China Brief - The Jamestown Foundation http://www.jamestown.org/ Current headlines from the China Brief publication from The Jamestown Foundation. en China Brief - The Jamestown Foundation http://www.jamestown.org/fileadmin/templates/images/rss_icon.gif http://www.jamestown.org/ 50 50 Current headlines from the China Brief publication from The Jamestown Foundation. TYPO3 - get.content.right http://blogs.law.harvard.edu/tech/rss Fri, 05 Mar 2010 10:43:00 -0700 Military Cooperation between China and Central Asia: Breakthrough, Limits, and Prospects http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36123&cHash=8514aa3caa In just a few years, China has emerged as an indispensable economic partner to the Central Asian... In just a few years, China has emerged as an indispensable economic partner to the Central Asian states. Beijing is on track to surpass Moscow in its trade flows with Central Asia: In 2008, trade between China and Central Asia exceeded $25 billion, while trade between Russia and Central Asia was $27 billion [1]. On the security front, the Chinese authorities have managed to maintain security along its borders with Kazakhstan, Kyrgyzstan and Tajikistan through the demilitarization of the former Sino-Soviet border, the birth of a collective security framework through the Shanghai Cooperation Organization (SCO), and increasingly frequent meetings between high-level officers. The risk of a Uighur secessionism funded from behind Central Asian borders has also been largely erased [2], even if the events of 2008 and 2009 in Xinjiang confirmed that some diasporic groups, in particular based in Kyrgyzstan, were able to make known their disagreement. China remains alarmed about the security challenges in the region, including the risk of political instability, Islamist insurgent movements, the growth of drug routes, and U.S. presence at the Manas base in Kyrgyzstan. The strategic partnership with the governments in Central Asia is therefore a key element for Beijing, although military cooperation per se remains limited. Yet, the long-term impact of the Xinjiang riots, which remains unknown, Al-Qaeda’s announcement that it will attempt to target China, and the possibility that Islamists will try to transform Central Asia into a zone of unrest (Daily Time, February 21), can only lead the Chinese leadership to get more actively involved in the securitization of Central Asia.

Joint Exercises as a Foundation of Collective Military Operations

Military cooperation between China and Central Asia is overwhelmingly dominated by joint exercises, conducted in a bilateral or multilateral manner.

At first, the exercises conducted within the framework of the SCO were bilateral. In 2002, the first joint exercises between China and Kyrgyzstan were held. It was not until August 2003, in eastern Kazakhstan and Xinjiang, that the first multilateral military exercises took place, involving thousands of Chinese, Russian, Kazakh, Kyrgyz, and Tajik military personnel. All member states, except Uzbekistan, participated. In 2006, the East anti-Terror exercises in Uzbekistan were held, in which all the security services were involved (Central Asia and Caucasus Analyst, April 5, 2006). The same year, in the Kuliab region, Sino-Tajik military exercises against terrorist groups in the mountainous areas brought together 300 members of Tajikistan’s armed forces and 150 members of China’s military. Similar exercises were held that year in Kyrgyzstan (East Time [Russia], January 22, 2009). In 2007, two joint military exercises were organized. The first, called “2007 anti-Terror Issyk-Kul” took place in late May on the shores of Lake Issyk-Kul and brought together SCO soldiers, as well as officials from the CSTO, and representatives of the security agencies and special services of each member state. Terrorist attacks inspired by those that took place in 1999 and 2000, including exercises in mountainous terrain and hostage scenarios, were simulated. From August 9 to August 17, 2007, Russia hosted in the Chelyabinsk region a new “peace mission” that included all SCO members [3]. In 2009, there were joint exercises in the northeast of China with more than 3,000 soldiers in a naval scenario likely related to Taiwan or North Korea. In total, since 2002, China has participated in more than 20 bilateral or multilateral military exercises with other SCO members.

In 2010, exercises will be held on the Matybulak polygon in the Semirechie region of Kazakhstan, where a number of military experts from China and Russia have already prepared the simulations, as well as in Russia (Rian.ru, April, 29, 2009; Nezavisimoe voennoe obozrenie, January 15). Despite the emphasis on cooperation, these exercises are not always undisputed and reflect the distrust that exists between officers, especially Russian and Chinese ones, and the tensions among the Central Asian states. In 2009, Tashkent, for example, refused to participate in the anti-terror exercise conducted in the framework of the SCO in Tajikistan near the Afghan border, as a way of manifesting the Uzbek discontent at Dushanbe, at a time when the crisis between the two capitals on the matter of the construction of hydroelectric stations reached its highest pitch.

Chinese Military Assistance to Central Asia

Bilateral cooperation is mainly oriented toward technical support from China to the Central Asian militaries and aid for training.

Given a strong growth of trade between China and Kazakhstan, the latter remains the preferred partner of Beijing in the region. Since 2000, both countries have signed agreements for Chinese material and technical equipment worth one million dollars, intended in particular to “buy” Kazakhstan’s struggle against Uighur separatism and religious extremism [4]. In total, between 1997 and 2003, Astana has received 30 million Renminbi (RMB) ($4.5 million) of technological aid, communications equipment, and transportation (e.g. Jeeps) (Rian.ru, April 28, 2004). Kazakhstan has clearly expressed its intention to obtain more military equipment from the Chinese People’s Liberation Army (PLA) and hopes to take advantage of free transfers of decommissioned military assets when the Chinese army engages in modernizing its equipment (See ““Sino-Kazakh Relations: A Nascent Strategic Partnership,” China Brief, November 7, 2008). Under the joint counterterrorism operations, Kazakhstan wants to take advantage of the expertise and experience of China, which has strengthened its special forces in this area (Central Asia and Caucasus Analyst, May 9, 2007). This cooperation was initiated in the framework of the Tian Shan operations in 2006. The new Kazakh military doctrine presented in 2007 attaches special importance to the bilateral security relationship with China, but without taking away Russia’s prominent role [5]. Given growing drug trafficking, border cooperation is a priority area. Since 2008, the two countries have conducted several joint operations against traffickers.

Aid to the other states is more modest. During a meeting between the defense ministers of China and Turkmenistan in 2007, it was decided that China would equip the Turkmen army with precision equipment and uniforms for officers and soldiers, offering a $3 million loan for its military needs [6]. This decision, taken less than a year after an agreement by which Ashgabat provides 30 bcm of gas to Beijing, reflects China’s concerns regarding the ability of the Turkmen army to prevent any attacks against its energy supplies.

Beijing is also trying to expand its military cooperation with its two immediate neighbors, Kyrgyzstan and Tajikistan. In 2005, an official visit of the Chinese minister of defense to Dushanbe led to the signing of several military cooperation documents, although they are limited in scope. The two countries are expected to share intelligence in the fields of terrorism, drug trafficking, and organized crime (See “China quietly Increases Military Links with Tajikistan,” Eurasia Daily Monitor, September 21, 2005). Between 1993 and 2008, Beijing has provided 15 million dollars in aid to Tajikistan (Ni-hao.ru, May 15, 2008). Moreover, in April 2009 Beijing pledged $1.5 million to Tajikistan’s military, the latest in a series of financial aid packages for the region’s armed forces (Eurasianet, May 4).

Under an agreement signed in 2002 in Bishkek, China has also provided technical military assistance to Kyrgyzstan worth $1.2 million. In August 2008, China delivered military equipment to the Kyrgyz border services (vehicles and computers) for a sum of about $700,000 (Novosti Kyrgyzstana, August 13, 2008) [7].

With Uzbekistan, relations are more complex. In 2000, China made a first step on to the Central Asian arms market, delivering sniper rifles to Tashkent. In 2009, the two countries signed a new agreement whereby Beijing provides $3.7 million to the Uzbek authorities to equip its border crossings with mobile scanning systems [8]. For the Central Asian governments, equipment and training from the Peoples’ Liberation Army is another welcome balance to the supplies of outdated Soviet hardware which is sometimes offloaded by Moscow.

Finally, training aid is attempting to develop, however modest. For example, exchanges have been organized to train military cadres, but the language barrier hinders prospects. All courses for Central Asian officers in Chinese military academies are taught in Russian, Chinese instructors are not able to speak the Central Asian languages, and Central Asian officers cannot speak Chinese. Between 1990 and 2005, only 15 Kazakh officers were sent to China for training. Yet this cooperation has grown-- between 2003 and 2009, 65 members of the Kazakh military took courses in Chinese institutions (Trends Kazakhstan, December 25, 2009; Atyrau, January 26, 2009). Further negotiations in this area were organized between the two countries at the beginning of 2009. Thirty Kyrgyz officers also received training in China (Centrasia.ru, July 12, 2004) [9]. In 2008, 30 members of the Tajik army also trained in Chinese military academies [10].

The Areas of Future Sino-Central Asian Military Cooperation

In the coming years, four areas seem destined to boost military cooperation between China and Central Asia.

The first concerns the fight against drug trafficking. Although for the moment bilateral Sino-Kazakh operations constitute a unique and undeveloped case, it is likely that such a system will also be implemented in Kyrgyzstan and Tajikistan, the most fragile countries of Central Asia, the ones with the most porous borders and with numerous drug routes spanning their territories that aim increasingly at the Chinese market. One can also assume that Beijing will try to build on the momentum of the CSTO in the field, with the institutionalization in 2009 of the annual anti-drug operation “Kanal,” which appears to satisfy all member states. China would indeed like to reproduce this model, at least partially, by organizing limited bilateral operations (Sino-Kazakh, Sino-Kyrgyz, and Sino-Tajik) rather than multilateral ones in the fight against drug trafficking.

A second theme pertains to the possibility of creating collective peacekeeping brigades mainly to go to Afghanistan. The persistent requests from Moscow and Beijing to be better consulted by NATO and the United States require that the SCO may in the near future offer some form of humanitarian intervention in Afghanistan [11]. The Afghan authorities themselves support such projects. The increasing engagement of China and Russia in this country and their growing economic interests there would push for the creation of such a force. This could have a symbolic function, like the Kazbrig in Iraq; however, it would signal the strengthening of Sino-Central Asian cooperation and confirm the ability of political actors to establish collective action toward Kabul.

It is probable that China aspires to develop its cooperation with Central Asian governments on counter-terrorism, but so far this cooperation has remained chiefly at the level of declarations of intention. Cases of Uighur dissidents being expelled from Central Asia at China’s request seem to have been extremely rare. However, the fresh upsurge of Islamist activism in Central Asia following recent developments in Afghanistan and Pakistan as well as the renewal of tensions in Xinjiang might push Beijing to request more joint action. Yet, the Central Asian governments do not want this cooperation to become an argument for Beijing’s interfering in their internal affairs. Until now, the Chinese authorities have remained cognizant of the reticence harbored by Central Asian governments and have not sought to hurry cooperation on extremely sensitive issues relating to national security.

Last but not least, the fourth area of cooperation pertains to the protection of Chinese energy assets in Central Asia. This domain is probably the one expected to grow most rapidly and with the least political resistance, since the objective is clearly economic. The inauguration of the gas pipeline between China and Central Asia in December 2009 gave China a new argument in favor of such a line of cooperation, which strengthens already existing concerns about the safety of the Sino-Kazakh pipeline. The December 2009 meeting between Vice President of the Central Military Commission Guo Boxiong and Kazakh Minister of Defense Adilbek Dzhaksybekov confirms that discussions on this subject were conducted in high places. Unlike Western countries, China has not yet developed strategies to protect its interests (pipelines and companies) and expatriates overseas. The Central Asian authorities do not wish to let the Chinese military secure Chinese interests on their territories, for obvious reasons of national sovereignty [12]. Everything thus leads toward the establishment of mixed brigades for monitoring and protection, probably for the pipelines first of all and then Chinese companies in a more distant future.

Conclusion

The ability of China to strengthen its military cooperation with the Central Asian states is limited. Central Asian officers remain suspicious of their Chinese neighbor, doctrinal traditions are very different, and the language gap may take generations to overcome. Furthermore, it is difficult to supplant Moscow in this realm, since Russia remains largely in control of the training of Central Asian officers and oversees much of the military operations of Central Asia within the CSTO, the CIS Anti-Terrorism Center, and the CIS Council of Border Guard Agency Commanders. In addition, Moscow sells weapons at domestic market prices and China remains one of the largest customers of the Russian military-industrial base (Note: Vietnam became Russia's biggest arms client in 2009 in terms of new contracts, having ordered six diesel-electric submarines and 12 Su-30 fighter jets, according to the calculations of the Center for Analysis of Strategies and Technologies (CAST)). Central Asia has more interest in preserving its interaction with Russia than on the Chinese market for weapons, which is still too weak. Yet, the situation will change in coming decades, when the Chinese army frees itself from Russian technology (the trend is leading there). For now, military cooperation between China and Central Asia is limited to the organization of joint exercises, which can display superficial collaboration, and Chinese material support of Central Asian armies via technology requests (computers and scanners) or even just uniforms and cars.

The exchange of strategic information and weapons sales is minimal, and each state continues to see its security primarily in national terms. The Central Asian governments do not want the opening of any Chinese military bases on their territory and are unofficially concerned about the presence of the Chinese secret services. Declarations made by a senior Chinese military leader about the possibility of intervening in Central Asia (Ta Kung Pao [Hong Kong], September 24, 2009), have not been officially commented on by the Central Asian capitals, but the latter’s silence is revealing of local unwillingness. The ruling elites are doubly concerned by possible Islamist destabilization, which would be dangerous for their internal stability, but which might also serve as an argument for Beijing to establish itself militarily in the region, and thus force the Central Asian states to revalorize the Russian counterweight. Yet, new areas of cooperation are emerging in regard to nontraditional threats, requiring that conventional state frameworks be surpassed: the protection of Chinese economic interests in Central Asia; joint struggles against drug trafficking; and potential humanitarian intervention in Afghanistan.

Notes

1. See the European Union’s statistics, ec.europa.eu/trade/trade-statistics/, October 2009.
2. K. L. Syroezhkin, Mify i real’nost’ etnicheskogo separatizma v Kitae i bezopasnost’ Tsentral’noi Azii [Myths and Realities of Ethnic Separatism in China and Security in Central Asia], Almaty: Dajk-Press, 2003.
3. R. N. McDermott, “The Rising Dragon. SCO Peace Mission 2007”, Jamestown Occasional Paper, Jamestown Foundation, 2007.
4. O. G. Mirutina, “Perspektivy razvitiia sotrudnichestva Kitaia i Kazakhstana i ego znachenie dlia Rossii”, Omsk University Thesis, 2003.
5. Ibid.
6. A. Paramonov, O. Stolpovskii, “Kitai i Tsentral’naia Aziia: sotrudnichestvo v sfere bezopasnosti”, op. cit.; French Embassy in Turkmenistan News Digest, January 22, 2009.
7. Ibid.
8.  “Voennoe sotrudnichestvo Uzbekistana i Kitaia”, China Embassy in Uzbekistan, no date, chinaembassy.uz/rus/dtxw/voennoe-sotrudnichestvo-uzbekistana-i-kitaya.htm.
9. “KNR,” www.mcds.ru/default.asp.
10.  “Kitai i Tadzhikistan rasshiriat voennoe sotrudnichesto”, op. cit.
11. This issue was discussed at the 9th Conference of Central Asian & Shanghai Cooperation Organization, organized by the Shanghai International Culture Association, Shanghai Center for International Studies and the Center of SCO Studies at the Shanghai Academy of Social Sciences, Shanghai, July 17-19, 2009.
12. See Central Asians’ point of view in S. Peyrouse, M. Laruelle, China as a Neighbor. Central Asian Perspectives and Strategies, op. cit.

]]> China Brief Home Page Military/Security China and the Asia-Pacific Central Asia Featured By: Sebastien Peyrouse Fri, 05 Mar 2010 10:43:00 -0700 Will China Join the Iran-Pakistan-India Pipeline? http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36122&cHash=b3e6d6aeec For over a decade Iran, Pakistan and India (IPI) have took pains at negotiating a major pipeline... For over a decade Iran, Pakistan and India (IPI) have took pains at negotiating a major pipeline deal whereby Iran would send natural gas from its territory to the region. Yet geopolitical and commercial issues have repeatedly prevented the deal's fruition despite Tehran's growing need to diversify gas sales to Asian markets and Asian countries desire to find a stable, reliable source of gas supplies. In recent years, India’s participation in this project has become more uncertain, which is partly responsible for the long delay that the project has suffered to date. Iran’s repeated attempts to raise the price of gas, U.S. pressure on India to refrain from participating in the pipeline, external skepticism about Iranian capability to fill the pipeline as it promises, Indian concerns about the overall stability of Pakistan, and in particular, the possibility of terrorism in Pakistan’s Balochistan province through which the pipeline would travel all contributed to India's angst (Jane’s Intelligence Review, February 11). Indeed, Iran recently warned India that there is a limit to its patience in waiting for New Delhi to decide (Thaindian.com, February 9). Iran was apparently able to present this ultimatum because it believes that it now has the “China card” in its deck. In early February, Iranian Foreign Minister Manucher Mottaki reportedly said that Iran was ready to start the pipeline at any time—even without India—and urged Pakistan not to heed U.S. pressure against the pipeline as China could soon replace India in the deal (Press Trust of India, February 8).

Background

Iranian President Mahmoud Ahmadinejad and his Pakistani counterpart Asif Ali Zardari inked a $7.5 billion agreement in Tehran on May 23, 2009 to transfer gas from Iran to Pakistan. According to the deal, Iran will initially transfer 30 million cubic meters of gas per day to Pakistan, but will eventually increase the transfer to 60 million cubic meters per day. The pipeline will be supplied from the South Pars field. The initial capacity of the pipeline will be 22 bcm of natural gas per annum, which is expected to be raised later to 55 bcm (Zawya.com, February 5).

After many months of negotiations, on February 11, 2010 Islamabad and Tehran were able to finalize the agreement on the issues, including the issuance by Pakistan of a "comfort letter" that provided Iran with the assurance that India—or China—could be brought into the project later. The two parties have vowed to sign the formal agreement by March 8 in Ankara, Turkey. The News reported:

Under the comfort letter, the government of Pakistan would allow the third country to import gas through [the] IP [Iran-Pakistan] line in case any country in future comes to join the project, but the permission will be subject to the gas tariff and transit fee to be worked out as per best practices of that time (The News [Pakistan], February 15).

Chinese Interests in the IPI Pipeline

Perhaps the most interesting aspect of Iran’s most recent announcement is that China has yet to comment publicly on the pipeline except that it is studying the Pakistani proposal. And that was in 2008. Chinese foreign minister, Yang Jiechi said at that time: “We are seriously studying Pakistan’s proposal to participate in the IPI gas pipeline project” (Steelguru.com, May 3, 2008; Asia Times Online, March 6, 2008).

Pakistan clearly wants China to join the pipeline for many reasons. Islamabad desperately needs the gas that might not come otherwise if there is no third party to make the deal profitable to Iran. Second, it would gain much revenue from the transit fees for the gas going to China and benefit considerably from the ensuing construction of infrastructure within Pakistan. Third, it would further solidify its “all-weather” relations with China. Those goals have always been part of Pakistan’s foreign policy and explain not only its interest in the original pipeline plan but also its previous invitations to China to join the project. The prospect of an invitation to China was also used in the past to galvanize India’s decision-making process regarding the pipeline (Steelguru.com, May 3, 2008; Asia Times Online, March 6, 2008).

Throughout the spring of 2008, former Pakistani President General Pervez Musharraf and his government frequently courted Chinese leaders to join the pipeline project, a pitch that Musharraf also tied to an earlier proposal of establishing a corridor linking Pakistan to China through rail, road and fiber optics. At that time, China promised to consider the proposal and then asked for more information, but did nothing else, leaving the issue in abeyance (Indian Express, April 15, 2008; The Indian, June 19, 2008). Subsequently, Pakistani media reports claimed that China was keen on joining the pipeline and would send a delegation to negotiate the deal, but clearly, nothing came of it (The Indian, June 26, 2008). In 2009, Iran’s ambassador to India, Seyid Mehdi Nabizadeh, told Indian journalists that China was interested in the pipeline, but he too refused to confirm if talks with China were taking place (The Indian, September 15, 2009). Based on this precedent, it may be possible that these Pakistani and Iranian gambits were spurious to begin with and its purpose was to pressure India or entice China into joining the pipeline project.

There is considerable interest among external observers in the pipeline and from Chinese officials have sporadically expressed an interest in it For example, China’s ambassador to India in 2006, Sun Yuxi, said that China has no objections to the IPI, while India’s minister for State Planning M.V. Rajashekaran, also said that once the pipeline is completed it could be extended to China [1]. Gazprom and the Russian government have long since indicated a desire to participate in sending oil and/or gas to the subcontinent through the IPI (ITAR-TASS, April 17, 2007). Indeed, one Russian official, Gazprom’s man in Tehran, Abubakir Shomuzov, has even advocated extending the IPI pipeline to China to tie Russia, China, India, Pakistan and Iran together in a very big project having major strategic implications as well as a huge number of consumers. Presumably, such statements—if not plans—are intended to mollify Chinese concerns about the possibility of Russian energy being diverted from it to India (The Hindu [Internet Version], May 7, 2007). Nevertheless, if one correlates China’s recent maneuvers in Central Asia concerning pipelines with its deals with Iran, it is clear that China is contemplating a pipeline network running from Iran either through Central Asia, or prospectively through Pakistan and/or India to China (Central Asia Caucasus Analyst, September 19, 2007).

In this context, the IPI pipeline poses several risks and opportunities for Beijing. If India exited the pipeline, that would lessen Iran’s leverage to drive a hard bargain on gas prices. At the same time, as part of the overall strategy to build pipelines from Iran to China, or at least to Gwadar from where gas or oil could be shipped directly to China, Chinese participation would create a new overland energy link that could complement China’s energy diversification strategy. Nevertheless, the project also faces several political and logistical difficulties that could scuttle Chinese participation. The pipeline is planned to traverse a very difficult terrain in Pakistan’s Gilgit region. That would increase the costs and time required to eventually connect the pipeline to Xinjiang. Moreover, the risks inherent in Pakistan and Iran also pose problems. The massive investment required to link China to the pipeline would be susceptible to many risks since it falls along a major fault line of instability, as there could be large-scale terrorism in the territory of the pipeline or more generally from a mass civil upheaval in Pakistan. In view of these positive and negative aspects to the deal, some observers suggest that Beijing might just be feigning interest in the IPI pipeline to get a better deal in negotiations with Russia on relatively safer Siberia-China gas pipelines [2]. Certainly if the prospect of China obtaining a secure and stable supply of gas from Iran would reduce its need to get that gas from Russia and give it even more leverage over Russia in the current negotiations on gas pipelines from Siberia to China than it already possesses [3].
There is another aspect to this deal too. China has recently stuck its neck out for Iran in its call for continuing negotiations with Iran over its nuclear enrichment programs irrespective of the fact that Tehran is clearly defying the IAEA and the offers of the six negotiating partners (United States, Great Britain, France, Germany, sand Russia). On February 24, 2010 Foreign Ministry Spokesman Qin Gang stated that, "China holds that the parties should continue to step up diplomatic efforts in a bid to maintain and promote the process of dialogue and negotiations," said Qin, "China hopes the parties demonstrate more flexibility and create conditions conducive to a comprehensive and proper solution to the Iran nuclear issue through diplomatic means" (China Daily, February 24).

Chinese sources also report that Iran is able to resist the United States because the political situation in Iran is stabilizing (Xinhua News Agency, February 24). This suggests a more optimistic view of the domestic situation in Iran than might be the case elsewhere. Likewise, it appears that China suspects U.S. motives in the region. High-level visits by U.S. Secretary of Energy Steven Chu to Saudi Arabia and by another high-level Israeli delegation to China aim to wean China away from Iran in return for the United States brokering increased oil exports from Saudi Arabia to China. The Chinese media apparently considers this a trap to get China to renounce its principles for transitory economic gain (China Daily, February 24).

Conclusion

At the same time, if China did become a full partner in the IPI pipeline that would offer it another opportunity to build on Beijing’s so-called strategy of building what has been called a “string of pearls” across the Indian Ocean. Chinese officials have publicly stated their desire to turn the Chinese-built Pakistani port of Gwadar into an energy hub. China also has substantial interests in overland transport links in Pakistan through the Karakorum Highway and participation in the IP pipeline would extend those interests deeper. Indeed, many observers in New Delhi and Washington view Sino-Pakistani collaborations to build naval facilities and oil refineries at Gwadar as a prelude to the establishment of a Chinese naval base there. Whether this is true or not, if China joins the IPI project, then the odds of China supporting American efforts to isolate Iran would effectively be reduced to zero because it would depend too much on Iranian gas, in addition to its recent oil contracts to antagonize Iran by siding with Washington [4]. While we wait to see how China decides to play this issue, the United States needs to understand that Beijing's decision to join or stand aloof from this pipeline will have major geopolitical repercussions and comparable geo-economic repercussions across Asia, another sign not only of the integration of south and southwest Asia with East Asia, but also of China’s rising importance as the nexus of the Asian continent.

Notes

1. “The Energy Game,” Heartland: Eurasian Review of Geopolitics, November, 2005, www.heartland.it
2. Zachary Fillingham, “India, China & the IPI Pipeline,” www.geopoliicalmonitor.com, November 5, 2009.
3. Stephen Blank, ”Russia’s New Gas Deal With China: Background and Implications,” Northeast Asia Energy Forum, VI, No. 4, Winter, 2009, pp. 16-29.
4. Fillingham, op. cit.

[The views expressed here do not represent those of the U.S. Army, Defense Department, or the U.S. Government.]

]]> China Brief Foreign Policy Energy Home Page China and the Asia-Pacific By: Stephen Blank Fri, 05 Mar 2010 10:41:00 -0700 The Role of U.S. Arms Sales in Taiwan's Defense Transformation http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36121&cHash=6a62890cd7 On January 29, 2010, the U.S. Department of Defense’s Defense Security Cooperation Agency (DSCA)... On January 29, 2010, the U.S. Department of Defense’s Defense Security Cooperation Agency (DSCA) announced the approval of a major, long-awaited arms sales package for Taiwan. The $6.4 billion deal includes Patriot advanced capability (PAC-3) missiles along with radar sets and related equipment, UH-60M Blackhawk helicopters, Osprey class mine hunting ships, Multifunction Information Distribution Systems terminals, and Harpoon telemetry missiles. China quickly expressed its indignation and blasted the decision as interference in its internal affairs. Beijing also retaliated by suspending some U.S.-China military-to-military exchanges, a move that was widely expected. This time, however, China reacted more assertively than it has in the past, including threatening to impose sanctions on the U.S. companies involved in selling weapons to Taiwan. China even warned of broader consequences for bilateral relations, perhaps to include turning a cold shoulder to U.S. requests for cooperation on other international problems such as Iran and North Korea [1].

Assessments of the motives underlying China’s reaction to the arms sales announcement and its potential ramifications for U.S.-China relations have dominated media coverage and online punditry, but an equally important question, and one that has been largely overlooked, is that of Taiwan’s future approach to defense transformation and arms procurements from the United States. The cross-Strait rapprochement that has taken shape since Ma Ying-jeou became President of Taiwan in 2008 has thus far featured four rounds of talks between the two sides respective semi-official negotiating bodies, Taiwan’s Straits Exchange Foundation and China’s Association for Relations Across the Taiwan Strait, resulting in a series of 12 agreements on issues such as the establishment of direct cross-Strait flights, financial cooperation, food safety, mainland tourist visits to Taiwan, and law enforcement cooperation. Taiwan and China are also preparing for a fifth round of talks and continuing to negotiate the details of a proposed cross-Strait Economic Cooperation Framework Agreement (ECFA).

This cross-Strait detente has sparked some debate in Taiwan about the extent to which the island still needs to spend large sums of money on defense transformation and arms procurement from the United States (Taipei Times, March 20, 2009). Some argue that Taiwan still needs to modernize its military and purchase advanced weapons from the United States because a strengthened defense posture is a crucial to support Taipei’s efforts to develop a more stable and constructive cross-Strait relationship while protecting its interests (Taipei Times, February 1). "The relaxed tensions depend very much on the continued supply of arms from the United States to Taiwan," President Ma said in a December 2009 interview. "Certainly Taiwan will not feel comfortable to go to a negotiating table without sufficient defense buildup in order to protect the safety of the island" (Wall Street Journal, December 15, 2009). Similarly, Taiwan’s MND greeted the recent U.S. announcement with a statement underscoring its position that the arms sales "would enable Taiwan to be more confident in seeking reconciliation with China and help peace and stability in the Taiwan Strait" (Wall Street Journal, January 21).

As for future plans regarding arms sales, senior defense officials in Taiwan continue to argue that procuring weapons from the United States remains vital to achieving defense transformation objectives. According to Defense Minister Kao Hua-chu, “In the future, Taiwan will continue purchasing more weaponry from the U.S .... so as to build a smaller and leaner deterrent force” (China Post [Taiwan], February 8). Several major arms procurement items remain on the table. Indeed, the latest arms sales notifications did not include two of the most expensive and potentially controversial items that were on Taipei’s shopping list—the diesel submarines that President George W. Bush originally approved in 2001 and the F-16 C/Ds Taipei is seeking to replace some of its aging fighters. Some commentators have opined that the exclusion of a submarine feasibility study from the latest batch of Congressional arms sales notifications portends the end Taiwan’s long effort to acquire new diesel submarines. According to media reports in Taiwan, however, the Ministry of National Defense has not abandoned its plans to acquire new diesel submarines (China Post, February 10). In addition, Taipei is still seeking the F-16 C/Ds, a request that remains under consideration in Washington [2].

Others in Taiwan suggest that warming ties with China obviate the need for expensive arms purchases like submarines and F-16 C/Ds by creating an opportunity for Taiwan to enjoy a “peace dividend.” They argue that the more stable relationship with the mainland allows Taiwan to further reduce defense spending without compromising its security. This is an understandable development, but it is also giving rise to concerns about the public’s willingness to back the Ma administration’s defense transformation programs. “Rapprochement has also softened domestic support for defense modernization,” according to Alexander Huang, one of Taiwan’s leading defense policy analysts [3]. In conjunction with Taiwan’s financial difficulties, this has led some in Taiwan to advocate a reduction in defense spending even as China’s military power continues to grow.

Some in Taiwan are extremely skeptical of the possibility of a “peace dividend,” however, favoring a much firmer approach to protecting Taiwan’s interests. According to one recent editorial, for example, “there is no ‘peace’ in the Taiwan Strait that can create a ‘dividend’” (Taiwan News, January 8). Despite progress in cross-Strait economic ties, according to some observers, Taiwan can ill afford to let down its guard because the People’s Liberation Army (PLA) continues to expand its deployment of tactical missiles opposite the island and Beijing remains unwilling to renounce its right to use force against Taiwan.

These discussions about Taiwan’s evolving security environment and the cross-Strait thaw’s implications for defense spending and arms procurement highlight the importance of the future direction of Taiwan’s defense strategy and the core defense challenges facing Taiwan. At the same time, however, the cross-Strait détente poses some challenges in terms of focusing attention on defense issues and winning public support for difficult choices. “The relaxation has in a way mitigated the Taiwan public’s vigilance regarding existing Chinese military threats and the growing imbalance of military capability in Beijing’s favor,” according to Huang. At the same time, however, the warming of cross-Strait relations also creates some opportunities for Taiwan’s defense establishment. Indeed, one important advantage of the relaxation of cross-strait tension is that it “provides the military with a long-awaited window to focus on full-range transformation with much less pressure on military alertness” [4].    

Among Taiwan’s key defense transformation priorities, three stand out as particularly important: rethinking Taiwan’s defense strategy and developing innovative and asymmetric war-fighting capabilities to address the growing cross-Strait military imbalance; enhancing the ability of the armed forces to conduct disaster relief and humanitarian assistance operations; and managing the potentially very expensive transition to an all-volunteer military. Not only must Taiwan address all of these issues simultaneously, but it must do so in a challenging economic environment that continues to impose constraints on the resources available for defense modernization.

Senior officials highlight refining Taiwan’s defense strategy as a critical priority because Taiwan needs a strategic framework that will allow it to address the growing military imbalance across the Taiwan Strait and optimize the allocation of scarce resources. Taiwan appears unlikely to fully adopt the “porcupine” strategy that has been proposed as an option to respond to China’s growing capability to coerce Taiwan militarily [5]. Yet, Taiwan’s “Hard ROC” defense strategy and its concept of “resolute defense, credible deterrence” incorporate some key elements of the “porcupine” approach. Moreover, senior MND officials have repeatedly highlighted the importance of “innovation” and “asymmetry” in the context of Taiwan’s defense transformation. Their comments echo the views expressed by U.S. Assistant Secretary of Defense Wallace “Chip” Gregson in his speech at the most recent U.S.-Taiwan Business Council Defense Industry Conference in September 2009, during which he highlighted the importance of asymmetric approaches and innovative thinking in tackling Taiwan’s defense challenges [6].
    
The ROC military must prepare not only for conventional challenges, but also for non-traditional security missions, such as disaster relief and counterterrorism. In particular, the Typhoon Murakot disaster dramatically illustrated the importance of enhancing the military’s preparation for humanitarian assistance and disaster relief operations. The political fallout from the Ma administration’s handling of relief operations underscored the pressure the defense establishment will face to rapidly improve its ability to respond to future natural disasters. Consequently, the military may need to face some trade-offs between improving its ability to conduct combat operations and its readiness for disaster relief operations. Top officials insist that enhancing combat operations and deterrence capability remains the military’s number one priority, but they also recognize the importance of non-traditional security missions. Indeed, preparedness for disaster relief is clearly emerging as a core mission for the ROC military, with some commentators arguing that natural disasters pose a greater security threat than the PLA given the relaxation of tension with the mainland [7].
    
Even though it has received less attention from many observers than issues such as defense strategy and the Typhoon Murakot relief efforts, the transition to the all-volunteer force is one of the most critical challenges facing Taiwan’s military over the next few years. Given its implications for the future of Taiwan’s armed forces it has been identified as one of the MND’s highest priorities, as reflected by Taiwan’s March 2009 Quadrennial Defense Review and the MND’s 2009 National Defense Report. As part of this transition, the size of the military will decline to about 215,000, and better pay and living standards will be offered to help recruit and retain highly qualified professional military personnel [8].

Importantly, Taiwan requires support from the United States to move forward in all of these areas. Some critics of U.S. policy toward Taiwan, however, contend that continuing to support the island is not worth the risk of alienating an increasingly powerful and influential China. Perhaps most prominently, retired Admiral and former Vice Chairman of the Joint Chiefs of Staff Bill Owens has argued that U.S. arms sales are no longer needed given the emergence of a more stable and constructive cross-Strait relationship (Financial Times, November 17, 2009). Political scientist and former journalist Bruce Gilley has even suggested that “Finlandization” is the appropriate model for Taiwan [9]. Of course, it is true that China’s importance to the United States is growing and the recent cross-Strait détente is certainly a welcome development, but U.S. support for Taiwan’s security—including but not limited to arms sales—remains vital to Taiwan’s defense transformation goals. Indeed, for its part, the United States should regard the recent thaw in cross-Strait ties as an opportunity to help Taiwan strengthen its defense posture.

Perhaps even more importantly, in a larger political sense, U.S. security assistance provides Taiwan with the confidence it needs to pursue a more pragmatic policy toward China without fear of being bullied into a resolution of cross-Strait differences on terms that are unacceptable to the people of Taiwan. U.S. support also discourages China from attempting to coerce Taiwan with the threat of force, not only by strengthening Taiwan’s defensive posture, but also by underscoring the continued relevance of America’s longstanding commitment to the island’s security. These are the main reasons for U.S. arms sales to Taiwan, despite Beijing’s unfounded suspicions that such sales are actually intended to undermine cross-Strait reconciliation and contain a rising China [10].

The challenge for the United States and Taiwan is thus crafting policies that enhance the durability of this new cross-Strait détente and create an environment in which Taiwan can work toward the resolution of its differences with China without fear of compromising its core interests. Encouraging further dialogue should be a key element of this approach, but Taiwan’s defense transformation will also remain vital to a stable and constructive cross-Strait environment, even as the China-Taiwan relationship moves in a closer and more constructive direction. Indeed, senior officials in Taiwan have underscored that maintaining a credible defense and deterrence capability is a prerequisite to further reducing tension with the mainland. Looking to the future, U.S. support for Taiwan’s defense transformation may become even more important if cross-Strait détente eventually moves beyond the realm of economic cooperation and the two sides begin to address potentially far more and sensitive controversial political and security issues. Consequently, Taiwan and the United States must continue working together to address the island’s most pressing defense transformation challenges.

Notes

1. “Vice Foreign Minister He Yafei Made Stern Representations to the U.S. Ambassador to China on US Arms Sales to Taiwan,”Embassy of the People’s Republic of China, January 30, 2010, www.china-embassy.org/eng/xw/t655230.htm.
2.  “We’re in the process of assessing Taiwan’s needs and requirements for that capability,” a senior administration said during a late January background briefing. See U.S. Department of State, “Background Briefing on Asian Security,” January 29, 2010, www.state.gov/r/pa/prs/ps/2010/01/136286.htm.
3. Alexander Chieh-chung Huang, “The United States and Taiwan’s Defense Transformation,” Taiwan-US Quarterly Analysis, Brookings, February 2010, www.brookings.edu/opinions/2010/02_taiwan_defense_huang.aspx.
4. Huang, “The United States and Taiwan’s Defense Transformation.”
5. See William Murray, "Revisiting Taiwan's Defense Strategy," Naval War College Review , Vol. 61, No. 3 (Summer 2008), pp. 13-38. On Taiwan’s response, see Alexander Huang, “The Road Ahead for the ROC Military,” Taipei Times, March 20, 2009, www.taipeitimes.com/News/editorials/archives/2009/03/20/2003438896.
6. Wallace C. Gregson, “Remarks to the US-Taiwan Business Council Defense Industry Conference,” September 28, 2009, www.us-taiwan.org/reports/2009_september28_wallace_gregson_conference_keynote.pdf.
7. C.V. Chen, “The Main Missions of the ‘National Army’ Should be Disaster Prevention and Disaster Relief,”  August 10, 2009, www.chinareviewnews.com/doc/1010/4/4/1/101044135.html.
8. Ministry of National Defense, Republic of China, 2009 National Defense Report, Taipei, Taiwan, October 2009.
9. Bruce Gilley, “Not so Dire Strait: How the Finlandization of Taiwan Benefits US Security,” Foreign Affairs, January/February 2010, www.foreignaffairs.com/articles/65901/bruce-gilley/not-so-dire-straits.
10. Bonnie S. Glaser, “Debunking Myths About US Arms Sales to Taiwan,” PacNet Number 6, February 17, 2010, csis.org/files/publication/pac1006.pdf.

]]> China Brief Military/Security China and the Asia-Pacific Home Page By: Michael S. Chase Fri, 05 Mar 2010 10:40:00 -0700 Beijing Seeks Paradigm Shift in Geopolitics http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36120&cHash=0065f2c3d7 China’s on-going tussle with the United States over issues including Taiwan, Tibet and trade is in... China’s on-going tussle with the United States over issues including Taiwan, Tibet and trade is in a sense nothing new. For more than two decades, Sino-U.S. relations have periodically gone through rough patches over these and related causes of disagreement. What is new is China’s much-enhanced global clout in the wake of the world financial crisis, which is coupled with a marked decline in America’s hard and soft power. More importantly, the Chinese Communist Party (CCP) leadership is gunning for a paradigm shift in geopolitics, namely, new rules of the game whereby the fast-rising quasi-superpower will be playing a more forceful role. In particular, Beijing has served notice that it won’t be shy about playing hardball to safeguard what it claims to be “core national interests.”

The pugilistic turn in China’s Great Leap Outward is stated by several well-known academics and advisers to the Chinese government. According to the Li Wei, president of the high-profile China Institute of Contemporary International Relations (CICIR), there is a reawakened resolve on the part of Beijing to do whatever it takes to defend “core interests” such as Taiwan and Tibet. Referring to the country’s new-look foreign policy since late last year, Li said: “We have become a more pro-active and much more mature [global player].” Professor Yuan Peng, an America expert at CICIR, which is affiliated with the Ministry of State Security, is even more forthright about his country’s global strategy. He said Beijing’s unusually harsh reactions to Washington’s arms sales to Taiwan and President Barack Obama’s meeting with the Dalai Lama amounted to a game changer. “China wants to change the rules of the game,” said Professor Yuan. “The U.S. leadership had sold arms to Taiwan and met with the Dalai Lama, and we had scolded the U.S. before. But this time, it’s real rebuke and real fanzhi (counter-control)” (Global Times [Beijing], February 3; Sina.com.cn, February 22).

Likewise, Central Party School strategist Gong Li said Beijing should “not yield a single inch” as far as matters such as Taiwan and Tibet are concerned. Professor Gong said while China is not yet a superpower that can throw its weight around on a global scale, Beijing should “brandish the sword” in areas affecting the country’s “core values and major interests.” According to Yang Yi, a well-known scholar at the Beijing-based National Defense University, China has been thrust to the forefront of the global stage by force of circumstances. “Under such circumstances, it’s better that we take the initiative and be proactive and creative,” said General Yang. When faced with challenges and provocations, China should “show the flag and hit hard [at opponents],” he added. “While we may suffer temporary damage, it is imperative that our opponent be dealt a blow that it cannot sustain” (China News Service, February 27; Sina.com.cn, February 22).

Central to Beijing’s novel modus operandi is cracking the whip on whoever dares impinge upon the country’s vital interests. In reaction to perceived provocations from Washington, the CCP administration has as in the past scaled down diplomatic exchanges particularly in the military sphere. A planned American tour by the People’s Liberation Army (PLA) Chief of the General Staff General Chen Bingde has been indefinitely postponed. For the first time, however, Beijing has threatened to penalize American businesses, for example, Boeing and other companies that are manufacturing weapons due to be sold to Taiwan. Moreover, the leadership under President Hu Jintao seems to have injected aspects of Chairman Mao’s “people’s war” into its diplomatic struggle against the United States. For instance, several official media and websites have urged citizens, particularly China’s famously nationalistic fenqing (“angry young men and women”) to join on-line signature campaigns to condemn the alleged “anti-China” and “belligerent” policies of the Obama administration (China Daily, February 24; Ta Kung Pao [pro-Beijing Hong Kong daily], February 26; Global Times, February 1).

An equally potent punitive measure is to stop helping the United States on the Iran and North Korea fronts, two key areas where Beijing’s contributions or at least acquiescence are eagerly sought by Washington. This is despite the fact that shortly before his first China visit last November, Obama had sent two senior aides from the National Security Council to Beijing to secure the Hu administration’s assistance in reining in the nuclear programs of Tehran and Pyongyang. And it was apparently due to Beijing’s positive response that Obama steered clear of controversial issues such as human rights during his China tour. Soon after Obama left Beijing, Beijing joined 25 other members of the International Atomic Energy Agency in rebuking Iran for concealing a uranium enrichment facility (New York Times, February 25; Washington Post, November 26, 2009). Since early this year, however, Chinese diplomats have pulled back from active cooperation with the United States in putting pressure on Iran and North Korea regarding their nuclear gambits. For example, Beijing indicated last month that it was opposed to sanctions against Iran, whose energy cooperation with China has become more entrenched than ever (New York Times, February 5; The Telegraph [London], February 28).

Also intriguing is the enhancement of the quasi-alliance relationship between Beijing and Pyongyang. The Hu leadership has approved more economic aid and investment in the DPRK, which is reportedly poised to lease two islands to Chinese entrepreneurs for 50 years. Dear Leader Kim Jong-Il is due to visit Beijing later this year. While meeting Kim Yong-Il, director of the North Korean Workers Party’s International Department in Beijing last week, President Hu indicated that Beijing was prepared to “further develop the traditional China-Korean friendship and raising China-Korean friendly ties to new levels.” More significantly, the Chinese supremo did not say a single word about either denuclearization in the Korean Peninsula or the Six-Party Talks on resolving the Korean crisis. This has raised fears that while Beijing is officially committed to reviving the Six-Party Talks, it is not about to pressurize the wily Kim into make any substantial concessions (Xinhua News Agency, February 23; Wall Street Journal, February 26).

Beijing’s hardened diplomatic posture is not confined to the United States – or to issues relating to thwarting so-called secessionist conspiracies in Tibet or Taiwan. Since late 2009, Chinese cadres have used strong-armed tactics to counter perceived efforts by foreign governments, institutions and companies to “infiltrate and subvert” the socialist order. The CCP administration’s on-going row with Google and a host of multinational IT companies is partly predicated upon fears that, in the words of Minister of Public Security Meng Jianzhu, “the Internet has become a major vehicle through which anti-China forces infiltrate and subvert” the country (The Guardian [London], January 13; Ming Pao [Hong Kong] February 23).

CCP authorities have also displayed more zealousness in curbing apparent efforts by respected international institutions to give moral and other kinds of support to the country’s dissident community. Chinese diplomats based in Oslo have leaned heavily on the Norwegian government not to allow famous dissident Liu Xiaobo – who was given an 11-year jail term last December for “inciting subversion” against the Communist regime – to be awarded the Nobel Peace Prize later this year. This is despite the fact that Norwegian authorities have no control over the decision of the Nobel Peace Prize Committee. In late 2009, the Chinese government also pulled out all the stops to oblige the organizers of the Frankfurt Bookfair to withdraw invitations to two moderate dissident writers, Dai Qing and Bei Ling, to give talks at the global cultural event (Apple Daily [Hong Kong], February 9; Asianews.It.com, February 4). These big-bully tactics appear to constitute a breach of the CCP administration’s time-honored principle of “non-interference in the internal affairs of other countries.” Beijing has invoked this principle when telling foreign governments and human rights watchdogs not to criticize the country’s human rights record.

There are indications, however, that the Hu leadership’s assessment of China’s unprecedented power projection has been less than satisfactory – and that the foreign-policy establishment has at least temporary switched back to a more moderate if not conciliatory stance. For example, Beijing has so far not announced specific punitive measures against U.S. corporations. And while military-to-military exchanges have been suspended, the Foreign Ministry last month allowed the U.S. aircraft carrier USS Nimitz to make a port call on Hong Kong (Wall Street Journal, February 19; AFP, February 11). More significantly, senior officials have sought to reassure the global community that China is not harboring “hegemonic” aspirations. On his recent European tour, Foreign Minister Yang Jiechi reiterated the familiar doctrine that China’s rise will not upset the global order. “The logic that ‘a strong country will become hegemonic’ is contrary to China’s history,” Yang said. “This is also against the intention of the Chinese people.” Citing Confucius’ famous dictum, Yang added that “‘maintaining harmony in the midst of differences’ is a value much treasured by the Chinese people” (China Daily, February 8; China News Service, February 6).

A likely factor behind the apparent softening of Beijing’s diplomatic gambit could be fears of a backlash from countries that have been burnt by the fire-spitting dragon. General Yang Yi has warned of the danger of the emergence of an “anti-China coalition” in the West. “Some Western nations may adopt the formula of ‘making individual moves to produce the effect of concerted action’ – and join the ‘contain China’ camp one after the other,” he said. Under this scenario, the well-known strategist added, “[anti-China] measures may come one after the other the rest of the year.” A late February commentary by the Beijing-run Hong Kong journal Bauhinia also drew attention to the possible worsening of the international climate this year. The monthly magazine noted that Western countries’ dependence on China might lessen in the wake of the global economic recovery. “It is possible the West will put more pressure on China over issues such as Tibet, Xinjiang, human rights, the value of the Renminbi as well as trade protectionism,” the commentary said. “Forces calling for the ‘containment of China’ may also rear their head” (China News Service, February 27; Xinhuatimes.net, February 4).

Irrespective of the trajectory of Beijing’s bid to change the rules of the game of global intercourse, a number of disturbing questions have been raised about the means as well as the end of geopolitics with Chinese characteristics. The CCP leadership’s apparent willingness to acquiesce in the nuclear ambitions of Iran and North Korea – if only in the context of punishing the Obama administration – smacks of shortsightedness if not failure to live up to its international responsibilities. Saber rattling against the U.S. may also constrict Beijing’s room for maneuver. Take, for example, the issue of the Renminbi, which has been pegged to the U.S. dollar for more than a year. If only for the purpose of not being seen as succumbing to American pressure, Beijing has refused to entertain even a moderate appreciation of the Chinese currency (Wall Street Journal, February 19; China News Service, February 4). This is despite the fact that a mild concession on this front could reap a bonanza of goodwill from not only the United States and the European Union but also dozens of the nation’s trading partners.

There are also fears that in his eagerness to stir up nationalistic fervor, President and Commander-in-Chief Hu may have given too much leeway to his generals to express irresponsible anti-American sentiments. A case in point is recent threats issued by several hawkish PLA officers to penalize Washington by dumping China’s holdings of American government bonds (Asia Times [Hong Kong], February 9; Washingtonindependent.com, February 10). While Beijing may seem justified in expecting Western countries to make certain adjustments in their dealings with a much-strengthened China, the CCP administration must first make sure that its commitment to global fair play is not compromised by what critics consider to be the overweening ambitions of a geopolitical parvenu.  

]]> China Brief Willy’s Corner Home Page Foreign Policy Economics Military/Security China and the Asia-Pacific By: Willy Lam Fri, 05 Mar 2010 10:37:00 -0700 China Assesses its Gold Reserve Strategy http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36119&cHash=d0cdd5c7e0 As the U.S. economy dithers through a fragile global recovery, Chinese leaders are convening in... As the U.S. economy dithers through a fragile global recovery, Chinese leaders are convening in Beijing for the annual plenary session of the National People's Congress (NPC)—China's ceremonial legislature—that begins March 5. The purpose of the meeting is to "hammer" out, among other things, a blueprint for the Renminbi's (or Yuan) ascendancy. China's 2010 economic blueprint, which was officially unveiled at the plenary's opening, set the country’s target growth rate to the proverbial 8 percent—which is the rate Chinese economists deem sufficient to generate enough domestic demand to make up for dwindling exports to regions such as the United States and Europe. The 8 percent growth target has remained the same since 2004 and is also widely seen as politically necessary to create enough jobs to stave off social unrest. While the world's largest economy—United States—struggles to stem the bleeding of jobs in its ailing economy, its biggest creditor—China—has been quietly increasing its gold reserves in an apparent effort to hedge the weakening value of the U.S. dollar and stabilize the value of its massive foreign exchange (FOREX) reserves. Depending on the pace and scope of China’s FOREX reserves diversification strategy, this trend will have broad implications for the internationalization of the Renminbi (RMB) and China's $2.27 trillion FOREX reserves that are mostly parked in U.S. treasuries.

One of the key issues that Chinese leaders will have to tackle is whether to let the RMB rise to restructure the domestic economy and rebalance the global economy. If Chinese leaders decide to allow the RMB to appreciate against the dollar and other currencies, gold may increasingly become an attractive alternative to include within the 'basket' of China’s FOREX reserves. As one of the world's largest holder of U.S. treasury bills—the general estimate is that China owns close to one trillion dollars of U.S. Treasury securities—senior Chinese leaders have become more vocal in expressing their concerns over the United States' fiscal discipline and calling for an alternative international reserve currency. From the outset of 2009, Beijing has taken pains to diversify its monetary risks, which include signing multiple bilateral currency swaps and actively pushing for the restructuring of international financial institutions. Another instrument less discussed in mainstream analysis, but has long term implications for the viability of the dollar as the universal reserve currency, can be gleaned from the fact that in 2009 China reportedly bought 454.1 tons of gold from its domestic market, which is equivalent to nearly 50 percent of the total purchases of 890 tons of gold made by the world’s central banks in the same year (China Review News, December 30, 2009).

In 2009, citing the head of the State Administration of Foreign Exchange (SAFE), Hu Xiaolian, the official-Xinhua News Agency reported that China increased its gold reserves by 76 percent in six years (2003) to 1,054 tons (China Daily, April 24, 2009). By comparison, the U.S. gold reserves totaled 8133.5 tons in September 2008, accounting for 76.5 percent of its total FOREX reserves. While Japan’s 765.2 tons accounted for 1.9 percent of its total FOREX reserves. China’s holdings of 1,054 tons of gold make up about 1.2 percent of its total FOREX reserves (Market Watch, March 3; United Daily News [Taiwan], February 24).

An unconfirmed 2008 report from a Guangzhou-based newspaper, Guangzhou Daily, reported that China's central bank was considering to raise its gold reserve by 4,000 metric tons from the then-600 tons to diversify risks brought by the country's huge FOREX reserves, which is largely based on T-bills (Dow Jones Newswire, November 19, 2008). Another report in mid-2009, which cited the chair of the supervisory board for big state-owned companies under the Chinese State Council's state assets commission, Ji Xiaonan, reported that "China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years" (China Post, December 1, 2009).
   
According to statistics released by the World Gold Council (WGC)—an industry association of the world's leading gold mining companies—in 2007, China surpassed South Africa as the world’s largest gold producer, and in 2009, China surpassed India as the world’s largest consumer of gold (China Economic Net, February 4). While China bought nearly 50 percent of the total gold purchases by central banks in 2009, the volume of China’s gold reserve in terms of its FOREX reserves only ranks fifth in the world, and is well below the global average. According to some experts, in light of the uncertainty posed by the global financial crisis, as a large FOREX reserves holder with a small gold reserve, China’s FOREX reserve is at risk and the stability of its value is in question. Thus, increasing China’s gold reserve is critically important for the currency’s long-term prospect and the country’s comprehensive national strength (United Daily News, February 24).

A senior official from the People’s Bank of China (PBoC) suggested, "China should formulate a long-term plan and constantly and secretly increase its gold holdings, claiming that at present the percentage of gold in China’s total reserve was too low … PBoC should try to buy as much gold as possible from China’s annual gold output of almost 300 tons, while the gold needed by industries and residents could be imported” (China Stakes, April 27, 2009).

Since the International Monetary Fund (IMF) announced its plans to sell 191.3 metric tons of gold on February 17, which is a part of its decision to sell off 1/8 of its holdings of a total volume limited to 403.3 metric tons, there have been speculations galore about whether China would purchase the remaining lot. The IMF has not officially commented on the prospect (United Daily News, February 24; Economic Daily News [Taiwan], March 2). Soon after India (and Sri Lanka) bought IMF gold in late 2009, Wei Benhua, former deputy head of SAFE, said in an interview with the reputable Chinese-business journal Caijing that, “At present we should not buy. Instead we should wait for the IMF to sell gold next time, when the price of gold drops to a relatively low level …” (Caijing, November 2009). Although Chinese leaders may have avoided buying from the international gold market before to steer clear of triggering market fluctuation, there is clearly a growing chorus that supports abandoning this conservative strategy.

According to Xia Bin, the director of the Financial Research Institute of the Chinese State Council—the Chinese government's executive branch—China should continue long-term buying of gold and take advantage of when the international price is low to increase the volume of China's gold reserves, which will help strengthen the position of the RMB as an international reserve currency and China’s long term economic development. Furthermore, Xia and other Chinese economists recommended that China allow its private enterprises to purchase gold from the international market (Economic Daily News, March 2; Money.163.com, February 26). In either case, the long-term implications of Chinese debates to increase its gold reserves will have far-reaching impact on the stability of China’s FOREX reserves and the RMB’s position of becoming the next reserve currency of the world—the question for Chinese leaders now appears no longer if but how.

]]> China Brief In a Fortnight Home Page Economics China and the Asia-Pacific By: Russell Hsiao Fri, 05 Mar 2010 10:34:00 -0700 New Strains in the U.S.-China-Taiwan Strategic Triangle http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36054&cHash=84f18be55d The triangular security relationship between the United States, China and Taiwan is under strain... The triangular security relationship between the United States, China and Taiwan is under strain again. The January 29 announcement of the $6.4 billion U.S. arms sales package to Taiwan marks a low point, but no major change in direction, for a U.S.-China relationship that began a downward spiral months ago. While not likely to cause bilateral relations to nosedive, the arms package does add another dip to a recently bumpy ride attributable to a host of issues ranging from Copenhagen 2009, the Iranian nuclear impasse to the Google debacle. What the analytical tendency toward political factors tends to overlook, however, is the tectonics of the economic reshaping of the U.S.-China-Taiwan strategic triangle over recent years, trends accelerated sharply by the conditions of the global recession throughout 2009. Nothing makes the salience of these economic factors clearer than the elements of carefully calibrated outrage, which Beijing has voiced over Obama’s arms package to Taiwan. An overview of the economic underpinnings of each leg of the U.S.-China-Taiwan relationship reveals the recession-accentuated sources of strain in this strategic triangle.

U.S.-China:  Dead-end for the Cooperative Roadmap?

Echoing the general theme of the ‘extended hand’ in his inaugural address, U.S. President Barack Obama struck a tone of cooperative engagement in his initial approach to China, inviting Beijing to join Washington in global co-leadership. Prepped by China policy experts during the presidential primary campaign, both leading Democratic candidates had come early on to see a particular opportunity for refashioning the U.S.-China relationship through co-leadership with China in the field of climate change and environmental sustainability.  

Early efforts at outreach to China coalesced around a program of clean energy cooperation between the United States and China—dubbed the U.S.-China Climate Change Roadmap—that came to underpin this strategic effort. According to this ‘new leaf’ approach, the single track of Treasury-led negotiations with China was not productive. Given Treasury’s mandate, the bureaucratic politics of the Bush administration SED process tended to shunt issues in the U.S.-China bilateral dialogue onto a single track—one based on the politics of yuan/dollar exchange rates. Despite a commendably patient and strategic approach, this ‘single-track,’ Treasury-led process yielded only limited results on currency issues [1] and produced in the public mind a perception of zero-sum negotiations leading to a cycle of blame between Chinese structural export dependence and consumer “oversaving, on the one hand, and U.S. structural deficits and over-consumption, on the other. According to the new Administration’s line of thought, a new parallel track of positive engagement with China was needed.  

As a result, Obama substantially restructured, and minimally renamed the interagency process with China to put it on two parallel tracks of engagement. The name of the Strategic Economic Dialogue was tweaked to become the Strategic and Economic Dialogue. More consequentially, the Dialogue was re-organized on a new co-chairman basis with Treasury Secretary Timothy Geithner chairing the traditional currency and exchange rate component of these talks and Secretary of State Hillary Clinton chairing the new strategic track, which included a focus on the cooperative potential of (environmental) sustainability partnerships with China.

Whatever merits this strategic re-design of the bilateral relationship may have once had, it has been massively undercut by the brute fact of global economic recession. As the nation’s—and administration’s—focus has switched increasingly to U.S. jobs, there has been a series of U.S. actions against imports of Chinese oil well drill pipes, steel and automotive tires (Asian Wall Street Journal, December 31, 2009). Adding tinder to this mix, China has recently sent signals that its government procurement will favor indigenously developed intellectual property (IP) against internationally recognized intellectual property, lending some credence to cynical interpretations of China’s motives in refusing to accept WTO disciplines for government procurement at the time of its WTO accession in 2001 [2]. This shift in mood was summed up by various reports from the just-concluded annual meeting in Davos (TIMES, January 28). In short, the politics of global recession have now trumped the politics of bilateral global co-leadership in the case of U.S-China relations.

China and Taiwan: The ECFA Dance Picks Up Pace

A general feature of the global recession has shown developed economies as slow to bounce back while large, developing markets have emerged from the recession more quickly and robustly. The northern hemisphere breakdown of this has been dubbed the “LUV phenomenon”—Europe remains stagnant in an “L-shaped” post-recession pattern, North America is experiencing a slow “U-shaped” recovery, and Asia is enjoying a brisk “V-shaped” growth pattern.

Within Asia, these same global tectonics have been reshaping relations between Taiwan and China across the Taiwan Strait. While China’s emerging economy has roared back with an 11 percent projected GDP growth rate for 2010, Taiwan’s advanced economy—highly dependent and tightly integrated into the global IT supply chain of the advanced economies —is expected to achieve only relatively weak growth of 3.5 percent in 2010 (The Taiwan Economic News, December 24, 2009). These conditions have created an opportunity for Beijing to extend its policy of aggressive regional economic engagement to Taiwan and to court the business sector with commercial blandishments. It is estimated that, in 2009, procurement missions from China have purchased in Taiwan close to $10 billion in consumer electronics, processed foods and other goods (China News Agency (CNA), August 19, 2009).

In essence, the ECFA amounts to a bilateral preferential or "free" trade agreement between Taiwan and China, adjusted technically to account for sovereignty concerns on both sides. The four preceding high-level rounds of meetings between Taiwan and China, mediated by the Straits Exchange Foundation (SEF) in Taiwan and the Association for Relations Across the Taiwan Straits (ARATS) in Beijing, have already produced a series of significant economic gains for Taiwan: a doubling of direct flights between China and Taiwan to the level of 270 per week; a further boosting of mainland tourism to Taiwan beyond the recently achieved level of 3,000 visitors per day; a Financial Framework Agreement to create a supervisory mechanism for financial service companies operating in both markets; a partial opening of Taiwan's economy to direct investment in select industries by mainland firms; and regulatory agreements governing food safety inspections and cross-strait anti-fraud cooperation.

Taiwan and China initiated ECFA negotiations on December 21, 2009 and the avowed goal is to sign a formal agreement with China in the first half of 2010. Pressure is on in Taiwan to adhere to this timeline, even as its politically polarized public struggles to absorb its implications [3]. That China's FTA with ASEAN took effect on January 1, 2010 and is the main impetus for the Ma administration to get its public to rally around the ECFA quickly. In addition to giving Taiwan exporters a more level playing field in China and Southeast Asia, there is also the hope that Singapore might follow the precedent of a Taiwan-China ECFA with a Taiwan-Singapore FTA. Currently, the Taiwanese Ministry of Economic Affairs is leading the administration's efforts in this regard, identifying "early harvest lists" of sectors which stand to benefit directly from the ECFA [4] and initially excluding from the agreement a number of product categories where direct competition with mainland firms is more politically problematic [5].

In broad view, the key dynamic in all of these developments is their lesser impact for the globally integrated and globally mainstream sectors of Taiwan's economy (i.e. IT/electronics) and their relatively greater impact for more parochial sectors of Taiwan's traditional economy. By normalizing cross-Strait commercial relations in these ‘stodgier’ sectors, the ECFA makes possible an overdue structural adjustment. Along with greater competition, the agreement promises new markets in the mainland and a new level of economic integration, via the China market springboard, regionally and globally.

Perhaps the shock of an economic downturn was required to position Taiwan and China for this next level of mutual engagement and economic integration. While joint entry into the WTO was immeasurably important to both parties as a confidence-building measure, Geneva has not served as an arena for directly advancing bilateral rapprochement.

Taiwan and the United States:  All Roads Lead to Capitol Hill

For Taiwan, the focus of the economic relations with the United States has in recent years been firmly fixed on hopes for the initiation of talks for a U.S.-Taiwan Free Trade Agreement (FTA).  While there are strong economic and security arguments to be made in support of a U.S.-Taiwan FTA, Taiwan’s push in this direction largely stalled due to steady deterioration in the standing of former President Chen’s relationship with Washington, the expiration of U.S. executive branch trade authorities during the Bush/Obama transition, new difficulties in both the existing framework of U.S.-Taiwan trade talks and in the overall political climate for free trade deals and, finally, persistent concerns over Beijing’s possible reaction to U.S. entry into FTA trade talks with Taiwan  

While prospects have brightened recently in some areas, the horizon for such a trade deal remains heavily clouded in Washington. The political relationship between Taipei and Washington has improved markedly under President Ma but there has been little direction shown by the Obama Administration regarding its game plan for post-recession re-engagement with Asia, now on a growth arc. Bureaucratically, the existing machinery for bilateral trade negotiations between Taipei and Washington, the Trade and Investment Framework Agreement (TIFA) has blown a gasket recently due to a legislative change limiting U.S. beef imports into the country. Resolution of this issue and resumption of a robustly functioning TIFA process are both prerequisites before consideration for a fundamental strengthening of U.S.-Taiwan economic ties can be possible.  

More generally, President Barack Obama has so far chosen not to expend political capital to push for fast-track trade negotiating authority from Congress. Economically, the tail end of the Global Recession has prompted closer scrutiny by Congress of all such trade deals [6] and has forced the Administration to scramble to reformulate executive branch policy around a jobs focus. In essence, U.S. economic engagement with Taiwan is currently held hostage, not only by the arcane and relatively unimportant beef issue but also by an uncertain edifice of trade policy in the region. This reflects both ambivalence toward free trade among the Democratic base and indecision about how to proceed politically in the face of growing recognition of the need to undo the ‘knot’ which ties together financial imbalance  and a structural jobs deficit in the U.S. with the export-led, yuan rate-boosted growth model. First, to emerge from the global recession, China’s growth model is now in overdrive. Essentially, the global recession has laid bare structural tensions which have been embedded in the global system for decades and which are now being amplified by the unprecedented scale of China’s recent development and the rate of its growth. Until the mid-term Congressional elections provide some resolution, the current logjam between the Obama Administration and Capitol Hill suggests scant hope for any strengthening of the U.S.-Taiwan leg of this triangular relationship.  
 
Conclusion

Political tensions, such as the recent sale of the Taiwan arms package and the anticipated meeting between President Obama and the Dalai Lama, will likely continue to characterize U.S.-China relations throughout the year. These, however, should not detract policy-makers’ attention from the more deeply embedded structural forces at work. When all three economic legs of the U.S.-China-Taiwan triangle are stable and strong, the security equation across the Taiwan Strait tends towards better balance. When, as now, there is strengthening of one leg (China-Taiwan) accompanied by relative weakness (U.S.-China) and a stasis (U.S.-Taiwan) in the other two, the security balance is eroded. Since all three legs of the triangular security relationship depend upon growth, it would be wrong-headed for policy-makers in Washington to try to put any brake on the cross-strait normalization-taking place between Taiwan and Beijing. Equally, it would be shortsighted to allow that normalization proceed apace without paired attention to the two legs of the triangle, which connect directly to the United States. In the year ahead, the United States needs to find ways to address the structural defects in its economic relationship with China without becoming overly distracted by the fallout of political tremors on the surface of that relationship. Similarly, the Obama Administration is under pressure to align its party base and lead Capitol Hill to an international trade policy that effectively reengages with its key regional trade partners in the Asia-Pacific and promotes U.S. jobs more effectively through pro-growth engagement with that dynamic region. 


Notes

1. This process contributed to a 21.5 percent increase in the yuan’s value against the dollar from mid-2005 to mid-2008, but this movement then stalled with the onset of the global financial crisis in September 2008, effectively “re-pegging” the yuan’s value to the dollar throughout 2009.
2.  “In November (2009), China instituted a catalog of products that receive significant preferences for procurement by Chinese government agencies. For inclusion in the catalog, products must contain intellectual property developed, owned and registered in China.) as reported in eWeek.com  www.eweek.com/c/a/Government-IT/Tech-Groups-Object-to-Chinas-Indigenous-Innovation-Policies-665333/
3. An October 2009 report buy Taiwan’s Council of Labor Affairs showed a positive impact of 0.75 percent GDP growth and a net gain of 125,000 jobs under a favorable ECFA scenario and a dip of almost 0.2 percent in GDP, accompanied by a net loss of 47,000 jobs, in the event of the ECFA not being concluded.
4. Petrochemicals, auto parts and machinery, constituting 23.4% of Taiwan’s cross-strait trade with China, stand to benefit (source: Taiwan Economic  Cultural Office (TECO), New York).
5. Many agricultural products and certain industrial products such as steel, footwear, and white goods.
6. Tellingly, the fate of the Korea-U.S. FTA, which has been fully negotiated and signed but not ratified, still hangs in the balance as the new administration considers renegotiating past trade agreements, particularly for their labor and environmental safeguards.

]]> China Brief Home Page Economics Foreign Policy China and the Asia-Pacific By: Terry Cooke Thu, 18 Feb 2010 14:34:00 -0700 China’s Arms Sales to Latin America: Another Arrow in the Quiver http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36053&cHash=b343b943dc Strengthening China’s military presence in Latin America is one of the many manifestations of... Strengthening China’s military presence in Latin America is one of the many manifestations of Beijing’s increased activity on the international stage. Arms sales is a subset of the Chinese military's growing involvement in Latin America. Yet, Chinese arms sales represent a small portion of its military sales and Latin America's arms purchases from around the globe. In an arms buyer-seller relationship, the benefits of increased sales do not reside exclusively with the seller, which in this case is China. Latin American governments are also seeking to diversify their arms purchases to defend national interests, including achieving measures of autonomy beyond its relations with Washington—the predominant power in the region. While Beijing’s presence around the world is increasingly noteworthy, Latin America’s goal of establishing itself as a truly sovereign region is an equally important factor.  

Historical Context

China began forging diplomatic ties with most Latin American states from the early 1970s, while Taiwan served as the formal “Chinese” interlocutor with the region in the 30 years prior. During that period, Mainland China’s arms production was almost entirely domestic in nature, and with only the most rudimentary of economic connections between Beijing and the region. Latin American states in the 1970s began opening relations with China but in many cases these were highly ideological anti-Communist states [1], which recoiled at the rhetoric of the Great Proletariat Cultural Revolution (1966-1976) and the Gang of Four (1976-1977).

The opening of the Chinese economy and the attendant growth of an export arms industry beginning in the 1980s was not the natural precedent for ties between the region and China. During this period, China‘s accelerated efforts to develop an arms industry coincided with a period of deep economic turmoil in Latin America. The overwhelming majority of states in the region (Colombia being a notable exception) were facing the ‘Debt Crisis’ of the 1980s, which dramatically curtailed Latin American arms purchases from all sources (e.g. American, Russian).

Latin America and China opened the door to an arms relationship with the economic ‘reforms’ of the late 1980s. At that point, China was opening its military’s role in arms proliferation around the world in the 1990s [2], but Latin America could not afford to purchase many arms as the political emphasis was on reducing the military’s role in the economy and society. Democratically elected governments throughout the region encouraged their respective armed forces to return to the barracks and accept that their traditionally large portion of budgets—including arms purchases—would remain permanently low.  

Furthermore, Latin America’s military threats were almost invariably domestic in nature rather than strategic. Most Latin American military concerns hinge on the domestic political threats that have plagued the region for years. As a result, this is not a region where major new classes of arms are necessary or financially required because of an existential threat posed by a neighboring state. The conflicts most states have faced over the past fifty years have been challenges to the types of regimes in place, not attempts to eradicate a country. The most prominent of these threats is in Colombia where the Fuerzas Armadas Revolucionarias Colombianas (FARC) and the Ejército de Liberación Nacional (ELN) have waged an armed insurgency against Bogotá for almost six decades. Yet there is no public source of information indicating that Beijing has any interest in becoming involved in this conflict where Washington has a substantial commitment to keeping the Colombian government in power. While there are fewer states in the region facing insurgencies today, there is less funding available in these states for purchasing arms since other priorities compete for the national budgets. This fact, along with pressure to deter Latin America from becoming the center of an international arms race, has limited the region’s ability to search for arms sales.

China and Latin America in the new millennium

China issued a White Paper on Latin America and the Caribbean [3] in November 2008 immediately before President Hu Jintao’s visit to the 16th Asia Pacific Economic Community (APEC) Leaders meeting in Lima, Peru. That document, the first of its kind for underscoring Beijing’s relations with this part of the world, discussed military ties within the broader context of growingly auspicious Chinese ties with Latin America. The White Paper discusses the advantages of military-to-military ties as part of “stronger political mutual trust and closer cooperation in economic, trade, science and technology, culture and education, and mutual support and close cooperation in international affairs” [4]. The White Paper does not include any commentary on arms sales to the region. The evidence confirms that China’s involvement has a people-to-people focus, rather than one of arms sales, to this point in the decade through military officers traveling to the region for “professional development and the placement of military attachés” [5].

One reason for the lack of ties is that the militaries of Latin America have limited resources with which to spend on arms procurement. While China is not desperate for arms sales to boost revenue as Russia was in the 1990s amidst an ailing industry, by contrast, the Latin American militaries do not hold the prospect of being outstanding potential markets in the long-term. Latin American armed forces, except for Cuba and Venezuela, prefer U.S. or European arms—even at the risk of being cut off from re-supply options should political problems arise. The region simply does not have a long enough track record with China to know those ties would be continued should an international crisis arise. Yet, Beijing’s ability to sell a small number of arms to the region is leading to an enhanced presence there. Similarly, Argentina and Colombia have considered a range of helicopters and armored personnel carriers, respectively [6].

According to a People’s Liberation Army (PLA) National Defense University graduate writing in Military Review, Bolivia, Peru, and Uruguay are all rumored to have purchased aircraft from China such as the 2007 sale of M60s to La Paz as a result of a $35 million line of credit from Beijing [7]. Uruguay has also been interested in J7 aircraft, potentially to wipe out Uruguay’s debt to China. The author also proposes that arms sales ties between China and Brazil, Peru, and Cuba are important aspects of Beijing’s involvement in arming this area of the world.

Venezuela and Cuba

The state that has attracted the most international attention (and concern) about arms purchases is Venezuela, under Hugo Chávez Frías, since late 1998 [8]. While military missions and various other high-level governmental visits regularly transpire between Caracas and Beijing, all indications are that the greatest volume of arms sales to the South American republic are Russian, not Chinese. Moscow has proven a willing supplier of arms, including Su30-MK combat aircraft to maintain its significant position in the region [9]. In 2010, China will deliver six of the eighteen K-8 Karakorum trainer or light attack planes that it sold to Venezuela, and is lending Ecuador $52 million to buy aircraft for its air force. In early 2009, Ecuador signed a contract for $60 million to buy Chinese air defense radars, its first purchases from China in 15 years (See "China’s Rising Profile in International Arms Sales," China Brief, December 16, 2009)

While Moscow and Beijing may both aim to disrupt the U.S. legacy of predominance in the region, the Chinese leadership has moved more cautiously in providing the volatile Venezuelan leader with fodder for more irritation to Washington. China’s arms sales have all been relatively small in nature and far less likely to appear as a direct threat against U.S. forces, which might be in neighboring Colombia, the strongest U.S. ally in the region and a state recently acknowledged to allow Washington to use its bases for ‘counter-drug’ operations to the national furor of others in the region.

China does promote more regular military-to-military visits with Venezuela than the United States currently does but the arms sales that have attracted the most international attention have been those from Russia. China’s military and senior political leadership have made a number of trips to Caracas over this decade and similar trips from the Venezuelan capital to Beijing have garnered international headlines but the crux of those visits has been Beijing’s virtually insatiable desire for energy arrangements around the world. Venezuela’s military has had the opportunity to learn at the PLA NDU Foreign Officers’ campus since the 1990s but that is a greater basis to the ties between the states than are arms sales [10].

Cuba would appear a logical destination for Chinese arms except that the ideological links between these two states have historically proven exceptionally tense rather than easy. Few areas of Latin America draw such a rapid response from Washington, as does Cuba, illustrated by decades of U.S. suspicion over Soviet activities there. Cuba does not have much money to buy arms and Beijing appears reluctant to offer anything to upset Washington with whom China has much more important relations than any that would come from selling arms to Cuba.

Brazil  

The major area where anyone would see strategic importance of Chinese arms sales to the region would be in Brazil. This vast state with a substantial and relatively improving economy, and a country with almost two hundred million people seeking to attain international status as a great power offers a logic for improving ties with a China seeking to prove that Washington is not the sole superpower around the world. More importantly, Brazil has become an important source of many things that China seeks in the world: food, deep sea drilling technology, satellite technology, and improving status around the world as a ‘non-aligned state’. Brazil and China have signed a number of agreements, through the increasing number of exchange visits between militaries and politicians of the nations, which include sharing development activities in a number of technologies that can include missile technology and nuclear activities. Both of these states harbor national aspirations that raise the incentives to cooperate in ways that no other states do for China.

Yet, these developments still do not mean that China is selling substantial arms packages to the Brazilians. While each state aspires to improve its position in the international community, the very conditions that allow it to do so necessitate that the state has a greater investment in international regimes that may seek to limit the attitudes which promote arms sales and arms production cooperation.

Conclusion

Beijing’s military-to-military ties are growing with the states of South America across the board: military missions, educational exchanges and arms sales. This activity is part of Beijing’s overall advancement of a foreign policy agenda aimed at raising China’s role as a great power; one that is both respected and reckoned with around the world. Latin America is clearly not China’s top priority and perhaps never will be—this means that Beijing will not have to challenge the United States in a direct way in that hemisphere yet it can use as many opportunities to improve its relationship with this broad region of hundreds of millions of potential partners at the expense of Washington and Taiwan. This overall increase in ties satisfies the national objectives of China and of the Latin American states as each seeks to diversify its relationships and move the hemisphere beyond a U.S.-centric orientation. Beijing welcomes the opportunity to sell arms to the region because of both the profit and prestige that these arms sales represent. Yet, these sales have not presented a serious challenge to U.S. dominance in the region.  

The future will likely see China retain a role in arms sales to the region but the relative importance of that role will depend on the region’s interests in military modernization as well as the importance that Washington puts on its mil-mil ties with Latin America. Both of those remain open-ended questions at present. It would appear, however, that Washington will remain less interested in sales to this region than in the past, because of its concerns about developments in Southwest Asia and the Asia-Pacific region, ironically opening the door to possible Russian and Chinese arms deals in Latin America.

Notes

1. Argentina, Brazil, Chile and Uruguay, for example, were violently opposed to leftists in their societies, taking steps to liquidate communists over several years.  Other countries, such as those in the Andean region or Central America, were not as organized in their activities against communism but were not open to economic ties with Beijing’s still state-driven economy.
2. An accessible piece on the development of China’s arms sales abroad is Evan Medeiros and Bates Gill, Chinese Arms Exports: Policy, Players, and Process  (Carlisle Barracks, PA: Strategic Studies Institute, 2000).
3.  “China’s Policy Paper on Latin America and the Caribbean”, accessed at www.gov.cn/english/official/2008-11/05/content_1140347.htm on 28 january 2010
4.  “China’s Policy Paper on Latin America and the Caribbean”, p. 1, accessed at www.gov.cn/english/official/2008-11/05/content_1140347.htm
5. Daniel Erickson, “The New Challenge: China and the Western Hemisphere”, testimony before House Committee on Foreign Affairs Subcommittee on Western Hemisphere, 11 June 2008.
6. Loro Horta, “In Uncle Sam’s Backyard: China’s Military Influence in Latin America”, Military Review, September-October 2008: 47-55 (52).
7. Loro Horta, “In Uncle Sam’s Backyard: China’s Military Influence in Latin America”, Military Review, September-October 2008: 47-55 (51).
8. This South American state’s rank from the 55th highest purchaser of conventional arms between 1999 and 2003 to 18 in the following four year period.  SIPRI Arms Transfers Data, 2008, p. 6, accessed at www.sipri.org/ on 28 January 2010.
9. SIPRI Arms Transfers Data, 2008, p. 6 accessed at www.sipri.org/ on 28 January 2010.
10. The author lectured to the Foreign Officers’ course in December 1998 when Venezuelan officers were members of the course. Dan Erickson’s testimony also addresses this point.

[These views are personal and should not be in any way construed as representing those of the National War College, National Defense University, or Department of Defense, or any agency of the U.S. Government.]

]]> China Brief China and the Asia-Pacific Latin America Home Page Military/Security Foreign Policy By: Cynthia Watson Thu, 18 Feb 2010 13:59:00 -0700 Advances in PLA C4ISR Capabilities http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36052&cHash=1e3d991d9b C4ISR (Command Control Communication Computer and Intelligence Surveillance Reconnaissance) systems... C4ISR (Command Control Communication Computer and Intelligence Surveillance Reconnaissance) systems are a key measure of military capability, and an area in which the People’s Liberation Army (PLA) is steadily advancing. Determining how strong PLA capabilities in this area are presents some analytical challenges, as unlike other areas of PLA military growth, C4ISR has received little public exposure. The Chinese military's ISR systems are more easily surveyed due to the wealth of published imagery, but technical detail on most is scarce and must often be dissected by engineering analysis of antennas or other visual features.

C4 Versus ISR – Analytical Challenges

All modern C4ISR systems can be broadly divided into the "back end" or C4 components, comprising the command and control systems, and the networks and computers supporting them, and "front end" or ISR components, comprising the orbital, airborne, maritime and fixed or mobile ground-based sensor systems, which collect raw data for the "back end" components.

The traditional division of C4ISR systems into strategic, operational and tactical is becoming problematic, as the flexibility of modern digital systems permits many such components to be concurrently employed for all three purposes.

There are good reasons why the PLA has not widely advertised its C4ISR capabilities. The first is that Western, especially U.S. military doctrine, emphasizes early and intensive attacks on an opponent's C4ISR systems to create confusion and paralysis at a tactical, operational and strategic level. As many C4ISR systems are fixed and difficult to harden, wide public disclosure presents opportunities for opposing intelligence analysis and collection against a critical national vulnerability in times of conflict.

Another consideration is that footage or imagery of racked computer and networking equipment has much less public relations appeal, compared to fighter aircraft, ballistic missiles, guided bombs and other more traditional symbols of national military power.

From a technical analysis perspective, study of C4ISR systems also presents challenges due to the pervasive and usually distributed nature of the technologies used to construct them, the complexity of networked systems, and the now global propensity to share transmission channels, such as satellites, optical fibers, copper cables, and microwave links between civilian and military users, making it difficult to determine where the military capability starts and ends. Often high-quality HUMINT (human intelligence) is the only means of determining the ground truth in such systems.

Airborne and Land Based ISR

The PLA Air Force (PLAAF) has advanced the furthest in atmospheric ISR capabilities, with the development of the KJ-2000 and KJ-200 Airborne Early Warning and Control systems, which like their Western counterparts, fully integrate active radar and passive radiofrequency sensors, with a comprehensive digital and voice C4 system. These airborne systems employ phased array radar technology one full generation ahead of the U.S. E-3C AWACS and E-2C Hawkeye. The C4 fit on either system has not been disclosed. At least four KJ-2000 systems are claimed operational [1].

Reconnaissance pods and internally integrated sensor capabilities in PLAAF strike and multi-role aircraft lag strongly at this time against their Western counterparts. Targeting pods with ISR potential are only now appearing in operational units, mostly for targeting smart munitions.

The PLA has advanced considerably in air defense capabilities, and the C4ISR components have been prominent. Wide and diverse ranges of modern radars of Chinese and Russian origin are progressively displacing legacy Chinese designs. Notable examples are the Russian 64N6E Big Bird battle management radar, used recently in S-300PMU2/SA-20B Gargoyle ATBM trials, and the new Chinese developed Type 120, 305A and 305B high-mobility acquisition radars. These are supplemented by mobile ground-based passive emitter locating systems such as the CETC YLC-20 series [2].

PLA ground forces are now introducing tactical UAVs (Unmanned Aerial Vehicles) to support maneuver force elements, with these displayed prominently during the 60th anniversary parade. While the PLA UAV force is immature by Western standards, considerable effort is being invested to develop this sector. For instance, systems in development or early service include the W-50 fixed wing UAV and Z-3 rotary wing UAV, as well as the CH3 modeled on the U.S. Predator. These supplementary conventional battlefield ISR assets are like the new CAIC WZ-10 reconnaissance and attack helicopter, modeled on U.S. and E.U. equivalents (See "New Advances in PLA Battlefield Aerospace and ISR," China Brief, January 22, 2009).

The established trend to emulate the full spectrum of Western ISR systems is not confined to aerial systems, with two UGVs (Unmanned Ground Vehicles) with ISR potential, the ASENDRO and the CHRYSOR in development (See "New Advances in PLA Battlefield Aerospace and ISR," China Brief, January 22, 2009).

C4 – The Connectivity Challenge

What is less clear is the system-level integration and networking intended for what will become a very modern and diverse fleet of tactical and operational level ISR systems. The latter problem has bedeviled Western military operators for two decades, and definitive technological solutions remain to be found.

China is deploying an extensive grid of terrestrial fiber optic links to support its civil infrastructure, which as noted by various U.S. government reports, provide for a significant dual use capability to support the Chinese military’s C4ISR needs. Buried fiber optic cables provide high bandwidth and are inherently secure from remote SIGINT (signals intelligence), hardened against electromagnetic and radiofrequency weapons and jamming.

PLA thinking on wide operational level connectivity is evidenced by two new systems displayed at the 60th anniversary parade. These are a family of fully mobile tactical satellite terminals, using characteristic dishes with boom feeds, and tropospheric scatter communications systems, easily distinguished by paired dish antennas.

While the PLA's SATCOM (satellite communication) terminals reflect global trends, the deployment of troposcatter (or tropospheric scatter) communications equipment is much more interesting. The mature U.S. equivalent AN/TRC-170 system was a mainstay of U.S. operational level connectivity during the Desert Storm and Iraqi Freedom Campaigns, providing advancing land forces with high data rate "backbone" connectivity to rear areas.

Troposcatter systems are unique in that they provide non-line-of-sight over the horizon connectivity without the use of a satellite or airborne relay station, this being achieved by bouncing high-power microwave beams off of refractive gradients in the upper atmosphere. As such, a pair of mobile troposcatter terminals can provide multiple Megabits/second data rates to ranges of 100 - 150 miles. The U.S. Army and Marine Corps have employed troposcatter systems for conventional land force long haul data and voice communications applications [3].

The PLA appears to be using troposcatter terminals to support Russian supplied S-300PMU2 and indigenous HQ-9 mobile air defense missile batteries, this permitting a battery to maintain a high data rate channel to any fixed fiber optic terminal within a 150 mile range [4]. As a result, these mobile missile batteries can continuously redeploy in a "shoot and scoot" manner to evade opposing ISR systems, while maintaining connectivity with the centralized fixed air defense C4 system [5]. The wealth of recent high-quality Chinese scientific research papers on advanced troposcatter techniques suggests this technology will become pivotal in PLA C3 operations [6].

There is no direct evidence to date of the troposcatter system being deployed to support mobile Second Artillery Corps (SAC) ballistic and cruise missile batteries (SAC is the strategic missile forces of the PLA). But given that the "shoot and scoot" operating doctrine for these assets differs little from that of air defense missile batteries, the future employment of troposcatter terminals to provide C3 support for SAC units should not come as a surprise if it happens.

Maritime C4ISR Challenges

The PLA Navy has historically relied heavily on its fleet of 1,500 nautical miles range H-6D maritime strike aircraft to provide ISR capability for surface fleet elements, emulating Soviet and NATO Cold War doctrine. This is now changing with the doctrinal shift to the "Second Island Chain" strategy, in which the PLA Navy and Air Force assume responsibility for controlling a much larger geographical area, following an arc from the Marianas, through Northern Australia, to the Andaman Islands [7].

The advent of DF-21 derived ASBMs (Anti-Ship Ballistic Missiles), modern coastal battery deployed cruise missiles like the DH/CJ-10 and C-602, and a range of ASCMs (Anti Ship Cruise Missile) carried by PLA Navy strike aircraft such as the Su-30MK2 Flanker, JH-7 Flounder, and the new turbofan powered H-6K Badger, demands accurate and timely C4ISR support to be effective against opposing maritime forces [8].

To date China's maritime C4ISR model has emulated Soviet Cold War thinking, reflecting the geo-strategic realities of a continental power seeking to control vulnerable maritime sea-lanes. Unlike the Soviets, however, China's heavy dependency upon energy and raw materials imports by sea presents an additional vulnerability, more akin to that of the Western powers.

The Soviets initially performed maritime ISR using long range surface search radar equipped Tu-16K Badger C/D and Tu-95RTs/142 Bear D/F long range aircraft, which were equipped with data links to relay maritime surface target coordinates to ASCM armed aircraft, surface combatants, and submarines. As the U.S. Navy increased the reach of its carrier battle group missile and fighter defenses, the Soviets deployed the SMKRITs (Sistema Morskoy Kosmicheskoy Razvedki I Tseleukazaniya / Maritime Space Reconnaissance and Targeting System) RORSATs (Radar Ocean Reconnaissance Satellite), which employed a Molniya satellite communications downlink to relay targeting data to maritime strike assets [9].

China is currently deploying a number of coastal OTH-SW (Over The Horizon Surface Wave) and OTH-B (Over The Horizon Backscatter) radar systems, which provide ISR capabilities against surface shipping systems and aircraft [10]. This technology can provide prodigious detection ranges compared to coastal microwave radars, but is limited by atmospheric conditions, and typically lacks the required accuracy to target a terminally guided weapon, thus providing an effective tripwire ISR capability out to the Second Island Chain, but not the precision targeting capability required to support air and missile strikes.

Implementation of the Second Island Chain strategy will drive the PLA Navy inevitably in the direction of long range UAVs, aircraft and satellites for the provision of targeting ISR, and most likely GeoStationary Earth Orbit (GEO) SATCOM for C3 capability to support aircraft, UAVs and warships performing maritime strike operations.

China's remote sensing satellite program, characterized by the extant Yaogan-1, -2, -3, -4, and -5, the Haiyang-1B, and the CBERS-2 and -2B satellite systems, have been identified by the Pentagon as dual use capabilities [11]. The planned HJ-1C and HY-3 high resolution radar imaging satellites will have significant potential for RORSAT (Radar Ocean Reconnaissance Satellite) operation, and even if inadequate, will provide the technology base for a future PLA RORSAT constellation [12].

China operates a robust number of foreign built and indigenous GEO satellites for civilian direct broadcast channels, and telecommunications transponder services, including the C-band DFH-3, DFH-4 series. In 2000, the PLA launched the first of the FH-1 series of military SATCOM vehicles, intended as part of the Qu Dian C4ISR system; the latter is described as similar in concept to the NATO/US MIDS/JTIDS/Link-16 and Link-22 systems. In 2008, China launched the Tian Lian-1 data relay satellite, intended to provide expanded communications coverage for orbital assets (Xinhua News Agency, April 25, 2008).

If the PLA exploits existing and developing satellite technology effectively, it will be capable of fielding an effective orbital C4ISR segment to support the Second Island Chain strategy over this decade, including a credible RORSAT capability. Existing dual use capabilities may be improvised to provide a limited near-term capability.

Contemporary Western ISR doctrine sees the penetration of hostile computers and networks as the cyberspace segment of a nation's ISR capabilities. China's well-documented, albeit officially denied, activities in penetrating foreign, especially U.S. government, computer systems and networks indicate a strong appreciation of the value of cyberspace as an ISR environment.

Conclusion

In the final analysis, while much of the PLA's C4ISR capability remains opaque, what is abundantly clear from what is known is that the PLA has an acute understanding of the value of advanced C4ISR in modern conflicts and is investing heavily in this area, emulating specific capabilities and doctrine developed in recent decades in the West and in Russia. Numerous instances demonstrate robust indigenous capability to develop key C4ISR technologies, and apply these technologies in unique and original ways. If the observed trends in PLA C4ISR doctrine and technological capabilities continue unabated, the PLA will have a world-class C4ISR capability in place by the end of the coming decade.

Notes

1. Carlo Kopp, The PLA-AF's Airborne Early Warning & Control Programs, Technical Report APA-TR-2007-07022, Air Power Australia, www.ausairpower.net/APA-PLA-AWACS-Programs.html.
2. Carlo Kopp, Almaz-Antey S-300PMU2 Favorit Self Propelled Air Defense System / SA-20 Gargoyle, Technical Report APA-TR-2009-0502, Air Power Australia, www.ausairpower.net/APA-S-300PMU2-Favorit.html.
3. Brad E. Rhodes, What is the future of troposcatter in the Army? History, successes, usage and upgrades supporting the Integrated Theater Signal Battalion, Army Communicator, Winter, 2005, U.S. Army Signal Center, Fort Gordon, GA, handle.dtic.mil/100.2/ADA495330
4. Kopp, Almaz-Antey S-300PMU2 Favorit Self Propelled Air Defense System / SA-20 Gargoyle, Technical Report APA-TR-2009-0502, op. cit.
5. Ibid.; Carlo Kopp and John Wise, HQ-9 and HQ-12 SAM System Battery Radars, Technical Report APA-TR-2009-1201, Air Power Australia, www.ausairpower.net/APA-HQ-9-12-Battery-Radars.html.
6. Hu Maokai, Chen Xihong, Shu Tao, Dong Shaoqiang Missile Inst., AFEU, Sanyuan, China, New generation troposcatter communication based on OFDM modulation, Electronic Measurement & Instruments, 2009. ICEMI '09. 9th International Conference on, August 16-19, 2009; Shu-xin Chen, Hai-long Gu, Telecommun. Eng. Inst., Air Force Eng. Univ., Xi'an, A detailed simulation study for troposcatter channel, Industrial Informatics, 2008. INDIN 2008. 6th IEEE International Conference on, July 13-16, 2008; and a search of online databases identified 22 recent Chinese language research papers dealing with troposcatter communications theory, available upon request.
7. Military Power of the People’s Republic of China, ANNUAL REPORT TO CONGRESS, 2009, Office of the Secretary of Defense, Washington DC.
8. Mark Stokes, China’s Evolving Conventional Strategic Strike Capability; The anti-ship ballistic missile challenge to U.S. maritime operations in the Western Pacific and beyond, 2049 Institute report, September 2009.
9. Soviet Maritime Reconnaissance, Targeting, Strike and Electronic Combat Aircraft, Technical Report APA-TR-2007-0704,    Air Power Australia, www.ausairpower.net/APA-Sov-ASuW.html
10. Sean O'Connor, OTH Radar and the ASBM Threat, IMINT & Analysis website, geimint.blogspot.com/2008/11/oth-radar-and-asbm-threat.html
11. Ibid.
12. Ibid.; Colonel David J. Thompson, USAF and Lieutenant Colonel William R. Morris, USAF, China in Space; Civilian and Military Developments, Air War College Maxwell Paper No. 24, August 2001.

]]> China Brief Home Page Military/Security China and the Asia-Pacific Featured By: Carlo Kopp Thu, 18 Feb 2010 13:56:00 -0700 Deepening Chinese Stakes in West Africa: The Case of Ghana http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36051&cHash=f8b44c3a5a In the first nine months of 2009, Chinese companies launched 14 projects in Ghana and topped the... In the first nine months of 2009, Chinese companies launched 14 projects in Ghana and topped the list of foreign firms registered in terms of Foreign Direct Investments (FDIs) in the country [1]. This trend follows in line with China’s growing footprint in the rest of Africa. According to the Ministry of Commerce of the People’s Republic of China (PRC), in 2009 Chinese investments in Africa rose 77.5 percent to $875 million from January to October (Ghanabusinessnews.com, January 6). While Beijing and Accra have enjoyed relatively strong and stable bilateral relations since the 1960s, the backdrop of a recent surge in Chinese activities in Ghana warrants a closer examination of China’s presence in Ghana and its implications for China’s West Africa and pan-African strategy.

On December 30, 2009, "The Agreement on Economic and Technical Cooperation between China and Ghana" was signed at the Ghanaian Ministry of Finance and Economic Planning in Accra. According to this agreement, China will provide two concessional financial facilities including a grant and an interest-free loan to the government of Ghana in 2010 (Gh.china-embassy.org, January 1). At the same time, state-owned China National Offshore Oil Company (CNOOC) made a bid for a share of U.S.-based Kosmos Energy’s assets in Ghana’s Jubilee oil field in October 2009 (Chinadaily.net, October 13, 2009). Ghana is clearly rising in terms of its strategic and economic importance to China, as these recent moves further consolidate Chinese stake in Ghana’s future development. Oil, cocoa, waste copper—China’s shopping list runs the gamut of all the commodities that Ghana and the rest of Africa can supply.

China's historical ties to Ghana

Shortly after establishing diplomatic relations in 1960, Ghana received the first $12 million concessional loan from China in 1964. In the decades following, Ghana has continuously received aid from China in various forms such as loans, grants and education funds. Most loans and grants are related to the construction of local infrastructure in Ghana. For instance, the Chinese government assisted Ghanaians in the construction of the National Theater, the Bui Hydro-Electric Power Dam, the Afefi Irrigation Project, the Dangme East District Hospital, the Police and Military Barracks, the Kumasi Youth Centre, the Office Block of Ministry of Defense and three rural schools. Among all of these projects, the construction of Bui Dam, financed by China Export-Import (EXIM) Bank [2]—China's export credit and guarantee agency—is the single largest Chinese financial commitment to Ghana to date and will have a significant impact on the power generation capacity of the country (Mofep.gov.gh, September 25, 2007).

Ghana's economic development is heavily dependent on foreign aid and international loans. China is therefore an important aid partner to Ghana because it provides Ghana with a considerable amount of unconditional aid and low-interest loans. According to Chinese officials, China’s approach to aid has always been based on the principles of mutual respect and non-interference regardless of the political significance of the recipient country. As a result of this approach for doling out foreign aid, many Chinese companies were rewarded with huge infrastructure projects. Some experts argue that China is expanding its business interests in Ghana and other African countries by funding these countries’ projects and using the distribution of the loans to pay the Chinese companies and imported Chinese laborers for the local construction through secret pacts with African governments [3]. The Bui Dam construction is a typical example. As mentioned above, the whole construction is financed by China EXIM Bank. Moreover, Sino Hydro, a Chinese construction company, was awarded the $500 million agreement to undertake the construction of the Bui Dam after President Hu Jintao visited Ghana and confirmed China’s financial support for the country’s energy sector development. In this project, Sino Hydro created about 2,500 local job opportunities and brought around 500 Chinese workers (Ghananewsagency.org, November 6, 2006). Also, considering China’s dramatic investments in Ghana in the last 10 years, particularly after the discovery of Ghana’s offshore oil fields, China has also been criticized for prioritizing foreign aid to resource-rich African countries. Yet, in the case of Ghana, considering the country’s development model as an aid-dependent country, China is clearly a partner with increasing significance, and ultimately Ghana is benefiting from China’s help with interest-free loans and local infrastructure developments, according to GIPC’s official reports.

Growing trade and investment relations

Trade and investment flows between Africa and China have increased dramatically in the past decade. Along with its growing manufacturing prowess, Chinese goods have leapt to become Ghana’s major source of imports. From 2000 to 2008, China’s exports to Ghana increased manifold from $93 million to $1,512 million [4]. It now ranks first as an importing country to Ghana with 15.9 percent share (CIA world Fact Book, 2009). Yet, the gap between the imports of Chinese goods and Ghana’s exports is widening. By 2000, Ghana’s exports to China totaled only $25 million with imports of $93 million. Then exports grew to $32 million in 2003 while imports nearly doubled to $180 million. In 2006, exports increased to $39 million as imports surged to $504 million (Statistics from GIPC). Although the precise up-to-date official data is not available, it can be reasonably assumed that the recent trade flow follows largely along the same trend in spite of more Chinese direct investments in Ghana. Reasons for the trend may vary. Some Ghanaians argue that this is because while China benefits from the free trade market on the African continent, it is increasing tariffs and importing standards for African goods (www. internationalrivers.org, July 29, 2008).

Yet a closer examination of the imbalanced volume in China-Ghana bilateral trade reveals that it is largely because of the uneven position at which the two sides stand on the demand and supply chain. According to the Economic and Commercial Counselor’s Office (ECCO) of the PRC embassy in the Republic of Ghana’s official report [5], main items that China exports to Ghana are electronics, telecommunication equipments, power supply equipments, textiles and plastic tire products. In addition, the major imports China ships from Ghana are crude oil products, cocoa, cotton, gold, timber, and industrial diamonds. Comparatively, China benefits from manufacturing and processing goods that have high-end value, whereas Ghana continues to trade at low-end value as it concentrates on exporting agricultural products and raw materials. Moreover, in the foreseeable future if this inequality continues, local manufacturing industries in Ghana may suffer because of the continuous inflows of the cheap Chinese goods that could have a dominant influence on the local market.

Another new phenomenon in China-Ghana trade relations is the rapidly rising FDI level from China. This is in part because of the “go-out” policy of the Chinese government and the favorable domestic environment in Ghana. In 2006, the National Development and Reform Commission (NDRC)—the macroeconomic planning agency under the Chinese State Council—published a report with the heading “Africa is the ideal market for ‘Zhongguo Zhizao’ (goods made in China)” [6]. In 2008, the NDRC released the official “Catalogue of Industrial Guidance for Foreign Investment” and “China’s Energy Conditions and Policies” in order to emphasize the significance of the African continent and encourage Chinese enterprises to explore market opportunities on the African continent.

According to the Department of Commerce of PRC (DCPRC), in 2007 China topped Ghana’s FDIs with a total of 316 registered projects (statistics are accumulated). It also ranked fourth with a total value of $219 million investments. According to GIPC, in the first half of 2009 China remained first in the list of countries with 21 projects registered and ranked second with a total value of $8.18 million. With the low-interest loans accompanying the Chinese investment aimed at helping the local government with infrastructure construction and expected job creation, the Ghanaian government is in a better position to stabilize its economy.

China Entering Ghana’s Newfound Energy Sector

Ghana is rich in gold, industrial diamonds, timber, cocoa and many other natural resources. Yet the recent discovery of Ghana’s offshore oil has brought the country new opportunities to accelerate its economic development. In 2007 oil was found off Ghana’s coast and is expected to earn an average of $1.2 billion in annual state revenues for almost two decades (The Economist, December 31, 2009). And this is also good news for China: China’s consumption of oil has doubled since 1996 and now it is only second to the United States in oil consumption. About one-third of its imported oil comes from Africa.

Since the sub-Saharan Africa region is often considered an under-explored area when it comes to resource extraction, it is an ideal extension of China’s energy supply chain to secure its rapid economic development and surging appetite for natural resource. Therefore, Chinese firms soon organized to bid on a share of Ghana’s oil exploration in competition with oil giant ExxonMobil. Later, it was alleged that the government of Ghana favored the bid by China's CNOOC which proposed to buy stakes between $3 and 5 billion in addition to granting the government a concessionary loan of $2 billion. And China Development Bank has also confirmed the loan to Ghana's national oil company to pay for infrastructure projects in the Jubilee field off the West African country (Allafrica.com, October 16, 2009). Actually, prior to this bid, China also helped Ghana in many local road and other infrastructure constructions that will help to develop the oil industry and established sound relations with Ghanaian government and local oil companies.

With a local welcome, China seems to be secured in its share of Ghana’s oil. Yet some charge that CNOOC is not as experienced as other oil companies in the field of deep-sea operation and that Chinese companies have poor records on environment protection and labor rights promotion. Also, as a new player in the West Africa oil fields, China will have to continue to compete with oil giants from India, the United States, European Union, and United Kingdom. For instance, a recent news article in the Chinese media reveals that in an attempt to respond to China’s growing influence in Africa and secure India’s energy supply in the continent, the Indian state-owned Oil and Natural Gas Corp. Ltd (ONGC) and GAIL (India) Ltd are in talks with Ghana National Petroleum Corp. (GNPC) for acquiring stakes in hydrocarbon blocks in the African country (Xinhua News Agency, December 7, 2009). As a latecomer to Africa’s offshore oil exploitation, China may still have a long way to go. Yet, with its strong economic strength and sound relations with African governments, China could still have a share of West Africa’s natural resources.

Conclusion

China’s emergence as Africa’s largest trading partner has attracted the attention of the world. China’s recent activities in West Africa, especially in Ghana are particularly significant since there are many implications beyond the headlines. Clearly, China benefits from importing natural resources and raw materials and exporting Chinese goods. Yet it is still unclear whether this model will work for all African countries or not. While Chinese investment could deliver a fortune for this country, it could also be a disaster. The key question is, judging by China’s previous engagement in Africa, is China’s investment beneficial to Ghana and will it help the country to develop its own industries and human resources or is it just an extension of China’s global demand and supply chain that may potentially be detrimental to Ghana’s development?

Because of Chinese extraction of Ghana’s natural resources and heavy presence in Ghana’s domestic market, China weighs heavily in Ghana’s future development. Its investment and oil exploitation in Ghana could be an opportunity for the Ghanaian government to accelerate economic growth and develop Ghana’s own industry and human resources. Yet an overflow of Chinese goods and not-so-well-planned natural resources extraction could potentially be disastrous to the overall development of Ghana. It remains to be seen whether the Ghanaian government is able to translate these investment opportunities into the sustainable development of its own economy.

Notes

1. GIPC 2009 2nd Quarter Investment Report, Vol. 5 Issue 2, August 2009, www.gipc.org.gh/UploadFiles/Publications/Q2Report2009_final_240809090904100848.pdf.
2. China EXIM Bank is one of China's three policy banks and the sole provider of concessional financing which plays an important role in delivering foreign aid and assistance.
3. For details, please see SHARON LaFRANIERE and JOHN GROBLER, "Uneasy Engagement: China Spreads Aid in Africa, With a Catch", from New York Times website, September 21, 2009,
www.nytimes.com/2009/09/22/world/africa/22namibia.html;  
4. Official statistics from Department of Commerce of PRC, From: xyf.mofcom.gov.cn/aarticle/date/200811/20081105919485.html.
5. Official report from the ECCO, gh.mofcom.gov.cn/aarticle/ztdy/200412/20041200318024.html.
6. NDRC: Africa is an ideal market for ‘Zhongguo Zhizao”, From People.com.cn, May 29, 2009, mnc.people.com.cn/GB/4412239.html, accessed on November 22, 2009.

]]> China Brief Home Page China and the Asia-Pacific Africa Foreign Policy Economics By: Wenran Jiang, Jing Jing Thu, 18 Feb 2010 13:53:00 -0700 Hu's New Year Charm Offensive toward Taiwan http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36050&cHash=becceb4273 At a meeting held in Fujian Province in southeastern China on the eve of the Lunar New Year,... At a meeting held in Fujian Province in southeastern China on the eve of the Lunar New Year, Chinese Communist Party (CCP) Chief and President Hu Jintao met with businessmen from Taiwan and used the occasion to launch a charm offensive across the Taiwan Strait. At a business park in Zhangpu county in Zhangzhou city, created in 2006 for Taiwanese farmers to solicit investments by Taiwan-funded agricultural firms, President Hu stated:

"At the time when people across the Taiwan Strait are about to celebrate this traditional Chinese lunar new year, I would like to take this opportunity to say hello to all of you … I've said many times, as long as it is beneficial to our Taiwan compatriots, we will do our best to make it happen. We say it, and we will do it. Right now a treaty of Cross-Strait Economic cooperation [sic] Framework is under negotiation. This framework will contribute to the economies of both sides. We will fully take the interests of Taiwan compatriots, especially Taiwan farmers, into consideration when we negotiate. We will achieve it, and everyone will be satisfied with the result" (CCTV, February 14).

Beijing's strategy of reaching out to Taiwanese farmers is not new. President Hu’s calibrated pitch to the rural constituency of the opposition Democratic Progressive Party (DPP) in Taiwan was a shot across the bow at the opposition party, which has been slowly climbing back from its defeat in the 2008 presidential election.

According to Zhu Weidong, deputy director of the Taiwan Research Institute at the Chinese Academy of Social Sciences (CASS)—the premier Chinese government think-tank—the timing, location, and agenda are “without a doubt” clear and strong signals (China Times, February 15).

The two opposing political camps in Taiwan were quick to frame the meaning behind Hu’s statements, which underscore the growing divide in Taiwanese society over the island’s policy toward China. According to Zhang Rong-gong, deputy secretary-general of the ruling-Kuomintang (KMT), Hu’s remark was a direct response to President Ma Ying-jeou’s new year’s press conference, in which Ma stressed the importance of signing the Economic Cooperation Framework Agreement (ECFA), and an expression of goodwill toward the Taiwanese society (United Daily News, February 15). The opposition-leaning Liberty Times published an article criticizing Hu’s performance as a charade and part of China’s incessant unification campaign. DPP Spokesperson Tsai Chi-chang noted, among other things, that previous commitments made by the Chinese government to buy farmers’ produce have fallen short, and warned that the Chinese leader’s words cannot be trusted (Liberty Times, February 14).

Against the backdrop of the reeling global economy and mounting concerns in Taiwan over the Ma administration’s handling of various domestic and international debacles (See “Managing the Chiang-Chen Talks in Cross-Strait Relations,” China Brief, January 21), the opposition DPP has managed to score several electoral victories in the January legislative by-elections against the ruling-KMT, of which Ma doubles as chairman. The KMT still controls a majority of the seats in Taiwan’s parliament (Legislative Yuan). Yet with another round of by-elections for four seats due at the end of February and the opposition candidate reportedly gaining ground against the KMT in at least one key race (TVBS Poll Center, February 10 – 11), Hu’s appeal may be targeted at countering DPP assertions about the inherent dangers of the ECFA for some of its constituents in Taiwan.

In a recent rally to support KMT candidates, Ma acknowledged the “tremendous pressure” the KMT was under to win. According to one report, “since the KMT came to power, it has encountered numerous challenges and that as success in the by-elections is so vitally important to make up for the party's setback in Jan. 9 [sic] by-elections, everyone in the party should do their parts to drum up support for the KMT candidates” (Central News Agency [Taiwan], February 3).

As the opposition-DPP gains momentum, the Chinese leadership is also stepping up efforts to establish multiple platforms to further integrate the two sides of the Taiwan Strait. In the final analysis, these efforts, including Hu’s charm offensive, may to some degree reflect growing Chinese concerns about the Ma administration’s ability to maintain control of the tempo for the ongoing cross-Strait dialogue. At a period in time when the opposition-DPP is gaining ground but still not yet in a position to effectively check the administration’s cross-Strait policies, these moves appear to be based on the growing perception in Beijing that they are also in a bid against time. In light of China’s callous response to the recent announcement of U.S. arms sales to Taiwan, this episode highlights the limits of China’s current carrot-and-stick strategy toward Taiwan and spells more challenges ahead for a cross-Strait détente in the new year.

]]> China Brief In a Fortnight Featured Home Page China and the Asia-Pacific Foreign Policy By: Russell Hsiao Thu, 18 Feb 2010 13:51:00 -0700