China: Searching for a Post-Cold War Formula

September 1, 2000

Of all the bilateral relationships the United States will negotiate in the coming decade, the most critical-and complex-is that with the People’s Republic of China. While 1999 marked a new low for U.S.-China tiesespecially with the snub of Chinese Premier Zhu Rongji during his Washington visit to finalize U.S.—China World Trade Organization negotiations and the unintentional bombing of the Chinese embassy in Belgrade—the relationship has been on a downward slide since the mid-1990s as the two sides have become increasingly wary of one another’s long-term intentions.

Developments since late last year suggest some positive momentum: completion of bilateral negotiations on China’s entry into the WTO, approval by both the House and Senate of permanent normal trade relations status for China, and initial Chinese restraint in the face of Chen Shui-bian’s presidential election victory on Taiwan. But these steps, while helping to stabilize the relationship a bit, should breed no sense of complacency. The U.S.-Chinese relationship is likely to be contentious for years to come.

A look at some of the economic, political, and security thickets ahead makes clear the need for the next administration to devote considerably more effort than its predecessor to integrate China more closely into the international system, to foster more cooperative U.S. ties with China, and to rebuild a broader consensus at home in support of a stable relationship with Beijing.

Economic Relations and Trade

The primary goal in Sino-American economic relations is to secure China’s full compliance with the rules of the global trading system. Since its economic reforms began in the late 1970s, China has quintupled its share of world trade. By the mid-1990s, it had become the most important trading country in the world not subject to the disciplines of the multilateral trading system. While China enjoys relatively unimpeded access to the markets of the United States and other industrial countries, it shields its own markets from foreign goods by a broad array of tariff and nontariff barriers. China also restricts the sectors and the conditions under which it allows incoming foreign direct investment.

Entry into the World Trade Organization, expected in early 2001, will change forever the character of China’s interaction with the global economy. China has agreed to cut tariffs substantially and to phase out all nontariff barriers, such as import licenses and quotas. Even more important, it will open sensitive sectors, such as telecommunications (including the Internet), financial services, and distribution, to significant foreign investment for the first time. China also has agreed to enforce international standards on protecting intellectual property and to provide greater access to its markets for motion pictures, music, and software.

Lowering trade and investment barriers will require wrenching adjustments in China, as inefficient industries, particularly state-owned ones, face more competition. While job displacement will easily run in the millions as some industries shrink, China’s leadership is betting that the capital and labor freed up will be redeployed in more efficient firms, most frequently in the private sector, spurring job creation and growth. The leadership, in other words, sees heightened global competition as a means to accelerate economic reform and restructuring.

Still, implementing the agreement covering participation in the WTO is almost certain to be problematic for China. Despite efforts (its own and others’) to educate its top provincial and ministerial leaders, as well as the management teams of the largest state-owned enterprises, understanding of basic WTO principles and the details of China’s commitments remains poor. Even worse, some bureaucrats appear determined to protect their turf from foreign competition through new nontariff barriers. Provincial and local officials are adept at using protection to discriminate against all goods produced outside a locality, including those of foreign origin, and the central government will not easily halt such practices.

Washington’s task will be to pursue and monitor Chinese compliance with its international obligations-which means providing more resources. First, the new administration must strengthen its ability to track China’s trade performance and practices, ideally from the American embassy in Beijing and the American consulates in various other locations in China, rather than from Washington. China’s compliance with its obligations cannot be monitored effectively by remote control. Second, the new administration must help nurture institutional change in China. The European Union, Canada, Australia, and Japan are all providing training and other support to help Chinese officials understand the rights and obligations of WTO membership. An obvious place for Washington to start would be to fund the Rule of Law Initiative that President Clinton announced at the October 1997 summit meeting with Chinese President Jiang Zemin in Washington. The initiative, never funded by Congress, would provide training for Chinese judges and lawyers and strengthen Chinese commercial law and arbitration, strengthening the ability of China’s legal system to support a market economy.

Finally, Washington should provide more funding for the WTO, whose professional staff is tiny and whose budget is minuscule. Bringing China into the system will create new demands, particularly on the multilateral dispute settlement process, which now can handle only about 45 cases a year. Efforts to ensure Chinese compliance with the principles of the WTO will be compromised if this capacity is not expanded to cope with the new cases that Chinese membership will entail.

Ensuring that China complies with its WTO obligations is crucial. If compliance falters, critics of normal trade relations with China will argue that the broader strategy of engagement is failing, indirectly eroding support for engagement in other areas of the relationship.

Political and Security Relations with a Rising China

Although the goal of expanded business and trade relations with China enjoys widespread support among American economic leaders, the U.S. strategic policy community remains divided over how to deal with what nearly all sides agree will be a stronger and more assertive China in the years ahead. To keep from destabilizing U.S.-China relations and to draw China into a more cooperative regional and global stance, the next administration will need to deftly address security-related challenges in three principal areas: national missile defense, Taiwan, and America’s forward presence in East Asia. But this process will be very difficult, and, as with economic relations, the new administration must dedicate sustained attention to managing these challenges at the multilateral, bilateral, and U.S. domestic levels.

National Missile Defense

China strongly opposes U.S. plans to move forward with a form of national missile defense (NMD) that could (at least in theory) negate China’s modest strategic capability. In response, China will probably accelerate the ongoing qualitative and quantitative upgrade of its strategic arsenal, is likely to continue stonewalling progress on multilateral arms control in Geneva, and could consider the proliferation of NMD countermeasures at some point in the future should relations with the United States go badly.

Mitigating or preventing these outcomes will present a difficult challenge for the next administration and may in the end prove impossible. However, the alternatives-simply letting the strategic cards fall where they may with China in pursuit of NMD systems or allowing Chinese objections to end the promise of missile defenses altogether-are not strategically acceptable. Rather, the administration should set as a goal both NMD deployments and stabilized relations with China. Proceeding otherwise at this early stage in the NMD decisionmaking process would be strategically wrongheaded, but we should harbor no illusions about the prospects for such an approach.

To begin, the new administration will need to redouble current efforts to regularize senior-level consultations with the Chinese on NMD, while improving the overall atmosphere of U.S.-China relations. At this stage, NMD remains largely a political, rather than military-technical, problem for China: Chinese strategists and scientists remain relatively confident they can build the countermeasures to preserve their nuclear deterrent. For China, NMD is a barometer by which to gauge its political relations with the United States-far and away the most important bilateral relationship for Beijing and one that holds the keys to all other Chinese strategic goals. In this environment, improving the overall tenor of U.S.-China relations would create an atmosphere in which U.S. NMD decisions would be more acceptable to Beijing.

Second, such discussions should explore more seriously the stable parameters of a world where strategic defenses come to play a more central role in nations’ security. This discussion must eventually come down to numbers and technicalities. Certain NMD configurations will clearly signal hostile political intent on the part of the United States toward China, threatening core Chinese strategic goals. On the other hand, so-called “boost-phase intercept” programs may prove far less troublesome to China than those now on the table. Clear ceilings on the size of any U.S. anti-missile capability will also go a long way toward reassuring China. However, before such discussions with China can go very far, the U.S. side will need to clarify for itself where it plans to go on missile defense. Importantly, the domestic political debate continues over whether NMD designs should target the Chinese arsenal or whether the United States is prepared to live with a credible Chinese deterrent force. Pending those decisions, efforts to strategically reassure the Chinese over future U.S. NMD deployments cannot go very far.

The goal of limited NMD deployments and stabilized relations with China will require sustained management of U.S.-China ties bilaterally, as well as closer consultations with our allies, and within the strategic and political communities at home-a tall order. Short of this, future U.S. China policy should fully weigh and be prepared to cope with likely negative Chinese reactions to U.S. NMD deployments: accelerated strategic arms buildup, stalled multilateral arms control, worsening bilateral ties, and renewed proliferation concerns.


Now, as for much of the past 50 years, Taiwan will be the hottest potential flashpoint in U.S.-China security relations. But recent events in Taiwan-most important the remarkable democratic evolution of the island and the election of long-time opposition figure and pro-independence politician Chen Shui-bian to the Taiwan presidency-dramatically call into question many of the assumptions that have governed the relatively peaceful cross-Strait dynamic for so many years. A more confident Taiwan, increasingly aware of its “separateness” from the mainland, has prompted Chinese reactions that are at best inflexible and dismissive of changed circumstances and at worst provocative and potentially dangerous in the face of new realities.

A top priority for the new administration should be to revisit American policies toward the U.S.-China-Taiwan triangle. The fundamental U.S. interest remains unchanged-to avoid war in the Taiwan Strait. Washington should oppose any unilateral and unprovoked declaration of independence on the part of Taiwan, as well as any use of force by China against Taiwan. Beyond this fundamental baseline for U.S. policy, several other steps are necessary.

First, the next administration will need to help build on and strengthen what hopeful, though cautious, momentum has been generated in the wake of Chen Shui-bian’s election. It should urge both parties to devise new ways to enable direct bilateral negotiations, economic interactions, cultural exchanges, and structured confidence-building measures to proceed more freely.

Second, the new administration will very early in its tenure (around April) face some key decisions on Taiwan arms sales, especially regarding missile defense for Taiwan. The U.S. side should maintain its intention to equip Taiwan to defend itself against potential Chinese coercion and military threats as long as China holds out the use of force as a possible means to resolve its differences with Taiwan. Armed with such an understanding, providing lower-tier, land-based missile defenses to Taiwan is consistent with U.S. commitments under the Taiwan Relations Act and is entirely appropriate given China’s continuing buildup of short- and medium-range missiles opposite Taiwan. Other, follow-on sales of more capable missile defenses should await far more study of their diplomatic and military-technical implications and should not be considered as a given. The U.S. side should also forcefully urge Taiwan to be more serious in developing its “passive defenses”-hardening command posts, shelters, and other key facilities, for example-to better withstand a possible Chinese ballistic missile attack.

U.S. policy needs to operate on the understanding that the continued maturation of democracy on Taiwan presents a small, sensitive, but nonetheless hopeful opportunity for the cross-Strait relationship. The democratization of Taiwan is not inconsistent with the “one-China” principle, and it is favorable to the interests of the United States and the people of Taiwan. Perhaps most important, it holds out a model for the mainland’s possible political transition toward a more pluralistic society-in the end, the most fundamental requirement for resolving peacefully the cross-Strait differences. Caution and careful diplomacy here are crucial: “support for democratization” cannot be equated with “support for independence.” But the next administration must earnestly and actively acknowledge the growing centrality of democratization to the Taiwan question.

East Asia

The final principal challenge for U.S.-China security relations is Washington’s evolving security relations with its allies in East Asia-particularly South Korea and Japan. The next administration should make a point early on of underlining our continued commitments to strong ties in the region. An early presidential visit to Seoul and Tokyo, or a three-way United States-Japan-South Korea summit, should take place well before-and not be simply linked to- the November 2001 APEC summit in Shanghai. Moreover, Washington should make clear that efforts to strengthen U.S. bilateral security arrangements in the region-such as with Japan, the Philippines, South Korea, and Australia-are in part contingent on its assessment of regional security trends, including the likelihood of a peaceful outcome to differences across the Taiwan Strait and China’s overall military posture in the region.

At the same time, more far-reaching efforts should be undertaken to reassure China about long-range U.S. alliance intentions in East Asia. Continued strong commitments to progress in the Four Party Talks among Seoul, Pyongyang, Beijing, and Washington are critical, as would be policies in support of improved security and military contacts, both governmental and nongovernmental, among China, Japan, and the United States. In short, our alliance relationships in East Asia should put every effort toward shaping China’s integration as a stabilizing influence for regional security. That means both positive interactions and elements of “hedging” and military preparedness in consultation with our allies.

Rocky Road Ahead

The challenges of our economic and security interactions with China at once share commonalities and illustrate deepening divisions in the U.S. approach to China. For both economic and security relations, the next administration will find that China should consume a far greater amount of time and hard thinking, requiring more energy than in the past at bilateral, multilateral, and domestic political levels to manage the relationship in constructive ways. This is a function of China’s growing importance in regional and world affairs, and the next administration will need to give China and East Asian matters the greater weight they command.

But can a consistently stable relationship with China be expected? Probably not. Most indicators point to a rocky road ahead, with many potential detours into even worse conditions. At best, a challenging period of contentious, cautious cooperation with China awaits the next administration. But the stakes for regional stability and prosperity that come from a China that is “tied in,” rather than “shut out,” are too high to allow such challenges to slip into hostility, confrontation, or even conflict.