Country Report: China (April 2019)

Danielle F. S. Cohen (assisted by Dong Jiaxin)

In early 2019, Chinese experts assessed Chinese–Korean economic relations, China’s relationship with South Korea, and the potential for extending the Belt and Road Initiative to Northeast Asia. They also evaluated the Trump administration’s Indo-Pacific strategy, long-term shifts in Sino–US relations and the evolution of the US–Japan alliance under the Trump administration.

China–Korean economic relations

In Dongbeiya Xuekan, No. 1, 2019, Zhang Huizhui and Jin Xiangdan assess the recent history of China’s economic relations with both North Korea and South Korea. Although China’s economic relations with both countries were troubled in 2016–2017, they have improved significantly in the past year and the authors are optimistic about the future.

Zhang and Jin first evaluate recent economic relations between China and South Korea. South Korea’s 2016 decision to deploy THAAD severely damaged its relationship with China. Zhang and Jin criticize South Korea’s decision as a “clumsy choice” that indicated its inability to maintain the previous policy of balancing between the United States and China. China’s strong objections to THAAD deployment on security grounds resulted in the significant cooling of economic relations between South Korea and China to their lowest level since normalization in 1992. The damage was most apparent in the services sector, including industries such as tourism and retail. Chinese investment in South Korea also declined precipitously, largely because of Chinese restructuring of their foreign investments to prioritize quality and productivity. South Korean consumer exports to China also decreased significantly.

Nevertheless, China–South Korea trade relations soon began to recover with the election of Moon Jae-in. The two countries used Moon’s state visit to China in 2017 as an opportunity to improve relations and to explore possible linkages between South Korea’s “New Northern Policy” and “New Southern Policy” and China’s Belt and Road Initiative. However, challenges remain. The negative economic ramifications that resulted from China’s opposition to THAAD deployment have generated fears within the South Korean government and public about excessive economic reliance on China. Weak mutual trust between the two countries is apparent, and consumers have translated their political concerns into a distaste for each other’s consumer products. Furthermore, as China’s technological capabilities expand, its companies are increasingly competitive with those of South Korea.

Zhang and Jin also argue that China’s implementation of UN sanctions against North Korea resulted in a nadir in Chinese–North Korean economic relations. Following the implementation of these sanctions, Chinese imports from North Korea fell by a third. According to Zhang and Jin, these sanctions were particularly harmful for Chinese companies, which had invested substantially in building the necessary infrastructure in North Korea to move production there. Chinese companies had just started to earn back their investments when the implementation of sanctions began. Zhang and Jin caution that these companies, having suffered substantial losses, will be hesitant to return to North Korea. Furthermore, North Korea responded to the sanctions by increasing its self-sufficiency. The imposition of the sanctions made the leadership realize the risk of being dependent on China; they responded by increasing their capability to produce products domestically and by diversifying their foreign economic relationships through the establishment of SEZs. China’s economic policy toward North Korea will need to account for North Korea’s desire for security and greater economic autonomy.

In April 2018, Kim signaled that North Korea would adopt a more positive foreign posture designed to avoid the risk of conflict and would pursue “denuclearization” and constructive economic policies. Despite this shift, however, challenges remain for Chinese–North Korean economic relations. Chief among them is the difficulty of achieving denuclearization and persuading the US to lift sanctions (here the assumption is that if the US no longer supports sanctions, the UN will not continue them). In addition, Chinese companies, which may be wary of returning to North Korea, face new competition from South Korean and Russian companies that are increasingly interested in establishing business relations in North Korea. Furthermore, there are still many barriers to foreign investment in North Korea, such as weak infrastructure and financial services and concerns about the regulations governing these investments.

Despite challenges in China’s relations with both South Korea and North Korea, Zhang and Jin believe there is reason for optimism. South Korea and China have room to develop greater cooperation in the trade in services and in technology-intensive, high value-added industries. Meanwhile, North Korea has much to learn from China’s development path. To strengthen China’s economic ties with both countries, Zhang and Jin urge China to focus on its respective bilateral relationships. The Chinese–South Korean relationship should emphasize their FTA, the linkage of the “New Southern Policy” with the BRI, and a commitment to broader regional free trade agreements like the proposed China–Japan–South Korea FTA and RCEP. At the same time, China’s policy toward North Korea should focus on bringing North Korean officials to China for training and increasing regional cooperation along the Yalu River. To alleviate both countries’ concerns about overreliance on China, Zhang and Jin advocate promoting multilateral relations, such as those between China and the two Koreas, and those including Russia.

Chinese–South Korean relations

In Dongbeiya Xuekan, No. 1, 2019, Guo Rui lays out a four-part framework for creating an improved Chinese–South Korean relationship that can overcome the constraints imposed by the “US factor” and the “North Korean factor.” Like Zhang and Jin, Guo recognizes the lasting damage that resulted from vociferous Chinese objectives to the deployment of THAAD and the difficulties in overcoming this tension given weak levels of mutual trust. Chinese suspicions that the US–South Korean alliance is directed at China and South Korean discomfort with China’s traditionally strong ties with North Korea are perpetual irritants to the Chinese–South Korean relationship. Nevertheless, Guo is optimistic that the bilateral relationship can improve.

First, Guo advocates attention to what he calls the “four partnerships”: the two countries should see each other as partners in achieving economic development, regional peace, developing Asia, and promoting global prosperity. To this end, they should work to improve levels of mutual trust and dialogue on security issues, while managing the potentially negative impact of the United States and North Korea.

Second, the two countries need to appropriately account for the “US factor.” Guo argues that Moon’s foreign policy still considers South Korea’s relationship with the United States to be foundational. South Korea’s long-standing policy of maintaining close security relations with the United States while pursuing close economic ties to China has been beneficial for it. Trump’s policy toward Northeast Asia remains unclear, but seems to be partly the same as that of the Obama administration, with major differences in his treatment of North Korea and greater attention to asking alliance partners to bear more of the burden for their defense. Although Guo disavows explicit attempts to use an improved Chinese–South Korean relationship as a tool to divide the United States and South Korea, he argues that China should be aware of the implications of the US–South Korean alliance for Chinese strategic interests.

Third, Guo contends that China and South Korea must take a balanced approach toward the Korean Peninsula. Despite the recent decrease in tensions on the peninsula, Guo cautions that US–North Korean relations remain unpredictable, and peace and stability on the peninsula have not yet been achieved. Consequently, it is important for China and South Korea to coordinate their respective policies. Both countries share an interest in integrating North Korea into international society, as well as strengthening their bilateral security cooperation. In particular, Guo urges Chinese policymakers to stay calm and pursue China’s long-term strategic interests.

Finally, Guo urges China and South Korea to cooperate in the construction of a security mechanism for Northeast Asia. It is essential for the two countries to create a new process to build strategic mutual trust. Better understanding each other’s perspectives will limit increases in tensions. By drawing on existing frameworks like the Six-Party Talks, South Korea and China can promote the creation of a shared regional security perspective and collective identity that will allow countries in the region to overcome security challenges. In addition, Guo highlights the importance of creating a crisis management mechanism to handle a potential crisis on the Korean Peninsula. The stability of the peninsula depends on each country’s ability to manage a potential crisis in a collective manner, rather than unilaterally. Finally, Guo advocates the strengthening of the Six-Party Talks as a way to establish a regional security cooperation mechanism and resolve the nuclear problem.

The Belt and Road Initiative in Northeast Asia

In Guoji Guanxi Yanjiu, No. 1, 2019, Huang Renwei and Fu Yong express great optimism about the prospects for the BRI in Northeast Asia. Until recently, the nuclear crisis and the continued tensions between North Korea and South Korea limited the development of infrastructure on the peninsula and prevented China from applying its BRI strategy. However, Huang and Fu argue that the shift in both North Korea and South Korea toward more peaceful, conciliatory postures in 2018 created a strategic opening for developing integrated infrastructure to connect China, South Korea, and North Korea. Huang and Fu are encouraged by recent developments on the Korean Peninsula. They see North Korea as adopting a “reform and opening” policy, while South Korea’s “New Northern Policy” emphasizes its relations with China, North Korea, and Russia. Furthermore, they see signs that warming South Korean–North Korean ties are producing substantive improvements to reestablish road and rail links between the two countries, and may in the future extend to air and along the river.

As North Korea opens up, Huang and Fu argue that it will need Chinese support to develop its economy. Domestic North Korean industries are too weak to meet demand. Its mineral resources, fisheries, and agricultural sectors, which all face low productivity, will benefit from Chinese technical assistance, while its weak financial sector will benefit from Chinese support as well. Furthermore, North Korea has a large, well educated, inexpensive workforce that would benefit from Chinese training. Huang and Fu argue that Chinese investment in North Korea—together with additional investment from South Korea and Japan—will soon make North Korea a key node in East Asia, and this tighter integration will have positive implications for resolving the nuclear issue.

As North Korea and South Korea rebuild their physical connections, Huang and Fu anticipate that the entire region will undergo renewed economic development. As the Korean Peninsula’s links with Northeast Asia are solidified, they argue that Japan and South Korea will join the BRI and link up with other regions via China. The BRI will further incorporate the Russian Far East, and northeastern Chinese cities, such as Harbin and Changchun, will benefit from increased domestic investment, as well as foreign investment from South Korea and Japan.

Huang and Fu contend that this regional revitalization will make possible the construction of a new Northeast Asian regional cooperation mechanism. This core of this mechanism will be the proposed China–Japan–South Korea FTA, but it will also incorporate Russia, North Korea, and Mongolia. In their view, this “new” six-party mechanism will counteract the US trend toward unilateralism and protectionism, and will also provide an opportunity for the revitalization of Northeast China. Huang and Fu caution that the United States might pose a hurdle for the creation of such a six-party mechanism and the incorporation of Northeast Asia into the BRI: the United States worries that developments such as the China–South Korea–Japan FTA, the extension of BRI to Northeast Asia, and rapid improvements in relations between North Korea and South Korea could erode its influence and the dominance of its alliance system in East Asia. They recognize that other countries will need to consider the US perspective as they develop their foreign policies. Nevertheless, Huang and Fu remain optimistic about the prospects for greater regional economic integration under the framework of the BRI.

The Trump administration’s Indo-Pacific strategy

In Heping yu Fazhan, No. 1, 2019, Chen Jimin argues that the United States has begun to implement its new “Indo-Pacific strategy,” which it first proposed in 2017. Chen argues that the United States has deliberately developed this strategy to counter China’s increasing regional influence and growing capabilities. According to Chen, these motives are evident in four key aspects of the policy.

First, Chen asserts that the United States has focused on countering China’s expanding military capabilities in the Indo-Pacific region because it wants to maintain its dominance. The United States revoked China’s invitation to the biannual RIMPAC exercises in 2018 (Chen attributes this to the US desire to limit the development of Chinese military capabilities; the Pentagon, by contrast, stated that it was disinviting China because of China’s militarization of contested features in the South China Sea). The United States has also continued to conduct freedom of navigation exercises in the South China Sea, at an increasing rate, while also continuing various military exercises with its allies. In addition, the United States has emphasized security cooperation with a number of countries. This notably includes the development of quadrilateral cooperation with Japan, Australia, and India, which Chen views as targeted against China. Chen further contends that the United States is pursuing closer security ties to Taiwan “to check and balance China.”

Second, Chen contends that the area covered by the US “Indo-Pacific Strategy” overlaps and competes with the part of the BRI covered by the “21st Century Maritime Silk Road.” Both policies focus on funding infrastructure projects. Chen blames the possible availability of funding from the United States for the Malaysian decision to cancel three pipeline deals with China (not anticipating a revised agreement in April 2019). He further laments that by prioritizing its relationship with India, the United States has decreased India’s incentive to participate in the BRI. India’s reluctance to participate in the BRI may impede the construction of the Bangladesh–China–India–Myanmar Corridor.

Third, Chen argues that the US “Indo-Pacific Strategy” constrains China’s regional influence by allowing other countries in the region to use their relationships with the United States as a counterweight to China. He also asserts that the United States is pursuing a leadership role in the region. According to Chen, the United States portrays its approach as open and transparent, respectful of the rule of law and national sovereignty, and supported by private investment. In contrast, the United States has charged that China’s policy is opaque and exploitative, charging that its BRI policies are “neo-colonialist” or “neo-imperialist” policies designed to gain economic and political leverage over developing countries. These negative depictions of Chinese motives sully China’s reputation and degrade its regional influence.

Finally, Chen contends that US efforts to limit China’s influence in the Indo-Pacific region are based on US political values and its vision of the future world order, which conflict with those of China. Chen sees this as a threat to China’s institutions, ideology, and “political security.”

Chen concludes that the success of the US “Indo-Pacific Strategy” remains uncertain. In the face of domestic political tensions, the Trump administration has often found it difficult to implement its foreign policy. Meanwhile, various countries in the region have chosen to balance between the United States and China, rather than picking a side. In many ways, Chen argues, the “Indo-Pacific Strategy” is just a continuation of Obama’s “Asia-Pacific rebalance”: both policies seek to maintain US dominance in the region and to achieve both political and economic objectives. Nevertheless, he believes that a perception of China as a competitor is central to Trump’s “Indo-Pacific Strategy” and therefore sees the policy as more aggressive toward China than its predecessor.

China–US Relations

In Shijie Jingji yu Zhengzhi, No. 1, 2019, Wu Xinbo provides an overview of developments in the Sino–US bilateral relationship and their impact on the academic study of this relationship in China. Although written to commemorate the fortieth anniversary of Sino–US normalization, Wu’s essay focuses in particular on contrasting the immediate post-Cold War era to that of the early twentieth-first century. As in many Chinese analyses, the global financial crisis of 2008 marks a significant turning point in the relationship.

In focusing first on China and the United States, as well as their bilateral relationship, Wu identifies five significant transitions. First, changes in the relative power of the two countries have been particularly dramatic. While China’s economic power has fueled its rise, the United States, bogged down by two wars and weakened by the financial crisis, has declined. The result, in Wu’s view, is a substantial narrowing of the power gap between the two countries. Second, the process by which foreign policy is made has changed in both countries. In the United States, foreign policy regarding China has become more embroiled in partisan politics and attracted increasing input from various interest groups, resulting in a fracturing of perspectives compared to the Cold War era. Similarly, in China an increasing array of government offices became involved in crafting policy toward the United States beginning in the mid-1990s.

Third, the two countries have changed their approaches toward managing the bilateral relationship. During the 1990s, China based its US policy on domestic concerns such as promoting economic development and maintaining political stability, while the United States developed its China policy in the context of its overarching objective of maintaining US unipolarity. Since 2008, Wu argues, China has increasingly considered its US policy in the context of its broader foreign economic and diplomatic objectives, while the United States has increasingly emphasized domestic factors like the need to rebuild the US economy, a trend that has been particularly apparent since the beginning of the Trump administration.

Fourth, the nature of the interaction between China and the United States has changed dramatically. During the immediate post-Cold War era, the United States had the upper hand in managing the relationship and China adopted a more passive position. Since 2008, however, emboldened by the declining gap in relative power and global shifts, China has increasingly taken the initiative while the United States has seen its advantageous position decline. At the same time, the two countries’ relationships have become more competitive, in areas such as economics, regional politics, and farther afield in the Asia-Pacific, Africa, and Latin America. Prior to 2010, Wu argues, each country mainly analyzed the bilateral relationship in terms of how to best advance its own national interests; since 2010, however, the shifting bilateral power balance has caused each side to redefine its national interests.

Finally, changes in the bilateral relationship have a much greater impact on global affairs than they did in the aftermath of the Cold War. Increasingly, the bilateral relationship affects areas far beyond China’s periphery, such as the Middle East, Africa, and Latin America, and applies to a range of transnational issues. From an international perspective, a positive Sino–US relationship benefits global order and stability, but a conflictual relationship poses a substantial threat.

In addition to these changes within China and the United States and in the nature of their bilateral relationship, Wu also highlights substantial shifts in the global system. In the immediate post-Cold War era, the United States reigned as the sole surviving superpower—an era Wu describes as one of “power imbalance.” However, China’s rise began after a little more than a decade and substantially altered the international environment. According to Wu, China’s rise is comprehensive, comprising economic, political, and military aspects, which enables it to directly challenge US dominance (in contrast, he argues that Soviet power was only military and political, while Japanese power was economic).

China’s rise has, in Wu’s view, dramatically altered the relationship between East and West. During the Cold War, he argues, the division between East and West was based on ideology. In the immediate post-Cold War, by contrast, it was based on level of development. During this period, the developing countries of the East were often dependent on the West and had only weak influence over the global system. As China has risen, however, it has used its position as an outsider to the US-led system to give greater weight to the political and economic interests of the developing world. This is particularly evident with the rise of the BRICS and with the shift, in the aftermath of the financial crisis, from the G7 to the G20. The trend now, he contends, is the rise of the East and the decline of the West.

The growing focus on non-traditional security problems after the Cold War and the financial crisis have made questions of global governance increasingly central in the twenty-first century. While great power relations in previous eras generally consisted of competition and cooperation in economic, politics, and security, and were often zero-sum, Wu contends that great powers today must cooperate to respond to transnational problems. The potential for a positive outcome from great power cooperation lessens, to some extent, the tension between a rising power and the established hegemon.

Finally, Wu argues that rapid changes in the international system and global order have deeply impacted the analysis of Sino–US relations. During the 1990s–2000s, the United States held a hegemonic position and the West dominated global institutions. Since 2008, however, the rise of new states, the increasing power of the East relative to the West, and the evident weaknesses of the Western international order have demonstrated the need for both reforms of the old system and the need to create new mechanisms and rules. The United States has responded by trying to maintain the current alliance-based system and the institutional rules it created. In contrast, China has pushed for a greater voice in reforming the system to better meet its needs and those of other developing countries.

The US–Japan Alliance

In Dangdai Shijie, No. 3, 2019, Yang Bojiang and Mu Jian argue that, contrary to perceptions of the Trump administration’s general policy toward alliances, the US–Japan alliance has actually strengthened in recent years. This is largely because the United States sees the relationship as vital for its regional strategy. In recent years, Abe and Trump have focused on coordinating their countries’ global and regional strategies. In November 2017, for example, the US adopted the Japanese concept of an “Indo-Pacific strategy.” Military and security cooperation, which remain foundational to the alliance, have also increased. The 2015 US–Japan Defense Guidelines (written under the Obama administration) expanded the scope of the alliance; under the Trump administration, the US has encouraged Japan to strengthen its military capabilities and take a more active regional position. The two militaries have continued to improve their interoperability and communications, while also deepening cooperation with third parties like India and Australia. Yang and Mu contend that it is increasingly apparent that the alliance is directed against China and suggest that fears that the BRI threatens their regional security are a major driver of Japanese and US cooperation.

Despite the overall strengthening of the alliance, however, Yang and Mu identify several sources of tension within the alliance. These are brought about largely by the Trump administration’s transactional, unilateral policy of “America First.” Trump has been highly critical of Japan’s long-standing trade surplus with the United States. Although Japan would have preferred to discuss trade issues in a multilateral setting, it agreed to bilateral negotiations begun in mid-April. Trump has also been extremely critical of what he sees as insufficient Japanese burden-sharing for defense costs, particularly those associated with American troops stationed in Japan. In addition, the Trump administration has pushed Japan to buy more weapons from the United States; Yang and Mu argue that the Japanese government is concerned about the negative political ramifications of these “compulsory” purchases because of dissatisfaction among the Japanese public. In addition, Japan and the United States have differing views of how to reconstruct the international order. Trump opposes liberal trade and pulled the United States out of TPP. Japan nevertheless pushed forward the CPTPP without the United States. The two countries’ differences are also clear in their respective economic policies toward China. The United States has engaged in a hardline policy and a trade war, while Japan has sought increased cooperation with China and begun limited engagement with the BRI.

Despite these differences, Yang and Mu argue, the US–Japan alliance will continue to strengthen. As the global power balance shifts, Japan remains the United States’ most important ally in the Asia-Pacific. Yang and Mu anticipate that strengthening the alliance will entail greater security cooperation with other countries in the region and partnerships with third parties in an effort to persuade them to choose sides between China, on the one hand, and the United States and Japan, on the other. This will perpetuate the “dual structure” in the Asia-Pacific, in which countries rely on China for their economic needs and the US–Japan alliance for their security needs.

Yang and Mu argue that China will need to figure out how to respond to the US–Japan alliance, which is the most significant external factor impacting its regional, strategic environment. The recent improvement in Sino–Japanese relations has somewhat eased the pressure the alliance imposes on China. Nevertheless, it remains a significant concern. Yang and Mu conclude that China should manage the impact of the alliance by prioritizing economic cooperation with its neighbors, carefully evaluating its foreign policy and security policy, and promoting common interests it shares with its neighbors; if they are less worried about China’s rise, they will be less inclined to support the use of the US–Japan alliance as a tool to constrain China.

#"Belt and Road" Initiative #CPTPP #Indo-Pacific strategy #New Southern Policy #Six-Party Talks #THAAD