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U.S.A-China Relations, Is China A Friend Or An Enemy?, Policy And Politics International Perspective Paper, H. John Heinz III School of Public Policy and Management, Carnegie Mellon University, …

U.S.A-China Relations, Is China A Friend Or An Enemy?, Policy And Politics International Perspective Paper, H. John Heinz III School of Public Policy and Management, Carnegie Mellon University, Spring 2006

Background: The relation between U.S.A and China has changed since 1980’s. Today the U.S is the world’s most developed country, while China is the world’s largest developing country. There is a cooperative partnership in many fields between USA and China which is beneficial for both sides. During the last two decades China has practiced remarkable changes. These changes compromise almost all aspects of Chinese society, as well as China’s relations with outside world. Since starting to open up and reform its economy in 1978, China has averaged 9.4 percent annual GDP growth, one of the highest growth rates in the world. China has also attracted hundreds of billions of dollars of foreign investment and more than a trillion dollars of domestic nonpublic investment. Foreign direct investment (FDI) in China has also increased dramatically, rotating China into the 2nd most important recipient of FDI, after the US.

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  • 1. POLICY PAPER ON U.S.A-CHINA RELATIONS IS CHINA A FRIEND OR AN ENEMY? (Policy and Politics International Perspective) Ergul HALISCELIK Senior Treasury ControllerRepublic of Turkey Prime Ministry Undersecretariat of Treasury Policy Paper, Spring 2006 H. John Heinz III College, Carnegie Mellon University 0
  • 2. Background: The relation between U.S.A and China has changed since 1980’s. Today the U.S isthe world’s most developed country, while China is the world’s largest developing country. Thereis a cooperative partnership in many fields between USA and China which is beneficial for bothsides. During the last two decades China has practiced remarkable changes. These changescompromise almost all aspects of Chinese society, as well as China’s relations with outside world.1 Since starting to open up and reform its economy in 1978, China has averaged 9.4 percent annualGDP growth, one of the highest growth rates in the world. China has also attracted hundreds ofbillions of dollars of foreign investment and more than a trillion dollars of domestic nonpublicinvestment. Foreign direct investment (FDI) in China has also increased dramatically, rotatingChina into the 2nd most important recipient of FDI, after the US. 2China’s Political Situation: State power within the China is exercised through three interlockingorganizations: the Communist Party of China, the Central Peoples Government, and the Peoples 3Liberation Army. The governments efforts to promote rule of law are significant and ongoing.After the Cultural Revolution, Chinas leaders aimed to develop a legal system to restrain abuses ofofficial authority and revolutionary excesses. Legal reform became a government main concern inthe 1990s. The Constitution was amended in 2004 to include the protection of individual humanrights and legally-obtained private property, but it is unclear how those provisions will beimplemented. The State Department’s annual China human rights reports have noted China’s well-documented abuses of human rights in violation of internationally recognized norms, stopping bothfrom the authorities’ intolerance of disagree and the inadequacy of legal safeguards for basicfreedoms. 4The Nature of China’s Economic Transition: China’s economy during the last quarter centuryhas changed from a centrally planned system to a more market-oriented economy that has a rapidly 1
  • 3. 5growing private sector and is a major player in the global economy. Prior to 1979, Chinamaintained a centrally planned, or command, economy. A great share of the country’s economicproduction was directed and controlled by the state, which set production goals, controlled prices,and allocated resources throughout most of the economy. Beginning in 1979, China started onseveral economic reforms. Since the launch of economic reforms China has become one of theworld’s fastest-growing economies. From 1979 to 2004, China’s real GDP grew at an average rateof 9.3%; China’s trade boom is largely the result of large flows of foreign direct investment (FDI)into China (which hit $64 billion in 2004) 6 China selected to carry out economic transition in astep by step way, rather than by radical reforms or even shock therapy as used in some othereconomies. This route proved to the key to the success of transition, because it limited the negativeimpact of reforms to an acceptable extent and avoided social unrest. 7The Most Important Macroeconomic Effects of the Economic Transition: are continuouslyincrease in trade data, GDP, growth rate and the FDI.Trade continues to play a major role in China’s booming economy. According to Chinese tradedata, its top five trading partners in 2004 were the European Union (EU), the United States, Japan,Hong Kong, and the ASEAN. In 2004, exports rose by 35% to $593 billion, while imports grew by36% to $561 billion — making China the world’s third-largest trading economy (after the UnitedStates and Germany). Country Total Trade Chinese Exports Chinese Imports Chinas Trade Balance EU 177.3 95.9 63.4 32.5 USA 169.7 125.0 44.7 80.3 Japan 167.9 73.5 94.4 -20.9 Hong Kong 112.7 100.9 11.8 89.1 ASEAN 105.9 42.9 63.0 -20.1 Table 1: China’s Top Five Trading Partners, 2004 ($ Billions) (Source: Official Chinese Trade data) Note: Chinese data on its bilateral trade often differ substantially from the official trade data of other countries on their trade with China. 2
  • 4. On the other hand, Chinese statistics show real GDP from 1979 to 2004 growing at an averageannual rate of 9.3%, making China one of the world’s fastest-growing economies. 8 TRADE IN GOODS WITH CHINA (Million $) Total two-way trade between China and the YEARS EXPORTS IMPORTS BALANCE 2000 16,185.2 100,018.2 -83,833.0 U.S. grew from $33 billion in 1992 to over 2001 19,182.3 102,278.4 -83,096.1 2002 22,127.7 125,192.6 -103,064.9 $285 billion in 2005. The United States is 2003 28,367.9 152,436.1 -124,068.2 2004 34,744.1 196,682.0 -161,937.9 China’s second-largest trading partner, and 2005 41,836.5 243,462.3 -201,625.8China is now the third-largest trading partner for the United States (after Canada and Mexico).U.S. exports to China have been growing more rapidly than to any other market (up 28.4% in2003, 20% in 2004 and 20.4% in 2005). U.S. imports from China grew 24%, with the U.S. trade 9deficit with China exceeding $ 201 billion in 2005. The comparisons of U.S., Japanese, andChinese GDP and Per Capita GDP in Nominal U.S. Dollars and PPP, 2004 is given in table below.Another important macroeconomic effect of this transmission can be seen on Foreign DirectInvestment (FDI) figures. China’s trade and investment reforms and incentives led to a surge inforeign direct investment, which has been a major source of China’s capital growth. Annualutilized FDI in China grew from $636 million in 1983 to an estimated $64.0 billion in 2004. The 3
  • 5. United States is the second-largest investor in China, accounting for 8.5% ($48.0 billion) of totalFDI.10China’s Military Capabilities: The rapid grow of the China as a regional political and economicpower with global targets is one of the principal elements in the emergence of East Asia. China’semergence has important implications for the region and the world. Today, China is facing astrategic turning point about the basic choices that China’s leaders will make as China’s powerand influence grow, particularly its military power. The Chinese People’s Liberation Army (PLA)is modernizing its forces, emphasizing preparations to fight and win short-duration, high-intensityconflicts along China’s border. PLA modernization has accelerated since the mid-to-late 1990s inresponse to central leadership demands to develop military options for Taiwan scenarios.11Establishment of a professional military force equipped with modern weapons and doctrine was thelast of the "Four Modernizations". In keeping with Dengs mandate to reform, the PeoplesLiberation Army (PLA), which includes the strategic nuclear forces, army, navy, and air force, hasdemobilized millions of men and women since 1978 and introduced modern methods in such areas 4
  • 6. as recruitment and manpower, strategy, and education and training. The Chinese military is tryingto transform itself from a land-based power, centered on a vast ground force, to a smaller, mobile,high-tech military capable of mounting defensive operations beyond its coastal borders. 12 Conclusion If China is a Friend or a Foe: History has already proved that the China is not United States permanent enemy. Today there are many cooperative partnerships in many fields, especially economic and political arena, between USA and China which will be favorable for both. USA-China relations will base on long-term interests of the both sides. The improvement of US-Chinese relations will be slow, tortuous, limited, and conditional. 13 U.S have to sustain this cooperation not only for China’s economic-social progress and stability but also world stability at large. This stability will also be benefical for U.S in the long run.Policy Recommendations: Today political relations between China and USA are stable and economic and trade links are expanding. So any conflict, such as Taiwan, would be nightmare and both sides try to avoid it.14 Cooperative partnership between USA and China will be beneficial for both sides. China needs USA in development and stabilization of its economy, education, culture, technology and science while USA needs China’s cooperation on security, counterterrorism, Iraq and Middle east issues and trade-finance issues. Chinese purchases of U.S. Treasury bonds and holding foreign exchange reserves (China holds the world’s second largest stock of foreign exchange reserves) have helped finance US’s budget deficits. Without those purchases US would either have to raise interest rates, slowing growth, or run comparable trade deficits with other countries so they could buy our bonds.15 5
  • 7. Even if these figures are beneficial for the US economy today US should monitor and take some control on this issue in the long run. After the U.S., China is the world’s second largest primary energy consumer. It is also the third largest energy producer. The continuously growing Chinese economy will need more energy resources in the long run. So it is highly possible that there can be some conflicts on energy resources between US and China. The economic cooperation and trade activity with China is beneficial for both sides. So U.S should strengthen this cooperation and protect the favorable environment for the future development of the bilateral economic relations. The aid of the international organizations such as United Nation, World Bank, World Trade Organizations, and International Monetary Fund will be helpful to achieve this goal. We have to cooperate with China to develop both economic progress and social progress, democracy, freedom, and respect for human rights and the rule of law in China. This cooperation will contribute not only China’s socio-economic life and human rights record, but also world stability at large. 1 Kjeld Erik Brodsgaard and Bertel Heurlin, China’s Place in Global Geopolitics, pp 1 2 Zheng Bijian, Chinas "Peaceful Rise" to Great-Power Status, Foreign Affairs, September/October 2005 3 http://en.wikipedia.org/wiki/Politics_of_the_People%27s_Republic_of_China#Political_conditions 4 http://www.state.gov/r/pa/ei/bgn/18902.htm#political 5 CIA, The World Factbook, China 6 Wayne M. Morrison, "Chinas Economic Conditions," CRS Issue Brief for Congress, IB98014 7 16th National Congress of the Communist Party of China, 2002, Economic Transition a Success 8 Wayne M. Morrison, "Chinas Economic Conditions," CRS Issue Brief for Congress, IB98014 9 http://www.state.gov/r/pa/ei/bgn/18902.htm 10 Wayne M. Morrison, "Chinas Economic Conditions," CRS Issue Brief for Congress, IB98014 11 Annual Report To Congress The Military Power of the People’s Republic of China, 2005 Office of the Secretary of Defense 12 http://www.state.gov/r/pa/ei/bgn/18902.htm#defense 13 Wang Jisi, “Chinas Search for Stability With America”, Foreign Affairs, September/October 2005 14 Wang Jisi, “Chinas Search for Stability With America”, Foreign Affairs, September/October 2005 15 William H. Overholt, New China, New Partner, http://www.gbcc.org.uk/33article3.htm 6