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04-05-05, 22:48
The Yin and Yang of Chinese Foreign Policy

George Melloan

Wall Street Journal

May 3, 2005

Chinese president Hu Jintao put it well last Friday when he described his Beijing handshake with Taiwan opposition leader Lien Chan as "historic." Mr. Lien's party, the Kuomintang (KMT) was the party of Chiang Kai-shek, who ruled China until he and his army fled to Taiwan in 1949 before the advancing forces of Mao Zedong.

China saw a lot of dark days during the Japanese occupation in the 1930s, the bloody Mao-Chiang civil war that followed and then the famine and chaos caused by Mao's crazed "Great Leap Forward" and "Cultural Revolution" of the 1960s and 1970s. So the reconciliation before the TV cameras in the Great Hall of the People put paid to a lot of bad memories.

The mainland government still retains some of the hallmarks of the bad old days, with a not-uncommon resort to summary arrests and prison camps to keep the people in line. But years of rapid economic growth have allowed a great many Chinese to prosper and a few even to become rich. Taiwan, ruled initially by Chiang as a fiefdom, is now a prosperous democracy, and, along with Japan, has generated much of the private investment that has fueled the mainland boom.

But of course, there was method in Mr. Hu's goodwill gesture. Mr. Lien has lost two presidential elections, in 2000 and 2004, to Taiwanese President Chen Shui-bian, so he has no official standing and was not authorized by President Chen to make any deals. So the Beijing affair was just a reconciliation of two parties, both with a lurid past. Mr. Hu no doubt thought this heavily publicized media event might serve better to soften up the Taiwanese, and world opinion, than the bare-fisted threats, such as the March antisecession law, China has used in the past. The U.S. State Department, for example, took a kind view.

Indeed, from all the goodwill gestures in Asia these days, one might get the impression that a new era of peace and amity is dawning. Chinese Premier Wen Jiabao paid a visit to Indian Premier Manmohan Singh last month and talked glowingly about trade and patching up their long-festering border dispute. Japanese Premier Junichiro Koizumi took his turn with much-sought-after Mr. Singh last week, offering a strategic partnership.

Indonesia's President Susilo Bambang Yudhoyono got a nice reception in neighboring Australia recently, warming up a relationship that has been prickly over the years. Australia's newly re-elected prime minister, John Howard, made a tour of Asia that included a friendly stop in Beijing. And so forth.

No doubt a recognition of the wonders of trade has a lot to do with all this. East Asia is growing again after some tough years, hitting a pace of 7.2% last year that will probably slow to a still-healthy 6% this year if World Bank projections are correct. A lot of this has to do with the enormous buying power of the U.S. economy, but intra-Asia trade links have growing importance. Even Vietnam, long retarded by Communist backwardness, is getting in on the growth, with a projected expansion of 7.5% this year.

China is often seen as the big enchilada of the Asian economy, and there's no doubting its contribution to the region's growth. It buys coal and iron ore from Australia to feed its hungry steel mills. Japan ships it machine tools and parts for the products assembled in Japanese factories in China. Other Southeast Asian nations supply it with food and fuel. It's hardly news today that 1.3 billion increasingly affluent Chinese represent one heck of a big market.

Does any of this translate to Chinese political hegemony? China would not be China if it didn't try to use its increasing economic importance politically. And some nations, such as Malaysia and Thailand, are clearly more friendly as a result of the importance of economic ties. China is now pointing toward an East Asian summit to be held in Kuala Lumpur at the end of the year, where it will parade its importance to the neighbors.

Included in this meeting will be the 10 Asean nations, a group originally formed with U.S. blessing to counter the spread of communism in Asia. It is a mark of how China has changed that it is now demanding that its neighbors recognize it as a "market" economy, the antithesis of communism, so that it can gain better protection against antidumping actions. The U.S. and Europe argue, with considerable logic, that the Communist Party still exercises too much power over the means of production to be given market-economy status.

Which brings up the question of whether China can continue to accrete economic and political power. The opening up of China to foreign investment by Deng Xiaoping 25 years ago has worked wonders. Japan, which has poured investment into industrial estates, complete with worker dormitories, has made China a huge back shop for producing Japanese-designed products at globally competitive prices. Taiwanese Chinese led the way with their investments in the 1980s. Then came the Americans and the Europeans.

But there is a lot of artificiality to this foreign-financed economic boom. Despite efforts by Beijing to create a commercially viable banking system, China's big banks are still overrun by party hacks who try to use lending for their own purposes. The much vaunted decision to bring in foreign banks to force reform through competition, is looking less and less attractive to foreign investors as the Chinese banks try to protect themselves by reserving the most prosperous territories, in Beijing and the coastal cities, for themselves. An article in the Far Eastern Economic Review broke the news early this year that some of the more developed regions are facing a labor shortage, particularly of workers who have skills and managerial talent.

As to Chinese politics, overtures like the smooth courtship of Taiwan last week are mixed in with such bizarre events as last month's Internet-fueled assault on Japanese shops and factories. Beijing claimed that it wasn't responsible, a strange admission for a government that routinely arrests people who complain about abuses of the party's power. China's gains are quite obvious and should be welcomed. But China will remain unstable until it finally decides to give its people political rights.