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China: The Coming Power

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A Troubled Relationship

ONE OF THE FIRST tests of the Clinton administration’s ability to develop a forward?looking foreign policy will be the troubled U.S.-China relationship. The successful conclusion of market-access negotiations with Beijing in October, and the decisions of the recently concluded 14th Party Congress to promote younger technocratic leaders and widen economic reform in China, provide an opportunity for progress.

Within the United States there has been little consensus on an appropriate China policy. Since the June 1989 Tiananmen tragedy Congress has tried to use sanctions to prod China to better observe human rights. Although President Bush imposed some sanctions in the aftermath of the crackdown, he consistently opposed legislation that would eliminate or impose conditions on most-favored-nation treatment for China. In September he vetoed legislation to place conditions on renewal of China’s MFN trade status, saying it would hurt Chinese citizens and American companies that sell goods there. For his part President-elect Clinton has stated that he would be firmer, by linking continued MFN status for China to improvements in human rights practices. Beijing categorically rejects such a linkage and promises retaliation.

China’s political repression, its nuclear technology and weapons sales to Iran and other volatile regions of the world, along with some illegal trade practices and a mounting trade surplus with the United States, have only added to the tensions in a relationship already strained by the unnecessary and tragic violence of June 1989 and subsequent repression. China’s strategic value is inaccurately perceived as having greatly diminished following the collapse of the Soviet Union. If the current strains in America’s relations with China deteriorate into a U.S. policy of benign neglect or outright hostility, the damage could be widespread to the United States’ economic future, its relations with other countries and its hopes for cooperation on global problems

China is important to America’s interests—the Clinton administration’s policy should be premised on that fact. An economic boom is well underway on China’s mainland, Taiwan and Hong Kong; yet the United States is in danger of isolating itself from its benefits. Not only does this regional growth offer great potential for American investment, trade and the jobs for Americans that both can bring, it also promises a more stable East Asia and will gradually create the conditions for a more pluralistic and humanely governed society on China’s mainland. How can the new administration seize these opportunities, be true to core American values and help avoid a dangerous worsening of U.S.-China relations?

Harmful Myths

THE FIRST TASK in reexamining U.S. policy toward China is to rid American thinking of three inaccurate and harmful assertions: China’s system is performing dismally and therefore its stability is tenuous; China, since the Tiananmen crackdown, has pursued a course opposed to the free market, and current developments are antithetical to political liberalization; and China is of only secondary importance to American global interests. None of these assumptions stand up to careful examination.

The durability of China’s leadership has confounded widespread Western expectations of its imminent collapse after the suppression of demonstrations in Tiananmen Square. The most important cause of stability has been the relatively good performance of China’s economic system compared to that of eastern Europe and the U.S.S.R., which collapsed principally because they failed to meet basic economic and human needs. Second, the Chinese have yet to discern a successful road map in other countries’ efforts to exit planned economies. In Poland, Czechoslovakia, Yugoslavia and the former Soviet Union the Chinese see economic drift, political instability, ethnic fragmentation and violence, with more frightening outbursts possible in the foreseeable future. Finally, Deng Xiaoping and other survivors of the founding revolutionary generation are still in control. These elders, though increasingly frail, remain tremendously influential and, until their passing, are a factor for stability in its narrowest sense.

Despite a worsening budget deficit and enormous shortcomings and inefficiencies (about one?third of state enterprises lose money, even by Beijing’s generous accounting standards), the Chinese economic system is not a basket case. Rather it is a system that in 1991 extended one billion Swiss francs in commercial credits to the Soviet Union, generated a worldwide trade surplus of about $8 billion and by February 1992 had foreign exchange reserves totaling almost $43 billion. Recently it has extended food credits to the former Soviet Union. China’s economic system also has performed well by the standards of its Asian neighbors. From 1984?90 the P.R.C.’s economic growth rate was nine percent—more than four times that of the Philippines, nearly twice that of Indonesia and a percentage point higher than Thailand’s. Among the major economies of Asia, China’s growth rate was exceeded only by South Korea’s. In broader measures of performance, infant mortality in China in 1991 was 33 deaths per thousand live births, compared to 109 in Pakistan, 91 in India, 73 in Indonesia, 54 in the Philippines, 37 in Thailand and 6 in Hong Kong.

Defense spending, so wildly out of balance with development expenditures throughout the Third World, is more proportional in China, though there are concerns. Since the mid-1980s China has reduced the number of people bearing arms by 25 percent, with indications of further manpower cuts to come. According to World Bank statistics, when China began its reform program in 1978, Beijing reportedly spent 4.7 percent of GNP on defense and 3.1 percent on culture, education and public health. In 1988 defense had fallen to 1.6 percent and culture, education and public health had risen marginally to 3.5 percent.

Despite this general trend, however, China has witnessed double-digit defense spending increases in the last three years. The CIA put these facts somewhat differently: "When adjusted for inflation, budgeted defense spending—which may account for only half of the country’s military spending—fell 21 percent from 1984 to 1988 . . . but had risen 22 percent since 1988." These recent defense spending increases can be understood as efforts to mollify the military and to convert it to a force leaner in personnel and richer in sophisticated technology. Nonetheless trends in spending, procurement and strategy call for careful monitoring, given recent and contemplated Chinese weapons purchases, such as new-generation aircraft obtained from Russia.

China’s system has done rather well in sustaining high rates of growth, meeting basic human and material needs and getting its development priorities in some sort of balance. Education and health are still in desperate need of more money, and underlying population growth and environmental stresses will become mounting problems in the years ahead. Moreover China remains an agricultural society whose almost 1.2 billion people collectively hover at a low per-capita GNP level. The economy is fragile, and suppressed inflationary pressures could explode rapidly. Nonetheless this is not a system that has entirely failed.

Demands for political change stem not so much from economic failure as from moderate economic success, the resulting rising expectations and the magnetic appeal of the neighboring Chinese free-market communities of Taiwan, Hong Kong and Singapore. Drawing lessons from the Soviet Union’s demise, China’s leaders have concluded that the regime’s survival rests on genuine and rapid economic reform. Indeed it was precisely such an acceleration that was approved in mid-October at the 14th Party Congress in Beijing.

Economic Reform Continues

THE 1989 POLITICAL crisis, epitomized by the Tiananmen tragedy, did not create a new policy of economic retrenchment so much as it deepened the resolve of Chinese leaders to enforce a previously agreed upon recentralization of financial authority that was considered essential to building up China’s foreign exchange reserves and to lowering inflation. (Inflation was running at an annual rate of 10?15 percent in early 1988 and had jumped to an annual rate of 26 percent by December of that year.) In late 1988 foreign observers were saying that something had to be done to increase China’s foreign exchange holdings of $17.5 billion so that it could continue importing at a significant level while simultaneously repaying international obligations that were to come due in the early 1990s. Everyone inside and outside of China recognized the politically explosive character of inflation.

In the aftermath of Tiananmen Western suspension of bilateral and multilateral loan and aid programs made it even more essential that China’s leaders quickly halt the unnecessary expenditure of foreign exchange, increase exports to build foreign exchange reserves and immediately restore a stable domestic economic order by halting inflation. This policy, in part, accounts for the 22 percent fall in U.S. exports to China and the simultaneous 27 percent rise in Chinese exports to the United States that so angered Americans.

Beyond successful performance in foreign trade Beijing made remarkable headway against inflation, bringing it down to about one percent by the first quarter of 1990 and to an annual rate of 4.4 percent in 1991. Despite renewed concern about inflationary pressures this year (such as 19 percent industrial growth in the first six months), the CIA indicated in August that three consecutive bumper grain harvests and China’s large foreign exchange holdings should moderate inflation, at least for a while.

In short, economic reform never was halted, but, instead, took a temporary back seat to dealing with the more pressing problems of maintaining a stable currency, assuring adequate hard currency reserves and boosting grain production. It was the backdrop of political repression and the elite argument over the direction of policy that created a widespread impression abroad that economic reform had been reversed or jettisoned.

During 1990?92 economic reform initiatives were apparent in several important areas. First, China’s currency, the renminbi (RMB), was devalued on several occasions, bringing the exchange rate by early 1992 to a level that most observers believed was near to what its internationally market?determined value would be were it freely floated. Though in late 1992 the gap between the official and free?market rates for the RMB had widened somewhat, the regime seemingly remains committed to freely floating its currency and to doing away with the dual currency system of local currency and "foreign exchange certificates." Assuming these reforms are implemented, the P.R.C. will be integrated into the world economy to a high degree and will be even more subject to the external influence that such integration implies.

A second important area of economic reform saw China adjust upward such politically sensitive prices as those for grain and air and railway fares. Policymakers also continued to broaden the scope of market-determined prices in other areas. During the 1989?92 period there was a continual expansion of the numbers of goods for which prices were set in the market place. Indeed the fact that there were so many market-determined prices co-existing and overlapping with state-set prices has exacerbated corruption. State and Party officials with access to good at comparatively low, state-set prices use their power to acquire those goods and transfer them to free market, where generally higher prices prevail. This and other corrupt practices by officials, along with inflation, may well be the largest immediate threats to social stability.

In other reforms during 1990-92 China modestly raised the cost of housing to more accurately reflect capital, operating and maintenance expenses, and began the long and arduous task of creating a housing ownership system. The package is intended to give people a personal stake in maintaining real property and to generate badly needed housing capital.

In the financial area stock markets opened in Shanghai and Shenzhen, albeit with restricted numbers of listings and trading, with some "B share" stock available for purchase by foreigners. By the third quarter of 1992 thirty Chinese cities had established short-term fund markets.

By early 1992 China was pushing efforts to introduce market mechanisms in the 40-year-old state-controlled materials distribution system, allowing market-driven trading in basic industrial inputs. If this reform expands, the prices of coal, rubber, farm machinery, building materials and chemicals will become market responsive, reverberating throughout the entire industrial structure.

In 1990 China adopted a copyright law that, while not adequately protecting foreign intellectual property, recognized ideas and technology as investments that need to be rewarded and protected. This recognition was given more currency in January 1992 when China and the United States reached agreement on the protection of intellectual property in the pharmaceutical, literary, artistic and software areas—protection that exceeds minimum international standards in several respects. Implementation, however, remains to be seen.

Building on this achievement, in early 1992 Beijing again began to push vigorously for entry into the General Agreement on Tariffs and Trade. In its October agreement with the United States, China has made some of the market-access concessions (such as publishing heretofore secret trade regulations and phasing out a variety of import barriers over the next five years) that are necessary to accede to the GATT in the not?too?distant future.

Demands for Political Reform

WITH ECONOMIC REFORMS in sensitive areas moving forward, one sees once again the stirrings of political disaffection among workers in state industrial enterprises. As in 1989 the economic reforms enumerated above are giving rise to renewed fears and frustrations among workers—fear of price rises and job losses. Representatives of China’s state-controlled labor union, the All-China Federation of Trade Unions, recently traveled across the country to demonstrate concern for the thousands of workers being dropped from featherbedded state?enterprise payrolls.

The strategy Beijing’s leaders have adopted in response to such stirrings parallels to some extent the earlier strategies of the economic "dragons" of Taiwan, South Korea and Singapore: keep one foot on the economic accelerator and the other foot on the political brake. This can work for awhile, but eventually brakes burn out. The dilemma China’s leaders faced in 1989, and which they face today, is that the process of economic reform produces new interest groups, adversely affects powerful traditional groups (like state-enterprise workers) and generally gives rise to increasing demands on the regime.

There are two broad approaches to handling these demands. One is through repression (the 1989?92 approach); the other is to allow the expression of those interests and channel them into newly constructed political and legal institutions. Before June 1989 it appeared that the regime was pursuing a course in which legislative functions would be increased, legal procedures for grievances would be institutionalized and political reform would proceed, albeit at a considerably slower pace than economic change. The combined shocks of the Tiananmen bloodshed and the subsequent collapse of eastern Europe and the Soviet Union threw this nascent liberal approach into a deep freeze.

With respect to political reform there can be little doubt that the period following the Tiananmen crackdown was characterized by repression and political backsliding. Efforts that had been underway to make the National People’s Congress (China’s national legislature) an effective and representative body ground to a halt—indeed reversed. Efforts to make the rule of law a more fundamental part of daily political life prior to June 1989 were set back in the wave of indiscriminate arrests and detentions, not to mention the extraconstitutional means by which the decisions to declare martial law (in May 1989) and to use force (in June) were made. Throughout the post-Tiananmen period unauthorized labor organizers, Christian congregations that are not sanctioned by the state and intellectuals have been particularly persecuted.

Nor has the press been spared. Prior to Tiananmen the Chinese mass media had become somewhat more professional and independent. After the crackdown the media was once again thoroughly intimidated. Harassment of foreign journalists in China was just one counterproductive symptom of that phenomenon. And finally, open discussion of interest groups, political pluralization and checks-and-balances political systems ground to a halt.

But unlike previous crackdowns in which the populace was coerced into informing on one another and refraining from any political discussion, the degree to which citizens refused to cooperate in this suppression and openly mocked its atavistic qualities is striking. If the leaders had gone back to older patterns of rule, China’s citizens had not retreated to the older pattern of submission.

Less well understood and of great importance to China’s long-term economic and political development is the degree to which the groundwork was being laid during 1990-92 for further economic, political and legal reform. On the economic front reform continued, though at a significantly reduced pace. By late 1991 China appeared ready for another period of vigorous economic reform. The Eighth Plenum of the 13th Party Congress in November 1991 announced a ten-point program for the rural areas and reaffirmed Deng Xiaoping’s reformist economic line, if not all his personnel choices. Deng reasserted his leadership role by appearing on the public stage in South China in January 1992. In March the Communist Party’s Politburo embraced Deng’s economic pragmatism, saying that whether the move is "socialist" or "capitalist" will depend mainly on whether or not it will benefit the living standards of the people. By August a member of the Politburo Standing Committee called for relaxation in the fields of art and literature, and the 14th Party Congress promoted a large number of younger, economic reform-minded people to the Central Committee, Politburo and its Standing Committee, abolished the Central Advisory Commission that provided an organizational base for China’s conservatives, and called for an expansion of economic reforms in China. Nonetheless strong elements of the central leadership are not fully reconciled to these policies.

As the 14th Party Congress showed, however, political reform in China is not yet a serious priority. Deng Xiaoping remains committed to accelerating economic reform while maintaining the political status quo—the "neo-authoritarian" approach. What is not open to question, however, is that the post-Tiananmen economic reforms and the current acceleration of economic change will soon put serious political reform back on the agenda. The only issue is whether the elite gets out ahead of these demands or it is forced to respond. In the latter case ongoing economic reform (and the possible inflation it will bring) will be setting the stage for further conflict and repression, regime failure or both. The convergence of such social, economic and political crises with the leadership succession in Beijing could spell turmoil for China’s Communist Party and its people. The solution is to build legitimate channels by which dissatisfaction can be expressed and moderated.

Phenomena of "Greater China"

MANY NOW ARGUE that American interests in China are secondary in the wake of the Cold War’s end. Although the Soviet threat has largely disappeared (but not the dangers arising from its implosion), the intrinsic importance of the U.S.-China relationship is growing along several other dimensions. American interests can be put into global, regional and bilateral categories.

Globally an increasing role will be played by multilateral organizations, with the United Nations most prominent among them. Given China’s veto power as a permanent member of the Security Council, Beijing must be part of a consensus for the United Nations to be effective. Therefore U.S. policy must seek common ground where possible with China’s leadership, while simultaneously criticizing its behavior in human rights, weapons proliferation and certain trade practices. The United States would not have forged an internationally sanctioned coalition during the Gulf War had China sought to obstruct the Security Council’s actions in early 1991, nor would subsequent U.N. actions concerning Libya, the Balkans, Iraq or Cambodia have been feasible.

Environmental protection also requires global cooperation. Today China depends on coal for 70 percent of its industrial fuel and power generation and 90 percent of its household energy needs. Most of this coal has a very high sulphur content and is inefficiently burned in the open atmosphere, which leads to tremendous pollution problems. There is little prospect of these percentages being significantly reduced in the next 25 years. With an expected real economic growth rate of about five percent over the next three decades, China’s cooperation will be essential to limit global warming and acid rain in Asia.

In the world today refugees also are a major concern. The dislocations created by refugees from Cambodia, Vietnam and eastern Europe are small compared to the havoc a major exodus from China would produce. Each one percent of China’s population totals almost 12 million persons—about a quarter of France’s population, twice the size of Hong Kong’s and more than half that of Taiwan’s. It is in the world’s interest, not to mention that of the P.R.C.’s immediate neighbors, that a Chinese exodus not be created by political failure (of which severe political repression is one form), natural disasters or widespread economic/agricultural collapse.

Finally, China is a major seller of affordable and serviceable weaponry to developing nations, and an actual or alleged source of nuclear and/or missile technology to Pakistan, North Korea, Iran, Syria and Saudi Arabia. The United States and other nations must continue to encourage China to cooperate on limiting proliferation of arms and technology for weapons of mass destruction, as well as better policing Western companies engaged in illicit and unwise technological transfers. China’s recent accession to the Nuclear Nonproliferation Treaty—and its promise to adhere to the guidelines and parameters of the Missile Technology Control Regime—are testament to the importance of continued engagement and pressure by the United States, Europe and Japan.

Regionally American interests are both numerous and important. The two most protracted, economically distracting and politically explosive American military commitments in the post-World War II era were Korea and Vietnam. In both cases China figured prominently. The lesson is that regional stability requires workable U.S.-China relations. Competition between Beijing and Washington takes the form of exploiting indigenous regional conflicts by both powers, resulting in local problems that expand to suck both countries into a self-defeating vortex.

The most serious threats to American security and economic interests in Asia include armed conflict with nuclear potential between the two Koreas and between India and Pakistan; a deterioration of relations between Beijing and Taipei that could lead to economic or military conflict; a re-ignition of the Cambodian conflict; and a botched transition to Beijing’s sovereignty in Hong Kong in 1997. None of these problems can be handled effectively without substantial Sino-American cooperation. Constructive relations with Beijing will not assure P.R.C. cooperation in all cases; needlessly bad relations will nearly ensure conflict. The Republic of Korea’s formal diplomatic recognition of Beijing last August, at the expense of Taipei, is just one indication of the increasing importance the region attaches to building positive ties to the P.R.C.

In Cambodia, although there is no certainty that the 1991 peace agreement to have free and open elections in 1993 will be successful, progress to date could not have occurred without China’s cooperation. Further, Beijing’s somewhat improved relationship with Hanoi has made progress in Cambodia more likely. It has further reduced the level of conflict in the region to the point where in 1991 Washington was able to contemplate eventual normalization of relations with Hanoi.

To China’s southwest, Beijing is seeking to improve relations with New Delhi while maintaining its traditionally warm ties to Islamabad. China’s apparent nuclear cooperation with Pakistan and recurring reports of pending and/or actual missile technology sales to Islamabad are contrary to U.S. interests and are regionally destabilizing. Nonetheless closer Sino?Indian relations are a trend very much in the U.S. interest.

In the Taiwan Strait relations between Taipei and Beijing have their own dynamic and are not under Washington’s control. Indeed Beijing?Taipei relations easily could become one of the most serious problems in Sino?American relations. Recent Chinese protest over Washington’s decision to sell F?16 fighter aircraft to Taiwan is just one indication of the conflict, contradictions and policy dilemmas that lie just below the surface. The P.R.C.’s incentive to continue a policy of moderation toward Taiwan would be greatly lessened by a deterioration of its relations with the United States.

Worsening China?Taiwan relations would also adversely affect U.S. interests. First, many of Taiwan’s firms—with $3 billion plus investments in the mainland—are exporting to the United States. If the American market dries up for Chinese exports some of Taiwan’s investment in the P.R.C. will also vanish. Second, the 1979 Taiwan Relations Act charges the U.S. president with assuring that America helps maintain Taiwan’s capacity to defend itself. If U.S.?P.R.C. relations deteriorate one can expect more mainland hostility toward Taiwan, which will exacerbate the dilemmas facing Washington.

Hong Kong is America’s thirteenth largest trading partner. U.S. investment exceeds $7 billion there, and nearly 22,000 Americans live in the territory. Moreover, about two?thirds of China’s exports to the United States pass through the colony. Hong Kong’s greatest insurance policy for its post-1997 future under communist sovereignty is its economic utility to China—that means trade. If the United States adopts policies that reduce trade with China, either by design or through a general deterioration in relations with Beijing, it will correspondingly reduce the incentives for restraint in Beijing toward both Taiwan and Hong Kong.

Bilaterally the United States has a stake not only in pursuing the interests specified above, but also in creating a niche in the world’s most rapidly growing major economy today—"Greater China" (the P.R.C., Taiwan and Hong Kong). Exports have been the engine keeping the American economy going during the recent recession and exports will play an increasingly prominent role in America’s future. If this emerging Chinese economic conglomerate were considered a single trading entity it already would have been America’s third largest trading partner in 1989, following Canada and Japan (with Mexico ranking fourth). There is insufficient recognition among Americans that the increasing economic interdependence among Hong Kong, Taiwan and the Chinese mainland is creating new economic opportunities, policy problems and dependencies that hold the promise of creating greater regional security.

While there is increasing attention focused on the P.R.C.’s growing trade surplus with the United States ($2.8 billion in 1987, $10.4 billion in 1990, $12.7 billion in 1991 and an estimated $15 billion or more in 1992), America’s trade deficit with Greater China actually declined very slightly during 1987-91. This occurred because Taiwan and Hong Kong moved much of their manufacturing and assembly operations aimed at the U.S. market to the mainland in order to take advantage of lower labor and land costs. Moreover Taiwan and Hong Kong enterprises exported to the mainland many of the components that were assembled into products, thereby shifting this value to the P.R.C.’s accounts, in the process reducing Taipei’s and Hong Kong’s surplus with the United States while simultaneously increasing Beijing’s. Taiwan and Hong Kong, in effect, exported their political and economic conflicts with the United States to the mainland.

The gainers in this process were American consumers, who were able to purchase low-cost, high-quality goods; the P.R.C., which gained jobs; and Taiwan and Hong Kong, which were able to shift their own production efforts to higher value-added output and reduce trade frictions with Washington. As for American workers they were not going to get these low-paying jobs in any case. The only remaining questions are to which Third World country those jobs are going to move, and how can the United States rapidly raise the capacity of the American work force to add value in new product areas. High-quality education and job training, not protectionism, are the long-term answers to America’s economic problems.

Not only is this emerging Chinese conglomerate becoming more economically integrated, each area is hedging its bets by placing substantial amounts of human and material resources in the United States. Students, resident businessmen and financial investments from the P.R.C., Taiwan and Hong Kong are growing in number in the United States. Students and scholars from Greater China, whether they stay in the United States or return to their native lands, constitute a human bridge between the Chinese economic conglomerate and America. They give Americans a huge advantage in dealing with this part of the world. Further, the Asian share of U.S. legal immigration soared from five percent in 1931-60 to nearly 50 percent in the 1980s, exceeding legal immigrants from Latin America. After Filipinos, ethnic Chinese are the second largest Asian group in the United States. The United States not only has an incentive to augment economic ties to China, it has a unique capacity to do so.

In sum the challenges facing American policy are twofold: to encourage and participate in economic developments that promote security, prosperity, and social and political change, as has occurred in other areas of high-speed Asian growth, most notably South Korea and Taiwan; and to remain flexible and diversified in dealings with China, given that the unexpected has been the norm in the P.R.C.

Challenges Ahead

TODAY THE UNITED STATES runs the very real danger of pursuing a self-defeating policy of benign neglect or overt hostility that is rationalized by moral outrage over the character of political rule in China. Moreover the United States is doing so at a time when no other country in the world is pursuing such a course. America may be in more peril of being isolated than China, if the trends of the recent past continue.

A policy of benign neglect or outright hostility will not only forego opportunities to build links to the most dynamic regional economy in the world and to gain the benefits to be derived from cooperation on global problems, it also will retard the ongoing processes that over the long run will produce the kinds of social change more compatible with basic American values. The United States needs a policy of active involvement in Greater China that consists of the following elements: vigorous engagement, diversification, multilateralization and recognition of interdependence.

Vigorous engagement means involving Chinese leaders and organizations at the highest levels in a dialogue about the problems and opportunities that America and China face together. These problems include proliferation, trade, human rights, the global environment and the development of multilateral institutions. In the course of these dialogues, such as recent and successful negotiations over intellectual property and market access, the United States may have to exert considerable pressure to assure a fair outcome. Nonetheless this pressure should be applied to achieve clearly defined objectives. To apply broad sanctions in the absence of dialogue, in order to achieve ill-defined purposes, is a formula for ineffective and counterproductive policy.

Diversification of relations has two principal dimensions. At the same time that Washington remains actively engaged with Beijing’s leaders at the national level, it needs to develop relations with local leaders throughout China. A new generation of capable, younger, economically oriented leaders is moving up through the system. These individuals not only have growing influence because of the decentralization that has occurred over the last 15 years, they also increasingly have the skills and motivation to make cooperation with Americans more productive. America should not deceive itself, however, that the rise of younger, more technologically oriented leaders in China will dispel disputes. On the contrary the seriousness of their commitment to economic development may increase conflict, particularly in the trade and environmental domains. But one can expect that Americans and Chinese will speak the same language to an ever larger extent.

Diversification also has another dimension. With the tremendous economic, political and social change that has occurred in Taiwan, and Hong Kong’s attempts to reach out in anticipation of the 1997 transition to Beijing’s sovereignty, the United States needs to further develop its cultural and economic ties with these two exceedingly important areas.

There is a tendency in U.S. foreign policy thinking to bilateralize issues that could more productively be addressed multilaterally. The result is that China frequently shifts the issue from the subject at hand to one of big power pressure on Third World nations—this strikes a resonant chord in much of the world. Moreover American attempts to pressure nations are undermined by the actions of other countries that either do not share U.S. objectives or disapprove of U.S. methods. And finally, by bilateralizing issues the United States tends to throw too many issues into the cauldron of super-heated domestic politics. Rather, America increasingly must build a consensus supportive of its policies internationally and seek remedies through international organizations and cooperation.

The rise of the Chinese economic conglomerate is important not only because of the economic opportunity it presents to the United States and because it will be another force for moderation in Beijing, but also because of what it implies for the use of American leverage. To the degree that Hong Kong and Taiwan use China as a platform for the production of export products to the United States, Washington’s use of economic sanctions (such as ending or placing conditions on China’s MFN status) that seek to deny "P.R.C. exports" access to the American market will inadvertently create unintended victims in Taiwan and Hong Kong. The United States must not make economic cluster bombs that hit friends and opponents equally.

Whether the P.R.C. succeeds or fails it will present America with enormous challenges. System collapse would impose large-scale misery on the Chinese people, lead to a destabilizing foreign policy and produce a China with no authoritative center with which to deal and create migratory flows of enormous magnitude. Economic success in the P.R.C. will have negative global ecological effects, increase Chinese competition in some economic sectors (as well as provide a large market for many American industries), and enable China to project power and influence in ways the United States will not necessarily like. A China that has made rapid progress and becomes stronger will not be a pliable China. However, it is far better that America face the problems of success in China than those of failure.

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