On the Record

China’s Role in East Asia: Now and the Future

Jeffrey A. Bader

China traditionally has looked to its neighbors in the East Asian region as the most important countries in its foreign policy domain. These are states that had tributary relationships with China in the Qing dynasty and before. It is a region that is heavily influenced by Chinese culture. Japan’s culture is substantially derived from Tang Dynasty China. Korea’s was strongly influenced by China’s art and religion. Same holds true for Southeast Asia, Vietnam in particular. The spread of Buddhism from India through Tibet into traditional China and then outward to northeast and Southeast Asia, along with Confucianist thinking in Northeast Asia, also has provided a unifying foundation. Japan, Korea, and Vietnam all used Chinese characters for writing their language for centuries, and Japan still does.

In addition to cultural ties, there are human ties. Chinese have spread throughout Southeast Asia, visibly but not exclusively into business—in Thailand, Cambodia, Malaysia, Indonesia, and Singapore. Overseas Chinese form an important part of the economic fabric of all of these countries.

In modern times, China’s main security interests and conflicts have resided or derived from the region—wars with Japan in 1894-’95 and 1931-1945; the Korean war from 1950-1953; its incursion into Vietnam in 1979; border clashes with the soviet union in 1969; a war with India in 1962; and cross-strait crises with Taiwan in the 1950’s and 1990’s.

China’s modern relationship with the nations of the region really begins in 1978, with Deng Xiaoping’s decision at the 3rd plenum to begin the process of reform and opening up of China after 30 years of isolation.

As part of this opening, China radically altered its approach to the countries of the region. In the Mao era, it had encouraged revolution, helping to create and support communist parties heavily populated by overseas Chinese. These overseas Chinese were viewed with suspicion and sometimes hostility by local populations, who resented their economic success but now had the additional reason for anxiety that they were potentially 5th columns for a foreign power.

Deng changed all that. He cut off all support by China for communist parties in these countries. He made it clear that China expected overseas Chinese to be loyal to their country of residence, not proxies for China. That gave confidence to these governments about China’s intentions, and about their ethnic Chinese populations, and rapidly accelerated their normalization of relations with China.

One of Deng’s motives in reconfiguring China’s relationships with the region and with ethnic Chinese abroad was to tap the wealth of overseas Chinese, to interest them in investing in China. Indeed, overseas Chinese, not only from Southeast Asia but from Hong Kong and ultimately from Taiwan, have become central to China’s economic take-off.

But China’s outreach to Southeast and East Asia was not its principal foreign policy priority of the 1970’s, 1980’s, and 1990’s. China was still preoccupied with its relations with the United States, and secondarily with the Soviet Union until its demise in 1991. The U.S. was viewed as the key to China’s modernization and acceptance in the international community.

Through the 1990’s, China’s focus remained on its relationship with the U.S., which went through a difficult period after the Tiananmen massacre. The U.S. and the countries of the west imposed various sanctions against China.

As China sought to break through the web of sanctions placed upon it in 1989, it looked first to the countries of Asia. These countries had a different view of China than the U.S. and the west did. They saw China as an Asian country, one that shared many of their own cultural traditions and social characteristics. They were less fixated on human rights concerns than was the U.S., in part because some of them had checkered human rights records themselves, in part because they did not look to spread their values to China in the way that the west did.

Interestingly, the first relationship that showed improvement after Tiananmen was the PRC’s relationship with Taiwan. Taiwan businessmen saw opportunities in a China temporarily shunned by the west and they took advantage of it. Sectors such as textiles, footwear, luggage, and labor-intensive light industry goods moved lock stock and barrel from Taiwan to the mainland. Indeed, in 1992, the PRC and Taiwan began their quasi-official dialogue after four decades without such contact.

Other important neighbors of China began to reach out to Beijing during this same period. Japan’s prime minister was the first important head of government to visit China after Tiananmen, PM Kaifu visiting in 1991 (and the emperor visiting in 1992). Kaifu made clear in public statements at the time it did not wish to see China isolated. The Japanese attempted to serve as a kind of intermediary between China and the U.S. in those days, explaining to skeptical American leaders the importance of keeping the line open to Beijing. Additionally, China dropped its opposition to South Korean membership in the UN in 1991 and established diplomatic relations with it in 1992.

So China used its Asian neighbors in those days as a kind of hedge against the isolation imposed by the west, and as a bridge to rebuild relations with the west. The neighbors in turn exploited economic opportunities in China opened by the absent westerners. This is all important backdrop to the remarkable transformation in China’s relations with its Asian neighbors in the last few years. That transformation has been both economic and political.

First, the economic transformation. We all know that China has undergone the most extraordinary economic growth in the last decade, moving from a footnote in the world economy to a player that moves markets, that is the world’s greatest magnet for foreign direct investment that is the world’s third largest trading company. The United States has felt that impact as our trade deficit has grown into our largest in the world—$200 billion this year.

But Asia has felt this transformation as well, in different ways than the U.S. The major economies of Asia have enjoyed spectacular growth in their trading relationships with China. For example, from 1993 to 2003, China’s trade with Taiwan quintupled. With South Korea it rose by over sevenfold. With Indonesia, it quintupled. With Malaysia, it increased by eleven fold. With India, it increased by a factor of twelve.

As noteworthy as these figures is their composition. Every one of the major East Asian economies—Japan, South Korea, Taiwan, Thailand, Singapore, Malaysia, Indonesia, Philippines, and India—is running a substantial trade surplus with China. China’s manufacturing sector has become heavily dependent on imports from the economies of East Asia in order to feed its factories and its export-producing machine pointed at the west.

This has earned China appreciation from the countries of the region, which see China’s continued growth and prosperity as essential to their own economic success. For the first time, last year China passed the United States as Japan’s leading trading partner. Observers credit the China boom as an important factor in helping to lift the Japanese economy out of its decade of stagnation.

For Taiwan, Korea, and Japan, China has become an essential part of their production line. First their low-end, labor-intensive industries moved their assembly plants to China to reduce costs and allow their products to remain internationally competitive. Gradually, higher and higher technology assembly has been moving to China. Taiwan has over $9 billion in it investment in China alone.

An example of how the IT sector works. If you want to buy for example an HP Pavilion ZD800 laptop, your order goes to a factory in China run by Quanta Computer. Quanta is a Taiwanese companies that collects components from other countries and assembles them at its Shanghai manufactur city complex. The U.S. computer brands farm out much of their manufacturing to Taiwanese concerns, which in turn build them in China. A quarter of the world’s portable computers are made by Taiwanese companies. 85% of Taiwanese notebook makers’ output comes from China. (I’m grateful to the Wall Street Journal for this example).

This means that the economies of East Asia are increasingly integrated around a Chinese core. All of these countries look to China as their principal growing export market. While Japan’s economy remains larger than China’s for now, it is an extremely difficult market to penetrate. China is orders of magnitude more open.

It means that these economies sink or swim together. If the Chinese economy catches a cold, the others in the region sneeze. It means that sanctions, either of the sort that isolated China before 1978 or 1989, or those imposed on the USSR throughout its existence, are unthinkable today. They would be fiercely resisted by all of the countries in the region, and the damage to the world economy would be substantial.

China began to build institutions in the region to buttress these newly developing trade relationships. In 2002, it signed a free trade agreement with ASEAN. Since then, it has negotiated bilateral free trade pacts with a number of ASEAN members, and it has set as a goal free trade with the entire ASEAN region phased in by 2015 (2010 for the advanced economies). It has signed a “closer economic partnership agreement” with Hong Kong. Most strikingly, it has joined the so-called “ASEAN plus three,” a grouping of 13 countries including the ten ASEAN members plus China, Japan, and Korea. The heads of state of the 13 have been meeting regularly since 1997. This year, along with India, Australia, and perhaps New Zealand, they will meet in Kuala Lumpur. The stated goal of the group is to create an “East Asian community,” the key block of which would be an East Asian economic community, or free trade area.

What is noteworthy about this group is that it would exclude the U.S. Thirteen years ago, PM Mahathir tried to build a similar bloc, but it broke down in the face of fierce opposition from the U.S., supported by Japan and Singapore. This time, do not expect any dissent within Asia at the behest of the U.S.

China also has pursued important political and security initiatives in the last few years with its Asian neighbors. Earlier this year, it definitively settled its centuries-old border dispute with Russia. PM Wen Jiabao visited New Delhi earlier this year and set up a mechanism for negotiations with India over their border dispute. China has shelved its territorial claims in the Spratly Islands, contested with four other Asian countries, in favor of “joint development.” All of these are designed to establish a peaceful environment in China’s neighborhood that will not interfere with its concentration on economic development.

China also has become much more active diplomatically and multilaterally. It is the host and convenor of the six-party talks designed to bring an end to the North Korean nuclear program. One cannot conceive of China playing this role a few years back. China also is the headquarters of the Shanghai Cooperation Organization, along with fellow members Russia and four of the “stans.” The stated goal of the SCO is to work together to fight terrorism, in particular Islamist terrorism that threatens all of them. But it also is not a coincidence that China has a strong interest in building relations with all of these countries because they are rich in oil and natural gas.

While China looks to East and Southeast Asia as major trading partners and sources of investment, it looks to its north and the west for oil and gas to feed its massive appetite for energy. China’s energy consumption is growing at 15% per year, while the rest of the year is near flat. 35% of the increment in the world’s consumption of energy last year was China’s. It has increased massively its import of Saudi oil, but that is not enough. For energy security reasons, exacerbated by its frustration over CNOOC’s experience in trying to purchase Unocal, China is determined to diversify its sources of energy, and Central Asia and Russia figure at the center of these plans.

These extraordinary advances in China’s relations with its neighbors in Asia have raised questions among Americans about China’s attitude toward the United States. Some have posited that China seeks a kind of “Monroe Doctrine” for Asia, to radically diminish U.S. influence in the region. This is highly questionable in my mind, and not just because China denies it.

Most Chinese leaders and thinkers understand that the U.S. simply can’t be ignored or bypassed. The U.S. navy continues to control the sea lines of communication. The U.S. still plays the dominant role in defining the rules of the road for international trade, investment, and security. The U.S. has by far the greatest influence on the Middle East, the source of most of the world’s, and China’s energy. The U.S. is China’s largest market, a major source of investment, of technology. Chinese may not like the degree of U.S. influence, they may indeed resent it, but they are realistic and understand they cannot challenge it, at least for a generation or more.

I suspect if president Hu Jintao had proceeded with his trip to Washington, cancelled because of Hurricane Katrina, we would have heard from him on how he sees China’s, and America’s, future role in the Asia-pacific region.

There is one great exception, and one lesser exception, in China’s bridge-building with East Asia. The great exception is Japan. China’s relations with Japan have deteriorated dramatically in the last few years. The reasons are manifold – PM Koizumi’s visits to Yasukuni shrine, textbooks in both countries that contain pejorative descriptions of the other, disputes over islands in the East China Sea, and rivalry over energy. Underlying all of these is a profound and continuing sense of grievance by Chinese toward Japan, and a Japanese anxiety over what China’s rise means for its own place in Asia.

The other exception, of course, is Taiwan. I believe the chance of conflict in the Taiwan Strait in the next few years is low and has gotten lower, with the visits of opposition leaders Lien Chan and James Soong to the PRC. But the chance of a conflict between Taiwan and the PRC is not a trivial one. Beijing has made clear it will use force in the event Taiwan achieves de jure independence. Taiwan is ruled by a pro-independence party. The chance of miscalculation is real. China has worked hard to neutralize the reaction of the states of the region in the event of such a conflict. Most likely, Japan would support the U.S. if the U.S. came to Taiwan’s aid. The other states, with the possible exception of Australia, would not.