In late 1997, the Institute for National Security Studies, with support from the National Defense University Foundation, convened a "Working Group on United States China Policy." The purpose was to review the assumptions of U.S. policy in light of evolving economic, political, and strategic trends within China and the Asia-Pacific region and consider the impact of those trends on the broad outlines of U.S. national interests and policy. The group comprised members of the policy, academic, and intelligence communities. Mr. Micah Rapoport served as rapporteur. Attendance was by invitation, and discussion was off the record and not for attribution. However, the speakers did agree to allow publication of summaries of their remarks.

The agenda reflected a perceived need to return to basics. Over 10 weeks, the group worked through nine critical variables, which together provide an overview of contemporary China and a framework for policy. In most cases, two speakers with different views addressed each topic to set the stage for the subsequent discussion. The speakers were asked to cover the following topics:

• Economic prospects

• Political trends and currents

• Evolving strategic perspectives

• Defense policy and force structure

• Nuclear issues

• Taiwan

• The South China Sea

• China's relations with Russia

• China's evolving role in Northeast Asia

Economic development is Beijing's defining national priority. Internally, rising living standards are the key to social stability and to maintaining the legitimacy of the Chinese Communist Party (CCP) leadership. For more than two decades, a major goal of Chinese foreign policy has been to nurture a peaceful regional environment to support trade and attract direct foreign investment. Even the acquisition of major new military capabilities was deferred until the early 1990s, when the burgeoning economy was at last able to begin to provide some of the requisite resources. The quest for economic development influences every aspect of Beijing's internal and external policies.

The importance of the economic imperative is universally recognized. However, there is a noticeable tendency to downplay the potential negative impact of problems in the economic system. As a result, mainstream assessments of China's longer term prospects tend to be based on a straight-line projection of largely uninterrupted economic growth. According to this view, despite inevitable temporary downturns, by 2020 China's gross domestic product (GDP) will match and begin to surpass that of the United States. At that time, a world-class economy will provide the foundation to support Beijing's bid for the status of a superpower that might decide to challenge the established international order.

However, there is reason to question the utility of straight-line projections and also to reassess China's longer term economic prospects. The days of sustained growth hovering in the neighborhood of 10 to 12 per cent may well be coming to an end. The growth rates already show signs of slowing. At present, there appears to be less than full agreement about the duration of any economic difficulties and especially about any impact on domestic or foreign policies. However, there is agreement that, for the next 3 to 5 years at least, China's leaders will be focused almost entirely on the need to confront a range of structural problems that affect every aspect of the nation's economic activity. In this sense, economic considerations have already had some impact on the policy environment.

Thus far, because of its nonconvertible currency, because most of its investment capital is from foreign direct investment rather than bank loans, and because most of its debt is long term, China has remained insulated from the worst effects of the Asian economic crisis. However, nearly all the other conditionsCcronyism, bad bank loans, and inefficient capital allocationCthat produced crises in Thailand, Indonesia, Korea, and Japan are present in China today.

Moreover, there are signs that the economy is slowing because of its own internal contradictions. For example, the rate of growth of retail sales is declining. Consumer spending is also likely to weaken further because of rising unemployment, slowing wage growth, and high real interest rates. Tellingly, the expansion rate of fixed asset investment is down. Finally, exports and foreign direct investment are in decline. All in all, it is difficult to imagine that the 8 percent growth rate in GDP targeted for 1998 by Premier Zhu Rongji at the National People's Congress (NPC) in March can be sustained over time. A rate of 4 to 6 percent rate is far more likely.

It is worth noting that Chinese and foreign analysts alike define 5 percent as the minimum annual GDP growth rate required to prevent citizen dissatisfaction from erupting into demands for political change. In sum, China's economic dynamic has changed: after years of successfully using administrative means to control inflation, Zhu and his colleagues now face the very different task of reviving an economy that is no longer growing as fast as in the past.

The CCP leadership recognizes that implementing an additional program of structural economic reform is essential if Beijing is to achieve desired growth rates and remain competitive with the other Asian economies. Zhu Rongji and his colleagues seem to feel they have about a 3-year window within which the necessary reform can be accomplished. This is the objective of the reforms announced at the March meeting of the NPC. The reform effort involves a fourfold approach, including pump priming by increasing investment in infrastructure, integrating state-owned enterprises (SOEs) into the market economy, recapitalizing the banking system, and reducing the size of the government bureaucracy. All analysts in the intelligence, policy, and academic communities agree that the eventual outcome remains uncertain. Even the most optimistic observers award Premier Zhu Rongji and his colleagues only an even chance of success.

The obstacles are formidable. For example, the infrastructure improvement projects recently announced appear in many cases to refer to projects already in the state budget. Moreover, in China, capital deployment is notoriously inefficient, with decisions often made on the basis of policy expediency rather than economic reality.

The SOEs and the banking system pose unique problems. Until 1996, Beijing seemed to ignore the SOEs. It was felt that a strategy of increasing agricultural output, encouraging growth in the nonstate sector, attracting foreign direct investment, and acquiring management expertise from external sources would make it possible to compensate for problems in the state sector. That strategy has failed: today, the average SOE is bankrupt and the SOE "problem" threatens to undercut many of the economic gains China has scored over the last two decades. The problem is structural, and a solution requires hard-headed economic criteria, rather than political expediency, to decide on the future of individual enterprises. In reality, the issues are not solely economic. The Chinese Government assesses that privatizing the SOEs, which employ over 100 million urban dwellers, could cause a one-third increase in unemployment. Privatization also requires the creation of insurance, medical care, and housing mechanisms; thus far, there is no evidence of a plan to deal with such needs and contingencies.

The banking system is in similarly dire straits. Owing to the need to service the SOEs, unproductive outstanding loans now approach 30 percent of GDP, a situation clearly not sustainable. If Beijing directs the banks simply to write off the bad loans, individual households, which provide the bulk of assets, will see their savings disappear, a prospect that would be politically devastating. Things would be better if the U.S.$ 32 billion debt offering to underwrite financial sector restructuring were to be used to put the banks on a secure footing and to begin investing in profitable enterprises, but there is no guarantee that the established practice of shoring up inefficient SOEs will end.

Beijing's future role in the international economy is similarly unclear. China's leaders will find it necessary to accommodate the changes in the regional economic environment produced by the ongoing Asian economic crisis. Such accommodation is also directly relevant to China's future membership in the World Trade Organization (WTO). If China is to remain competitive after Japan and the nations of Southeast Asia complete their respective economic reform programs, Beijing, too, will have to make a number of important decisions about transparency, currency convertibility, and national treatment. Decisions on these and other matters, and therefore China's role as an international economic actor, are likely to be dramatically affected by the overall state of the economy.

In some respects, dealing with a China with a stagnant or potentially deflating economy may prove more difficult than dealing with a China on an upward economic trajectory has been. Beijing would be likely to seek scapegoats for any major economic difficulties it might encounter, and Washington would be a likely lightening rod for Chinese dissatisfaction. Also, International Monetary Fund (IMF) demands for structural reform similar to those prescribed for the Southeast Asian nations are likely to be rejected by Beijing as yet another example of external interference in its internal affairs. In sum, economic pressures could increase the already growing nationalistic component of Beijing's domestic and foreign policies.

As noted earlier, much U.S. policy planning seems to assume fairly regular economic growth for China. Certainly most assessments of Chinese future military capabilities proceed from that assumption. However, slowing exports and foreign direct investment, rising unemployment, sagging consumer demand, and the challenges of the SOEs and financial reform all indicate a future that is far from clear. Therefore, a need exists to consider alternative scenarios, to think proactively, and to hedge against the negative consequences of a Chinese economic system less able to support and sustain the policy directions implemented under conditions of optimism and economic expansion.

Beijing also faces a number of political uncertainties. The thus far smooth transition into the Jiang Zemin era suggests that at the highest level, the Party leadership is quite stable. The "Third Generation with Jiang Zemin as the Core" remains solidly authoritarian and elitist, but among the technocrats who constitute it, the style is clearly consensual. Although political competition is intense and even brutal, it unfolds within a context of increasingly well-defined rules in which ideology plays little role. Indeed, China's leaders appear to have substituted nationalism for socialism as an ideology. Patriotism forms a major portion of their appeal, and because, as the Taiwan issue shows, it seems to resonate effectively, it is likely that appeals to patriotism will become more frequent. As noted, the CCP will also continue to rely on economic progress as the major basis for its legitimacy.

At the same time, the concept of democracy appears to be gaining broader appeal, especially among the intellectuals who inhabit the large urban centers of China's coastal and central provinces. Also, relatively democratic village elections have been held for nearly a decade. Most Chinese seem to take an instrumental view of democracy, valuing it more as a means to cure such ills as government corruption and inefficiency rather than as a form of government whose methods and procedures are limited by prior notions of intrinsic and inviolable human rights. In contemporary China, law continues to function as a means by which government enforces its will.

Nonetheless, Chinese society increasingly reflects many of the characteristics of civil society. The scope for individual activity that lies outside the purview of government control is expanding, and China's urban residents have a new and larger measure of control over their daily lives. Also, the roles and relations of different elements of the political power structure appear to be changing as new modes of influence emerge and older centers of influence assume a different focus. The People's Liberation Army (PLA) is most noticeable in this respect as military leaders devote more attention to problems of professional development and force modernization and less to issues of broad public policy.

Despite this record of change and development, many problems persist which under certain circumstances could threaten Beijing's ability to maintain the political stability it prizes so highly and even result in a challenge to CCP leadership. China's residents consistently cite official corruption and government inefficiency as a major grievance. Thus far, the anodyne effect of rising living standards and the absence of any alternative to the CCP mutes their discontent. Also, the authorities have used their coercive resources to prevent isolated pockets of discontent from coalescing into the critical mass that would make a challenge to CCP rule possible. However, if economic growth declines, as seems likely, and if the CCP is not able to manage the social issues that attend privatizing the SOEs, recapitalizing the banking system, and streamlining and restructuring government, it is possible that social instability will emerge on a scale large enough to challenge the Jiang Zemin leadership. It is therefore necessary to consider the possibility that China might begin to exhibit many of the characteristics of a failing state.

Speakers noted three possibilities. The first saw the CCP leadership managing any discontent, persevering with reform, and steering a course through the difficulties. However, the odds in favor of such a course were assessed at no better than even. A second possibility involved accelerated political decay and a slow deterioration of the system; the probability of this scenario was assessed at about 35 percent. A final scenario posited a turning away from reform and a return to the totalitarian repression of earlier years. The odds in favor of such an outcome were judged to stand at about 15 percent.

Significantly, within the group as a whole, there was general agreement that U.S. policies could have some influence on which of the three scenarios might eventually emerge. Many believed that policies involving confrontation and coercion by means of sanctions run the risk of encouraging a return to repression or of collapse, while those that avoided confrontation were seen to reinforce the first possibility.

However, even under the first scenario, human rights issues will continue to complicate U.S. relations with China for many years. This is because the respective views of the two sides are, and are likely to remain, far apart. For the United States, human rights begin with the individual and extend to the political sphere, whereas for China the group and considerations of livelihood are more important. Individual political rights occupy a secondary position. For the United States, human rights are values in themselves, values the CCP views as a potential source of instability and as a challenge to its leadership. Given these differences and the intensity with which each side hews to its own line, disagreement on human rights will continue to be an irritant and could limit the scope of future bilateral ties.

All the scenarios noted above are likely to play out against a background of slowing economic growth if not actual economic decline, and all potentially involve a measure of political instability. Economically and politically, China may be moving in directions that appeared most unlikely just a year ago. In these circumstances it is essential to hedge against a range of possibilities, some of which are negative, rather than assume continual forward progress. It is also essential to analyze the links between China's economic and political conditions and Beijing's probable stances on different aspects of its foreign and national security policies.

Chinese strategists take a broad view of national security, a view that relates national security to comprehensive national strength, or the sum total of political, economic, and military capabilities that can be brought to bear in pursuit of vital national interests. A cohesive, resilient society is also required to support these capabilities.

Beijing probably perceives that it faces three major strategic tasks. First, and most important, is the issue of Taiwan reunification. For the Chinese, the reintegration of Taiwan is a matter of nationalism as well as one of national security. Nationalism requires a unified nation; a divided China is, by definition, less than secure. At present, the need to develop military capabilities sufficient to enforce Beijing's reunification objectives is China's central strategic planning problem and a driving force (some members of the group believe the driving force) in the modernization program of the PLA.

A second challenge is future oriented and proactive. It relates to Beijing's perceived need to protect what it considers to be its vital security interests and defend its territory in the maritime areas to the east and south. To this end, the Chinese must develop military capabilities sufficient not only to deal with Taiwan, but also to deter attack by any potential aggressor. Finally, Beijing could seek to extend and consolidate its influence throughout Northeast and Southeast Asia. These three strategic challenges-Taiwan reunification, defending maritime interests, and expanding Chinese influence-appear to form the substance of China's present strategic perspective. It is important to note that this perspective has a maritime and littoral focus.

Whether the maritime-littoral focus is new or not, and whether it is the result of some larger strategic plan, are important questions for the policy community because they bear directly on the matter of China's long-range strategic intentions. Members of the group were divided on this issue. The majority interpreted Beijing's focus as an effort to defend what China considers to be its legitimate interests, while a minority viewed it as a harbinger of Chinese expansionism. Nonetheless, it is clear that, since the collapse of the former Soviet Union, Beijing has used political and diplomatic means to reduce tensions and secure its land borders with Russia, the nations of Central Asia, India, and Vietnam and that it is concentrating more actively on maritime and littoral concerns.

The maritime focus will probably persist, even after the Taiwan issue is resolved. In order to defend what the Chinese consider to be their territory and interests from attack, the People's Liberation Army (PLA) will attempt to establish a "zone" within which it will be able to deter or prevent encroachment by any unfriendly power. Unfortunately, it is difficult to define the term "zone" with great clarity or specificity.

PLA writings of the mid-to-late 1980s spoke generally of establishing a "Strategic Boundary" within which the PLA could concentrate effective force. Later writings by then Commander of the PLA Navy, Admiral Liu Huaqing, clarified this concept somewhat, although not authoritatively, and spoke of "First and Second Island Chains" that would mark the outer geographic perimeters of Chinese concern (see map, following).

In his remarks, Ambassador James Lilley suggested the concept of a "Chinese Zone of Active Defense" extending from the Spratly Islands in the south, to Taiwan, to the Senkaku Islands, and anchored in Korea in the north. Terminology aside, the strategic principle involved calls for gaining strategic depth by first developing the capabilities necessary to deny access to areas adjacent to China's borders and later developing the capability to control these areas. PLA strategists believe that if war occurs, China should seek to achieve victory not on its territory, but at some distance from the nation's borders.

This strategic orientation obviously carries some potential for conflict, at least for accidental conflict as a result of misperception or misunderstanding. The areas with the highest potential for conflict will include places the Chinese consider to be their own (Taiwan, the South China Sea) or, possibly, in areas where interests can change quickly, such as the Korean peninsula.

This illustrates the challenge for U.S. policy in both the short and the longer term. Beijing increasingly views the U.S. military presence and the U.S. alliance system as obstacles to Taiwan reunification and to its effort to gain the strategic depth it considers essential to maintaining its security. The challenge for Beijing is to accept the U.S. military presence and still feel secure. In similar fashion, for Washington the challenge is to accept Beijing's rising military capabilities while also feeling secure. Put differently, China must convince the United States that it does not seek to exclude it or to marginalize its regional position, while the United States must convince China that it does not seek to contain, or otherwise threaten it.

1a

Source: PLA Data Bank CAPS, 1995.

Whether this will be possible or not remains to be seen, but there is some reason for optimism. China clearly has no desire to engage the United States in conflict at this time. Only a declaration of Taiwan independence, a miscue in Korea, or a unilateral effort by one of the parties to the Spratly Islands dispute could cause conflict. Nor is there any reason to assume that Beijing is simply biding its time and developing its capabilities for a planned future conflict.

The United States and China share an interest in maintaining a peaceful and stable region that will facilitate continued economic progress and development. They also share an interest in limiting nuclear and conventional weapons proliferation as well as in seeing peaceful reconciliation on the Korean peninsula. (Whether or not both sides have similar or overlapping interests in Korean reunification remains an open question.) Reasoning from this, there is also a shared interest in establishing confidence-building regimes and in cooperating to establish conflict-resolution mechanisms. In fact, in the short term at least, the most likely source of conflict between China and the United States would seem to lie in initiatives by third parties. Actions by Taiwan, either of the two Koreas, or any of the parties to the Spratly Islands territorial dispute could raise challenges to both U.S. and Chinese interests. This makes the need for bilateral and/or regional conflict management mechanisms all the more compelling.

Analysts of PLA posture and force structure hold sharply contrasting views. Some focus on PLA arms purchases, particularly from Russia, and conclude that the Chinese are bent on rapidly developing a force that one day will be capable of challenging the United States. Others focus on the Revolution in Military Affairs (RMA) and find in the writings of PLA officers evidence of a highly focused Chinese strategy of attacking the technological vulnerabilities of the United States military. Still others acknowledge an undeniable drive for modernity but remain skeptical that future conflict with the United States is the force driving PLA modernization. They also believe that such factors as a consistently low budget and a deficient R&D and industrial base will continue to limit Chinese success for decades to come.

At the heart of this debate is a basic disagreement over Beijing's longer term strategic objectives. Those who believe that U.S. and Chinese interests are fundamentally incompatible take a more pessimistic view of PLA force structure developments, while those who believe that a measure of accommodation is possible remain less so. The views of these different groups provide support for different positions in a larger political debate within the United States, a debate that is usually couched in terms of containment vs. engagement as the most prudent policy for Washington. Crafting a successful U.S. policy requires that Washington be extremely clear, not only in assessing the PLA modernization program but also in assessing its purposes and objectives. This process requires that all three sources of dataCarms purchases, military writings, and the PLA financial and technological resource baseCbe considered.

2a

Source: Progressive Policy Institute, Defense Working Paper No. 4, April 1998.

Certainly Beijing views a modern military force as an absolute requirement in its drive to consolidate China's status as a major regional power and eventually to increase Chinese influence beyond the Pacific. Beijing also thinks that developing a modern military establishment is essential to ensuring that China will never again be intimidated or humiliated as it perceives itself to have been in the 19^th and early 20^th centuries. The Chinese acknowledge U.S. military strength and regard U.S. capabilities as a benchmark for judging PLA progress. Nor can it be denied that, since the March 1996 deployment of two U.S. aircraft carrier battle groups to the vicinity of Taiwan, the need to deter potential U.S. military support for Taiwan plays a major role in PLA force structure deliberations. But, at this time, it is not clear that the Chinese regard the United States as a likely military opponent, or that Beijing is determined to challenge Washington for military supremacy in the Asia-Pacific region.

PLA threat assessment over the last two decades has changed dramatically. Until just before the end of the Cold War, the PLA focused on a well-defined threat from the former Soviet Union. Since that time, in line with an evolving strategic perspective, it has slowly begun to emphasize a more general set of contingencies involving China's maritime and littoral interests. Current PLA thinking emphasizes the need to develop a range of military capabilities that could be of use in a variety of different contingencies. The PLA has shifted from threat-based planning to contingency-based planning.

In the short term, the major contingency concerns the Taiwan Strait. Compared to Taiwan, Chinese interests in the South China Sea and the Spratly Archipelago are a distant second. Also, in recent months, Chinese military officials have cited the military-strategic significance of Taiwan in their effort to establish a wider "Chinese Zone of Active Defense."

Most analysts agree that the PLA's objective is not to develop a force capable of mounting a successful invasion, but rather to develop capabilities sufficient to intimidate Taipei into accepting a political solution on Chinese terms. As noted, the PLA also clearly wishes to deter any possible U.S. military intervention on behalf of Taiwan or at least to complicate any such effort. The influence of the need to deal with a Taiwan contingency is patent in recent confirmed PLA weapons acquisitions from Russia, including perhaps as many as 75 SU-27 fighter aircraft, 4 KILO- class submarines (3 have actually been delivered), and two SOVREMMENY-class destroyers scheduled for delivery at some future date, after agreement on financing arrangements. It is also manifest in the innovative manner in which the PLA deployed and used M-9 missiles in its March 1996 exercises in the Taiwan Strait.

The PLA is growing steadily more capable of dealing with the military dimension of a Taiwan contingency. The missile firings of March 1996 demonstrate that the PLA is indeed capable of intimidating Taiwan. Defending a U.S. carrier battle group against attack from a KILO-class submarine or advanced cruise missiles is more difficult than dealing with the PLA Navy's noisy submarines that are based on the technology of the 1960s. An SU-27 is more of a challenge than a MiG-21. Throughout its history, the PLA has demonstrated an ability to use less than state-of-the art capabilities innovatively to compensate for its deficiencies. This ability, and the incremental, if very slow, acquisition and deployment of more capable weapons systems will justifiably continue to compel the attention of the United States.

Apart from Taiwan and the South China Sea, it is difficult to identify other specific contingencies that figure prominently in PLA force structure planning. However, given the longer term concern about defending maritime and littoral interests, the need for deterrence, and the requirement to deny and/or control areas on China's maritime periphery, it is clear that the PLA is challenged to develop the means to attack the force projection capabilities of an encroaching adversary. The need to meet this challenge will shape the direction of procurements for the PLA of the future.

PLA planners must, however, start from an extremely low base. They also face a large number of R&D, production, financial, and doctrinal deficiencies that will limit their ability to catch up with the United States, much less achieve a AGreat Leap@ that would enable them to "leap frog" over their own

Source: Progressive Policy Institute, Defense Working Paper No. 4, April 1998.

deficiencies and reach or surpass U.S. standards. The pattern of arms purchases and military writings suggest that PLA leaders are aware of these deficiencies and that they have determined not to try to match the United States one-for-one. It is also clear that they feel no need to do so at this time. Rather, it is more likely that force planners will concentrate on acquiring a relatively small number of critical weapons systems that will increase PLA deterrent, denial, and control capabilities, with those that bear upon sea denial and sea control receiving special emphasis. In the short term to midterm, the PLA will rely on asymmetric capabilities and strategies to compensate for its overall weaknesses and deficiencies.

In developing this future force, two factors are likely to be paramount. First, in the wake of the Gulf War, the PLA made a direct commitment to developing the kinds of capabilities that enabled the coalition forces to achieve their overwhelming victory. The determination to master the high-technology warfare of the future in so-called Local Wars of Limited Duration is demonstrated in a steady stream of open publications and, presumably, in a number of high-priority special programs as well.

The second factor involves the RMA. The influence of RMA advocates within PLA councils is strong and apparently growing. Thus far, however, their publications tend to define the RMA mainly in terms of its Information Warfare dimension. That is, the Chinese would attempt to neutralize or paralyze the civilian and military information processing systems of an opponent and thus achieve their objectives, perhaps even without fighting. There is little evidence of major Chinese attention paid to other dimensions of the RMA such as networking remote sensors and smart weapons and reducing central reliance on mass and maneuver to achieve military victory. The PLA continues to think in terms of "force on force." Whether this emphasis reflects a basic misunderstanding of the RMA or is yet another example of PLA reliance on asymmetry remains an open question. Thus, assuming a continued information warfare focus, no reduction in financial resources, continued internal stability, and a highly prescient leadership, by 2015 China might deploy a force that

Source: Progressive Policy Institute, Defense Working Paper No. 4, April 1998.

could begin to mirror U.S. military capabilities of the early 1990s and simultaneously be capable of mounting some challenge to the advanced information systems of any adversary.

There are indications of internal discussion and debate about changes in Chinese nuclear force posture and doctrine. However, there is no indication of consensus. As framed by one speaker, the issue involves a potential shift from Beijing's historical reliance on a policy of "minimum deterrence" to one of "limited deterrence." Both concepts involve a declaration of no first use and both rely on survivability to ensure that China can absorb a first strike and still retain nuclear assets sufficient to inflict unacceptable damage on the attacker. However, limited deterrence implies a broader mix of weapons and delivery systems. It also implies an effort to develop tactical nuclear systems that would, incidentally, also provide a capability to practice escalation control.

The Chinese have stated that deployment of a U.S. TMD system would cause them to expand their offensive systems. Much would depend on the nature of the systems and the manner in which they were deployed. For example, the Chinese would probably resign themselves to accept U.S. deployment of theater defense systems designed to protect U.S. forces and which remained under sole U.S. control. If Washington were to transfer such systems and the technologies from which they were derived and supported, Beijing's concerns would probably be greater. Transfer of upper tier systems with potential for strategic defensive applications to Japan would strongly compel Beijing's attention, because the Chinese would be likely to see such systems as contributing to a Japanese strategic shield behind which Tokyo might develop its own nuclear capabilities. Transfer of any systems at all to Taiwan is likely to prompt a negative reaction of major proportions because Beijing would view the systems as undercutting its ability to intimidate Taipei and as a source of encouragement for Taiwan independence sentiment.

Even without a decision on TMD, there is broad agreement that Beijing is already modernizing its nuclear forces. Within 2 years, China will probably be deploying accurate, mobile, solid-fuel ICBMs such as the DF-31, which could reach most of the United States. Also, although large increases in the numbers of warheads above present levels of about 450 are not likely even with MIRVing, Beijing will continue to improve the accuracy and survivability of the weapons available to the PLA Second Artillery, as the PLA Strategic Rocket Force is known. The Second Artillery is also expected to deploy ICBMs with multiple independently targeted warheads within the next 10 to 15 years. Finally, U.S. military planners will also have to accept and deal with problems engendered by what is certain to be the continued practice of using missiles for conventional purposes, as was the case in the Taiwan Strait in March 1996.

Source: Progressive Policy Institute, Defense Working Paper No. 4, April 1998.

There is some evidence to suggest that China may be evolving towards greater activism in arms control regimes. Beijing has acceded to the Nuclear Proliferation Treaty (NPT), signed the Comprehensive Test Ban Treaty (CTBT), and joined the Chemical Weapons Convention. It has said it would abide by Missile Technology Control Regime (MTCR) provisions and has given assurances about its safeguarded nuclear cooperation with Iran. There is also a noticeable increase in the number of governmental and semigovernmental groups concerned with arms control.

Apart from force modernization, which will continue no matter what, Beijing's nuclear policies appear to be under some discussion. A number of disparate and at times contradictory themes, ideas, and proposals seem to be under debate at the same time. The absence of consensus and the tentative nature of Beijing's approaches to force structure and arms control thus far all suggest that Washington may have a major opportunity to influence Chinese policies and its behavior in the nuclear realm. All in all, this is a good time to develop strategies for engaging the Chinese in arms control and disarmament dialogue.

The dynamic of cross-strait relations has changed. Until the early 1990s, the "Three Communiqués (the Shanghai Communiqué, the Communiqué on Recognition, and the Communiqué on Arms Sales) and the Taiwan Relations Act provided a framework within which relations among Beijing, Taipei, and Washington could develop without threatening the peace of the Taiwan Strait. All three parties accepted, or at least did not challenge, the idea of One China. All more or less agreed that there is but one China and that Taiwan is part of that entity. But since 1992, owing to the emergence of democratic identity, a credible thrust toward independence in Taiwan, and a subsequent rise of nationalism in China, the concept of One China has been increasingly strained.

In Taiwan, the ruling Kuomintang (KMT) no longer claims to be the government of all of China. The opposition Democratic Progressive Party (DPP) holds a similar view and indeed continues to officially advocate an independent Taiwan. Taipei now defines a reality consisting of one China and two sovereign governments. Taipei also demands that Beijing acknowledge both its sovereignty and its right to international recognition and space.

The CCP seems to believe that time is on China's side and that time will see Chinese strength increase to a point at which Taiwan will have no option other than to accept reunification on Chinese terms. But Beijing is also concerned that Taipei might declare independence before these trends have a chance to operate and wants Taipei, first, to halt activities it sees as designed to encourage independence, and, second, to join a process designed to achieve eventual reunification.

At present the Chinese are attempting to circumscribe Taiwan's contacts with the external world, to limit its economic and political options, to promote an image of Taipei as the recalcitrant element in the equation, and to broaden and deepen economic interaction between the two sides. Beijing is also trying to persuade Taipei to resume technical and political talks, "without preconditions." But Taiwan leaders feel they have good reason to remain skeptical about these offers, all of which they feel require Taiwan to acknowledge Beijing's sovereignty over One China.

The situation is complicated by Taiwan's vibrant democracy. Politics in Taiwan is in a state of flux, with the Kuomintang under a major challenge from the DPP. Although DPP electoral gains are the result of popular dissatisfaction with decades of KMT rule, and although DPP rhetoric has moderated, the party has not renounced its advocacy of Taiwan independence. Despite internal division on this issue, 1998 could see the DPP add control of the legislature to its present domination of local administrations and thereby position itself well for the presidential elections scheduled for the year 2000.

Preliminary talks between the two sides in April 1998 and the prospect of face-to-face discussion of Apolitical issues@ between the official interlocutors indicate some improvement in cross-strait relations. The crucial issue involves sovereignty and the notion of One China. Taiwan regards itself as a sovereign entity equal to Beijing. Beijing feels that to accept Taiwan as an equal verges on accepting an independent Taiwan. In a sense, both sides impose conditions on arranging political talks. Taiwan requires that China acknowledge its sovereignty-at least over Taiwan-and Beijing has not yet succeeded in convincing the authorities on Taiwan that One China can mean something other than the rapid integration of Taiwan into the People's Republic of China. Breaking the logjam requires finding some incentive for compromise.

This might be possible if the One China principle were to be applied more flexibly. Flexibility means placing the issue of sovereignty to one side for a time. Under such a concept, Taiwan could agree to the notion of One China and thus renounce de facto any quest for independence. In return, China would renounce the use of force and also agree to a larger measure of international space for Taiwan, including participation in international organizations. Both sides would agree that arriving at a mutually satisfactory definition of the term One China would involve a generation-long process of discussion and dialogue. There is general agreement that the Taiwan equation has changed in various ways. However, the group divided over the utility of shifting from the present policy of maintaining ambiguity about the extent of U.S. military support, if any, for Taiwan, to one of declaring a policy of either no support or support under certain specific circumstances. Those who favored ending the policy of ambiguity argued that the Three Communiqués framework is outdated because Taiwan is no longer willing to abide by the One China commitment that supported the cross-strait stability of the past. In this view it is far better that the United States accept that its longer term interests require good relations with China, that Washington declare this interest, and that the United States make clear that it will not support Taiwan independence.

Proponents of maintaining ambiguity argued that, if it is approached in a flexible manner, the sovereignty issue can be accommodated and managed within the framework of the Three Communiqués and that Washington's long-standing policy of ambiguity-not taking sides, not trying to force the issue, and refusing to play the role of arbitrator-is therefore correct. They also noted that present policies are more sensitive to U.S. concerns about Taiwan's status as a democratic polity. However, they did acknowledge the potential utility of somewhat more activism by Washington and saw a useful role for the United States in working with the other regional powers to catalyze movement by the two sides toward finding ways to apply the principles of the Three Communiqués more flexibly.

This discussion led to elaboration of a third alternative: appointment of a special envoy who might serve as an honest broker, or mediator, between the two sides. Under this concept, Washington would maintain present levels of ambiguity about potential military support and would also continue to refrain from taking sides. However, the United States would prepare an agenda for discussion based on perceived areas of common ground. The United States would also facilitate discussions by suggesting areas for compromise and recommending specific measures to develop mutual confidence. Some members of the group saw the special envoy as a means of breaking the present logjam by setting a new, more specific agenda for both sides. Others rejected the idea on grounds that each side would seek to manipulate the envoy to secure additional advantage.

If Beijing, Taipei, and Washington all were sobered by the events of March 1996, they also appear to have drawn different lessons from the experience. Given that the cross-strait equation has changed, and given the wide disparity of view that has subsequently been engendered, it might be appropriate to reconsider those events and, more important, the changes in Beijing and Taipei that produced them. This might involve incorporating the different threads and arguments into a systematic review of U.S. Taiwan policy.

There is but a remote chance of serious conflict in the South China Sea that could engage the United States. At issue are the competing claims of China, Brunei, Malaysia, the Philippines, and Vietnam to a number of islands, reefs, and rocks within the Spratly Archipelago. Questions of sovereignty aside, the South China Sea dispute also has economic and political dimensions.

Although the returns thus far have been small, the areas around the Paracel Islands, the Gulf of Tonkin, the areas to the south, and the Natuna area off Indonesia are said by some to

Map 3a

hold potentially rich petroleum and natural gas resources. The waters around the Spratly Islands are fisheries and may also cover certain potentially rich mineral deposits. Ownership claims matter, therefore, because sovereignty conveys exclusive rights to prospect for and develop these resources.

The most important dimension of the dispute is arguably political. For the four Southeast Asian claimants, for the Association of Southeast Asian Nations (ASEAN) as a whole, and for Japan, which also has a territorial dispute with China over ownership of the Senkaku Islands, Chinese actions in the South China Sea are viewed as a strong indicator of how a rising China will deal with the external world. Correctly or not, analysts in these capitals also view the South China Sea as the arena in which the world will be called upon to demonstrate how it is prepared to deal with a rising China.

Although Washington remains sensitive to regional concerns about Chinese behavior, it is once-removed from the dispute. The United States does not take a position on the respective claims of the different parties. For the United States, a threat to freedom of navigation is the threshold to any possible intervention. This less intense perspective tends to separate it from its regional allies and friends and could cause tension between the United States and ASEAN in the future.

The situation is made more complex by Beijing's approach. On the one hand, the Chinese call for a peaceful solution and joint economic development, and it is clearly in China's interest to avoid conflict. This has not, however, prevented highly assertive actions by Beijing. As the Mischief Reef incident of 1995 shows, once tensions have been raised, the Chinese prefer to address the problem bilaterally. This approach serves Chinese interests in two ways. First, the Chinese believe that they can get a better deal by treating the issue as a series of bilateral questions. Second, Beijing's longer term interests are better served by preempting any possibility that issues regarding the Spratly Islands will emerge as a force for ASEAN unity. The United States, on the other hand, has a clear interest in nurturing the cohesiveness of ASEAN.

The U.S. focus on the larger issue of freedom of navigation is appropriate and should not diminish. In fact, the U.S. position

and its military presence probably help to reinforce the tendency to avoid conflict. Washington could also encourage ASEAN to be more proactive by developing common proposals for settlement rather than waiting for events such as the PLA constructions on Mischief Reef to prompt a reactive, if unified response. At the same time, the United States should also continue to reiterate to Beijing the necessity of continued unimpeded access to the sealanes of the area.

In May 1995, China and Russia announced the formation of a "Strategic Partnership for the 21^st Century." Since then, representatives of the two sides have held approximately 20 meetings, nearly half of which had a military or a broad security dimension.

At present, this relationship does not threaten U.S. interests. Despite the rhetoric of both sides, the Beijing-Moscow tie is tactical rather than strategic. The two sides are drawn together because both appear to believe that reducing tensions and establishing a framework for stable relations will free each to concentrate on more pressing issues. For example, Russia needs to concentrate on its economic problems and on its relations with an expanding NATO. China also has domestic concerns and is intensely focused on Taiwan.

A number of factors limit their strategic relationship. In political and economic terms, China is far stronger than Russia; both nations are intensely nationalistic; and Russia is concerned about the penetration of large numbers of Chinese into its far eastern territory. Most important of all, it seems clear that both Beijing and Moscow understand that their interests would not be well served by challenging the West. On the other hand, the interests that drew the two nations together in the first place will continue to exert their influence, and if either Beijing or Moscow considered those interests to be threatened, they might also choose to draw closer together.

Although the new relationship between Beijing and Moscow falls short of a strategic challenge, it does introduce a new factor that complicates Washington's bilateral relations with both capitals. This new factor carries an imperative to minimize actions that might drive the two sides together and maximize those actions that are either neutral or that maintain or increase their separation. Washington must provide Beijing and Moscow with a range of choices and incentives for each to make those choices that enhance their ties with the West. Therefore, it is in American interest to encourage improved ties between Russia and Japan.

The Chinese are clearly reassessing the impact of U.S. alliances with Japan, the Republic of Korea, and Australia on their longer term regional position and interests. Although Beijing's rhetoric unambiguously denigrates the alliances as outdated relics of the Cold War, there is no evidence that Beijing is actively implementing concrete measures to oppose them. On the other hand, it cannot be convincingly argued that Beijing has determined that U.S. military presence is consonant with its interests. The evidence is contradictory.

Chinese uncertainties about the renewed security alliance with Japan are a key factor in the reassessment. In the short term, Beijing is concerned that the revised defense cooperation guidelines with Japan will strengthen the U.S. hand in the event of a military crisis in the Taiwan Strait. Beijing also fears that Taipei will see the alliance as a source of support should it opt for independence and that at a minimum the prospect of enhanced military support in a crisis will stiffen Taipei's position in cross-strait dialogue. In the longer term, Beijing is probably concerned that the enhanced alliance will lead to and legitimize an expanded security role for Tokyo.

Chinese attitudes toward the alliance with the Republic of Korea (ROK) are more dependent on the course of events over the next few years. At present, when North Korea appears to be near the point of collapse, Beijing has little reason to oppose the Washington-Seoul security connection. Indeed, both Washington and Beijing share a strong interest in maintaining the stability of the peninsula, and the Chinese recognize the utility of the U.S. connection in all of its various aspects.

However, Beijing has traditionally regarded the peninsula as an area of special security concern, and as any transition develops, there is potential for U.S. and Chinese interests to diverge. The Chinese would be likely to implement a series of policy initiatives designed to reduce the extent of Washington's influence. Finally, in any post-transition scenario, Beijing and Washington might well find themselves engaged in a competition to influence the geopolitical orientation of a reunified Korea. The Chinese would almost certainly seek a major reduction in the U.S. force presence and also circumscribe the latitude for direct Korean involvement in a wide range of security-related contingencies. Indeed, the Chinese have already succeeded in positioning themselves well with both Seoul and Pyongyang, and Beijing might decided to use its influence with both to achieve its goals.

In the last year or so, Beijing has articulated a vision of a different regional security architecture, a vision that dismisses the utility of alliances as outdated relics of the Cold War. Pointing to its recent successes with Russia, France, India, and the United States, Beijing advocates an architecture that eschews alliances in favor of a series of "Strategic Partnerships" coupled with a strong component of multilateral confidence-building measures and efforts to build institutions to guarantee regional security as a more effective means of guaranteeing peace and stability.

At this time, Beijing's strategy appears to be to attenuate and limit the alliances by questioning their utility, by raising the specter of renewed Japanese militarism, and by offering an alternative architecture for the future. It remains to be seen whether Chinese rhetoric represents the first shots in a long-term battle to remove the U.S. alliances in Northeast Asia and thereby marginalize Washington's role and position, or whether Beijing's position is an attempt to live with the United States while constructing an environment in which it can better safeguard its interests.