Does China Matter?

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DISCUSSIONS ON BURMA'S RELATIONSHIP WITH CHINA OFTEN DEPICT THE MIDDLE KINGDOM
AS A MAJOR GLOBAL POWER. THIS ARTICLE PUTS THE MATTER INTO ANOTHER PERSPECTIVE
WITH IMPLICATIONS FOR THE CHINA-BURMA RELATIONSHIP.(DNA)

*******************

"Foreign Affairs"
September/October 1999


Does China Matter?


Gerald Segal; GERALD SEGAL is Director of Studies at the International 
Institute for Strategic Studies in London and co-author, with  Barry Buzan, 
of "Ancipating the Future".


MIDDLE KINGDOM, MIDDLE POWER

DOES CHINA matter? No, it is not a silly question -- merely one that is not 
asked often enough. Odd as it may seem, the country that is home to a fifth  
of humankind is overrated as a market, a power, and a source of ideas. At best,

China is a second-rank middle power that has mastered the art of diplomatic 
theater: it has us willingly suspending our disbelief in its strength. In fact,
China 
is better understood as a theoretical power -- a country that has promised to 
deliver for much of the last 150 years but has consistently disappointed. After
50 
years of Mao's revolution and 20 years of reform, it is time to leave the
theater and 
see China for what it is. Only when we finally understand how little China
matters will 
we be able to  craft a sensible policy toward it.


DOES CHINA MATTER ECONOMICALLY?

CHINA, UNLIKE Russia or the Soviet Union before it, is supposed to matter
because it is already an economic powerhouse. Or is it that China is on the
verge of becoming an economic powerhouse, and you must be in the engine
room helping the Chinese to enjoy the benefits to come? Whatever the spin,
you know the argument: China is a huge market, and you cannot afford to
miss it (although few say the same about India). The recently voiced "Kodak
version" of this argument is that if only each Chinese will buy one full
roll of film instead of the average half-roll that each currently buys, the
West will be rich. Of course, nineteenth-century Manchester mill owners
said much the same about their cotton, and in the early 1980s Japanese
multinationals said much the same about their television sets. The Kodak
version is just as hollow. In truth, China is a small market that matters
relatively little to the world, especially outside Asia.

If this judgment seems harsh, let us begin with some harsh realities about
the size and growth of the Chinese economy. In 1800 China accounted for 33
percent of world manufacturing output; by way of comparison, Europe as a
whole was 28 percent, and the United States was 0.8 percent. By 1900 China
was down to 6.2 percent (Europe was 62 percent, and the United States was
23.6 percent). In 1997 China accounted for 3.5 percent of world GNP (in
1997 constant dollars, the United States was 25.6 percent). China ranked
seventh in the world, ahead of Brazil and behind Italy. Its per capita GDP
ranking was 81st, just ahead of Georgia and behind Papua New Guinea. Taking
the most favorable of the now-dubious purchasing-power-parity calculations,
in 1997 China accounted for 11.8 percent of world GNP, and its per capita
ranking was 65th, ahead of Jamaica and behind Latvia. Using the U.N. Human
Development Index, China is 107th, bracketed by Albania and Namibia -- not
an impressive story.

Yes, you may say, but China has had a hard 200 years and is now rising
swiftly. China has undoubtedly done better in the past generation than it
did in the previous ten, but let's still keep matters in perspective --
especially about Chinese growth rates. China claimed that its average
annual industrial growth between 1951 and 1980 was 12.5 percent. Japan's
comparable figure was 11.5 percent. One can reach one's own judgment about
whose figures turned out to be more accurate.

Few economists trust modern Chinese economic data; even Chinese Prime
Minister Zhu Rongji distrusts it. The Asian Development Bank routinely
deducts some two percent from China's official GDP figures, including
notional current GDP growth rates of eight percent. Some two or three
percent of what might be a more accurate GDP growth rate of six percent is
useless goods produced to rust in warehouses. About one percent of China's
growth in 1998 was due to massive government spending on infrastructure.
Some three percent of GDP is accounted for by the one-time gain that occurs
when one takes peasants off the land and brings them to cities, where
productivity is higher. Taking all these qualifications into account,
China's economy is effectively in recession. Even Zhu calls the situation grim.

China's ability to recover is hampered by problems that the current
leadership understands well but finds just too scary to tackle seriously --
at least so long as East Asia's economy is weak. By conservative estimates,
at least a quarter of Chinese loans are nonperforming -- a rate that
Southeast Asians would have found frightening before the crash. Some 45
percent of state industries are losing money, but bank lending was up 25
percent in 1998 -- in part, to bail out the living dead. China has a high
savings rate (40 percent of GDP), but ordinary Chinese would be alarmed to
learn that their money is clearly being wasted.

Some put their hope in economic decentralization, but this has already gone
so far that the center cannot reform increasingly wasteful and corrupt
practices in the regions and in specific institutions. Central investment
-- 20 percent of total investment in China -- is falling. Inter-provincial
trade as a percentage of total provincial trade is also down, having
dropped a staggering 18 percent between 1985 and 1992. Despite some
positive changes during the past 20 years of reform, China's economy has
clearly run into huge structural impediments. Even if double-digit growth
rates ever really existed, they are hard to imagine in the near future.

In terms of international trade and investment, the story is much the same:
Beijing is a seriously overrated power. China made up a mere 3 percent of
total world trade in 1997, about the same as South Korea and less than the
Netherlands. China now accounts for only 11 percent of total Asian trade.
Despite the hype about the importance of the China market, exports to China
are tiny. Only 1.8 percent of U.S. exports go to China (this could,
generously, be perhaps 2.4 percent if re-exports through Hong Kong were
counted) -- about the same level as U.S. exports to Australia or Belgium
and about a third less than U.S. exports to Taiwan. The same is true of
major European traders. China accounts for 0.5 percent of U.K. exports,
about the same level as exports to Sri Lanka and less than those to
Malaysia. China takes 1.1 percent of French and German exports, which is
the highest in Asia apart from Japan but about par with exports to
Portugal.

China matters a bit more to other Asian countries. Some 3.2 percent of
Singapore's exports go to China, less than to Taiwan but on par with South
Korea. China accounts for 4.6 percent of Australian exports, about the same
as to Singapore. Japan sends only 5.1 percent of its exports to China,
about a quarter less than to Taiwan. Only South Korea sends China an
impressive share of its exports -- some 9.9 percent, nudging ahead of
exports to Japan.

Foreign direct investment (FDI) is even harder to measure than trade but
sheds more light on long-term trends. China's massive FDI boom, especially
in the past decade, is often trumpeted as evidence of how much China does
and will matter for the global economy. But the reality is far less clear.
Even in 1997, China's peak year for FDI, some 80 percent of the $ 45
billion inflow came from ethnic Chinese, mostly in East Asia. This was also
a year of record capital flight from China -- by some reckonings, an
outflow of $ 35 billion. Much so-called investment from East Asia makes a
round-trip from China via some place like Hong Kong and then comes back in
as FDI to attract tax concessions.

Even a more trusting view of official FDI figures suggests that China does
not much matter. FDI into China is about 10 percent of global FDI, with 60
percent of all FDI transfers taking place among developed countries. Given
that less than 20 percent of FDI into China comes from non-ethnic Chinese,
it is no surprise that U.S. or European Union investment in China averages
out to something less than their investment in a major Latin American
country such as Brazil. China has never accounted for more than 10 percent
of U.S. FDI outflows -- usually much less. In recent years China has taken
around 5 percent of major EU countries' FDI outflow -- and these are the
glory years for FDI in China. The Chinese economy is clearly contracting,
and FDI into China is dropping with it. In 1998 the United Nations reported
that FDI into China may be cut in half, and figures for 1998 -- 99 suggest
that this was not too gloomy a guess. Japanese FDI into China has been
halved from its peak in 1995. Ericsson, a multinational telecommunications
firm, says that China accounts for 13 percent of its global sales but will
not claim that it is making any profits there. Similar experiences by
Japanese technology firms a decade ago led to today's rapid disinvestment
from China. Some insist that FDI flows demonstrate just how much China
matters and will matter for the global economy, but the true picture is far
more modest. China remains a classic case of hope over experience,
reminiscent of de Gaulle's famous comment about Brazil: It has great
potential, and always will.

It does not take a statistical genius to see the sharp reality: China is at
best a minor (as opposed to inconsequential) part of the global economy. It
has merely managed to project and sustain an image of far greater
importance. This theatrical power was displayed with great brio during
Asia's recent economic crisis. China received lavish praise from the West,
especially the United States, for not devaluing its currency as it did in
1995. Japan, by contrast, was held responsible for the crisis. Of course,
Tokyo's failure to reform since 1990 helped cause the meltdown, but this is
testimony to how much Tokyo matters and how little Beijing does. China's
total financial aid to the crisis-stricken economies was less than 10
percent of Japan's contribution.

The Asian crisis and the exaggerated fears that it would bring the
economies of the Atlantic world to their knees help explain the overblown
view of China's importance. In fact, the debacle demonstrated just how
little impact Asia, except for Japan, has on the global economy. China -- a
small part of a much less important part of the global system than is
widely believed -- was never going to matter terribly much to the developed
world. Exaggerating China is part of exaggerating Asia. As a result of the
crisis, the West has learned the lesson for the region as a whole, but it
has not yet learned it about China.


DOES CHINA MATTER MILITARILY?

CHINA IS a second-rate military power -- not first-rate, because it is far
from capable of taking on America, but not as third-rate as most of its
Asian neighbors. China accounts for only 4.5 percent of global defense
spending (the United States makes up 33.9 percent) and 25.8 percent of
defense spending in East Asia and Australasia. China poses a formidable
threat to the likes of the Philippines and can take islands such as
Mischief Reef in the South China Sea at will. But sell the Philippines a
couple of cruise missiles and the much-discussed Chinese threat will be
easily erased. China is in no military shape to take the disputed Senkaku
Islands from Japan, which is decently armed. Beijing clearly is a serious
menace to Taiwan, but even Taiwanese defense planners do not believe China
can successfully invade. The Chinese missile threat to Taiwan is much
exaggerated, especially considering the very limited success of the far
more massive and modern NATO missile strikes on Serbia. If the Taiwanese
have as much will to resist have as did the Serbs, China will not be able
to easily cow Taiwan.

Thus China matters militarily to a certain extent simply because it is not
a status quo power, but it does not matter so much that it cannot be
constrained. Much the same pattern is evident in the challenge China poses
to U.S. security. It certainly matters that China is the only country whose
nuclear weapons target the United States. It matters, as the recent Cox
report on Chinese espionage plainly shows, that China steals U.S. secrets
about missile guidance and modern nuclear warheads. It also matters that
Chinese military exercises simulate attacks on U.S. troops in South Korea
and Japan. But the fact that a country can directly threaten the United
States is not normally taken as a reason to be anything except robust in
defending U.S. interests. It is certainly not a reason to pretend that
China is a strategic partner of the United States.

The extent to which China matters militarily is evident in the discussions
about deploying U.S. theater missile defenses (TMD) in the western Pacific
and creating a U.S. national missile defense shield (NMD). Theoretically,
the adversary is North Korea. In practice, the Pentagon fears that the U.S.
ability to defend South Korea, Japan, and even Taiwan depends in the long
term on the ability to defend the United States' home territory and U.S.
troops abroad from Chinese missiles. Given the $ 10 billion price tag for
NMD and the so-far unknowable costs of TMD, defense planners clearly think
that China matters.

But before strategic paranoia sets in, the West should note that the
Chinese challenge is nothing like the Soviet one. China is less like the
Soviet Union in the 1950s than like Iraq in the 1990s: a regional threat to
Western interests, not a global ideological rival. Such regional threats
can be constrained. China, like Iraq, does not matter so much that the
United States needs to suspend its normal strategies for dealing with
unfriendly powers. Threats can be deterred, and unwanted action can be
constrained by a country that claims to be the sole superpower and to
dominate the revolution in military affairs.

A similarly moderated sense of how much China matters can be applied to the
question of Chinese arms transfers. China accounted for 2.2 percent of arms
deliveries in 1997, ahead of Germany but behind Israel (the United States
had 45 percent of the market, and the United Kingdom had 18 percent). The $
1 billion or so worth of arms that Beijing exports annually is not buying
vast influence, though in certain markets Beijing does have real heft.
Pakistan is easily the most important recipient of Chinese arms, helping
precipitate a nuclear arms race with India. Major deals with Sudan, Sri
Lanka, and Burma have had far less strategic impact. On the other hand,
arms transfers to Iran have been worrying; as with Pakistan, U.S. threats
of sanctions give China rather good leverage. China's ability to make
mischief therefore matters somewhat -- primarily because it reveals that
Chinese influence is fundamentally based on its ability to oppose or thwart
Western interests. France and Britain each sell far more arms than China,
but they are by and large not creating strategic problems for the West.

Hence, it is ludicrous to claim, as Western and especially American
officials constantly do, that China matters because the West needs it as a
strategic partner. The discourse of "strategic partnership" really means
that China is an adversary that could become a serious nuisance. Still,
many in the Clinton administration and elsewhere do not want to call a
spade a spade and admit that China is a strategic foe. Perhaps they think
that stressing the potential for partnership may eventually, in best Disney
style, help make dreams come true.

On no single significant strategic issue are China and the West on the same
side. In most cases, including Kosovo, China's opposition does not matter.
True, the U.N. Security Council could not be used to build a powerful
coalition against Serbia, but as in most cases, the real obstacle was
Russia, not China. Beijing almost always plays second fiddle to Moscow or
even Paris in obstructing Western interests in the Security Council. (The
exceptions to this rule always concern cases where countries such as Haiti
or Macedonia have developed relations with Taiwan.) After all, the Russian
prime minister turned his plane to the United States around when he heard
of the imminent NATO attack on Serbia, but the Chinese premier turned up in
Washington as scheduled two weeks later.

NATO's accidental May bombing of the Chinese embassy elicited a clear
demonstration of China's theatrical power. Beijing threatened to block any
peace efforts in the United Nations (not that any were pending), but all it
wanted was to shame the West into concessions on World Trade Organization
membership, human rights, or arms control. China grandiosely threatened to
rewrite the Security Council resolution that eventually gave NATO an
indefinite mandate to keep the peace in Kosovo, but in the end it meekly
abstained. So much for China taking a global perspective as one of the five
permanent members of the Security Council. Beijing's temper tantrum merely
highlighted the fact that, unlike the other veto-bearing Security Council
members, it was not a power in Europe.

In the field of arms control, the pattern is the same. China does not block
major arms control accords, but it makes sure to be among the last to sign
on and tries to milk every diplomatic advantage from having to be dragged
to the finish line. China's reluctance to sign the Nuclear Nonproliferation
Treaty (NPT), for instance, was outdone in its theatricality only by the
palaver in getting China to join the Comprehensive Test Ban Treaty. China's
participation in the Association of Southeast Asian Nations Regional Forum
-- Asia's premier, albeit limited, security structure -- is less a
commitment to surrender some sovereignty to an international arrangement
than a way to ensure that nothing is done to limit China's ability to
pursue its own national security objectives. China matters in arms control
mainly because it effectively blocks accords until doing so ends up
damaging China's international reputation.

Only on the Korean Peninsula do China's capacities seriously affect U.S.
policy. One often hears that China matters because it is so helpful in
dealing with North Korea. This is flatly wrong. Only once this decade did
Beijing join with Washington and pressure Pyongyang -- in bringing the
rogue into compliance with its NPT obligations in the early phases of the
1994 North Korean crisis. On every other occasion, China has either done
nothing to help America or actively helped North Korea resist U.S. pressure
-- most notoriously later in the 1994 crisis, when the United States was
seeking support for sanctions and other coercive action against North
Korea. Thus the pattern is the same. China matters in the same way any
middle-power adversary matters: it is a problem to be circumvented or
moved. But China does not matter because it is a potential strategic
partner for the West. In that sense, China is more like Russia than either
cares to admit.


DOES CHINA MATTER POLITICALLY?

THE EASIEST category to assess -- although the one with the fewest
statistics -- is how much China matters in international political terms.
To be fair to the Chinese, their recent struggle to define who they are and
what they stand for is merely the latest stage of at least 50 years of
soul-searching. Ever since the coming of Western power demonstrated that
China's ancient civilization was not up to the challenges of modernity,
China has struggled to understand its place in the wider world. The past
century in particular has been riddled with deep Chinese resistance to the
essential logic of international interdependence. It has also been marked
by failed attempts to produce a China strong enough to resist the
Western-dominated international system -- consider the Boxer movement, the
Kuomintang, or the Chinese Communist Party (CCP). Fifty years after the
Chinese communist revolution, the party that gave the Chinese people the
Great Leap Forward (and 30 million dead of famine) and the Cultural
Revolution (and perhaps another million dead as well as a generation
destroyed) is devoid of ideological power and authority. In the absence of
any other political ideals, religions and cults such as the Falun Gong
(target of a government crackdown this summer) will continue to flourish.

China's latest attempt to strengthen itself has been the past 20 years of
economic reforms, stimulated by other East Asians' success in transforming
their place in the world. But the discourse on prosperity that elicited
praise for the order-sustaining "Asian values" or Confucian fundamentals
was burned in the bonfire of certainties that was the Asian economic
crisis. China was left in another phase of shock and self-doubt; hence,
economic reforms stalled.

Under these circumstances, China is in no position to matter much as a
source of international political power. Bizarre as old-style Maoism was,
at least it was a beacon for many in the developing world. China now is a
beacon to no one -- and, indeed, an ally to no one. No other supposedly
great power is as bereft of friends. This is not just because China, once
prominent on the map of aid suppliers, has become the largest recipient of
international aid. Rather, China is alone because it abhors the very notion
of genuine international interdependence. No country relishes having to
surrender sovereignty and power to the Western-dominated global system, but
China is particularly wedded to the belief that it is big enough to merely
learn what it must from the outside world and still retain control of its
destiny. So China's neighbors understand the need to get on with China but
have no illusions that China feels the same way.

China does not even matter in terms of global culture. Compare the cultural
(not economic) role that India plays for ethnic Indians around the world to
the pull exerted by China on ethnic Chinese, and one sees just how closed
China remains. Of course, India's cultural ties with the Atlantic world
have always been greater than China's, and India's wildly heterogeneous
society has always been more accessible to the West. But measured in terms
of films, literature, or the arts in general, Taiwan, Hong Kong, and even
Singapore are more important global influences than a China still under the
authoritarian grip of a ruling Leninist party. Chinese cities fighting over
who should get the next Asian Disneyland, Chinese cultural commissars
squabbling over how many American films can be shown in Chinese cinemas,
and CCP bosses setting wildly fluctuating Internet-access policies are all
evidence of just how mightily China is struggling to manage the power of
Western culture.

In fact, the human-rights question best illustrates the extent to which
China is a political pariah. Chinese authorities correctly note that life
for the average citizen has become much more free in the past generation.
But as Zhu admitted on his recent trip to the United States, China's
treatment of dissenters remains inhuman and indecent.

Still, China deserves credit for having stepped back on some issues. That
China did not demand the right to intervene to help Indonesia's ethnic
Chinese during the 1998-99 unrest was correctly applauded as a sign of
maturity. But it was also a sign of how little international leadership
China could claim. With a human-rights record that made Indonesia seem a
paragon of virtue, China was in no position to seize the moral high ground.

Measuring global political power is difficult, but China's influence and
authority are clearly puny -- not merely compared to the dominant West, but
also compared to Japan before the economic crisis. Among the reasons for
China's weakness is its continuing ambiguity about how to manage the
consequences of modernity and interdependence. China's great past and the
resultant hubris make up much of the problem. A China that believes the
world naturally owes it recognition as a great power -- even when it so
patently is not -- is not really ready to achieve greatness.


DOES IT MATTER IF CHINA DOESN'T MATTER?

THE MIDDLE KINGDOM, then, is merely a middle power. It is not that China
does not matter at all, but that it matters far less than it and most of
the West think. China matters about as much as Brazil for the global
economy. It is a medium-rank military power, and it exerts no political
pull at all. China matters most for the West because it can make mischief,
either by threatening its neighbors or assisting anti-Western forces
further afield. Although these are problems, they will be more manageable
if the West retains some sense of proportion about China's importance. If
you believe that China is a major player in the global economy and a
near-peer competitor of America's, you might be reluctant to constrain its
undesired activities. You might also indulge in the "pander complex" -- the
tendency to bend over backward to accommodate every Chinese definition of
what insults the Chinese people's feelings. But if you believe that China
is not much different from any middle power, you will be more willing to
treat it normally.

This notion of approaching China as a normal, medium power is one way to
avoid the sterile debates about the virtues of engaging or containing
China. Of course, one must engage a middle power, but one should also not
be shy about constraining its unwanted actions. Such a strategy of
"constrainment" would lead to a new and very different Western approach to
China. One would expect robust deterrence of threats to Taiwan, but not
pusillanimous efforts to ease Chinese concerns about TMD. One would expect
a tough negotiating stand on the terms of China's WTO entry, but not
Western concessions merely because China made limited progress toward
international transparency standards or made us feel guilty about bombing
its embassy in Belgrade. One would expect Western leaders to tell Chinese
leaders that their authoritarianism puts them on the wrong side of history,
but one would not expect Western countries to stop trying to censure human
rights abuses in the United Nations or to fall over themselves to compete
for the right to lose money in the China market.

To some extent, we are stuck with a degree of exaggeration of China's
influence. It has a permanent U.N. Security Council seat even though it
matters about as much as the United Kingdom and France, who hold their
seats only because of their pre -- World War II power. Unlike London and
Paris, however, Beijing contributes little to international society via
peacekeeping or funding for international bodies. China still has a hold on
the imagination of CEOS, as it has for 150 years -- all the more remarkable
after the past 20 years, in which Western companies were bamboozled into
believing that staying for the long haul meant eventually making money in
China. Pentagon planners, a pessimistic breed if ever there was one, might
be forgiven for believing that China could eventually become a peer
competitor of the United States, even though the military gap, especially
in high-technology arms, is, if anything, actually growing wider.

Nevertheless, until China is cut down to size in Western imaginations and
treated more like a Brazil or an India, the West stands little chance of
sustaining a coherent and long-term policy toward it. Until we stop
suspending our disbelief and recognize the theatrical power of China, we
will continue to constrain ourselves from pursuing our own interests and
fail to constrain China's excesses. And perhaps most important, until we
treat China as a normal middle power, we will make it harder for the
Chinese people to understand their own failings and limitations and get on
with the serious reforms that need to come.



Internet ProLink PC User

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Content-Type: text/html; charset="us-ascii"

<html>
DISCUSSIONS ON BURMA'S RELATIONSHIP WITH CHINA OFTEN DEPICT THE MIDDLE
KINGDOM AS A MAJOR GLOBAL POWER. THIS ARTICLE PUTS THE MATTER INTO
ANOTHER PERSPECTIVE WITH IMPLICATIONS FOR THE CHINA-BURMA
RELATIONSHIP.(DNA)<br>
<br>
<div align="center">
*******************<br>
<br>
</div>
&quot;Foreign Affairs&quot;<br>
September/October 1999<br>
<br>
<br>
<div align="center">
Does China Matter?<br>
<br>
<br>
</div>
Gerald Segal; GERALD SEGAL is Director of Studies at the International
<br>
Institute for Strategic Studies in London and co-author, with&nbsp; Barry
Buzan, <br>
of &quot;Ancipating the Future&quot;.<br>
<br>
<br>
MIDDLE KINGDOM, MIDDLE POWER<br>
<br>
DOES CHINA matter? No, it is not a silly question -- merely one that is
not <br>
asked often enough. Odd as it may seem, the country that is home to a
fifth&nbsp; <br>
of humankind is overrated as a market, a power, and a source of ideas. At
best, <br>
China is a second-rank middle power that has mastered the art of
diplomatic <br>
theater: it has us willingly suspending our disbelief in its strength. In
fact, China <br>
is better understood as a theoretical power -- a country that has
promised to <br>
deliver for much of the last 150 years but has consistently disappointed.
After 50 <br>
years of Mao's revolution and 20 years of reform, it is time to leave the
theater and <br>
see China for what it is. Only when we finally understand how little
China matters will <br>
we be able to&nbsp; craft a sensible policy toward it.<br>
<br>
<br>
DOES CHINA MATTER ECONOMICALLY?<br>
<br>
CHINA, UNLIKE Russia or the Soviet Union before it, is supposed to
matter<br>
because it is already an economic powerhouse. Or is it that China is on
the<br>
verge of becoming an economic powerhouse, and you must be in the
engine<br>
room helping the Chinese to enjoy the benefits to come? Whatever the
spin,<br>
you know the argument: China is a huge market, and you cannot afford
to<br>
miss it (although few say the same about India). The recently voiced
&quot;Kodak<br>
version&quot; of this argument is that if only each Chinese will buy one
full<br>
roll of film instead of the average half-roll that each currently buys,
the<br>
West will be rich. Of course, nineteenth-century Manchester mill
owners<br>
said much the same about their cotton, and in the early 1980s
Japanese<br>
multinationals said much the same about their television sets. The
Kodak<br>
version is just as hollow. In truth, China is a small market that
matters<br>
relatively little to the world, especially outside Asia.<br>
<br>
If this judgment seems harsh, let us begin with some harsh realities
about<br>
the size and growth of the Chinese economy. In 1800 China accounted for
33<br>
percent of world manufacturing output; by way of comparison, Europe as
a<br>
whole was 28 percent, and the United States was 0.8 percent. By 1900
China<br>
was down to 6.2 percent (Europe was 62 percent, and the United States
was<br>
23.6 percent). In 1997 China accounted for 3.5 percent of world GNP
(in<br>
1997 constant dollars, the United States was 25.6 percent). China
ranked<br>
seventh in the world, ahead of Brazil and behind Italy. Its per capita
GDP<br>
ranking was 81st, just ahead of Georgia and behind Papua New Guinea.
Taking<br>
the most favorable of the now-dubious purchasing-power-parity
calculations,<br>
in 1997 China accounted for 11.8 percent of world GNP, and its per
capita<br>
ranking was 65th, ahead of Jamaica and behind Latvia. Using the U.N.
Human<br>
Development Index, China is 107th, bracketed by Albania and Namibia --
not<br>
an impressive story.<br>
<br>
Yes, you may say, but China has had a hard 200 years and is now
rising<br>
swiftly. China has undoubtedly done better in the past generation than
it<br>
did in the previous ten, but let's still keep matters in perspective
--<br>
especially about Chinese growth rates. China claimed that its
average<br>
annual industrial growth between 1951 and 1980 was 12.5 percent.
Japan's<br>
comparable figure was 11.5 percent. One can reach one's own judgment
about<br>
whose figures turned out to be more accurate.<br>
<br>
Few economists trust modern Chinese economic data; even Chinese
Prime<br>
Minister Zhu Rongji distrusts it. The Asian Development Bank
routinely<br>
deducts some two percent from China's official GDP figures,
including<br>
notional current GDP growth rates of eight percent. Some two or
three<br>
percent of what might be a more accurate GDP growth rate of six percent
is<br>
useless goods produced to rust in warehouses. About one percent of
China's<br>
growth in 1998 was due to massive government spending on
infrastructure.<br>
Some three percent of GDP is accounted for by the one-time gain that
occurs<br>
when one takes peasants off the land and brings them to cities,
where<br>
productivity is higher. Taking all these qualifications into
account,<br>
China's economy is effectively in recession. Even Zhu calls the situation
grim.<br>
<br>
China's ability to recover is hampered by problems that the current<br>
leadership understands well but finds just too scary to tackle seriously
--<br>
at least so long as East Asia's economy is weak. By conservative
estimates,<br>
at least a quarter of Chinese loans are nonperforming -- a rate 
that<br>
Southeast Asians would have found frightening before the crash. Some
45<br>
percent of state industries are losing money, but bank lending was up
25<br>
percent in 1998 -- in part, to bail out the living dead. China has a
high<br>
savings rate (40 percent of GDP), but ordinary Chinese would be alarmed
to<br>
learn that their money is clearly being wasted.<br>
<br>
Some put their hope in economic decentralization, but this has already
gone<br>
so far that the center cannot reform increasingly wasteful and
corrupt<br>
practices in the regions and in specific institutions. Central
investment<br>
-- 20 percent of total investment in China -- is falling.
Inter-provincial<br>
trade as a percentage of total provincial trade is also down, 
having<br>
dropped a staggering 18 percent between 1985 and 1992. Despite some<br>
positive changes during the past 20 years of reform, China's economy
has<br>
clearly run into huge structural impediments. Even if double-digit
growth<br>
rates ever really existed, they are hard to imagine in the near
future.<br>
<br>
In terms of international trade and investment, the story is much the
same:<br>
Beijing is a seriously overrated power. China made up a mere 3 percent
of<br>
total world trade in 1997, about the same as South Korea and less than
the<br>
Netherlands. China now accounts for only 11 percent of total Asian
trade.<br>
Despite the hype about the importance of the China market, exports to
China<br>
are tiny. Only 1.8 percent of U.S. exports go to China (this could,<br>
generously, be perhaps 2.4 percent if re-exports through Hong Kong
were<br>
counted) -- about the same level as U.S. exports to Australia or
Belgium<br>
and about a third less than U.S. exports to Taiwan. The same is true
of<br>
major European traders. China accounts for 0.5 percent of U.K.
exports,<br>
about the same level as exports to Sri Lanka and less than those to<br>
Malaysia. China takes 1.1 percent of French and German exports, which
is<br>
the highest in Asia apart from Japan but about par with exports to<br>
Portugal.<br>
<br>
China matters a bit more to other Asian countries. Some 3.2 percent
of<br>
Singapore's exports go to China, less than to Taiwan but on par with
South<br>
Korea. China accounts for 4.6 percent of Australian exports, about the
same<br>
as to Singapore. Japan sends only 5.1 percent of its exports to
China,<br>
about a quarter less than to Taiwan. Only South Korea sends China 
an<br>
impressive share of its exports -- some 9.9 percent, nudging ahead
of<br>
exports to Japan.<br>
<br>
Foreign direct investment (FDI) is even harder to measure than trade
but<br>
sheds more light on long-term trends. China's massive FDI boom,
especially<br>
in the past decade, is often trumpeted as evidence of how much China
does<br>
and will matter for the global economy. But the reality is far less
clear.<br>
Even in 1997, China's peak year for FDI, some 80 percent of the $ 
45<br>
billion inflow came from ethnic Chinese, mostly in East Asia. This was
also<br>
a year of record capital flight from China -- by some reckonings, 
an<br>
outflow of $ 35 billion. Much so-called investment from East Asia makes
a<br>
round-trip from China via some place like Hong Kong and then comes back
in<br>
as FDI to attract tax concessions.<br>
<br>
Even a more trusting view of official FDI figures suggests that China
does<br>
not much matter. FDI into China is about 10 percent of global FDI, with
60<br>
percent of all FDI transfers taking place among developed countries.
Given<br>
that less than 20 percent of FDI into China comes from non-ethnic
Chinese,<br>
it is no surprise that U.S. or European Union investment in China
averages<br>
out to something less than their investment in a major Latin
American<br>
country such as Brazil. China has never accounted for more than 10
percent<br>
of U.S. FDI outflows -- usually much less. In recent years China has
taken<br>
around 5 percent of major EU countries' FDI outflow -- and these are
the<br>
glory years for FDI in China. The Chinese economy is clearly
contracting,<br>
and FDI into China is dropping with it. In 1998 the United Nations
reported<br>
that FDI into China may be cut in half, and figures for 1998 -- 99
suggest<br>
that this was not too gloomy a guess. Japanese FDI into China has
been<br>
halved from its peak in 1995. Ericsson, a multinational
telecommunications<br>
firm, says that China accounts for 13 percent of its global sales but
will<br>
not claim that it is making any profits there. Similar experiences
by<br>
Japanese technology firms a decade ago led to today's rapid
disinvestment<br>
from China. Some insist that FDI flows demonstrate just how much
China<br>
matters and will matter for the global economy, but the true picture is
far<br>
more modest. China remains a classic case of hope over experience,<br>
reminiscent of de Gaulle's famous comment about Brazil: It has 
great<br>
potential, and always will.<br>
<br>
It does not take a statistical genius to see the sharp reality: China is
at<br>
best a minor (as opposed to inconsequential) part of the global economy.
It<br>
has merely managed to project and sustain an image of far greater<br>
importance. This theatrical power was displayed with great brio
during<br>
Asia's recent economic crisis. China received lavish praise from the
West,<br>
especially the United States, for not devaluing its currency as it did
in<br>
1995. Japan, by contrast, was held responsible for the crisis. Of
course,<br>
Tokyo's failure to reform since 1990 helped cause the meltdown, but this
is<br>
testimony to how much Tokyo matters and how little Beijing does.
China's<br>
total financial aid to the crisis-stricken economies was less than
10<br>
percent of Japan's contribution.<br>
<br>
The Asian crisis and the exaggerated fears that it would bring the<br>
economies of the Atlantic world to their knees help explain the
overblown<br>
view of China's importance. In fact, the debacle demonstrated just
how<br>
little impact Asia, except for Japan, has on the global economy. China --
a<br>
small part of a much less important part of the global system than
is<br>
widely believed -- was never going to matter terribly much to the
developed<br>
world. Exaggerating China is part of exaggerating Asia. As a result of
the<br>
crisis, the West has learned the lesson for the region as a whole, but
it<br>
has not yet learned it about China.<br>
<br>
<br>
DOES CHINA MATTER MILITARILY?<br>
<br>
CHINA IS a second-rate military power -- not first-rate, because it is
far<br>
from capable of taking on America, but not as third-rate as most of
its<br>
Asian neighbors. China accounts for only 4.5 percent of global
defense<br>
spending (the United States makes up 33.9 percent) and 25.8 percent
of<br>
defense spending in East Asia and Australasia. China poses a
formidable<br>
threat to the likes of the Philippines and can take islands such as<br>
Mischief Reef in the South China Sea at will. But sell the Philippines
a<br>
couple of cruise missiles and the much-discussed Chinese threat will
be<br>
easily erased. China is in no military shape to take the disputed
Senkaku<br>
Islands from Japan, which is decently armed. Beijing clearly is a
serious<br>
menace to Taiwan, but even Taiwanese defense planners do not believe
China<br>
can successfully invade. The Chinese missile threat to Taiwan is
much<br>
exaggerated, especially considering the very limited success of the
far<br>
more massive and modern NATO missile strikes on Serbia. If the
Taiwanese<br>
have as much will to resist have as did the Serbs, China will not be
able<br>
to easily cow Taiwan.<br>
<br>
Thus China matters militarily to a certain extent simply because it is
not<br>
a status quo power, but it does not matter so much that it cannot 
be<br>
constrained. Much the same pattern is evident in the challenge China
poses<br>
to U.S. security. It certainly matters that China is the only country
whose<br>
nuclear weapons target the United States. It matters, as the recent
Cox<br>
report on Chinese espionage plainly shows, that China steals U.S.
secrets<br>
about missile guidance and modern nuclear warheads. It also matters
that<br>
Chinese military exercises simulate attacks on U.S. troops in South
Korea<br>
and Japan. But the fact that a country can directly threaten the
United<br>
States is not normally taken as a reason to be anything except robust
in<br>
defending U.S. interests. It is certainly not a reason to pretend
that<br>
China is a strategic partner of the United States.<br>
<br>
The extent to which China matters militarily is evident in the
discussions<br>
about deploying U.S. theater missile defenses (TMD) in the western
Pacific<br>
and creating a U.S. national missile defense shield (NMD).
Theoretically,<br>
the adversary is North Korea. In practice, the Pentagon fears that the
U.S.<br>
ability to defend South Korea, Japan, and even Taiwan depends in the
long<br>
term on the ability to defend the United States' home territory and
U.S.<br>
troops abroad from Chinese missiles. Given the $ 10 billion price tag
for<br>
NMD and the so-far unknowable costs of TMD, defense planners clearly
think<br>
that China matters.<br>
<br>
But before strategic paranoia sets in, the West should note that 
the<br>
Chinese challenge is nothing like the Soviet one. China is less like
the<br>
Soviet Union in the 1950s than like Iraq in the 1990s: a regional threat
to<br>
Western interests, not a global ideological rival. Such regional
threats<br>
can be constrained. China, like Iraq, does not matter so much that
the<br>
United States needs to suspend its normal strategies for dealing
with<br>
unfriendly powers. Threats can be deterred, and unwanted action can
be<br>
constrained by a country that claims to be the sole superpower and
to<br>
dominate the revolution in military affairs.<br>
<br>
A similarly moderated sense of how much China matters can be applied to
the<br>
question of Chinese arms transfers. China accounted for 2.2 percent of
arms<br>
deliveries in 1997, ahead of Germany but behind Israel (the United
States<br>
had 45 percent of the market, and the United Kingdom had 18 percent). The
$<br>
1 billion or so worth of arms that Beijing exports annually is not
buying<br>
vast influence, though in certain markets Beijing does have real
heft.<br>
Pakistan is easily the most important recipient of Chinese arms,
helping<br>
precipitate a nuclear arms race with India. Major deals with Sudan,
Sri<br>
Lanka, and Burma have had far less strategic impact. On the other
hand,<br>
arms transfers to Iran have been worrying; as with Pakistan, U.S.
threats<br>
of sanctions give China rather good leverage. China's ability to
make<br>
mischief therefore matters somewhat -- primarily because it reveals
that<br>
Chinese influence is fundamentally based on its ability to oppose or
thwart<br>
Western interests. France and Britain each sell far more arms than
China,<br>
but they are by and large not creating strategic problems for the
West.<br>
<br>
Hence, it is ludicrous to claim, as Western and especially American<br>
officials constantly do, that China matters because the West needs it as
a<br>
strategic partner. The discourse of &quot;strategic partnership&quot;
really means<br>
that China is an adversary that could become a serious nuisance.
Still,<br>
many in the Clinton administration and elsewhere do not want to call
a<br>
spade a spade and admit that China is a strategic foe. Perhaps they
think<br>
that stressing the potential for partnership may eventually, in best
Disney<br>
style, help make dreams come true.<br>
<br>
On no single significant strategic issue are China and the West on the
same<br>
side. In most cases, including Kosovo, China's opposition does not
matter.<br>
True, the U.N. Security Council could not be used to build a
powerful<br>
coalition against Serbia, but as in most cases, the real obstacle
was<br>
Russia, not China. Beijing almost always plays second fiddle to Moscow
or<br>
even Paris in obstructing Western interests in the Security Council.
(The<br>
exceptions to this rule always concern cases where countries such as
Haiti<br>
or Macedonia have developed relations with Taiwan.) After all, the
Russian<br>
prime minister turned his plane to the United States around when he
heard<br>
of the imminent NATO attack on Serbia, but the Chinese premier turned up
in<br>
Washington as scheduled two weeks later.<br>
<br>
NATO's accidental May bombing of the Chinese embassy elicited a
clear<br>
demonstration of China's theatrical power. Beijing threatened to block
any<br>
peace efforts in the United Nations (not that any were pending), but all
it<br>
wanted was to shame the West into concessions on World Trade
Organization<br>
membership, human rights, or arms control. China grandiosely threatened
to<br>
rewrite the Security Council resolution that eventually gave NATO 
an<br>
indefinite mandate to keep the peace in Kosovo, but in the end it
meekly<br>
abstained. So much for China taking a global perspective as one of the
five<br>
permanent members of the Security Council. Beijing's temper tantrum
merely<br>
highlighted the fact that, unlike the other veto-bearing Security
Council<br>
members, it was not a power in Europe.<br>
<br>
In the field of arms control, the pattern is the same. China does not
block<br>
major arms control accords, but it makes sure to be among the last to
sign<br>
on and tries to milk every diplomatic advantage from having to be
dragged<br>
to the finish line. China's reluctance to sign the Nuclear
Nonproliferation<br>
Treaty (NPT), for instance, was outdone in its theatricality only by
the<br>
palaver in getting China to join the Comprehensive Test Ban Treaty.
China's<br>
participation in the Association of Southeast Asian Nations Regional
Forum<br>
-- Asia's premier, albeit limited, security structure -- is less a<br>
commitment to surrender some sovereignty to an international
arrangement<br>
than a way to ensure that nothing is done to limit China's ability
to<br>
pursue its own national security objectives. China matters in arms
control<br>
mainly because it effectively blocks accords until doing so ends up<br>
damaging China's international reputation.<br>
<br>
Only on the Korean Peninsula do China's capacities seriously affect
U.S.<br>
policy. One often hears that China matters because it is so helpful
in<br>
dealing with North Korea. This is flatly wrong. Only once this decade
did<br>
Beijing join with Washington and pressure Pyongyang -- in bringing
the<br>
rogue into compliance with its NPT obligations in the early phases of
the<br>
1994 North Korean crisis. On every other occasion, China has either
done<br>
nothing to help America or actively helped North Korea resist U.S.
pressure<br>
-- most notoriously later in the 1994 crisis, when the United States
was<br>
seeking support for sanctions and other coercive action against
North<br>
Korea. Thus the pattern is the same. China matters in the same way
any<br>
middle-power adversary matters: it is a problem to be circumvented
or<br>
moved. But China does not matter because it is a potential 
strategic<br>
partner for the West. In that sense, China is more like Russia than
either<br>
cares to admit.<br>
<br>
<br>
DOES CHINA MATTER POLITICALLY?<br>
<br>
THE EASIEST category to assess -- although the one with the fewest<br>
statistics -- is how much China matters in international political
terms.<br>
To be fair to the Chinese, their recent struggle to define who they are
and<br>
what they stand for is merely the latest stage of at least 50 years
of<br>
soul-searching. Ever since the coming of Western power demonstrated
that<br>
China's ancient civilization was not up to the challenges of
modernity,<br>
China has struggled to understand its place in the wider world. The
past<br>
century in particular has been riddled with deep Chinese resistance to
the<br>
essential logic of international interdependence. It has also been
marked<br>
by failed attempts to produce a China strong enough to resist the<br>
Western-dominated international system -- consider the Boxer movement,
the<br>
Kuomintang, or the Chinese Communist Party (CCP). Fifty years after
the<br>
Chinese communist revolution, the party that gave the Chinese people
the<br>
Great Leap Forward (and 30 million dead of famine) and the Cultural<br>
Revolution (and perhaps another million dead as well as a 
generation<br>
destroyed) is devoid of ideological power and authority. In the absence
of<br>
any other political ideals, religions and cults such as the Falun
Gong<br>
(target of a government crackdown this summer) will continue to
flourish.<br>
<br>
China's latest attempt to strengthen itself has been the past 20 years
of<br>
economic reforms, stimulated by other East Asians' success in
transforming<br>
their place in the world. But the discourse on prosperity that
elicited<br>
praise for the order-sustaining &quot;Asian values&quot; or Confucian
fundamentals<br>
was burned in the bonfire of certainties that was the Asian 
economic<br>
crisis. China was left in another phase of shock and self-doubt;
hence,<br>
economic reforms stalled.<br>
<br>
Under these circumstances, China is in no position to matter much as
a<br>
source of international political power. Bizarre as old-style Maoism
was,<br>
at least it was a beacon for many in the developing world. China now is
a<br>
beacon to no one -- and, indeed, an ally to no one. No other
supposedly<br>
great power is as bereft of friends. This is not just because China,
once<br>
prominent on the map of aid suppliers, has become the largest recipient
of<br>
international aid. Rather, China is alone because it abhors the very
notion<br>
of genuine international interdependence. No country relishes having
to<br>
surrender sovereignty and power to the Western-dominated global system,
but<br>
China is particularly wedded to the belief that it is big enough to
merely<br>
learn what it must from the outside world and still retain control of
its<br>
destiny. So China's neighbors understand the need to get on with China
but<br>
have no illusions that China feels the same way.<br>
<br>
China does not even matter in terms of global culture. Compare the
cultural<br>
(not economic) role that India plays for ethnic Indians around the world
to<br>
the pull exerted by China on ethnic Chinese, and one sees just how
closed<br>
China remains. Of course, India's cultural ties with the Atlantic
world<br>
have always been greater than China's, and India's wildly
heterogeneous<br>
society has always been more accessible to the West. But measured in
terms<br>
of films, literature, or the arts in general, Taiwan, Hong Kong, and
even<br>
Singapore are more important global influences than a China still under
the<br>
authoritarian grip of a ruling Leninist party. Chinese cities fighting
over<br>
who should get the next Asian Disneyland, Chinese cultural
commissars<br>
squabbling over how many American films can be shown in Chinese
cinemas,<br>
and CCP bosses setting wildly fluctuating Internet-access policies are
all<br>
evidence of just how mightily China is struggling to manage the power
of<br>
Western culture.<br>
<br>
In fact, the human-rights question best illustrates the extent to
which<br>
China is a political pariah. Chinese authorities correctly note that
life<br>
for the average citizen has become much more free in the past
generation.<br>
But as Zhu admitted on his recent trip to the United States, 
China's<br>
treatment of dissenters remains inhuman and indecent.<br>
<br>
Still, China deserves credit for having stepped back on some issues.
That<br>
China did not demand the right to intervene to help Indonesia's
ethnic<br>
Chinese during the 1998-99 unrest was correctly applauded as a sign
of<br>
maturity. But it was also a sign of how little international
leadership<br>
China could claim. With a human-rights record that made Indonesia seem
a<br>
paragon of virtue, China was in no position to seize the moral high
ground.<br>
<br>
Measuring global political power is difficult, but China's influence
and<br>
authority are clearly puny -- not merely compared to the dominant West,
but<br>
also compared to Japan before the economic crisis. Among the reasons
for<br>
China's weakness is its continuing ambiguity about how to manage 
the<br>
consequences of modernity and interdependence. China's great past and
the<br>
resultant hubris make up much of the problem. A China that believes
the<br>
world naturally owes it recognition as a great power -- even when it
so<br>
patently is not -- is not really ready to achieve greatness.<br>
<br>
<br>
DOES IT MATTER IF CHINA DOESN'T MATTER?<br>
<br>
THE MIDDLE KINGDOM, then, is merely a middle power. It is not that
China<br>
does not matter at all, but that it matters far less than it and most
of<br>
the West think. China matters about as much as Brazil for the 
global<br>
economy. It is a medium-rank military power, and it exerts no
political<br>
pull at all. China matters most for the West because it can make
mischief,<br>
either by threatening its neighbors or assisting anti-Western 
forces<br>
further afield. Although these are problems, they will be more
manageable<br>
if the West retains some sense of proportion about China's importance.
If<br>
you believe that China is a major player in the global economy and 
a<br>
near-peer competitor of America's, you might be reluctant to constrain
its<br>
undesired activities. You might also indulge in the &quot;pander
complex&quot; -- the<br>
tendency to bend over backward to accommodate every Chinese definition
of<br>
what insults the Chinese people's feelings. But if you believe that
China<br>
is not much different from any middle power, you will be more willing
to<br>
treat it normally.<br>
<br>
This notion of approaching China as a normal, medium power is one way
to<br>
avoid the sterile debates about the virtues of engaging or
containing<br>
China. Of course, one must engage a middle power, but one should also
not<br>
be shy about constraining its unwanted actions. Such a strategy of<br>
&quot;constrainment&quot; would lead to a new and very different Western
approach to<br>
China. One would expect robust deterrence of threats to Taiwan, but
not<br>
pusillanimous efforts to ease Chinese concerns about TMD. One would
expect<br>
a tough negotiating stand on the terms of China's WTO entry, but 
not<br>
Western concessions merely because China made limited progress
toward<br>
international transparency standards or made us feel guilty about
bombing<br>
its embassy in Belgrade. One would expect Western leaders to tell
Chinese<br>
leaders that their authoritarianism puts them on the wrong side of
history,<br>
but one would not expect Western countries to stop trying to censure
human<br>
rights abuses in the United Nations or to fall over themselves to
compete<br>
for the right to lose money in the China market.<br>
<br>
To some extent, we are stuck with a degree of exaggeration of
China's<br>
influence. It has a permanent U.N. Security Council seat even though
it<br>
matters about as much as the United Kingdom and France, who hold
their<br>
seats only because of their pre -- World War II power. Unlike London
and<br>
Paris, however, Beijing contributes little to international society
via<br>
peacekeeping or funding for international bodies. China still has a hold
on<br>
the imagination of CEOS, as it has for 150 years -- all the more
remarkable<br>
after the past 20 years, in which Western companies were bamboozled
into<br>
believing that staying for the long haul meant eventually making money
in<br>
China. Pentagon planners, a pessimistic breed if ever there was one,
might<br>
be forgiven for believing that China could eventually become a peer<br>
competitor of the United States, even though the military gap,
especially<br>
in high-technology arms, is, if anything, actually growing wider.<br>
<br>
Nevertheless, until China is cut down to size in Western imaginations
and<br>
treated more like a Brazil or an India, the West stands little chance
of<br>
sustaining a coherent and long-term policy toward it. Until we stop<br>
suspending our disbelief and recognize the theatrical power of China,
we<br>
will continue to constrain ourselves from pursuing our own interests
and<br>
fail to constrain China's excesses. And perhaps most important, until
we<br>
treat China as a normal middle power, we will make it harder for 
the<br>
Chinese people to understand their own failings and limitations and get
on<br>
with the serious reforms that need to come.<br>
<br>
<br>
<br>
<div>Internet ProLink PC User</div>
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