Where is China Heading

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Chinas1 foreign policy

To observe China changing its foreign policy in recent years is of enormous

interest to political scientists and scholars from other fields. Since Deng

Xiaopings reforms, China has opened up significantly on the economic side butsignificantly less on the political side. Thus its new foreign policy affects the

liberal democratic Western world in several ways. This article observes keyevents taking place in China and examines these developments.

Reserve currency policy

That China maintains the renminbi at an artificially low value in order to seek

export advantages is Washingtons main criticism of Beijing. In June 2010 the

Chinese did make small adjustments to the currency rates, but it was not enoughto satisfy the American administration. In reaction to a response from

Washington, China criticised US monetary policy as lax. According to ChinasVice Minister of Finance, Zhu Guangyao, the printing of new banknotes was

irresponsible, risking the creation of speculative bubbles and creating the

possibility of negative effects on countries in transition.

Establishing Confucius Institutes

The Confucius Institutes are a cultural element within the wider frame of foreignpolicy, comparable to what other countries do: Germany has its GoetheInstitutes, the US its Amerikahauser and the French have the Institut Francais.

By promoting Chinese culture, values and languagesChina recognises around

55 ethnic groups, and nearly 300 individual languages have been counted [ 10]China has been rapidly increasing its influence in the world. Confucius Institutes

have recently been built in South Africa, Rwanda and Kenya, and African cultural

elites are trained in China.

As part of this strategy, Beijing provides stipends to African students and

subsequently gains access to these students and their expertise. China alsosupervises African personnel it has trained earlier in so-called Sino-African

cooperational fora.

Development aid in Africa and the competition for raw materials

China has targeted Africa as a major source of natural resources. A recent

Financial Times article claims that China has lent more money to other

developing countries over the past two years than the World Bank [4].According to the authors, loans of at least $110 billion were signed, in contrast

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to the World Bank with around $100 billion.2 China has intensified its economic

interests with Venezuela and Brazil. Both are countries rich in resources. The

authors also point out that China offered better conditions than the World Bank,using the China Development Bank and the China ExportImport Bank.

What is alarming about this development? First, the World Bank requirespolitical reforms when lending money but China asks very little: access to

materials and some guarantees. Second, the development aid has to be seenfrom the perspective of the competition for raw materials. For instance, the turn

to mobile phones requires the rare-earth material neodymium to produce

magnets. Second, sensitive military hardware (smart bombs or cruise missiles)

and other high-tech products require these rare-earth materials. At the momentthere is only one important supplier in the world: China has secured around 97%

of the production of this material.

Why does China harmonise so well with these African states? One easyexplanation is their intercultural compatibility: collectivism, lack of basic rights

and no intervention in internal matters. China is equipped with large amounts of

state capital and, recently, private capital. And China is filling a vacuum left by

the Western world and Russia. The Deng Xiaoping reforms since 1979 (systemicchanges in the economy, investments in education, eradication of hunger) have

had positive effects on the economy today and are attractive to many Africanstates as an economic role model, promising first steps out of their

underdevelopment.

How does the Chinese approach differ from that of the West? China does notdisguise that it considers its foreign policy a politics of interest (realpolitik),

incorporating economic and trade policies as the highest priorities. China istherefore not much interested in the devastating political situation in some

African dictatorships. Sino-African policies, because of their national importance,are coordinated by the Department of Foreign and Trade Policies. However,

Chinese investments do not lend themselves to sustainability: China brings its

own workers and when they finish their projects they dismantle their tents and

leave. Little infrastructure is set up. Contacts between Chinese workers and thelocal population are forbidden. Local African producers lose against cheap

products from China, a situation that is likely to continue since it is in Chinas

strong interest to remain in African markets (supplying roads and railroads, ports,

airports, arms and weapon systems), selling Chinese products and developingthem for future African consumers.

Chinas behaviour again is smart: in cases where European investors

obligated under lawimpose sanctions on African states, China intervenes anduses this vacuum to step inside as a free rider. What also helps is that Africans

may regard the Chinese style as a second chance; the first one, provided by the

West, having been seen as a failure since the 1960s. Despite massive sums of

development aid from the Western world, its transfer of capital has produced

only minor progress.

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Problematic issues in China

Lack of human rights

Not allowing full liberties and human rights, China falls into the category of anauthoritarian regime [8]. Although the death penalty has been abolished for

several crimes, China still has very high punishment rates. Furthermore,compulsory changes of residence have been reported. Finally, the case of the

Nobel Prize winner Liu Xiaobo clearly shows that the Chinese ruling class has adifferent opinion on freedom of speech.

In the recent cases of unrest in North African countries, China has shown itself

to be very nervous and cautious. As Till Fahnders of the daily newspaper

Frankfurter Allgemeine Zeitung points out [7], the leaders of the Communist Party

fear a similar development, and President Hu Jintao appealed to his topfunctionaries to reduce disharmonic factors to a minimum, naming his program

social management. He also demanded an improved control of the ChineseInternet which means in practice more censorship and surveillance of

opposition groups and activists (Table 1).

Religious freedom still under pressure

China is quietly allowing more and more religious freedom, as it senses the

growing popularity of Buddhism, Taoism, Islam and Christianity. One explanationis that in an increasingly materialistic world, more and more Chinese citizens arein search of spirituality. But China restricts access to the World Wide Web, so

Chinese Internet surfers who circumvent the barriers searching for religious or

spiritual content risk being detained and imprisoned. Security personnel do notneed judicial warrants to arrest dissidents. Britta Schmitz, a researcher working in

Beijing, observes that Catholicism and Protestantism still remain minority

religions and the heads of the umbrella organisations of these two churches

must regularly take part in training sessions on the Communist ideology [15].

Table 1 Indices evaluating China

Name of index Score Year

Freedom in the world [8] Political rights: 7; civil liberties: 6 (the lowest scorepossible is 7; thus, the status is not free)

2010

Democracy Index [5, 8] 3.14, ranking 136 of 167 countries (the maximum is 10) 2010

Privacy International [13] 1.3 = endemic surveillance society (maximum is 5.0) 2007

Press Freedom Index [14] 84.67. Position 171 of 178 countries (highest scorepossible is 0.0)

2010

Composite Index of NationalCapability [17]

0.198578. Position 1 of 193 countries 2007

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Furthermore, the government may impose fines, terminate contracts of

employment, exclude children from public schools. In addition, the Communist

Party considers house churches a potential threat to its exclusive claim onauthority [15]. Nevertheless, some minor progress has been made through

legislation in 2005. Yet Schmitz [15] concludes that one cannot talk of religiousfreedom as understood in terms of being a human right.

Economic strength but danger of inflation

From an economic perspective, China is the EUs second biggest trading partner

and the EU is Chinas largest [11]. Moreover, foreign direct investment in China isgrowing steadily and Chinas investment in the EU is increasing. In recent years,

China has sustained impressive economic growth3 with astonishing yearly rates

of 510% on average. It qualifies now as the second largest economy in theworld in terms of overall size. Its domestic market numbers more than 800

million consumers. Paying low wages, China has been termed the workbench of

the world, supplying cheap labour and increasingly new product innovations

and gaining status as a major manufacturing country. Yet, it still needs to importfood for its own population.

In addition, China invests heavily in European markets for state bonds, quietlyfinancing Europes debts. Focusing on Portuguese and Spanish state bonds,

Chinese investors were able to stabilise European debts and at the same time

increase their influence in Europe [1]. After all, China needs stable export marketsto sell its products. But this growth cannot go on forever. In the long run, wages

are likely to rise in China and the standard of living is steadily increasing,potentially eliminating Chinas competitive advantage. Growing disparities

between the rich and poor are triggering social tensions: the Gini coefficientis rising, indicating a more unequal distribution. Finally, inflation is on the

horizon because the savings rate is high.

Lack of ecology: China still destroys nature and health

The Chinese regime still regards economic growth and poverty alleviation as

more important than ecologic development. Therefore nature and health are in

a critical position: clean drinking water is inaccessible to millions of Chinese.Gigantic dam projects, such as the Three Gorges Dam, required the relocation of

over a million people and flooded cultural and archaeological sites. Hydrologists

fear that besides erosion and sedimentation there is also the risk of dangerouslandslides.

As filters are not used, consumers are exposed to toxic heavy metal legacies.

Nonetheless, in its five year plans, the Politburo wants to decrease pollutants,

energy and water consumption and the emissions of carbon dioxide. Only

three years ago, China joined the Kyoto Treaty. Furthermore, bilateral and

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multilateral agreements between the EU and China have been set up.4 China is

experiencing a rapid transformation process: though laws were made stricter,

the daily increase in cars destroys the plans to reduce noxious substances andinstead increases the level of pollution. To cope with the massive energy

demands, China builds up nuclear and water power.In the rural areas households still have low incomes so they cannot afford

many expenses for health care. In addition, to improve data flow, China investsheavily in its outdated health information technology (HIT) which resembles the

European systems of the 1990s.

Demography: the future challenge

With its one-child policy and no adequate pension scheme, China will face

serious problems from about 2020 onwards. The shrinking younger populationwill have difficulty financing an ageing population, leading to expectations of a

dramatic rise in the number of impoverished elderly. This group of people over

70 who have been unable to accumulate sufficient savings to support

themselves will be poor or nearly poor, and there is no pension system suchas that in Europe. Thus, China faces a decline in its population similar to that

predicted for Russia.5 Male babies were preferred under the one-child policy,leading to massive disparities in the number of men and women, which now

contribute to social tensions. The surplus of male citizens has created fierce

competition in the job and marriage markets.

Intellectual property rights are still difficult to enforce

The EU has set up a program (IPR2: EUChina Project on the protection ofintellectual property rights) which began in 2010 and is promoted throughout

China. But most observers doubt that China takes the issue seriously and fear

that plagiarism is not being sufficiently reduced. To catch up with the Western

car industry, China imitates the behaviour of Japan in the 1970s: for instance,the Japanese automobile industry took pictures of cars from its competitors (US

and European producers), copied the design and constantly improved these key

technologies (kaizen). Thus, these companies increased their quality and

productivity immensely by using lean production. South Korea in the 1980s,with its family centred companies (chaebol), also took this track in a similar way.

Now, in a knowledge-based society, supremacy in research and development

(R&D) is crucial. The European Commission [6] expects that in the year 2025India and China could thus account for approximately 20% of the worlds R&D,

i.e. more than double their current share.

4 Besides the International Partnership for the Hydrogen Economy (IPHE), the Carbon SequestrationLeadership Forum (CSLF) and the Renewable Energy and Energy Efficiency Partnership (REEEP) were

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Especially dangerous is the practice of product counterfeiting in the sector of

medical products, machinery and tools and chemistry. Incorrectly labelled,

pirated products are life-threatening.

Security issues: territorial and naval disputes (Sendaku/Diaoyu Islands)

Sino-Japanese naval disputes have caused serious tensions. Two major playersare involved, the second and third largest economies in the world. Both Japan

and China officially claim title to the islands. But this conflict may be over-rated

since relations between Japan and China are entering a period of Senryaku-teki

Gokei Kankei (mutually beneficial relations based on common strategicinterests) as Kazuyuki Katayama, Deputy Chief of Mission of the Embassy of

Japan to the Kingdom of Belgium, has pointed out.6 Be that as it may, the reality

is that Malaysia, Singapore and Vietnam are building up submarine forces inresponse to Chinas growing threat as a naval power. One may conclude that

China is triggering a classic security dilemma. Beijing would neither welcome

any US military presence north of the Demilitarised Zone (DMZ) nor any massive

inflow of North Koreans into its territory [3]. But other countries in the regionrely on free and safe access to and maritime security in the Straits of Malacca and

the Lombok and Sunda Straits to the South China Sea, through which around80% of Chinas oil imports pass. Therefore China has a strategic energy and

security interest in keeping these sea routes open.

How should the Western world, especially the European Union, react?

First, the EU must insist on human rights as a core value of its foreign policy. Thenew human rights units in the European External Action Service (EEAS) and the

worldwide EU Delegations provide expertise as well as an influential network.

Better coordination of European foreign policy is necessary to help strengthen

opposition and civil society in China. With the Lisbon Treaty, the EU Parliamentsrole has been strengthened: it has to approve all third-country treaties and it has

gained more weight in European trade policy. Yet, the tasks of the EEAS are not

fully clear to its staff and personnel, so a coordinated policy will take some time

to develop.From the US perspective, former Secretary of State Henry Kissinger [9] argues

for a peaceful community between the United States and China to avoid the

construction of antagonistic blocs of the type that evolved during the Cold Warbetween the Soviet Union and the US. In this pacific pact both countries form a

framework with a consulting mechanism to prevent self-fulfilling prophecies of

military conflict. Kissinger suggests long-term goals and procedures to calibrate

common positions in international conferences.

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More cooperation between European and Chinese universities is necessary

because these are incubators of independence and free-thinking. Highly trained

students may be increasingly involved in the political process, and in the futurethey will play the decisive role in forming an empowered civil society [11].

One characteristic of China is that the deficits of political rights anddemocracy are systemic. This is a root cause that will undermine the Communist

regime, as happened in Eastern Europe during the 1990s. Yet, political theorypredicts that a consolidated democracy can only be established via a bottom-up

transformation through the vox populior a civil society that encourages political

pluralism.

Image surveys suggest that Chinese attitudes toward the EU are negative. TheEU is perceived as weak and old. Public relations campaigns, tailor-made for

China, could improve this impression. Past case studies show that containment

policies and status quo approaches (when China develops economically,freedom will arrive by itself, the EU does not need to do much) have proved to

be ineffective.7 A reason for the confusion is that outside the EU framework,

Member States develop their own foreign policy (to accommodate national

differences) and so the EU is incapable of communicating a coherent message.Thus, there is a lack of collective leadership at the EU level. Currently, Europe is

more concerned with itselfsolving the financial crisis, recapitalising its publicbudgets, repairing its social systems.

The EU needs to improve its recruitment of highly skilled personnel because

political intelligence will be the decisive advantage in competition with China.Leadership qualities (such as accountability and optimism) will be the key

character trait for ensuring political commitment from its leaders. This isnecessary in a complex world with several actors: private companies, civil society

actors, cities and sub-national regions, communities and so forth which fill in thepolitical space.

Certainly, a wrong strategy would be to condemn and to isolate China. A new

narrative may be to welcome the country as an important global player next to

the US. Clearly, the EU needs to take over leadership in developing long-termstrategies for those countries in transition to democracy: China is one of them.

Punitive tariffs on China could be limited to situations in which it ignores and

disrespects international rules and habits; the violations that China has

committed have hampered global competition in the past.With global population growth and declining resources, distribution conflicts

will increase. Here is a chance for the West to promote its model and to

distribute its core values in a peaceful wayhighlighting personal liberties,liberalism, a social market economy, private property and democracyas an

alternative to the unjust and costly Chinese model of repressive autocracy.

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Opportunities:

1. Assuming Chinas good will, the Western world, especially Europe, should

support its constructive and cooperative role in creating stability in Asia.

2. Stronger integration of China into ASEAN and other international institutionswill help tie it to a system of rules, procedures and principles, especially withrespect to intellectual property.

3. Proposing multilateralism with China will allow it to learn from the EU aboutecologic problem solving.

4. Consumers in China wield enormous purchasing power. Hence European

producers ought to take the opportunity to sell in China and to increase

their competitiveness.

Risks:

1. The JapanChina confrontation: For Japans foreign policy the mainrelationship will be with the US, not China; Japan does not share basic

values with China.

2. Chinas diplomacy seems to have become more assertive, but its intention

is not clear and its future is uncertain. Its role as a growing naval powershould be watched.

3. For the EU it is risky not to have a long-term grand strategy. In contrast,

the United States has developed one over the years.

4. With the North African revolutions as a reminder of the power of social

media (Internet, Facebook, YouTube, Twitter), the question arises whethercensorship has become technically difficult or impossible.

5. China needs to boost its domestic consumption, which is currently at a lowebb. The high savings rate in China may lead to rising inflation.

6. Chinas support of North Korea could be a problem.

7. Chinas nuclear assistance to Pakistan is another concern.

8. Easier access to credit could produce a bubble.

9. Rising food prices may lead to social tensions or even uprisings. Indicatorsfor these tensions in the past have been work stoppages, demonstrations,

road blocks, marches, strikes, walkouts, sit-ins as well as suicides at theFoxconn Shenzhen companies in 2010, a riot and beating death at

Tonghua Iron & Steel Group (2008), protests at Linzhou Iron & Steel Group

(2008) and a strike at the Honda Nanhai gearbox plant (2010).

10. Internal migrants that arrive from other regions of China want their wagesto catch up with those of local workers who are better paid. For example,

farmers from urban areas migrate to the cities, especially to the coastalprovinces, looking for jobs and higher income.

11. China has a range of ecological problems, including waste of resources, as

well as air and water pollution. Also its infrastructure is cheaply built,creating sustainability problems.

12 Chi t i t Chi i th id l f M i /M i

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ASEAN and other regional blocs should address these problems and exert

pressure on China. But currently ASEAN member states are failing because of

structural weaknesses. In security issues with China, international organisationsof which the EU is a memberASEAN, the East Asia Summit (EAS), the Council

for Security Cooperation and the ASEAN Regional Forum (ARF)ought to beused more intensely to discuss these matters. Finally, a future option is to use

the EEAS, when it is fully operational, for confidence building.

Conclusion

On its way from being a developing country to becoming a highly industrialised

country, China is still an ambiguous phenomenon. Although it is described as

the coming economic superpower, social disparity is quickly growing, triggeringpossible social tensions. Plenty of citizens still live below the poverty line. China

is gradually acquiring competitiveness with other industrialised countries, but

from the European perspective, it remains an inscrutable country.

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Martin H. Heinemeyer is a researcher and policy analyst connected with the

European Institute for Asian Studies (EIAS), a think tank and policy institutebased in Brussels.

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Where is China Heading