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China and Southeast Asia: Waking up the Neighbors

Introduction

shutterstock_15960148 resizedIf China is to be the world’s next superpower, then Southeast Asia is its ‘backyard’, just as Central Asia was to Russia during its superpower era, and Central America is to the US. It is a diverse region made up of countries of various sizes, political systems, and levels of development, with annual GDP per capita ranging from a little over $1,000 (Myanmar and Laos) to $50,000 (Singapore). China competes for influence in this area both with its main regional rivals – Japan and India – as well as its main global competitor – the US. China’s successes in gaining trust and deepening economic ties with Southeast Asia have been hampered by a complex shared history that both facilitates cultural commonality, and fosters mistrust of the intentions of a powerful, hegemonic China. The relationship is also challenged by historically-rooted territorial disputes that occasionally flare up, threatening peace in the region.

In recent years, China has made many efforts to gain Southeast Asia’s trust, and to shutterstock_93345997 resizedprogress its economic and political ties with the region. A key form of engagement with the countries of Southeast Asia has been through the Association of Southeast Asian Nations (ASEAN). Founded in 1967, ASEAN consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam (the geographical term ‘Southeast Asia’ is generally considered to include these countries as well as Timor L’Este, which has held tentative discussions about joining the group). ASEAN states its main purpose as being “to accelerate economic growth, social progress, and cultural development in the region” as well as “to promote regional peace and stability”. Although it has worked towards the development of a cultural Southeast Asian identity in recent years, most would agree that its greatest achievements have been in the field of economic cooperation and regional stability. While Indonesia is the giant of the group, it has been careful not to dominate the organization. ASEAN prides itself on conducting its business through the ‘ASEAN way’, which involves building consensus among all members and maintaining a commitment to mutual non-interference. ASEAN gives the less powerful countries the benefit of collective bargaining, which serves to balance to some extent the relationship of these countries with China. Settling issues of mutual interest within the ASEAN framework has eased many tensions between member countries and has promoted overall cooperation within the region. Despite real successes with China, ASEAN itself has not been a silver bullet and many difficult issues remain between China and the region. In addition to ASEAN, engagement between the countries of Southeast Asia and China has also been facilitated through the large Chinese emigrant populations in most of the Southeast Asia countries, many of whom maintain strong business and cultural ties with their ancestral home.

Historical Context

 

Throughout much of China’s dynastic history it maintained regional hegemony in East Asia (East Asia refers to the territory of what today is Southeast Asia, China, the two Koreas, and Japan) by instigating a ‘tributary system’. Regional East Asian rulers would seek the patronage of the Chinese emperor of the day in order both to legitimize their own rule and to ensure that peace was maintained with their powerful neighbor. This system had a profound effect on many parts of Southeast Asia, particularly the areas that are now Vietnam, Cambodia, and Laos, where the cultural influence of China is palpable. This is evidenced, for example, by the presence of Chinese characters on many older buildings although they are no longer used in the writing systems in these countries and by the pervasion of Confucian values in the respective societies. Equally important as the political ties was the trade between China and many of the countries of Southeast Asia. Chinese merchants, following trade routes, gradually immigrated to various Southeast Asian countries, where they settled and assimilated. Thus, every single country in Southeast Asia now has significant Chinese communities, many of whom maintain strong cultural links to their ancestral home. This is especially noticeable in Singapore, Malaysia, and Indonesia but can be observed across the region.

The legacies of this history are complex. The cultural links that have been created between many parts of Southeast Asia and China, both in terms of shared norms and values and because of the ethnic Chinese still living in these countries (referred to in Chinese as huaqiao, which literally means ‘Chinese bridges’), provide a huge opportunity for China to extend its influence throughout the region. In recent years, China has sought to exploit this both through economic integration and by the development of ‘soft power’. For example, China has promoted the study of Chinese language and culture by bestowing scholarships for poorer students to come to China to study. While this program to promote the teaching of Chinese culture and language is worldwide, China has concentrated its main focus on Southeast Asia. Specifically, a large proportion of the recipients are huaqiao. This awarding of scholarships to ethnic Chinese has been controversial, reminding some in the region of a Mao-era tendency to interfere in countries with large ethnic Chinese communities on the premise that these populations remained, in effect, part of the Chinese nation. Such interference was a source of serious friction with both Indonesia and Malaysia in the 1950s and 1960s. Another legacy of this shared and complex history is the issue of territory. Although China has now resolved virtually all of its outstanding land border disputes (only those with India and Bhutan remain), it still has numerous disputes with several countries in Southeast Asia over sovereignty of islands in the South China Sea.

A particularly significant event in China’s relations with the region occurred in 1979 when Deng Xiaoping gave the order for the PLA to invade Vietnam. The invasion was in response to the Vietnamese occupation of Cambodia after defeating the Khmer Rouge, a Chinese ally, as well as a reaction to internal Vietnamese policies that discriminated against ethnic Chinese and had resulted in a flood of refugees into China. Deng announced, during a trip to America, that China would “teach Vietnam a lesson”. The war was brief but bloody, lasting only three weeks but resulting in the deaths of tens of thousands. Some Western academics have put Chinese casualties as high as 20,000 though this figure is disputed by China, while Vietnam claims 10,000 civilians were killed (it gives no figures for military casualties but it is widely believed that these number in the region of 50,000). Chinese forces withdrew from all areas that had been briefly occupied, claiming success in their mission, but there is no question that they suffered much heavier losses than they had envisioned and that China’s reputation suffered tremendous harm as a result. The damage was both in terms of its perceived relative power, as well as to its image as a trustworthy and peaceful neighbor. Vietnamese perceptions of the war are of another successful repulsion of a foreign invasion, following soon on from the defeats of both the Americans and the French.

Territorial Disputes

The most serious political and security issue that exists between the nations of Southeast Asia and China is the continued failure to resolve to numerous territorial disputes. By far the most grave of the disputes is that of the Spratley Islands, which are situated in the South China Sea close to the Philippines and the northern coast of Malaysia. The PRC claims sovereignty over the entire archipelago of more than 30,000 largely uninhabited islands that constitute the Spratleys. However, Brunei, the Philippines, Vietnam, Malaysia, and Taiwan all claim some of this area. To complicate matters further, some of these claims are overlapping and so there is no unified Southeast Asian position from which to argue with China. In order to protect their claims, military installations from all the claimants, except for Brunei, are stationed within the archipelago, making the area one that is fraught with multilateral tensions. Although all countries are rhetorically committed to resolving the dispute peacefully, the presence of so many different militaries means that low-level conflict from time to time is almost inevitable. This is particularly true with regard to the two largest presences, China and Vietnam. For example, several Vietnamese fishing boats were captured in 2007 in an area that is claimed by both countries. In May 2011, there were reports that Chinese patrol boats had escorted a Chinese fishing boat when it rammed a Vietnamese survey ship in the area. The other major dispute is over the Paracel Islands, a chain of around 30 islets roughly equidistant from China’s Hainan Island and the east coast of Viet Nam. This dispute is largely a bilateral one, between China and Viet Nam, although Taiwan also has a claim. The islands were occupied by both Chinese and Vietnamese forces until battle in 1974 which resulted in control over the entire archipelago being taken by the PRC. Viet Nam, however, has never renounced its claim to the islands and sporadic incidents involving fishing boats in the area have continued. Two other disputes, both with the Philippines, persist over two small groups of islets and this spilled over in early 2012 when Chinese patrol boats prevented Philippines police patrols from boarding Chinese fishing boats in the region. A stand-off between the two nations ensued that escalated tensions in the region, leading to anti-Chinese protests in Manila. Though the situation appeared to be resolved in June 2012, the withdrawal of all concerned may have had more to do with the coming typhoons than any diplomatic breakthrough. Certainly this issue has not yet gone away for good.

2014 brought another serious outbreak, but this time with Vietnam. In May 2014 China moved an oil rig from a part of the sea that was undisputed into an area that Vietnam considers to be its territorial waters. This sparked an angry response from both state and society in Vietnam with violent anti-Chinese protests breaking out across the country, resulting in several serious injuries to Chinese workers and the evacuation of hundreds of foreign workers (including many non-Chinese caught up in the protests). Though no direct military confrontation has followed, the dispute has taken Sino-Vietnamese relations to their lowest point for decades.

shutterstock_42598996The importance of the disputed islands is threefold. Firstly, the islands are of strategic importance militarily to China as its strives to increase its naval projection, especially given their ideal location close to some of the world’s busiest shipping lanes. Secondly, it is widely believed (though not conclusively proven) that significant resources of gas and oil lie within the EEZs (Exclusive Economic Zones) that would accompany recognized sovereignty over the islands. Finally, the issue of territorial integrity is of critical importance to Chinese national identity and the legitimacy of the government, meaning that nationalists in the country would not tolerate acquiescence on any of the disputes. A combination of all three of these reasons has seen China become increasingly active in the area over recent years. This has not gone unnoticed in those countries that also claim the islands and Southeast Asian states have responded by seeking the protection of other powers, most notably through closer ties with the US. In 2010, US Secretary of State Hillary Clinton declared that the South China Sea was of “national interest” to the US, sparking an angry response from China. In the same year, cities across Vietnam saw large scale anti-China demonstrations that evidenced the damage done to China’s soft power initiative in the region. China is now facing a choice of maintaining an inflexible stance about the islands, risking further harm to its hopes of regional leadership and even potential conflict with the US, or backing away, risking upsetting its domestic audience. It is a tough balancing act and is complicated by the competing policy-makers within China. A successful charm offensive launched by the Chinese around the turn of the millennium to woo its Southeast Asian neighbors and convince them of the benign intent behind China’s rise has been wholeheartedly undermined by what appears to a bullying and militaristic tendency with regard to the territorial disputes, the key issue in China’s relations with the friends it sought. A more coherent policy towards these countries would be beneficial for all concerned.

ASEAN

The ten-member Association of Southeast Asian Nations (ASEAN) has developed into one of the most successful regional organizations in the world, arguably second only to the EU in terms of its coherence, levels of cooperation and weight in the international arena. Formed in 1967, ironically as a foil against the spread of communism in Asia, its five founding members were Indonesia, Malaysia, the Philippines, Singapore and Thailand. Its success in terms of promoting economic cooperation and development among its members led to applications from other states to join. The end of the Cold War allowed for even those states against which the alliance had originally been aimed to become full members and the organization now incorporates the whole of Southeast Asia, with the exception of Timor L’Este. While China is not a member, it, uniquely in East Asia, recognized from an early stage both the importance of the institution and the need for its own engagement with it. Specifically, China spotted a double opportunity with regard to Southeast Asia, and ASEAN proved to be the vehicle through which it could exploit it. The two aspects of the opportunity that China seeks to exploit are: the development of economic growth and integration; and the promotion of its ‘soft power’ in a region it considers to be its own ‘backyard’.

The creation of ASEAN+1 (which includes China) and ASEAN+3 (which includes China, South Korea and Japan) shows how China has stolen a march on its East Asian rivals in shutterstock_112693318 resizedgaining leverage with the Southeast Asian states. That there is a forum which is basically dedicated to China-ASEAN relations, in which other states have no part, as well as a forum dedicated to ASEAN-East Asia relations, in which China still has a key role, shows how it has positioned itself as a key player in this process of ASEAN-centered regionalization. Despite interest from both Japan and South Korea in increasing trade ties with Southeast Asia, it was China that managed to secure a Free Trade Agreement with ASEAN, which came into force on January 1st 2010. Theoretically, this created the largest free trade area in the world by population (1.9 billion people), though it ranks third in terms of actual volumes of trade. There are also many more exemptions than one might ordinarily expect in such an agreement. Each country lists dozens of areas where tariffs may continue, and four ASEAN countries (Laos, Vietnam, Cambodia, and Myanmar) are completely exempt until 2015. It should also be noted that a similar, though less extensive, agreement between ASEAN and India came into force on the same day. Nevertheless, the establishment of the agreement represents a public relations coup for China and the economic benefits for all involved should not be underestimated. By December 2010, China-ASEAN trade reportedly increased by almost 40% and two-way FDI topped $10 billion, with two thirds of that figure flowing into China. The slated 2015 opening of high-speed rail links between mainland Southeast Asia and China, linking the southwest of China with Laos and part of China’s enormous and ambitious high speed rail network project, should increase integration even further.

China has also involved itself in the ASEAN Regional Forum (ARF) that is designed to promote security dialogues and confidence building between states around the Asia Pacific region. The forum involves 27 members, including all ASEAN members, China, Japanthe USthe EU and every other major actor in the region – excluding, at China’s behest, Taiwan. It is through this forum that China has sought to ease the fears of its smaller neighbors over its own rise and expansion of power, particularly with regard to its military expansion and the previously mentioned maritime territorial disputes. Generally, China balks at being pinned down by any broad-spectrum ASEAN-China negotiations, preferring instead to deal bilaterally to solve issues between countries. Nevertheless, it has agreed in principle to a ‘Declaration on the Conduct of Parties’ which would commit all signatories to peaceful resolution of these disputes. While this is not yet signed and sealed, China’s agreement has helped ease some tensions with its Southeast Asian neighbors.

Water

shutterstock_11779609 resizedThe Mekong, a major river that runs through Myanmar, Laos, Cambodia and Vietnam, has its source in China, making relations with it of potentially critical importance to these nations. China considers developing large-scale hydropower to be critical to meeting its future energy needs and thus its national security. The Chinese government has thus worked to keep these resources under its control, and has been unwilling to sign any comprehensive water sharing agreement with downstream riparian nations or to join any river basin associations such as the Mekong River Commission, which was established in 1995 “to promote and coordinate sustainable management and development of water and related resources for the countries’ mutual benefit and the people’s well-being.” It is also one of only three countries that voted against the 1997 UN Convention on the Law of Non-Navigational Water Courses which lays down rules on the shared resources of international watercourses. Additionally, China has been reticent to share information on water levels and flows with its downstream neighbors once its dams are operational. China is now impounding water for the large reservoir behind the Xiaowan dam on the upper Mekong, for instance, which some believe exacerbated 2010 drought conditions downstream. Only after the drought became severe, and China came under significant pressure from the Mekong River Commission, did it start to provide information on daily water flows from its dam cascade.

China has tried to offset complaints and the potential creation of anti-Chinese alliances by its downstream neighbors by using trade and development incentives – developing the Southeast Asian electricity grid and building sewage and road infrastructure in Cambodia for example – to weaken their ability to challenge China’s dam-building activities. It also engages in a public discourse that not only advocates the importance of hydro-power to its national security, but emphasizes exclusively the benefits of the dams without considering how they will disrupt downstream ecosystems and water access. Specifically, it talks about flood control, reduction of Chinese CO2 emissions, and the benefits of improved navigation and water flow during the dry season. In many cases, it is also helping to fund and construct dams downriver in places such as Vietnam, Laos, Myanmar and Cambodia. Their own independent construction of dams with Chinese financing has weakened downstream riparian neighbors’ ability to protest the ecological destruction that China’s upstream dams are causing.

Future Trends

China’s relationship with Southeast Asia is one of its key foreign policy priorities. If it is to establish itself as a global power then it must first be a genuine regional leader. It can only achieve this through engagement with the ASEAN countries at both the economic and political levels. It has shown a clear understanding of the importance of this through its engagement with the ASEAN institutions in which it was ahead of the competition, specifically Japan and South Korea. It can be expected that China will continue to increase its ties with ASEAN in the future.

The increased economic integration with the region has been facilitated both by this willingness to become involved in ASEAN’s structures and also by the myriad cultural ties that bind China to Southeast Asia. It seems likely that both of these factors will continue to contribute a close relationship and this, on the face of it, appears to be a positive development in China’s quest for acceptance as a regional leader and, therefore, a global power.

However, the continuing territorial disputes represent a major threat to China’s goal of shutterstock_78574054 resizedattaining regional leadership. China’s national interests will likely dictate that its claims over the islands continue to be non-negotiable; driven by both strategic concerns and the demands of domestic nationalists it would be virtually unthinkable for China to acquiesce on any of its claims now. One unwelcome side-effect of this from China’s perspective is that the developments have driven several Southeast Asian countries to renew and strengthen their ties with the US. Notable among these have been Vietnam and the Philippines. Such close ties are clearly not in the interests of China’s own national security, nor its ambition to be the regional hegemon. While the recent moves within the ASEAN framework to establish formalized dialogue on the issue are welcome and positive, the prospect of a compromised resolution seems remote and, particularly in the case of the islands, China continues to insist that each individual dispute be resolved bilaterally. With China continuing to expand its naval projection-capabilities in the area, the prospect of increased hostility is very real. Indeed, China’s increased tendency to flex its muscles in this area over the last few years has undone much of the good work it had done in promoting a positive image of itself in the Southeast Asian countries. This schizophrenic policy toward the region may do further harm in the long run as smaller countries seek the protection of a larger and more predictable ally in the form of the United States, a result that would be counter to all of China’s perceived interests. This risk of hostility will continue to cast a shadow over relations between China and the Southeast Asian region.

Hydro-Power and Hydro-Hegemony: China’s Prolific Dam-Building

The History of Hydro-Power in China

Before 1949, only 22 large dams existed in China. A dam study by Oregon State University concluded that since that time, the People’s Republic of China has undergone four waves of dam construction. Socialist agricultural policy between 1949 and 1960 encouraged the construction of many small and medium-sized irrigation dams. In particular, the 1958-1960 Great Leap Forward policy advocated that each of China’s 1,465 counties build at least one water conservation dam. As a result, tens of thousands of dams were built in China, mainly by peasant-led teams with limited equipment, materials and training. During the period from 1968 to 1980, the pace of dam construction increased. Water projects grew in size and complexity and were progressively constructed for hydropower and flood control. While fewer dams were built between 1980 and 2000, those that were constructed were larger in scale and more technically difficult. The 1978 market reforms allowed China to import foreign technology, know-how and funding, enabling the building of dams that previously had been too difficult and expensive to undertake.

Government measures since 2003 have led to a decentralization of hydropower production. The State Power Corporation was disbanded, its assets were distributed and development rights on China’s main rivers were shared out. While the central government has a majority of stock in each of the companies into which the State Power Corporation was split, in general, the enterprises act quite independently. The “corporatization” of China’s hydropower sector has created a significant increase in domestic and overseas dam building as companies compete to secure existing assets and to develop new hydro-projects.

Today, China runs about half the world’s approximately 45,000 dams larger than 15 m in height. In total, the number of dams in China is estimated to exceed 85,000. In 2009, China’s installed hydropower was calculated to be approximately 200,000 MW, representing about 17% of China’s total electricity power. According to recent reports, of the 37 GW hydro-power capacity added worldwide in 2014, a full 22 GW (nearly 60%) was added in China alone, dwarfing developments in other nations (the five largest contributors behind China added a combined 8.7 GW). This has brought China’s hydro-power capacity up to 27% of the world total. China continues to set high goals for itself, with China’s National Energy Agency planning to increase China’s hydro-power capacity to approximately 380,000 MW by 2020. Huge hydropower cascades have been proposed and are being constructed on some of China’s remaining pristine river basin systems including the Lancang, (upper Mekong), the Nu (Salween) and upstream of the Three Gorges Dam on the Yangtze. It is estimated that China has relocated a total of almost 23 million citizens since 1949 to make way for its water projects.

The Three Gorges Dam

Large dams are enormous interventions into highly complex ecosystems. Their impact can be felt thousands of kilometers away and often occur many years after construction has been completed. It is impossible to anticipate and mitigate all the social and environmental impacts that such projects can cause. The Three Gorges Dam provides a good indication of the challenges that such large dams pose.

Originally conceived by Chairman Mao and supported by Zhou Enlai, the Three Gorges Dam, and its related infrastructure, is the largest water project in the world. It stretches approximately 2km across the Yangtze River, which flows 6,418 km eastward from the Tibetan glaciers through China’s southwest, central and eastern regions before eventually emptying in the East China Sea at Shanghai. The Three Gorges Dam reaches nearly 200m in height, and has created a reservoir 600km long with a storage capacity approaching 40 billion m³. Three Gorges generates approximately 22,000 MW of electricity, equivalent to the burning of 50 million tons of coal annually, compared with Hoover Dam, for instance, that has an installed capacity of only 2080 MW. It was built at an estimated cost of $27 billion, although if hidden costs are taken into account, some appraise the dam’s actual cost to be in excess of $60billion. Hidden costs include losses incurred as a result of the reduction in commercial fishery production, the cost of landslides caused by frequent fluctuations in water levels and the further population resettlement that these landslides are likely to require, the costs of water pollution as raw sewage and fertilizer run-off collect in the Three Gorges Reservoir instead of being flushed downstream, the shrinking of the Yangtze river estuary, and the weakening of downstream dikes caused by the dam’s faster than anticipated water discharge. Besides generating emission-free energy, the Three Gorges Dam was built to control flooding, to improve water resource utilization and river navigation. Access to the major port of Chongqing, for instance, which receives 90% of its goods by water, has improved markedly even though it is located more than 600 km upstream of the dam. The Three Gorges’ lock system is one of the world’s largest, and has also helped to increase the amount of cargo able to move into the river’s upper reaches.

Despite these real benefits, the Three Gorges Dam has also generated significant problems. Most important of these has been the disruption of the Yangtze’s ecosystem. When the river flowed naturally, it helped to cleanse industrial pollution. It also traditionally transported large sediment loads from the river’s upper reaches to the East China Sea. The Three Gorges Dam has significantly decreased downstream sediment transport, changing the river’s chemical balance, temperature and flow. This in turn is impacting fish habitats. In addition to changing the river’s ecological characteristics, the dam is also blocking fish migration, impacting access to spawning grounds; it also may have contributed to the extinction of the Yangtze river dolphin. Between 2003 and 2005, annual fish harvests from below the dam were 50% to 70% below previous baselines; larva and eggs levels have dropped off even more sharply. Although pollution and other factors were already causing a reduction in fish stocks before the dam was constructed, the Three Gorges accelerated the trend.

The river’s reduced silt load has also deprived downstream agricultural land and fisheries of nutrients. Additionally, because less silt is reaching the river’s mouth, approximately 980 acres of coastal wetlands are disappearing each year. This has allowed sea water to intrude further upriver, affecting coastal agricultural and drinking water. Silt buildup within the reservoir is also impacting its overall storage capacity, causing higher volumes of water to be released from the dam, stressing downstream levees.

Landslides around the Three Gorges Reservoir have also been a greater problem than was first expected. The fluctuating water levels of reservoir have weakened hundreds of miles of its slopes, triggering massive mudslides. Controlling this erosion is projected to require a further investment of $10 billion or more. In some cases, landslides have produced massive waves as high as 50 meters, causing even more damage to the reservoir’s edges.

Every large dam built in China has led to the resettlement of local people because of China’s high population density along its major rivers. Over 1.2 million people have already been resettled as a result of the Three Gorge’s construction. Originally, residents were to be shifted to higher ground nearby, given new homes and new jobs. Yet, greater than anticipated erosion and landslides made large uphill areas unsuitable for building, so the displaced were eventually resettled to 11 different provinces. In late 2007, it was announced that another 4 million people – a number equivalent to the entire population of Scotland – are likely to be relocated from the Three Gorges Reservoir area in the next 10 to 15 years. Officials dispute that these are related to the reservoir’s landslides and ecological degradation, arguing instead that they are part of the national experiment to ease regional overpopulation and to provide greater opportunities for industrial development.

Many scholars are now finding that people displaced due to construction projects face the long-term risk of continued food insecurity, lack of access to good arable land, joblessness and social marginalization. Displaced women are often more severely affected than men. Taking farmland from the host population to give to the resettled groups has also often caused tensions and conflict between the two groups. Studies indicate that early resettlement efforts at the Three Gorges have indeed led to diminished living standards for many of the displaced. Local government corruption has aggravated resettlement challenges as 12% of the resettlement funds were estimated to be embezzled; hundreds of local officials have now been imprisoned.

In addition to the social costs, many now believe that large dam reservoirs can also cause seismic events as their weight can place unsustainable pressure on local faults. The Three Gorges Dam sits on two major fault lines, and scientists have acknowledged that seismic activity has increased slightly since the reservoir first started impounding water. Earthquakes can also damage a dam’s structure. Many of the new hydro-projects outlined in 12th Five-Year Plan are to be constructed in China’s mountainous southwestern region, which is crossed by numerous active fault lines. The tectonic movement in the three parallel Rivers area of the Nu, Upper Mekong and Upper Yangtze is one of the strongest in the world, for instance, yet China is planning to erect a cascade of dams in these areas. Research in the Chinese Journal of Geology and Seismology has recommended that further study be undertaken to determine the role that dam reservoirs play in triggering quake activity.

Environmental Movement Impacts Hydro-Power in China

The Chinese government has tried to address some of the problems associated with dams by improving the legislation which regulates the industry. While not always enforced, recent legislation has required more stringent procedures for environmental and social impacts assessment. A September 2003 law, for example, obliges companies planning projects with significant environmental impacts to conduct environmental impact assessments, and to have the assessments approved by the appropriate Environmental Bureau or the Ministry of Environmental Protection. Additionally, public participation in environmental impact assessment is increasingly encouraged. 2008 legislation has laid-out basic instructions on methods for public disclosure of environmental impact assessments, when to involve the public in the environmental impact assessment process, and who should be included in public participation. Indeed, in 2004 for instance, criticism from environmentalists, the public and the international media at least temporarily halted the development of a 13 dam cascade planned for the Nu River in Yunnan province, one of China’s last free flowing rivers. Laws passed in 2006 made efforts to better protect those displaced by dam construction by setting out appropriate land compensation, requiring that displaced people be provided with a level of livelihood similar to or greater than that which they had prior to the dam being built, and that resettlement plans must include economic development strategies as opposed to simply providing one-off monetary compensation.

Damming of Trans-boundary Rivers – Hydro-Hegemony

Many of China’s new planned hydro-engineering projects are on trans-boundary rivers, including the Mekong, Salween or Nu, Brahmaputra and Amur. On the Brahmaputra River, for instance, a series of five dams is planned to be built close to disputed territory between China and India, which will impact India and Bangladesh downstream, causing concern that China may divert the Brahmaputra’s water for its own needs. Many of the planned dams on trans-boundary rivers are being designed as cascades – one dam after another – or as mega-dams – with walls of 100 meters or higher-both of which have a greater impact on a river’s ecology. One of the new dams approved for the Brahmaputra, for instance, is to be twice the size of the Three Gorges Dam and situated almost on the contested border with India.Overall, about a third of China’s geography is within an international river basin, and China shares 18 rivers with its neighbors, many of which originate in China. Indeed, the Autonomous Province of Tibet provides China with access to some of the best untapped hydro-power in the world as does its Yunnan province, often termed China’s hydro-power storehouse. China is acting as “hydro-hegemon” in regard to its shared rivers as it is damming without the support and partnership of its neighbors, and at times in outright opposition to their wishes. But it is not just the unilateralism of its damming on international headwaters that upsets downstream countries; it is also the opacity around which it builds and runs its dams. China does not readily share environmental or technical information with its neighbors when building the dams nor, many feel, does it give real weight in its decision making as to how its dams will impact river ecology downstream. Indeed, many of China’s international river dams will provide it with the physical ability to change the hydrogeology of the rivers it is damming, thus creating new hydro-strategic and hydro-political realities, and thus allowing it to dictate the status quo of water allocation. By controlling large parts of Asia’s water tap, in an area where per capita freshwater availability is less than half the global average, China is acquiring tremendous leverage over its neighbors.

Yet, China considers developing large-scale hydropower to be critical to meeting its future energy needs and thus its national security. The Chinese government has thus worked to keep these resources under its control, and has been unwilling to sign any comprehensive water sharing agreement with downstream riparian nations or to join any river basin associations such as the Mekong River Commission, which was established in 1995 “to promote and coordinate sustainable management and development of water and related resources for the countries’ mutual benefit and the people’s well-being.” It is also one of only three countries that voted against the 1997 UN Convention on the Law of Non-Navigational Watercourses which lays down rules on the shared resources of international watercourses. Additionally, China has been reticent to share information on water levels and flows with its downstream neighbors once its dams are operational. China is now impounding water for the large reservoir behind the Xiaowan dam on the upper Mekong, for instance, which some believe exacerbated 2010 drought conditions downstream. Only after the drought became severe, and China came under significant pressure from the Mekong River Commission, did it start to provide information on daily water flows from its dam cascade.

China has tried to offset complaints and the potential creation of anti-Chinese alliances by its downstream neighbors by using trade and development incentives – developing the Southeast Asian electricity grid and building sewage and road infrastructure in Cambodia as examples – to weaken their ability to challenge China’s dam-building activities. It also engages in a public discourse that not only advocates the importance of hydro-power to its national security, but emphasizes exclusively the benefits of the dams without considering how they will disrupt downstream ecosystems and water access. Specifically, it talks about flood control, reduction of Chinese CO2 emissions, and the benefits of improved navigation and water flow during the dry season. In many cases, it is also helping to fund and construct dams downriver in places such as Vietnam, Laos, Myanmar and Cambodia. Their own independent construction of dams with Chinese financing has weakened downstream riparian neighbors’ ability to protest the ecological destruction that China’s upstream dams are causing.

The Lancang Cascade

The Lancang Cascade is an example of China’s dam building on trans-boundary water. China is currently halfway through construction of a cascade of eight dams on the Upper Mekong (called Lancang in China). The Mekong River flows 4,800 km from the Tibetan plateau, across China’s Yunnan province, through Myanmar, Thailand, Laos, Cambodia and Vietnam, before pouring into the South China Sea. The Lancang comprises only 16% of the Mekong’s total discharge as measured in the delta, yet it accounts for 100% of the flow at the Laos border, 45% of Cambodia’s average flow in the dry season, and originates 50% of the river’s total sediment. The upper basin is characterized by deep gorges, with more than 80% of the drop in elevation occurring in Yunnan province. Indeed, Yunnan and Laos have the greatest hydropower potential in the basin. The lower basin is characterized by plains and deltas which support large-scale irrigation, fishing, and transportation. The Mekong is vital to the food, water supplies and transportation of over 60 million inhabitants in the region. An estimated 8 out of 10 people within the basin depend on the Mekong River for subsistence, either in terms of fish catch or agriculture, with at least 50% of Cambodia’s animal protein consumption coming from Mekong fish and the Mekong Delta supplying waters for more than 50% of the agricultural component of Vietnam’s GDP.

The Lancang cascade is part of China’s “Develop the West” program. Initial plans for the Lancang cascade were developed in the 1980s, before Yunnan opened to foreign trade, and when China’s political relations with its lower Mekong neighbors were not as robust as they are today. Currently, four of the eight dams have been completed with construction on the fifth dam at Nuozhadu expected to be completed by 2015. China espouses that the Lancang cascade will benefit its lower riparian neighbors by providing flood control in the wet season, increasing water supply in the dry season, improving irrigation and navigation, and reducing overall carbon emissions.

Yet, as seen with the Three Gorges Dam, large hydro-power projects change the hydrology of a river. Of key concern for the Mekong is whether the dams will negatively impact the hydrological dynamics of the Mekong’s “flood pulse” resulting from the river’s seasonal flooding triggered by the annual monsoons. Diminishing the flood pulse could result in declines in biodiversity and volumes of fisheries by altering spawning and migration cues could affect its transfer of nutrients, and could limit the drift of eggs larvae and juveniles to the floodplain habitats. It could also impact rice harvests as 80% of rice production in the lower basin depends on water, silt, and nutrients from Mekong flooding. It might also cause increased salinization as seasonal flooding flushes delta areas, constraining sea water intrusion. The countries downstream are also concerned that the effective powering of their own dams will be dependent on China to discharge sufficient water. Impacts to water levels and fisheries have already been recorded in the lower Mekong basin which is one of the world’s biggest sources of fish. Indeed as water levels reached 50-year lows in 2010 in the Mekong River Basin, China’s dam building along the upper Mekong was blamed as a significant contributor to the drought.

Building Dams Abroad

In addition to damming trans-boundary rivers, China has also stepped up its dam building internationally. As China has absorbed and copied complex hydro-engineering technology initially supplied by the West during the 1980s and 1990s, it is now able to export its own domestically produced turbines, generators and other hydro-equipment to countries abroad, along with its dam building expertise. These exports are supported by a set of schemes known as the “Going Out” strategy introduced in 2001. This strategy encourages investments, exports and subcontracting in overseas engineering projects. Specifically, the government has aided China’s hydro-engineering companies with country-specific research, financial subsidies, and cheap credit. These advantages have helped Chinese companies to position themselves as low-cost competitors. This cost advantage has also been aided by the fact that Chinese construction companies often import cheap, highly productive labor from home to staff all or at least part of their workforce. Their extensive hydro-engineering experience has also allowed them to gain real efficiencies not shared by their competitors. As a result, in 2012, it was estimated that China was involved in more than 300 dam projects in 66 different countries, including the construction of 19 of the world’s 24 largest hydropower stations.

It is not uncommon for these international hydro-engineering projects to help support Chinese strategic interests. Because of its relative isolation from international markets until the early 1980s, China has been late to develop international sources of raw materials, particularly oil, timber and mineral resources. Yet, its position as “the world’s factory” has meant that its demand for natural resources has significantly increased over recent decades. As a result, China has implemented a strategy of retrieving resource deposits which had not heretofore been developed because they have been deemed insignificant in size, geographically remote or politically risky. In many cases, accessing these raw materials has obliged China to invest in secondary infrastructure such as pipelines, roads, railways, dams, power plants and transmission lines. For instance, the Belinga Dam in Gabon is being constructed by China to power a Chinese-built and financed iron ore mine whose output is destined almost exclusively for China’s construction industry. The dam is located in the Invindo National Park, and was planned by China with no public environmental impact statement. Myanmar recently decided to halt the massive China-backed the Myitsone Dam project, which has been opposed by green groups and opposition parties because of its significant environmental and social impacts. The dam was to generate some 6000 MW of power, most of which was to be exported to China, while creating a reservoir the size of Singapore with the depth of nearly a 70 story building, displacing tens of thousands of people.

China’s flurry of rapid international dam building has been driven in large part by its ability to self-finance its projects. This has allowed it to fast-track projects that the World Bank and the European Investment Bank, for instance, have been less quick to consider because of their environmental and social risks. China’s Exim Bank, the official export credit agency of the Chinese government, has delivered vital funding for many controversial large dams, including the Merowe Dam in Sudan, which resulted in a ruinous deterioration of living conditions among displaced people. The state-owned China Export and Credit Insurance Corporation, the China Development Bank, and the China-Africa Development Fund are all also increasingly involved in financing energy projects overseas. In some cases, hydro-engineering companies provide their own financing to their international customers. Sino Hydro, for example, a large state-owned company involved in at least 42 major dam projects, often invests in many of the projects it builds as does China’s International Water and Electric Corporation, China’s National Heavy Machinery Corporation and China Southern Power Grid. For the period 2010 to 2012, Sino Hydro directed over $1 billion towards dam-building and related projects in Zambia. In 2014, the total value of contracted projects in Africa was estimated at $70.8 billion. This self-financing has put increased pressure on Western financial institutions and construction companies to also circumvent internationally recognized – but unenforced – social and environmental standards when designing and building infrastructure abroad, so that they can compete with Chinese banks and construction companies.

China remains wary of Western-dominated environmental norms circumscribing its investment and construction activities abroad. China does not accept any country imposing on it their values, social systems or ideology, nor, as stated in its ‘principle of non-interference in the internal affairs of another country’, does it feel that it should impose its value systems on other countries. China has also defended its approach to overseas investments by insisting that developing countries should not operate at the same standards as developed nations; developed countries also polluted first and then cleaned up after as its economy and technology developed. China has argued that it is unwilling to impose environmental policies on foreign countries which might slow their growth.

Yet, recently there is some evidence that China’s leaders have started to reassess the long-term costs that can come with a no-strings-attached approached to construction overseas; reckless practices, in some cases, have prevented Chinese companies from growing business internationally. The ecological destruction that some of China’s dams have wrought have aggravated anti-Chinese sentiment at several sites in Asia, Africa and Latin America. For instance, in 2006 violent protests broke out at the $2 billion dollar Merowe Dam in Sudan resulting in three dead and dozens injured. Ultimately 15,000 people were displaced, often forcibly, by the reservoir. Protests renewed in 2011 when 1000 people staged a sit-in to protests the government’s failure to compensate them as promised.

China’s frequent policy of employing a Chinese workforce to build dams and other projects abroad reinforces the perception that it is engaged in exploitative practices. To counter this criticism, in 2006, the China’s State Council issued nine principles which should guide the work of firms working abroad. These principles included safeguarding environmental protection, protecting the livelihoods of local communities and peoples, obeying host laws and regulations, and employing local workers in a friendly and fair manner. The principles, while lacking specificity as to who should regulate overseas construction companies, and as to what domestic regulatory tools should be applied to Chinese companies operating overseas, do indicate the Chinese leadership’s desire to avoid future high-profile disasters such as those occurring around the Merowe dam in Sudan. However, without specific regulatory control or penalties for breach of standards, these principles remain mostly theoretical. Some Chinese companies have begun to establish their own environmental policies; China’s Exim Bank and China’s Development Bank, for example, both have environmental policies which are to guide their lending practices, but again these policies lack detail, and do not appear to be well enforced.

Trends

At present, 3,700 dams with greater than 1 MW capacity are currently planned (83%) or under construction (17%). These projects are spread across several continents, but focused mainly in Brazil, Argentina, Central Africa, and China. Even if all of these dams were constructed and realized their anticipated electric output, China would remain the world’s hydropower hegemon with an annual potential of nearly 1.8 million GWh (gigawatt-hours). While China’s position in the hydroelectric field may not be challenged in the coming years, its share within that sector is expected to diminish from 31% of world hydropower produced to around 25%.

China’s 12th Five Year Plan prioritizes the continued development of China’s hydro-power capacity so as to maintain its lead in production. Indeed, China’s National Energy Agency plans to increase China’s installed hydropower from approximately 200,000 MW to 380,000 MW by 2020. While greater efforts will certainly be made to better resettle those displaced by dams in the coming decades, environmental concerns regarding the impacts of China’s large hydro-engineering projects are unlikely to stop their future construction, particularly given the corporatization and increasing power of China’s hydro-power industry.

China’s construction on trans-boundary rivers is also likely to continue even in the face of growing international concern. China will continue to follow a “carrot” strategy to blunt the criticism of these dams, providing downstream countries with infrastructure and other needs where possible in order to get them on-side with China’s actions. China has the construction ability and the finance to proceed with the construction of many of these dams quickly. There is some argument that China plans to get the dams in place before the international community can rally effective support to pressure China to reconsider its actions.

The speed of China’s dam-building has helped many of its projects, both domestic and national, bypass international environmental standards and impact studies. Though hydropower is not an exceptionally high-emission source of energy in the long run, it has been shown to be rather carbon-intensive during initial phases. In 2014, the Intergovernmental Panel on Climate Change stated that short-term emissions from damming and dam-related activity might be ten times the emissions that could have been saved if governments reduced fossil fuel usage via other means. The short run emissions are largely a result of the large reservoirs that form behind newly constructed dams. As these young bodies of water undergo various hydrological changes, they often emit larger quantities of greenhouse gases.

Over many years, however, total hydropower-associated emissions are nearly 30 times lower than coal, which is currently China’s most dominant energy source. In 2013, coal accounted for 73.8% of China’s total 5,396 TWh generated, while hydropower ranked second with a 16.9% energy share. Despite the prevalence of coal as an energy source, coal usage decreased 1.2% through October 2014, and this trend is likely to continue into the future as northern China feels the strain of dwindling local water sources. Coal mining and processing requires an extraordinary amount of water that China can no longer afford to divert, given the drinking water demand of its citizens in northern urban centers like Beijing and Tianjin. If anything, the decline of coal will lead to an increase in the dominance of hydropower, which is already well-established in China. Dams may well supplant coal entirely, and become the primary source of Chinese energy.

In July 2014, China reaffirmed its commitment to pursue further hydroelectric projects on the Jinsha River (the upper Yangtze), Yalong River, Dadu River, and the Lancang Cascade (the Chinese portion of the Mekong River). It will also continue to aggressively pursue the international dam market, both to meet its own energy needs abroad and to create renewable, clean energy infrastructure for other countries. China’s commitment to Africa remains steadfast, with water conservancy and electric power as two of four key focus areas (the other two being communications and construction of ports, bridges, and railways). With these developments and even more plans in place, China is quickly becoming the largest, most experienced and most competitive dam builder in the world.

From Indifference to Engagement to Dominance? China and International Organizations

Introduction

Since the founding of the People’s Republic of China in 1949, its strategy with regard to involvement in international organizations has undergone a complete U-turn. As political and economic international organizations such as the United Nations and the Bretton Woods Institutions developed in the years after WWII, the PRC remained skeptical and suspicious of becoming entrapped in a framework set by external, Western, and ordinarily capitalist powers. Instead, it pursued a policy of non-engagement in multilateral institutions, with very few exceptions. Those it did involve itself with, such as the Non-Aligned Movement, evidenced attempts by China to disassociate itself from the superpower struggle between the US and the Soviet Union. Although this was partly driven by the politics of the Cold War that determined so much of international relations at that time, it also reflected the mistrust felt in China towards such institutions, rooted in the historical sense of injustice felt at its treatment by the League of Nations, which failed completely to arrest the invasion of China by Japan, a League member.

China began to rethink its engagement in international organizations after the success of its economic reform program launched in 1978. As an increasing percentage of its GDP became generated through international trade, and its status as an international power began to rise, China came to determine that engagement with international organizations would be useful in resolving trade disputes, gaining access to markets, promoting its perspectives on the international stage, and assuring established powers that its rise would be peaceful and would happen within the existing international framework. Today, China is not only a member of virtually all relevant international organizations, but it is also a key actor in many of them.

United Nations

Since the creation of the UN in the aftermath of World War II, one of the five permanent seats on the Security Council has been reserved for China. This seat was initially occupied by the Republic of China in Taiwan that was recognized as the government of all of China by most Western powers from 1949-1971. The People’s Republic of China, therefore, had no representation within the UN. This changed in 1971 when a UN General Assembly vote recognized the PRC as the legal government of China, effectively transferring all UN powers to the PRC, including Taiwan’s permanent seat on the Security Council and the veto that comes with it. This was an important step in the gradual global recognition, by international powers, that the PRC was the legitimate government of China. The ROC in Taiwan was expelled from the UN as it was no longer recognized as a state, and has never been readmitted, despite sporadic attempts from within Taiwan for it to be recognized. Thus, its membership in the UN had the immediate effect of facilitating the promotion of the PRC’s ‘one China’ policy, which ensured Taiwanwould never be officially recognized as separate from the PRC.

In its early years in the UN, China was relatively passive in its behavior, ordinarily abstaining in votes on peacekeeping operations (PKOs) and never participating in the operations themselves. During the 1971-1978 period, China voted in favor of roughly 40% of the resolutions that passed. This gradually began to change after 1978 with China increasing the number of motions it put forward. This more participative and assertive behavior continued in the 1990s, particularly from the first Gulf War onwards, when China not only began to vote in favor of peace keeping operations, PKOs, but actually became involved in the operations directly. By 2008, China was contributing approximately 2500 troops to UN PKOs, a similar number to France and significantly more than the US. The record since the turn of the millennium shows that more than 95% of resolutions that pass in the UNSC receive the support of China. This demonstrates both a shift in the behavior of China itself, which has become much more willing to take an active role in the process of international governance, as well as in the attitude of other UNSC members, who have come to see China’s support, as opposed to its passivity, as crucial to the perceived legitimacy of any UN action.

China’s increased willingness to engage in the UN framework has resulted in a slight contradiction in its official policy regarding the sovereignty of nations. While the rhetoric continues to stay on the message of respect for sovereignty and the maintenance of the principle of non-interference, China’s voting pattern suggests that there are circumstances in which it is willing to forgo this principle. Its acquiescence in 2002 on UN resolution 1441 which, ultimately, was used to justify the invasion of Iraq (though it should be noted that a clause on Iraq’s sovereignty and territorial integrity was included partly at China’s behest) exemplified this. An even starker example came in 2011 when resolution 1973 established a no-fly zone and authorized “all necessary measures” to protect civilians in Libya. That China saw fit to allow this resolution to pass (both China and Russia abstained) appears to demonstrate the limit of its international defense of the principle of sovereignty. However, such an increased willingness to allow such motions to pass in the UNSC should not be viewed as evidence that China has become a pushover in its dealings with Western powers – rather, it ought to be seen as proof that China has learned how to operate within the institutions of the UN, protecting its own key interests while promoting an image of a responsible world power.

China has positioned itself within the UN as something of a voice for developing nations and frequently counts on the support of these countries in votes in the General Assembly (where the veto it wields on the Security Council cannot be used). This has been particularly useful in avoiding censure over human rights abuses. As by far the largest member of the G77 group of developing nations, China is able to use its influence both to secure support from, and to advance the interests of, a significant bloc of the UN’s membership. Although this makes it a major player in the General Assembly, the most powerful body of the UN remains the Security Council where it continues to have to work with the other permanent members.

China is not only involved in the Security Council and General Assembly, but is also active in most other UN organizations through which it continues to pursue its core national objectives. For instance, even during the 2003 SARS and 2006 Avian Flu epidemics, China maintained its stance of blockingTaiwan’s participation in the World Health Organization, on the grounds that statehood is required for membership and the PRC is the sole legitimate government of China with Taiwan as part of China’s territory. Such an intransigent position was criticized both in Taiwan and by health experts in the organization with some suggesting that lives were lost as a result, though there are no credible statistics to support this claim. What this episode clearly demonstrated was China’s “red line” with regard to its position on Taiwan and the position of strength it now occupies in the UN structure through which it can pursue its objectives.

World Trade Organization

After protracted negotiations China finally gained membership of the WTO on December 11th 2001, a full fifteen years after it originally applied to join, symbolically three weeks before Taiwan – under the name “Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu (Chinese Taipei)” – also accessed. It should be noted that the WTO is an organization that does not require statehood for membership and Hong Kong has been a member since the organization’s inception in 1995. China’s leadership during the long negotiations went to great lengths to ensure China gained its place. Both Jiang Zemin and the then Premier Zhu Rongji invested enormous personal political capital in the process and Zhu, in particular, came under fire for the level of concessions made in order to be eligible for entry, particularly with regard to a commitment that China would open its telecommunications industry to foreign competition. The perception, both within China and among some analysts abroad, was that the requirements for Chinese admission were greater than those asked of other countries. In particular the decision not to bestow “Market Economy” status on China seems to have been politically motivated: the requirements that were laid out for China to achieve this status have been demonstrated by the Financial Times, a respected UK newspaper, to be so stringent as to rule out any member of the WTO from passing the test. The result of this apparently un-passable test is that when China is accused of breaches of WTO rules, the arbitration process measures the validity of such claims against other countries’ economic indices. For example, when China is accused of ‘dumping’ – selling goods into another economic area at below the price they are produced– it is not China’s own labor and raw material costs that are used to determine if this is the case. On occasion, Malaysia has been used despite wages in that country being significantly higher than in China.

Despite popular perceptions of China as a country engaging in unfair practices in global trade, particularly within regard to its apparent currency manipulation and the practice of ‘dumping’, its early years in the WTO were remarkably non-confrontational. In fact, no cases were brought against China in its first two years of membership, and China itself did not bring a case against another member until as recently as 2009. In those cases that have been bought against China, all of which have been by the EU or the US, it has struggled at times to defend itself, winning just one of the dispute cases that have gone through to completion. China also seems to have followed a similar pattern in its behavior in the WTO as it did in the UN, in that it spent its first few years learning how to operate within the WTO system, before attempting to become a major player. China’s increased activity over the last 2 or 3 years, during which time it has gone from bringing no cases against other members to averaging 3 per year (all of which have been against either the US or the EU) is evidence of this. Recently, despite the structural disadvantage that China faces by not being a “market economy”, it has had some success. For example, in 2009 China successfully brought a case against the US to end the ban on its poultry exports that had been in place since the Avian Flu epidemic. Similarly, in 2010 the WTO ruled that the EU’s anti-dumping measures on Chinese sales of fasteners were unfair and too broadly applied. Despite these victories, China’s success rate in successfully resolving WTO disputes remains below the average for the organization.

World Bank and International Monetary Fund

Along with the General Agreement on Trade and Tariffs (GATT), which later became the WTO, the World Bank and the IMF made up the key international financial institutions that came into being in the post-World War II era. China has officially been a member of both the World Bank and the IMF since their founding, although just as with the UN, responsibility for these positions was with the Republic of China on Taiwan until 1980, when the PRC took over control. As with the UN, Taiwan has since been denied participation in both organizations. The PRC has called upon the IMF for financial assistance on only two occasions, both of which occurred during the early period of its post-1978 economic reform and restructuring program, and both loans have since been repaid in full. In recent years, as China’s international standing has continued to grow, China has pushed hard for greater influence for itself and other developing nations within both organizations. It has had only limited success to date. It currently holds 96,000 votes in the IMF, equivalent to 3.81% of the total, making it the sixth largest behind the US (16.76%), Japan (6.24%), Germany (5.81%), France (4.29%) and the UK (4.29%). These figures represent an increase in the voting share for China that came into force in 2008. However, under IMF voting rules, a total of 15% is required to veto any proposal, meaning that the US alone, or a combination of any four of the other G7 countries without the US, has this power. China is a long way from achieving such privilege. By increasing its agreed contribution to the budget of the IMF, China has (along with other developing nations) successfully campaigned for further reform. Thus, another shift in the make-up of these shares has been agreed in principle, but not yet implemented. Although China’s position is likely to improve as a result of these reforms, it is not clear how the final figures will appear once this agreement has been ratified, but a review is currently ongoing and this is expected to be completed in 2013. Voting in the World Bank system is more complex, as it is divided into several organizations, each of which has its own voting allocation. Despite recent reform and reallocation in favor of several developing countries that saw China as the largest beneficiary, China still remains a relatively small player. Since its foundation, the president of the World Bank has always been a US citizen. Similarly, the recent election of Christine Lagarde as the president of the IMF continued the pattern of Western Europeans heading that institution. Still, the appointment of Justin Yifu Lin, a Taiwanese-born citizen of the PRC, as Chief Economist at the World Bank represents a breakthrough of sorts. The domination of Western, developed nations in both of these organizations, however, is likely to continue for some time to come, despite the damage to reputations done by the financial crisis of 2008, a source of some resentment from within China.

G20

The G20, established in 1999 in recognition of the need to involve some of the larger developing nations in summits similar to those held by the G7 or G8, consists of 19 countries plus the EU. Since its inception, it has grown in significance, in no small part because of the inclusion of China, along with other major developing forces in global political and economic circles such as India and Brazil. These countries have pushed hard to make the G20 summit that takes place annually the premier event for global economic discussions and, consequently, to limit the importance of the G7 and G8 summits. While there has been some resistance to this, particularly from Japan which treasures its role in the G7 as a surrogate for its yearned-for but out-of-reach permanent place on the UN Security Council, the growing economic clout of China has meant this is, increasingly, the reality. Sideline summits have also given China a tremendous opportunity to promote symbols of its increased power on the world stage and one of the annual events of the G20 is the so-called G2 meeting that involves only China and the US. The existence of the G20, as opposed to an expanded G8, indicates China’s unwillingness to be enmeshed into yet another existent structure dominated by Western powers and, instead, to create a new system that incorporates other countries with potentially similar goals to its own, with whom it can form powerful alliances to overcome Western dominance.

Shanghai Cooperation Organization

Until very recently the Shanghai Cooperation Organization (SCO) received little attention in the West, but it has been a significant part of the PRC’s foreign policy since the mid 1990s. Formed as grouping of five countries – China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan – at a meeting in Shanghai in 1996, its initial objective was to foster greater military trust between central Asian neighbors. After its inception the group began to meet annually and became dubbed ‘the Shanghai Five’. The addition of Uzbekistan and a more formalized structure to the grouping saw it renamed as the SCO in 2001. Since then, several states in the region have expressed an interest in joining a group which has been mooted as an Asian rival to NATO – though this language is never used by the countries involved. Those expressing serious interest in joining the SCO include Pakistan and Iran who, along with India, Mongolia and Afghanistan, have observer status. In 2012, Turkey was granted ‘Dialogue Partner’ status, becoming the first NATO country to have official ties with the organization.

The SCO has expanded military cooperation between its member states to levels that could not have been achieved without it. Annual joint practice operations in various fields of conflict have increased to include a total of more than 5000 participants from all six member states. The majority of these come from the two largest militaries in the group – China and Russia – and the closer military and strategic ties between these two states is one of the most significant outcomes of the SCO’s development. However, the most important potential impact of the SCO is the creation of a multilateral framework of military alliances that does not include any Western power, and which has China as its assumed leader. Clearly China and Russia are the lynchpins of this organization, but the enthusiasm of the other four members, as well as the level of interest from Pakistan and Iran, makes the SCO a potentially significant actor in future international relations.

Future Trends

China’s policies on International Organizations are unrecognizable from those that were pursued prior to the Reform Era. China now seeks engagement and involvement, as its many international organization memberships and its active participation within the organizations testify. However, as a relative latecomer to virtually all organizations, China has a structural disadvantage in that it has to learn how to play by the rules that have already been set by others, which are not always to its advantage. While it has had some success promoting its objectives within these pre-existing power structures, being hampered by Western-originated frameworks remains a continued source of frustration for the Chinese leadership. China has tried to address this frustration by creating alliances with developing nations within the organizations to give it greater negotiating power. The instigation of the SCO and the promotion of the G20 are examples of how China can combat this, by instigating new institutions which place itself at the heart. It is also used its rising economic and political power to gain greater leverage in the international organizations, as when it demonstrated a willingness to increase financial contributions to the World Bank and the IMF in exchange for a greater share of the voting rights.

To date, China’s increased involvement in International Organizations has, for the most part, been consistent with its proclaimed world view: that of respect for sovereignty, non-interference in the internal affairs of other nations, opposition to hegemony or unilateralism, and the promotion of multilateralism. As China’s own stake in global political, economic, and security affairs continues to grow, it will be interesting to watch how firmly it can stick to such principles. There are already signs that it is willing to compromise on the reality of non-interference, even if the rhetoric continues unabated. China has, however, been utterly uncompromising in its insistence that any organization that requires statehood for membership must exclude Taiwan. Thus, Taiwan has been progressively and near-comprehensively marginalized in the international arena, allowed to participate in only limited ways in limited organizations. Despite numerous attempts to rejoin the UN, Taiwan will not, under any name, be able to do so. This represents a clear example of how China has used its involvement in international organizations to achieve one of its key domestic and foreign policy objectives.

China and the European Union: Principles and Pragmatism

Introduction

One of the fundamental difficulties with assessing the relationship between China and the EU is one that is inherent in all analyses of the EU: that it is not a single entity. Constituted of 28 member states (since Croatia joined in 2013) ranging in size from Malta (with fewer than half a million inhabitants) to Germany (home to over 80 million people), the EU is linguistically, economically, culturally, and demographically incredibly diverse. While there has been a much increased pooling of sovereignty within the EU in recent years, each member state retains the right and ability to conduct its own external affairs. However, the EU has worked hard to increase its unity on the international stage. For example, in 2009 the EU appointed a President of the EU Council in order that its external relations are managed more coherently. Even before then, the EU negotiated numerous treaties with key partners in the international arena. These treaties play major roles in the relationships between these international partners and both the EU has a whole, as well as its constituent member states. Additionally, any state wishing to conduct high levels of trade with individual EU member states cannot realistically do so without dealing directly with the EU, alongside its dealings with the states in question. For these reasons, it is valid to speak of the relationship between China and the EU, though with the caveat that the China-EU relationship does not always supersede China’s bilateral dealings with particular EU member states.

Trade

Without question, the single most important factor of the China-EU relationship is trade. The EU, taken as a whole, is China’s largest trading partner accounting for more bilateral trade than even the US or Japan. It is the largest market for China’s exports and has been a significant source of China’s economic growth in the reform era. The importance of the relationship is not just one-sided; China matters to the EU just as much and it is its second largest trading partner after the US, and would be its largest if trade with Hong Kong were to be included in the figures.

As with the China-US relationship, there is tension within this economic success story, particularly in the form of a considerable trade deficit. In 2010, the total value of two-way trade reached its highest point to date at $527 billion, but this resulted in the EU stomaching a deficit of almost $225 billion. Preliminary figures for 2012 show a drop in trade of around 4%, probably driven by Europe’s economic travails, but the overall deficit remains fairly constant. While this represents a significant amount, it also demonstrates that the imbalance in the trading relationship is not as severe as exists in China-US trade; although the figures for absolute deficit are fairly similar (the figure for the US in the same period was equivalent to approximately $236 billion) the EU deficit was generated from a two-way trade figure that was more than one third larger than that of China-US trade, meaning it was proportionately much smaller. It is also important to consider that although this deficit is high, it is relatively stable as both exports and imports continue to grow at a similar pace. Thus, whereas the trade deficit in 2007 was $222 billion, only fractionally lower than it was in 2010, this represented more than half of the overall two-way trade for that year. In fact, across the last five years exports to China from the EU have grown at an average of 15% per year, making China Europe’s fastest growing market by some margin, while imports grew at just below 10%. A continuance of this trajectory will see the trade imbalance become even less of an obstacle to relations in the future.

There is, of course, imbalance within the EU regarding the importance of China as a trading partner. As outlined earlier in this article, while the EU often negotiates as a single entity on the international stage, it is an organisation that has 27 member states, each of which retains its sovereignty. The result of this is that the figures on two-way trade above perhaps give a skewed outlook on the relationship. Of the $527 billion in two-way trade in 2010, fully one third was between Germany and China, and the majority of the trade is with the EU’s four largest states (Germany, UK, Italy and France). When separated out this way and placed into the context of the global economy, the figures are not entirely surprising. It is to be expected that Germany is China’s largest European trading partner, both because of the size of its economy and the level of complementarity, as the majority of trade with Europe is in industry and machinery, sectors in which the German economy is strong. However, the significance of even smaller countries within the EU lies in the collective negotiating position that the EU has, allowing them to be part of a much larger negotiating team in dealings with China; this has the twin effect of increasing these countries’ relative leverage as well as to enhance the EU as a whole vis-à-vis China.

vpix / Shutterstock.comChina has taken on an even greater significance to the EU and its member states since the economic crisis of 2008 and the subsequent debt crises that have emerged in Europe, particularly in those countries that use the Euro. There have been some quite naked attempts from within Europe to woo the Chinese into buying up bonds to ease this situation. China has vested interests in ensuring the stability of the European market on which it relies so heavily for exports, prompting the leadership to issue broad statements of support and pledges to invest in Eurozone debt, especially from Italy, one of the countries most heavily in debt. However, these statements and pledges have also been augmented by warnings from China that Europe must do more to put its own problems right in this area and, most importantly, to protect Chinese investments in the EU. While it is clear that China holds most of the cards in this predicament – the Europeans cannot realistically solve the debt crises without Chinese investment – it is not in China’s own interests to exacerbate the situation and assistance is, therefore, likely to be forthcoming.

The European Debt Crisis

In order to join the European Union, potential member states had to sign the Maastricht Treaty which was to bind them into limiting their deficit spending and debt levels. Some European Union member states, Italy and Greece for instance, dodged this obligation by hiding their debt and deficit levels through the use of complex currency and credit derivative structures. Having entered the Eurozone, Greece and several other EU countries continued to run large deficits through the 2000s. In the early part of the decade, these deficits were less problematic as they were supported by economic growth. In Greece, this growth was driven by its shipping and tourism industries. With the 2008 financial crisis and the accompanying slowdown of the world economy, however, Greece’s debt, and that of other EU countries, began to rapidly build-up.

As government budget deficits and sovereign debts have increased sharply, a crisis of confidence has emerged which has resulted in Italy, Greece, Spain and Portugal’s credit ratings being downgraded, and in increased borrowing costs for those countries. These sovereign debt issues have become a perceived problem for the Eurozone as a whole, not the least because many of the struggling southern euro countries have received bank loans from France, Germany and other more solvent Eurozone members. France’s banks in particular have extensively lent to southern European governments. In September 2011, two of France’s largest banks, Societe General and Credit Agricole, were downgraded because of their exposure.

By April 2010, the EU and IMF agreed to an initial bailout package of €45 billion for Greece. In May 2010, austerity measures were proposed to reduce Greece’s deficit, as the country’s slow growth meant that it would be unable to repay its debt without significant cuts in spending. Many Greek citizens were unhappy with the severe austerity measures and have held national strikes in protest. A protest on 5th May 2010, for instance, was widespread and became violent, resulting in three deaths. Nevertheless, in the same month the IMF and the euro zone countries approved a €110 billion loan for Greece, conditional on the implementation of measures to reduce government spending. The Greek loan was followed by a loan of €85 billion for Ireland in November, and a €78 billion rescue package for Portugal in May 2011.

In May 2010, the 27 member states of the European Union agreed to create a €440 million European Financial Stability Facility, a legal instrument designed to maintain financial stability in Europe by being able to provide rapid financial assistance to European governments in need. These funds were to be made available in conjunction with €250 billion from the IMF. In January 2011, the European Union designed the European Financial Stabilization Mechanism, a €60 billion emergency lending program backed by all 27 European Union members. The idea is that EFSF and EFSM are to be replaced by the European Stability Mechanism due to be launched in mid-2013.

In order for Greece to be eligible for the next tranche of its bailout loan, in May 2011, the IMF proposed spending cuts amounting to €28 billion over five years. Greek citizens again took to the streets in protest. In October 2011, leaders of the 17 year zone countries met in Brussels to discuss a package aimed at addressing the crisis. A deal was reached in which it was recommended to write-down by 50% the Greek sovereign debt held by banks, to enlarge the European Financial Stability Facility to €1 trillion, to increase the mandatory level of bank capitalization, to ensure that Italy would make commitments to reduce its national debt, and to pledged €35 billion in credit enhancements to offset losses incurred by European banks. The package has yet to be put into effect, however, as Greek citizen resistance to continued austerity first caused Greek Prime Minister George Papandreou to propose a referendum on the package, then to withdraw the referendum, and eventually, to step down as the Greek Prime Minister. The Greek political situation currently remains unclear with voters apparently unwilling to sanction to agreement to slash public spending on which its bailout money depends.

Currently, the situation remains unresolved. Borrowing costs in Spain, Italy, Portugal, France and Greece have continued to rise up to the point where their debt levels could become unsustainable. In fact, bailouts for Irish and Spanish banks were issued in 2012. Part of the issue has been that the weaker economies of southern Europe have not been able to devalue their currencies in order to remain competitive as they surely would have done if they were single, sovereign entities, while Germany has enjoyed an artificially depressed currency allowing their exports to rapidly grow. Individually, the southern European countries could have more easily preserved their competitiveness through greater tolerance for inflation and corresponding regular devaluations. They would have had the ability to keep interest rates low and to engage in quantitative-easing and fiscal stimulus. They could have supported job-targeting economic policies, instead of introducing inflation- targeting policies as they are required under their current commitments.

This inability to make competitive adjustments through currency variations has created an imbalance of payments in the southern European countries. To correct this imbalance, without the ability to individually raise interest rates or to impose capital controls, the southern European countries have been borrowing to fund their deficits. As their deficits have reached unsustainable levels, they are now being asked to reduce their consumption in order to hike their savings rate and to reduce the capital outflows. This has come at a time when slower GDP growth rates have led to slower growth in tax revenues and higher social security spending, increasing deficits and debt levels further. The French May 2012 election of Francois Holland may mark a shift toward EU economic policies that emphasize growth instead of just austerity; certainly there has been a big upsurge in calls for simulative economic policies. In what form these policies take shape is still under negotiation.

Ultimately, the long-term sustainability of the Eurozone will require a common fiscal policy in addition to a common economic policy. Whether sovereign countries will be willing to let outsiders dictate their tax and government spending policies is yet to be seen. European economies, with high wages, large government social services and subsidies, and complex regulations and taxes are becoming increasingly uncompetitive in the global economy. These factors have been aggravated by Europe’s aging population, the growing use of technology to replace skilled labor, and globalization which has caused European manufacturing and services to relocate to lower-cost production centers.

What China’s role will be in the debt crisis remains to be seen. In the short term, Europe’s debt crisis is likely to be stabilized through financing from the EFSF, the IMF’s use of special drawing rights, or a combination of the two. Exactly how of if China contributes funds to this process is still an open question. Europe is China’s largest export market. If Europe derails, it also will drag down the global economy, which will negatively impact China’s own economic expansion. Although it is not known for certain, it is estimated that a quarter of China’s approximate $3.2 trillion in foreign exchange reserves are denominated in euros, so China has a vested interest in maintaining their value. China continues to need to diversify its foreign reserve holdings and Europe represents one potentially viable area for investing excess Chinese funds; China can only invest so much in its domestic economy without worsening inflation, creating asset bubbles or mal-investing. Playing a more active role in the European crisis might help solidify China’s positioning as a responsible power and enhance its clout on the global stage. It may also boost Beijing’s leverage with Brussels on issues such as gaining “market economy” status, increasing its role in international organizations such as the IMF and the World Bank, and on getting the US to stop pressuring it to ease its foreign currency controls.

That said, it is likely that bailing-out Europe would prove unpopular at home. On a per capita basis, China is much poorer than Europe; bailing-out Europe would give the impression that China is supporting rich foreigners at the expense of its citizens, especially given the widespread sentiment in China that Europe is in crisis in the first place because of its own profligate spending. The safety of EFSF issued bonds is also a concern for China. On numerous occasions, China has insisted that it cannot consider investing until Europe’s financial house is in order. Also, as China rises, disquiet in the West about China’s intentions intensifies. Depending on how China handles it, its efforts at assistance could be misconstrued as opportunistic mercantilism, especially if it invests in industries that it could later use as a springboard for further market penetration, as opposed restricting its investment to buying bonds.

Human Rights

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The EU describes its core interests in the relationship with China as going beyond trade to incorporate matters of human rights and political reform. The way in which the EU seeks to alter China’s actions in this area is governed, as the rest of the relationship is, by the 1985 EC-China Trade and Cooperation Agreement (TCA). Although originally negotiated by a European Community that consisted of just 9 states, the TCA has since been updated and remains the bedrock of EU-China relations today. Under the terms of the TCA, the EU commits itself to engagement with China, particularly with regard to trade, in order that it may encourage the liberalization of China both politically and economically. The EU’s China policy, therefore, rests on a fundamental assumption that engagement is good and will encourage liberalization in China.

As part of the agreement the two sides hold regular summits on specific issues, including a biennial “Human Rights Dialogue” during which representatives of the EU offer assessments on the extent to which China has fulfilled previous human rights commitments and has the opportunity to raise individual cases of concern with their Chinese counterparts. This process is not entirely one-sided; the Chinese side frequently uses these meetings to point out what it considers to be issue of discrimination against people of Chinese origin within the EU, though the evidence produced for this is ordinarily quite unconvincing. The Europeans point to some limited successes from these dialogues, particularly in the release of political prisoners, such as Tibetan activists, ostensibly at the request of EU representatives. However, examination of the reports of these dialogues released by the EU shows that frequently the same cases are repeatedly raised, usually without any concrete action resulting. On the occasions where cases have been resolved there is little evidence that this has happened as a direct result of EU concern. However, it can be argued that a success of the EU’s approach is that it has institutionalized China’s acceptance of the discourse on human rights, allowing regular reporting to take place on its record in this area by an external party. Critics may see this as paying lip service to the idea, but others argue that this is just one stage in a long-term process of norm development.

The gulf in perceptions of human rights between Europe and China came to the fore in the run up to the 2008 Olympics in Beijing. Following the series of protests that occurred in Tibetan regions of China in March of that year, and the concomitant crackdown by Chinese authorities, many groups in Europe sought to register their anger and protest by targeting the Olympic torch relay as it passed through Europe. The reaction was strongest in France, where several protestors tried to grab, or even extinguish, the flame, while numerous pro-Tibet banners and flags lined the route. These scenes were mirrored in other EU countries, including the UK, and caused serious disquiet amongst both Chinese politicians and the general public, many of whom considered it to be an undeserved sleight on the Chinese nation. What followed was a period of particularly frosty relations, especially between France and China. A fairly widespread internet campaign, for example, urged the boycott of Carrefour, a French supermarket chain that has almost 200 stores in mainland China. After much speculation that he would boycott the opening ceremony of the games, the French president Nicolas Sarkozy appeared to back down and made public his intention to be present. This calmed the atmosphere at the political level, and the controversy now appears to have had no serious lasting impact on either Franco-Chinese or EU-China relations.

Arms Embargo

The biggest and longest running issue in China-EU relations, however, remains an arms embargo that was put into force in 1989 following the Tiananmen Incident. The embargo was the centerpiece of the European response to the crackdown which had been widely condemned among Western countries. It remains the only sanction imposed during that time not to have been lifted. What it means in practice is that no EU member state may sell weaponry to the PRC and this includes a responsibility to ensure that no third country acts as an intermediary. During a period of rapid modernization in the Chinese military, this has been a source of concern both to the Chinese government, who would like the freedom to purchase advanced military technology from EU suppliers, and also to some in the defense industry in Europe, which considers China to be a massive untapped market. It is an item that is on virtually every agenda at summits between the EU and China, but there is currently no realistic prospect of it being lifted. A groundswell of opinion did begin to form around lifting the embargo in the early years of the twenty-first century, with the then French president, Jacques Chirac, chief among those calling for at least a limited amount of arms sales to be permitted. While some countries supported this idea, it was opposed strongly by the US, a crucial ally of the EU. In direct response to US concerns BAE Systems, a British firm which is the largest manufacturer of arms in the EU, stated publicly that it would not countenance selling weapons to China even if the embargo were lifted. The debate came to an end in 2005 when China passed its Anti-Secession law, explicitly authorizing the use of force to regain sovereignty over Taiwan. Following this, even the most pro-Chinese European leaders realized that ending the embargo was a political impossibility. The question of lifting the embargo continues to be raised within Europe from time to time, most recently by the Spanish in 2010, but the prospects of it being lifted seem distant and unlikely. This is a continuing cause of irritation in China, where it is viewed, probably correctly, as more of a strategic decision than a statement on its human rights record.

Future Trends

All relationships that involve the EU are complicated by the fact that it is both a single entity and a diverse collection of 28 sovereign states. The diversity of the EU brings with it an incoherence in its strategy towards China. While all states value the increased and increasing levels of two-way trade and understand the centrality of China to future European economic growth, other aspects of the relationship are not dealt with in such a unified manner. The trajectory of economic expansion seems set to continue and the growth of exports to China within this expansion mean that any tensions that are caused as a result of the trade deficit will not be of great significance to the relationship. While the EU continues to define the issues of human rights and political liberalization as core to its China strategy, it could be argued that it is now taking a much more pragmatic approach in this respect. The policy of engaging with China in order to promote these aims rests on the fundamental principle that such engagement will help to bring about the desired changes in China, but this is not really borne out by the evidence. It seems unlikely that the EU will make serious inroads into its human rights and political reform agenda in China and, for their part, the Chinese seem willing to engage discursively in this process while continuing to place economic growth at the center of their strategy. With the core interests of both sides seemingly converging around trade, the issue of human rights seems likely to take more of a back seat. The exception to this will continue to be the arms embargo which is likely to remain in place for the foreseeable future, though this has now taken on more of a strategic importance, both to states within the EU as well as to key allies such as the US, rather than genuinely seeking to address issues of liberty in China.

In terms of the Eurozone debt crisis, it is hard to predict future outcomes given the incredible volatility of the current situation. Given all that China has at stake in Europe, it is unlikely that it will remain categorically on the sidelines. Given a choice, China has expressed a preference to buy European assets as opposed to government bonds, although it anticipates that Europeans may likely be more resistant to this idea. In such a case, it is likely that China will be more willing to provide funds for Europe through the IMF, especially if it’s increased funding buys it a greater voice in IMF policy making. Gaining greater clout in international organizations is a Chinese objective. Additionally, supporting the IMF will be easier to sell at home than investing in a strictly European-based financing mechanism. The IMF’s authority and experience at restructuring countries struggling with their finances will also provide China with additional comfort that its investments will not be squandered.