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Presentation on theme: "THE EMERGING EU-CHINA-US GRAND TRIANGLE ?"— Presentation transcript:

Willem van Kemenade Website: THE EMERGING EU-CHINA-US GRAND TRIANGLE ? The Rise of China and the Shifting Global Balance of Power China spacecraft blasts off on five-day mission Tue Oct 11, :14 PM ET BEIJING (Reuters) - China's second manned spacecraft blasted off from a remote northwestern launch site on Wednesday, just two years after the country joined an elite club of space powers. Astronauts Fei Julong and Nie Haisheng were handpicked from 14 fighter pilots and had been in the running for China's first manned space launch in Their mission is due to last five days. "There is nothing to worry about," state television quoted the two as saying before the launch as a light snow fell. "We will accomplish the mission resolutely. See you in Beijing." October 12, 2005 Premier Wen Jiabao hails successful launch of spacecraft Shenzhou-6 font size  ZoomIn ZoomOut Chinese Premier Wen Jiabao Wednesday hailed the successful launch of China's second manned spacecraft Shenzhou-6, reiterating China's policy for peaceful use of space. In a brief a speech at the Jiuquan Satellite Launch Center, in northwest China's Gansu Province, Wen said that China develops space technology purely for peaceful purposes and China is willing to cooperate with other nations in the development of space science and technology. The premier said the achievement in the launch of Shenzhou-6 will be recorded in the country's glorious history. Source: Xinhua Clingendael October 24, 2005

2 Contents China’s domestic political, social and economic development
The US-Japan-(Taiwan) Alliance The Trans-Atlantic Rift China’s Global Scramble for Energy America’s Hard and Europe’s Soft Power M&A, Sanctions Free Trade vs. Protectionism

3 Hu Jintao (62), Closet Liberal or Hardliner ?
Since take-over in , hope was high that Hu would introduce a new wave of political reforms. However, he has suppressed the debate at the national level and focussed on rural poverty, government austerity and anti-corruption. Worried by people’s power take-overs in Ukraine, Georgia and Kygyzstan and rebellion in Uzbekistan, there is a crackdown on Internet and (foreign) media, tighter police surveillance of activists and a clampdown on NGO’s. As social unrest escalates, Hu wants to re-centralize state- and party-power so as to maintain stability and order, ahead of the 2008 Olympics. He reached out to liberals by rehabilitating Hu Yaobang and inviting Taiwan’s opposition-leaders for high level visits to Beijing. In foreign policy Hu stresses “Peaceful Rise” rebuking the US Neo-Cons and Japanese right-wing, who see China as a “Threat”. The debate about how to adapt the political system to this new landscape has lagged and, at a national level, has been suppressed at Mr Hu’s insistence. Institutions such as the courts have been kept under the control of the party. Non-governmental organisations, mainly on the environment and Aids, have been left in a legal limbo out of fear that they might develop into independent political entities. Mr Hu and his supporters, however, have reached the opposite conclusion. For them, both China’s success in the coastal cities and the upheaval in many rural communities is evidence of the need for the kind of “stability” that only single-party rule can provide. On foreign policy, Mr Hu has been relatively activist, conducting a grand tour of the US’s backyard in South America and forging closer ties with Asian countries, with the exception of Japan. My old friends in the Chinese news media and the Communist Party are mostly aghast at President Hu Jintao's revival of ideological slogans, praise for North Korea's political system and crackdown on the media. Yet China, fortunately, is bigger than its emperor. As to the different interpretations of how powerful Zeng is today, I guess it may depend on who you talk to.  It somehow reminds me of the story of the group of blind men describing an elephant they have all come to know very well by touching (different parts of) it. After giving him the benefit of the doubt during a long political honeymoon, many have concluded Hu is an ideologically rigid and exceedingly cautious apparatchik who recognizes the party's authoritarian system is in trouble but wants to repair it. According to my local sources (I am currently in Beijing on sabbatical), all the ideological -retraining is in response to the Party's anxiety in the wake of the series of "Orange Revolutions" in Eastern Europe/former Soviet Union. Anne-Marie Brady The movement Michael referred to is called "baoxian" ("preserve [the partys] advanced nature"), and it is being treated with overt cynicism by most party members with whom I am acquainted. Here at Beida, it involves frequent meetings at which members are required to criticize their leaders as well as themselves. One party member well known to many on this list complained that they "won't even let me print out my self-criticism; I have to write it by hand." Another (also known to many) complained that his evenings were being wasted in "useless meetings." The whole thing strikes me as stunningly atavistic and self-defeating. --Rick

4 The World Economy is booming in China
Sixth largest economy, second in PPP; 4th trading power. 22 % of the world’s population; GDP of $ 1.55 trillion is 4 % of the world aggregate of $ 36 trillion. Per capita income 2004 $ 1.196,--. Black economy is at least another $ 100 bn. China is expected to match the US in coming decades as the “locomotive of world economic growth”. It now contributes 18 % to global growth. In 2003 China accounted for 60% of world trade growth China's economy has continued to depend too much on externals. About 45 % of China's growth derives from exports, and so the country's economic health is highly vulnerable to protectionist pressures from the US and Europe. "Exports are becoming a growth engine, but China will have to carefully deal with these external risks." China has become a manufacturing hub for the rest of the world in low-end, labour-intensive goods. The developed world is becoming a manufacturing base for China in high-end, capital-intensive goods. As a result of its new role in the global supply chain, China is now running trade deficits with East Asia and surpluses with America and Europe. China's economic foundations: Its growth comes from two sources: public spending and foreign direct investment. If Beijing stops spending or investment dries up, the economy shrinks. The rising number of bad loans at the four state-run banks raises questions about how much longer it can finance the boom. The Chinese economy shows signs of overheating due to overcapacity and deflation. Small cars are a third cheaper than a year ago. China makes over 50% of the world's cameras; 30% of air-conditioners and televisions; 25% of washing machines and nearly 20% of refrigerators. 1.000 Kentucky Fried Chicken outlets; 500 McDonalds; 421 m phonelines, highest number in the world. Li calculated that China consumed 30 percent of the world's coal production last year, 36 percent of the world's steel and 55 percent of the world's cement and acknowledged that prices for steel and cement were rising. GDP 2002: Yn trillion (US$ 1.24 trillion). According to the State Statistical Bureau, the “underground economy” is worth an additional 10 %. "China's economy is grossly imbalanced at this point, with an overwhelming dependence on investment versus consumption - possibly the most imbalanced country in human history," Kindopp said. Wal-Mart alone purchased $18 billion worth of Chinese goods in 2004, making it China's eighth-largest trading partner -- ahead of Australia, Canada, and Russia. Although most Chinese people remain poor (average per capita income, at $5,600, is lower than in the Dominican Republic), China is already the world's second biggest economy. Its GDP of $7.3 trillion, as measured in purchasing power parity, trails only the United States (at $11.7 trillion), and it is growing much faster. (Max Boot, TWS)

5 China’s Global Technology Position
China’s role in the world economy is largely defined by its participation in global production networks, set up by others, the Multinational Corporations (MNCs). Their dominant role derives from their control over standards and intellectual property. The big question is whether manufacturing and trading giant China, will also become a technology giant. China now spends 1.4 % of GDP on R&D annually. The OECD average is 2.3 % 85 % of high tech exports are from foreign invested firms, which employ managerial skills and proprietary technologies of MNCs. China is in a “patent trap”, that requires it to pay substantial royalties to the patent owners out of the sales of its manufactures.

6 When will China’s Economy be bigger than the US’s ?
In 2003 China's GDP was $1.41 trillion and America's was $11.26 trillion. At constant, average growth rates of 8 % for China and 2.5 % for the US, China would have a bigger economy in 2043. Current demographic forecasts suggest that China's population will peak around 2050 and then start to decline. Well before that, say 2030, it will be demographically one of the oldest countries in the world, with a very high retiree-to-worker ratio. Various imponderables – political crisis, effect of climate change, war, may lead to different outcomes. Mr Pan said that in the past 20 years the consumption of oil has risen 100 per cent, natural gas 92 per cent, steel 143 per cent, copper 189 per cent and aluminium 380 per cent. But while China has 21 per cent of the world's population, it has only a fraction of its reserves of oil, natural gas, iron ore, alumina and other resources. Most of these deficiencies can be offset by imports, albeit at a cost to China's sense of security. But other problems such as the 2.7m sqkm of farmland lost to desert, 400 cities short of water, the Yellow river's dwindling flow and chronic pollution are issues of a more elemental nature. Far from the US containing China, Mr Hu’s travels and that of other leaders gave the impression that China was encircling the US, by moving in on Washington’s traditional bailiwicks. The Washington visit next week presents a different challenge, not least because Mr Jiang made maintaining good ties with the US a hallmark of his administration. Mr Hu’s itinerary skirts middle-America, where arguably a Chinese leader most needs to sell his message, in favour of Seattle and Washington and Yale University, where he will speak under tight security. At a time when the US is increasingly antagonistic to China, Mr Hu may be missing a chance to burnish his image, and that of his country, in the US heartland. In middle America now, says a retired US diplomat: “Mr Hu is personality pabulum.” Deng Xiaoping, Mr Hu’s mentor, knew the value of such gestures, donning a Stetson hat at a Texan rodeo in 1979 in a symbolic break with China’s Maoist past. As he grows more confident at home, Mr Hu might take some lessons from Mr Deng about how to play politics abroad as well.

7 Regional Relative Weight in the World Economy
Europeans are recognizing that in terms of economic muscle and trading influence, the world is rapidly coalescing into three blocs: America, Greater Europe, and a China-centered Asia. East Asian countries, including China, account for 54 % of Japan's GDP. In comparison, Central Asian countries Kazakhstan, Kyrgyzstan, Tadjikistan, Uzbekistan, Turkmenistan, Afghanistan account for 5 % of China’s GDP. Latin American countries account for 15 % of the United States' GDP. East Europe accounts for just 8 % of the EU's GDP. IHT: Japan should focus on China, not the yuan Yoshihiro Sakai IHT Saturday, January 10, 2004 Asian economies

8 China: A Regional Power with some Global Influence and the Ambition to become a Two-Ocean Country
Gwadar Japan invoked missile tests from North-Korea as justification for its growing partnership with the United States in developing a missile defense. This has allowed Japanese military planners to avoid referring directly to China. In the “National Defense Program Guideline FY (for the next ten years), however, published December 10, 2004, the Japanese government identified China’s modernization of its military and increasing defense spending (and North-Korea’s nuclear weapons ambitions) as concerns. Defense Agency director-general Yoshinori Ono specifically cited "the recent case where a Chinese submarine intruded into Japanese waters". Japan’s emphasis that China now (2003) spent more on defense than Japan - $55.95 billion versus $ billion - was misleading since Japan was the increasingly intimate junior partner of the United States, which spent $ billion in 2003. From: Zbigniew Brzezinski, The Grand Chessboard: American Primacy and its Geostrategic Imperatives, Washington DC, 1997

9 A China-Centred World

10 An America-centred World

11 A Europe-Centred World

12 China’s Defense Budget
At the opening of the annual session of the National People’s Congress in March 2005, China announced to increase its national defense spending by 12.6 % to $ 29.9 bn. This latest rise comes after increases of 11.6 % in 2004, 9.6 % in 2003, 17.6 % in 2002 and regular double-digit increases in the decade before that. Some Western experts estimate that the real size of China's military spending is 3 to 5 times the official number, placing it third behind the United States and Russia. China’s substantial arms purchases in Russia and Israel are not included. The combined defense budgets of EU members - $175 bn - exceed the military budgets of China, Japan, and Russia combined. The US' nearly $500 bn budget for the current fiscal year, exceeds the aggregate total of the rest of the world. Deep down, however, there is a distrust of the US, a sentiment that is reciprocated in America. Just how the US sees the world was unveiled last September 2002 in "National Security Strategy of the United States of America" - a document containing statements that Chinese leaders must have read with great concern. For one thing, the US indicated that it was moving from a strategy of deterrence to one of pre-emption. This doctrine is troubling to China, since it could never know where or when the US might strike. It is certainly very worrying to North Korea, which fears a nuclear attack by the US. Throughout the document, the US expressed friendship and understanding for other major powers, such as Russia and India. However, where China is concerned, the US sounded distinctly cool. The US will see to it that no country can ever equal its military power, not to say surpass it. The figure announced every year at the NPC (2002) is thought to be earmarked mainly for the operational expenditures of the army, and excludes sums spent on arms procurement from abroad. Total military spending, including weapons purchases from Russia, Israel and elsewhere, is thought to be as much as three times the published budget. Chinese military officers said a 17.6 percent rise in defense spending announced yesterday (2002) wasn't enough, grumbling that poorly paid soldiers are shivering in unheated barracks and lack modern equipment.

13 Is War over Taiwan likely ?
Majorities in the US, Japan and Taiwan probably prefer the status quo of “no independence, no reunification, no war, joint economic development and some integration”. The US wants to maintain its dominance over both Japan as a satellite ally and Taiwan as an unrecognized protectorate, as the twin pillars of its military hegemony in Northeast Asia. On all sides there are vocal minorities and interest groups who think they will benefit from a war, which they reflexively assume, the US/Japan/Taiwan will win. One Japanese pro-Taiwan hardliner: “In coming years, public opinion and the US Congress will be the ‘dictator’ of the world, stronger than the president.” No legal instruments mandate Japan to support the US in case of war. “We will do whatever it takes to defend Taiwan .…. in case of an unprovoked attack”. Again, there is no clear definition of what an unprovoked attack is. Yasuhiro Matsuda, a senior research fellow at the National Institute for Defense Studies (NIDS) under the Defense Agency is very explicit that Japan will never get involved in American offensive operations against China. “No, no, no ! There is no legal basis. Our Constitution doesn’t recognize the right of collective defense. Only if Japan itself is attacked will we counterattack. In practice, if China conducts a very limited operation against Taiwan, we will not come into action. But in the case of a massive attack, we will give rear area support to the US.” Matsuda elaborates that the SDF airforce may have to set up an airbridge, to evacuate Japanese citizens, approximately 15 to from Taiwan. “Will Japan allow US forces to use their military bases in Japan for a war against China ? Theoretically yes and now, practically also yes ! If Japan would not allow the US to use their bases in Japan, it would be tantamount to: YANKEE GO HOME ! It would mean, we opt for China and end the US-Japan alliance. This is a very unthinkable situation”. But Chinese officials worry that the simmering independence movement in Taiwan could force Beijing to start a war it does not want, and they resent American weapons sales, which they call an obstacle to "peaceful reunification." Although Japan, like the United States, officially calls Taiwan part of "one China" and supports a peaceful resolution between Beijing and Taipei, defense planners like Mr. Nishihara raise uncomfortable questions about the future status of the island. "Strategically, if Taiwan falls under Beijing's military control, that would threaten the sea lanes of East Asia, and Chinese forces wouldn't be very far from our territory in Okinawa," he said. situational, not geographical Beijing's strategy for incorporation of Taiwan is to grow Chinese power until it over-awes both Taiwan and the United States. As China's power approximates that of the United States, and as China demonstrates its willingness to use that power to incorporate Taiwan, Washington will be forced to disengage from Taiwan. The American people will not be willing to trade Los Angeles for Shanghai, while the Chinese people would bear such sacrifices for China’s reunification and restoration to greatness. In the meantime, China will use its influence to prevent injury to its de jure claim to Taiwan. In the fullness of time, if Taipei and Washington dispute Beijing’s "one country, two systems" terms, then a trial of strength with the United States may be necessary.

14 Sino-Japanese Relations: Energy-rivalry, Military Conflict, Permanent Estrangement ?
Tensions have escalated over gas reserves in the East China Sea. The JDA revised its strategy late 2004 on the assumption that these tensions could escalate into war. In February, the US and Japanese Foreign and Defense Ministers [2 + 2] declared the Taiwan Question a “common strategic objective”. And in April, Tokyo awarded two Japanese companies the right to drill for oil and gas near the Senkaku’s. Chinese citizens launched a global internet-campaign, opposing Japanese permanent membership of the UN Security Council while violent anti-Japanese demonstrations were staged in Chinese cities. On October 1, Japan proposed a "comprehensive and final solution" to the East-China Sea gas issue. China responded by offering talks on the UN Security Council issue on October 16. However, PM Koizumi’s visited the Yasukuni Shrine again on October 17, plunging bilateral relations in crisis again. China's growth strategy has been different from that of Japan. When Japan rose to power, it did so in a predatory fashion, pushing its products and investments in other countries but keeping its own market closed. China has done the opposite, opening itself up to foreign trade and investment. The result is that growth in countries from Brazil to Australia increasingly depends on the Chinese market. China is making itself indispensable to the world. Even India, which is wary of China's rise and is a counterweight to it, will not ignore this reality. In three years its largest trading partner will be China, displacing the United States of America.

15 Japan’s Attempts to lead Asia stymied for decades by subservience to the US, Now by the Rise of China Japan has tried to break out of its “satellite-relationship” with the US several times, but each time external events and American pressure frustrated this. Koizumi’s announcement in 2002 that he would go to Pyongyang, just after Bush had branded it part of the “axis of evil” was the latest example. Then Japan tried détente with Russia: getting the Kurile islands back for a huge pay-out of $ 25 billion. Yeltsin wouldn’t play ball. Then the first North-Korean nuclear crisis in pulled Japan back into the American orbit. China’s firing of missiles close to Taiwan in further re-strengthened the US-Japan alliance. During the Asian Financial Crisis in 1997, the US, followed by China, torpedoed a Japanese plan to set up an “Asian Monetary Fund” that would help Asian countries not according to the IMF criteria of the Washington Consensus, but according to “Asian Values” with Japan in the lead. In 1990, the World Bank issued a list of “virtues” for emerging economies: They should be open to capital flows, while moving towards transparency, privatisation and liberalisation. This became a doctrine, known as “The Washington Concensus”. China ignored the pressure from the World Bank, the IMF and the US and this saved it from the financial collapse that hit Thailand, South-Korea and Indonesia during the “Asian Crisis” of 1997. China now has its own independent “coordinated development” strategy, i.e. approach privatisation and free trade with caution, open capital markets only gradually, use “assymetric” power like huge dollar reserves to get leverage over a recklessly spending U.S., and befriend neighbors by massive, fast increasing imports.

16 The Coming East Asia Summit
The East Asia Summit is scheduled for December 14 in Kuala Lumpur as a first step to establish an East Asian Community. Since China and Japan cannot lead because they don’t accept each other’s leading role, ASEAN is in de drivers’ seat and will chair the Summit with the ASEAN – China, Japan, South Korea, plus India, New Zealand and Australia. Australia, one of the deputy sheriffs of the US has been trying to rally support for US participation, but there is a consensus to keep the US out. Koizumi is expected to move forward with constitutional revision, fully remilitarize Japan as the uninhibited global junior military ally of the US and be very lukewarm about Asian “mulitlateralism”. In the anti-China prism of the US and Japan, China is planning to use the EAC as an instrument to limit US influence in Asia by establishing its political, economic and military dominance in the region. China has offered quick tariff reductions that will boost imports of agricultural products from ASEAN, whereas Japan is much less willing to engage in trade liberalization, especially in the highly protected agricultural sector. China has been leading in regional integration, which Japan did in the early 1990s while it has been holding off in recent years. China wanted to form an East Asian bloc in that would include Japan, but since the cooling of relations, the Chinese blueprint may no longer eye Japan but only continental plus archipelagic Southeast Asia as part of its grand strategic goal of a multipolar world, so as to counter American global domination. However, in the race for East Asian regional leadership since the Asian Financial Crisis in 1997, China has clearly outmanoeuvred Japan, despite the fact that the latter’s current GDP of over $ 4 trillion is still two and a half times the size of China’s. After a decade of on and off recession, Tokyo decided in 2001 to cut its overseas aid, most of it to Southeast Asia by 10 per cent, in order to cut its huge public debt. [1] [1] Michael Richardson, Japan Loses Clout, International Herald Tribune, 19 December 2001. You cannot make one single FTA. I don’t know whether Japan is active or passive about this new concept of the EAC. But if they display very active intentions, that could be driven by a hegemonic struggle with China. They can not leave the region to China’s hand. (Kim Han Soo)

17 “An East Asian Cold War” Masashi Nishihara
Senior figures in Japan openly express hope that China will disintegrate: “If Taiwan is not integrated into China, that will be a great favor to our defense”. “We will definitely support US intervention to defend Taiwan ….. If we have to choose between the US and China, Japan will choose the US. That’s the worst situation to arise”. “Tensions will continue for some time. I cannot see even ten, twenty years from now, we will become good friends. We will have huge trade, summit meetings etc. but tension will continue. Like during the Cold War, the Soviet Union and the United States, two very different powerful empires. They could never get really close. But there was détente, disarmament, reduction of tensions etc. They managed to be able to coexist, without fighting. Maybe something like that can develop between China and Japan.

18 America yields to Chinese leadership on North-Korea
After 13 months absence, North Korea returned to Beijing on July 27 for another round of negotiations about a possible end to its NWP. A meaningful step forward was taken when the US after years of public insults and threats, conveyed to Pyongyang that it recognized North Korea as a sovereign country and had no intention of invading it. By September, China intensified the pressure on the US to extend some trust to North Korea, backing Pyongyang's right to a peaceful nuclear energy programme once it dismantles its weapons and returns to the international nuclear non-proliferation treaty. Then on September 19, North-Korea agreed to give up all its NWP’s in exchange for oil and food aid, a non-invasion pledge and diplomatic recognition by the US and Japan. SEOUL Scrapping an agreement to return to the bargaining table, and highlighting one of its key complaints about Washington, North Korea announced Monday that it would not return to six-nation nuclear disarmament talks until mid-September at the earliest, after South Korea and the United States complete two weeks of military exercises. Quick to dispel overreaching optimism, just a day after signing the agreement, Pyongyang declared it would not scrap its nuclear weapons programme until the U.S. provided it with an alternative to the reactor it now possesses.

19 North-Korea: Background to the “Six Party Talks”
Washington had become alarmed by the progress of South-Korea’s “Sunshine Policy” with the North – linking North and South by big infrastructure-projects, setting up investment-zones in the North and even de-mining the Demilitarized Zone, which the US refused to approve. On top of this came a conciliatory approach towards Pyongyang of America’s most obedient ally, Japan. This had to be stopped. Not ready for a preemptive strike on North-Korea in the run-up of the Iraq War, Washington decided to cook intelligence and to mobilize a coalition against Pyongyang, the “Six Party Talks” not so much for negotiations as for a “diplomatic tribunal” to pressurize North-Korea and persuade the other participants to agree with America’s hardline and join Washington in imposing sanctions. It is a victim of the Washington world-view, a bureaucratized form of fantasy. Beijing is believed to provide at least 70 per cent of North Korea's oil and more than a third of its food aid. To the dismay of Washington, Mr. Roh has spoken in recent weeks of establishing an economic community with North Korea, stepping up trade, aid and investment there, ruling out economic sanctions and military strikes against the country and even of personally "guaranteeing" North Korea's security. "The Japanese are on the spot because the U.S. alliance with South Korea is defunct, and there is no point in insisting on it any more," said Robyn Lim, a regional security expert at Nanzan University in Japan. "The U.S. alliance with Japan is integrally linked with the U.S. alliance with South Korea. Indeed, since the Korean War, the American presence in South Korea has been as much about protecting Japan as it was about South Korea." American policy in North Korea is hardly better than American intelligence. At best it can be described only as amateurish. At worst, it is a failed attempt to lure American allies down a path that is not designed to resolve the crisis diplomatically but to lead to the failure and ultimate isolation of North Korea in the hope that its government will collapse. This administration must step out from behind China's diplomatic skirt and take the lead in resolving this crisis before Pyongyang creates a real nuclear deterrent. As it is now, North Korea is calling the shots. The current crisis began in October 2002 when North Korea said it had nuclear weapons already. It expelled the IAEA inspectors, monitoring its nuclear facilities, restarted a reactor that could produce more plutonium, and withdrew from the Nuclear Nonproliferation Treaty. At US urging China abandoned its policy of neutrality and pressurized Pyongyang into direct talks with the US in April 2003 in Beijing, The US wants to cause the collapse of the Pyongyang regime by pressure, isolation and perhaps a strike on its nuclear facilities. China wants to address Pyongyang’s security concerns. In June 2004 a Chinese official said that the US had no proof that North-Korea had an enriched uranium programme. (A.Q. Khan is their alleged supplier). China perhaps sticks to its residual alliance with Pyongyang to put pressure on the US to end arms supplies to Taiwan. . Selig Harrison, Did North Korea cheat ? Foreign Affairs, January/February 2005

20 The Impact of “9-11” on Chinese and Central Asian Security
The war on terror has loosened China's grip on the geostrategic zone to its west. China fears that the US will dominate the Eurasian heartland for the long haul. By uprooting Al-Qaeda in Afghanistan, the Bush Administration has also weakened China's influence in Pakistan and the Persian Gulf region. Presidents Putin and Hu Jintao have increasingly shown their dissatisfaction with the US military presence. Beijing saw Karshi-Khanabad, in Uzbekistan, and Manas, in Kyrgyzstan as US bases for the long term containment of China. After US protests against the Andizhan massacre in Summer, the Karimov regime ordered the US to leave its Uzbek base. At the same time, Beijing is working to restrain Washington. President Jiang Zemin telephoned British, French and Russian leaders last week, urging against U.S. haste in any military action. He also suggested conditions for backing the U.S., including calls for Washington to supply irrefutable evidence showing targets for retaliation were linked to the terrorist strikes in the U.S.; show utmost care to minimize civilian casualties; and consult with the United Nations Security Council -- where China exercises a veto as one of the council's five permanent members. "If the U.S. methods fail to meet these conditions, China will be severely critical," says Gao Heng, an international strategist with the Chinese Academy of Social Sciences. China's ambivalent approach shows how Washington's war on terrorism is placing Beijing in a bind. With Muslim separatists waging a low-intensity rebellion in its Central Asian frontier province of Xinjiang, China, too, sees terrorism as a threat and welcomes cooperation with Washington. But the prospect of a long-term U.S. presence on China's western borders could put countries Beijing has courted in Washington's embrace, heightening longstanding fears of U.S. encirclement of China. "A skillful U.S. handling of the situation, even though this is what China hopes for, will produce problems in U.S.-China relations," says Andrew Nathan, a China watcher at Columbia University in New York.

21 Sino-Russian Strategic Convergence during the 1990s
Frustrated and humiliated by US-hyperpower, China and Russia together with Kazakhstan, Kyrgyzstan and Tadjikistan, set up the “Shanghai Five” in 1996 to jointly stabilize Central Asia. The “Shanghai Cooperation Organization” replaced the “Shanghai Five” June 15, Uzbekistan joined as a new member. The six signed the "Shanghai Treaty on Cracking Down on Terrorism, Separatism, and Extremism.“ . This multilateralism was unsettled by the US intervention in Afghanistan in late 2001, which Russia welcomed. China however, accused the US of using military action in Afghanistan “to seize the chance to expand its military presence in Central Asia”. in addition to the US-presence in Korea, Japan, Taiwan and in SE Asia. The Secretariat of the SCO is based in Beijing. Apparently, there have been tough negotiations behind the scenes since then, with the Russians wanting more explicit and binding language, and the Central Asian nations preferring a more flexible treaty, with specific requirements attached as an appendix. The Russians seem to have won this battle, while the Chinese were rewarded with the headquarters and the secretary-general post. Despite its name, the organisation will be based in Beijing, since none of the Central Asian states have consuls in Shanghai - and China and Russia do not want to fund new ones. In addition, this seems to signal that Shanghai Organization is moving from a forum mainly on economy and territory disputes to a more security oriented organization. If so, this is a significant change in China's security/foreign policymaking. "Shanghai Treaty on Cracking Down on Terrorism, Separatism, and Extremism.“ (June 2001). Counterterrorism cooperation may sound nifty. But it does much to promote Russian and Chinese reach in Central Asia, and nothing to address a host of underlying causes for the violence these countries suffer back home. Mongolia, Iran, India and Pakistan have shown interest to join. Pakistan was excluded in 2001 due to its support for the Taliban. The headquarters of the SCO Regional Anti-Terrorist Center, a Rapid Deployment Force, will be located in Bishkek.

22 China’s Global Scramble for Energy
An unprecedented need for resources is now driving China's foreign policy. Twenty years ago, China was East Asia's largest oil exporter. Now it is the world's 2nd largest importer. Last year, it accounted for 31 % of global growth in oil demand. But it still imports only 12 % of the energy it consumes, compared with 40 % for the US and 80 % for Japan. For every US $ worth of output, Chinese energy consumption is 4.3 times that of the US, 7.7 times of Germany and 11.5 time of Japan. Anticipating a military conflict with the US, China is considering to build pipelines to the Indian Ocean through Burma and/or to the Arabian Sea through Pakistan. Over the past five years the growth area in Sino-Indonesian economic relations has been in energy resources. China’s appetite for hydrocarbons to fuel its burgeoning economy, together with Beijing’s desire to reduce its dependence on energy resources from the Middle East and the “strategic chokepoint” of the Malacca Strait, have been a boon to Indonesia. The Jakarta Post on July 28 noted that China imported $1.17 billion worth of oil and gas from Indonesia in 2004, and Chinese oil companies are now major investors in Indonesia’s oil and gas fields. Chinese competition has already taken a heavy toll on Indonesia’s massive footwear industry, and its textile industry seems destined to suffer a similar fate. While fears of PRC encroachment on Indonesian oil and gas fields near the Natuna Islands have receded since the mid-1990s, Jakarta will continue to remain vigilant for any signs of Chinese expansionism in Southeast Asia, especially in the maritime domain.

23 “West-Pipelineistan”

24 “East Pipelineistan”

25 Iran and China: Two old Asian Empires Who don’t accept orders from the US
Iran alone already accounts for about 11 % of China's oil imports, and in October 2004, the state-controlled China Petroleum and Chemical Corporation, known as Sinopec, one of China's three major oil companies, signed an oil and natural gas agreement with Tehran that could be worth as much as $70 billion -- China's biggest energy deal yet with any OPEC producer. Beijing committed to develop the giant Yadavaran oil field and buy 250 million tons of liquefied natural gas over the next 30 years; Tehran agreed to export to China 150,000 barrels of oil per day, at market prices, for 25 years.

26 Australia has become China’s Major Supplier of Iron Ore, Oil and Gas
Despite Australia’s close military alliance with the US, China has become a larger trading partner than the US – iron, coal, gas. Starting in 2006, Australia has agreed to export to China, some $1 billion worth of LNG per year for 25 years. Such deals are enhancing China's soft power in Australia, perhaps to Washington's detriment. According to a poll taken last spring, 51 % of Australians surveyed believe that a free-trade agreement with China would be good for Australia (only 34 % think well of the existing U.S.-Australian free-trade pact). And 72 % agreed with Australian Foreign Minister Alexander Downer when he said last year that Washington should not automatically assume that Australia would help it defend Taiwan against a Chinese military attack.

27 China in Rivalry with the US for Canada’s Alberta Tar Sands
Energy diplomacy has also prompted China to seek access to the massive tar sands of Alberta. Since late 2004, Beijing and Ottawa have concluded a series of agreements for developing Canada's natural gas sector, its vast oil sands deposits, and its uranium sector. Last April, PetroChina and the Canadian giant Enbridge signed a MoU to build a $ 2 bn pipeline that would carry oil to the Canadian west coast for shipment to Asia. Without Chinese investment, the fields would remain undeveloped. The deal could create tensions between the US and China, as well as the US and Canada, particularly since VP Cheney's 2001 energy policy report stressed the importance of the tar sands to U.S. energy security. In one closely scrutinized deal, China's state-owned Minmetals is bidding for Noranda of Canada, the world's third-largest zinc producer and ninth-largest copper producer, for a reported $5.5 billion. The deal is expected to include assumption of a substantial amount of debt not reflected in the cash price, and it appears based on the assumption that commodity prices will stay high indefinitely, said Jason Kindopp, a China analyst at Eurasia Group, a New York-based political-risk consulting firm.

28 Latin America: China’s New Oil Frontier in the US’s Backyard
Beijing is strengthening ties with the temperamental Venezuelan president, Hugo Chávez: "We have been producing and exporting oil for more than 100 years, but these have been 100 years of domination by the United States. Now we are free, and place this oil at the disposal of the great Chinese fatherland." President Hu toured the region in November 2004, during which he announced $20 bn in new investments for oil and gas exploration and other projects. Brazil's trade minister visited Beijing 9 times in 2003-’04. Brazil and Argentina granted China "market economy status”. However, Brazil failed to persuade China to voluntarily curtail its exports of textiles and shoes. Trade between China and Latin America has quintupled since 1999, reaching almost $ 40 bn by the end of last year.

29 China Dominant Foreign Oil Power in Sudan
China's crude oil imports are expected to reach a record 110 million tonnes this year, 21 % more than last year. Half of China’s oil imports are from the ME, half from Africa. It is China’s strategic policy to get oil from anywhere, particularly there where the US is not in control. In 1997 US sanctions banned US oil-companies from Sudan. CNPC poured hundreds of millions in Sudan’s oil industry, took a 40 % stake in Sudan’s “Greater Nile”, constructed oil fields, a refinery and pipelines. Sudan, formerly an oil-importer now earns $ 2 bn on exports. From Sudan, China plans to expand to Nigeria through Chad. Sudan is not yet a mainstay supplier to China. But Africa's largest country is already an important energy source, and seems set to become more so as Chinese oil production and exploration expand in Sudan. Moreover, Sudanese oil is much easier, and therefore less expensive, for Chinese refineries to process than heavier grades of Middle East oil. Such concerns have already proved justified, as in the case of Sudan. In 1997, while the Muslim-led Sudanese government was waging a gruesome war against Christian rebels in the south, Washington barred U.S. oil companies from doing business with Khartoum, leaving the door open for their Chinese counterparts to expand their operations there. Now China gets about five percent of its oil from Sudan and has reportedly stationed 4,000 nonuniformed forces there to protect its oil interests. Beijing has brushed off accusations that it is helping to prop up Khartoum. "Business is business. We try to separate politics from business," said then Deputy Foreign Minister Zhou Wenzhong in the summer of "I think the internal situation in the Sudan is an internal affair, and we are not in a position to impose upon them." Meanwhile, Beijing has deftly protected its oil interests there. In September 2004, it successfully watered down a UN resolution condemning Khartoum, undermining U.S. efforts to threaten sanctions against Sudan's oil industry. As if oblivious to the tensions created by Beijing's maneuvering, two highly respected Chinese professors argued this past April that China's assistance in turning Sudan into an oil-exporting state shows how China is raising standards of living in the developing world. "It marks the first time in recent years that China has promised to wield its veto power in the UN Security Council against a petition initiated by the United States and backed by France and Great Britain.“ In 2000, Beijing established the China-Africa Cooperation Forum (CACF) to promote trade and investment with 44 African countries. In 2003, Prime Minister Wen visited several oil-producing African states accompanied by Chinese oil executives, and President Hu toured Algeria, Egypt, and Gabon. China has been working closely with governments in the Gulf of Guinea, from Angola to Nigeria, as well as with the Central African Republic, Chad, Congo, Libya, Niger, and Sudan. Likewise, Beijing has signed dozens of trade and investment treaties with African states and forgiven more than $1 billion in debt since the CACF was created in 2000.

30 Shift in Global Strategic Culture
Several developments are changing the psychology of global strategic relations: The decline in American power and prestige as a result of: The bungling of the war in Iraq; The bungling of aid and rescue during Hurricane Katrina; The inability of the US to impose its will on Iran; US failure with North-Korea and the indispensability of China to solve the North-Korea problem. The Rise of China and the emergence of a “comprehensive strategic partnership” with the EU has made the US realise that it cannot exert too much influence over the future of China. The vehement row over the lifting of the arms embargo has led to tentative trans-Atlantic steps how to jointly deal with China, the most momentous question of our time China has now a string of strategic partnerships around the world: Russia, Brazil, India, and the latest Canada. The strategic content of each partnership varies. The emerging EU-China strategic partnership would be much wider in weight and scope, because in the framework of China’s grand-strategy, it was and is still meant, to serve as a counterweight against a unilateralist, hegemonistic United States, promote “global multilateralism”, the “democratisation of international relations” and “global multipolarisation”. It would also involve cooperation in jointly developing the Galileo satellite navigation system and lifting the arms embargo, the former causing concern in the US and the latter provoking outright opposition from Washington. British diplomats offered a more limited description of the emerging strategic partnership behind the scenes of the summit: “Deeper co-operation with China on global governance, energy, migration and nuclear non-proliferation in a more strategic relationship that is not so easily soured by arguments over trade. There is the constant concern that longer-term goals may fall victim to a European protectionist backlash.

31 Trans-Atlantic Rift over China
China expressed its desire for a “strategic partnership” with the EU in its first EU-policy paper in October 2003, when anger over the war in Iraq had just reached its peak in Beijing and several European capitals. One of China’s demands was the lifting of the EU arms embargo, imposed after the bloody repression of 1989. The EU linked the lifting to improvement of the Human Rights situation in China but during 2005 it became evident that American opposition and threats were the main reasons for EU wavering. The US views China as its main future adversary, whereas Europe sees China as an emerging pole, that together with a more cohesive future European Union will give shape to a multipolar world, to replace a US-dominated unipolar world. Europe has also long believed in the wisdom of binding China into the international institutional order, perhaps even more so than Washington. This perspective is based on several reinforcing rationales in the European worldview, which is animated by the belief that predominant powers should be counterbalanced and that a multipolar world is more stable than a hegemonic or anarchical order; that nations should adhere to international law and codified norms of behavior; that international institutions should be strengthened and empowered to achieve effective global governance; that sovereignty has its limits and, under certain conditions (such as in the EU), can be shared; and that soft power should be more influential than hard power. These core elements of Europe’s weltanschauung all apply to the way Europeans think about China and its potential role in the international system.

32 Escalation of trans-Atlantic rift over the Lifting of the Arms Embargo during 2005
US rhetoric: “Immoral Europeans making fast bucks by selling arms to Communists to better kill Americans, defending Taiwanese democracy”. The issue had become entangled in how the hardline China-bashers in Congress perceive China. The House of Representatives on July 14 rejected the “East Asia Security Act” giving the president the authority to bring sanctions against European companies that would sell arms to China. The US arms industry had strongly lobbied against the legislation, because more export controls would result in unspecified American job-losses. EU businessmen didn’t expect that lifting the embargo would result in quick, big arms deals but would facilitate other high profile deals such as the Airbus A 380.

33 Why Different European and American Approaches towards China ?
Unlike the US, Europe doesn’t have military alliances, troops and navies in East Asia - Japan, S.Korea, Taiwan (?) European involvements are mainly trade, investment and soft power. The US Right is obsessed by the determination to remain the pre-eminent military power and will not tolerate any challenger anywhere in the world throughout the 21st century (see: Project for the New American Century). It is European policy to “socialize” China into the international institutional order by offering it the full range of assistance and collaborative programs. American policy is ambivalent. Trade and investment are huge but aid programmes are mostly carried out by private foundations. Government policy frequently shifts from engagement to confrontation and v.v. Interviews with Chinese officials and scholars indicate that China is particularly receptive to the businesslike and egalitarian approach adopted by European officials, which Chinese interlocutors often contrast (negatively) with the more arrogant, domineering, and dictatorial approach sometimes taken by the United States. Both China and Europe seek ways to constrain American power and hegemony, whether through the creation of a multipolar world or through multilateral institutional constraints on the US. France has been in the forefront of both strategies, but the French are by no means alone in the effort. Germany, Spain, and the Nordic countries, as well as the EU itself, also share this perspective. “The US is the silent party at the table in all EU-China meetings, not in terms of pressure but in terms of our mutual interest in developing multilateralism and constraining American [hegemonic] behavior.” In fact, EU-China multilateral cooperation goes far beyond a mutual desire to constrict the United States, as both Brussels and Beijing increasingly share perspectives on a wide range of challenges to global peace, security, and the environment.

34 Rumsfeld to China for first time: “Non-Euphoric Encounter”
Secretary of Defense Rumsfeld, the most outspoken anti-China hardliner has visited China last week. China has actively sought the visit by Rumsfeld for four years. The Chinese military wanted this visit far more than the American military and Rumsfeld's reluctance to go to China was legendary. Rumsfeld asked to visit the underground military facility in Beijing known as the Western Hills Command Center, but the Chinese refused. Instead they allowed him to visit the “Second Artillery”, China’s missile forces. In a speech at the Central Party School, Rumsfeld warned against China’s emerging threat to its neighbors and domestically against restrictions on freedom of speech. The end of the Cold War (combined with the 1989 near-revolution in China) demolished this core strategy and, for a while threw China’s diplomacy into crisis. After considerable debate within the CCP, China eventually decided to continue the strategy of embracing cooperation with the United States. Chinese analysts advanced what might be called the “law of avoidance” to explain and justify this approach. Based on historical analyses of the rise and fall of states over the last five centuries, this law postulates that rising nations that come into direct confrontation with reigning hegemonic powers fail in their drive for national eminence: for example, France in the early 19th century, or Germany, Japan, and the Soviet Union in the 20th century. Another key element of China’s international strategy is avoidance of confrontation with the United States. Deng, unlike Mao, recognized the stability of U.S. world-dominance post-World War II. He concluded that if China were to draw on the resources of the advanced capitalist countries to modernize China, Beijing would have to maintain good relations with the leading capitalist countries – especially the U.S. To this end, Deng manipulated U.S.-Soviet rivalry to China’s advantage. By aligning China with the United States in the global conflict against the Soviet Union, Deng secured higher levels of U.S. support for China’s modernization drive: access to U.S. consumer goods markets, technology, higher education and advanced scientific knowledge, investment, as well as sympathetic support in multi-national development institutions like the World Bank.

35 Solana’s hardly veiled Criticism of the US
“Multilateralism and respect for international law are fundamental tenets of the EU's foreign policy. And I know the same is true for China. Together we need convince our other partners to put these principles at the centre of their foreign policy too.” (Speech at CEIBS, Shanghai, 6-9-’05). Asked to compare China’s relations with the US and the EU, a senior FM official said: “Our relations with the US are candid, cooperative and constructive. Our relations with the EU are comprehensive, strategic – i.e. longterm, beyond ideology and not disturbed by minor issues – and a partnership, i.e. equality”. Solana described the EU-China Strategic Partnership as follows: “First, the issues which we discuss together and on which we push action forward are global strategic issues, such as the proliferation of WMD and international terrorism. Questions such as global security of energy supply, regional crisis and the environment. Second, we are partners with significant global strengths, capabilities and responsibilities. China is rapidly emerging as a world leader and positive actor on the global stage. We in the EU warmly welcome that.”

36 US: Security Threat First ~ Business Second
Public discourse in the US concerning China invariably refers to its rise and is dominated by analysis of China’s increasing hard power, the growth in Chinese military power and its effect on U.S. national security interests in East Asia, both with respect to Taiwan and more generally. Notwithstanding popular discontent over the loss of U.S. manufacturing jobs as a result of outsourcing to China, even China’s substantial economic prowess and trade surplus with the United States take a backseat in these debates to the national security implications of China’s rise.

37 Europe focuses on the “Non-Traditional” Security Threat of China
The strategic partnership between the EU and China, agreed to in 2003, reflects the European view that China has become a key player on the types of soft security issues that Europe considers significant. The EU believes that the main threats to its security are of the transnational variety: terrorism, illegal immigration, international crime, contagious diseases, energy, environment, and problems related to poor governance. The EU views China as one of the major powers that will shape the effective handling of these problems. Although European and U.S. companies are locked in intense competition for market share in China, at the governmental level the difference in investment of resources is indicative of the divergent approaches to managing a rising China. The United States invests its resources primarily to monitor the growth of China’s hard power and to deter potentially aggressive Chinese behavior beyond its borders. The EU is investing in initiatives inside of China to increase the country’s soft power and facilitate its sustainable development. The EU and China agreed a Partnership on Climate Change as one of the major outcomes of the September 5 China-EU Summit. The Partnership will strengthen cooperation and dialogue on climate change and energy between the EU and China. One major objective of this Partnership is the development and demonstration of advanced ‘zero emissions’ coal technology based on carbon dioxide capture and geological storage. It will also promote other clean energy sources, as well as energy efficiency, energy conservation, and renewable energy.

38 Americans use the Megaphone, Europeans the Telephone
The United States is holding China to a higher standard than others, because China is a divisive partisan issue in US domestic politics. Its size, its impact on other major economies and the world at large are perceived as a potential threat in the U.S., more than in any other Western nation. The United States has confronted China on the issues of Intellectual Property Rights and distribution- and trade rights this year and the Europeans and Japanese have reluctantly supported this approach. Europeans accord priority to negotiating because they cannot impose their will on others anymore. The US has the sanctions approach – Section 301. As former European Trade Commissioner Pascal Lamy observed last year, Americans like to use a megaphone, we Europeans prefer the telephone. Three lessons stand out. First, we should resist the temptation to engage in “public diplomacy”. The Chinese speak politely in public and save their most direct, outspoken comments for private meetings. In North America and Europe, we tend to do the opposite, posturing in public while being “diplomatic” in private conversations. That does not work with China.

39 EU-China: More than Trade
The EU has already become China's leading trade partner, and China is the second-largest destination in the world for EU exports. The summit in Beijing in September bolstered an ever-deepening set of EU-China relations that includes work on a new and wide-ranging Framework Agreement to further formalize political relations; strengthened scientific and technology cooperation; collaboration on labor, tourism and migration issues; and a specific effort aimed at climate change and energy supply security. EU-China cooperation on space is already far along, as China is a major partner in the development and deployment of the Galileo navigation system.

40 Ninety Percent of the EU-China Relationship is Economic
China is now the EU's second-largest trading partner after the United States. In 2004, EU-China trade grew to € 126 bn, or $ 163 bn, a 22 % increase from the year before. But trade between the two has been far from untroubled. Much of it is Chinese exports flowing to Europe, to the point that in 2004 the EU's trade deficit with Beijing ballooned to € 78 billion. The EU has complained to China about inadequate protection of copyrights and patents, barriers to agricultural imports and services such as banking, and China's booming garment exports. European officials in Beijing stressed that the Union is generally satisfied with the progress of China's economic reforms and hopes to resolve disputes through negotiation.

41 Europe’s Focus: Improve the Governance, the Legal System, the Business Culture of China
Europe views China’s rise in terms of its domestic transitions, i.e. a multiple transition from state socialism toward a market economy, a more open society, and a more representative and accountable government. Unlike analysts in the US, who focus on China’s external posture, European analysts focus on China’s internal scene and want to assist China in managing its transition and reforms. Europe does not want China to become a failed state. Unlike the US, Europe is more willing to accept China as it is. Accordingly, the EU believes that it has a great deal to offer.This is the case not only because of western Europe’s own long experience with social democracy and the welfare state but also the ongoing East- European states’ experience as transitional economies and polities that have emerged from a similar period of state socialism.

42 Opposition against Lenovo’s acquisition of IBM’s PC division for “phoney security reasons”
The U.S.-China Economic and Security Review Commission wanted to derail the deal under the pretext that Chinese computer experts could conduct espionage from IBM facilities. Another complaint was that technologies that Lenovo acquired could have a "dual use" and enhance China’s military. However, the PC business has become a low-margin commodity business, based on costs and efficient assembly and distribution more than on new technology. IBM sold this unit in part to focus its resources on higher-margin consulting and software. By making Lenovo the world's third-largest computer maker, the $1.3 billion sale would draw China more tightly into global economic interdependence and raise the price of any Beijing aggression. A computer maker dependent on foreign markets will not want its country invading Taiwan. Congressman Don Manzullo (R., Ill.) gave the real game away this week when he called on the U.S. to extend its review because "this sale could lead to the Chinese government unfairly taking over the global market for personal computers." That's old-fashioned protectionism. Handling an authoritarian China as it emerges as a great power is one of the harder issues in the world today. It won't be any easier if the industrial West decides it is better off selling weapons to Beijing than selling PCs.

43 CNOOC’s Failed Bid for Unocal
China National Offshore Oil Corp (CNOOC) made a $ 18.5 bn bid this summer for a small US oil company Unocal, while Chevron made a rival bid of $ 16.8 bn. Anti-China hysteria in Congress poisoned and killed the deal: “China is pursuing a national strategy of domination of the energy markets and strategic dominance of the western Pacific.” For China the deal was a diversion away from buying massive amounts of depreciating dollars. (At present $ 230 bn). The great paradox: The US strongly criticizes China for having oil-dealings with rogue states. This time China wanted an M&A deal in a “stable” country. China craves global integration but was rejected just for reasons of hypocrisy and paranoia. . The Chinese oil giants are belatedly following a well-trodden path – one that France, Italy and Britain have taken - to build national players that can secure access to the globe's energy resources. But the Chinese companies have had the misfortune of trying to build overseas empires at a time of steeply rising prices and renewed nationalism among the governments of oil-producing nations. Their combined overseas reserves remain a tenth of the reserves of a single big Western multinational like BP. If America wants to be more secure, it should open the door to Chinese investment, not slam it shut. The greater China’s involvement in the US economy, the bigger its stake in its success and the more powerful its incentive to avoid bilateral frictions – political as well as economic. Money talks, in more ways than one. To be fair, the bid by CNOOC, as the Chinese oil company is called, is considerably more complicated. But at base, lawmakers and investors should remember that despite Unocal's history - it was founded in 1890 as the Union Oil Company of California - it is already more Asian than "made in America." About 73 percent of its proven natural-gas reserves are in Asia. And if CNOOC acquired Unocal, it "would not increase energy flows to the Chinese market, because most of Unocal's upstream assets are locked up by long-term contracts to supply other regional markets," according to Jason Kindopp, an analyst at the Eurasia Group. "Unocal doesn't have technology that needs to be kept secret." In Sudan, a Chinese oil company is producing about 150,000 barrels a day. In Iran, China signed a contract to develop a field that might yield 300,000 barrels a day. Still, these amounts are small against the world's demand of 85 million barrels a day or China's demand of 7 million barrels a day.

44 Some Major Sino-European M&A and Major Chinese Contracts in Europe
In November 2003, Thomson and Chinese firm TCL merged their TV and DVD manufacturing to create the world biggest TV maker.The Chinese group will own 67 % of the venture, to be called TCL-Thomson. The JV will have factories in China, Vietnam, Germany, Thailand, Poland and Mexico. Huawei is now the world's second-largest supplier, after Alcatel of advanced digital-subscriber lines, the primary conduit for the world's broadband connections. Last year, Huawei won contracts in France, Spain, Germany, Holland and Portugal. Haier, China’s largest household-appliances manufacturer has factories in Slovenia and Italy. After an on and off M&A and rescue process with the Shanghai Automobile Industry Corporation, SAIC’s rival Nanjing Automotive Group has agreed to buy parts of Rover and set up a new company with British entrepreneurs. There are doubts about whether NAG can succeed with Rover, after two former owners - BMW of Germany and the Phoenix Group - failed.

45 Punishment of Foreign Companies by the US; Europe more willing to transfer Technology
The United States penalized eight Chinese companies, including some of the country's biggest military contractors, for supplying missile technology to Iran. ( >Taiwan) The arms transfers to Iran, a more practical problem, illustrate the widening European-American divide on strategic thinking about China, with Europe less inclined to impose restraints on China than the United States. The Australian company BHP Biliton is licensed to use the American geological survey technology “Falcon” since 1999 to detect underground deposits of minerals from aluminum to zinc. In April 2005, the Pentagon told BHP it will not be allowed to use the system in China. The disclosure came as the US was seeking to prevent Europe from lifting the arms embargo against China.

46 Galileo The EU on July 28 signed contracts with a group of Chinese companies to develop a range of commercial applications for Europe's planned Galileo satellite navigation system. The announcement is likely to ruffle feathers at the U.S. Defense Department, which controls the rival Global Positioning System, a system it is racing to upgrade. Beijing has contributed $ 230 m to develop Galileo but has also put pressure on the EU to gain access to Galileo's sensitive military data and technologies. After a difficult discussion with the US, the EU has declined that request. According to Chinese statistics, the EU is also the largest foreign supplier of technology and equipment to China, and one of the top foreign direct investors in China. The EU estimates that the total stock of European foreign direct investment in China amounts to more than $35 billion to date. China and the EU also participate in a number of joint technology projects, including the European Galileo satellite navigation program and the world’s largest cooperative science and technology research project,the EU-China Framework Program.

47 The Textile War: EU Compromise
The EU and China signed a deal on 5 September that will permit the release of nearly 80 million pieces of imported Chinese clothing that have been impounded at EU borders, thus ending an episode in what the British press has dubbed the "bra wars." It thus effectively amends the terms of the 10 June agreement that limited ten types of Chinese textiles exports to the EU to annual increases of no more than 8 to 12.5 percent over the next three years. China agreed to let half of this increase be counted against the import quotas for 2006, while the EU agreed to allow the rest to be imported over and above the previously agreed quantities. Mr Mandelson negotiated the new quotas with China on June 10, under pressure from EU textile producers who were alarmed at the surge of Chinese imports after the end of all trade restrictions on January But the new system caused chaos in the retail chain and provoked a stampede for import licences that quickly overwhelmed the agreed quotas. Brussels and Beijing stepped back from a potentially bitter showdown by negotiating a three-year "transitional arrangement" in which the two sides agreed to limit the increase in Chinese textile imports in 10 of 35 product categories to 8 and 12.5 % per year during the next three years before the trade is fully liberalized in Chinese trade minister Bo Xilai openly praised European trade commissioner Peter Mandelson for not unilaterally imposing new quotas as the U.S. did. On Wednesday, only Lithuania, which has a big textiles sector, refused to back the deal struck between the EU and China under which half the blocked goods would be waved through by the Europeans while the other half would count against Chinese textile quotas for 2006 or against other unfilled quotas. During the recent “textile-war” what was the EU protecting ? Not the unrestructured textile-industries of South-Europe, but the factories of these industries in North-Africa and Turkey. The renewed quota’s of the June deal created chaos in the ports, not new jobs in the protectionist countries. Imports from China will in time be replaced by those from other developing countries, not by products made in Europe. The September stitch-up deal will only hold until 2008, when safeguards against “injury” will no longer be allowed. But general safeguards can be invoked until 2012.

48 EU and US in full agreement that China does not deserve Market Economy Status Now
The EU has been a stringent enforcer of China’s obligations and has been particularly tough-minded against Beijing’s demands that China be granted market-economy status (MES), which would effectively eliminate antidumping tariffs. In 2004 an EU internal study concluded that China still fell far short on four of five criteria necessary to achieve MES status. Over the past year, Beijing has exerted considerable pressure on Brussels to grant MES and relax its antidumping penalties, but thus far the EU has not succumbed to this pressure. For its part, the U.S. Department of Commerce is also bringing an increasing number of antidumping cases against Chinese firms. In both cases, this trend reflects not only unfair Chinese trade practices, but also the ballooning trade deficits that the EU and United States have with China.

49 Triangular Manoeuvres
China and Europe have had a series of disputes over trade and MES status as well as disagreements over human rights. Europe has concerns about China’s proliferation practices, as well as the arms embargo. More recently, China’s Europe specialists have begun to criticize the motives underlying EU programs to promote civil society in China as an ideological ruse to “Westernize and divide China” (Xi-hua, fen-hua). The EU and the United States sometimes side with each other, China and the EU sometimes find themselves in agreement, the United States and China sometimes work well together, and sometimes the interests and policies of all three intersect, while each side simultaneously has disputes with the other two. What has not occurred, to date, is a situation where U.S. and Chinese perspectives converge against European interests.

50 Peter Mandelson on Globalization, Free Trade and Protectionism
Europe has to develop a much more sophisticated response to the challenge of globalisation. Let me suggest four principles for action: First, Europe has to attract talent from all over the world. Second, we should launch a drive to promote inward investment and industrial collaboration. Third, Europe should pursue a policy of openness to the world. Fourth, we need more explicit policies in Europe to address the problems of the ‘losers’ from globalisation and tackle the new inequalities that globalisation brings. Mandelson is already under pressure to take anti-dumping measures against Chinese shoes, whose imports are devastating the Italian footwear sector.  “Yesterday textiles, today footwear, tomorrow what ? Consumer electronics ? Cars ? Where will it go and when will it end ? We are at the beginning of the China story, not the end.”  But after textile quotas, what next? Mr Mandelson is already under pressure to take anti-dumping measures against Chinese shoes, whose imports are devastating the Italian footwear sector.  Speaking on June 16, shortly after the Shanghai textile deal, he warned that this could be just the beginning of his fight against protectionism. "Yesterday textiles, today footwear, tomorrow what?" he asked. "Consumer electronics? Cars? Where will it go and when will it end? We are at the beginning of the China story, not the end."  He urged European companies to speed up their restructuring and to move up the value chain. "I am not going to be remembered for my mandate as the man who turned his back on free trade," he said. The fact that a “leftover industry” with a minuscule workforce like textiles can cause such an uproar, bodes ill for the moment when higher value-added, strategic sectors are going to be hit by Chinese competition.


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