On November 16, the U.S.-China Economic and Security Review Commission (USCC) released its 2006 Annual Report to Congress. The USCC is a bipartisan group of outside experts from business, labor, think tanks and universities established by Congress in 2000 to investigate, analyze, and provide recommendations regarding the impact of China’s rapid economic rise on the national security of the United States. Its twelve members are appointed in equal number by the Republican and Democratic leaders of Congress. The USCC holds public hearings and commissions research papers to assemble the best thinking available on topics ranging from Beijing’s military buildup and diplomatic strategy, to its financial system and industrial policies. The Commission “takes a broad view of ‘national security’ in making its assessment and has attempted to evaluate how the U.S. relationship with China affects the economic health of the United States and its industrial base, the military and weapons proliferation dangers China poses to the United States, and the United States’ political standing and influence in Asia.” It does some of the best work in Washington on how a country with 1.3 billion people under a Communist regime is using a high-growth, state-capitalist model to rise to great power status.
The principle conclusions are much the same as last year, but the framework is different. This time, the USCC questions a premise held by those who remain wedded to the ideal of a new world order of global norms and international harmony, a view mainly useful for the conduct of business. In such an imagined world, governments are “stakeholders” whose prime directive is to maintain peace and order so that trade and investment will only have mutually beneficial results and not have an impact on national security or the balance of power.
The USCC does not identify where this concept originated, but Deputy Secretary of State Robert Zoellick had been the principle exponent of the “stakeholder” terminology. He had first used this term in a speech to the National Committee on U.S.-China Relations in September, 2005 claiming, “All nations conduct diplomacy to promote their national interests. Responsible stakeholders go further: They recognize that the international system sustains their peaceful prosperity, so they work to sustain the system.” In the same speech, Zoellick rejected any policy to “contain” China; “promote other powers in Asia at its expense;” or invoke “the distant balance-of-power politics of the 19th century.” Zoellick has since left government to take a job with the Goldman Sachs international banking concern, which has major financial interests in China, including ties to state-owned corporations and the Beijing regime itself.
The USCC asked whether China is “a state that not only observes international norms but works to strengthen those norms” and found the answer to be in the negative. Beijing’s policies are the opposite of Zoellick’s hopes. It conducts diplomacy solely to promote its own national interests, including in its conduct of trade and investment. And rather than consider balance of power politics to be a distant practice of past centuries, the USCC finds:
China’s regional activities in Latin America, Africa, and the Middle East and around East Asia are beginning to assume the character of a counterbalancing strategy vis-à-vis the United States. That is, China’s support for rogue regimes and anti-American governments and groups in vital regions serves an international purpose: to balance American power, create an alternative model of governance, and frustrate the ability of the international community to uphold its norms.
In other words, Beijing is playing the Great Game of world politics the way it has always been played by those who want to win. It is those who think the world has changed who have blundered, leaving America vulnerable and unprepared the wage the perpetual international struggle which will only intensify in the coming years.
What is providing China with the means to act on the world stage is its rapid economic growth. Beijing’s industrial policies cannot be in any way construed as “free trade.” The USCC finds “China has a centralized industrial policy that employs a wide variety of tools to promote favored industries. In particular, China has used a range of subsidies to encourage the manufacture of goods meant for export over the manufacture of goods meant for domestic consumption, and to secure foreign investment in the manufacturing sector.” The U.S. trade deficit with China was $201.5 billion in 2005, and is expected to top $220 billion this year. This is a transfer of hard currency to the Beijing regime that is nearly double the combined annual cost of the wars in Iraq and Afghanistan ($117.6 billion in fiscal year 2006). American firms and investors send billions more to China to build new industrial capacity, which is in turn supported by exports to the U.S. market.
The economic threat that Beijing’s mercantilism presents to American industry is bad enough, but what makes China different from other trading states, many of whom use similar tactics to win commercial advantages, is that China uses its economic gains to support foreign policies that threaten American security interests. The USCC report closely examines Beijing’s support for Iran and North Korea, its role in the Sudan genocide, and its aggressive drive for control of oil and other strategic minerals around the world.
In regard to Beijing’s rapid military buildup, the USCC concludes:
The pace of PLA modernization continues to exceed U.S. estimates. The Commission believes that the military balance in East Asia is increasingly favorable to China and increasingly challenging to U.S. interests and allies. The Chinese military’s ability to deny access and freedom of operation to U.S. forces, and its further ambitions to project its own military power, are accelerating.
The USCC also believes that, “the PLA [People’s Liberation Army] understands itself to be in an extended military competition with the United States.”
In testimony given before the USCC last March and quoted in the report, Roger Cliff, Senior Analyst at the RAND Corporation, stated, “China’s defense industries are advancing increasingly rapidly, and striving to close the technological gap with the United States.” RAND put out a major study of the Chinese defense industry at the end of last year which found “China’s emerging IT sector is not an officially designated part of China’s defense- industrial complex; however, it is probably the most organizationally innovative and economically dynamic producer of equipment for China’s military. And it is at the forefront of China’s improving defense-production capabilities.” This highlights the impossibility of drawing a line between civilian and military sectors in China, where major industries are still state-owned or held by interests with close ties to the regime. Also quoted by the USCC on this point is Adam Segal of the Council on Foreign Relations, “Chinese policy makers are working to ensure that the civilian economy makes a more direct contribution to defense modernization…dismantling many of the barriers between civilian and defense R&D.”
The Commission has several recommendations regarding the need to strengthen export controls on “dual use” technology that could be of value to the Chinese military. The USCC found woefully inadequate policing on export licenses for goods going to China for supposedly civilian uses, but then ending up in military hands. It called on Congress to fund more officials to be stationed in China and Hong Kong to increase follow-up and end-user investigations. Unfortunately, once a piece of high-tech equipment lands in China, it is too late to keep its secrets from the Beijing regime. The rubberstamp licensing process needs to tightened up so that technology that could advance Chinese capabilities never gets shipped in the first place. The costs to the country in blood and treasure if Beijing closes the current U.S. high-tech military advantage will be orders of magnitude greater than the private profits firms can make from transferring technology to Chinese trade or business partners.
The 265-page USCC report presents a wealth of research and testimony, all footnoted in detail, making it a prime source of information for anyone interested in the growing impact on world affairs of the People’s Republic of China. Whether it is banking systems or weapon systems, this report has the data. More Americans, especially in the business community, need to understand the true nature of the U.S.-China rivalry, and support stronger measures to protect American economic and security interests. A wide circulation of the USCC report can make an important contribution to improving public awareness of the strategic challenge facing the United States.
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