhaps also because some potentially highly
profitable areas of investment already are taken by Russian and
Western firms.\154\
---------------------------------------------------------------------------
\153\ Artyom Matusov, China and Eurasia Forum Quarterly, Vol. 5,
No. 3 (2007).
\154\ Vice Minister of Commerce Yi Xiaozhun on Oct 17, 2006. CDR,
October 19, 2006, Doc. No. CPP-715032; Adil Kaukenov, ``China's Policy
Within the Shanghai Cooperation Organization,'' Central Asia and the
Caucasus, No. 3 (2007), pp. 62-76.
Kazakhstan-China Trade and Investment Ties.--Since the
early 1990s, Kazakhstan has been the top trade partner of China
in the Central Asian region. China also is among the five
largest foreign investors in the country, reportedly
contributing $8 billion of investment by mid-2007. President
Nazarbayev reported in August 2007 that ``the key topic'' of
his talks with visiting Chinese President Hu Jintao ``was, of
course, trade, economic, and investment cooperation . . . We
discussed . . . energy, oil and gas industry, petrochemicals,
oil processing, tourism, transport, and communications in
detail.'' He raised the hope that trade turnover would amount
to $1 billion per month in 2008, and even suggested that it
would be ``great to reach the level of U.S.-Canadian trade
turnover, $1 billion every day. I am convinced that we will do
this.''\155\
---------------------------------------------------------------------------
\155\ Interfax, August 18, 2007.
---------------------------------------------------------------------------
A railway line from Kazakhstan's city of Almaty to the
border post of Dostyk-Alataw and hence to Urumqi in Xinjiang
currently is the only rail link between China and Central Asia
and carries a large share of the regional trade. This railway
is linked to northern China's seaport at Tianjin. Reportedly,
an increasing amount of trade between Kazakhstan and Japan,
South Korea and the United States travels via the port and
railway to Kazakhstan. A highway and the newly built Atasu-
Alashankou oil pipeline (see below) add to the significance of
the Dostyk-Alataw border post and both China and Kazakhstan
have invested in infrastructure to facilitate trade. Kazakhstan
opened a major highway route in 2004 that links Almaty to China
at the border town of Khorgos.\156\ China hopes to link Khorgas
to its railway network in 2008, and Kazakhstan and China are
planning for a rail line from Khorgas to the Kazakh town of
Sary Ozek (north of Almaty), which could become the second
cross-border rail link between the two countries.
---------------------------------------------------------------------------
\156\ CDR, September 22, 2007, Doc. No. CPP-968049.
Kyrgyzstan-China Trade and Investment Ties.--In January
2002, the visiting Chairman of China's International Committee
for Natural Disasters, Ismail Amat, met with Kyrgyz First
Deputy Prime Minister Nikolay Tanayev to discuss a possible
Chinese loan to build a railway line from Kashgar (Kashi) in
Xinjiang through Jalalabad in Kyrgyzstan to Andijon in
Uzbekistan, and the possible supply of Kyrgyz electricity to
China to pay for the loan. The two sides also discussed
progress on a joint Kyrgyz-Chinese paper mill being built in
Kyrgyzstan, for which China extended an $18 million loan for
refurbishment.\157\ In June 2002, after the Kyrgyz legislature
had ratified a border demarcation agreement, Kyrgyzstan's then-
President Askar Akayev visited China and met with Chairman
Jiang Zemin to sign a friendship and cooperation treaty.\158\
China indicated that it also would provide a loan to
Kyrgyzstan, and visiting Chinese Deputy Minister of Foreign
Trade Zhang Xiang signed an agreement with newly appointed
Prime Minister Tanayev in August 2002 for a $1.875 million loan
to complete a feasibility study for building the Kashgar-
Andijon rail line and for purchasing broadcasting,
agricultural, and security-related equipment. The two sides
also celebrated the opening of the paper mill.\159\ In 2005,
China allocated $3.75 million to repair the 16 miles of roadway
between the Kyrgyz capital of Bishkek and the Manas
airport.\160\ In September 2006, China provided a loan for
Kyrgyzstan's purchase of automobiles worth $1.8 million.\161\
---------------------------------------------------------------------------
\157\ CEDR, January 16, 2002, Doc. No. CEP-335.
\158\ Moscow Kommersant, as reported in CEDR, June 25, 2002, Doc.
No. CEP-214.
\159\ CEDR, August 27, 2002, Doc. No. CEP-291; September 3, 2002,
Doc. No. CEP-199; September 21, 2002, Doc. No. CEP-65; October 26,
2002, Doc. No. CEP-126.
\160\ CEDR, February 21, 2005, Doc. No. CEP-129.
\161\ CEDR, May 13, 2005, Doc. No. CEP-402005.
---------------------------------------------------------------------------
Popular contention in Kyrgyzstan over the cession of some
mountainous border territory to China raised concerns among
Chinese officials. In June 2006, Kyrgyz President Kurmanbek
Bakiyev visited China and assuaged these concerns somewhat by
signing a joint declaration with Chairman Hu Jintao re-
affirming that ``the parties will abide strictly by all the
agreements and documents signed between the two countries on
the border issue.'' The two sides signed a contract on the
construction of a cement plant in the town of Kyzyl-Kiya in Osh
Region, for which China provided a $70 million loan, and both
sides pledged to cooperate in the successful operation of the
plant. They raised regrets that their earlier joint investment
in a paper mill (mentioned above) had failed.\162\ China also
agreed to provide $8.75 million to Kyrgyzstan to purchase 1,200
tractors on an urgent basis.\163\
---------------------------------------------------------------------------
\162\ According to one report, the paper mill had failed to pay its
electricity bill and power was shut off in May 2004. Management-
employee conflicts were also alleged. Kyrgyzstan, which owned a 75%
share in the mill (China owned 25%), preemptorily decided to sell its
shares. Kyrgyzstan Daily Digest, Eurasianet, May 20, 2004. In August
2007, China stated that it would write off its loan to refurbish the
mill.
\163\ CEDR, July 2, 2006, Doc. No. CEP-950067; October 26, 2006,
Doc. No. CEP-950306. In September 2007, the mayor of Osh (the regional
capital) stated that China was the largest foreign investor in the
city. CEDR, September 19, 2007, Doc. No. CEP-950242.
Tajikistan-China Trade and Investment Ties.--Although China
previously had provided some small loans to Tajikistan,
bilateral ties greatly improved after the two countries signed
a border demarcation agreement in May 2002. In 2005, China
announced loans of $110 million (for 20 years at 2% interest
with a five-year grace period) to finance Chinese construction
of two highway tunnels, one connecting Dushanbe to the southern
city of Kulyab and the other connecting Dushanbe to the
northern city of Khuj and. Many observers view the construction
of these tunnels as potentially enhancing the Tajik
government's control over the country. Construction on the
Dushanbe-Kulyab tunnel project reportedly began in October 2006
and is projected to be completed in 2009. Other projects funded
with Chinese loans include the rehabilitation of the highway
from Dushanbe through Khuj and to Chanak (near the Uzbek
border), modernization of the telecommunications system, and
upgrading of electricity transmission lines.\164\ At the July
2006 ceremony to begin repaving the Dushanbe-Chanak highway,
President Rahmon claimed that the Chinese firm doing the work
would employ 2,500 local citizens, and that the road would be
completed in 2008.\165\
---------------------------------------------------------------------------
\164\ CEDR, March 12, 2006, Doc. No. CEP-950006; June 15, 2006,
Doc. No. CEP-950119; Agence Presse France, June 24, 2006. Chinese
investments in Tajikistan's hydroelectric and transport infrastructure
amounted to $500 million, Rakhmon claimed. CEDR, September 14, 2007,
Doc. No. CEP-950368.
\165\ CEDR, July 11, 2006, Doc. No. CEP-950325.
---------------------------------------------------------------------------
In January 2007, Chinese and Tajik firms signed an
agreement in Beijing for the provision of a $200 million loan
(for 25 years with an annual interest of 1%) to build a 150-
megawatt hydroelectric power station on the River Zarafshon in
northern Tajikistan. That same month, the visiting deputy head
of China's Eximbank, Li Jun, praised Tajikistan as a leading
country among SCO members in taking advantage of preferential
loans to carry out projects. He also announced new loans to
provide 23 Chinese locomotives to the Tajik railway
directorate, and to finance work on a railway from Dushanbe to
the southern city of Qurghonteppa, a railway from the southern
city of Kolkhozobod to the town of Panji Poyon (on the Afghan
border), and a railway from the northern town of Konibodom to
the Uzbek town of Bekobad. The June 2007 purchase by the
Chinese Zijin Mining Group of the controlling shares of a
British company involved in gold mining in Tajikistan appears
to be another example of China's interest in regional mineral
resources.\166\
---------------------------------------------------------------------------
\166\ CEDR, January 20, 2007, Doc. No. CEP-950072.
---------------------------------------------------------------------------
Tajik President Rahmon generally has viewed close economic
ties with China as enhancing Tajikistan's development. During
his January 2007 China visit, he stated that about 40 Chinese
companies were investing and operating in Tajikistan, and at
the August 2007 SCO Summit, he reported that he had urged China
to increase investment and that it had agreed to explore joint
ventures for cotton processing. In September 2007, he termed
the expansion of the Tajik-Chinese ``partnership'' a priority
of Tajikistan's foreign policy. Tajikistan's state-run news
agency reported in January 2008 that Tajikistan owed China $217
million, the largest amount owed to one country. One Tajik
newspaper seemed to reflect this positive view of China's
regional political and economic influence when it stated that
``China is a reliable ally of Central Asian states, which can
support their struggle against various groups that are
considered as a threat . . . [China is] powerful and has large
financial resources for investing in their economies.'' \167\
---------------------------------------------------------------------------
\167\ CEDR, April 11, 2007, Doc. No. CEP-950068; September 14,
2007, Doc. No. CEP-950247.
Turkmenistan-China Trade and Investment Ties.--China's
trade ties with Turkmenistan were minimal during much of the
autarchic rule of the late Turkmen President Saparamurad
Niyazov, but began to increase after Niyazov visited China in
April 2006. After Niyazov's death in late 2006, Russia, the
United States, China, and the EU moved to improve relations
with Turkmenistan. Although Russia has been the main customer
for Turkmen natural gas exports, the United States and the EU
have been interested in building possible trans-Caspian oil and
gas pipelines from Turkmenistan that would link to pipelines in
Azerbaijan. At the same time, China has been interested in
building pipelines from Turkmenistan to China (see below).
Several inter-governmental accords were signed during the
late President Niyazov's April 2006 visit to China that
contributed to increased Chinese trade and investment. In late
2006, China extended a $24.5 million low-interest loan to
finance construction or revamping of fiber optic and cellular
telephone networks throughout the country.\168\ In March 2007,
China provided a $24 million loan for the purchase of Chinese
drilling equipment and field camps for geological work and a
$36 million loan to purchase Chinese railway passenger cars.
---------------------------------------------------------------------------
\168\ CEDR, September 27, 2006, Doc. No. CEP-950353.
Uzbekistan-China Trade and Investment Ties.--Bilateral
trade between China and Uzbekistan was limited for many years
by Uzbekistan's import substitution strategy of development and
its hopes for greater economic ties with the West. By the early
2000s, however, it appeared that Uzbekistan and China had begun
to explore boosting trade relations. In January 2003, China's
Eximbank proposed extending a $2 million loan for 15 years at
3% interest to Uzbekistan for small-scale energy projects. In
June 2004, Chinese President Hu Jintao visited Tashkent to take
part in the SCO summit, and announced grants and long-term
loans amounting to $350 million for economic development in
Uzbekistan (among the $900 million he offered to the SCO
members). A Russian newspaper reported that ``members of the
Chinese delegation said that this is the biggest economic aid
package ever granted by China to any country at one time.'' The
state-owned China National Petroleum Corporation (CNPC) also
signed oil and gas cooperation contracts with Uzbekneftegaz.
Perhaps also indicating Uzbekistan's ability to play off
prospective aid donors, Russia's Lukoil oil firm and Gazprom
gas pipeline firm signed large-scale investment accords with
Uzbekistan.\169\
---------------------------------------------------------------------------
\169\ CEDR, July 1, 2004, Doc. No. CEP-93. Uzbek media reported in
early 2007 that Uzbekistan apparently had not used much of the extended
credit, which was intended for the import of Chinese-made goods, and
that China's Eximbank had extended the time limit on applying for the
credit. CEDR, March 16, 2007, Doc. No. CEP-950385.
---------------------------------------------------------------------------
According to many observers, China's stress on regional
stability as well as on good bilateral relations contributed to
its strong support for Karimov's crackdown on dissent in
Andijon in May 2005.\170\ In July 2005, China allocated two
grants worth $3.6 million for economic training and other
cooperation. In September 2005, a production-sharing agreement
was concluded by the CNPC, Uzbekistan's Uzbekneftegaz, Russia's
Lukoil, Malaysia's Petronas, and South Korea's National Oil
Corporation to explore and develop prospective natural gas
deposits in the Aral Sea (see below). In June 2006, CNPC signed
contracts with Uzbekneftegaz for seismic exploration of
potential oil and gas fields and for drilling 27 wells within
five years. In August 2006, the trade ministers of the SCO
member states approved what was termed the SCO's first highway
construction project, the Andijon to Kashgar highway, ``which
will . . . greatly facilitate the revival of the Great Silk
Road.'' \171\
---------------------------------------------------------------------------
\170\ Kevin Sheives, ``China Turns West: Beijing's Contemporary
Strategy Towards Central Asia,'' Pacific Affairs, June 22, 2006.
\171\ CEDR, July 18, 2005, Doc. No. CEP-27077; August 24, 2006,
Doc. No. CEP-950145; September 30, 2007, Doc. No. CEP-950009; CDR,
September 3, 2006, Doc. No. CPP-52003.
---------------------------------------------------------------------------
Energy
According to analyst Niklas Swanstrom, ``the most important
reason for a Chinese presence,'' in Central Asia ``appears to
be . . . to secure China's growing need for oil and natural
gas.'' \172\ Although Central Asia's oil and gas are not
expected to amount to more than a tiny fraction of China's
energy imports, they are considered significant by China's
leaders for the development of Xinjiang, China's northwestern
province. Increased access to gas might also facilitate greater
use of gas in China over more polluting energy sources.
According to analyst Sebastien Peyrouse, China may also regard
electricity imports from Central Asia as significant in
addressing energy needs in Xinjiang. China also hopes to earn
funds by participating in joint ventures and otherwise
investing in dams and power lines, and by serving as a transit
state for Central Asian electricity exports to Pakistan.\173\
---------------------------------------------------------------------------
\172\ Niklas Swanstrom, ``China and Central Asia: A New Great Game
or Traditional Vassal Relations?'' Journal of Contemporary China, Vol.
14, No. 45 (2005), p. 570.
\173\ ``The Hydroelectric Sector in Central Asia and the Growing
Role of China,'' China and Eurasia Forum Quarterly, Vol. 5, No. 2
(2007), pp. 131-148.
Kazakhstan-China Energy Ties.--In 1997, Kazakhstan and
China agreed on building an oil pipeline to Xinjiang within
five years and Kazakhstan granted the CNPC production rights to
develop some oil fields in the Aktobe Region in northwestern
Kazakhstan. China's efforts to form an international financing
consortium for the pipeline were unsuccessful, and China
decided to largely finance the project itself. In 2005, CNPC
purchased the Canadian-based company PetroKazakhstan for a
reported $4.2 billion, giving it control over the Shymkent oil
refinery, production licenses for twelve oilfields, and
exploration licenses for five other areas. Responding to the
sale, the Kazakh legislature quickly passed a law giving the
government the right to preempt such transfers. In order to
complete the sale, CNPC reportedly had to transfer about one-
third of the PetroKazakhstan shares to KazMunaygaz, and yield
effective control over the Shymkent refinery, which Kazakhstan
wanted to control to ensure domestic supplies.
Kazakhstan and China completed construction in mid-2006 of
a 600 mile oil pipeline from Atasu in central Kazakhstan to the
Xinjiang region of China. Initial capacity is 146.6 million
barrels per year. The $700 million pipeline was mostly funded
by China. At Atasu, the pipeline links to another pipeline from
Kumkol, also in central Kazakhstan, and will eventually link to
Atyrau on Kazakhstan's Caspian Sea coast. Chinese customs
officials reported in mid-2007 that about 29.3 million barrels
of oil had been imported through the pipeline in its first year
of operation (other oil continued to be imported by rail). To
process the oil, China is building the country's largest oil
refinery in Xinjiang, which is slated for completion in 2008.
Some observers have argued that the pipeline has been greatly
underutilized in its first year of operation, including because
Russia has balked at supplying oil to China through the
pipeline.\174\
---------------------------------------------------------------------------
\174\ Nadia Rodova, ``Russian exports to China via Kazakhstan to
start this year,'' Platts Commodity News, June 1, 2007. Artyom Matusov,
China and Eurasia Forum Quarterly, Vol. 5, No. 3 (2007).
---------------------------------------------------------------------------
Perhaps as part of an effort to gain greater access to
Kazakh oil to help fill the pipeline--particularly the large
reserves of oil in western Kazakhstan--China's state-owned
CITIC Group investment firm acquired the Kazakh oil assets of
Canada's Nations Energy Company for $1.91 billion at the end of
2006, giving China the rights to develop the Karajanbas oil and
gas field, near Aqtau on the Caspian Sea, until 2020. The
pending sale reportedly raised concerns in the Kazakh
legislature and in the Energy Ministry that China was obtaining
too many national energy assets.\175\ These concerns may have
led to a concession by CITIC to give KazMunaiGaz a 50% stake in
the operating company that will develop the oilfield. To move
the oil and gas to China, visiting President Hu Jintao and
President Nazarbayev agreed in August 2007 to build pipelines
so that ``the Caspian will be linked to western China,''
according to President Nazarbayev. He announced that Kazakhstan
and China would jointly finance the construction of an oil
pipeline from central Kazakhstan to the Caspian Sea and a 4,350
mile gas pipeline to be completed by 2009 with an annual
capacity of 40 billion cubic meters to deliver gas from
Kazakhstan and Turkmenistan to China. The gas pipeline will
start in Xinjiang and will split into two branches near
Shymkent in southern Kazakhstan. One branch will go through
Uzbekistan to Turkmenistan, and the other will go to gas fields
in southwestern Kazakhstan.\176\
---------------------------------------------------------------------------
\175\ According to some reports, the 50,000 bpd of current heavy
crude production at the Karajanbas field, when added to 150,000 bpd at
the Kumkol fields and 116,000 bpd in western Kazakhstan, would result
in Chinese control over about one-fourth of Kazakhstan's production of
1.3 million bpd. ``CITIC to buy Nations Energy,'' Open Source Center
Feature, October 27, 2006, Doc. No. FEA-29192; November 17, 2006, Doc.
No. FEA-030017; CEDR, November 18, 2006, Doc. No. CEP-950145. CNPC
reportedly has invested $8.5 billion in Kazakhstan through 2006.
IntelliNews, August 24, 2007.
\176\ CEDR, August 18, 2007, Doc. No. CEP-950135; September 7,
2007, Doc. No. CEP-950287. Some Russian observers viewed the Summer
2007 Chinese oil and gas agreements with Kazakhstan and Turkmenistan as
representing the ``breakaway'' of the two states from Russian
influence. CEDR, August 1, 2007, Doc. No. CEP-380002. China also has
taken part in the building of the Moyinake hydropower station in
Almaty, a project of China and Kazakhstan. When the plant opens, it
will transport part of the electricity to Xinjiang.
Turkmenistan-China Energy Ties.--Although Turkmen-Chinese
energy relations were minor compared to Turkmen-Russian ties,
China reportedly provided a $12 million loan in the late 1990s
to Turkmenistan's state-owned Turkmennebit oil firm and
Turkmengaz gas firm to purchase Chinese drilling and hoist
equipment and spare parts. In 2003, China provided a $1.875
million grant and a $3.6 million loan (for 20 years with no
interest) to develop Turkmenistan's gas industry.\177\
Indicative of stepped-up relations, Niyazov visited China in
April 2006 and the two countries signed general accords to
construct a gas pipeline for the export of 30 billion cubic
meters of Turkmen gas to China. China also pledged new
preferential loans. CNPC signed a $150 million service contract
with Turkmenistan in May 2007 for drilling and exploration work
at the Gunorta Eloten oil and gas field. According to some
estimates, the Gunorta Eloten oil and gas field may contain
reserves of 7 trillion cubic meters of natural gas. In July
2007, visiting Turkmen President Berdymuhammedow and President
Hu Jintao witnessed the signing of a gas sales and purchase
agreement between CNPC and the Turkmen State Agency for the
Management And Use Of Hydrocarbon for the supply of 30 billion
cubic meters of gas per year for the period 2009-2038. The two
sides also signed a production sharing agreement to develop the
Bagtyyarlyk area in eastern Turkmenistan, near the Uzbek
border.
---------------------------------------------------------------------------
\177\ CEDR, December 28, 2003, Doc. No. CEP-62; December 25, 2003,
Doc. No. CEP-67.
---------------------------------------------------------------------------
China and Uzbekistan signed an inter-governmental agreement
in May 2007 on the construction of the 330-mile Uzbek section
of the Turkmenistan-China gas pipeline. A working group was set
up to complete a feasibility study by the end of the year. In
August 2007, China's Eximbank agreed to lend Uzbekistan $177.9
million for oil and gas projects.\178\ In late 2007, CNBC and
the state-owned Uzbekneftegas oil and gas firm began exploring
five areas of Uzbekistan.
---------------------------------------------------------------------------
\178\ CEDR, August 22, 2007, Doc. No. CEP-950253.
---------------------------------------------------------------------------
FOREIGN ASSISTANCE
There are no official Chinese data on grant assistance to
Central Asia. Most assistance to Central Asia has been in the
form of concessionary loans, in most cases to governments and
joint ventures to finance the purchase of Chinese equipment and
services. Most observers have suggested that Chinese grant
assistance to Central Asia has been greatly eclipsed by that
given by the United States and other donors. In some
categories, however, Chinese assistance may be notable,
particularly educational exchanges.
Educational and cultural exchanges have been stepped up,
both bilaterally and under the aegis of the SCO. Confucius
Institutes have been set up and funded in Kazakhstan,
Kyrgyzstan, and Uzbekistan, among the scores established
worldwide since 2004 to foster Chinese language and culture.
Russia and China seemed to compete at the August 2007 SCO
summit in offering educational exchanges, with China offering
to boost the number of exchanges and President Putin perhaps
countering by calling for setting up an SCO University. In
September 2007, Turkmen President Berdimuhamedow praised China
for greatly boosting the number of Turkmen students admitted to
study at leading Chinese universities.\179\
---------------------------------------------------------------------------
\179\ CEDR, September 14, 2007, Doc. No. CEP-950354.
---------------------------------------------------------------------------
Among reports of Chinese grant assistance to Central Asia,
several appear to involve security assistance. According to one
U.S. analyst, these grants are indicative of China's increased
military diplomacy activities in developing countries worldwide
since the early 2000s. Examples in Central Asia include
uniforms for the Tajik armed forces, 20 jeeps for Kyrgyzstan's
Ministry of Public Security, and 40 all-terrain vehicles for
the Kazakhstan military.\180\ According to a report by Agence
Presse France, ``Since 1993 China has given more than $30
million to [Tajikistan] in technical aid for the Tajik police
and army.'' Turkmen media reported in July 2006 that China had
provided a $2.5 million grant to the Turkmen State Customs
Service for the delivery of a mobile customs inspection system.
Kyrgyz Television reported in September 2006 that the Kyrgyz
National Guard received a technical assistance grant in the
form of cars and barracks worth about $245,000 from the Chinese
People's Armed Police Force. In March 2007, the Chinese
Ministry of State Security provided computers, printers,
laptops, video cameras, riot gear, night vision devices, and
other equipment worth $321,000 to Kyrgyzstan's Interior
Ministry. In May 2007, China provided crime detection equipment
and training ``as a gift'' to the Uzbek Ministry of Internal
Affairs.\181\
---------------------------------------------------------------------------
\180\ Phillip C. Saunders, China's Global Activism: Strategy,
Drivers, and Tools, National Defense University Press, Washington,
D.C., October 2006.
\181\ CDR, June 24, 2006, Doc. No. CPP-52012; CEDR, July 16, 2006,
Doc. No. CEP-950034; September 2, 2006, Doc. No. CEP-950039; May 26,
2007, Doc. No. CEP-950137.
---------------------------------------------------------------------------
IMPLICATIONS FOR CENTRAL ASIA
Many analysts have viewed the growing Chinese diplomatic,
economic, and security influence in the Central Asian states as
enhancing their development and stability. They argue that
Chinese interests are not hegemonic but are limited to mainly
market- and security-related goals.\182\ These analysts also
tend to view China's growing presence in the region as not
greatly restricting the interests of Russia or the United
States, since the developmental needs of the region are vast.
The growth of regional trade and transport with China provides
the states more freedom of choice in their trade relations with
Russia and other countries.\183\
---------------------------------------------------------------------------
\182\ According to analyst Martha Olcott, China's main interest is
energy ties with the region, and the SCO as a vehicle for building such
ties does not today pose ``any direct threat to U.S. interests in
Central Asia or in the region more generally.'' United States
Commission on Security and Cooperation in Europe (Helsinki Commission),
Testimony by Martha Olcott, The Shanghai Cooperation Organization: Is
it Undermining U.S. Interests in Central Asia? September 26, 2006.
\183\ Trade leverage was stressed in one Hong Kong publication
which argued that Turkmenistan's 2006-2007 agreements on supplying gas
to China are ``an opportunity'' for the country ``to free itself from
Russia's stranglehold over its gas export markets.'' Asia Sentinel,
September 7, 2007.
---------------------------------------------------------------------------
Other observers view the growing Chinese presence as
ultimately harmful to the independence and development of the
Central Asian states (see below). They also view China's
growing influence as coming at the expense of Russian and U.S.
influence. Given Russia's traditional hegemonic role in the
region, these analysts stress that Russian and Chinese policy
will inevitably clash. Many of these observers view Russia as
ultimately losing some or most influence in the region.\184\
---------------------------------------------------------------------------
\184\ According to Kazakh analyst Venera Gallamova, ``neither the
course of the geopolitical contest, nor the probable deviations from
the policy of certain Central Asian republics . . . will be able to
break the general trend toward China becoming the main regional
nation.'' ``Central Asia and China: New Horizons of International
Regionalization,'' Central Asia and the Caucasus, No. 3 (2007), p. 86.
Similarly, Russian analyst Aleksandr Khramchikhin has argued that
Kyrgyzstan and Tajikistan, the most economically fragile states in the
region, ``can only await their fate. It will be decided by Moscow and
Beijing, with some input from Astana. Most likely, the strongest and
most pragmatic country's concept will prevail. That is the Chinese
side.'' CEDR, August 22, 2007, Doc. No. Doc. No. CEP-25001.
---------------------------------------------------------------------------
Human Rights
Most analysts maintain that China's poor human rights
record serves as a poor model for the Central Asian states.
According to the U.S. State Department, China continues to
commit human rights abuses against the Uighurs and encourages
the Central Asian states to limit the rights of the
Uighurs.\185\ China and the regional states, with the possible
exception of Kyrgyzstan, fear that democratization will be
destabilizing, and they may exaggerate Islamic extremism in
order to crack down on democratization demands. China raised
concerns in 2005 that Kyrgyzstan's ``tulip revolution'' that
deposed long-time president Askar Akayev would be
destabilizing, and a major goal of Kyrgyz President Bakiyev's
June 2006 visit to China was to assure his hosts that his
government would maintain domestic order. At the end of a visit
by China's Premier Wen Jiabao to Uzbekistan in November 2007, a
communique issued by the two sides affirmed that ``the Chinese
side opposes any intervention in Uzbekistan's internal affairs
in the name of `human rights.' '' \186\
---------------------------------------------------------------------------
\185\ U.S. Department of State, Country Reports on Human Rights
Practices for 2006. Washington, D.C.: Government Printing Office, Mar.
6, 2007.
\186\ CDR, November 3, 2007, Doc. No CPP-73005.
---------------------------------------------------------------------------
Reflecting the view that China is a poor human rights
example for Central Asia, Sen. Sam Brownback warned at a
hearing in September 2006 that ``a further rise in SCO
influence can only encourage the governments of Central Asia in
more repressive and less reformist policies that will
contribute to the growth of regional extremism and the
terrorism that the SCO was founded to combat.'' \187\ In his
testimony at the hearing, analyst Sean Roberts of Georgetown
University suggested that one reason why the Central Asian
states joined the SCO was to jointly oppose the OSCE's efforts
to foster free and fair elections in the region.
---------------------------------------------------------------------------
\187\ Helsinki Commission, Opening Statement by Co-Chairman Sen.
Sam Brownback, The Shanghai Cooperation Organization: Is it Undermining
U.S. Interests in Central Asia? September 26, 2006.
---------------------------------------------------------------------------
Environment
Central Asia's environmental concerns with China include
the diversion of water resources, the spread of wind-blown
dust, and damage associated with the activities of Chinese
energy firms. Efforts to cooperate in the use of water
resources and to ameliorate sandstorms remain rudimentary,
according to many observers. China's efforts to divert Irtysh
River water to its Xinjiang region have raised concerns in
Russia and Kazakhstan and resulted in negotiations. Kazakhstan
also has raised concerns about China's increasing use of water
from the Ili River, which drains into Kazakhstan's Lake
Balkhash. If the water level in the lake--the third largest
water body in Central Asia--greatly decreases, some observers
warn, the regional climate could be harmed.\188\ Chinese firms
reportedly had considered participating in building a dam on
the Zarafshon River in Tajikistan for hydro-electricity
production. After Uzbekistan raised concerns that downstream
water flows would be disrupted, however, Chinese firms
allegedly decided not to participate.\189\Efforts to ameliorate
sandstorms in Central Asia and China require cooperation with
other possible sources of dust, including Mongolia.\190\
---------------------------------------------------------------------------
\188\ U.N. Economic and Social Commission for Asia and the Pacific,
``Central Asia and the Caucasus,'' State of the Environment in Asia and
the Pacific 2005, April 2006, p. 202; Marina Kozlova, ``Kazakhstan:
China's Draining of Kazakh Lake Imperils Region,'' Inter Press Service/
Global Information Network, November 6, 2006.
\189\ CEDR, August 1, 2007, Doc. No. CEP-950066; October 4, 2007,
Doc. No. CEP-950294.
\190\ He Sheng and Xiao Guo, ``Scientists Chart Route of Fierce
Sandstorms,'' China Daily, January 28, 2003.
---------------------------------------------------------------------------
China's major energy firm, CNPC, has followed the examples
of other foreign energy firms in Kazakhstan of stressing that
it adheres both to the letter and spirit of environmental laws.
CNPC carries out environmental protection work in communities
near its facilities and claims that it is more protective of
the environment than other foreign oil and gas companies. In
late 2006, a Kyrgyz official alleged that Chinese gold mining
had polluted river water in southern Kyrgyzstan.\191\
---------------------------------------------------------------------------
\191\ CEDR, October 3, 2007, Doc. No. CEP-950386.
---------------------------------------------------------------------------
Sustainable Development
Observers disagree about the ultimate effects of Chinese
economic influence in Central Asia. Some view China as an
engine of economic modernization and globalization in the
region. As economic growth accelerates in the region, Xinjiang
also benefits economically, and the poverty that could
contribute to disorder fades away, according to these
observers. They endorse China's efforts to build trade and
transport links as a major driver in the integration of Central
Asia. For instance, plans for building the Turkmen gas pipeline
through Uzbekistan may also have contributed to similar
Turkmen-Uzbek initiatives on railways and roads, these
observers suggest. Similarly, China's efforts to encourage
accession by all the states to the World Trade Organization
(Kyrgyzstan already is a member) promises to foster regional
trade as well as better access to world markets.
Other observers view China as vitiating economic
development in Central Asia, with the region becoming merely a
natural resource base and a market for Chinese goods. One group
of analysts warned that ``if the present trend continues, with
Central Asia serving mainly as a natural resource base for
China and Russia, it will erode the region's processing
industries and drain capital.'' \192\ One Kazakh newspaper
called for Kazakh officials to negotiate a trade agreement with
China that would encourage the domestic development of light
industry and food production by limiting Chinese exports in
these sectors. Concerns also have been raised that the
repayment of Chinese loans, even at low rates of interest,
could become a burden to regional governments. These observers
also assert that by stressing authoritarianism, China
ultimately discourages the development in the region of
sustainable market economies based on the rule of law.\193\
---------------------------------------------------------------------------
\192\ Niklas Swanstrom, Nicklas Norling, and Zhang Li, ``China,''
p. 413.
\193\ CEDR, September 7, 2007, Doc. No. CEP-950007; Ablat Khojaev,
Central Asia and the Caucasus, No. 3 (2007).
---------------------------------------------------------------------------
Constraints on Chinese Influence
Constraints on the growth of Chinese economic influence in
Central Asia include the poor transportation, banking,
communications, and other infrastructure in much of the region
and the massive investments that must be made to upgrade them.
Some potential Chinese investors also have complained that
regional governments remain somewhat hostile or indifferent to
the development of free market economies. Managerial and other
skills necessary for building market economies remain in short
supply. High levels of crime and corruption also create risks
for Chinese investment. Chinese analyst Zhao Changqing claims
that another constraint is China's current inability to offer
as much foreign aid in grant form as Western countries.\194\ In
the security realm, the Central Asian states remain largely
dependent on Russia for military and other equipment and
training, and Russia retains military bases and facilities in
Kazakhstan, Kyrgyzstan, and Tajikistan.\195\ Central Asian
elites also remain linked to Russia by language and culture,
since many were trained in Soviet-era schools and speak the
Russian language. Reportedly, there are region-wide shortages
of Chinese translators to facilitate communications.
---------------------------------------------------------------------------
\194\ CDR, July 30, 2007, Doc. No. CPP-508001. The United States
has been the largest provider of grant assistance to Central Asia,
amounting to $4.05 billion from fiscal year 1992 through fiscal year
2006, followed by the European Union's approximately 1.39 billion euros
($2.13 billion at current exchange rates).
\195\ According to analyst Roger McDermott, the Central Asian
states would be less likely to ask China (under the aegis of SCO
membership) than Russia (under the aegis of membership in the
Collective Security Treaty Organization) for military support in case
of a terrorist incident, partially because of the availability of
elements of the Rapid Deployment Forces of the CSTO based in
Kyrgyzstan. The Rising Dragon: SCO Peace Mission 2007.
---------------------------------------------------------------------------
Another possible constraint on the growth of Chinese
influence in Central Asia may be residual suspicions among the
region's elites and populations about China's intentions,
perhaps partly based on ethnic prejudices and on memories of
heightened Sino-Soviet tensions that culminated in border
clashes in 1969.\196\ Some observers have suggested that such
sentiments were in evidence during the unrest of Kyrgyzstan's
``tulip revolution'' in March 2005, during which some Chinese
businesses were attacked. Kubanychbek Apas, cochairman of the
El Jurt civic movement and 2005 presidential candidate in
Kyrgyzstan, appeared to raise suspicions of China's intentions
in August 2007 when he criticized the SCO as a Chinese tool for
expansionism and reportedly asserted that ``we believe that
Kyrgyzstan will shortly be swallowed up by this Chinese Yellow
Dragon.'' \197\ Kyrgyz popular concerns about Chinese traders
appeared evident in a regulation issued by the government in
January 2007 that would sharply limit the role of foreigners in
trade activities (similar to a regulation that Russia had put
in place). The Chinese embassy criticized the regulation as
possibly harming 4,000-5,000 Chinese traders.\198\
---------------------------------------------------------------------------
\196\ Helsinki Commission, Testimony by Martha Olcott, September
26, 2006.
\197\ CEDR, August 22, 2007, Doc. No. CEP-311001.
\198\ CEDR, November 24, 2006, Doc. No. CEP-950189. A law passed by
the Kyrgyz legislature in April 2007 similarly aimed to sharply limit
the number of work permits granted to foreigners.
---------------------------------------------------------------------------
The treatment by China of its ethnic populations of
Uighurs, Kazakhs, and Kyrgyz, including allegations that ethnic
Han are favored by Chinese authorities to trade with Central
Asia, may also contribute to popular concerns in Central
Asia.\199\ Tensions associated with Chinese workers may have
been evident in Kazakhstan in August 2007 when about 300 Kazakh
workers took part in a strike at the Janajol oilfield against
their employer, a Chinese-Kazakh joint-stock company, claiming
that their demands to obtain pay and living conditions equal to
that provided to the Chinese workers were not being
addressed.\200\
---------------------------------------------------------------------------
\199\ Sabastien Peyrouse, ``The Economic Aspects of the Chinese-
Central Asia Rapprochement,'' p. 12.
\200\ CEDR, August 17, 2007, Doc. No. CEP-950205; January 10, 2007,
Doc. No. CEP-950253.
---------------------------------------------------------------------------
Some analysts suggest that trans-border terrorism and
organized crime activities such as drug and arms trafficking
may contribute to regional hesitancy to substantially ease
controls on trans-border trade and travel, and that such
controls may somewhat delay China's drive for commercial
dominance in Central Asia.\201\ Reflecting organized crime
concerns, one Kazakh analyst complained that the government
still had not been able to wrest control over goods
transportation from crime networks, even after many Kazakh
customs and other officials had been arrested in 2005.\202\
---------------------------------------------------------------------------
\201\ Niklas Swanstrom, Nicklas Norling, and Zhang Li, ``China,''
p. 410.
\202\ CEDR, August 3, 2006, Doc. No. CEP-950264; January 20, 2006,
Doc. No. CEP-311003.
---------------------------------------------------------------------------
Analyst Svante Cornell of Johns Hopkins University argues
that while China is interested in Central Asia as an energy
source and as a commercial market, the region is not China's
top national security priority, so it does not seek regional
hegemony. He states that ``China's security challenges lie to
the East, with the Taiwan issue looming large over its foreign
policy, and relations to the Korean peninsula and Japan
following closely.'' \203\
---------------------------------------------------------------------------
\203\ Svante Cornell, ``The United States and Central Asia: In the
Steppes to Stay?,''Cambridge Review of International Affairs, Vol. 17,
No. 2 (July 2004).
---------------------------------------------------------------------------
IMPLICATIONS FOR U.S. INTERESTS
U.S. policy has emphasized bolstering the security of the
Central Asian states to help them combat terrorism,
proliferation, and arms trafficking. Other strategic U.S.
objectives have included promoting free markets,
democratization, human rights, and energy development. Such
policies aim to help the states become what the Administration
considers to be responsible members of the international
community rather than to degenerate into xenophobic, extremist,
and anti-Western regimes that threaten international peace and
stability.
The Administration's diverse goals in Central Asia have
reflected the differing characteristics of these states. U.S.
interests in Kazakhstan have included securing and eliminating
Soviet-era nuclear and biological weapons materials and
facilities. U.S. energy firms have invested in oil and natural
gas development in Kazakhstan and Turkmenistan. Economic and
democratic reforms and border security have been among U.S.
concerns in Kyrgyzstan. In Tajikistan, U.S. aid has focused on
economic reconstruction following that country's 1992-1997
civil war. U.S. relations with Uzbekistan suffered following
the Uzbek government's violent crackdown on armed and unarmed
protesters in the city of Andijon in May 2005.
The United States has encouraged the Central Asian states
to become responsible members of the international community,
supporting integrative goals through bilateral aid and through
coordination with other aid donors. The stated policy goal is
to discourage radical anti-democratic regimes and terrorist
groups from gaining influence. All the Central Asian leaders
publicly embrace Islam but display hostility toward Islamic
fundamentalism. At the same time, they have established some
trade and aid ties with Iran. Although they have had greater
success in attracting development aid from the West than from
the East, some observers argue that, in the longer run, their
foreign policies may not be anti-Western but may more closely
reflect some concerns of other Islamic states. Some Western
organizational ties with the region have suffered in recent
years, in particular those of the OSCE, which has been
criticized by some Central Asian governments due to its
emphasis on democratization and respect for human rights.\204\
---------------------------------------------------------------------------
\204\ See also CRS Report RL30294, Central Asia's Security: Issues
and Implications for U.S. Interests, by Jim Nichol.
---------------------------------------------------------------------------
After September 11, 2001, all the Central Asian states soon
offered overflight and other assistance to U.S.-led anti-
terrorism efforts in Afghanistan. The states were predisposed
to welcome such operations. Tajikistan and Uzbekistan had long
supported the Afghan Northern Alliance's combat against the
Taliban, and all the Central Asian states feared Afghanistan as
a base for terrorism, crime, and drug trafficking (even
Turkmenistan, which tried to reach some accommodation with the
Taliban). The United States established two bases in the
region, one at the town of Karshi-Khanabad in Uzbekistan and
another just outside Kyrgyzstan's capital of Bishkek at the
Manas international airport.
In early July 2005, the presidents of China, Russia,
Uzbekistan, Kyrgyzstan, and Tajikistan signed a declaration
issued during an SCO Summit that called for the eventual
closure of U.S. and NATO military bases in Central Asia used
for operations in Afghanistan (see above, SCO). Despite this
declaration, none of the Central Asian leaders immediately
called for closing the bases. However, after the United States
and others interceded so that refugees who fled from Andijon to
Kyrgyzstan could fly to Romania, Uzbekistan on July 29 demanded
that the United States vacate Karshi-Khanabad within six
months. On November 21, 2005, the United States officially
ceased operations to support Afghanistan at Karshi-Khanabad.
Many activities at Karshi-Khanabad shifted to the Ganci airbase
in Kyrgyzstan.
Some observers view the closure of the base and souring
U.S.-Uzbek relations as setbacks to U.S. influence in the
region and as gains for Russian and Chinese influence. Others
suggest that U.S. ties with other regional states provided
continuing influence and that U.S. criticism of human rights
abuses might pay future dividends among regional
populations.\205\ Among the observers with the former view,
Niklas Swanstrom of Uppsala University in Sweden asserts that
China intends to create what ``could be compared to a classical
vassal relationship . . . This can be seen in the aggressive
investment, military and political initiatives in the region .
. . '' He thinks that China will gain influence at Russia's
expense, and that the United States will be able to retain a
presence in the region. \206\ On the other hand, analyst
Stephen Blank of the U.S. Army War College seemingly views
Russia as gaining influence in the region at the expense of
China (although both are mostly cooperating in the near term in
efforts to push the United States out).\207\
---------------------------------------------------------------------------
\205\ On growing Chinese regional influence, see Michael Mihalka,
``Counter-insurgency, Counter-terrorism, State-Building and Security
Cooperation in Central Asia,'' The China and Eurasia Forum Quarterly,
May 2006.
\206\ Niklas Swanstrom, Journal of Contemporary China, p. 584
\207\ Stephen Blank, U.S. Interests in Central Asia and the
Challenges to Them, Strategic Studies Institute, U.S. Army War College,
March 2007.
---------------------------------------------------------------------------
China's attitude toward a continuing U.S. military presence
in the region remains a subject of debate. China benefited from
the U.S.-led coalition actions in Afghanistan against the
Islamic Movement of Uzbekistan (IMU) terrorist group and the
Taliban, since these groups had been providing training and
sustenance to Uighur extremists. The United States also
supported China's efforts to combat terrorism in the region by
designating the ETIM as a terrorist group. Although China
supported the SCO declaration that called for eventually
closing coalition bases in Central Asia (see above), some
observers view China as opposing Russia's calls for the SCO to
become more stridently anti-American.\208\ On the other hand,
analyst Roger McDermott of the Jamestown Foundation argues that
China and Russia support SCO military exercises as
demonstrations to the Central Asian states that the U.S.
security presence in the region is no longer necessary.\209\
---------------------------------------------------------------------------
\208\ CDR, August 18, 2007, Doc. No. CPP-94003. Sheives and Olcott
state that it is incorrect to view the SCO as a military alliance
opposed to NATO. Kevin Sheives, ``China Turns West: Beijing's
Contemporary Strategy,'' Pacific Affairs, June 22, 2006; Helsinki
Commission, The Shanghai Cooperation Organization: Is it Undermining
U.S. Interests in Central Asia? Testimony by Martha Olcott, September
26, 2006.
\209\ Roger McDermott, The Rising Dragon: SCO Peace Mission 2007.
---------------------------------------------------------------------------
Some analysts have viewed apparent U.S. setbacks in the
region--and putative gains by Russia and China--as reflecting
regional disappointment with low levels of U.S. assistance
after expectations in the region were raised by U.S.
expressions of support after 9/11. According to this argument,
Uzbekistan expected a substantial increase in U.S. economic and
military assistance after it granted basing privileges at
Karshi-Khanabad, and was disappointed by the actual amounts
granted.\210\ This disappointment, along with U.S. criticism of
human rights conditions in Uzbekistan, may have spurred
Uzbekistan to re-evaluate its ties with the United States (and
the EU) and to improve its ties with China and Russia. This
process may have begun even before the civil unrest in the city
of Andijon in May 2005 (that led to U.S. and EU criticism of
the Uzbek government's crackdown), as evidenced by a joint
declaration on strengthening cooperation and friendship signed
in June 2004 by visiting President Hu Jintao and President
Karimov.
---------------------------------------------------------------------------
\210\ The United States provided $239.78 million in assistance to
Uzbekistan in FY2002 (FREEDOM Support Act and agency budgets), $83.46
million in FY2003, $85.44 million in FY2004, and $75.87 in FY2005. U.S.
Department of State, Office of the Coordinator of Assistance to Europe
and Eurasia, U.S. Government Assistance to and Cooperative Activities
with Eurasia, FY2002-FY2005 annual reports.
---------------------------------------------------------------------------
U.S. officials appear to view the SCO with caution. In his
testimony at a hearing in September 2006, Assistant Secretary
of State Richard Boucher stated that the United States had not
asked to participate in the SCO, and that ``in terms of our
cooperation with the region, we don't think this is a
particularly helpful organization. It's certainly not one that
we would want to back, or sponsor, or promote in any way. We
think our money, our energy, our time is better invested in
working with the individual countries and working with the
organizations that take a broader view, the NATO, the OSCE, the
European Union, other partners, Japan, working with them in the
region, people who are interested in all aspects of cooperation
in that region.'' \211\
---------------------------------------------------------------------------
\211\ Testimony by Assistant Secretary of State Richard A. Boucher,
Bureau of South and Central Asian Affairs, Hearing, The SCO: Is It
Undermining U.S. Interests in Central Asia? September 26, 2006.
---------------------------------------------------------------------------
Deputy Assistant Secretary of State Evan Feigenbaum
appeared to take a more equivocal position about the role of
the SCO in a talk in September 2007, where he stated that ``we
in the United States are still struggling to sort fact from
fiction, to distinguish statements from actions, and to
differentiate what is `good' for our interests from what might
be rather less productive.'' He discounted speculation that the
SCO is a ``new Warsaw Pact'' (a former Soviet-East European
security alliance), because the Central Asian states cooperate
militarily with the United States and participate in NATO's
Partnership for Peace initiative. He also stressed that the
United States has trade and investment ties with the Central
Asian states. He stated that the United States hopes that China
and Russia as members of the SCO are not colluding against a
U.S. presence in Central Asia. Instead, he called for SCO
members to help Afghanistan develop economically and to embrace
an ``open, market-based approach to global energy supply and
security,'' rather than attempting to form an energy
cartel.\212\
---------------------------------------------------------------------------
\212\ Evan Feigenbaum, Deputy Assistant Secretary of State for
South and Central Asian Affairs, The Shanghai Cooperation Organization
and the Future of Central Asia, The Nixon Center, September 6, 2007.
---------------------------------------------------------------------------
Several U.S. officials and analysts argue that the United
States should continue to stress cooperation among Russia,
China, the EU, and other outside powers in assisting the
Central Asian states to develop and safeguard their
independence and security.\213\ Svante Cornell argues that the
United States should attempt to assuage China's ``alarmist''
thinking that the U.S. military presence in Central Asia is
aimed at containing China by stressing that the presence is
part of the larger Global War on Terrorism, which aids China's
security.\214\ Among the Central Asian policies on which the
United States and China diverge, the most prominent have been
those on democratization goals and respect for human rights.
Some observers suggest that the United States reduce the
priority it places on these goals in order to emphasize
cooperation with China and Central Asia on the GWOT and other
common interests. Others, however, argue that uncritical U.S.
relations with the region's authoritarian regimes undermine
long-term U.S. interests in democratization and respect for
human rights. The United States also diverges somewhat with
China by stressing the development of multiple trade and
transport links from the region to the outside world, including
South Asian and trans-Caspian energy links, while China
emphasizes its own links to the region.\215\
---------------------------------------------------------------------------
\213\ The argument that world powers should cooperate rather than
compete in the development of Central Asia was emphasized by former
Deputy Secretary of State Strobe Talbott, A Farewell to Flashman:
American Policy in the Caucasus and Central Asia, Address at the Johns
Hopkins School of Advanced International Studies, July 1997.
\214\ Svante Cornell, ``The United States and Central Asia: In the
Steppes to Stay?,'' p. 251.
\215\ Analyst Ariel Cohen of the Heritage Foundation urges that the
United States seek cooperation with India, China, and Pakistan ``to
create alternatives to the Russian energy transit monopoly by
establishing new energy transit routes (pipelines, shipping lines, and
railroads) that head west and, in some cases, east and south.'' U.S.
Interests and Central Asia Energy Security, Heritage Foundation,
Backgrounder No. 1984, November 15, 2006.
---------------------------------------------------------------------------
----------
Southeast Asia\216\
---------------------------------------------------------------------------
\216\ Prepared by Bruce Vaughn, Specialist in Asian Affairs; Thomas
Lum, Specialist in Asian Affairs; and Wayne Morrison, Specialist in
International Trade and Finance, Foreign Affairs, Defense, and Trade
Division, CRS.
---------------------------------------------------------------------------
OVERVIEW
For many analysts, China's growing influence or soft power
in Southeast Asia is largely economic, stemming from its
rapidly expanding role as a major source of foreign aid, trade,
and investment. The PRC has also wielded power in the region
through diplomacy and, to a lesser extent, admiration of China
as a model for development and ancient culture, and an emphasis
on ``shared Asian values.'' In addition, overseas Chinese
communities have long played important parts in the economies,
societies, and cultures of Southeast Asian states. Along with
offering economic inducements, China has allayed concerns that
it poses a military or economic threat, assured its neighbors
that it strives to be a responsible member of the international
community, and produced real benefits to the region through
aid, trade, and investment.\217\
---------------------------------------------------------------------------
\217\ In the Southeast Asian context, Chinese ``soft power'' can
include ``economic benefits, shared norms and values, cooperation on
nontraditional issues, infatuation with the new China, the mutual
benefits of tourism and education, diplomacy and style, and networking
and reciprocal obligations within ethnic Chinese communities.'' See
Bronson Percival, The Dragon Looks South: China and Southeast Asia in
the New Century, (Westport: Praeger Publishers, 2007), pp.111-112. See
also Hugo Restall, ``China's Bid for Asian Hegemony,'' Far Eastern
Economic Review, May 2007.
---------------------------------------------------------------------------
China may be gaining on the United States in the areas of
cultural and political soft power as well, at least in some
countries in the region. A 2007 Pew Research poll found that
only 29% of Indonesians and 27% of Malaysians polled had a
favorable view of the United States as opposed to 83% of
Malaysians and 65% of Indonesians who had favorable views of
China. Americans themselves are more popular than their
country, with 42% of Indonesians having a favorable view
towards Americans in 2007. The figure for Indonesia is up
slightly from a favorable view of only 15% in 2003 but remains
well below the 2000 rate of 75%.\218\ One striking exception to
this trend is the Philippines, which ranks first in the world
in trusting the United States to act responsibly in global
affairs, according to a 2007 survey.\219\ Such trends in polls
led Joseph Nye to state that `` . . . although China is far
from America's equal in soft power, it would be foolish to
ignore the gains it is making. ..It is time for the U.S. to pay
more attention to the balance of soft power in Asia.'' \220\
---------------------------------------------------------------------------
\218\ The Pew Global Attitudes Project, ``Global Unease with Major
Powers,'' June 2007.
\219\ ``Filipinos Rank High in Supporting the U.S. in World
Affairs, According to 18-Nation Survey,'' Social Weather Stations
(Manila), June 2007.
\220\ Joseph Nye, ``The Rise of China's Soft Power,'' Wall Street
Journal, December 29, 2005.
---------------------------------------------------------------------------
China has sought to boost its economic and trade relations
with the 10 countries that comprise the Association of
Southeast Asian Nations (ASEAN).\221\ According to U.S. and
Chinese trade data, Chinese total trade (exports and imports)
with ASEAN exceeded that of the United States in 2007 for the
first time since ASEAN was established (1967). A free trade
agreement (FTA) between China and ASEAN, signed in 2002, and
currently being implemented (2005 2015), will likely boost
economic ties further. Many U.S. analysts have expressed
concern that China's growing economic ties will enhance its
influence in the region at the expense of U.S. interests, and
some have called on the United States to pursue an FTA with
ASEAN or with more of its members.
---------------------------------------------------------------------------
\221\ ASEAN members include Indonesia, Malaysia, the Philippines,
Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar (Burma), and
Vietnam. Note: Cambodia was not a Member of ASEAN until 1999. For the
sake of consistency, we included data for Cambodia in the 1997 data.
---------------------------------------------------------------------------
DIPLOMACY
China's posture in Southeast Asia has undergone a
transformation in the past decade. The PRC's support for
various communist insurgencies in the region during the Cold
War, its military response to Vietnam's incursion into Cambodia
in 1979, and its forceful claims to disputed islands in the
South China Sea during the 1990s, created strains with its
neighbors in the region. However, since the Asian financial
crisis of 1997, China increasingly has emphasized mutual
benefits, or soft power over hard power or the threat of hard
power, in its relations with Southeast Asian states. In 1997,
during the Asian financial crisis, China won praise in the
region when it refrained from devaluing its currency, which
helped to stabilize the region's economy. In 2002, China and
other claimants to disputed islands signed an agreement and a
Declaration on the Conduct of Parties in the South China Sea,
which greatly reduced tensions on this issue. While there is a
general agreement that China's tactics have changed to a more
accommodating posture with an emphasis on soft power, there is
less certainty regarding its implications and whether China's
goals have changed accordingly.
Bilateral and Sub-Regional Relations
An analysis of China's bilateral relations with Southeast
Asia leads to a sub-regional division between its relatively
more influential position with mainland Southeast Asian states,
particularly Burma, Cambodia, and Laos, and its relatively less
influential position with maritime Southeast Asian states
(Indonesia, the Philippines, and Singapore).\222\ Thailand, a
major non-NATO ally of the United States, while more
independent than Burma, Laos, and Cambodia, appears to be
relatively more comfortable with close relations with China
than other regional states. Muslims in the region (Indonesia,
Malaysia) look not so much to China as they do to the rest of
the Muslim world for models outside their national settings.
Given that Muslims represent approximately half the population
of Southeast Asia, and are concentrated in maritime Southeast
Asia, this should place limits on the extent of Chinese
influence there. Vietnam's unique historical relationship with
China, which includes past domination by China and a more
recent border war, will also place limits on the extent to
which those two nations will likely come together. Singapore,
the most strategic thinking and trade dependent state in the
region, has promoted a balanced approach to the involvement of
great powers in its region.
---------------------------------------------------------------------------
\222\ Percival, op. cit.
---------------------------------------------------------------------------
A core difference between China's and America's soft power
in Southeast Asia is the organizing principle of their
respective approaches. Both countries' foreign policy
approaches to the region reflect an array of priorities
including geopolitical, security, and trade interests. That
said, the U.S. approach includes an emphasis on democracy and
related objectives along with its main theme of promoting U.S.
security interests. By contrast, China's ``non-interference''
policy is less intrusive in the domestic affairs of regional
states. While this approach may not garner widespread
admiration, it is more palatable to relatively authoritarian
regimes in the region, and sometimes earns public appreciation
because it appears respectful of national sovereignty.
China's changed bilateral relations with Australia are an
interesting parallel to recent dynamics in Southeast Asia and
demonstrate how the economic aspect of soft power can transform
a bilateral relationship with a state that is a close treaty
ally of the United States. Australia's strong economic growth
in recent years has been to a large extent based on exports of
raw materials to China. This has produced a reticence to adopt
policies that could anger China. It has even led to some
discussion of whether the Australia-New Zealand-United States
(ANZUS) alliance pertains to potential future conflict over
Taiwan. Australia clearly does not want to be forced to choose
between its robust and important security alliance with the
United States and its rapidly growing and lucrative trade with
China.\223\
---------------------------------------------------------------------------
\223\ For further information, see: CRS Report RL33010, Australia:
Background and U.S. Relations, by Bruce Vaughn.
---------------------------------------------------------------------------
Regional Organizations
As discussed in the section on North East Asia, China has
been an increasingly active player in multilateral
organizations that include Southeast Asian states such as ASEAN
plus three--ASEAN, China, Japan, and South Korea--and the East
Asia Summit (EAS), which includes China, Japan, South Korea,
India, Australia, and New Zealand, as well as the ASEAN states.
The diplomacy surrounding the formation of the EAS in 2005 is
particularly noteworthy. The lack of U.S. involvement with the
EAS contrasts sharply with the central role that the United
States has played in the Asia Pacific Economic Cooperation
(APEC) group.\224\
---------------------------------------------------------------------------
\224\ For further information, see: CRS Report RL33242, East Asia
Summit (EAS): Issues for Congress, by Bruce Vaughn.
---------------------------------------------------------------------------
The formation of the EAS also demonstrated the differing
levels of comfort that ASEAN member states have with China.
Some ASEAN states preferred bringing in India, Australia, and
New Zealand as a non-American balance to Chinese influence. One
factor that appears to be in China's favor is increased
regional support for a ``more Asia-oriented grouping.'' This
reflects the desire on the part of some regional states for a
more Asia-centered focus rather than a trans-Pacific group that
would include the United States.\225\ Movement in this
direction can be traced back to former Prime Minister Mahathir
Mohammad of Malaysia who, in the 1990s, advocated an Asian
state-only grouping through the East Asia Economic Caucus.
---------------------------------------------------------------------------
\225\ Richard W. Hu ``China and East Asian Community-Building:
Implications & Challenges Ahead,'' The Brookings Institution,
presentation on October 2, 2007.
---------------------------------------------------------------------------
A COMPARISON OF U.S. AND CHINESE ECONOMIC
RELATIONS WITH ASEAN
Over the past decade, China's trade with ASEAN has expanded
sharply in terms of trade volume, percentage increase, and size
relative to U.S. trade levels. According to Chinese data, from
1997-2007, its exports to, and imports from, ASEAN countries
grew by 642% and 777% respectively.\226\ The importance of
China to the economies of ASEAN in terms of trade, investment,
and tourism has also increased sharply. These trends are
expected to continue in the years ahead as economic ties
continue to deepen as a result of the implementation of the
China-ASEAN Free Trade Agreement (FTA) and other cooperative
initiatives.\227\ China's soft power in the region is expected
to grow as Southeast Asian economies become more dependant upon
or integrated with the PRC. While the United States remains an
important partner for ASEAN in terms of trade, the relative
importance of that trade to ASEAN has declined.
---------------------------------------------------------------------------
\226\ China's trade data often differ significantly with that of
its trading partners, due in large part because of the way trade
through Hong Kong is counted. China counts Hong Kong as the destination
of its exports sent there, even goods that are then transshipped to
other markets. By contrast, the United States and many of China's other
trading partners count Chinese exports that are transshipped through
Hong Kong as products from China, not Hong Kong, including goods that
contain Hong Kong components or involve final assembly or processing in
Hong Kong. See also CRS Report RS22640, What's the Difference--
Comparing U.S. and Chinese Trade Data, by Michael F. Martin.
\227\ In addition, both China and ASEAN continue to enjoy rapid
economic growth. China's real GDP growth in 2007 was 11.4% and ASEAN's
was an estimated 6.5%.
---------------------------------------------------------------------------
Comparing U.S. and Chinese Trade With ASEAN
According to PRC data, Chinese imports from ASEAN from 1997
to 2007 rose from $12.4 billion to $94.2 billion, while U.S.
imports from ASEAN (according to U.S. trade data) grew from
$71.0 billion to $111.2 billion (see Table 8, and Figures 19
and 20).\228\ China's exports went from $12.7 billion to $94.2
billion, while U.S. exports increased from $48.3 billion to
$60.6 billion. Total U.S. trade (exports plus imports) with
ASEAN in 2006 was slighter larger than that of China's.
However, in 2007, China's total trade with ASEAN was 17% larger
than total U.S. trade ($200.6 billion versus $171.7 billion).
China's exports to ASEAN in 2007 were 55.6% higher than those
from the United States, while U.S. imports from ASEAN were 2.6%
larger than China's imports.\229\ Based on the fact that
China's imports from ASEAN in 2007 grew by 21.1% (over the
previous year), versus 12.4% for the United States, it is
likely that China's imports from ASEAN will be larger than U.S.
imports in 2008. China ran a $14.1 billion trade deficit with
ASEAN, while the U.S. trade deficit totaled $50.6 billion.
---------------------------------------------------------------------------
\228\ China reports imports on a cost, insurance, and freight (CIF)
basis, while the U.S. reports imports on a customs basis, which
excludes the added cost of insurance, freight and other charges. If the
U.S. reported imports on a CIF basis, it would raise the value of
imports by about 10%.
\229\ In comparison, in 1997, China's official reported exports to
ASEAN were 26.3% as large as those by reported by the United States and
its reported imports from ASEAN were 17.4% as large as U.S. imports.
---------------------------------------------------------------------------
Taken as a whole, ASEAN's rank as a destination for Chinese
exports was 4th in 1997 and 2007, while ASEAN's rank for U.S.
exports dropped from 4th in 1997 to 5th in 2007. As a source of
Chinese imports, ASEAN's rank increased from 5th to 2nd, while
its rank for U.S. imports fell from 4th to 5th. The share of
China's exports going to ASEAN grew from 7.0% to 7.7%, while
the share of U.S. exports to ASEAN dropped from 7.0% to 5.2%.
The share of China's imports from ASEAN rose from 9.0% to
11.3%, while the share of U.S. imports from ASEAN dropped from
8.2% to 5.7%.
Table 8. Chinese and U.S. Trade With ASEAN
----------------------------------------------------------------------------------------------------------------
2006-2007 1997-2006
1997 2006 2007 Percent Percent
Change Change
----------------------------------------------------------------------------------------------------------------
China's Exports to ASEAN ($millions)................ 12,698 71,325 94,243 32.1 642.2
U.S. Exports to ASEAN ($millions)................... 48,468 57,307 60,560 5.7 35.3
China's Exports to ASEAN as a Percent of Total 7.0 7.4 7.7 -- --
Exports (%)........................................
U.S. Exports to ASEAN as a Percent of Total Exports 7.0 5.5 5.2 -- --
(%)................................................
China's Imports From ASEAN ($millions).............. 12,357 89,538 108,381 21.1 777.1
U.S. Imports From ASEAN ($millions)................. 70,981 111,201 111,171 12.4 56.6
China's Imports From ASEAN as a Percent of Total.... 9.0 11.3 11.3 -- --
U.S. Imports From ASEAN as a Percent of Total....... 8.2 6.0 5.7 -- --
----------------------------------------------------------------------------------------------------------------
Source: World Trade Atlas.
Note: Based on official Chinese and U.S. trade data.
Figure 19. U.S. and Chinese Exports to ASEAN:
1997-2007
Figure 20. U.S. and Chinese Imports From ASEAN:
1997-2007
Energy
China's mineral fuel imports from ASEAN rose from $3.3
billion in 1997 to $8.3 billion in 2007. However, China's
mineral fuel imports from ASEAN as a percent of China's total
mineral fuel imports declined from 26.8% in 1997 to 7.7% over
this period. Despite this drop, China has been active in
developing ties with ASEAN countries on a number of energy
related projects.\230\ To illustrate:
---------------------------------------------------------------------------
\230\ Although China has pursued a number of energy related
activities with various ASEAN countries, the PRC is also engaged in
territorial disputes with some ASEAN countries (such as Vietnam,
Malaysia, and the Philippines) over territory in the South China Sea
that may contain oil and gas deposits.
In January 2007, the Xinhua News Agency reported that China
National Petroleum Corporation signed production
sharing contracts with Myanmar's Ministry of Energy
covering crude oil and natural gas exploration projects
in three deep-water blocks off the western Myanmar
(Burma) coast; Reuters reported that a Chinese oil
company would join with two other foreign firms in
investing $5.5 billion to produce biofuels in
Indonesia; and Dow Jones Chinese Financial Wire
reported that the Vietnamese government had recently
authorized state-owned PetroVietnam to begin joint oil
and gas operations with China National Offshore Oil
---------------------------------------------------------------------------
Corporation in the Gulf of Tonkin.
In April 2007, the Xinhua News Agency reported that China
would build a pipeline from the Myanmar (Burma) port
city of Sittwe to Kunming, China to transport natural
gas.
In May 2007, BBC Monitoring reported that two Chinese firms
planned to invest $343 million in an oil refinery and a
gas processing plant in Pahang, Malaysia.
In June 2007, the Xinhua News Agency reported that China's
National Offshore Oil Corporation signed a production-
sharing contract with the Cambodian National Petroleum
Authority to explore for oil and natural gas.
In July 2007, Interfax China reported that Chinese oil
companies planned to invest as much as $14 billion in
Indonesia's oil and gas exploration sectors; and the
Vietnam News Brief Services announced that the
government planned to jointly build a $360 million oil
refinery with China in Vietnam.
In September 2007, the Xinhua News Agency reported that
China would build an oil pipeline from Myanmar (Burma)
to Chongqing, China.
In December 2007, the Xinhua News Agency reported that
China and Singapore had signed an agreement to begin
joint research into energy-intensive plant hybrids for
biofuels.
The Importance of China and the United States to ASEAN's Trade
From ASEAN's perspective, China is becoming a major trading
partner. Using ASEAN data, China ranked as ASEAN's 5th largest
trading partner in 2005 (the U.S. ranked 2nd) its 5th largest
export market (the U.S. was 2nd) and its 3rd largest source of
its imports (the U.S. ranked 4th ).\231\
---------------------------------------------------------------------------
\231\ Rankings for 2006 were not available. Note: ASEAN trade data
differ from data reported by China and the United States.
---------------------------------------------------------------------------
ASEAN data show total trade with the United States and
China in 2006 at $174.4 billion and $143.8 billion,
respectively.\232\ As Table 9 indicates, ASEAN exports to China
as a share of total ASEAN exports rose from 2.1% in 1995 to
8.9% in 2006 (while the U.S. share fell from 18.5% to about
13.9%).\233\ The share of ASEAN's imports from China rose from
2.2% to 11.4% (while the share from the U.S. fell from 14.6% to
10.3%).\234\
---------------------------------------------------------------------------
\232\ 2006 data exclude Laos and Myanmar (Burma).
\233\ ASEAN data indicate that its 2006 exports to the United
States and China were $105.5 billion and $67.6 billion, respectively.
\234\ ASEAN imports from the United States and China in 2006 were
$68.8 billion and $76.2 billion, respectively.
Table 9. ASEAN Trade with the United States and China for 1995, 2000, and 2006 as a Percent of Total Trade
(percent)
----------------------------------------------------------------------------------------------------------------
1995 2000 2006
----------------------------------------------------------------------------------------------------------------
ASEAN IMPORTS (percent of total)
United States............................................. 14.6 14.0 10.3
China..................................................... 2.2 5.2 11.4
----------------------------------------------------------------------------------------------------------------
ASEAN EXPORTS (percent of total)
United States............................................. 18.5 18.0 13.9
China..................................................... 2.1 3.5 8.9
----------------------------------------------------------------------------------------------------------------
Sources: ASEAN Secretariat, 2005 and 2006 ASEAN Yearbook and International Monetary Fund, Direction of Trade
Statistics, June 2007.
Notes: Data for 2006 do not include Laos and Myanmar (Burma); ASEAN trade data differ from that reported by its
trading partners.
Foreign Direct Investment
Although the importance of the United States to ASEAN trade
has declined somewhat relative to China, it is still a major
source of ASEAN's foreign direct investment (FDI). From 2002-
2006, U.S. FDI flows to ASEAN were $13.7 billion (or 8.0% of
total), making the United States ASEAN's 4th largest source for
FDI. Over this period, China's FDI totaled $2.3 billion or 1.3%
of total, making China the 10th overall source of ASEAN's FDI
(see table 10).\235\ In 2006, U.S. FDI in ASEAN totaled $3.9
billion versus $937 million for China.
---------------------------------------------------------------------------
\235\ China estimates cumulative FDI from ASEAN through 2006 at
$41.9 billion.
---------------------------------------------------------------------------
Tourism
According to ASEAN tourist data, China was the 3rd largest
for source of tourist arrivals from 2001 to 2005 at 13.8
million, accounting for 6.2% of total. The United States ranked
8th at 9.8 million, accounting for 4.4% of total. In 2005,
arrivals from China were 3.0 million versus 2.3 million from
the United States.\236\
---------------------------------------------------------------------------
\236\ According to Chinese data, from January-November 2006, 3.5
million tourists from ASEAN countries visited China.
---------------------------------------------------------------------------
China's Efforts to Boost Economic Ties With ASEAN
China entered into Dialogue relations with ASEAN in 1991
and obtained full ASEAN Dialogue Partner status in 1996.\237\
In 2000, Chinese officials suggested the idea of a China-ASEAN
FTA. In November 2002, ASEAN and China signed the Framework
Agreement on Comprehensive Economic Co-operation to create an
ASEAN-China Free Trade Area (ACFTA) within 10 years.\238\ In
November 2004, the two sides signed the Agreement on Trade in
Goods of the Framework Agreement on Comprehensive Economic Co-
operation between the Association of Southeast Asian Nations
and the People's Republic of China, which included a schedule
of tariff reductions and eventual elimination for most tariff
lines (beginning in 2005) between the two sides.\239\
---------------------------------------------------------------------------
\237\ Current ASEAN Dialogue Partners include Australia, Canada,
China, the European Union, India, Japan, South Korea, New Zealand, the
Russian Federation, the United States, and the United Nations
Development Programme.
\238\ The agreement included an ``early harvest'' provision to
reduce and eliminate tariffs on a number of agricultural products (such
as meats, fish, live animals, trees, dairy produce, vegetables, and
edible fruits and nuts). The agreement called for both parties to begin
implementing the cuts beginning in 2004. Thailand negotiated an
agreement with China to eliminate tariffs for various fruits and
vegetables, effective October 2003.
\239\ The ACFTA would implement most tariff reductions between
China and the ASEAN 6 nations by 2010. Cambodia, Laos, Burma, and
Vietnam would be able to maintain higher tariffs, but these would be
phased out and completely eliminated by 2015.
Table 10. Major Foreign Investors in ASEAN: 2002-2006
(millions and % of total)
----------------------------------------------------------------------------------------------------------------
2006 2002-2006 (Cumulative)
------------------------
-----------------------
Value Percent of Percent of
Total Value Total
----------------------------------------------------------------------------------------------------------------
European Union.................................................. 13,362 25.5 44,956 26.3
Japan........................................................... 18,803 18.0 30,814 18.0
ASEAN........................................................... 3,765 11.9 19,368 11.3
United States................................................... 3,865 7.4 13,736 8.0
China........................................................... 937 1.8 2,303 1.3
Total FDI in ASEAN............................................ 52,380 -- 170,822 --
----------------------------------------------------------------------------------------------------------------
Source: ASEAN Secretariat.
Note: Ranked according to cumulative investment for 2002-2006.
For example, for the relatively more developed ``ASEAN6''
nations (Brunei, Indonesia, Malaysia, the Philippines,
Singapore and Thailand), tariff lines of over 20% are to fall
to 20% in 2005, 12% in 2007, 5% by 2009, and zero by 2010.
Tariffs between 15% and 20% are to fall to 15% in 2005, 8% in
2007, 5% by 2009, and zero by 2010. Certain ``sensitive''
products have longer phase-out periods.\240\ ASEAN--China
cooperation covers a variety of areas, including agriculture,
information and communication technology, human resource
development, two-way investment, Mekong Basin development,
transportation, energy, culture, tourism and public health.''
\241\ In January 2007, China and ASEAN signed the Agreement on
Trade in Services of China-A SEAN Free Trade Area which is
intended to liberalize rules on trade in services.
---------------------------------------------------------------------------
\240\ Bureau of National Affairs, International Trade Reporter,
October 6, 2005, p. 1590.
\241\ A listing of agreements and declarations can be found on the
Asean Secretariat's website at [http://www.aseansec.org/].
---------------------------------------------------------------------------
In a 2005 speech to commemorate the 15th anniversary of the
China-ASEAN Dialogue relations, Chinese Premier Wen Jiabao
listed four main conclusions that he drew from the growth in
bilateral relations:
Peaceful development is the prerequisite for the growth of
China-ASEAN relations. Both sides pursue a policy of
good neighborliness and friendship, see each other as
cooperative partners and take each other's development
as an opportunity, not a threat.
Equality and mutual trust are the foundation of China-ASEAN
relations. Both sides treat each other as equals and
endeavor to develop consensus by seeking common grounds
while putting aside differences.
Win-win cooperation is the goal for China-ASEAN relations.
People's support is the driving force behind China-ASEAN
relations, in part because cooperation helps reduce
poverty, narrow [the] development gap, speed up growth
and delivers a better life.\242\
---------------------------------------------------------------------------
\242\ Chinese Premier Wen Jiabao's speech at the China-ASEAN
summit, Join Hands to Create A Better Future for China-A SEAN
Relations, October 30, 2006.
In 2006 Ong Keng Yong, Secretary General of ASEAN,
---------------------------------------------------------------------------
described growing ASEAN-China economic ties this way:
ASEAN views China as a close neighbor and an important
Dialogue Partner with tremendous potential to offer. With its
rapid economic growth and a population of about 1.3 billion
people, China is a huge consumer of ASEAN products and also a
source of future FDI to the region. In addition, ASEAN is
benefiting from the large number Chinese tourists visiting the
region and vice-versa.\243\
---------------------------------------------------------------------------
\243\ ``ASEAN-China Relations: Harmony and Development,'' by Ong
Keng Yong, Secretary General of ASEAN, at a Commemorative Symposium to
Mark the 15th Anniversary of China's Dialogue with ASEAN, December 8,
2006.
U.S. Efforts to Bolster Trade With ASEAN
In October 2002, the Bush Administration launched the
Enterprise for ASEAN Initiative (EAI), with a stated goal of
seeking closer economic ties with ASEAN countries, including
the possibility of bilateral free trade agreements with
countries that are committed to economic reforms and openness.
A potential FTA partner would need to be a member of the World
Trade Organization (WTO) and have concluded a Trade and
Investment Framework Agreement (TIFA) with the United States, a
forum designed to resolve major trade and investment disputes.
The United States has signed TIFA agreements with Brunei,
Cambodia, Indonesia, Malaysia, the Philippines, Singapore,
Thailand, and Vietnam. It has an FTA with Singapore (effective
2004) and is the process of negotiating one with Malaysia. FTA
talks with Thailand were suspended in 2006, due to the
political crisis there and public opposition. On August 25,
2007 USTR Susan Schwab signed a TIFA agreement with ASEAN. In
September 2007, President Bush met with seven ASEAN leaders
attending the APEC summit in Australia and announced that the
U.S. would nominate an ambassador to ASEAN.
FOREIGN AID
China's foreign aid has had a growing, tangible impact in
many countries in Southeast Asia, although it is difficult to
quantify, due to a lack of data and to the unique
characteristics of Chinese assistance. In comparison to major
bilateral donors in the region, China provides relatively
little official development assistance (ODA) and lacks a formal
system fordetermining development goals and allocating
aid.\244\ The PRC administers a wider range of economic
assistance that includes non-development aid and low-interest
loans, as well as trade and investment agreements. According to
some analysts, when these kinds of assistance are added, China
becomes one of the largest bilateral aid donors in Southeast
Asia.
---------------------------------------------------------------------------
\244\ The United States differs from other major aid donors in
Southeast Asia such as Japan, European countries, and Australia, in
that it provides not only ODA but also considerable security and
military assistance, particularly to Indonesia and the Philippines.
---------------------------------------------------------------------------
Furthermore, because China offers assistance without the
conditions that other donors frequently place on aid (i.e.
democratic reform, market opening, and environmental
protections), it often garners appreciation disproportionate to
the size of its aid, and thus has a large impact on recipient
governments.\245\ China's policy of ``non-interference in
domestic affairs'' often wins friends not only among Southeast
Asian governments but also by many peoples in the region
because it is regarded as respectful of their countries'
sovereignty.
---------------------------------------------------------------------------
\245\ China's conditions on aid are often international rather than
domestic--requiring aid recipients to support the ``one-China''
principle regarding Taiwan and China's agenda in the United Nations.
---------------------------------------------------------------------------
Although PRC assistance reportedly is often not carried out
as pledged, such aid, announced at lavish receptions with
toasts to the recipient countries, often carries great symbolic
value.\246\ Many PRC aid projects, such as government
buildings, infrastructure, and energy facilities, often funded
by loans from the China Import-Export Bank and built by Chinese
companies, are high profile efforts that primarily benefit
capital cities or the governments in power. Many foreign aid
experts, non-governmental organizations (NGOs), and local
groups have criticized Chinese aid for failing to promote
democracy, widespread sustainable development, and
environmental conservation.
---------------------------------------------------------------------------
\246\ Jane Perlez, ``China Competes with West in Aid to its
Neighbors,'' The New York Times, September 18, 2006.
---------------------------------------------------------------------------
China has taken some tentative steps toward greater
transparency in its foreign aid process and coordination with
other providers of assistance while continuing to eschew the
label of major ODA donor. China reportedly is gradually
developing an official aid structure and considering creating a
unified aid agency. In 2007, the PRC participated in the
``Pacific Core Partners Meeting'' which included discussions
among ten countries and several multilateral organizations with
an interest in reaching a consensus on goals for development
aid in the South Pacific. During the same year, China for the
first time provided aid to Cambodia through an international
pledging process.
Aid to the Least Developed Countries in the Region
Many reports of PRC aid in the region focus on Burma,
Cambodia, and Laos, the poorest countries in Southeast Asia and
ones that have had relatively unfriendly relations with the
United States. China is considered the ``primary economic
patron'' of these countries and provides an ``implicit security
guarantee.'' \247\ China also provides considerable assistance
to Vietnam, although its influence upon its former adversary
appears limited compared to other countries. The United States
has a major aid presence in Cambodia and Vietnam. \248\
However, according to data of official development assistance,
which does not include China, Japan is the largest bilateral
aid donor among these countries.
---------------------------------------------------------------------------
\247\ Catherin E. Dalpino, ``Consequences of a Growing China,''
Statement before the Senate Committee on Foreign Relations Subcommittee
on East Asian and Pacific Affairs, June 7, 2005; Heritage Foundation
program, ``Southeast Asia's Forgotten Tier: Burma, Cambodia and Laos,''
July 26, 2007.
\248\ In FY2008, the United States is to provide development,
economic, and security assistance worth an estimated $56 million and
$102 million to Cambodia and Vietnam, respectively. Most U.S.
assistance to Vietnam funds HIV/AIDS programs. For further information,
see CRS Report RL31362, U.S. Foreign Aid to East and South Asia:
Selected Recipients, by Thomas Lum.
---------------------------------------------------------------------------
Many observers fear that China's unconditional and non-
transparent aid efforts and growing economic integration in
Southeast Asia negate efforts by western nations to promote
political and economic reform, reduce corruption, and protect
the environment in mainland Southeast Asia. Others counter
that, on balance, Chinese aid promotes development in Southeast
Asia and that it does not exclude other countries' aid programs
and objectives. Furthermore, in many cases, China reportedly
takes on aid projects that other donor countries have avoided
due to difficulty or hardship. In recent years, China has
financed many infrastructure and energy-related projects in
Burma, Cambodia, and Laos that rely upon Chinese materials and
technical expertise as well as labor. Often these projects help
China access raw materials and oil. There are some indications
that Chinese aid in this part of the region is diversifying,
including support to counter-trafficking in persons and
counter-narcotics efforts, programs involving Chinese youth
volunteers (Laos), elections (Cambodia), and historical
preservation (Cambodia).\249\
---------------------------------------------------------------------------
\249\ ``China ranks No. 2 in Aiding Cambodia's Town, Sub-district
Elections,'' BBC Monitoring Asia Pacific, October 12, 2006.
Burma.--According to some reports, China has been the
largest source of economic assistance to Burma, including $1.4
billion to $2 billion in weaponry to the ruling junta since
1988 and pledges of nearly $5 billion in loans, plants and
equipment, investment in mineral exploration, hydro power and
oil and gas production, and agricultural projects.\250\ China
has helped the Burmese to build roads, railroads, airfields,
and ports. Following the imposition of U.S. trade sanctions
against Burma in 2003, China reportedly announced a loan to
Burma of $200 million. In 2006, China promised another $200
million loan, although some experts say that such funds were
never actually provided.\251\ U.S. aid to Burma (an estimated
$12 million in 2007), is restricted primarily to humanitarian,
health, education, and democracy programs for Burmese migrants
and refugees living along the Burma-Thailand border. In terms
of official development assistance, Japan reportedly is the
largest bilateral donor to Burma, providing a yearly average of
$26 million (2004-05).\252\
---------------------------------------------------------------------------
\250\ Jeffrey York, ``The Junta's Enablers,'' International News,
October 6, 2007; David Steinberg, ``Burma: Feel-Good U.S. Sanctions
Wrongheaded,'' Yale Global Online, May 19, 2004; [http://
www.narinjara.com/Reports/BReport.ASP].
\251\ Testimony of Jared Genser, ``China's Role in the World: The
China-Burma Relationship,'' U.S. Economic and Security Review
Commission, August 3, 2006.
\252\ Organization for Economic Cooperation and Development (OECD).
See: [http://www.oecd.org/home/].
Cambodia.--Japan, the United States, France, Australia, and
Germany are the largest bilateral sources of ODA to Cambodia.
Foreign aid to Cambodia is coordinated through the Consultative
Group (CG) for Cambodia, a consortium of international
financial organizations and donor countries under the auspices
of the World Bank. Since 1996, the CG has met annually to
extend aid packages averaging $500 million per year.\253\ China
provides relatively little development assistance but may be
one of the largest sources of aid when including loans and
support for public works, infrastructure, and hydro-power
projects in the kingdom. In 2006, PRC Prime Minister Wen Jiabao
pledged $600 million in aid and loans to Cambodia.
---------------------------------------------------------------------------
\253\ Kyodo News, June 21, 2002.
---------------------------------------------------------------------------
In 2007, for the first time, China offered aid through the
Consultative Group's pledging process. The CG pledged $689
million in assistance to Cambodia, including $91.5 million from
China.\254\ For the 2007 09 period, China pledged $236 million
in unspecified aid compared to Japan's $337 million and the
EU's $215 million.\255\ Cambodia is a relatively large
recipient of U.S. assistance. The United States provided
approximately $55 million annually in 2006-07 for health care,
HIV/AIDS programs, basic education, civil society, de-mining,
counter-terrorism efforts, and other activities, mostly through
non-governmental organizations (NGOs) in Cambodia.
---------------------------------------------------------------------------
\254\ Ker Munthit, ``Donor's Pledge $689 million in Aid for
Cambodia,'' Associated Press Newswires, June 20, 2007.
\255\ Economist Intelligence Unit, Country Report: Cambodia,
September 2007.
Laos.--Laos receives approximately $250 million in foreign
aid per year (20% of GDP), including loans from the Asian
Development Bank (ADB) and the World Bank worth $80 million and
$40 million, respectively.\256\ According to one report, in
2001-02, China was the second biggest aid donor to Laos.\257\
The top sources of official development assistance to Laos, on
an average annual basis (2004-05), are Japan ($65 million),
France ($21 million), Sweden ($19 million), Germany ($15
million), and Australia ($12 million).\258\ Since the late
1990s, China has provided Laos with critical grants, low-
interest loans, high profile development projects, technical
assistance, and foreign investment. Development and other forms
of aid include transportation infrastructure, hydro power
projects worth $178 million, youth volunteers engaged in
medical and educational programs, and agricultural training. In
2006, Chinese President Hu Jintao visited Vientiane and offered
$45 million in economic and technical cooperation and debt
forgiveness. The United States is a relatively small aid donor,
providing an average annual total of approximately $4.5 million
between 2005 and 2007.
---------------------------------------------------------------------------
\256\ Asia & Pacific Review World of Information, July 30, 2007.
\257\ Joshua Kurlantzick, ``China's Charm: Implications of Chinese
Soft Power,'' Carnegie Endowment Policy Brief no. 47 (June 2006). This
measurement of PRC aid likely includes loans. By contrast, U.S. foreign
assistance, with the exception of food aid, is predominantly grant-
based.
\258\ OECD data.
Vietnam.--According to some reports, China may be the
second largest source of foreign aid to Vietnam (including
grants and loans). In 2005, the PRC reportedly offered nearly
$200 million in grants and loans.\259\ In 2006, Beijing
provided loans to Vietnam for railways, hydro-power
development, and ship building facilities. Japan and France are
the largest donors of ODA to Vietnam, providing an annual
average of $670 million and $116 million, respectively (2004
05).\260\ According to some experts, compared to Burma,
Cambodia, and Laos, China's influence in Vietnam is relatively
limited. In December 2006, Beijing halted aid to Vietnam in
response to the Vietnamese government's formal invitation to
Taiwan, a major investor in the country, to attend the APEC
November 2006 summit in Hanoi.\261\
---------------------------------------------------------------------------
\259\ ``Vietnam to Borrow Nearly 200 Mln U.S. Dollars from China:
Report,'' People's Daily Online [http://english.people.com.cn], October
30, 2005.
\260\ OECD data.
\261\ Roger Mitton, ``Beijing Refuses Aid to Hanoi after Rebuff
over Taiwan,'' Straits Times, December 22, 2006.
---------------------------------------------------------------------------
China's Aid to the More Developed Southeast Asian Countries
China also has provided significant aid to the large and
more developed countries in the region, such as Thailand,
Indonesia and the Philippines. However, these countries also
have extensive security, economic, and aid ties with the United
States. Since 2001, the United States has dramatically
increased development, security, and military assistance to
Indonesia and the Philippines as part of the global war on
terror. Furthermore, Japan likely far surpasses both the United
States and China in foreign aid to these countries,
particularly Thailand. China has few reported aid projects in
Thailand. However, after the United States government imposed
sanctions on military and security-related assistance to
Thailand worth approximately $29 million following the
September 2006 military coup, China reportedly offered $49
million to Thailand in military aid and training.\262\
---------------------------------------------------------------------------
\262\ Alan Dawson, ``A `Win-Win' Situation for Beijing,
Washington,'' Bangkok Post, February 21, 2007; ``Current Thai-China
Ties Seen as `More Resilient and Adaptable' than U.S. Ties,'' BBC
Monitoring Asia Pacific, February 12, 2007.
Indonesia.--According to the Organization for Economic
Cooperation and Development (OECD), the largest bilateral
donors to Indonesia, on an average annual basis (2004-05), are
Japan ($963 million), Germany ($191 million), the United States
($163 million), Australia ($145 million), and the Netherlands
($128 million). Between 2002 and2007, annual U.S. assistance to
Indonesia totaled about $136 million.\263\ According to one
expert, in 2002, China's aid to Indonesia was roughly twice
that of the United States.\264\ In 2005, PRC President Hu
Jintao and Indonesian President Susilo Bambang Yudhoyono signed
a declaration proclaiming a ``strategic partnership'' that was
accompanied by a promise of preferential loans worth $300
million. Some foreign aid experts criticized China's relatively
limited offers of disaster relief following the 2004 Indian
Ocean earthquake and tsunami. The PRC pledged $63 million to
Indonesia compared to Taiwan's $50 million and the United
States' $405 million.
---------------------------------------------------------------------------
\263\ United States Agency for International Development (USAID).
\264\ Kurlantzick, ``China's Charm,'' op. cit.
The Philippines.--The top five bilateral ODA donors to the
Philippines, on an average annual basis, in 2004-05 were Japan
($706 million), the United States ($114 million), Germany ($60
million), Australia ($38 million), and the Netherlands ($20
million).\265\ In 2006, the United States extended $115 million
in development, security, and military assistance to the
Philippines. According other sources, the PRC has become a
major source of financing for development projects in the
Philippines, and in 2003, China's aid to the Philippines,
including loans reportedly was roughly three times U.S.
assistance.\266\ In January 2007, PRC Premier Wen Jiabao and
Philippines President Gloria Macapagal-Arroyo signed 20
economic agreements, including a contract for a Chinese company
to build and renovate railroads, investment in agriculture, and
loans for rural development.\267\
---------------------------------------------------------------------------
\265\ OECD data.
\266\ ``China Loans to RP to Hit $2 Billion in 3 Years ,'' Manila
Standard, February 6, 2007; Kurlantzic, ``China's Charm,'' op. cit.
\267\ ``Philippines, China Sign 20 Agreements to Boost
Trade,''Xinhua Financial Network, January 16, 2007.
---------------------------------------------------------------------------
U.S. POLICY IMPLICATIONS
Trends, Effects, and Implications for the United States
According to some analysts, China's rising influence has
coincided with a period of episodic and inconsistent U.S.
attention toward Southeast Asia, or even a developing power
vacuum, during the past decade.\268\ Since September 11th,
2001, the United States government has become somewhat more
diplomatically engaged in the region and has increased foreign
aid funding, but with a focus largely limited to counter-
terrorism. The perception of U.S. inattentiveness to the region
has been reinforced by recent U.S. decisions. In 2007,
Secretary of State Condoleezza Rice bypassed the annual ASEAN
Regional Forum (ARF) gathering, and instead traveled to the
Middle East, while President Bush postponed the U.S.-ASEAN
summit, set for Singapore in September, and left the APEC
summit a day early reportedly because of commitments related to
the Iraq war, renewing ``concerns about the U.S. commitment to
the region.'' \269\
---------------------------------------------------------------------------
\268\ Robert G. Sutter, China's Rise in Asia: Promises and Perils
(New York: Rowman and Littlefield, 2005).
\269\ Sheldon Simon, ``U.S. Southeast Asia Relations,'' Comparative
Connections, October, 2007; Ralph Cossa and Brad Glosserman, ``Regional
Overview,'' Comparative Connections, October, 2007.
---------------------------------------------------------------------------
Despite a possible decrease in relative influence, however,
the United States continues to exert both hard and soft power
in Southeast Asia. In terms of soft power, for example, the
United States maintains multi-faceted foreign aid programs with
clear objectives and large development and humanitarian
components. The United States was also a major contributor to
countries hit by the 2004 Indian Ocean tsunami, which affected
several Southeast Asian countries. The United States remains
ASEAN's 2nd largest trading partner (China ranks 5th) and its
4th largest source of foreign direct investment (China ranks
10th), and has sought free trade agreements with several
countries in the region.
While there is a general agreement that China's tactics
have changed to a more accommodating posture with an emphasis
on soft power, there is less certainty regarding its
implications and whether China's goals have changed
accordingly. According to one view, China is pursuing a zero
sum game where expansion of its influence is, or will be, at
the expense of the United States. Joshua Kurlantzick writes
that ``China may want to shift influence away from the United
States to create its own sphere of influence, a kind of Chinese
Monroe Doctrine for Southeast Asia [where] countries would
subordinate their interests to China's, and would think twice
about supporting the United States.''\270\
---------------------------------------------------------------------------
\270\ Joshua Kurlantzick, ``China's Charm Offensive in Southeast
Asia,'' Current History, September 2006.
---------------------------------------------------------------------------
By contrast, some analysts argue that, on balance, China's
growing economic influence of the past decade has been
beneficial to the region and not detrimental to U.S. interests.
Regarding China's goals, some observers contend that China's
most pressing concerns, at least in the medium term, are likely
to be domestic (focusing on economic growth and social
stability) and that Beijing favors a stable periphery and
appreciates the dominant U.S. role in helping to maintain
regional security. These observers maintain that regional
stability serves as a foundation for Southeast Asian and
Chinese economic development. Further, they hold that China may
seek to isolate Taiwan and to increase its influence in the
region, but only to forestall the possible ``containment'' of
China rather than to replace the United States.\271\
---------------------------------------------------------------------------
\271\ See: Percival, op. cit.; Richard W. Hu ``China and East Asian
Community-Building: Implications & Challenges Ahead,'' The Brookings
Institution, presentation on October 2, 2007; Robert G. Sutter, China's
Rise in Asia, op. cit.
---------------------------------------------------------------------------
Another view suggests that regardless of China's intentions
in Southeast Asia, the PRC's capabilities often are
exaggerated, its soft power is limited, tensions in its
relationships in the region remain, and its friendships are
transient. In some instances, national governments welcomed PRC
aid and cooperation while citizens outside the government
opposed them. In 2007, as concerns rose throughout many parts
of the world regarding the safety of Chinese products,
officials in Indonesia, Malaysia, and the Philippines
reportedly complained that the PRC government was pressuring
them not to raise the issue, even when such imported goods were
found to be dangerous. When they banned the sale of unsafe
items from China, the PRC government reportedly threatened and/
or imposed retaliatory actions, causing consternation among
many Southeast Asian leaders.\272\ In March 2008, some
Philippine lawmakers and policy analysts sharply criticized the
Arroyo Administration's agreement with China in 2004 to
undertake a joint seismic study in the disputed South China Sea
for the purpose of possible oil and gas exploration. They
argued that the agreement weakened Philippine territorial
claims and undermined the role of ASEAN in mediating joint
activities in the area.\273\
---------------------------------------------------------------------------
\272\ Ariana Eunjung Cha, ``Asians Say Trade Complaints Bring out
the Bully in China,'' Washington Post, September 5, 2007.
\273\ Barry Waine, ``Manila's Bungle in the South China Sea,'' Far
Eastern Economic Review, Jan/Feb 2008; ``In Brief,'' South China
Morning Post, March 14, 2008; Mark J. Valencia, ``The Philippines'
`Spratly Bungle': Blessing in Disguise?'' Policy Forum Online, March
18, 2008.
---------------------------------------------------------------------------
Even some of the main beneficiaries of China's largesse in
Southeast Asia remain wary of the PRC or seek to dampen its
growing influence in the region. For example, many Cambodians,
mindful of the PRC's former support of the Khmer Rouge,
reportedly feel antagonistic towards China. The Lao government
maintains close ties with both China and Vietnam, while the
Vietnamese government reportedly has quietly encouraged Lao
leaders to cultivate better ties with the United States as a
means to counteract Chinese power. Vietnamese citizens held
anti-China demonstrations, likely with the encouragement of the
Vietnamese government, in Hanoi and Ho Chi Minh City in
December 2007, to protest Chinese military exercises simulating
invasions of the disputed Spratly Islands in the South China
Sea and the creation of a new PRC administrative unit that
would include the islands.
Figure 21. Southeast Asia and Surrounding Countries
----------
Sub-Saharan Africa\274\
---------------------------------------------------------------------------
\274\ Prepared by Nicolas Cook, Specialist in African Affairs,
Foreign Affairs, Defense, and Trade Division.
---------------------------------------------------------------------------
OVERVIEW
Historical Background
China's economic growth priorities also have redefined its
relations with sub-Saharan Africa (``Africa'' hereafter). From
the formative period of Sino-Africa relations in the 1950s
until the late 1970s, China offered African countries
politically-motivated aid. Much of it consisted of
infrastructure projects, such as railroads--notably the famed
Tanzania-Zambia (TAZARA) railway of the early 1970s--stadiums,
government buildings, and party headquarters, as well as
sectoral economic development projects. Until the late 1970s,
when China began a broad internal economic modernization
process, its engagement in Africa was primarily defined by a
shared interest in colonial liberation, developed vs.
developing policy goals, Cold War rivalries, and other
political factors. China's subsequent rapid economic growth in
the early to mid-1980s prompted it to gradually redefine its
international relations policy goals. Increasingly, it began to
pursue bilateral ties defined by pragmatic economic and trade-
related ends, rather than political or ideological ones. In
Africa, China continued to support aid projects, but its
engagement on the continent was generally less prominent than
previously. China increasingly began to use cost-benefit
analyses in making decisions about these projects, and sought
to ensure that they included contributions from recipient
countries or were pursued as joint ventures.
Renewed Chinese interest in and ties with Africa were
sparked in the late 1980s and 1990s by China's rapidly
expanding domestic economy and export-focused manufacturing
sectors, which spurred trade ties with other countries,
including many in commodity-rich Africa. In Africa, as
elsewhere, China also advocated international norms of
political neutrality and state sovereignty, particularly with
respect to non-interference with respect to countries' internal
affairs. This was notably the case following a rise in
international criticism of China prompted by the 1989 Tiananmen
Square crackdown on democracy activists. As in earlier decades,
Africa played an important role in China's strategy for
achieving its policy goals within and through the U.N. system
and in other international forums, where Africa's many member
governments represented an important potential block of allied
votes.\275\ Many of China's goals during this period were
amenable to African governments, which wanted to boost their
own trade and tap often under-exploited natural resource
reserves. Many also firmly espoused principles of non-
interference in the affairs of sovereign states, in some cases
because, like China, they were targets of foreign criticism
regarding undemocratic governance and poor human rights
records. China's outreach took various forms. In Africa, it
increasingly centered on development investments and business
deals, often underpinned by PRC soft loans or development aid.
As remains the case today, PRC assistance was typically
conditioned on the recipient country's cutting of ties with
Taiwan.
---------------------------------------------------------------------------
\275\ African votes had proved crucial in bringing about the
transfer of the Chinese seat on the U.N. Security Council from Taiwan
to the People's Republic of China (PRC) in 1971.
---------------------------------------------------------------------------
Current Motives and Objectives
The types of economic and political cooperation that
defined the Chinese-Africa relationship in the 1990s remain,
albeit with some variation, keystones of China's relations with
Africa. China's voracious appetite for resources, especially
energy resources, is widely viewed as the primary motive for
its expanding outreach to Africa, though Africa's current
economic growth and future potential as a consumer market also
spurs such ties. China's current political efforts to foster
allies among Africa's many states are motivated by its
perennial and increasingly successful efforts to
internationally isolate Taiwan\276\ and efforts to curry
African votes within U.N. and other international forums in
order to achieve diverse policy goals.\277\ Chinese diplomatic
engagement also seeks to ensure that future Chinese investment
and trade remains welcome in Africa. Due to its political
history and economic success, the PRC views itself as a
developing country leader and natural African ally in the
search for a ``new, just and rational economic order,''
providing African states with a development model with which
they can identify, should they see fit. China strongly insists
on the right of African countries autonomously to define their
own developmental paths, based on their unique circumstances
and needs, as it does for itself.
---------------------------------------------------------------------------
\276\ As of January 2008, only four African countries, Burkina
Faso, Sao Tome and Principe, Gambia, and Swaziland maintained
diplomatic ties with Taiwan.
\277\ Including a desire to counter putative U.S. hegemonic
aspirations; minimize Taiwanese participation in international forums,
and to shape international policy-making decisions that may affect
countries, such as Sudan, in which Chinese interests may be at stake.
---------------------------------------------------------------------------
Challenges
While the breadth, diversity, and extent of Chinese
involvement in Africa are rapidly growing, these developments
are also causing Sino-African relations to become increasingly
complex and more politically challenging to manage. China's
African undertakings are increasingly affected by diverse
international events, politics, and policy trends, with origins
both in Africa and extrinsic to it. Examples include
international responses to the conflict in Darfur, Sudan;
western support for universal good governance and fiscal
transparency; and globalized economic competition. Ongoing
changes on the continent, such as the growth of an increasingly
diverse media, an increase in electronic communications, and
the development of a large non-governmental sector also pose
challenges to Chinese officials and firms active in Africa--as
well as their African counterparts. Sino-African ties take
place in a dynamic socio-political environment; they are no
longer pursued only within the staid confines of official
state-to-state relations and cannot be controlled as tightly as
in the past. They are becoming an object of popular African
political consideration and civic debate, in part because
African and foreign media and civil society groups are
increasingly voicing their views over both the positive and
negative implications for Africa of these ties.
Concern among some observers is growing over the
prospective impact that China's efforts to gain and ensure
access to African energy and mined primary commodities might
have on global energy markets. Similarly, rising Chinese
investment in Africa suggests to some analysts that China
presents a competitive threat to developed country investment
on the continent. Many African and foreign observers are also
concerned about growing PRC political clout in Africa. Sino-
African bilateral investment agreements are the focus of
criticism because they often fuse business, political, aid, and
sometimes military considerations. These allow China to offer
integrated ``package'' deals. These may be more attractive to
African governments than those offered by western country
governments, which exercise much less control over their
private sectors than the PRC, and often operationally separate
their aid, military, and diplomatic initiatives. In some cases,
according to critics, PRC-African deals contain provisions that
may potentially conflict with international human rights,
transparency, or environmental norms, or promote economic
activities that do little to develop--or compete with--the
African private sector.\278\
---------------------------------------------------------------------------
\278\ Examples commonly cited include PRC sales of military
materiel to governments accused of human rights abuses by Western
governments, e.g., Sudan and Zimbabwe; the use of imported Chinese
labor to build infrastructure in African countries where manual labor
is plentiful and jobless rates are high; the rapid growth of small-
scale Chinese retail sectors that compete with indigenous African
entrepreneurs; the unsustainable harvest of African timber stocks and
fisheries by or for sale to Chinese firms; and financing of
construction and extractive industry projects that reportedly will have
adverse environmental impacts.
---------------------------------------------------------------------------
Other analysts, however, point to potential benefits to
Africa resulting from China's involvement on the continent.
Most often cited are rising levels of Chinese investment in
Africa, particularly in infrastructure, increases in African
earnings due to rises in African exports to China, and Chinese
fulfillment of unmet African consumer demands. China is also
seen as providing African countries with a new source of
business credit and finance, and as spurring global commercial
interest in African resources and markets. China may also allow
African countries to maintain more autonomy in international
politics by lessening their dependence on official aid and
credit from Western donor countries. China may also represent
an alternative locus of global power with which African
countries can ally in order to balance their ties with the
West, particularly when faced with political conditionalities
demanded by Western countries in return for aid, credit, or
political cooperation.
CHINA'S CURRENT AFRICA POLICY
China's political-economic bilateral goals and relations in
Africa are defined in a formal document released in early 2006,
entitled China's African Policy.\279\ It outlines the PRC goal
of creating ``a new type of strategic partnership with Africa''
consisting of diverse types of cooperation grounded in long-
standing ``guiding'' Chinese foreign policy principles.\280\ It
explicitly conditions official PRC relations with African
states on their adherence to the PRC's ``one-China principle,''
calling this the ``political foundation'' of such bilateral
relations.
---------------------------------------------------------------------------
\279\ Online text: [http://www.fmprc.gov.cn/eng/zxxx/t230615.htm].
\280\ These arise from a series of policy frameworks laid out by
successive PRC premiers, beginning in the 1950s. They include mutual
respect for territorial integrity and sovereignty; non-aggression and
non-interference in other countries' internal affairs; equality and
mutual benefit; and peaceful coexistence.
---------------------------------------------------------------------------
The document seeks to increase high-level reciprocal
leadership visits and diverse lower level bilateral learning
exchanges and economic and technical cooperation committees,
and pledges PRC cooperation with Africa in international
forums. In the economic sphere, the policy seeks to boost Sino-
African trade, including through potential increased PRCduty-
free treatment for some African exports, the negotiation of
Free Trade Agreements, and the provision of export credits for
PRC investment and business activities in Africa--notably in
infrastructure and utilities contracting. It seeks enhanced
dispute settlement, investment protection, and double taxation
accords, and seeks enhanced joint business promotion efforts.
It pledges PRC support for African development, especially in
agriculture, raises the possibility of PRC debt cancellation
for some African countries, and urges increased international
official debt relief and ``economic assistance . . . with no
political strings attached'' for Africa. It also seeks
increased science and technology, cultural, and environmental
cooperation, and offers increased Chinese human resource
training and PRC scholarships for Africans, among other
education support efforts.\281\ China also pledges increased
health sector assistance, including through the dispatch of PRC
medical teams to Africa (a long-standing, largely successful
PRC ``health diplomacy'' tradition). Media, civil service, and
disaster relief training are also planned.
---------------------------------------------------------------------------
\281\ PRC officials assert that China has reportedly provided as
many as 18,000 government scholarships to students from 50 African
countries since 1949 and has sent more than 700 teachers to 33 African
countries. See Liu Guijin, ``China's Role in Meeting Africa's
Developmental Needs,'' [conference speech], China in Africa in the 21st
Century, October 16, 2006.
---------------------------------------------------------------------------
PRC Outreach to Africa
Among the most notable of China's efforts to foster closer
ties with Africa, both bilaterally and at the continental
level, is the Forum on China-Africa Cooperation (FOCAC). FOCAC
is a comprehensive effort initiated by China to build mutually
beneficial economic development, trade cooperation and
political relations with Africa and is rooted in principles of
``South-South Cooperation.'' It was formed in October 2000 in
Beijing during a summit of PRC and 45 African country leaders.
Founding participants agreed to meet triennially, alternatively
in China and Africa. Subsequent FOCAC activities provided the
basis for many of the key goals outlined in China's African
Policy. The second FOCAC gathering in Ethiopia in 2003, held
alongside a Sino-African business conference, adopted an
``Action Plan.'' In it, China promised to cooperate with Africa
in the areas of infrastructure development, healthcare, human
resource development, and PRC private sector investment in
African agriculture.
----------------------------------------------------------------------------------------------------------------
Chinese Pledges Under FOCAC
----------------------------------------------------------------------------------------------------------------
At each FOCAC gathering, the PRC has made a concerted effort demonstrate the concrete benefits
that Africa is deriving from China as a result of the forum's creation. The PRC spurred African
participation in the first gathering by pledging forgiveness of about 10 billion yuan (about
$1.21 billion) to poor indebted African countries and to expand PRC foreign aid to Africa. At the
2003 FOCAC meeting in Ethiopia, China also announced that it had exceeded its year 2000 debt
forgiveness pledge by offering 10.5 billion yuan (about $1.27 billion) to 31 African countries.
To boost Chinese investment in Africa, forum participants agreed to simplify regulatory
requirements for Chinese firms operating in Africa, and China urged African adoption of the
various pro-business accords later outlined in its African Policy. China also agreed to negotiate
zero-tariff treatment for some African countries' exports to China; pledged to support accession
to the WTO of African applicants; and announced substantial progress in meeting its earlier debt
forgiveness offer. China also offered to train 10,000 African personnel over three years,
beginning in 2004, and to increase scholarships for African exchange students in China. A total
of 20 contracts worth $460 million were reportedly signed by 17 PRC firms in such areas as
engineering construction, pharmaceuticals, industrial chemicals, and textiles.
At a meeting just prior to the November 2006 FOCAC Summit in Beijing, China's ambassador to
South Africa outlined a series of substantive FOCAC achievements. He stated that China had
completely fulfilled its 31-country debt relief pledge, made in 2000; provided tariff exemptions
covering 191 items for 30 African countries since 2005; approved 17 African countries as PRC
tourist destinations; trained almost 10,000 African personnel from 2004-2006; and deployed a PRC
youth volunteer team to work in Ethiopia, the first of several planned for various African
countries. He also stated that China would prioritize African policy goals and interests in the
U.N. Security Council. At the summit, PRC officials also set a goal of more than doubling Sino-
African trade, from $40 billion in 2005 to $100 billion by 2010. Fourteen agreements between 11
Chinese enterprises and African governments and firms worth $1.9 billion were signed at the
Summit, and participants produced a near-term road map for cooperation, the Beijing Action Plan
(2007-2009). The deals centered on infrastructure, communications, technology and equipment,
energy and resources development, finance and insurance, including expressways in Nigeria, a
telecom network in Ghana, and an aluminum smelter in Egypt. A new China-Africa Joint Chamber of
Commerce and Industry was also formed. The plan largely mirrors but also expands on aims of the
2003 Action Plan, in part as reflected by President Hu's pledges. Notable was an increased focus
on support for the AU; increased bilateral cooperation in the areas of judicial and rule of law
strengthening, agriculture, and environmental protection; a Chinese endeavor to urge Chinese
banks to establish branches throughout Africa; and PRC offers of media training assistance for
African journalists. The two sides also agreed to further technical cooperation in diverse areas.
----------------------------------------------------------------------------------------------------------------
The most recent FOCAC Summit took place in Beijing in
November 2006, and was held alongside related ministerial and
business conferences. It reportedly was the largest
international event ever held in China, drawing China's top
leaders as well as 48 high-level African government
delegations, including 41 heads of state. At the summit, PRC
President Hu Jintao announced eight major new PRC efforts to
strengthen the Sino-African ``strategic partnership'' under
FOCAC, pledging that China would:
Double its level of year 2006 assistance to Africa by 2009.
Provide $3 billion in ``preferential loans'' and $2 billion
in ``preferential buyers' credits'' targeted at poor
African countries by 2009.
Establish a China-Africa Development Fund worth an eventual
$5 billion to encourage Chinese companies to invest in
Africa and provide support to them.
Build a headquarters for the African Union in aid of
African unity and integration.
Cancel all the interest-free government loans due at the
end of 2005 owed by those poor African countries
maintaining diplomatic relations with China.
Increase the number of items subject to Chinese duty-free
treatment exported by poor Africa countries with
diplomatic ties with China from 190 to 440.
Create three to five trade and economic cooperation zones
in Africa by 2009.
By 2009 deploy 100 top Chinese agricultural experts to
Africa; establish 10 agricultural technology centers;
build 30 hospitals; provide about $40 million in grants
for anti-malaria drugs, prevention, and construction of
model treatment centers; deploy 300 PRC Peace Corps-
like volunteers to Africa; build 100 rural schools in
Africa; train 15,000 African professionals; and double
the number of PRC government scholarships for African
students from 2,000 per year to 4,000 per year.
Vehicles for Diplomacy
The wide-ranging exchange and cooperation activities laid
out under the FOCAC framework and in China's African Policy are
implemented by an extensive network of PRC diplomats in Africa.
China maintains embassies in every African country (apart from
Somalia) with which it has diplomatic ties, i.e., 43 of 48 Sub-
Saharan countries.\282\ It also maintains commercial counselor
offices in 40 of these countries and seven consulates-general
in five of them. These posts are manned by teams of diplomats
who are reportedly increasingly conversant in local languages.
Another mechanism for its bilateral engagement are frequent,
high level leadership exchange visits, notably including
regular annual trips to Africa by top PRC authorities. In 2006
and 2007, such trips included visits by President Hu Jintao,
who made similar visits in recent prior years, and other key
leaders such as Premier Wen Jiabao. China's foreign ministers,
including the current incumbent, Yang Jiechi, have undertaken
annual visits to Africa since 1990.\290\ Such leadership visits
are used to build personal leadership ties and cement bilateral
relations in diverse areas. Visiting PRC political VIPs,
typically accompanied by large delegations including business
representatives, sign major agreements that underpin and
structure such ties and announce or witness the signing of
large commercial commodity or construction contract deals, many
financed by PRC state agencies at preferential rates. African
heads of state, also often accompanied by large retinues of
political, trade, and business leaders, make frequent
reciprocal visits. A range of lower-level exchange visits also
occur, and often include training for African officials such as
senior and mid-level diplomats, economic officials, business
professionals, and other key decision-makers and policy
implementers. Such training programs began in the mid-1990s.
There are also exchanges between legislative bodies, the PRC
Communist Party and African political parties, and local
governments, to which China periodically provides in-kind
material assistance.\284\ Most of these activities are PRC-
funded.
---------------------------------------------------------------------------
\282\ There is no embassy in Somalia due to insecurity associated
with the on-going armed conflict there.
\283\ He Wenpin, ``Moving Forward with the Time: the Evolution of
China's African Policy,'' China-Africa Links Workshop, Center on
China's Transnational Relations, Hong Kong University of Science and
Technology (CCTR/HKUST), November 2006; testimony of Michael
Ranneberger, then-State Department Deputy Assistant Secretary for
African Affairs, before the Subcommittee on Africa, Global Human Rights
and International Operations of the House International Relations
Committee on at a July 28, 2005 hearing entitled China's Influence in
Africa; and Paul Simao, ``China Keen to Strengthen Ties in Africa-
foreign Min,'' Reuters, Jan 7, 2008.
\284\ ``China to Further Strengthen Press Cooperation with Africa,
Says Senior CPC Official,'' PRC Ministry of Commerce, September 13,
2007; and Joshua Eisenman, ``The Communist Party of China's Outreach to
Political Parties in Sub-Saharan Africa'' [conference paper],
``Rethinking Africa's `China Factor': Identifying Players, Strategies,
and Practices,'' University of California, Los Angeles (UCLA), April
27, 2007.
---------------------------------------------------------------------------
Regional Ties
China is also reaching out to Africa at the continental
level. China is a small contributor to the African Development
Bank (AfDB), but in May 2007 it hosted the bank's annual
meeting. The event, attended by Premier Wen Jiabao, featured
various events highlighting PRC investment and development
relations with Africa and related PRC undertakings, including:
China's approval of an initial $1 billion capitalization of
the China Development Bank (CDB)-administered China-
Africa Development Fund, which is slated to be expanded
to $5 billion in total and is designed to fund PRC firm
equity investments and business deals in Africa in the
areas of natural resources, infrastructure,
agriculture, manufacturing and industrial parks.
A pledge by China's Export-Import (ExIm) Bank to provide
$20 billion in loan funding for diverse projects in
Africa from 2007 through 2009.
China's membership in the West African Development Bank and
the CDB's signing of cooperative ``framework
agreements'' with the East African Development Bank and
the Eastern and Southern African Trade and Development
Bank.\285\
---------------------------------------------------------------------------
\285\ The China Development Bank also reportedly has entered into a
cooperative agreement with the East African Development Bank to which
the former has extended a $30 million line of credit. ``East Africa:
EADB, China Sign $30 Million Credit Line,'' East African Business Week
(Kampala), October 16, 2006.
In press interviews made during the meetings, African
officials praised Sino-African ties, but also cautioned that
PRC investment in Africa needs more heavily to emphasize
African development and investment diversity. They also stated
that PRC bilateral investment and loans must not recreate
colonial-era export-oriented, extractive, non-developmental
patterns of trade, and not result in new unsustainable African
debt.\286\
---------------------------------------------------------------------------
\286\ Benjamin Morgan, ``AfDB boss hits out at China,'' AFP via
www.fin24.co.za, May 14, 2007; and ``African Development Bk Affirms
China's Growing Role,'' Dow Jones Commodities Service, May 17, 2007.
---------------------------------------------------------------------------
African Union
China has also stepped up diplomatic engagement with the
African Union (AU), attending key AU summit meetings in 2006
and 2007. Beijing is an observer with several African sub-
regional economic integration organizations. In May 2007, after
appointing its first Special Representative on African Affairs
and Darfur, Liu Guijin, China agreed to finance the
construction of a $100-$150 million African Union headquarters,
fulfilling President Hu Jintao's pledge at the 2006 FOCAC
summit.\287\ The PRC has also provided funding for the AU
peacekeeping missions in Sudan's Darfur region and in Somalia,
and occasionally provides limited humanitarian assistance in
Darfur and elsewhere. China also has expressed rhetorical
support for the New Partnership for Africa's Development
(NEPAD), the Africa Union's (AU) continental development plan,
and supports its aims and objectives.\288\
---------------------------------------------------------------------------
\287\ Liu, China's former ambassador to South Africa and Zimbabwe,
respectively, is also the former head of China's Foreign Ministry
Department of African Affairs.
\288\ ``Interview: NEPAD secretariat gives China thumbs up for
investment in Africa,'' Xinhua, March 13, 2007; and U.N. Office of the
Special Adviser on Africa (OSAA), ``China: Support to NEPAD'' (period
June 2002-June 2003), N.D., inter alia.
---------------------------------------------------------------------------
Military and Security Issues
Beijing provides training in China for African military
officers, technical aid related to its donation or sale of
military equipment to African countries, and other capacity-
building help for African militaries, although public
information on the scope and content of such activities is
lacking. In China's African Policy, the PRC pledged to boost
such aid, as well as help Africa fight crime by offering
judicial and police training and cooperation, and by setting up
a channel for intelligence and information exchange.\289\
Military-to-military exchanges underpin ties with a reported 25
African countries. Only nine of a global total of 107 Chinese
military attache offices are located in Sub-Saharan Africa,
however, and no African states have to date participated in
joint military exercises with the PRC.
---------------------------------------------------------------------------
\289\ Such assistance targets ``non-traditional security threats,''
including terrorism, small arms smuggling, drug trafficking, and
transnational economic crimes.
---------------------------------------------------------------------------
China has long sold arms to Africa. In recent years, arms
deals with Sudan, Nigeria, countries in the Horn of Africa, and
Zimbabwe have drawn attention. In some cases, such deals have
included shipments of military aircraft. From 2003-2006, China
is estimated to have been the third largest exporter of
conventional and small arms to Africa, after Germany and
Russia, having provided about 15.4% ($500 million) of a $3.3
billion total in global sales to the region during that period.
It was the second largest supplier from 1999-2002, when it is
estimated to have provided 13.2% ($500 million) of $3.8 billion
in global flows to Africa of such arms.\290\ Experts point out
that PRC military vehicles and equipment tend to be simple and
rugged, making them attractive in African markets, and China is
believed to be a key supplier of a variety of inexpensive small
arms in Africa, notably including generic versions of the AK-47
and related assault rifles and police equipment.
---------------------------------------------------------------------------
\290\ Apart from small arms, PRC conventional arms exports to
Africa consisted mostly of artillery, armored personnel vehicles, minor
naval surface vessels, supersonic combat aircraft, and other aircraft.
See CRS Report RL34187, Conventional Arms Transfers to Developing
Nations, 1999-2006, by Richard F. Grimmett.
---------------------------------------------------------------------------
International peacekeeping is an emerging area of Chinese
engagement in Africa.\291\ Chinese military or police personnel
have been seconded to all but one of the current U.N.
peacekeeping operations (PKO) in Africa, including large
contingents in the U.N. peacekeeping operations in Liberia, the
Democratic Republic of the Congo, and southern Sudan. China has
reportedly begun to deploy a unit to the emergent U.N. PKO in
Darfur, Sudan. Most PRC PKO contingents are made up of military
observers or functional units (e.g., engineering, transport and
logistics, and medical groups). China has also donated
equipment for peacekeeping purposes to the Economic Community
of West African States and has aided the African Union Mission
in Sudan.\292\
---------------------------------------------------------------------------
\291\ Drew Thompson, ``Beijing's Participation in UN Peacekeeping
Operations,'' China Brief, Jamestown Foundation, (5: 11), May 10, 2005.
\292\ Philippe D. Rogers, ``China and United Nations Peacekeeping
Operations in Africa,'' Naval War College Review, (60:2), Spring 2007
---------------------------------------------------------------------------
PRC ``AID'' AND TRADE FINANCE IN AFRICA
There are numerous signs that PRC official development
assistance (ODA) and finance for bilateral trade and PRC
foreign direct investment in Africa (FDI) are growing
rapidly.\293\ Independently verifiable, accurate data on the
absolute amount or rates of increase of these resource flows
are lacking, however, and estimates of such flows vary widely.
In part, this is because PRC assistance to Africa consists of a
mix of grants, interest-free loans bilateral state loans, and
concessional low-interest loans that are often partially
commercial in character.\294\ While grants and interest-free
loans may be classifiable as ODA, other resource flows that the
PRC views as bilateral assistance may have characteristics of
both conventional ODA and for-profit business finance. As a
result, many analysts contend that it is difficult to
differentiate between PRC ODA to Africa and Chinese Africa-
related business credit, especially given that the latter may
benefit both Chinese firms, in many cases substantially, and
African countries. Even internal PRC state accounting systems
are reportedly largely unable to distinguish between these
various types of resource flows.
---------------------------------------------------------------------------
\293\ ODA is conventionally defined as official (government)
grants, technical co-operation (in-kind training or education and
advisory or consultative services for recipient countries), or loans to
countries primarily intended to promote economic development and
welfare in the recipient country, exclusive of all military purposes
and payments to individuals. Under Organization for Economic Co-
operation and Development (OECD) the definition, it must be offered on
a grant (i.e., gratis) or concessional loans containing a grant element
of at least 25%. See OECD Development Assistance Committee (DAC), DAC's
Glossary.
\294\ In OECD terminology, ``official sector'' transactions and
bilateral financial flows that are not categorizable as ODA or
``Official Aid'' because they are not primarily development-focused or
contain a grant element of less than 25% are known as ``Other Official
Flows.'' See DAC's Glossary and DA C Statistical Reporting Directives
http://www.oecd.org/dataoecd/36/32/31723929.htm and Chinese Aid in
Africa [Deborah Brautigam].ppt and http://english.eximbank.gov.cn
---------------------------------------------------------------------------
State subsidization of many of the partially privatized,
for-profit PRC state-owned enterprises (SOEs) that pursue
business deals in Africa also makes it difficult to assess the
nature and value of such projects, which are in many cases tied
to official PRC bilateral loans to African countries. The fact
that many of the African partners to these deals are themselves
for-profit parastatal firms also makes it difficult to
characterize Chinese ``assistance'' that may flow to them.
Because of the mixed public-private nature of these deals,
Chinese ``assistance'' to Africa does not necessarily support
the general socio-economic development goals and public goods
that would define it as ODA, but it is also often not purely
commercial or profit-driven. Furthermore, while China is
increasing its grant-based development aid to Africa, much of
its loan-based aid is ``tied,'' i.e., recipient countries must
agree to use the loans to buy or accept goods, services, or
credit from China. The bulk ($10 billion) of initiatives for
Africa announced by President Hu in 2006 are tied.\295\
---------------------------------------------------------------------------
\295\ The commitments that he announced consist of ``preferential
loans,'' ``preferential buyers' credits,'' and a ``China-Africa
Development Fund'' created to ``to encourage Chinese companies to
invest in Africa and provide support to them.'' ``Address by Hu Jintao
at the Opening Ceremony of the Beijing Summit of the Forum on China-
Africa Cooperation,'' Beijing, November 4, 2006; Jamil Anderlini,
``China insists on `tied aid' in Africa,'' Financial Times, June 25,
2007; and ``Companies have ``central role'' in growth of China-Africa
economic relations,'' Macauhub.com, September 3, 2007, inter alia. It
is important to note that tied loan-based aid was long a common feature
of U.S. and European aid to Africa. In recent years, however, many
Western donor governments, with some exceptions, have increasingly or
already largely provide assistance to Africa in the form of grants.
---------------------------------------------------------------------------
PRC Aid: Criticisms and Chinese Responses
China's merger of aid and trade, and its tendency to
portray PRC commercial and soft loan projects as ``assistance''
to Africa have been widely criticized on the basis that PRC aid
to Africa is primarily driven by self-interest, and not the
``mutual win-win'' cooperation that China asserts defines its
relations with Africa. Critics worry that China's ``no strings
attached'' aid offers may undermine political goals that have
increasingly become an integral part of Western foreign aid
strategies. These include conditions that, in return for aid or
loans, recipients comply with various international norms
relating to good governance, the rule of law, transparency,
anti-corruption measures, environmental standards, and human
rights. Critics also fear that China's increasing provision of
new loans to Africa, even at low concessionary rates, may both
undermine western donor governments' recent large national debt
write-offs in Africa and saddle poor countries with new
indebtedness.
To address criticisms of its foreign aid system and to
better administer and coordinate increasing levels and types of
``assistance'' to Africa, China is gradually developing an
official aid structure.\296\ A single, functionally specialized
PRC aid agency, like those of Western donors, is reportedly
under consideration. China is also more carefully defining what
it labels as ``development assistance'' in public in order to
ensure policy coherence (e.g., to assert that its aid is
unconditional yet tie it to PRC commercial contracts) and to
allow for better comparisons with Western aid. It is also
scaling up its in-kind grant aid (e.g., goods, services, and
technical assistance). Apart from its growing debt cancellation
to Africa (a type of grant), however, PRC grant aid is believed
to represent a small portion of what PRC officials describe as
``assistance'' to Africa. The bulk of Chinese assistance
continues to flow though trade promotion mechanisms.
---------------------------------------------------------------------------
\296\ Deborah Brautigam, China's Foreign Aid in Africa: What Do We
Know?, Conference on China in Africa: Geopolitical and Geoeconomic
Considerations, September 16, 2007 (Revised) and Joshua Kurlantzick,
``Beijing's Safari: China's Move into Africa and Its Implications for
Aid, Development, and Governance,'' Policy Outlook, Carnegie Endowment
China Program, November 2006. This section also draws from Bates Gill
and James Reilly, ``The Tenuous Hold of China Inc. in Africa,'' The
Washington Quarterly, 30:3, Summer 2007; V. Maurice Gountin, ``China's
Assistance to Africa, A Stone Bridge of Sino-African Relations,''
China-Africa Links Workshop, CCTR/HKUST, November 2006; Kenneth King,
``Aid within the Wider China-Africa Partnership: A view from the
Beijing Summit,'' China-Africa Links Workshop, CCTR/HKUST, November
2006; and Michelle Chan-Fishel, Time to Go Green: Environmental
Responsibility in the Chinese Banking Sector, Banktrac, May 2007, inter
alia.
Structure.--Much PRC ``assistance'' in Africa is controlled
by the state-owned Export-Import (ExIm) Bank of China,
established in 1994 as the lead vehicle for official PRC
bilateral concessional loans, export credits, and international
loan guarantees. The Aid to Foreign Countries Department of the
Ministry of Commerce (MOC) manages and executes PRC bilateral
foreign aid policy, budgeting, and project implementation. It
does this primarily by controlling the bidding and vetting
processes for soft loan-backed contract projects undertaken by
PRC firms, which it also loosely regulates and assists in the
field. Another key entity is the China Development Bank (CDB).
Founded in 1994 as a ``development-oriented financial
institution'' under the direct jurisdiction of the State
Council (the supreme administrative decision-making organ of
the PRC), the CDB is the funding source of the new China-Africa
Development Fund. Functional ministries (e.g., Health,
Education, Agriculture) also deploy technical advisory and
training teams to Africa under MOC guidance. A variety of other
finance and export agencies and provincial or urban
organizations, such as chambers of commerce, and export
promotion and foreign training entities, also play a role in
foreign assistance project implementation in Africa. Ministry
of Foreign Affairs (MOFA) and MOC officials advise top
policymakers on assistance to Africa, but political and policy
decisions relating to these activities are reportedly made by
the State Council in coordination with the Leading Group on
Foreign Affairs of the Communist Party, and in concordance with
the economic goals of the State Development and Planning
Commission (SDPC).
PRC assistance project proposals for Africa are reportedly
suggested by PRC ambassadors to Africa, sometimes at the
request of African governments, after their submissions have
been vetted by other MOFA officials. When large or costly
projects are proposed, the Finance Ministry and/or MOC units
also play a vetting role. PRC energy policy, including
strategic PRC energy investments in Africa, is laid out by the
Office of the National Energy Leading Group, the SDPC, and the
MOC with advice from China's three key state-owned oil
companies, which also implement such policy goals.\297\ China
signed 238 bilateral treaties with foreign countries or
multilateral entities in 2006 and 158 such treaties in 2005.
About 30% of these accords were with African countries. Most
relate to economic and technical cooperation, PRC medical aid,
or the provision of PRC loans or aid, but an increasing number
pertain to mutual legal, tax, and diplomatic ties.\298\
---------------------------------------------------------------------------
\297\ China National Petroleum Corporation (CNPC), the China
Petroleum and Chemical Corporation (Sinopec), and the China National
Offshore Oil Corporation (CNOOC).
\298\ See Ministry of Commerce (MOC), ``The Main Bilateral Treaty
List China and Foreign Countries Signed in 2006'' and'' The Main
Bilateral Treaty List China and Foreign Countries Signed in 2005''; and
Hong Yonghon, ``Legal Cooperation of China and African States: Past,
Present and Future,'' China-Africa Links Workshop, CCTR/HKUST, November
2006.
---------------------------------------------------------------------------
Country aid programs are reportedly designed and managed on
a country-by-country basis, with attention to the key generic
goals of PRC policy objectives in Africa, but largely in the
absence of cohesive, unitary, or pan-regional program plans or
uniform guidelines. One common pattern, however, is that
project aid is often offered as part of or contingent upon the
sealing of larger, integrated bilateral commercial, military,
and/or political package agreements. This somewhat piecemeal
approach may change in response to efforts to bring increased
coherence to PRC aid strategies. At present, however, it
appears to be driven by the substantial challenge of
coordinating the actions of China's large, operationally
autonomous and sometimes rival ministries and by China's stated
policy of not interfering in countries' internal affairs. PRC
policy makers also claim that a country-by-country approach
allows China to avoid imposing a monolithic Chinese model of
socio-economic development on individual African countries.
Chinese officials reportedly claim that PRC bilateral
cooperation assistance packages are crafted to respond to the
needs and priorities of each recipient country, even though
patterns of official PRC resource flows to Africa suggest that
PRC assistance mainly targets countries that are important to
the PRC as trade partners or political allies. Another
indication that China's assistance strategy is defined
primarily by its own economic and political priorities is that
Chinese assistance programs generally do not reflect the design
paradigms and program patterns of other countries' assistance.
Many other donors allocate assistance in response to objective
country-level socio-economic characteristics, such as rates of
poverty or disease, and coordinate aid among themselves to
ensure that various development challenges are met and
duplication of effort is avoided. By contrast, with a few
exceptions, China does not coordinate its aid in Africa with
other donor governments, although it is beginning to consult
with them in an apparent effort to draw on their experience.
China is also offering some aid to Africa through the IMF and
World Bank.
China's nascent rationalization of its foreign aid system
is reportedly being prompted by two key factors, among others.
One is the dramatic increase in aid and loan outflows, and the
need to better coordinate them for policy purposes. Another is
potential tension between PRC foreign policy goals and the
incentive structure and actions of the state agencies and
numerous Chinese firms that execute PRC policy in Africa. These
firms, many of them SOEs, along with the agencies that
partially own or control a reported 88% of them, operate on the
basis of profit and business efficiency in geographically
dispersed operations. As a result, their activities in some
instances may be at odds with policy goals or harmonious
bilateral relations. Chinese firms' labor practices are a prime
example of business-related activities that may conflict with
PRC foreign policy goals.\299\ Others include direct
competition with African firms; environmental abuses by timber,
fishery, and other firms; smuggling of endangered species
parts; and occasional allegations that contracted outputs, such
as roads or other infrastructure, are of poor quality. To
address such problems and due to criticisms of China's own
environmental record, the CDB and ExIm have both reportedly
created environmental impact loan policies, although little
information about how these policies are implemented is
available. Similarly, in 2006 the MOC adopted measures to
ensure Chinese corporate and contractual responsibility. It set
up an office to deal with the grievances of Chinese workers in
Africa and issued guidelines requiring PRC businesses in Africa
to hire locally when possible, respect African laws and
customs, and abide by international safety standards. In late
2006, the MOC also barred Chinese firms' transfer of officially
authorized PRC foreign assistance contracts to firms not
specifically authorized to execute them, as well as
unauthorized subcontracting of foreign aid projects.\300\
---------------------------------------------------------------------------
\299\ For instance, use of low-wage, unskilled Chinese labor in
Africa in place of African labor; poor adherence to safety standards or
and other working conditions; and low pay offerings, which have
generated public worker protests by Chinese and African workers in
Africa. See Kenneth King, Aid within . . . .; and Gill and Reilly,
``The Tenuous Hold . . . ,'' op cit. inter alia.
\300\ Gill and Reilly, ``The Tenuous Hold . . . ,''. op cit. and
Bates Gill, Chin-hao Huang, and J. S. Morrison, ``Assessing China's
Growing Influence in Africa,'' China Security, (3:3), Summer 2007.
---------------------------------------------------------------------------
The MOC's ability to enforce compliance with these
regulations may be limited, however, because it lacks both a
field presence in Africa and the authority to order that MOFA
officers in Africa carry out enforcement actions on MOC's
behalf. MOFA and MOC officials may also find it difficult to
challenge politically powerful transgressing firms. It also
does not exercise direct authority over state-owned Chinese
firms in Africa, which make up a significant portion of more
than 800 Chinese firms, both state-owned or and wholly or
partially privatized, that reportedly operate in Africa. That
role is held by the State-owned Assets Supervision and
Administration Commission (SASAC), an administrative coequal of
MOC. It officially ``owns'' these firms and is motivated by
profit-making goals in Africa that may conflict with MOC and
MOFA policy objectives there. Moreover, the MOC itself may lack
the motivation to vigorously implement its regulatory writ
because it may conflict with its core role as a promoter of
Chinese investment and business interests.\301\
---------------------------------------------------------------------------
\301\ In addition, some PRC policy makers may wish to rely on
market mechanisms rather than regulation to prompt responsible PRC
corporate behavior overseas. In January 2007, a top PRC legislator
warned that ``irresponsible practices'' by some Chinese firms overseas
have reduced their foreign growth and profits and that firms employing
such practices ``will be kicked out of the market.'' See ``China's
Senior Legislator Criticizes Companies for Shirking Social
Responsibility,'' Xinhua, January 29, 2007.
---------------------------------------------------------------------------
In some cases, however, political and economic goals may
dovetail. State subsidies of Chinese firms, for instance, may
provide them with the incentive to pursue projects in Africa
that may not be individually economically efficient, but which
accomplish long-term strategic PRC investment and commodity
access goals. For instance, state-backed PRC firms have
reportedly paid above-market prices for shares in African state
energy firms to guarantee access to oil supplies, or have
entered unprofitable bids on projects in order to pave the way
for future contracts and closer bilateral ties. China's very
large foreign exchange reserves fund such activities. There are
also tax incentives for out-bound Chinese investment.
All of these activities in Africa are part of a quasi-
mercantilist PRC policy known as ``going out'' or ``going
global,'' in which strategic, government-mediated foreign
investment by large state-supported PRC firms is undertaken to
boost China's long-term growth.\302\ Its quasi-mercantilist
nature arises from the fact that the PRC actively promotes the
interests of SOEs and seeks to accumulate reserves of resources
and hard currency to fund national growth and wealth creation--
rather than by accessing such resources exclusively through
markets or letting such firms prosper or fail purely as a
result of market forces. It is also quasi-mercantilist in that
China's activities often involve the use of a loose barter
system, in which access to natural resources by SOEs is gained
in exchange for cheap or no interest loans for the construction
of infrastructure and other activities.
---------------------------------------------------------------------------
\302\ Harry Harding, Ian Bremmer, Thomas Stewart, David Lipton, et
al., ``China Goes Global: Implications for the United States,'' The
National Interest, September/October 2006; and Margot Schuller and Anke
Turner, ``Global Ambitions: Chinese Companies Spread Their Wings, Im
Fokus,'' China Aktuell, 34: 4, 2005.
---------------------------------------------------------------------------
PRC African Aid Levels
For reasons previously stated, accurate data on specific
levels of PRC resource flows to Africa are not publicly
available. Educated guesses as to the total annual level of PRC
foreign aid, based mostly on a growing body of anecdotal and
piecemeal published information, range widely; one researcher
cited a range for the year 2005 of between $970 million and
$1.5 and $2 billion or higher worldwide, with Africa receiving
between a third to a half of such totals.\303\ Another source
reports that all PRC economic support to all of Africa totaled
$1.8 billion in 2002.\304\ Such estimates generally do not
break out ODA and non-ODA components. Africanist scholar
Deborah Brautigam reports that China's foreign aid totaled $1.4
billion for 2007, up from about $450 million a year a decade
earlier, and that in the beginning of the present decade, 44%
of that aid went to Africa. She uses the latter figure to
estimate China's African aid budget at about $462 million in
2006 and $616 million in 2007, and notes that President Hu's
2006 FOCAC pledge to double the PRC's year 2006 level of
assistance to Africa by 2009 would raise China's grant aid to
Africa to the level of $1 billion per year.\305\ Total
outstanding ExIm loans to Africa, both concessional and non-
concessional, in the infrastructure sector alone reportedly
totaled $12.5 billion as of mid-2006, and have grown rapidly in
recent years. Of these, a reported 80% went to Angola, Nigeria,
Mozambique, Sudan, and Zimbabwe, and were heavily weighted
toward infrastructure construction.\306\ In May 2007, China's
State Council approved the China Development Bank's (CDB)
initial $1 billion capitalization of the eventual non-ODA $5
billion China-Africa Development Fund. As of early 2007, the
CDB had $1 billion in current loans outstanding in Africa and
was considering funding up to 30 projects in Africa, mostly in
agriculture, manufacture, and infrastructure, worth about $3
billion.\307\
---------------------------------------------------------------------------
\303\ Carol Lancaster, ``The Chinese Aid System,'' Center for
Global Development, June 2007.
\304\ Harry G. Broadman, et al., Africa's Silk Road: China and
India's New Economic Frontier, World Bank, 2007.
\305\ Brautigam , China's Foreign Aid.
\306\ Broadman, et al., Africa's Silk Road, op cit. By September
2006, 79% of a total of 259 PRC ExIm projects in 36 African countries
supported infrastructure development projects. See Linden J. Ellis,
``China Exim Bank in Africa: Opportunities for Strengthening
Environmental Standards for Hydropower in Sudan,'' March 22, 2007
(China Environment Forum/Woodrow Wilson Center presentation summary.)
\307\ See ``China approves China-Africa Development Fund,'' Xinhua,
May 14, 2007 and ``China-Africa Economic and Trade Cooperation Takes An
Important Step Forward,'' CDB, June 26, 2007.
---------------------------------------------------------------------------
As previously discussed, Chinese ODA to Africa currently
cannot be compared directly to ODA flows to Africa from other
donors. However, an indicative sense of the overall magnitude
of all types of PRC bilateral cooperation funding for Africa
compared to ODA flows to Africa from other donors may be
useful. In contrast to the Chinese resource flows described
above, the OECD has estimated the 2005-2006 average annual
amount of gross bilateral ODA going to Africa from the leading
OECD donors as follows: United States, $4.939 billion; United
Kingdom, $4.669 billion; European Community, $3.464 billion;
and Japan, $2.567.\308\
---------------------------------------------------------------------------
\308\ Richard Manning/OECD DAC, ``Development Co-operation Report
2007,'' OECD Journal on Development (9:1), 2008.
---------------------------------------------------------------------------
CHINA-AFRICA TRADE AND INVESTMENT
In addition to political motives, most researchers
attribute China's state, public-private, and commercial
business dealings with Africa and other developing regions to
China's growing appetite for raw materials and global markets.
In general, China has run a trade deficit with Africa that,
while slowly declining, is much larger than the very minor
trade deficit that it ran with the sub-continent at the
beginning of the present decade. In 2001, the value of its
imports from Africa were roughly 2.3% more than those of its
exports. By 2004, this proportion had risen to 46.5%, but has
since declined somewhat; it stood at 38.4% in 2006. In addition
to the goods trade, Africa is seen by China as a small but
growing construction and technical projects contracting market,
and as a small but rapidly growing market for Chinese
manufactured goods. There are some potential structural
limitations on prospects for Africa's relative gains from trade
ties with China, since the current balance of trade is strongly
weighted in China's favor: China imports from Africa raw, non-
value-added commodities, while it exports finished, value-added
goods to Africa. Officially, China also welcomes African
investment in China, but African investment in China is small.
It represents about 1.5% of total global foreign investment in
China in recent years, and is limited to a few countries. In
2004 and 2005, Mauritius and South Africa accounted for an
aggregate of 82% and 12%, respectively, of all African
investments in China.\309\
---------------------------------------------------------------------------
\309\ The next largest African investor in China was Nigeria, with
a 1.3% share during the same period. All other countries' individual
investments in China each amounted to 0.6% or far less of African
investments in China in 2004 and 2005. CRS calculations based on data
in ``Chapter 18 Foreign Trade and Economic Cooperation,'' Table 18-16
Actual Foreign Investment by Countries or Regions, China Statistical
Yearbook 2006, [http://www.stats.gov.cn/tj sj/ndsj/2006/indexeh.htm].
---------------------------------------------------------------------------
From 2001-2006, the absolute value of U.S. goods trade with
Africa, at $71 billion, was greater than that of Sino-African
trade, but Chinese-African trade grew at a much faster rate
than U.S.-African trade. China's total trade with sub-Saharan
Africa rose from $8.92 billion to $45.35 billion in that
period, an increase of 409%, as compared to a 152% rise in
total U.S.-African trade during the same period. Chinese-
African trade also grew at a rate 166% higher than that of
total Chinese-world trade (see Table 11).\310\ While some of
these trade trends may pertain to China's rapidly growing
export of services and contracting work to Africa, they do not
reflect the value of trade in services and other intangibles.
Accurate information on the volume and value of such trade
flows is limited. One indication of trends in this area is the
officially reported value of China's ``economic cooperation''
with Africa, which reflects almost all Chinese investment in
Africa. In 2005, such cooperation totaled $4.68 billion,
comprising $4.53 billion in ``Contracted Projects,'' $136.1
million in ``Labor Cooperation,'' and $18.6 million in ``Design
Consultation.'' The latter two categories decreased slightly
compared to those for 2004, but the amount for Contracted
Projects increased 61.5% over that in 2004. Net Chinese
overseas ``domestic investor'' (private capital) flows to all
of Africa, including North Africa, were relatively minor in
comparison. They reportedly totaled $317.42 million in 2004
(5.8% of global investments by Chinese domestic investors) and
$391.7 million in 2005 (3.2% of global investments), while the
cumulative, multi-year total of such annual investments was
$1.60 billion (2.8% of global investments), with most
concentrated in Sub-Saharan Africa.
---------------------------------------------------------------------------
\310\ Except where noted otherwise, the import and export value and
quantity data in this section are from China Customs and the U.S.
Commerce Department, as compiled in the World Trade Atlas online
database. Calculations of relative changes or proportions of such data
were made by CRS.
---------------------------------------------------------------------------
Chinese sectoral investments in Africa are concentrated in
the energy sector, in which trade-related finance is tied to
another major area of investment, infrastructure construction
(mostly public and commercial buildings, water delivery
networks, roads, railroads, electrical power systems, and
dams). Turnkey manufacturing plant installation and operations,
commercial technical service contracting, banking, and telecoms
are other key areas of investment. Projects in all of these
areas are often very large, in the multi-million to multi-
billion dollar-sized range. Africa is also an increasing market
for Chinese consumer and capital goods exports, which are
retailed both by African traders and a growing number of
Chinese retailers.
Table 11. Total U.S. and Chinese Goods Trade With Africa by Value and Share in Global Perspective: 2001-2006
($ billions)
----------------------------------------------------------------------------------------------------------------
China Trade U.S. Trade
-------------------------------------------------------------------------------
Africa's Share
Year of Chinese Africa's Share
World: Africa: World Trade World: Africa: of U.S. World
Value Value (percent) Value Value Trade
(percent)
----------------------------------------------------------------------------------------------------------------
2001............................ 510.0 8.9 1.8 1,407.4 28.2 2.0
2002............................ 620.9 10.1 1.6 1,487.0 23.9 1.6
2003............................ 851.6 15.4 1.8 1,695.6 32.5 1.9
2004............................ 1,154.5 24.5 2.1 2,063.4 44.3 2.2
2005............................ 1,422.6 32.7 2.3 2,435.8 60.7 2.5
2006............................ 1,761.1 45.4 2.6 2,823.3 71.2 2.5
================================================================================================================
Totals & Share Average by 6,320.6 136.9 2.0 11,912.4 260.9 2.1
Percent, 2001-2006.............
----------------------------------------------------------------------------------------------------------------
Percentile Change, 2001-2006.... 245.3 408.4 47.2 100.6 152.2 25.7
----------------------------------------------------------------------------------------------------------------
Source: U.S. Dept. of Commerce and China Customs data as compiled in the World Trade Atlas Internet Edition as
of November/October 2007 and CRS calculations using these data.
Imports
From 2001 to 2006, Chinese imports from Africa rose by
485%, from $4.5 billion to $26.31 billion, compared to a 178%
jump--from $21.29 billion to $59.09 billion--in U.S. imports
from Africa during that period (see Table 12). The share of
China's imports from Africa as a proportion of its total global
imports grew from 1.9% in 2001 to 3.3% in 2006, a pattern
closely mirrored in the share of U.S. imports from Africa as a
proportion of all U.S. imports; these grew from 1.9% to 3.2%.
From 2001 to 2006 Chinese imports from Africa were
primarily made up of raw commodities. In rank order, these
were: crude oil; iron ore; raw timber; raw cotton; rough
diamonds; re-imports of previously exported goods (e.g.,
repaired, used, and re-shipped goods); and metals.\311\
Together with bulk stainless steel supplies and raw tobacco,
these products made up just under 90% of the value of all
Chinese imports from Africa during that period. Chinese demand
for such commodities is expected to grow, in some cases
exponentially. Chinese demand for agricultural products is also
growing. If it continues, this trend may be particularly
beneficial to the large number of African economies that rely
heavily on the farm sector, especially those that lack oil or
mining resources or industries.\312\
---------------------------------------------------------------------------
\311\ Unprocessed and--to a lesser extent--semi-processed metals
are key components of Africa's exports to China. Chief among these are
iron ore, platinum, manganese, cobalt, aluminum, nickel, copper,
niobium, tantalum, vanadium, zirconium, chromium, and lead.
\312\ Deutsche Bank Research, ``China's Commodity Hunger:
Implications for Africa and Latin America,'' Current Issues, June 13,
2006.
---------------------------------------------------------------------------
In addition to being highly concentrated in form, China's
imports from Africa are also highly concentrated
geographically. From 2001 to 2006, about 89% of its African
imports came from seven countries, whose share of such imports
were primarily made up of oil except in the case of South
Africa; its exports to China were primarily made up of
metals.\313\
---------------------------------------------------------------------------
\313\ The seven countries were: Angola (which contributed 33.8% of
the value-based share of Chinese imports from Africa), South Africa
(19.0%), Sudan (12.6%), Republic of Congo (10.2%), Equatorial Guinea
(8.1%), Gabon (3.0%), and Nigeria (2.2%).
Table 12. U.S. and Chinese Goods Imports From Africa by Value and Share in Global Perspective: 2001-2006
($ billions)
----------------------------------------------------------------------------------------------------------------
PRC Imports U.S. Imports
-------------------------------------------------------------------------------
Africa's Share
Year of All Chinese Africa's Share
World: Africa: Imports World: Africa: of All U.S.
Value Value (percent) Value Value Imports
(percent)
----------------------------------------------------------------------------------------------------------------
2001............................ 243.6 4.5 1.9 1,141.0 21.3 1.9
2002............................ 295.3 5.1 1.7 1,161.4 17.9 1.5
2003............................ 413.1 7.9 1.9 1,257.1 25.6 2.0
2004............................ 560.8 14.5 2.6 1,469.7 35.9 2.4
2005............................ 660.2 19.3 2.9 1,673.5 50.4 3.0
2006............................ 791.8 26.3 3.3 1,853.9 59.1 3.2
================================================================================================================
Percentile Change, 2001-2006.... 225.1 484.5 79.5 62.5 177.6 70.6
----------------------------------------------------------------------------------------------------------------
Source: U.S. Dept. of Commerce and China Customs data as compiled in the World Trade Atlas Internet Edition as
of November/October 2007 and CRS calculations using these data.
All other African countries contributed under 2% of Chinese
imports from the sub-continent. While oil and metals are likely
to continue to predominate among Chinese imports from Africa in
the short to medium-term, diversification across countries may
grow moderately, as large mining operations come online or
increase production in countries like Guinea, the Democratic
Republic of Congo, Sierra Leone, and elsewhere.
Oil
China is now the world's second largest consumer of oil
products after the United States, consuming a reported 7.88
million barrels per day. This level is projected to nearly
double to 13.4 million barrels per day by 2025.\314\
Calculations based upon data from China's General
Administration of Customs indicate that African countries
provided about 29% of China's crude oil imports by quantity in
2006, up from about 22% in 2001. The share rise for U.S.
imports was comparatively moderate; it increased from 15.5% in
2001 to 18.1% in 2006 (see Table 13).\315\ The value of Chinese
oil imports from Africa rose over sevenfold between 2001, when
it totaled $2.5 billion, and 2006, when it totaled $19.2
billion. By contrast, U.S. oil imports from Africa rose from
$13.7 billion in 2001 to $45.1 billion in 2006, a growth rate
less than half as much as large as that for China (see Table
14). The rate of growth in Chinese imports of African oil in
comparison to that of the United States is also growing
rapidly, even though the absolute value of U.S. oil imports
from Africa remains substantially larger than that of China.
---------------------------------------------------------------------------
\314\ Global Insight, Global Petroleum Outlook Forecast Tables
(Long-Term), January 2005 and Global Petroleum Monthly, September 2007.
Other projections show a much larger increases in Chinese demand.
\315\ Import trends as measured by value are similar but differ
slightly, due to variations in average world prices and changing mixes
of the types of oil that China imports. Various grades of oil are
priced differently, due both to their relative scarcity and based on
their role in refining. General Administration of Customs of China data
reported by World Trade Atlas.
Table 13. African Oil as a Proportion of All Chinese and U.S. Imports of Oil
(Percentage share of quantity)
----------------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
China................................... 22.1 22.8 24.0 27.1 27.8 29.1
United States........................... 15.5 12.7 15.3 16.7 18.4 18.1
----------------------------------------------------------------------------------------------------------------
Source: U.S. Dept. of Commerce and China Customs data as compiled in the World Trade Atlas Internet Edition as
of November/October 2007 and CRS calculations using these data.
Table 14. Value of Chinese and U.S. Imports of Crude Oil from Africa
($ billions)
----------------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
China................................... 2.5 2.9 4.8 9.4 13.3 19.2
United States........................... 13.7 10.9 17.0 25.0 37.8 45.1
----------------------------------------------------------------------------------------------------------------
Source: U.S. Dept. of Commerce and China Customs data as compiled in the World Trade Atlas Internet Edition as
of November/October 2007 and CRS calculations using these data.
Table 15. Chinese and U.S. Oil Imports from Africa as a proportion of All Imports from Africa
(Percentage share of value)
----------------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
China................................... 56.5 56.8 60.5 65.0 69.0 72.9
United States........................... 64.3 61.0 66.5 69.7 75.1 76.4
----------------------------------------------------------------------------------------------------------------
Source: U.S. Dept. of Commerce and China Customs data as compiled in the World Trade Atlas Internet Edition as
of November/October 2007 and CRS calculations using these data.
In 2001, China's imported only 18.6% as much oil by value
as the United States; by 2006, it was importing 42.5% as much.
The value of oil as a percentage of the value of all exports
from Africa has also grown faster for China than for the United
States (see Table 15 above). Such trends indicate that Africa
is becoming an increasingly important source of oil for China,
and suggests that Chinese-U.S. competition for African oil is
likely to grow.
From 2001 to 2006 there were sharp increases in Chinese
imports of crude oil from most of its top African oil
suppliers. By 2006, the top five Africa oil exporters to China
were: Angola (China's second largest source of oil globally);
Congo (6th); Equatorial Guinea (7th); Sudan (8th); and
Mauritania (22nd).\316\ Angolan export trends are particularly
notable, as Angola became China's second largest source of
crude oil in 2004, surpassing Iran, and in 2006 its oil exports
to China trailed those of Saudi Arabia by a slim 1.8% margin.
---------------------------------------------------------------------------
\316\ Nigeria, China's fourth African largest source of oil in
2001, had by 2006 dropped to being its eighth-largest African supplier,
having been surpassed by Mauritania and Chad, both new oil producers,
as well as Gabon. Rankings based upon General Administration of Customs
of China data reported by World Trade Atlas and CRS calculations.
---------------------------------------------------------------------------
In part to secure future oil supplies from Africa, China
has invested in a number of oil drilling, refining, pipeline,
tanker facility, and power generating projects in Africa,
mainly through wholly or partially government-owned PRC firms.
While such investments may decrease the number of investment
opportunities of these types for western energy firms, some
observers believe that in the short- to medium-term, major
western oil production firms will maintain a competitive
technological edge over Chinese firms in the area of deep water
exploration and production. Such a competitive edge could be
significant because some of the largest and highest quality
untapped reserves of crude oil in Africa are believed to lie
under the deep waters of the Gulf of Guinea. Some experts,
however, believe that PRC firms could overcome the deepwater
challenge by contracting for specialized underwater drilling
services.\317\ In addition, China's control of equity oil is at
present largely limited to Sudan, though fields to which it
holds recently acquired equity rights in Angola and several
other countries are slated to begin production soon.\318\
---------------------------------------------------------------------------
\317\ Equity oil is defined as that obtained by control of rights
to a given proportion of output from an oil concession in exchange for
oil field exploration, development, or extraction services and
investments, as opposed to trade or purchase-mediated access to oil.
Glossary, Energy Information Admin. (EIA), Energy Dept. and Glossary of
Energy Terms, Gardner Energy MacroIndex [both online].
\318\ Jonathan Holslag, et al, ``Chinese Resources . . . op cit.,
inter alia.
---------------------------------------------------------------------------
Exports
From 2001-2006, China's total exports to Africa rose by
nearly 331%, from $4.42 billion to $19.04 billion, compared to
a much smaller, nearly 75% rise--from $6.94 billion to $12.12
billion--in U.S. exports to Africa during the same period
(seeTable 16). The share of China's exports to Africa as a
proportion of all of its exports grew from 1.7% in 2001 to 2%
in 2006. The rate of growth of the share of U.S. exports to
Africa as a portion of all U.S. exports during that period was
slightly more rapid; these grew from just under 1% to just over
1% of all U.S. exports.
In contrast to China's imports from Africa, its top exports
to the region were diversified, and there was limited overlap
between its top African export destinations and import sources,
as well as substantial differences between top African
exporters' percentage of the Chinese import trade.
Table 16. U.S. and Chinese Goods Exports to Africa by Value and Share in Global Perspective: 2001-2006
($ billions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
China Exports U.S. Exports
-------------------------------------------------------------------------------------
Year China Exports to U.S. Exports to
World: Africa: Africa as Percent World: Africa: Africa as Percent
Value Value of All Exports Value Value of All Exports
--------------------------------------------------------------------------------------------------------------------------------------------------------
2001.............................................................. 266.4 4.4 1.7 729.1 6.9 1.0
2002.............................................................. 325.6 5.0 1.5 693.1 6.0 0.9
2003.............................................................. 438.5 7.5 1.7 724.8 6.9 1.0
2004.............................................................. 593.7 9.9 1.7 818.8 8.4 1.0
2005.............................................................. 762.3 13.4 1.8 906 10.3 1.1
2006.............................................................. 969.3 19.0 2.0 1,036.60 12.1 1.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent Change, 2001-2006......................................... 263.9 330.9 18.1 42.2 74.5 23.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: U.S. Dept. of Commerce and China Customs data as compiled in the World Trade Atlas Internet Edition as of November/October 2007 and CRS
calculations using these data.
There was also substantial diversity in types of Chinese
exports to Africa. The largest single export product category,
woven cotton fabrics, made up 6.3% of China's exports to
Africa, and the top ten products together made up 26.3% of the
total export value, but the vast majority of products made up a
fraction of a percent of export values. In addition to woven
cotton fabrics, China's top 10 export products to Africa were:
motorcycles (3.6%), footwear, (3.4%), synthetic fabrics (2.6%),
batteries, (2.5%), broadcasting equipment (1.8%), telephone
equipment (1.7%), tires (1.6%), embroidery (1.4%), and mixed
component fabrics (1.4%). While this product mix predominated
in the period from 2001 to 2006, in general the mix of Chinese
exports to Africa vary greatly from year to year.
SINO-AFRICAN ENGAGEMENT: IMPLICATIONS
China's burgeoning economic and political engagement with
Africa has elicited a range of reactions from African, U.S.,
and other policy makers and analysts. These range from
enthusiastic or guardedly optimistic responses to growing
concern over what some perceive to be an actual or potential
Chinese strategic and economic threat to western or African
interests. Such concerns primarily relate to the state-centric,
political-commercial mode of PRC engagement in Africa; to its
potential negative impacts on U.S. and Western public policy
goals and engagement in Africa; to the competitive impact of
increased PRC imports of raw materials from Africa and, to a
lesser extent, to Chinese competition for current and future
African market demand; and to the implications for U.S.
political interests and influence of the PRC's undertakings in
Africa.\319\
---------------------------------------------------------------------------
\319\ Chis Alden, ``China in Africa,'' Survival, (47:3), 2005;
Philippe D. Rogers, ``Dragon with a Heart of Darkness? Countering
Chinese Influence in Africa,'' Joint Forces Quarterly (47), 2007; Peter
Brookes and Ji Hye Shin, China's Influence in Africa: Implications for
the United States, Heritage Foundation, (1916), February 22, 2006;
Joshua Kurlantzick, ``Beijing's Safari: China's Move into Africa and
Its Implications for Aid, Development, and Governance,'' Policy
Outlook, Carnegie Endowment China Program, November 2006; Akwe Amosu,
``China in Africa: It's (Still) the Governance, Stupid,'' Foreign
Policy in Focus Discussion Paper, March 9, 2007; and Human Rights
Watch, ``China-Africa Summit: Focus on Human Rights, Not Just Trade,''
November 2, 2006, inter alia.
---------------------------------------------------------------------------
Economic Effects
Despite concern by some analysts regarding the manner in
which Sino-African economic relations are pursued, such ties
are clearly producing benefits for many African economies. Many
countries are enjoying rapidly rising earnings due to Chinese
demand for their exports; in the case of Angola, for instance,
IMF data indicates that bilateral exports to China rose from
$1.68 billion in 2000 to $9.94 billion in 2006. Similar trends
are true of multiple other countries. During the same period,
South Africa's exports rose from $336 million to $2.09 billion,
while Equatorial Guinea's rose from $238 million to $2.31
billion in 2006. Chinese involvement in Africa is also leading
to investment in infrastructure and the financial services,
manufacturing, consumer retail, various other sectors, and in
specialized market niches that non-Chinese foreign investors
have generally long ignored. Agricultural development and other
technical assistance is also increasing, and African access to
cheap credit and diverse, inexpensive consumer goods is
growing. Infrastructure construction is widely seen as one of
the most positive benefits of PRC investment in Africa, given
the widespread lack or poor condition of such facilities in
Africa. Similarly, to the extent that China provides credit to
Africa without conditions, such resources may help African
governments to autonomously fulfill their sovereign, self-
defined development goals in the absence of what some view as
the paternalistic or self-interested imposition of policy
requirements by Western donor governments.\320\
---------------------------------------------------------------------------
\320\ Andrew Bounds, ``African States Refuse to Join EU Trade
Deal,'' Financial Times, December 4, 2007; Ignacio Ramonet, ``Africa
Says No--and Means it,'' Le Monde Diplomatique, December 31, 2007;
Thandika Mkandawire and Charles C. Soludo, Our Continent, Our Future:
African Perspectives on Structural Adjustment, CODESRIA, 1998.
---------------------------------------------------------------------------
Many analysts, however, also contend that China's
increasing engagement poses serious challenges for Africa.
While growth in many of the sectors targeted by PRC finance and
investment is likely to benefit Africa, gains from investment
in some areas may be limited. Vertical and horizontal growth in
Chinese-backed African manufacturing, for instance, may quickly
hit a ceiling, since Chinese factories in Africa often rely on
inputs from China and commercial relations with other Chinese
firms, rather than African ones. Similarly, industries in much
of Africa are unlikely to easily be able to gain a competitive
advantage over those of China or other Asian countries, where
cheap goods and highly-developed factor markets typically
outperform African manufacturers, and put some out of business.
Claims that Asian investment in Africa may boost African
development or provide useful models for growth may be overly
optimistic.
Some analysts assert that due to Asian manufacturing
strength, Africa is unlikely to be able to successfully pursue
the kind of export growth and diversification process that
spurred economic growth and development in much of Asia. Some
also view potential gains from Chinese investment in Africa as
unlikely to result in the growth of indigenous African
manufacturing sectors, given that many Chinese loans that fund
business activities in Africa are directed to PRC firms active
there, rather than African-owned firms. Such loans, as well as
other types of preferential treatment, also give many of these
Chinese firms a competitive advantage over African firms--as
well as other foreign competitors. As previously noted,
Africa's relative potential gains from trade ties with China
may be limited by the fact that China primarily imports raw
commodities from Africa, while it exports finished, value-added
goods to Africa.
This trade pattern, along with frequent PRC investment in
outward-bound, export-facilitating transportation projects, has
spurred some critics to label Chinese involvement in Africa
``neo-colonial.'' Critics allege that such trade and investment
reproduces the same kinds of extractive, basic commodity
export-oriented development that was common in colonial times
in Africa, and which is often seen as having contributed to low
growth rates and lackluster post-colonial economic development
in Africa generally. Chinese officials vehemently reject such
charges, citing the diverse types of complementary ``win-win''
political, cultural, and developmental non-trade cooperation
that they say characterizes Sino-African relations. They also
compare Europe's history of slave-taking and colonial era
abuses in Africa to the record of Chinese engagement with the
continent.\321\
---------------------------------------------------------------------------
\321\ See Liu Guijin, ``China's Role . . . op cit.; and Craig
Timberg, ``Hu Defends China's Role in Africa,'' Washington Post,
February 8, 2007.
---------------------------------------------------------------------------
China's desire for African commodities could potentially
provide leverage to African countries regarding the conditions
that they may impose on Chinese investment, an argument that is
bolstered by China's insistence that trade with Africa provide
``win-win'' outcomes for both sides. For instance, African
countries might require that larger portions of Chinese loans
be channeled to services or goods purchases from African firms
or that Sino-African joint business ventures employ Africans in
managerial and decision-making roles. Investment projects could
require increased technology transfer components, local
secondary processing of resources prior to export, or be
renegotiable following an initial designated period. Similarly,
large Chinese plants or mining center investment deals might
require PRC investors to fund more extensive ``corporate
responsibility'' projects, such as schools or clinics for
project employees. While a few oil countries, such as Angola
and Nigeria, appear to be employing such leverage, such demands
may be difficult to impose for countries that are not rich in
natural resource commodities, in part due to intra-African
competition. Such countries may lose out to other African
countries that offer better terms in exchange for similar types
of deals with Chinese firms. Similarly, countries may be loathe
to pay the relative opportunity costs of foregoing very low-
cost PRC financing, given higher interest rates and conditions
that may accompany other sources of finance, and may thus be
willing to strike deals with Chinese entities that are not very
beneficial to the country involved. They may also possess
social needs so great that even limited PRC business project
social investments may be perceived as adequate quids pro quo.
Limited African human and business sectoral capacities, poor
infrastructure, and small market national sizes may also
constrain the extent to which local firms can exploit Chinese
loan shares that are reserved for them or effectively adopt
Chinese technologies.
Transparency and Governance Issues
Other concerns expressed by critics of Chinese activities
in Africa relate to fears that the same kinds of corrupt
practices and flouting of the rule of law that reportedly are
common in some sectors of Chinese business and within some
elements of the state will be brought to Africa by Chinese
operating there.\322\ They also worry that the lack of
political conditionality associated with PRC bilateral loans
will undermine African and Western efforts to implement various
good governance and anti-corruption initiatives in Africa.
There is little hard evidence to suggest that corrupt Chinese
business practices in Africa are systemic or widespread,
however, although there are periodic reports of PRC illicit
business practices in Africa.\323\ The rankings of countries
that have received the bulk of Chinese investment during the
past half-decade or so, as measured by the monitoring group
Transparency International, reportedly have not changed much
during this time period.\324\ Furthermore, some see the PRC as
supportive of efforts to strengthen the rule of law in Africa,
since that goal is likely to benefit China in the long run,
given that many PRC activities in Africa are contract-based and
subject to potential legal dispute. Indeed, China's African
Policy states that China is prepared to promote cooperation
between Chinese and African judicial and law enforcement
departments and jointly prevent and combat crime.
---------------------------------------------------------------------------
\322\ For more on rule of law and corruption issues in China, see
CRS Report RL33416, Social Unrest in China, by Tom Lum; Minxin Pei,
``Corruption Threatens China's Future, Carnegie Endowment Policy Brief,
(55), October 2007; and numerous press reports.
\323\ Examples include illegal labor practices; unsustainable
exploitation of African timber and fish stocks; trade in endangered
species; and payments to avoid regulatory compliance requirements.
\324\ See Andrea Goldstein, Nicolas Pinaud, Helmut Reisen, and
Xiaobao Chen, ``The Rise of China and India: What's In It for
Africa?,'' Development Centre Studies, OECD, 2006. While the absence of
such an increase may be taken as an indication that Chinese firms in
Africa are not contributing to a rise in corruption in Africa, it does
not prove such a finding. Corruption levels in some African countries
may be so high that any Chinese contributions to such trends may be
marginal. Similarly, in some countries, the level of Chinese foreign
direct investment may not be large enough to affect national corruption
trends.
---------------------------------------------------------------------------
Given data limitations, the effect that Chinese bilateral
loans may have on transparency in Africa is difficult to
assess. Loan opaqueness, however, may create incentives for the
misuse of funds by Chinese or African elites who control access
to them. It may also help to entrench democratically
unaccountable, corrupt, or simply non-developmental or poorly
performing governments, or simply reduce their motivation to
reform in these areas, by eliminating their readiness to accept
conditional external finances. Furthermore, to the extent that
loan proceeds are used for unintended or illicit purposes by
those who control them, their intended beneficiaries, such as
the African public and the PRC firms through which loans are
channeled, will not realize the benefits that they are intended
to generate.\325\
---------------------------------------------------------------------------
\325\ At least one major PRC state-backed loan to Angola has
allegedly been manipulated for political and corrupt ends, although
Angolan officials reject such reports as false. As a result, projects
funded by the loan have reportedly been delayed. Past Western credit
dealings with Angola have also been criticized as lacking transparency.
Alec Russell, ``Angolan Loan Casts Light on Ties with China,''
Financial Times, October 19, 2007; and'' Angola: Chinese
Firecrackers,'' Africa Confidential, (46:3), February 4, 2005;
``Finance Ministry Denies Irregularities in China Credit Use,'' Angola
Press Agency, October 18, 2007; David Pallister, ``Alarm Bells Sound
over Massive Loans Bankrolling Oil-rich, Graft-tainted Angola,'' The
Guardian, June 1, 2005; Paul Hare, ``China in Angola: An Emerging
Energy Partnership,'' China Brief, Jamestown Foundation, (7:18),
November 8, 2006
---------------------------------------------------------------------------
To the extent that this occurs, such policies may conflict
with another key tenet of PRC policy toward Africa: that it
does not interfere in the internal affairs of states and is
agnostic with regard to a given government's record on such
matters as good governance, human rights, or environmental
protection.\326\ This policy suggests that the PRC does not
does not view itself as responsible for the actions that its
bilateral assistance may subsidize. As previously suggested,
many critics disagree with this claim, even though empirical
evidence establishing a causative link between Sino-African
official bilateral engagement and the incremental undermining
of democratic accountability may not be clear-cut. It may be
argued, for instance, that undemocratic practices may have been
likely to occur even in the absence of such engagement.
---------------------------------------------------------------------------
\326\ The Beijing Declaration of the Forum on China-Africa
Cooperation (October 12, 2000), states in part that the ``universality
of human rights and fundamental freedoms should be respected'' but that
``the politicization of human rights and the imposition of human rights
conditionalities on economic assistance should be vigorously opposed to
as they constitute a violation of human rights.'' (Emphasis added.)
---------------------------------------------------------------------------
What many critics do believe is that China's business, aid,
credit relations with, and military equipment exports to the
governments of countries like Zimbabwe and Sudan directly abet
these states' systematic and well-documented internal human
rights abuses and authoritarian rule, which are the targets of
harsh criticism by Western governments and civil society groups
and are targets of U.S. and European Union sanctions.\327\ In
African countries where governments face vocal public
opposition or armed rebellions, Chinese projects that are
pursued in partnership with such governments are often viewed
by their political opponents as direct interventions in favor
of the governments that they oppose. As a result, Chinese
personnel working on projects in diverse areas in Africa (e.g.,
oil exploration, uranium mining, and telecom installation) have
repeatedly become targets of political kidnappings and violent
attacks, some fatal, by armed ethnic rebel movements demanding
that Chinese mining firms halt their activities in their zones
of operation.\328\ Chinese engagement in Africa has also
occasionally become the subject of intense, sometimes
xenophobic political debate.\329\ Some critics also worry that
the PRC's political engagement with and training of African
state officials will result in the transferral to Africa of
undemocratic, state-centric PRC governance practices,
potentially leading to such outcomes as a rise in state media
controls in Africa, resulting from such things as the
commercial sale of Chinese Internet filtering technologies to
Zimbabwe and other repressive governments in Africa.
---------------------------------------------------------------------------
\327\ Danna Harman, ``How China's Support of Sudan Shields a Regime
Called `Genocidal','' Christian Science Monitor, June 26, 2007; Ronan
Farrow and Mia Farrow, ``The `Genocide Olympics','' The Wall Street
Journal, March 28, 2007; and Nat Hentoff, ``Khartoum's enablers in
Beijing; Chinese Communists and Islamist genocide,'' The Washington
Times, April 16, 2007; Paul Eckert, ``China's Zimbabwe Embrace Seen as
Rights Challenge,'' Reuters, July 28, 2005; and ``China and its Chums:
Mugabe in Beijing,'' The Guardian, July 28, 2005, inter alia.
\328\ In October and December 2007, for instance, fighters of the
Sudanese, Darfur-based rebel Justice and Equality Movement (JEM)
reportedly attacked Chinese-run oil well sites in the states of South
and West Kordofan. In July 2007, a Chinese executive of a uranium
mining subsidiary of the China Nuclear Engineering and Construction
Corporation was kidnapped by Tuareg rebels of the Niger Movement for
Justice (MNJ) demanding that Chinese mining firms halt their activities
in the desert region. In April 2007, nine Chinese oil workers were
killed and seven were kidnapped during an attack by ethnic Somali
Ogaden National Liberation Front (ONLF) rebels on a Chinese drilling
exploration site guarded by an Ethiopian military contingent that
resulted in 74 non-rebel fatalities. The rebels, whose reported target
was the contingent, has warned foreign firms against working with the
Ethiopian government. Earlier in 2007, 16 Chinese oil workers were
kidnapped in the restive Delta Region of Nigeria by ethnic militants
who made similar demands, as were 12 Chinese telecom workers. Other
attacks on Chinese nationals, most not overtly political in nature,
have occurred elsewhere in Africa.
\329\ This was notably the case in the Zambian election of 2006,
when the main opposition candidate, a populist, incited his followers
with vitriolic anti-Chinese rhetoric alleging state favoritism to PRC
firms' mining concessions, related mine safety abuses, and concessions
to Chinese retailers. Miles Larmer and Alastair Fraser, ``Of Cabbages
and King Cobra: Populist Politics and Zambia's 2006 Election,'' African
Affairs, (106:425), 2007.
---------------------------------------------------------------------------
U.S. Policy Implications
As discussed in previous sections, the breadth and
diversity of China's engagement with Africa present numerous
potential issues for consideration by U.S. policy makers. These
range from its impact on democratization, good governance and
transparency, and adherence to universal norms of civic and
human rights and the rule of law in Africa to the potential for
a renewed rise in African indebtedness to China, fast on the
heels of recent substantial U.S. and Western government write-
downs of past unsustainable African debt. Nascent and
prospectively rising U.S.-Chinese economic competition in
Africa, notably in the national energy security-related oil
sector and strategic metals and minerals trade, also present
key policy questions. Some are concerned that China's rising
textile production and export of goods to Africa are negating
U.S. efforts to strengthen Africa's apparel and other
productive sectors through the African Growth and Opportunity
Act program (AGOA), which seeks to bolster Africa production by
providing duty-free access for diverse U.S. imports from
Africa. The potential for the growth of a pro-China voting
block within United Nations agencies and other multilateral
organizations is also a concern for some.
Others worry that Africans may be attracted to China's
respect for African state sovereignty and its policy of non-
interference in states' internal affairs, especially with
respect to issues of human rights and democracy, particularly
in contrast to Western donor governments' imposition on
Africans of political conditionalities in return for credit,
which some Africans see as paternalistic. Some African states,
when subjected to sustained or vocal Western policy pressure,
have already turned to China. While such realignments may not
be firm or permanent, Angola's spurning relations with the IMF
in favor of access to Chinese economic ties, Zimbabwe's ties to
China, and periodic rhetorical threats by countries such as
Ethiopia to look toward China as an ally when faced by Western
pressure to democratize or undertake other policy actions all
raise the possibility that other countries might make similar
choices. A similar concern relates to the possibility that
rapidly expanding Sino-African economic cooperation and the
perceived relevance to Africa of China's rapid economic
development process may cause Africans to increasingly view
China as a more relevant political-economic model for Africa
than Western democracies.\330\
---------------------------------------------------------------------------
\330\ Stephanie McCrummen, ``Struggling Chadians Dream of a Better
Life--in China,'' Washington Post, October 6, 2007.
---------------------------------------------------------------------------
Figure 22. Map of Sub-Saharan Africa
----------