House of Commons - Foreign Affairs - Appendices to the Minutes of Evidence

Select Committee on Foreign Affairs Appendices to the Minutes of Evidence

APPENDIX 28

Memorandum submitted by Richard Cobbold and Damon Bristow of the Royal United Services Institute

The views expressed in this paper are those of the individual authors and should not be taken to represent a corporate view of the Royal United Services Institute

INTRODUCTION

1. The return of Hong Kong to the People's Republic of China on 30 June 1997 was supposed to open a new chapter in Sino-British relations. However, despite two state visits, the signing of numerous business contracts and the launch of a raft of well-intentioned initiatives, the fact is that, although the Hong Kong hand-over provided an opportunity for a re-assessment of British foreign policy towards China, little of substance has changed. The prevailing supposition remains that, although Britain can influence Chinese behaviour in some areas, the room for manoeuvre is limited.

2. This submission argues that, in reality, Britain has more flexibility in its relationship with China than is commonly believed, and that this leeway has remained relatively unexplored. Specifically, this submission suggests that the Government should adopt a policy of "tough" rather than "soft" engagement with China, based on economic, political and military realities. Furthermore, this submission argues that Britain should consider what room there is to introduce more variety into its policy towards Taiwan.

A FRESH LOOK AT CHINA'S RISE

3. While it is undoubtedly true that China, by virtue of its population, permanent presence on the United Nations Security Council (UNSC), nuclear weapons status, economic potential, and growing military power, should be one of the focal points of British Foreign Policy in East Asia, it is by no means self-evident that it merits the amount of diplomatic weight that it currently receives.

4. Despite being much hyped throughout the 1990s[5], China's economy remains relatively small. In 1800, China accounted for 33 per cent of world manufacturing output, while Europe as a whole accounted for 28 per cent. By 1900, however, China's share had slipped to 6.2 per cent, while Europe's had increased to 62 per cent. In comparison, the United States, whose contribution was negligible in 1800, accounted for 23.6 per cent a century later. In 1997, moreover, China's share of world Gross National Product (GNP) was about 3.5 per cent, compared to 25.6 per cent for the United States[6]. Put another way, even if one takes into account the undoubtedly important economic reform of the last two decades, China's worldwide economic importance has actually decreased over the last two centuries.

5. The story is much the same when it comes to world trade. In 1997 the country accounted for only 3 per cent of world trade, while only 1.8 per cent (2.8 per cent if one include re-exports through Hong Kong) of American exports went to China. In 1998, Britain accounted for a larger share of both world imports and exports than China (see below). China also faces a number of serious structural problems, such as bankrupt state owned industries (SOEs), a highly indebted banking system, and rising unemployment, which for political reasons it is reticent to tackle head-on.

SHARE OF WORLD GROSS NATIONAL PRODUCT (GNP), CHINA, HONG KONG, THE UNITED KINGDOM AND THE UNITED STATES, BILLIONS OF US$, 1998

Country	GNP, Billions of US$, 1998	Share of World GNP
World*	29,130.8	100%
China	928.9	3.1%
Hong Kong	158.3	0.5%
Taiwan	268.8	0.9%
The United Kingdom	1,263.8	4.3%
The United States	7,921.3	27.2%

Source: World Bank World Development Report 1999-2000 and Ministry of Finance of the Republic of China.

*Taiwan is not a member of the World Bank and is not always included in the WB's publications. Hence, this figure was reached by combining the World Bank and Taiwanese MOF figures.

SHARE OF WORLD EXPORTS, CHINA, HONG KONG, TAIWAN, THE UNITED KINGDOM AND THE UNITED STATES, MILLIONS OF US$, 1997

Country	Exports, Millions of US$, 1997	Share of World Exports
World	5,537,918	100%
China	182,877	3.3%
Hong Kong	188,059	3.4%
Taiwan	121,081	2.1%
The United Kingdom	281,061	5.0%
The United States	688,697	12.4%

Source: World Bank Global Economic Prospects 2000.

SHARE OF WORLD IMPORTS, CHINA, HONG KONG, TAIWAN, THE UNITED KINGDOM AND THE UNITED STATES, MILLIONS OF US$, 1997

Country	Imports, Millions of US$, 1997	Share of World Imports
World	5,541,179	100%
China	142,189	2.5%
Hong Kong	208,641	3.8%
Taiwan	113,924	2.05%
The United Kingdom	306,585	5.5%
The United States	899,020	16.2%
Source: World Bank Global Economic Prospects 2000.

6. Despite some impressive figures, for example that China has more than one billion potential consumers, the investment climate in China is also notoriously complex. While China has been one of the top destinations for foreign direct investment (FDI) in recent years, absorbing in excess of £US 45 billion in 1997, few foreign businesses in China are making money and even fewer have recouped their initial investment. Apart from winning delivery contracts with the government, making money in China remains, therefore, more a promise, than a reality. None of these factors suggests that British economic involvement should cease; British companies must have a presence in the country. But many of the investment schemes involving foreign companies in China today resemble the Latin American railway adventures of the 19th Century: theoretically lucrative but in practice disastrous.

7. The perception in the West, that China provides a business opportunity which should not be missed, has given China more international leverage than it merits. The Chinese government has also driven hard bargains and derived maximum political benefit, by threatening to deny companies access to its markets for political considerations. Likewise, China has frequently been able to play off Europeans against North Americans. Some European nations who do not make a direct contribution to the security of the Asia-Pacific zone, for example Germany, have tended to take a less confrontational line with the Chinese, and have proved to be amenable to Beijing's tactics. The US, on the other hand, takes a more robust attitude towards the violations of human rights in China, but still has greater commercial penetration of Chinese markets than that of the many European countries, which chose to ignore Beijing's human rights record.

8. Expectations that China will play a constructive role in international relations if it is treated as a great power have not materialised either. China usually abstains in UN Security Council Resolutions, which do not involve its own direct (and often domestic) interests, and was a hindrance during the Kosovo war, even before the accidental bombing of the Chinese embassy in Belgrade. For example, the decision at the start of 1999 by Former Yugoslav Republic of Macedonia (FYROM) to acknowledge Taiwan diplomatically prompted China to veto a routine Security Council Resolution to extend the mandate of UN peacekeepers there. Another example of the encroachment of domestic politics into international affairs was China's relative unwillingness to halt the attacks on the American and British Embassies in the Chinese capital that followed the accidental air attack on the Chinese Embassy in Belgrade. Likewise, there is speculation that China's willingness to join the World Trade Organisation (WTO) has as much to do with the desire of some of China's leaders to give much needed momentum to its flagging economy, as a willingness to contribute to the development of an equitable world trading regime. More generally, China remains apparently indifferent to the international order issues now promoted by the UN and it does not contribute to major aid efforts around the world, apart from assistance to a few of Beijing's client states, mostly in Africa and the Pacific.

9. The ongoing modernisation of China's armed forces has caught the attention of some observers who are convinced that the People's Liberation Army (PLA) represents a growing conventional threat[7]. As evidence, they note that the Maoist doctrine of "People's War" is being replaced by the doctrine of "Local Wars Under Modern Conditions". Official defence spending has increased in double figures percentages over each of the last twelve years, and exceeded $14.6 billion this year (2000-2001)[8], while some also believe real defence spending to be between £35 and $70 billion[9].In addition to this, the PLA is seeking to acquire new military equipment and systems from abroad (Russia, Israel, Italy and the United Kingdom), as well as from domestic sources, in order to carry out the new roles and missions that are part of the emerging doctrine of "local wars". Much attention has been paid to building up the capabilities of the PLA Airforce and the PLA Navy and acquiring "asymmetric" systems, such as Short Range Ballistic Missiles (SRBMs), Land Attack Cruise Missiles (LACMs), and some limited information warfare capabilities[10].

10. On closer assessment, however, China's current conventional military influence and potential are over-stated. Within the region, for example, although the PLA Navy dwarfs most of the South East Asian nations, Japan's Navy is far more advanced. At this stage, it is unlikely that China is yet capable of effectively using much of the modern military equipment that it has acquired in recent years[11]. Problems have also been identified in a range of other areas such as systems integration, logistics and morale[12]. Recent analysis suggests that China's information warfare capabilities, which have received much attention internationally in recent years, are over-rated[13]. The main reason for China's weakness is that China's defence industrial complex is less than 40 years old and has consequently not developed an overall level of technological competence as high as that in North America, Russia, Europe and Japan, upon which to build. China is therefore largely dependent on imports from other countries, such as Russia and Israel. The relative weakness of China's IW capabilities may also be a result of the fact that, on the one hand, China's current political system is not capable of nurturing and promoting the culture of innovation that has spurred the development of the information revolution in the West, while on the other hand, China's leaders are fearful of the potential that the unrestricted spread of information technology through China has to undermine their political power[14].

11. The perceptions of the United Kingdom and China differ about the role that the international system serves, and how they would like it to develop. In simple terms, Britain is a "status quo power", supporting the existing international order, and has been a major contributor alongside the United States and France to many UN and NATO operations that have taken place over the past decade. China, on the other hand, feels constrained by the existing international order, which it hoped would become more "multipolar" after the Cold War (1989) and the collapse of the Soviet Union (1991), but now believes is becoming increasingly dominated by the United States. China disagreed with NATO's decision to undertake military operations against Serbia last year in response to Milosevic's actions in Kosovo, because it felt that the principle of using human rights abuses as the basis for international intervention could (theoretically) set a precedent for future intervention by the United States in either Taiwan or Tibet. Likewise, China is concerned about American plans to build and deploy both National Missile Defence (NMD) and Theatre Missile Defence (TMD) systems, believing that the NMD would undermine its existing nuclear deterrent capability, while TMD (if deployed in East Asia as proposed by the Americans) will reduce its ability to bring force to bear against its neighbours, particularly Taiwan. However, tensions between China and Britain are not as severe as those that exist between the United States and China, since China does not perceive Britain's role in the international system as being as dominant as America's.

12. Finally, China may be driven onto Britain's political agenda, in a way unimaginable some years ago. Following the heavy handed, and in part illegal, policing that accompanied the visit of Jiang Zemin to Britain, for example, questions have started to be asked, not only of the probity of Britain's apparently trade orientated policy, but also about how such an approach fits with the notion of a so called "foreign policy with an ethical dimension"[15].

BRITISH POLICY TO CHINA—BREAKING THE MOULD

13. Britain (like most other Western countries) believes that, unless handled correctly, China's emergence as a major power (real or otherwise) has the potential to threaten the existing international political and economic order, and that the best way to manage its rise is therefore to "engage" China in dialogue across a range of issues[16].

14. However, the brief appraisal above demonstrates that many of the assessments of China's economic and military strength and ability to influence the international systems are based on assumptions, either of where China is expected to be in fifteen or twenty years time, or where some wish it was today. Furthermore, although it is true that Britain still has a "residual commitment" to Hong Kong [17], with the wrapping up of the Joint Liaison Group (the body tasked with managing the hand-over) earlier this year, Britain's ability to influence the territory's future is minimal. Likewise, Britain has close relations with others in East Asia, for example Japan whose economic importance and political clout are equal to, if not more significant than, China's, and may continue to be so.

15. Accordingly, it seems logical to suggest that British policy towards China should be refocused to take into account the existing economic and military realities in which the country finds itself. China should be treated on its merits, rather than as it demands. More specifically, Britain needs to consider ways to free itself from the mindset that currently lies at the heart of our relationship with China, which allows China, rather than Britain, apparently to dominate the agenda. Britain also needs to move away from the belief that any attempt to tackle China over tough issues such as human rights, nuclear and missile proliferation, and Taiwan, will alienate China, thus threatening the long-term stability not only of East Asia, but also of the international system.

16. "Containment" of China, however, is not the answer. In the long run, efforts to familiarise China with Western business practices, to advance the spread of information technology through every level of Chinese society, and to encourage China's participation in international institutions, should be promoted, because they will help to knit China more closely into the fabric of international society, expose its politicians and citizens to new ideas, and provide impetus for political change. However, more attention should also be paid by Britain to China's weaknesses, such as its need for foreign capital and technology and the shortcomings of its armed forces, and to the fact that these can be used to further British foreign policy (and indeed economic) objectives.

17. Specifically, additional efforts should be made by Britain to improve co-ordination with our partners in European Union (EU), North America, Japan and our traditional allies in the Asia Pacific, such as Australia and New Zealand, all of whom share many common aspirations with regard to the development of the international political and economic systems. One seam which Britain and its European partners may be able to mine productively is China's concern at American plans to develop and deploy NMD and TMD systems. For example, Britain and its allies in Europe could offer to use their influence with the United States to make Washington reconsider its plans to deploy TMD in East Asia, in return for a Chinese promise to scale back or withdraw many SRBMs and MRBMs that it is deploying on the coast opposite Taiwan[18]. It may also be productive to encourage more regular contact between British, American and European academics on issues such as the modernisation of the PLA. Doing so would help to improve understanding of developments on less well-known aspects of China's modernisation in both Britain and Europe, and would complement existing intelligence analysis.

18. Finally, Britain should openly resume its drive to become an individual member of the ASEAN Regional Forum (ARF), which deals with security issues in East Asia. Such a move would underscore Britain's willingness to help contribute to regional security and stability.

RE-ASSESSING RELATIONS WITH TAIWAN

19. Britain may wish to pursue a more proactive foreign policy towards Taiwan. Beijing regards Taiwan as a province of China. Beijing also refuses to abandon the option of using force to bring about reunification in certain circumstances[19].

20. Taiwain is the 20th largest economy in the world. In recent years, the island has also emerged as a key player in the global information industry. In 1997, for example, Taiwan's information technology hardware industry yielded a total production value of US$30 billion, up from US$25 billion in 1996. By 1995 Taiwan had established itself as the world's third largest computer hardware supplier after the United States and Japan, with 900 manufacturers providing 100 000 jobs[20].

21. Currently, relations between Britain and Taiwan are conducted at an unofficial level[21]. Economic and cultural ties are close. Britain is the most popular destination for Taiwanese investors in Europe, including many representatives of the island's booming information and computer industries. In addition to this, there are some 12000 Taiwanese students currently studying in British universities and other higher education establishments. At the same time, a large number of British companies, such as the Kingfisher Group, have invested in Taiwan, and are doing better than their counterparts who have invested in China. Interestingly, however, unlike countries such as France and Germany, Britain only "acknowledges" rather than agrees with China's definition of "one-China"[22]. This could give Britain more flexibility in its dealings with Taiwan.

22. The victory of the Democratic Progressive Party's candidate Chen Shui-bian in the 18 March Presidential poll presents Britain with an opportunity to show greater creativity in its dealings with Taiwan, which is now one of the most democratic countries in East Asia. For example, Britain could allow more and higher-ranking Taiwanese politicians to visit the country, as Germany which is exceedingly close to China, already does. Furthermore, Tien Hung-mao, the new Foreign Minister, has openly expressed his interest in using academic and other exchanges in addition to more traditional forms of diplomacy to discuss issues of importance with other countries[23]. This, in parallel with existing channels, may provide an opportunity to promote dialogue with the island at a relatively senior level on a range of political and security issues, such as the military situation in the Taiwan Strait, that are currently not actively discussed.

23. The option of allowing British companies to explore limited defence sales opportunities in Taiwan should be examined[24]. Specifically, Taiwan's military seems to have capability shortfalls in areas such as systems integration, flight simulation, and logistics/supply chain management, in which British companies would be able to help Taiwan, without introducing new platforms or systems that would alter the balance of power across the Taiwan Strait, or provoke China into seeking new capabilities to counter Taiwanese acquisitions. Another possibility would be to allow the sale of non-warlike equipment such as AGRs, and mine clearance (sea and land) and hydrographic equipment.

24. Such an approach would prompt a reaction from China; perhaps a strong one. Following France's decision to sell Mirage 2000 fighters and Lafayette Frigates to Taiwan in 1992-93, for example, the Chinese threatened not to award lucrative business contracts to French companies. Equally, over time, French companies do not appear to have suffered greatly from this temporary political set-back. Furthermore, a closer engagement with Taiwan does not mean that we need to abandon our long-standing position concerning the unity of China.

CONCLUSIONS

25. Less attention should be paid by the Government to the optimistic predictions favoured by the business community and some government departments about China's future potential, and more to the statistics, the problems that China faces with its economy, its relative inability to influence developments internationally, and the huge challenges faced by its military, not least in assimilating and using to best effect much of its recently purchased technology. Furthermore, the Government should accept that, while there are certainly areas where the interests of Britain and China converge, China's perceptions of the international system and the role that it serves are somewhat different from our own.

26. This does not mean that many of the elements of British policy, such as educating lawyers and police, or helping the country reform its moribund SOEs should be ended. Rather Britain needs to complement these already successful policy approaches with an appreciation that Britain is actually able to influence China in a number of areas. Specifically, new opportunities, such as the Internet, which has the potential to open up Chinese society to the outside world in a way unimaginable ten years ago, should be exploited. Britain should also be more prepared to discuss openly and purposefully previously sensitive issues such as China's human rights record, Taiwan, and the challenges posed by Chinese military modernisation. Additionally, we must remember that although China is far from Britain, we are a permanent member of the UNSC, and have considerable interests in the East Asian region, which go beyond trade.

27. In practical terms, Britain should continue to seek closer co-ordination between the United States, Japan, France, Germany, others in Europe and the European Commission, on human rights, trade, and security issues. This will strengthen our hand when dealing with China, and will help Britain and its allies to play a more constructive role in China's international evolution, than is currently the case. The sensitive issue of NMD and TMD, for example, provides Britain and its allies in Europe with an opportunity to use their influence with the United States to secure concrete commitments on key issues (such as Taiwan) from China. Bearing in mind the commitment that the United States has shown to upholding Europe's security there are also broader advantages to be gained from offering, when feasible, to share some of the diplomatic, military and financial burden borne by the United States in East Asia, where its presence is a major stabilising force. At the lowest level, there is also room for encouraging more regular and institutional contact between British, American and European academics, particularly on defence and security issues.

28. More controversially, Britain should re-assess its policy towards Taiwan. Along with those in the Korean peninsula, the tensions across the Taiwan Strait form the major threat to East Asian security today. Thus British policy should be to do what Britain can to calm tensions across the Strait within the framework of the policy notion of "one-China". To do this, Britain should first consider expanding the channels of dialogue with Taiwan, particularly at the "track two" and "track one and a half" levels, and possibly by allowing limited exports of non-aggressive defence technologies, systems and equipment. Secondly, Britain should be prepared to remind China strongly that it will not accept force being used to bring about reunification against the wishes of the elected government of Taiwan. Finally, every effort should be made by Britain to co-ordinate responses with its allies, the United States, Japan, France and Germany and Australasia.

5 For an overview of some of the more optimistic predictions about China's rise, see for example, Daniel Burstein and Arne De Keijzer, Big Dragon: China's Future and What it Means for Business, Economy and the Global Order, (Simon and Schuster, 1998). Back

6 This paragraph draws on Gerald Segal, Does China Matter, Foreign Affairs, Volume 78 No 5 September/October 1999, p 25. The figures quoted in this section exclude Hong Kong unless stated otherwise and are in constant 1997 dollars. Back

7 For a review of the recent debate see, for example, Bill Gates and Michael O'Hanlon, "China's Military: How Good?" The National Interest, No 56, Summer 1999. Back

8 Robert Karinol, "China Boosts Its Budget Yet Again", Jane's Defence Weekly, 15 March 2000, p 12. Back

9 In recent years both the Stockholm International Peace Research Institute (SIPRI) and the International Institute for Strategic Studies (IISS) Military Balance have produced assessments of actual defence spending in China. The differences in the figures from these Institutes represent the opaque nature of Chinese expenditure on defence. Back

10 See, for example, The Security Situation in the Taiwan Strait, Report to Congress by the Department of Defense Pursuant to the FY99 Appropriations Bill, 1 February 1999. This document provides a comprehensive outline of China's military modernisation process. On the specific issue of Chinese information warfare capabilities the submission states that China has largely focused its attention on improving its Computer Network Defence (CND) capabilities, although it is thought to be developing its Computer Network Attack (CNA) capabilities, as well. Back

11 Ibid Back

12 Ibid Back

13 The Military Critical Technologies List (MCTL), which is compiled by the DOD, provides a comparative assessment of 15 technology groups: aeronautics systems, advanced weapons systems, chemical and biological systems, conventional weapons systems, electronics and countermeasures, ground systems, information systems, materials and production, nuclear systems, marine systems, power and propulsion sensors and navigation, signature control, space systems, and weapons effects and countermeasures. China is assessed as being weak in around 75 per cent of the 84 sub-areas deemed critical to the development of advanced military weapons. China's weakness in the area of information systems, of which IW is a part, is assessed as being particularly weak. Back

14 For example, the Fulan Gong movement, which came to prominence in April 1999, was largely organised over the Internet. Other dissident and exile groups, such as the Tibetans, have also made use of the World Wide Web (WWW) to spread their message. Back

15 This has been discussed recently in the House of Commons. See, for example, Column 130, House of Commons Hansard, 16 May 2000. Back

16 Speaking in the House of Commons on 16 May 2000, for example, the Secretary of State for Foreign and Commonwealth Affairs, Robin Cook stated that: "We pursue a strategy of critical engagement with China. That enables us to pursue a dialogue in depth with another permanent member of the Security Council on a range of issues of mutual anxiety, such as global climate change, nuclear non-proliferation and regional tensions such as those in south Asia". He went on to say that Britain remains "deeply concerned about the persistent violation of human rights in China, especially the continuing arrest of political dissidents and detention without trial". Back