UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 860-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

FOREIGN AFFAIRS COMMITTEE

 

 

EAST ASIA

 

 

Wednesday 1 February 2006

DR CHRISTOPHER HUGES and PROFESSOR DAVID WALL

Evidence heard in Public Questions 1 - 64

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Foreign Affairs Committee

on Wednesday 1 February 2006

Members present

Mike Gapes, in the Chair

Mr Fabian Hamilton

Mr David Heathcoat-Amory

Mr John Horam

Mr Eric Illsley

Mr Paul Keetch

Andrew Mackinlay

Mr John Maples

Sandra Osborne

Mr Greg Pope

Mr Ken Purchase

Sir John Stanley

Ms Gisela Stuart

________________

Witnesses: Dr Christopher Hughes, Department of International Relations, Director, Asia Research Centre, London School of Economics and Professor David Wall, Centre of Chinese Studies, School of Oriental and African Studies, University of London and Chatham House, gave evidence.

Q1 Chairman: Good afternoon. Can I welcome Dr Hughes and Professor Wall to our session and apologise to you, gentlemen, for keeping you waiting. We have had some rather complicated logistical discussions about our future programme which went on a bit too long, and I am sorry about that. Can I begin, perhaps, by asking you to give us a sense of the changes in China and the impact that they have caused? Some of us have been in China in the last year, and I had not been there for ten years and I was absolutely overwhelmed by the economic transformation in Beijing in particular. Obviously there is a lot of talk about globalisation and China's role in the world. What challenge do you think this presents to us and how should we, both at the political and governmental level but also as a society and our companies and our business, be responding to those challenges?

Dr Hughes: Yes. It is a pleasure to be here. Thank you for asking me. I suppose the first point I would like to make is that when we are talking about China, we are really not talking about one place, the diversity is just enormous. If you go to Beijing you will see one China, just like Shanghai, but of course that is not all of China. It is a country with such huge disparities and variations of every kind: economic, cultural, linguistic. I do think we always need to stress that, it is not like talking about any other state in the world really. In terms of the challenges, on the global scale, which affect us directly, there are of course the obvious ones. The most obvious, at the moment, the problems associated with economic development, the environmental fall-out of that, the movement of people, epidemics, all of these are affecting us directly. In terms of more traditional security issues, of course we have this issue of the rise of a great power. Many of my historically minded colleagues like to think in terms of analogies and so do many Chinese, of what has happened when great powers have arisen in the past and it tends to result in some big systemic change which is a nice way of saying conflict. Is this going to happen again? There are many reasons to say it will not happen, China is making many efforts, as I am sure you are aware, to present its rise as peaceful. However, there are many frictions which are left over from history. There are obvious problems to do with the disintegration of the Chinese empire, which is still central to Chinese political culture, which have shown up very much in nationalist movements. As you are aware, last year one of the most interesting and disturbing events was the anti-Japanese demonstrations in April. There is the Taiwan issue, which I think you are discussing on another occasion but which we can never avoid because in many ways it determines how China establishes relations with all other states because we all have to accept its one China principle. This remains a problem that within the East Asia region is probably the most pressing security issue in military terms which is always on a knife-edge. It is really an issue of crisis management. With the EU arms embargo issue we saw how even on these rather traditional security issues now European states, and the EU too, are not able to just stay out of these issues, that we are becoming involved in them, what we do does have an impact. In that sense it impacts, also, on the transatlantic relationship so our relations with China are now becoming far more tied up with the transatlantic relationship. There are also the issues of how China maintains its relations with other rising powers like India and with Central Asia and South East Asia. In most of those areas there are problematic border disputes, there are ethnic groups that go across borders which are seen often as secessionists by China and by some of the neighbouring states. Those are on-going problems which raise issues of human rights. I could go on all day but perhaps I should finish on this issue of human rights because I feel that all of these issues do raise the question of values. UK foreign policy and European foreign policy has tended to overlook many of the value issues or normative issues of human rights and what kind of equitable order there should be both in the East Asian region but also globally. I think there is a real deficit here in the policy-making system. There are obvious reasons for that and I am sure you will discuss those later.

Q2 Chairman: Thank you. Professor Wall, do you want to comment?

Professor Wall: It is quite common nowadays for people to ask the question: does the rise of China constitute an opportunity or a threat? In my view this is both an opportunity and a threat. Many of the opportunities come on the economic side but many of the threats come on the political side. I would like to start in the same way as my colleague did by saying that when you talk about China, China is not even politically a whole entity anymore. Most of my work in the last five years has been in the west of China and the north east of China. When you talk about this massive growth you see on the eastern provinces, you do not see that so much in the west and in the north east. Many of the people of those areas are getting poorer in real terms, even though Xiaman is the capital of red Communist China many groups are worse off. The illiteracy rate is growing, the access to health is falling, the access to education in general for many of the people in those areas is falling. This is producing internal political tensions. It is important when we talk about China to remember too, I think, to distinguish whether you are talking about China as a spatial entity or a political entity. As a political entity China is represented by the Chinese Communist Party which does not represent the people of China, it represents the Communist Party of China and their interests are not the same as the people. This also produces tensions where the representatives of the party at local, provincial and lower levels, the way in which they deal with the people is not necessarily the way in which the party at the centre and the government of China feel that the people should be treated. Again, there are political tensions. Although China says that its rapid military expansion in military expenditure is not a threat to anybody, it has no actual hegemonic aspirations, the question of why that military expansion takes place, in the first case we have seen it used internally to maintain the repression of dissent within China. There are many minorities in China who do not want to be part of China on the political basis that they have at the moment, they would like more autonomy and the military is used as a way of containing those aspirations. Secondly, they talk about the peaceful development and that they are no threat to other countries of the world but they have 20 neighbours, either land neighbours or just across the waters, and they have disputes with every single one of them. If you were one of the 14 fishermen who was killed by the Chinese Navy because you happened to slip over what the Chinese regard as their maritime border, you would not feel that the Chinese are that friendly across borders. It is growing, it is growing fast but it is producing tensions. It is producing tensions internally, politically and regionally within the country; it is producing tensions outside of the country, all of which need to be watched very carefully and addressed.

Q3 Mr Keetch: Can I focus on one area, because as you rightly said, this is a huge area. Can we focus for a few minutes on China and the United Nations. Since 1971 when it was admitted, the People's Republic has played a fairly passive role in China, with the exception, obviously, of Taiwan, which as you rightly say is a constant threat as is its policy. It has not tried to use the UN as some kind of counter-balance to US power perhaps in the way that some people believe that France has tried to do. It is also getting more and more involved in UN peacekeeping operations, I think, and we would welcome that. Can you give us a few minutes on where you think it is going in the UN? How important does it see its membership of the UN? Perhaps for Britain, as a fellow P5 member, how can we engage China through the UN process?

Dr Hughes: I suppose until now Chinese behaviour in the Security Council has been seen as pursuing its own interests rather than taking the responsibility of a permanent member. If we look at major issues like Iraq, and all those big issues in the late 1990s over the Balkans and so on, it has abstained. You may think that is good or bad, but for many people in China especially this has been a disappointment that it is not acting like a great power and is not really taking the responsibility that comes with its special status as a permanent member. I suppose on the edges of this there is a very complex situation where China can use this special status to bargain on other issues. Now, it is very hard to find evidence, some people will deny it. China has certain leverage over other big powers because of its status, over the issue of Iraq, for example, the leverage it had there over the US coincided, shall we say, with some quite favourable changes towards China by the US on other issues, such as Taiwan, human rights and so on.

Q4 Mr Keetch: Do you see it using that leverage more in the future, on issues like Iran for example? Do you see it flexing its muscles as a P5 member more or is it going to remain fairly passive in that environment?

Dr Hughes: I think Iran really showed the tendency remains the same and that there was some expectation. People were talking about the Chinese maybe seeing this as the issue where they would have to play a more positive role and talk about their veto and so on, given the interest they have in the Middle East, but they did not do that. They withheld, so the pattern stayed more or less the same. It is hard to see any evidence that their behaviour is changing.

Professor Wall: You are using the future tense there, but they have already used that power in the last few years. There are two areas where they have prevented the United Nations. The first case was reform; they blocked the reform of the Security Council by making clear that they would not approve of the inclusion of Japan, which meant the reform could not go ahead at all. Secondly, they have continued to block discussions of the problems in Sudan on the grounds that they have business interests in Sudan and will not have the Security Council interfering. The foreign minister said, "Business is business" when he was asked why he would not allow Sudan to be protected by the Security Council. They are already using that power. We need more serious reforms in the United Nations including the use of the veto and its replacement by majority voting.

Q5 Mr Horam: Coming back to the core foreign policy stance of China, the phrase "peaceful development" which you already used is used by them, but, as you were pointing out, Professor Wall, it does not necessarily sound like peaceful development to some of its neighbours who have suffered. How far do you think this peaceful development is a genuine and sustainable expression of China's relationship with the rest of the world? It is inevitably going to come into conflict with other parts of its policy, for example its aggressive attitude towards securing energy and commodity supplies, its increasingly inquisitive approach to American companies. It has put two or three bids in recently. Is that not going to lead to conflicts inevitably?

Dr Hughes: I did supply some written evidence which covers that in some detail. They talk about "peaceful development" now, but originally the term was "peaceful rise", which was about three years ago. It is interesting why it has changed and a lot of us have been trying to understand why they did change the term. One of the arguments is, "Well, it is to do with factional politics and certain party elders"; Deng Xiaoping and people were not happy with this term. A better explanation, or one that coincides with that really, is exactly what you say. To talk about "peaceful rise", how do you reconcile it with the arms build-up opposite Taiwan? Quite a few people have written about this inside China which is very interesting; there is a big debate about it and this question comes up inevitably. The most pressing issues that face us that the Communist Party stakes its legitimacy on require a deterrent threat or a military threat and the most obvious is the Taiwan issue.

Q6 Mr Horam: Would you not say that is a special case though? It could say, "Well, Taiwan is special because it was part of China, with regard to the rest of the world we are peaceful developers", and so forth.

Dr Hughes: I would if it was not the rule that governs all of China's other relationships. The Taiwan issue is so important as an issue of legitimacy that it has been established as one of the three pillars of legitimacy for the leadership along with opposing hegemony, and economic development. It is more than an exception, it really is at the core of Chinese politics and legitimacy. How do you reconcile that with peaceful rise? To then present yourself as being peaceful has a danger of the Taiwanese then saying, "They are peaceful and we can declare independence in effect". You lose your credibility.

Q7 Mr Horam: Do you think the peaceful rise is a bit of a charade?

Dr Hughes: As our American colleagues have often pointed out, "If you are peaceful, why have you got this arms build-up going on?" Then equally in the relationship with Japan, the disputes over the East China Sea and the gas fields there and so on, China is very reluctant to resort to diplomatic solutions. Again, it is an issue of nationalism and integrity and so they have resorted more to sending out ships and submarines to probe, and this does not square with peaceful rise or peaceful development.

Q8 Mr Horam: Do you think they are cynical about it or believe it themselves?

Dr Hughes: They want to believe it and want to present that, but the leadership has trapped itself in this nationalist ideology really which has been very useful for them at many times and they have encouraged this through the education system and the media. They have stoked up nationalism for over 20 years on issues like Japan, Taiwan and other territorial disputes.

Q9 Mr Horam: Can they wind this nationalism down?

Dr Hughes: It is very difficult and one of the paradoxes is with the increasing freedom of information in China, if they try to wind it down now, there are plenty of other groups in China which have other agendas that are nationalistic and will spot it immediately, whether or not there are other factions in the leadership or dissidents with other agendas.

Q10 Mr Horam: They are trapped?

Dr Hughes: I think they are very much entrapped by this nationalism. It is structural to the whole reform and opening, it is the ideological side of reform and opening which people tend to overlook.

Professor Wall: You have to remember that China is a military dictatorship and depends on the military to keep it in power. It has to support the military in its aspirations and keep it happy and engage in large-scale military exercises as it did with Russia last year. The exercises with Russia were not defensive exercises, they were practising invasions, so there is a military aspect to the Communist Party's role. I agree that, apart from Taiwan which is the only case where they said they would use military intervention first, in all other cases they said they will not but, I disagree with Christopher, they do use diplomatic warfare and political alliances and threats as ways of getting their way in the international community, and they are forming alliances on different levels immediately in East Asia, South Asia and also Central Asia and with the Russians in various ways, which I presume we will come to talk about.

Q11 Mr Hamilton: Coming back to the point that you made about the military, if you look at the United States, they always profess that everything they do is peaceful and they want to build up world peace, yet they have one of the biggest armies and military forces in the world so surely China's build up of its military capacity is not incompatible with the way the United States sells that particular view. I do not know if you want to comment on that before I go on to another question?

Dr Hughes: Yes. I suppose it depends on who you want to have power in the world and who you want to have how much military power. We live with American superiority, and overwhelming superiority, and sometimes we pay a price for that but I suppose that is something we have learned to live with and in many ways we welcome it too. The prospect of China obtaining similar kinds of potential capabilities, with the very different value system, we are not sure about the long-term strategy of that. One of the big questions we ask is has China got a grand strategy or not; we do not know. We know it has immediate issues which are unresolved, a whole lot of territorial issues that if it begins to try to resolve militarily will have an impact not just on the region but on the whole world. I guess we live with US uni-polarity for now, but I am not sure if we would welcome bi-polarity or Chinese hegemony or whatever.

Q12 Mr Hamilton: Professor, do you want to come back on that?

Professor Wall: China does not have an equivalent of the American desire to spread democracy by force around the world. It has given up any hope of forcefully imposing communism. It also takes the line that what in the West we would sometimes think of as grounds for intervention are not grounds for intervention because they are very strong believers in the philosophy of non-intervention, even though the countries may be engaging in activities which are alien to the United Nations, not just the United States but the United Nations. Burma is an ally, it is supported militarily by the Chinese. Zimbabwe is provided arms by the Chinese. Sudan is kept off the Security Council's debates by the Chinese. DPRK, of course, is maintained as a buffer against the West with quite extensive support. The role of the army is different but it is there, it has a role.

Q13 Mr Hamilton: I want to come on to something else which I think is an important driver of Chinese foreign policy. In an article in Foreign Affairs in September last year, Zheng Bijian who is the Chair of the China Reform Forum, said that "...For the next few decades the Chinese nation will be preoccupied with securing a more comfortable and decent life for its people. The most significant strategic choice the Chinese have made was to embrace economic globalisation rather than to detach themselves from it". Do you think that is the fundamental driver of Chinese foreign policy today?

Professor Wall: No.

Mr Keetch: Decent answer.

Q14 Mr Hamilton: That is a pretty simple answer. Dr Hughes?

Dr Hughes: I think I would like it to be but the problem is foreign policy, you have to react to things which are often out of your hands. I am sure the Chinese would love to be able to just have a peaceful world and develop their economy, most states would in the world, but they face a lot of issues that are not going to let them do that. The most immediate will be the next election in Taiwan in 2008, just before the Olympic Games in Beijing by coincidence. That kind of event we have seen periodically, every four years there is a sharp rise in tension and managing that kind of crisis becomes more difficult, due both to domestic pressures, external pressures, changes not only in Taiwan but also in Japan where we are seeing an increasingly assertive Japan and all kinds of frictions building up there. Whether or not the Chinese leadership can hold on to that desire for peace while the world is changing around them, and many of their neighbours are moving off in different directions and getting very concerned, that is the problem they face.

Q15 Mr Hamilton: I suppose the point I am trying to make is that in order to retain their own power, given that this is not a democracy, then it is very important to improve those standards of living, the quality of life, as Zheng says, and in order to do that they have to have the raw materials and more importantly the energy. I think within ten years they will be consuming the entire output of Saudi Arabia every single year just for Chinese domestic economic needs. Surely that must have an effect on their own foreign policy, must it not?

Professor Wall: It determines the foreign policy. They are forming alliances, as I said earlier. On the energy - just going with the energy - they are building up links into Central Asia. For the first time in recent history one of the pipelines in Central Asia is now going east not west. It is in the process of being filled with Russian oil that is coming out of the Chinese financed Kazakhstan oil fields. They are forming alliances with the Central Asian states, security alliances, they are beginning to move towards military alliances, anti-terrorist alliances, and they have brought Russia into the equation too. The Shanghai Co-operation Organisation which started off as something completely different through Chinese initiatives not Russian initiatives has become security leading up to military, with the intention of not just keeping America out because America is also competing for that oil. It made the first investments in the development of oil in Kazakhstan, the Chinese have now taken over.

Q16 Sir John Stanley: You pose the question which people are asking all around the world which is what is the foreign policy objective behind the huge expansion of military and defence expenditure by the Chinese Government manifested - just two illustrations - by the nominal rate at which submarine building is taking place and by the extent to which they are hoovering up every available bit at the highest tech end of Russian and former Soviet military equipment. Can we ask you two to give the Committee your answer to that key question: what is the policy objective behind the Chinese military build up?

Dr Hughes: The answer is very simple, it is Taiwan. The nature of the deployment, the redeployment from the north to the south-east, the nature of the armaments, all point to one thing which is a contingency over Taiwan. Given that there was a near conflict with the US in 1995/1996, it came very close to real naval conflict, that was really the wake-up call where, with the threat from the north, from Russian, having disappeared, redeployment from the north to the south was a good opportunity to then develop the forces, high tech forces under a military doctrine of preparing for a high tech warfare along China's strategic boundary. The nature of the armaments, the politics behind it and the General Jintao politics in the region, all points to Taiwan. Obviously the scenario is the Taiwanese do something towards independence, the US intervenes and then China faces a conflict with the United States over Taiwan. This is really what Chinese military planners have to prepare for given the challenge they have set themselves over Taiwan.

Q17 Sir John Stanley: Professor Wall?

Professor Wall: In that article referred to earlier, either that one or a later one by the same guy, he refers to "... it is time for China to overcome its 100 years of humiliation". They see a strengthening of their role and increasing visibility of their role, getting respect on the international scene as an important part of their foreign policy. Whatever it takes to do that, they will do it. I have mentioned already a major aspect of the military expenditure is to keep China together as China is falling apart in some ways but it is trying to keep it together. Taiwan, not just Taiwan as Taiwan but Taiwan as the issue with the US/Japan alliance is now being strengthened and being built up to in a military exercise, Japan is now coming in as a major financier of American support in the Taiwan Straits. It is not just a one to one with Taiwan, there are also fears that the North Korea situation could get out of hand and the Chinese do not want an American presence in North Korea so they have been moving troops up into the North East allegedly as a warning across the United States' bows. I am not quite sure that the situation with Russia is quite so stable. Putin and Hu Jintao have formed a personal friendship but that personal friendship does not carry down on to the political level in the region where that relationship has been at its most difficult: North East China/South East Russia. The border agreement has been signed between the two leaders but that border is not accepted by the Chinese. The last two treaties of the 100 years of humiliation, the 1858 and the 1860 Beijing Treaties are the only two which have not been repealed. Hu Jintao says he does not want that territory any more but the local Chinese, who took over China remember in 1640, they claimed that area that the Russians now need to exploit the Siberian oil and gas is actually Chinese territory. The Russians are moving out of that area and the Chinese are moving in at a rate which alarms people in Moscow. They are trying to strengthen their hold over that part of Russia. Putin said a few weeks ago that the successful development of Siberia into East Asia will depend on our being able to mend social stability in South East Russia, I do not think he can.

Q18 Sir John Stanley: Can I just ask you, would you agree or disagree with a view that was put to me recently in Washington that another wake-up call, which has caused huge reverberations in political and military circles in Beijing, was the putting of a cruise missile into the residence of the Chinese ambassador in Belgrade during the Kosovo War?

Dr Hughes: Of course. That brought to a head many of the issues that have become more visible from, and grew out of, the peaceful rise. All of that discourse grew out of the 1999 crisis really when, you remember, there were people demonstrating on the streets of Chinese cities, outside the American Embassy, public opinion was extremely heated and it did become an issue of legitimacy for the leadership. People were saying, "You can't just keep saying, 'We are going to develop our economy, bide our time.' If you don't stand up and do something now, then when will you?" The interesting thing was the leadership did manage to keep a lid on things at that time. The message that was given by the leadership was, "We are not ready to settle these issues yet". We need to bide our time, as Deng Xiaoping used to put it, to develop our economy which will then spill over into defence expenditure and hi-tech capabilities. That is the basic underlying politics of the strategy. The question is: when China does have the potential to achieve some of these aims to settle scores, then will peaceful development still be the message? I would like to add something about the nature of the People's Liberation Army because I think, in a sense, David is right about it being used for domestic repression, but, in another sense, he is not because the PLA has changed dramatically. It has been reduced by several million personnel. Those personnel were essentially redeployed to paramilitary police used for internal control which has left a far more professionalised hi-tech fighting force, which was what the plan was for the military reforms. The latest assessments are that now, possibly, it has reached a stage where it is capable of doing something like launching some kind of venture against Taiwan. The chances of that happening are still small, but technically in terms of its capabilities, it is a far leaner, more professional organisation with far better equipment, largely from Russia, than it was even ten years ago when the last major crisis with the US occurred.

Chairman: I think we can focus on some economic questions now.

Q19 Mr Heathcoat-Amory: China is a now a member of the WTO. Do you think the liberalisation programme will continue now given that outside companies and countries will lose leverage? Everybody wants to do business in China, so what realistic leverage have we got to insist that the Chinese continue to grant rights of establishment to foreign banks and so on to complete the WTO obligations?

Dr Hughes: I would see it slightly differently in that perhaps the WTO was used very much within domestic politics to do things that could not have been done anyway. There was a domestic necessity to open up the Chinese market for a whole number of reasons, ranging obviously from investment, but equally importantly, to upgrading the skills base and the technology base. All of those things still have a long way to go. I think the domestic momentum for economic liberalisation is still fairly strong, but David is far more of an economist than I am, so he may have more to say on that.

Professor Wall: I was one of the team who advised the Ministry of Commerce in China on its negotiations with the WTO when Long Yong Tu was the vice-minister in charge of the negotiations. When he came back from America, having agreed on the bilateral arrangement with the USA, which was the last real obstacle of getting into the WTO, there was a lot of political reaction to the concessions he had made. He went on a trip around China saying, "Don't worry, we are still in control of what happens in China. These are just paper concessions I have made". He does believe that the Chinese still have strong control over licensing, subsidies and banking facilities which make it possible for firms to compete with competition, some in kind of strictly WTO-compliant ways and others not so WTO-compliant. The main point I go back to is if you sit down with people from Beijing, they would say, "Yes, we are all in favour of all these liberalisation processes". They can see the link between the liberalisation and economic growth and the strength of China, but provinces are still protecting against each other. Each of the provinces competes for foreign investment and they will compete against each other. Each of the three north-eastern provinces is trying to develop industrial bases which will compete against each other and protect each other; because they are less efficient than they would be, they have to be supported with subsidies and bank loans forced on the local banking system. The worry for me is not coming from Beijing, the worry is coming from a lack of total control over the economic policy of Beijing over the provinces.

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 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, 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 per cent. 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 on the north-east, the north-west 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 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.

Q40 Mr Hamilton: Is there any possibility that the warm relationship between the leaderships could ever translate into any kind of trust between the peoples?

Professor Wall: I do not think so.

Q41 Chairman: Can I ask you about Kazakhstan specifically? Kazakhstan is clearly exporting a lot of energy now to China, or planning to do so. Has that affected the Russians' attitude to Kazakhstan?

Professor Wall: Yes, there are more Russians in Kazakhstan than in any of the other 'Stans, and Russia is still the official language. Russia is trying to get all of its old colonies to take Russian as the official language. They are trying to move to become less dependent on Kazakhstan because they say they are shakier. So they announced in the last few days they are going to move or reconstruct missile-launching places outside of Kazakhstan. At the moment some of the missile-defence and missile-launching places are in Kazakhstan and they want to replace those within Russia. It is a bit flakier, as an ally, than they felt a few months ago.

Q42 Chairman: Is that the former nuclear test site - Semipalatinsk I think it was called - where they used to launch the missiles?

Professor Wall: This is a military site, so it is not putting the satellites up. That, I think, has plans to stay there.

The Committee suspended from 4.01pm to 4.19pm for a division in the House

Q43 Mr Illsley: A couple of questions on the Association of South East Asian Nations, if I could. It would appear that there are a number of different forms of regional integration emerging in East Asia - ASEAN Plus One, ASEAN Plus Three and the East Asian Summit. I wonder if you could give the Committee your views on which one of these China would be most comfortable with. Is it likely to be the ASEAN Plus Three format?

Dr Hughes: It is comfortable with both, I think. It does not really face big problems in South East Asia, so the choices are much more flexible, in a sense. The only real issue of friction is over the South China Sea disputes, which seem to have been shelved for now, and certainly not resolved. Aside from that, there is a sort of win-win situation. I think China does not want its action in South East Asia to be seen as hegemonic, so therefore it has encouraged ASEAN Plus Three and encouraged Japan and also India to become more engaged with ASEAN and to mirror, in a sense, much of what China is doing because it does not want this to be seen as a balance of power gain that is going on. I do not think it is, from China's point of view. It wants to keep South East Asia as a region of good neighbourliness, as they describe it, with very little friction, where it can develop its economic interests and maintain diplomatic support on other issues without antagonising Japan or India - or the Koreans for that matter. The big question is whether ASEAN Plus Three can become a sort of regional architecture, in some form, bridging North East and South East Asia. We saw the Asian Summit recently where there were great hopes, but I think it is very early days to think that any of the big states concerned are thinking in that sense of a real, multilateral security architecture. At the moment it is very much ASEAN Plus One and encouraging the others to mirror China's actions in South East Asia without making the region another area of tension like the East China Sea obviously is, and perhaps parts of the North East and North West have the potential to become.

Professor Wall: I would agree that ASEAN is, hopefully, the one which they are taking more seriously as the way of carrying out their East Asia policy, but with one qualification: they do not support in the same way the ASEAN Regional Forum - the ARF. The reason why is because the ARF includes the United States and other, non-East Asian countries. They are looking for an institutional form for the links with the South East Asian countries, and ASEAN Plus One provides that. They do not particularly want the ASEAN Plus Three to develop into a regional entity in its own right and they are blocking that, and they have kicked it into the long grass, if you want. As the Chinese would put it, into the think tanks for annual discussions - ASEAN Plus Three - and it makes no progress whatsoever. They had wanted to move into the East Asian community to replace the ARF. In this case the Japanese have put through a spoiler and invited Australia and New Zealand, which meant that the Chinese, for now, are not quite sure what to do. So at the East Asian Summit, which they brought Russia into - because the leadership of China now count Russia as an East Asian country, and they wanted Russia in the East Asian Summit - this spoiling tactic of Japan has put that one on hold, so it is not clear to see where it will go. So, at the moment, the one institutional form of the link with East Asia which they are using and supporting mostly is the ASEAN Plus One.

Q44 Mr Illsley: Just on the exclusion of the USA from the East Asian Summit (and you touched on this as well), is this of some significance, or is it that China wants to develop that regional infrastructure without the USA? Is that a particular intention - that they would be happier with a structure that excluded the USA?

Professor Wall: I think so. I think they are making it clear they want an East Asian institution of East Asian nations. Anybody who comes in spoils that. They say they do not want to be the hegemony in the region but they do want to be the leader and they make it very obvious that they want an institutional arrangement in which they can be the leader and not balanced by outsiders to the region. Japan wants them to be balanced with outsiders. At that last meeting of the ARF, the ASEAN meeting in July, the Chinese foreign minister was there for the meeting of ASEAN Plus One and ASEAN Plus Three (he made the bilateral meetings) but the moment the ASEAN meeting turned into the ARF he left. Not only did he leave because that was the time at which the Americans came in at deputy secretary of state level - because it was the first time the Secretary of State for America did not come - but he went to Burma immediately to console the Burmese who had been pressurised by the Americans to give up the chairmanship of that session of the ARF. So he made his position very clear and they made the statements at the East Asian Summit in December saying that Australia had no role, being as it is not an East Asian state.

Q45 Mr Illsley: Does that regional integration as a group, that development of an East Asian community group, have any impact on EU/UK trading relationships or trading issues? Or is it not really relevant to that, as a trading body?

Dr Hughes: I do not think so because it would include Japan and the Republic of Korea, and their interests in maintaining solid relations with the EU are very high. Even China, I think, as I have said earlier, wants to have good relations with the EU. Given the nature of the exporting economies of the region, the EU is still the main market, along with the US. So I do not think so. There is a sort of feeling, and there has been for a long time in the region, that there is a need for an East Asian community and it is stronger in some places than others. It is not just China; Malaysia has this feeling very much. Even in South Korea there is increasing concern over the US. APEC, of course, has been seen as pretty ineffective, largely because the US has such a big role in it; it has more or less sabotaged the original idea for an Asian community that was floated by Malaysia. So this is not a new thing; it has resurfaced after a period of being submerged by APEC, but the members of it are so diverse that I do not think - unless it was to shrink to China, Malaysia and Myanmar and a few others - it would have any impact on EU relations. Singapore, again, is so closely tied to this country.

Q46 Sandra Osborne: In relation to another organisation, can I ask you about APEC and how it fits into all of these other regional groupings that have been set up?

Professor Wall: I do not think anyone takes APEC seriously any more; it is, effectively, dead, it is just a talking shop and I do not know anybody who takes it seriously but the Australians.

Sandra Osborne: That is straightforward enough.

Q47 Mr Purchase: Can I follow that point? I find that last remark quite interesting. What do you think, in that connection of groupings - the position of China in the region or, indeed, in the world - are the prospects in the medium and longer term for China being entirely self-supporting with all the natural resources it needs at its fingertips? Given the last century, if you like, of cultural indoctrination, what is the possibility of China simply standing alone?

Professor Wall: Zero. They know that the quality of their life depends on engaging in trade. Deng Xiaoping looked around and saw that the country's political complexion did better if they were more open than closed. He began that opening up process and nobody has ever had any doubts on that. There are qualifications as to how exactly certain relationships will be developed and maintained but they know that if the communist party is to survive, as a leadership, they have to provide goodies to the people, and the way they do that is by opening up.

Q48 Mr Purchase: You say "zero".

Professor Wall: They are zero, yes. They are talking now of trying to become, just as the Americans and the Europeans are becoming, more energy independent, and they have got the biggest coal deposits in the world.

Q49 Mr Purchase: Zero? Fine. I am minded to say to you that America is - I do not know - less than a quarter of the size in landmass of China, it has about a fifth of its population and yet the mid-western states of America scarcely know the rest of the world exists. Zero for stand-alone, do you think?

Professor Wall: Could they or would they want to?

Q50 Mr Purchase: Could they.

Professor Wall: Well, if they accepted a much lower standard of living, sure. But they are not going to accept a lower standard of living.

Dr Hughes: China is becoming a very globalised economy. I do not want to over-exaggerate that but if it carries on like this then, in a sense, the government in China will be managing one of the most globalised economies in the world, with much of the ownership of the Chinese economy being diversified outside China, and a lot of foreign investment, and so on. So if you look at it another way round, it is becoming far more integrated and the trick is how you balance that with maintaining Chinese integrity and independence. I think that is probably a more suitable way of looking at it.

Q51 Mr Purchase: So the prospect is that the Chinese will work hard at developing appropriate regional institutions?

Professor Wall: They will trade off, as foreign ministers. Business is business. They will protect countries like the Sudan in order to get access to their energy. Where they can they are buying up raw material resources, so they are signing long-term contracts with Australia, or buying into raw material supplies in Australia; they are buying mines, they are buying processing facilities; they are buying into Canada, they are buying into the Athabasca oil sands - so they are moving out. One of the strongest economic policies in China now is to invest abroad and billions of dollars are pouring out of China.

Q52 Mr Purchase: For 50 years the relationship between India and China has been extremely difficult on the border. Could you characterise the relationship for us there?

Dr Hughes: Relatively good, at the moment. The border issues are still there and there was an incursion late last year from the Chinese side but it did not get blown up into anything bigger. So these things are still going on. I think it was not long ago, when the BJP were in power in India, that the relationship was very bad and they were talking about a nuclear arms race and all this stuff, and China being the number one enemy of India, and with the change of government in India that has died down. However, I think that sentiment still exists in India, as with most of China's neighbours; there is still this concern over what China's future intentions will be. At the moment they are engaging in more economic co-operation. This consortium they are setting up to bid for energy resources on world markets is a new development which should be in both of their interests, although they might not do world energy prices much good. So they are beginning to see they have certain shared interests as rising powers where they may be able to co-operate. That is still at a very early stage and I think underneath it there are still these tensions and the border issues are still there. There is also the issue of Tibet which has a resonance in Indian politics and is still a very emotional issue in India - and the fate of Tibet.

Professor Wall: There has been a commission meeting now for more than a year on the question of Chinese-occupied Kashmir. People forget there is a third bit of Kashmir which the Chinese have occupied for sometime. They have now integrated into their defence mechanism by building roads from Lhasa to Ov Chin (?). So with the opening of the railroad now through from Sichuan into Lhasa, Chinese-occupied Kashmir is an important part of what they see as the defence of their borders. I do not see any solution coming out of that committee which has been meeting. The Chinese proposed, at one point, that this become an autonomous republic but the Indian side refused to consider it.

Q53 Mr Purchase: Vajpayee was probably a more willing partner for the Americans during his Premiership. He has now gone, Congress is there but India continues to prosper considerably. What role are the Americans now playing in that relationship, if any, that you can discern?

Dr Hughes: I think the US attitude to India is based more on these Central Asian issues and Pakistan rather than on China. I think the focus is slightly different. The US has now accepted India as a nuclear power and is even encouraging it to develop civilian nuclear power and so on. So the relationship is very good between Washington and New Delhi. Even the relationship between India and Pakistan is relatively good at the moment, and again there can be many reasons for this. I do not think any of them are to do with China, though, in particular. I do not think the US sees India as a sort of balance for China, or anything like that. The only people who might see that might be Japan. I think the Japanese have made various overtures towards India recently and they seem to be discussing the possibility of a sort of partnership.

Q54 Mr Purchase: You do not discern evidence of American influence or interest in India/Chinese relationships, particularly vis-à-vis economic development?

Dr Hughes: Nothing in particular, no.

Q55 Ms Stuart: On India, I want to very briefly just invite you to comment on the snapshots of outsiders looking at India and China. The assessment tends to be made that there is China, which has huge problems with demography compared to India, which has a much healthier demography, but as a market India is more regulated, other than the service industry, and therefore China is potentially much more entrepreneurial. Also, very much different savings patterns. If I were to say to you in ten years' time which one is going to be a stronger economy, India or China, where would your money go?

Professor Wall: I do not know.

Q56 Chairman: We like your honest answers, Professor!

Professor Wall: They both have big problems. At the moment, the Government of India is doing fairly well. Manmohan Singh is a Cambridge-trained liberal economist, and he has been around for many years and knows how to play the system (I worked with him on some liberalisation programmes some 30 years ago) but he cannot go on forever. He is already beginning to run into resistance from the bureaucracy, which see their position as threatened. We do have a meeting on that at Chatham House on 2 March.

Q57 Ms Stuart: I am afraid we are in the United States on 2 March, so we cannot be there.

Professor Wall: We will record it for you. They have the advantage that they speak English, which helps in the service sector, although the ability to speak English in China is growing rapidly. So that will not last forever.

Q58 Mr Hamilton: We talked earlier about how China's economic needs, and especially its energy needs, are determining its foreign policy, and particular aspects of its foreign policy. I think the figures that I was quoted were that China could be consuming the entire output of Saudi Arabian oil production by 2015. What impact do you think China's close relationship with Saudi Arabia (and I gather there was a visit by President Hu on 23 January who met with King Abdullah - following our lead because we met with him in November) will have on China's view of the Middle East peace settlement that is so crucial to getting stability? I am thinking, particularly, of Israel and the Palestinians. I am not asking for a view on the election, just simply whether China's dependence on Saudi Arabia is going to, in some way, make it take a particular view of that conflict, because of its economic and foreign policy needs.

Professor Wall: They are making every effort to diversify their sources of energy so they are not dependent on any single source. In the last few days they have signed a major agreement with Australia for the supply of gas from Australian fields and they are signing up long-term contracts with Africa. They are competing with India in many contracts and they are attempting to get strong commitments from Russia - which Russia has not yet given, by the way. The Russians have only got short-term agreements to supply oil by railroad for some years to come. The Russians have still not committed the pipelines. They are developing the Central Asian republics' oil and gas fields and building the pipelines in and they have aspirations to turn the Caspian pipelines round into China. So wherever they can they are diversifying the sources so they do not become dependent. They also, like the Americans, are beginning to give much more attention to clean coal technology - and even dirty coal technology. So they know the risks. Iran, also, is a major ----

Q59 Mr Hamilton: We will come on to Iran in a minute. Obviously, there has been some co-operation since the 1980s on civil nuclear power there. Again, I wondered whether either of you thought that the result of the close co-operation between Iran and China - and I believe China supplied weapons during the Iran/Iraq war to Iran - might mean they would not be willing to vote for sanctions, if it came to that, after the referral of the IAEA to the Security Council. If, indeed, that happened.

Dr Hughes: I think, again, we go on past record and I do not see any change. They are not in a position to confront the United States on these issues - that is the bottom line. The most they will do is abstain on these issues. I do not think they will play a particularly positive diplomatic role either, which is maybe disappointing. I just do not think they feel that they are capable of that, and this is the asymmetry in their diplomacy, if you like, that their global interests are becoming very diverse and widespread but they do not have the diplomatic or military aspects of their power to deal with this. So there is no real sign of that changing, at the moment. I think all they can do is advocate negotiation and compromise, but if it comes to confronting the US in the Security Council ----

Q60 Mr Hamilton: They will not put a veto down to stop any sanctions against Iran. What about the question I asked earlier that Professor Wall did partly answer, about their attitude towards Israel and the Palestinians? Is that just a non-issue for the Chinese? They just do not want to be involved? Or do they take a partisan view because of their dependence on Middle Eastern oil? I accept what you say, that they are trying to diversify, but still I think 14 per cent of their oil needs are provided by Saudi Arabia. That must have some influence on them, surely?

Dr Hughes: I really do not think that the Chinese feel that they have the ability to have anything to do with these issues; they would like them to go away, they would like to have peace. It goes back to what I said right at the beginning: their role on the global scene is very much driven by national interests without really wanting to get involved on these diplomatic issues. They fear they will not be able to handle it, and their biggest fear is confrontation with the United States, which they need to avoid at all costs. So I just do not think they will get involved.

Q61 Chairman: Can I put it to you that the Chinese are increasingly dependent upon Iranian gas and oil, and perhaps they might therefore oppose sanctions on gas and oil but support sanctions in other areas, like an arms embargo or some other form of sanctions, and that way have the best of both worlds?

Dr Hughes: They might. In the run-up to the Iraq war they were not completely silent; they did voice their opposition to intervention and they might well voice their opposition to sanctions against Iran, which they are doing. When it comes to actually using their power to block anything, I just do not think they will do it.

Professor Wall: They did change their public position slightly after the Russians intervened and made the offer to process nuclear fuels in Russia. There was a perceptible shift in the Chinese position at that stage; they did not want to spoil that Russian offer.

Q62 Chairman: Finally, you have mentioned, Professor Wall, China's competition with India for oil resources in Africa. I was visiting Angola about a year-and-a-half ago when there was an interesting example of that where an Indian company thought it had done a deal and, by whatever means, the Chinese managed to get the Angolan Government to undo the deal for other reasons. It was put to me at the time that this related back to elements in the Angolan Government who came from Unita in the past who had had relations with the Chinese. Now, I do not know if that is true, but the history of China's relations in certain countries in Africa is quite important. They have clearly had some long-term association with Tanzania with the railway that they built to Zambia, and they also have been supporters of Robert Mugabe in different contexts. You mentioned the Sudan and Darfur as well, in terms of blocking the UN Security Council reference. How active is China in their diplomacy in Africa, or is it really more of a defensive diplomacy to not damage national interests?

Professor Wall: They are playing an increasing role. Their presence is much more obvious. They have used their aid relations effectively. They are building up links in South Africa - there is quite a strong link with South Africa now. There is a free trade arrangement with South Africa that is about to be renegotiated, there are strong links into Botswana as suppliers of services and they have opened banks in Zambia. So the presence in Africa, not just on an energy supply basis, is increasing. They are replacing, in a sense, the Russian presence in Africa. I am not an African specialist, and what I know is only by accident. On the energy thing, I would add, of course, their link into Venezuela is a political link which has given them guaranteed access there. You could begin to talk about the links into the Athabasca oil sands and the difficulties the Canadians are having with the states that signed that agreement with the Chinese, but clearly refers to the Americans. Cheney flew in the next day when it was too late.

Q63 Chairman: In some countries in Africa Taiwan has been very active historically - certainly Swaziland, for example - for many years. Is there a competition now between China and Taiwan in certain countries for the relationship?

Dr Hughes: I think that battle was fought and won by the PRC over South Africa, mainly, when the change occurred in South Africa. Taiwan actually has quite a significant economic presence in Africa, but diplomatically it is almost zero. I think, if you are asking about China's diplomacy in Africa, it depends very much on what you mean by diplomacy, because of course David has described the economic activities, which we know have grown, but if you are asking in terms of addressing some of the political and security issues in Africa then the Chinese are not doing that. What they are doing is establishing very close diplomatic relations with most African states, which has a knock-on effect because then they have a certain amount of credibility. Mugabe, of course, is the prime example, in that Chinese supplies of arms and economic aid and so on to Zimbabwe have given him an extra lease of life, perhaps. So in that sense there is a diplomatic aspect to it. However, I am not sure if China has a sort of well-thought-out diplomatic strategy for Africa, other than going in and trying to extract resources and doing whatever it takes to make that more effective. It certainly does not go beyond that to the kind of role we would hope of actually looking at the environmental, social, political and all the other impacts that this is having, as we see in South East Asia, too - there is a similar sort of fall-out to this.

Q64 Chairman: Thank you very much. We have given you a lot of questions and you have answered all of them very, very thoroughly. I would like to thank both of you, Professor Wall and Dr Hughes, for your time and for your answers. It has been extremely useful for us. Thank you.

Dr Hughes: Thank you, and good luck with your work. We look forward to seeing the report.