Staying the Course: Maintaining Momentum in US-China Relations
——by C H Tung at Carnegie Endowment for International Peace on 11 May 2016
Good Evening, Ladies and Gentlemen,
The topic of my talk today is “Staying the Course: Maintaining Momentum in US-China Relations.” The US-China relationship today is the most important international relationship in the world. It is critical that we continue to nurture this relationship. For the relationship to continue to improve, it is important that we make greater efforts to understand each other. Americans need to understand China better, and the Chinese need to understand America better. It is my objective today to present to you, an American audience, about China and her major concerns; and then, for me, in a question and answer session later, to understand your concerns about China.
Perhaps I can start by talking about China's past, present and future, because this is important. China today is a story of hope and optimism. But China's past is a different story.
Nation building for a modern China began on the 1st of October 1949 with the formal establishment of the People's Republic of China. At that time, the country was bankrupt. Only rudimentary infrastructure, housing, schools, health care facilities, and other social welfare services were available. The fact is, after years of chaos, warlordism, civil war, and particularly the Japanese invasion and occupation, the country suffered enormous destruction. But there was hope at last, that proper nation building could begin. The crucial step towards the country's modernization was taken in 1978 when Mr Deng Xiaoping launched the reform and opening up program.
Ascendance to the World Stage Today
Today, in China, a market economy is thriving. Essential physical infrastructure has been built. Education, health care and other social services have been made widely available. Urbanization has progressed and peoples' livelihoods have improved dramatically.
Since 1978, the economy expanded at a rate of close to 10% per annum. Today, China is the second largest economy in the world, holds the world's largest foreign exchange reserves, and is one of the two largest trading nations in the world. Throughout all this, 600 million people were lifted out of poverty. Never before in the history of mankind, has so much been achieved for so many people in such a short period of time.
A Vision for the Future
So, what about the future?
To know what China is going through, we need to understand her vision of the future, and the path she would like to take to get there.
Objective of 2049
Let me talk about this vision. By 2049 when the People's Republic marks its centennial, China's vision is to join the ranks of the developed countries of the world. What we would expect to see is that she will once again transform herself in the decades towards the next centenary. This will not just be an economic target alone. China's leadership well recognizes that a pure economic target is not enough. A fair distribution of wealth, a decent living standard, a healthy living environment, and a just society governed by the rule of law – this is China's vision for the next few decades. To that end, its economic structure needs to be adjusted accordingly and growth will be more focused on overall quality rather than quantity.
So while China's vision is clear, how will she get there? The first step, which she has just begun, is the implementation of the 13th Five-Year Plan. China expects, by the end of this Five-Year Plan, by 2020, the Chinese economy would have doubled as compared with 2010. Chinese leaders understand that the 10% per annum growth rate since reform and opening began in 1978 is unsustainable. Through this new Five-Year Plan, China will take a path of a “New Normal,” moving away from an overreliance on exports, investments, and cheap labor, to one that relies on consumption, on the services sector, and on science, technology and knowledge. The economy, during these five years, is expected to grow between 6.5% and 7%.
To be sure, the country is still faced with enormous challenges, particularly in the areas of industrial overcapacity, excessive supply of housing in second and third tier cities, an ageing society, the need for healthcare improvements, and the eradication of poverty. All these challenges will be tackled.
Successfully implementing the 13th Five-Year Plan in the near term and realizing China's vision over the longer term is fraught with challenges. However, there are reasons to be optimistic:
1)Firstly, China will benefit from the enormous size of her economy, a huge population, a large and maturing middle-class, together with her progress in science and technology.
2)Second, under the new normal, the new drivers of the economy will be in such areas as renewable energy, in the construction of a digital economy, in moving manufacturing away from low-cost labor towards such areas as high-speed trains, nuclear power plants, and other areas that call for much higher value-added production. In addition to pursuing greater consumption generally, the growing middle class will also demand better health care and education.
3)Third, the smooth transfer of leadership, based on meritocracy and term limits, has been institutionalized. Moreover, is the ability of the Chinese leadership to formulate and implement sound long-term macroeconomic and geopolitical policies. Leaders, under the guidance of their ideology and principles, are not intimidated by the necessity to challenge old thinking and make fresh changes. They respond promptly and act flexibly to achieve China's structural reform.
4)Fourth, is the hard work of the Chinese people and their determination to succeed. Additionally, the expansion of freedom in the country has lifted the innate entrepreneurial and innovative spirit of the Chinese people. Today, private sector enterprises account for over 65% of the GDP of the country. Millions of rural residents are migrating to cities to seek better opportunities, greater mobility and personal success. Indeed, the Chinese people have changed their dreams into reality, and have changed the destiny of their country.
These are some of the reasons why there is a good chance for the New Normal to eventually succeed. And, given what we have achieved in the last 66 years since the establishment of the People's Republic of China, I am full of hope that there is a good chance to deliver China's vision and dream.
China's Strategic Intent
You may ask, what is China pursuing internationally? What is China's long-term strategic intent? For China to realize her vision, she needs, not just for now, but also in the long-term, to pursue peace with her neighbors and countries around the world.
I wish to say a few words about the issue of territorial integrity. During the last 100 years of the Qing Dynasty, China lost one-third of its territory to foreign powers. Therefore, territorial integrity is an emotional and sensitive issue to the Chinese people.
China shares a border with 14 neighbors, more than any other country in the world. At the time of the establishment of the People's Republic of China, her border demarcation with neighboring countries was very often ambiguous. There were many complicated discussions to settle border disputes with many of these neighbors. But, as of today, the record shows that China has successfully concluded territorial disputes with 12 of her 14 neighbors. This is quite an accomplishment. Despite enormous difficulties, solving remaining territorial disputes continues to be pursued peacefully.
In fact, China has no aspirations to colonize or conquer foreign lands. Nor does she uphold any religious or ideological motives to influence other people or to take over foreign lands. In the height of the Ming Dynasty, when China had 30% of the GDP of the world, China remained peaceful and did not make incursions into foreign lands. The purpose of her modernizing her military is to act as a deterrent to foreign aggression against China.
US-China Relations Today
Today's US-China relationship began in 1972, when President Nixon visited Chairman Mao in China. Since then, eight presidents of the United States, and five national leaders of China, have worked tirelessly to nurture this important relationship. Indeed, despite ups and downs over the years, the relationship has been moving forward positively.
Before the meeting of the two leaders in 1972, trade, commerce, investment, people to people exchanges were non-existent. Where does this bilateral relationship stand today?
First, let's discuss trade relations. Today, bilateral trade was valued at 554 billion US dollars. China has overtaken Canada to become the United States' largest trading partner. Over the last 10 years, US exports to China grew at an average rate of 12% per year, a rate of growth which is twice as much as US exports to the rest of the world. According to U.S. International Trade Administration and Bureau of Economic Analysis statistics, exports to China provide almost one million jobs to the United States in 2015.
Next, let's talk about direct investment. According to statistics from China, at the end of 2015, US companies' total direct investment into China was 77.5 billion US dollars, increasing at a rate of 20% per year. These inward investments have brought about great benefit to China. At the same time, China's direct investment in the United States was rising very rapidly, from 50 million US dollars in the year 2000, to 46.6 billion US dollars by the end of 2015. The National Committee of US-China Relations calculated that, at the end of 2015, Chinese direct investment provided 90,000 jobs in the United States. The organization also predicted that by 2020, total investment will be 100 billion to 200 billion US dollars, and 200,000 to 400,000 jobs will be created.
Finally, people to people exchanges. According to statistics, currently, there are 4-and-a-half million people coming and going between the two countries every year. Every day, 12,000 people fly back and forth across the Pacific, with one flight leaving every 17 minutes from airports in the two countries. This number is set to increase. The Unites States is a favorite destination for tens of thousands of Chinese families who send their children to receive educations there. In fact, there are 490,000 Chinese students studying in the United States. There are also 100,000 youth from the United States studying in China. Three million Chinese tourists visit the United States every year as of today. And this number is set to grow rapidly. There are also extensive cultural exchanges between the two countries. Sports exchanges are also on the rise. Kobe Bryant and Michael Jordan are household names in China. One must conclude, the people of the two countries must like each other.
In sum, people to people exchanges are increasing by leaps and bounds, and the US-China economic relationship is becoming increasingly interdependent.
And then there is increasing collaboration between the two countries on the global front. The first that comes to mind is the climate change conference in Paris last December. This was a huge success only because of the efforts of the US and China working together. Second is working together on global hot-spots, such as the Iranian nuclear deal, and China's active participation in Afghanistan's nation building effort, and etc. Additionally, in areas such as global nuclear security, in fighting Ebola in West Africa, and etc. the US and China are collaborating closely.
Going forward, we need to intensify collaboration by the two countries to bring about peace and de-nuclearization on the Korean peninsula.
Furthermore, as we enter 2016, the global economy is at best sputtering along, and many talk about an imminent global recession. America has the largest economy in the world, and China has the second largest. If our two countries work together in a coordinated fashion with other leading economies, we can add vigor into the global economy.
From the above, one can conclude that the two countries are collaborating effectively, and this partnership has great potential to expand.
Unfortunately, in the world we live in today, differences between the two countries are inevitable. After all, we have different histories and different cultures. We are also at different stages of development, and therefore our needs are different.
Fortunately, with the determination of the two governments, so far these differences have been managed. However, there may come a time when such differences cannot be managed. And, as a result, US-China relations will fray. Particularly with that in mind, I would like to take this opportunity to talk to you about the South China Sea.
There is a question as to who has sovereignty over the Spratlys.
The Chinese discovered the Spratlys (known as Nansha Island in China) with the earliest archaeological evidence of their use dating back hundreds of years. Navigation guides for fishery activity, compiled by fishermen from China's Hainan Island as early as the 18th Century, not only designated specific names to most features in the Spratlys, but also provided detailed narratives on the direction and distances (expressed in the length of travel time) of the navigational routes. Chinese fishermen would live on these islands during the more favorable fishing seasons.
In addition, China exercised sovereignty over the Spratlys going back to the Yuan Dynasty (1271 – 1368 AD) starting with an official survey of Chinese territories covering the Spratlys followed later by the formal incorporation of the Spratlys as well as Hainan Island into the administration of Guangdong Province during the Qing Dynasty (1644 – 1911 AD).
In more recent history towards the end of the 2nd World War, there begun ample, clear and convincing evidence that China has sovereignty over the Spratlys and that is recognized by the international community including the US. These can be found in the very important international treaties and declarations.
First, is the Cairo Declaration of 27 November 1943. Second, is the Potsdam Declaration, of 26 July 1945. Third, is the Treaty of Peace, also known as the Treaty of San Francisco, signed on 8 September 1951, between 48 nations and Japan. (Because of the onset of the cold war, neither the PRC nor the ROC were invited to San Francisco). Fourth, is the Sino-Japanese Peace Treaty, singed on 28 April 1952, between Japan and the Republic of China(ROC). Fifth, is the United Nations General Assembly Resolution 2758, passed in 1971, recognizing People's Republic of China was the only lawful representative of China to the United Nations, in place of the Republic of China. And lastly, the Joint Communiqué of the Government of Japan and the Government of the People's Republic of China, signed 29 September 1972, which acknowledged that all territories stolen from the Chinese shall be restored. In each one of these treaties or declarations, reading them separately, or reading the six together, you will find definitive evidence supporting the legal position that the Spratly Islands actually belong to China.
Now, I would also like to briefly describe what has been happening in the Spratlys since the 1950s. Since that time, the Vietnamese have been actively and aggressively taking over many of these features in the Spratlys. The Philippines has also done the same, starting in the 1970s. So today, of all the features in the Spratlys, Vietnam has 29, the Philippines has 8, and China has 9.
By the 1970s, there was a discovery that the South China Sea possessed a wealth of oil and gas reserves. This resulted in a dramatic escalation of interest in the region, particularly by Vietnam and the Philippines. As a result, increased tension ensued.
The situation was further exacerbated in 1982, when the United Nations Convention on the Law of the Sea was promulgated, establishing a 12-mile from shore territorial water, and a 200 nautical mile from shore economic zone (also known as the EEZ). This has further complicated the claims and counter claims, and enticed even more ASEAN countries to make claims in the South China Sea.
Since the 1970s, China urged restraint. And while insisting on her sovereignty rights, China suggested that peace can be maintained if the countries agreed to explore the resources jointly, sharing the resources together, and leaving the sovereignty dispute for future generations to resolve. China began bilateral negotiations with the other claimants.
Unfortunately, there has been no progress in those negotiations, but since that time, more than a thousand oil wells have been drilled, mostly for the accounts of the Vietnamese and the Filipinos. But up to now, China has not drilled a single well in the area.
Over this period, Vietnam built an airstrip on one of its features. Last year, China decided to proceed with the construction of an airport on one of its features. China has also built four lighthouses in the Spratlys to support international navigation.
By 2002, because of intensive efforts of ASEAN countries and China, a Declaration on the Conduct of Parties in the South China Sea was agreed, promoting bilateral negotiation among the disputing nations over sovereignty issues, and calling for the unfettered freedom of navigation in the South China Sea for all nations of the world. A Code of Conduct between the ASEAN countries and China to reflect the above is now being actively pursued. China believes that this process, although at times fraught with difficulty, continues to be the best way to resolve the dispute.
I hope, from the above, you can appreciate that China's activities in the South China Sea have not been aggressive, nor assertive, but rather has been restrained, and aimed at promoting peace and common prosperity.
I would now like to address the allegations that China does not follow legal norms on the settlement of sovereignty disputes in the South China Sea. It is not commonly known that the United Nations Conference on the Law of the Sea (UNCLOS) successfully produced a convention, only after nine years of marathon discussions and negotiations. The stalemate was broken because the convention provided the parties with an option to make an exception in cases concerning national sovereignty and making boundry delimitation.
China ratified the Convention on 7 June 1996. She made a declaration upon ratification reaffirming its sovereignty over all its archipelagos and islands, including those of the Spratlys. On 25 August 2006, China made a declaration under Article 298 of the Convention that any sovereignty and maritime boundary delimitation issues are excluded from the jurisdiction of any dispute resolution mechanism under the Convention. Similar position is taken by over 30 other countries.
This is the legal ground under which China has declined to participate in the Permanent Court of Arbitration proceedings at the Hague, called for by the Philippines. Legal experts considered China's position in this regard is proper and legal.
The South China Sea issue is now on the front pages, almost daily. While the Americans feel that the Chinese are being assertive, aggressive, unreasonable and fail to adhere to international legal norms; the Chinese people feel strongly that history, logic and the law is on their side, and despite this, China is still patiently and constructively seeking peaceful solutions. China cannot understand why America takes a different view and be oblivious to the historical facts, and even goes so far as to frequently carry out military exercises in the South China Sea to make her point. US-China relation is too important for the people of the two nations and for the world at large. At this time, protecting US/China relation must be the first priority for all of us. It is time for us to rethink and re-evaluate, with urgency, the issues involved.
I have come to the end of my talk, and I very much look forward to hearing your views on this very important topic.
Thank you.
