Charles Wolf Jr. discusses China's "Peaceful Rise", areas of common interests between Canada, the U.S. and China, and the modernization of China's military

Dr. Wolf, Jr. is a senior economic advisor in international economics at The RAND Corporation, and a senior research fellow at the Hoover Institution.

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China’s “Peaceful Rise”

3 min 23 sec

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Sharing Common Interests with China

2 min 41 sec

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Military Modernization

3 min 18 sec

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Transcript

China’s “Peaceful Rise”

I think it’s more than likely that China’s evolution over the next several decades will be focused on the continuation of its “Peaceful Rise.” This is a slogan in China that’s come in for a lot of publicity. It’s been generated by the organization that we’ve had close dealings with—the China Reform Forum—which is the think tank of the Central Party School. That’s where the “Peaceful Rise” slogan originated. I think its development, its evolution, will focus on ameliorating these major internal problems.

We published a book a couple of years ago called Fault Lines in China’s Economic Terrain, focusing on eight major problems in China, to which I would add a ninth, the demographic one. Those problems are rural poverty, income inequality and social unrest—that’s one. Corruption and its ramifications, how you measure it and so forth. Epidemic disease—SARS, avian flu and so forth. The fourth is the energy problem—shocks and changes in prices and their impact on China, and China’s demand impacting on world oil markets and so forth. Fifth is water resources and pollution. The sixth is the fragility of China’s financial system and banking institutions, and the relation between that fragility and state-owned enterprises—nominally privatized, but still substantially state-owned. The seventh is a possible reduction in foreign direct investment, which there’s no sign of yet, but under certain circumstances it could turn around. And the eighth is possible security issues—the Taiwan Strait, the dispute with Japan over China Sea drilling rights and so forth. To these I’d add the issue of the aging population. I think China’s evolution in the coming years will be heavily focused on addressing, ameliorating, dealing with those problems.

Sharing Common Interests with China

We have major areas of common interest. Stable and moderate rather than high and fluctuating oil prices—certainly the oil markets and prices are one common interest. Non-proliferation or anti-proliferation of unconventional weapons—nuclear weapons in particular—is a common interest. Countering global terrorism is another common interest. They have a problem with terrorism in their far western province, where there is a Muslim population and it’s been infiltrated by al Qaeda and so forth. This isn’t to say that their interests and our interests, where complementary, are of equivalent priority (so there’s a different rank ordering and so forth—and weighting), but it is to say that we have major areas of common interest: trade, investment flows and transactions, free and open capital markets. These are areas where Canada and the U.S. and China have common interests.

But it is important to recognize that even where we have common interests, the priority and weight accorded to the interests varies. A case in point is North Korea, where we have predominantly common interests, but where the priority that we accord to the freezing and reversal of North Korea’s nuclear programs is much higher than the Chinese. It’s higher because we accord to the prospect of a leakage of those technologies to bad guys much more concern than do the Chinese. On the other hand, the Chinese are concerned that a collapse of the North Korean economy and system would generate a flow of refugees that would be a serious burden, and that’s of less concern to us.

Military Modernization

Military modernization was Deng Xiaoping’s fourth modernization—industrial modernization, technological modernization, agricultural modernization and military modernization. Until about five or six years ago, military modernization, from the standpoint of the PLA—People’s Liberation Army, the armed forces—got the short end of the four modernizations. I think since then they have been catching up. In the last year there was a U.S. Defense Department report on China’s military buildup, which increased by 14 or 14.5 percent, whereas the central government budget increased by 10 or 12 percent. And that increase is only for part of what is actually the MOD’s [Ministry of Defence] expenditure. Some of the defence expenditures are in other parts of the central government budget. There was a report from the U.S. Defense Department a couple of months ago, which Secretary Rumsfeld commented on, that indicated this is a big expansion, modernization. It covered projection capabilities and who is China worried about and so forth and so on. To which the Chinese have responses: “We have 11,000 miles of borders that are adjacent to places and people that have not always been friendly to us,” and “it’s a much smaller proportion of the GDP than the U.S. defence budget” and so forth.

So I think as China continues to grow, even if its growth rate slows from 9 or 9.5 percent to 8 or 8.5 percent or to 7 or 7.5 percent, the defence budget and defence modernization will be increasing. I think the U.S. response to that eventuality, to that very probable scenario, is to nurture good relations with China, enhance military-to-military exchanges, communication, conferencing, maybe even exercises at some point, but to keep substantially ahead technologically, both offensively and defensively. And whether we can sustain that in view of competing budget pressures remains to be seen.