Nick Pehlman Gov 133 Summer 2011 Dr.

Le Veness Discuss in-depth the relationship between the Peoples Republic of China and the United States. How do you see this relationship evolving in the future? If the 20th century was the American Century, the 21st century will likely be remembered as the Chinese century. Last year the Chinese economy grew by 10.3% as the US economy barely grew at 2.8%.(CIA 2011) China has just recently surpassed Japan as the third biggest economy in the World behind the US and the EU.(CIA 2011) With a seemingly unstoppable economy and the largest population in the world, China seems poised to take a dominant role in world affairs in the 21st century, but how will the US react to this? The US remains the predominant military force around the world, although China is also modernizing and improving its security forces at an alarming rate. Beyond trade, competition for resources will be a major source of friction between the US and China in the coming years as oil prices remain high and Chinese demand for petrol increases exponentially. While China has the advantage over the US in the economic and trade arenas, China still has plenty of domestic and regional problems. Although on ice, Taiwan remains a major impediment towards moving forward for China. Also questions of political repression, the status of Tibet, piracy and polluting will all be major roadblocks for China on its ascendance with the US playing a major role in nearly every voice of critique. These unresolved questions of Chinas are substantial and if China leaves these problems unaddressed she will be unable to realize her full potential in the international order of the 21st century. Taiwan A major roadblock to normalizing China-US relations has been the shelved question of Taiwan. Ninety miles off the coast of mainland China the Kuomintang

(KMT) party claims to be the rightful government of China and has since 1949. The US supported the KMT party against the Chinese Communist Party in the civil war as a part of its Cold War strategy of containment (although ironically the KMT began as a Leninist Party.) In the 1970s the US began to shift its focus from Taiwan and finally accepted the PRC as the legitimate government of China, however it has maintained some relation with Taiwan since. While American policy towards China has been increasingly focused on issues of trade, domestic political liberalization, and elements other than the Taiwan question; cross straight relations remain schizophrenic. In many ways China is seeking to emulate the economic (if not one day the political) liberalization that Taiwan has undertaken years before, and views this as a possible model for itself. Indeed 28.1% of Taiwans exports go to China and 14.2% of Taiwans imports come from the mainland. Chinese policy toward Taiwan is particularly misunderstood in the west. The popular misconception is that given the opportunity China would impose its communist system on Taiwan and the country would lose all of its economic strength and political freedom. Much like Chinas handling of the reunification of Hong Kong with a special deal that allows them to retain their peculiarities for another 50 years while the mainland modernizes, China may even be an admirer of these systems. Overholt writes -for the past 27 years mainland Chinas government has assumed the superiority of the Taiwan system. In the view of the communist government, Beijings job is to catch up with, not to change Taiwan.(Overholt 2008 p145) As the economic links between Taiwan and the mainland increase the likelihood of a conflict between the two entities decreases, however strategic arms sales from the US has been a consistent source of irritation on the mainland.

US secretary of Defense Robert Gates at a visit in Beijing earlier this year said that while the US does not recognize Taiwanese independence it will continue to engage in arms deals with the island and honor its obligations under the Taiwan Relations Act.(Lowther, 2011) In 2000 the Democratic Progressive Party (DPP from hereon) won power in Taiwan ending more than a half century of KMT hegemony. The DPP had strong Taiwanese nationalist roots however they were slightly muffled in office. In 2008 the KMT returned to power in 2008, a partner that China is much more comfortable with. The essential difference in policy between the KMT and the DPP is that the DPP seeks the establishment of an independent republic and the promotion new national Taiwanese identity, while the KMT and the PRC agree on a One China policy with different definitions across the straight. Trade Trade with China is popularly conceived of as overly advantageous to the Chinese and often coming at the expense of American industry and producers. While there is some truth in this imbalance of trade between China and the US, there are also substantial benefits in trading with China. James Kynge in his book China Shakes The World discusses how the western fascination in trading with China is nothing new. Beyond the popularly recognized items that were traded in centuries before with China such as the silk, spices, and porcelain that Europeans demanded; the promise of access to a market as large as expansive as Chinas has been a constant dream of westerners. Westerners have dreamed of having access to the millions, and now billions of Chinese consumers; however this dream is often hard to realize for many reasons.

First, China is still a developing country and although it may have over a billion people, only a fraction of them are in a position to buy modern products, especially pricey imported foreign products. Competition within the Chinese domestic market is fierce and because of the ingenuity of Chinese piracy, few foreign companies are able to maintain a niche market for their products in China. Kynge writes: Though only a fraction of the population could currently be called consumers, the promise of a vast domestic market grows more real as the middle class (estimated at between 100 and 150 people in 2004) expands. In any case, recent history has proven that it is the prospect of a large market, rather than its actual existence, that is key to luring foreign investment. (Kynge, 2004 p51,52) Instead of Chinas population serving as a consumer market for western goods however, in most cases its population serves as a massive labor market for goods that will be sold in the west. In 2010 the China-US trade deficit was $273 billion, representing approximately 55% of all US trade deficit, and is currently the highest trade deficit on record.(Meltzer 2011) An article for the Brookings institute by Joshua Meltzer in 2011 attributes this balance in trade deficit to more than just a cheap cost of labor but an intentional undervaluing of the Chinese currency the renmimbi, which is caused by the renmimbi being linked to the dollar.(Meltzer, 2011) While this devaluation of the currency stimulates global demand for cheap Chinese goods, a developing consequence is that industrial production is exceeding demand and current growth rates may be unsustainable. In the next section the actual relationship of Chinas holding of US public debt will be explored, but the reason for these holdings of US treasury bonds has been the increase in demand for artificially low valued renmimbi. The US treasury bonds have

comparatively low yields, yet the only way for China to keep up supply for the high demand of their currency without devaluing it is by purchasing ever more treasury bonds. (Meltzer 2011) US Borrowing Much controversy has been made recently about debt in the United States and particularly the role in holding major portions of US public debt. The Treasury Departments Monthly Statement of the Public Debt of the United States for May 2011 totaled $14.3 trillion dollars. Of this 14.3 trillion, 4.6 trillion is inter-governmental holdings and the other 9.7 trillion is the actual public debt.(Treasury Department) As of May, 2011, 4.514 trillion of the 9.1 trillion, (approximately 47%) of the debt is held by foreigners, and of the 4.514 trillion held by foreigners 1.1598 trillion is held by the Peoples Republic of China.(US Treasury Department) $1.1598 Trillion of treasury securities are owned by China out of the total foreign held public debt of $4.514 Trillion.(Treasury Department) So Chinas share of all foreign held US public debt is really 26% followed closely by Japan and then Great Britain. Despite the frantic and red faced rants of politicos and pundits alike, China does not own the United States and is nowhere close to owning it. While China holds a little over a quarter of US public foreign held debt, the doomsday theories of the Chinese cashing in on the USs debt and sinking our economy are delusional. Pollution Pollution caused by Chinas unprecedented boom in industrial production and her humongous population represent a serious obstacle to stable development, and increasingly an international controversy. No nation has been able to industrialize

without causing some extreme amount of environmental degradation, and Chinas astronomical development is no exception. The difference is that in 1880 when the slaughterhouses of Chicago spewed excrement into the Mississippi River and the factories of London blotted out the English sky that pollution was not understood and certainly not the politically charged issue that it is today. China argues that Europe and the West were allowed to industrialize without the slightest oversight and even relied extensively on the use of human slavery (in the case of the US). Now that it is Chinas turn to industrialize the accusations that Chinas pollution is an issue of global concern is a vague guise for the US to slow down unstoppable Chinese growth according to this popular conception. This was the case at last years monumental Climate Change conference in Copenhagen where which failed without any serious agreement. In an article published after the failure of the 2009 summit entitled, How do I know China wrecked the Copenhagen deal? I was in the room, Mark Lynas explains what he believes the Chinese strategy for sabotaging the summits was to make the west and particularly Obama look bad while they cut a back room deal with the developing nations. Lynas quotes some of the civil society NGOs as stating that: The failure was "the

inevitable result of rich countries refusing adequately and fairly to shoulder their overwhelming responsibility", said Christian Aid. Rich countries have bullied developing nations, fumed Friends of the Earth International.(Lynas, 2009) Lynas holds that what actually happened was that China manipulated other developing nations such as India and Sudan to paint the efforts to implement a serious binding

agreement as neo-imperialism so that China could continue to burn the coal that it relies on so heavily for its continued development. The UN Statistical Database held that for 2010 China consumed some 57 818.7 tons of ozone depleting substances, while the US consumes 305 963.6 tons, nearly six times as much.(UN 2010) However when it comes to CO2 emissions, China produces 6,538.37 million tons of CO2 in 2010 while the US produced 6,094.39 million tons. The numbers are startlingly close with the bulk of Chinese pollution coming from industrial production and the bulk of American CO2 emissions coming from automobile usage. The reality is that with around one fifth of the ozone depleting substances (oil, natural gas, coal) consumed in China has nearly the same amount of CO2 emissions. This could be due to Chinese reliance on other power sources such as dams and nuclear energy, but also to official statistical misrepresentation. Either way if Chinese industry keeps growing at the same pace it will soon be the number one polluter even with a very small percentage of the population as automobile owners. Piracy IPRs or Intellectual Property Rights are a major source of contention between the US and China. Since joining the World Trade Organization in December of 2001 it has been bound by a host of treaty obligations mandating that it crack down on its piracy at home and abroad. A recent report by the US International Trade Commission estimated that Chinese piracy cost the US $48 billion in 2009 alone.(Reuters 2009) Of that $48 billion $26 was estimated to be from the service and information sectors such as media, software, and other technology and another $18 billion lost through the manufacturing sectors through ingenious Chinese reverse engineering.(Reuters 2009) The report also

estimated that the extent of piracy in China cost the US an estimated 2.1 million jobs in hi tech and innovative service industries.(Reuters 2009) Also in 2009 the WTO ruled in favor of the US and against China and held that China had breached its treaty obligations under the WTO by failing to properly prosecute domestic piracy. The US held that this was a major victory although the WTO actually held that China did not set the standard too high for prosecution of piracy in its domestic courts, only that rampant piracy did in fact exist. (Wang 2009) The ruling is quite trivial and according to a Forbes article published in 2009 about the ruling, Chinese piracy is as much of a problem for domestic producers as for the US or any other country. Steve Dickinson, a Qindoa based lawyer commented in the article, "If China cannot solve the problem for their own domestic industries, how can they solve it for the foreigners?" Dickinson asked. Indeed, Chinese copyright owners are as unhappy as American ones-(Wang 2009) The cost to Americans of Chinese piracy, real or perceived, will continue to present a roadblock to completely formalizing trade relations between the US and China. The status quo has been a US policy of feigned outrage but complacency in continuing to trade extensively with China, but in an alternate scenario a rise in tensions over intellectual property rights could see a decrease in Chinese imports. This would mean that the pillar of Sino-American relations, namely trade, could be jeopardized if the issue is not properly addressed. Human Rights and Democracy The final challenge to Sino-American relations is one that reaches to the core character of both the PRC and the United States. The United States sees itself as the promoter of global democracy and has come under fire both at home and abroad for

having such close relations with the PRC which is both undemocratic and authoritarian. The fundamental philosophies of the US and China differ, however the Cold War is long over and both will have to come to some acceptance that they will need to deal with each other and that both states have (at least theoretically) diametrically opposed political systems. This has proved easier for China than the US, as accepting capitalism and openness to the west began over thirty years ago in China and their stance on private property, ideology, and relations with other countries has grown more pragmatic since. For the US, proclaiming itself as the champion of democracy and dealing with the authoritarian PRC has been more of a challenge. Although current American consumption patterns and a substantial portion of our economy relies on cheap Chinese goods (and of course debt), the sell has been harder for the US government to make to its own citizens. Political activism in the US and abroad centered around questions of Tibetan human rights abuses, the government crackdown on the media (particularly the internet in China), and the suppression of vocal dissidents are often heard from both official and unofficial sources. Ai WeiWei, a Chinese artist popular around the world and especially in the states was arrested in April in Beijing and the state department issued a call for China to release him. China reacts inconsistently to criticism of its system, at times ignoring the criticism indifferently, and at times in more serious diplomatic ways. As technology evolves and the access of information becomes more readily accessible in China, the PRC will certainly seek to minimize foreign critiques of its system that may be hard inside. Conclusion

China has exploded into the twenty first century as a force to be reckoned with but its astonishing development is often lopsided. China has unsurpassed insdustrial production alongside gut wrenching poverty in the center of the country; astonishing new monuments of modernity like the Beijing Olympic stadium next to toxic bubbling rivers. China will soon be the largest English speaking nation on the planet (as compulsory English classes teach hundreds of millions of youth English), yet some of the most restricted internet in the world. China is navigating a sea of contradictions on its own and its relationship with the US will in many ways determine how it traverses these obstacles. As for the cross straight relations with Taiwan, the most likely scenario seems to be the consensus that the mainland will eventually evolve to the level of Taiwan and that this will make reunification inevitable. As long as the KMT can retain its hegemony and continue its strong trade relations with China a possible confrontation between Taiwan and the mainland seems highly unlikely. The actual drive for independence within Taiwan is relatively low and has always remained below 20% who favor total independence up from 8% twenty years ago.(Overholt, 2008 p140) As the US distances itself from Taiwan in favor of China, China subsequently has less anxiety about a realistic independent Taiwanese state as a legitimate threat. As for questions of human rights and democratization in China, these will be dictated exclusively by material developments within China and how well the CPC can handle the awakening demands of over a billion people. The US may occasionally criticize the most audacious of human rights violations, but will be increasingly constrained by a deepening dependence on Chinese fiscal and trade cooperation. Questions of piracy and pollution will also be largely dictated by China, as the PRC has successfully navigated its way through the

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international community by building coalition power with other developing nations as it did in Copenhagen two years ago. Trade between the US and China will remain unstoppable, the question of Chinese credit and debt servicing will be in some way determined by forthcoming American congressional decisions and how they choose to restructure the finances of the United States. That being said Chinese factories will keep producing the cheap goods that fuel the service sector in the US including the increasingly important retail sector. The biggest question of trade relations between the US and China will be their competition for demand of resources such as rare earth (used in making cell phones and microchips; of which China has most of the worlds resources), and of course fossil fuels. As China adds new drivers by the second the American economy which is entirely dependent on automobiles will experience an increase in prices as Chinese motorists demand more and more oil. China however has taken the steps to invest heavily in renewable energy such as solar and wind power while the US has done so only in rhetoric. The most important factor in dictating the future playing field of global politics will be whether the US can adapt to sharing resources with another billion plus people.

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Sources Cited CIA. 2011. China Central Intelligence Agency. Available online at: https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html Department of the US Treasury. 2011 Major Foreign Holders of Treasury Securities. (July 18, 2011) US Treasury Department Resource Center Available online at: http://www.treasury.gov/resource-center/data-chartcenter/tic/Documents/mfh.txt Department of the US Treasury. 2011. Monthly Statement of the Public Debt of the United States (May 31, 2011) US Treasury Department Treasury Direct Available online at: http://www.treasurydirect.gov/govt/reports/pd/mspd/2011/opds052011.pdf Kynge, James. 2006 China Shakes The World. Houghton Mifflin: New York Lowther, William. 2011. Gates reiterates US Taiwan Policy. Taipei Times. January 13th, 2011. AVAILABLE ONLINE AT HTTP://WWW.TAIPEITIMES.COM/NEWS/FRONT/ARCHIVES/2011/01/13/20 03493357 Lynas, Mark. 2009. How do I know China wrecked the Copenhagen deal? I was in the room The Guardian December 22, 2009. Available online at: http://www.guardian.co.uk/environment/2009/dec/22/copenhagen-climatechange-mark-lynas Meltzer, Joshua. 2011. The U.S. Trade Deficit, China and the Need to Rebalance Growth The Brookings Institution. First Published February 14, 2011 Available at: http://www.brookings.edu/opinions/2011/0214_trade_deficit_meltzer.aspx Overholt, William H. (Rand Corporation) 2008. Asia, America, and the Transformation of Geopolitics. Cambridge University Press: New York Reuters. 2009. China piracy cost U.S. firms $48 billion in 2009: report Reuters Available online at: http://www.reuters.com/article/2011/05/18/us-usa-chinapiracy-idUSTRE74H6CO20110518

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UN. 2010. Environmental Indicators: Air Pollution. United Nations Statistic Division. Last updated August 2010. Available Online at: http://unstats.un.org/unsd/environment/ODS_Consumption.htm Wang, Tina. 2009. U.S. Talks Up WTO Piracy Ruling, But It's All Wind. Forbes Magazine. 01.27.09. Available online at: http://www.forbes.com/2009/01/27/china-wto-update-markets-equity0127_markets07.html

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