Examination of Witnesses (Questions 20-39)
DR CHRISTOPHER
HUGHES AND
PROFESSOR DAVID
WALL
1 FEBRUARY 2006
Q20 Mr Heathcoat-Amory: What recourse
to legal protection do investors have now? Is that real? Is there
a certainty of property rights and remittance of profits? If something
goes wrong, realistically what can foreign investors do? Can they
rely on an independent tribunal or court to protect them?
Professor Wall: It depends on
their assessment of the situation. As some get out, they say they
cannot work in a Chinese situation, they may have got so far in
in a variety of ways and then they just say, "We are too
locked into the corruption of the system. We cannot see any way
out of it economically, politically or legally", and they
pull out. Murdoch has moved some of his companies out in recent
years. The biggest British company that has come out is National
Power. They said that they could no longer work in China and they
pulled out. That is one option. The second option is to form alliances
with the juanxi system within China, with people politically or
companies which have good political clout, and allow the joint
venture side of it to overcome the problems. The third is to try
to use the legal system. The legal system is so corrupt—every
member of the Party is above the law—so if the Party is
interested in that particular issue or its interest is greater
than yours, you will not win the court case. Even if you win a
court case, you will find enforcing it extremely difficult, if
not impossible.
Q21 Mr Heathcoat-Amory: Can I ask
about intellectual property protection. I have met the uniform
branch in Beijing and talked about it with another select committee;
they said all of the right things and are obviously aware of the
issue. There are pirated videos and music openly on sale; it is
theft from western countries. What propriety does government have?
Given an authoritarian country could do something about it, are
they not just playing the game their way? They want our investment
on their terms, but are they prepared to make the payments in
the opposite direction when it suits us?
Professor Wall: If I can go back
to this point, central government, which you deal with, is very
rational—not the leaders of the Party but the government—and
well trained; they have been trained by us in many cases. They
know the issues, they know the international laws and regulations
and the domestic laws and regulations. They also know that they
cannot apply them throughout China. They cannot stop the people
in the streets selling CDs and DVDs. In the restaurant I go to
on a regular basis in Beijing, as you sit down a woman appears
with two bags, and this is a public place.
Q22 Mr Heathcoat-Amory: They are
quick enough to crack down on political dissent so why can they
not do something about stealing intellectual property from foreigners?
Professor Wall: Because the people
who are clamping down on the political dissent are the people
who have vested interests in producing the DVDs and the CDs. It
is an alliance in some cases. The people who are doing it have
political connections and you cannot clamp down, they have political
support. The government officials you deal with would love to
but their power is limited.
Q23 Mr Pope: There are plenty of
fake CDs on the streets of London and New York, so it is globalisation
catching on.
Professor Wall: Made in China.
Q24 Mr Pope: Can I ask about the
European Union's relations with China and with the human rights
dialogue. We have had the human rights dialogue, I think it is
the tenth anniversary this month. Would you characterise it as
a success? Should we abandon it? Can it be improved?
Dr Hughes: It can hardly be called
a success because we have seen no results at all out of it. I
did play a small part in it myself but I was far from impressed
by the way it was organised. It was one brief meeting: nothing,
no preparations, no follow-up, no briefings, that was it. It should
not be abandoned, of course, it should be strengthened. EU policy
has become unashamedly orientated towards economic interests.
We have the EU strategy documents and so on which pay lip service
to human rights issues but it is hard to see there is anything
more than that. When you speak to EU officials and policy makers,
it is very clear that they are not interested in sensitive issues,
they do not want to rock the boat. Aside from which it is very
difficult to know what the EU is doing, even for those of us who
try to follow it and try to find out what the strategy is and
if there are any new developments and what dialogues are going
on with other states and so on. It is almost impossible to get
any information about it. There are real problems there.
Professor Wall: There was quiet
diplomacy on human rights taking place at the bilateral desks
with the UK and China and also between the EU and China. It was
behind closed doors because that was the only way in which the
Chinese would participate and it did make progress. My own feeling
is—and because it was behind closed doors it cannot be more
than a feeling—that has come to a stop, not because we have
lost interest in it but I think because the Chinese side have
lost interest in it. I, for one, have been increasingly worried
about the political problem of the Hu Jintao Government. I think
it sees its role as more authoritarian, more communist-style,
than previous general-secretaries. The indications were the increased
censorship of the press and the increased anti-democracy movements.
The political human rights situation has got much worse. They
make moves against the police, they attempt to try to control
the police and its more visible anti-human rights role is mainly
an international public relations exercise. If they could do it
quietly without being caught I do not think there would be much
intervention from the centre. I may be getting too cynical.
Q25 Mr Pope: I am interested by those
answers and one of the reasons I asked whether or not it was a
success is that British ministers have said before that they feel
that it is at least a qualified success, both as an EU-China dialogue
and as a bilateral one between our countries. I must say I share
your scepticism that it is producing any results at all. I am
interested that you think it can be improved rather than abandoned,
I have always thought it was a waste of time and we should just
abandon it. It is a closed bet which suits the government of China.
If it can be improved, what is the key to improving it? Is it
to use economic leverage with the EU as the largest trading partner
with China? Is that the way forward?
Dr Hughes: I think so. That would
require co-ordination amongst the Member States which, of course,
is the huge problem which developed in the 1990s with Germany
more or less taking a lead on pursuing its own interests and the
French getting punished over a number of issues for raising difficult
issues. The UK was involved with Hong Kong so we had our hands
tied very much, and the German model seems to have become the
model for everyone to follow. I do not think it has to be that
way at all. The EU has more power than perhaps it realises, partly
because of the way the Chinese perceive the EU as a balance to
US power and they are desperate to have EU support on a whole
range of issues. I can give you an example. When the Chinese passed
the anti-cessation law last year, the Council of Ministers issued
a strong statement—probably the strongest statement to come
from the EU towards China—and after an initial period of
some bluster from Beijing since then there has been a far more
constructive dialogue. They are far more prepared to talk to Europeans
about one of their most sensitive issues. There was a conference
on it last week in China on exactly that issue which would have
been hard to think of before. Sometimes standing up from these
issues I think there is evidence to show it does pay. If the Chinese
perceive the EU as blinkered and each state pursuing its own interests—We
had a rather absurd situation with Hu Jintao's visit to London
of London being bathed in red lights for his visit and so on which
was a sort of competition with bathing the Eiffel Tower in red
when he visited Paris. We are all getting into this very embarrassing
situation trying to outdo each other and kowtowing to the Chinese
leadership and that does not increase our diplomatic leverage
at all. I have heard that people are rethinking this approach
in the EU and I hope there will be some fruit from that rethinking
in the near future because it has not helped us.
Q26 Mr Pope: Can I ask one other
brief question which is connected. You are right to point to divisions
within the EU as being one of the stumbling blocks to a change
in policy and, in the run up before the anti-cessation law came
in, France and Germany were floating the idea of lifting the EU
arms embargo. Can you tell the Committee what your view is on
that and what effect you think it would have if the embargo was
lifted?
Dr Hughes: I would be glad to.
This issue tells us, first of all, about the lack of capacity
in the EU and the lack of awareness of the broader strategic issues
in the region beyond economic issues, a lack of awareness of the
political and military balance of power and so on, which of course
the United States is at the centre of. What I see the arms embargo
issue being about was bad timing, the issue was not about which
arms we sell to China. A code of conduct, as we all know, would
be far more effective but it was the timing. Both the German Chancellor
and the French President began to talk about lifting the embargo
in December 2003/January 2004. There was a presidential election
in Taiwan in March 2004. I was in Taiwan monitoring that and on
the TV we were watching joint exercises between the French Navy
and the Chinese Navy in the South China Sea on the eve of the
election in Taiwan. There was this big issue coming up, while
the Americans were warning both sides, "Don't rock the boat
or we will make you pay for it", the Europeans were saying,
"Let's lift the arms embargo". The timing was absolutely
awful. If they wanted to lift it they could have found a better
time but that would have required some understanding of the basic
dynamics of the region, which they do not seem to have.
Chairman: Can I comment on that issue.
This Committee and other committees of the House of Commons had
a quadripartite report which I think played some role in the fact
that the issue has now been deferred and seems to have gone very
quiet in the last year. Hopefully we will come back to that later.
Q27 Sir John Stanley: When we were
in Vienna last month for the Austrian Presidency, the Austrians
spoke about their wishes, during the course of their Presidency,
to see whether or not they could make progress on the EU-China
Co-operation Agreement. They flagged up that one of the key areas
of potential divergence was that the EU wanted the Agreement to
cover both economic co-operation and human rights, whereas, predictably,
the Chinese wanted it simply in relation to economic co-operation.
Do you think the Chinese will get their way?
Dr Hughes: Going on past record
they will, but I do not think they have to. I do think that the
EU is of such economic and diplomatic importance to China that
there must be some mileage that the EU can get out of the human
rights issue. It might not be a lot, but what we see in China
is gradual movement on a whole load of issues. Even on something
like the Taiwan issue we have seen gradual movement which is almost
imperceptible deliberately, largely because Chinese public opinion
would not accept some of these things, or opinion within the Party
of different factions and so on. I think the EU has quite a lot
of leverage. China wants a multi-polar world, that is its official
doctrine. The EU is supposed to be one of the poles, that now
means there should be some quid pro quo in there. If the
EU can realise that, China has to choose which way it wants the
EU to go, either towards the US or to maintain its current position,
which is possibly somewhere in the middle. I think, given China's
global strategic outlook, the EU has a fair amount of leverage
on those issues which it never uses and does not seem to attempt
to use.
Professor Wall: I agree with that
completely. One example is in the treatment of NGOs: there has
been very little protest from the Europeans on how NGOs have been
treated in China and how their operation activities have been
increasingly restricted in the last few years, there has been
very little reaction. The Russians are beginning to move down
that road. There has been outcry in Europe and lots of protest
from the Europeans, the Chinese can get away with things in European
eyes but the Russians cannot.
Q28 Chairman: Before we move on to
some questions about China's relations with Russia, can I ask
if you would like to comment on the problems that the European
Union had with regard to the textile and the so-called "bra
wars" debate. As I understand it, Commissioner Mandelson
did a deal whereby some of this year's quota was used for last
year's imports. Is that problem going to rear its head again?
If so, how will the Chinese react to those issues?
Dr Hughes: Can I defer to my colleague
on "bra wars"?
Professor Wall: It cannot be deferred
forever because the agreement which was allowing the Chinese trading
parties extra time to come to terms with the growth of Chinese
tax on exports comes to an end at the end of 2007 and the beginning
of 2008. It is only playing around at the margin. In the long
run, the world will have to adjust to the growth of Chinese textiles.
It has created some short-term problems. I think it is a great
mistake of the EU to force this compromise on the Chinese; I think
it was a mistake of the Chinese to accept it because they had
recent agreements with the Europeans and they were being asked
to set them at the side. Its long-run consequences are limited
because the agreement comes to an end in two years.
Q29 Mr Horam: Can we turn back to
relations with Russia. I think Professor Wall was saying that
Putin seems to be losing control. One has this image of Siberia,
north of the Amur River with no people and lots of resources and
millions of Chinese in the south and no resources. Is it not going
to implode in due course?
Professor Wall: It is something
I am working on at the moment. For the last three years I have
been working in north-east China, and you cannot do that without
becoming conscious of the Russian side. I was in Moscow last month
and I will be in Valdivostok in a few weeks. If you use Google
Earth, I invite you to track down the Russia-China border and
see on the Chinese side there are growing numbers of small towns,
bigger towns and small cities. On the Russian side: nothing; Russians
are moving out as fast as they can get out. They do not want to
live there and the Chinese are moving in. Two-way trade is based
on raw materials, mostly illegal, going into China from the maritime
provinces and Navarosk: timber, wild animals, and fish which the
Russian Navy.
Q30 Mr Horam: What can the Russians
do about this?
Professor Wall: They cannot do
much at all. It is largely controlled by the Mafiosi of both countries.
They even control the border controls. There are two levels of
border control: you go through the official one where nothing
happens and the real one is the one where the criminals allegedly
operate. It is absolutely fantastic; the Chinese in return are
providing the cheap consumer goods which makes life at all bearable
in that part of Russia.
Q31 Mr Horam: Will Eastern Siberia
become a de facto part of China?
Professor Wall: A lot of people
think it should be part of China and they are moving in. There
is much discussion on how many Chinese are there; the scaremongers
in Moscow talk about two million already. If you take the whole
area around the Chinese border, seven million Russians, declining
rapidly; on the Chinese side there are 120 million, officially
100 but probably 120. The Chinese with resident rights in the
area of Valdivostok are about 200,000, maybe 500,000 will be there
on a daily basis and the numbers are growing. In some towns the
Chinese inhabitants almost outnumber the Russian inhabitants.
Q32 Mr Horam: How will this great
weakness that Russia has affect official relationships between
the Russian Government and the Chinese Government?
Professor Wall: The public expressions
say, "It is great that the Commies are integrating and moving
together", and so on. At the operational level, Moscow is
doing everything it can to stop it, to slow it down. They raised
tariffs last year on Chinese imports—it is not just the
WTO which can do it—into that part of Russia by 300%. It
refuses to build bridges, it is refusing the Chinese permission
to build railroads and lease ports on the coast. It refused a
Chinese request to build a double-gauge railway from Suifenhe
down to Valdivostok. The local Russian governments have agreed
to build industrial zones, bonded zones, across the border on
the Chinese side. These are well developed, incredible places
in the middle of nowhere, they have got these big developments;
on the Russian side: nothing, because Moscow refuses to allow
the locals to do it. In Heihe, on the north side of the border,
the local governments are desperately keen to have a bridge; in
winter the river freezes for seven months of the year and they
would like a bridge. Moscow refuses to allow it even though the
Chinese will pay for it. The links are there and growing strong,
they are known to be a threat, Moscow sees it as a threat. It
does not know what to do about it apart from using these obstacles
to further integration.
Q33 Chairman: Very interesting. Would
you like to comment?
Dr Hughes: I think if you want
to understand Moscow-Beijing relations, you cannot focus only
on the north-east, looking at the north-west too gives a fuller
picture. In a sense, China has a lot to lose if it has bad relations
with Russia. All Chinese are very concerned, of course, about
the north-west of China and its border. One of the achievements
they are most proud of is the Shanghai Co-operation Organisation
which brings Russia and China together with the central Asian
states essentially to really control secessionist movements. It
is supposed to improve economic integration and so on, but mainly
it was originally to do with arms control. Now it is very much
engaged in preventing the movement of people across borders, prevention
of terrorism, as they would define it, and so on. I think on other
issues, on the broader global scale, China and Russia need to
stand together on the norms of international society—the
issues of statehood and state sovereignty. Russia's equivalent
to Taiwan is Chechnya and they need Chinese support on Chechnya
and China needs Russia's support on issues like Taiwan and a whole
load of other issues, let alone the arms imports from Russia which
the Chinese Army depends on in order to achieve any of its aims.
So I think Moscow has an awful lot of leverage too. Then, of course,
there is the energy issue and the supply of energy from Russia
and Central Asia which gives Russia more leverage. So Russia is
not completely passive, I think, and has an awful lot of leverage
too. So there is a kind of balance.
Q34 Mr Horam: Will China and Russia
get closer as the years go by?
Dr Hughes: They are already much
closer. It was not that long ago that they were arch enemies,
so in a historical context they are closer than they ever been,
I suppose. They did have joint military manoeuvres—was it
early last year?—which, again, was a breakthrough. So they
are quite close and they have a strategic partnership, as they
call it, although they have them with other states, too, including
the US. So they are moving very close together on a whole range
of issues, from the global down to the local.
Professor Wall: Can I answer that,
because I think it is an important point? First, the significance
of North East China and south of Russia is not just the local
trend I was talking about; this area will be crucial in the link
between East Asia and the energy supplies from Russia. The pipelines
have to go through this territory. This territory is disputed;
it is disputed between the locals and Moscow, it is disputed between
China and Russia at the local level. Putin knows he has to keep
this under control. The moment he cannot—
Q35 Mr Horam: What area are we talking
about where the pipelines have to go through?
Professor Wall: What we used to
call Outer Manchuria; the provinces around Manchuria which go
down to Vladivostok—those areas—and Sakhalin Island,
from where oil and gas is still coming. Thirty per cent of East
Asian energy will come from Siberia within the next 10 to 15 years
and it will all have to go through this area of China/Russia.
I would like to add to the Shanghai Co-operation Organisation.
Chairman: I think we have got some questions
on that. Could I ask my colleague, Gisela Stuart, to come in on
those?
Q36 Ms Stuart: I am struck by what
Professor Wall said, and also what Dr Hughes said, in the written
submission, because when I was in Russia early on in November
at a meeting of the Shanghai Co-operation where, as I understand,
India and Iran actually had observer status, there seemed to be
three different views as to what the Shanghai Co-operation is
all about. It started off life as a mechanism for brokering post-World
War II border disputes, then it changed its nature very much and
now seems to me—and also the Russians were saying to us—it
is almost like a nascent counterforce to NATO.
Professor Wall: That is the one
we are working on at the moment. It is not very old. It came as
a reaction from the Chinese who were worried about loss of Russian
control over the Central Asian republics bordering both `Stans
which border China. So initially it was called the Shanghai Five,
which were Kyrgyzstan, Tajikistan and Kazakhstan (it took me a
long time to learn how to say those) with Russia and China, and
it also included agreeing the border lines with those three countries.
So it was seen as China trying to get that under control. Russia
was invited to join and did join because it was its territory.
Its initial reaction was very passive because it was just something
that China wanted to do—it was a Chinese issue. But China,
in 2002, proposed that the Shanghai Co-operation (or the Shanghai
Five, at that time) should be expanded into the economic area
and the political area, and even to discuss security and military
issues. So they wanted to expand this into a much broader arrangement.
The Russians laughed and they were sceptical; they wanted nothing
to do with it, but they then watched as it became the Shanghai
Six, as Uzbekistan joined. They then watched the Chinese moving
into finance the development of oil and gas with Kazakhstan, moving
in to develop links with the tyrant of Uzbekistan and providing
him with red carpet treatment, pouring money into his economy.
The Russians were then beginning to get concerned that here there
was talk about reversing the flow of the pipelines, and Russia
would become dependent for its links with those Central Asia republics
with the Chinese who were beginning to ingratiate themselves.
Russia had more or less forgotten them. They came together jointly
when the Americans started building stations there for the Afghanistan
war. Then the Russians started taking it much more seriously.
When Hu Jintao went to Moscow last July they had open meetings
and secret meetings on what to do with the Shanghai Co-operation
Organisation. By then Russia wanted to balance China, to some
extent, and insisted on inviting India as observer status. That
was only accepted by China if they could bring Pakistan and Iran
as observer status. The Americans, incidentally, asked for an
invitation but they did not get one.
Q37 Ms Stuart: So the Americans were
asked and did not go?
Professor Wall: No, the Americans
asked for an invitation but they did not get one. Their request
is still on the table and the SCO has tried to think up a new
category of membership. However, the important thing at that meeting
was that it was the first time it made public statements, as a
collective organisation, on non-border issues. They said that
the time was coming when the Americans should pull out of Central
Asia, and the Indians were there, the Pakistanis were there and
the Iranians. The last two, okay, but the Indians did not register
any statement that they did not go along with this; they accept,
implicitly, that the SCO had the right to talk about whether the
USA should be in Central Asia or not. This is a major change in
the character of the organisation. It is quiet at the moment because
the main activity is in the anti-terrorist organisation, and they,
rather beautifully, geopolitically, have the anti-terrorist organisation
in Tashkent in Uzbekistan. At the moment they are on hold because
they cannot agree on the definition of "terrorists".
So it has become an important political force. It links together
all the tyrant nations of Central Asia, the increasingly autocratic
Russia and the military dictatorship of China, and it is now getting
links into more countries on a wide nexus and people are talking
about becoming a military alliance—the Russian military
are talking about becoming a military alliance.
Q38 Ms Stuart: The money, if I am
right, is largely coming from China.
Professor Wall: The Chinese are
running this, although Russia is now running with it and catching
up.
Ms Stuart: Thank you.
Q39 Mr Hamilton: I wanted to come
back briefly on Russia to make the point that it is slightly ironic
that Russia and China were such terrible enemies when they were
both communist countries and now they are a lot more friendly.
We talked about one of the friction points around Vladivostok
and the North West, but are there any other points of friction
in this new, warm relationship between Russia and China that might
actually sour the relationship and make it go the other way over
the next few years? Do you see any other problem areas?
Professor Wall: Are you talking
about the Russian and Chinese leaderships? The peoples of these
countries have quite different views. If you talk to ordinary
people in Russia they are terrified at the potential of a massive
immigration of Chinese. The newspapers are full of references
to the "yellow peril"; there is a strong anti-Chinese
sentiment at that level; they are worried about them coming and,
in the North East, at least, this hundred years of humiliation
thing is still very strong—that Outer Manchuria is Chinese
and should be given back. So there is still a lot of play there.
Also, at the moment, they are working together in Central Asia
but when all of those pipelines start moving into China then the
Russians will lose their control, to some extent, over China's
future energy needs, but they also lose their control over Central
Asia. So there are potential areas of conflict.
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