The China Briefing

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The China Briefing

Background

To many observers, the pivotal point in China’s recent past was in 1979, when the Chinese leader Deng Xiaoping unveiled the concept of xiaokang, which led to the liberalisation of the Chinese economy. This policy, to 2005, has been very successful. Through the influx of Japanese, European, and US foreign direct investment, China has become the manufacturer to the world.

From an early stage, the Chinese government established a peg between the Chinese Yuan and the US Dollar. This exchange rate, which is effectively fixed, allowed the trade surpluses between China and Japan, Europe, and the US to arise. Much of the trade surpluses have been used to fund capital outflows as the Bank of China has purchased large holdings of financial instruments – particularly US T-Bills – denominated in foreign currencies. Consequently, the wealth created in the eastern seaboard of China – the main manufacturing hub – has not spread to the Chinese interior, where rural poverty and underemployment still remain critical issues.

Whilst the Chinese economy has been liberalised in recent decades, civil society has not. The Chinese Communist Party still retains control of civil society within China. This system has led to a form of cronyism and corruption dominating life within the interior of China, and has resulted in an extremely weak banking system, where loans are made for reasons that are other than commercial. This has led to the murmurings of discontent within China, which is given greatest voice in the Muslim provinces of western China.

Despite these problems, the development of the Chinese economy has been spectacular in recent decades and the Chinese government has been adept at converting this economic power into diplomatic and political power. China is now the largest trading partner with Japan and a significant purchaser of US Debt. These two factors have given rise to a growing trade rivalry in East Asia between China, Japan, and the US.

With 2½ million troops under arms, fully backed by a network of reservists, the PLA is the largest military force in the world. However, this force is characterised as a low-tech one, which the Chinese government has been attempting to address through the purchase of military technology – particularly from the EU. Additionally, the PLA lacks the naval and air assets to realise its territorial ambitions. Once again, the Chinese government is seeking to address this issue.

Whilst recent economic growth and the upgrading of the PLA has placed China in a leadership role amongst the ASEAN Tiger nations, it does have an energy vulnerability that has affected its relations with Russia, the northern neighbour. Recent Chinese policy towards Russia has been seeking to establish the security of energy supplies, especially as China is in direct competition with Japan and the US for these supplies. This could be a key issue in the future.

By 2005, China was facing a number of key challenges to the future:

1. How would China engage the US, and at what level?

2. How would China establish control over its core territories?

3. How would China establish a primacy in East Asia?

4. How would China establish the security of its energy sources?

5. Would the population changes within China to 2025 cause an economic disaster?

6. Can China modernise its military forces to be capable of projecting influence over its core territories?

The Nationalist Mission

In recent years, China has started to realise some of the economic promise that lies within Chinese society. This has been translated into diplomatic and political influence on the world stage. It is your task, by 2025, to set in motion policies that will consolidate and extend that influence. Your primary task is to ensure the continued viability of the social model of the Chinese Communist Party, which underpins Chinese culture and which is central to the Chinese way of life.

By 2025, you will have:

1. Secured the sources of foreign oil imports for the Chinese economy.

2. Ensured that the economic development of China has continued to make progress within the social model of the Chinese Communist Party.

3. Started to develop a counterbalance to American military might in East Asia.

4. Projected the influence of China to a degree that includes the entire core Chinese homeland.

5. Promoted the social model of the Chinese Communist Party as a model for economic development.

The Liberal Mission

In recent years, China has started to realise some of the economic promise that lies within Chinese society. This has been translated into diplomatic and political influence on the world stage. It is your task, by 2025, to set in motion policies that will extend and expand this economic development. Your primary task is to further enhance the development of China as a trading nation, which underpins domestic prosperity and which underwrites the ability of China to act on the global stage.

By 2025, you will have:

1. Lessened the dependence of the Chinese economy on foreign energy imports.

2. Spread the benefits of economic development more evenly across the whole of China.

3. Integrated China as part of a global collective effort to maintain peace and security in partnership with the US.

4. Developed international institutions that include an engaged US.

5. Promoted the social model of the Chinese Communist Party as a model for economic development.

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