ECONOMICS AND SECURITY 147 ESC 05 E Original: English NAT O   Pa rl i a me n t a ry  As s e mb l y ECONOMICS AND SECURITY COMMITTEE VISIT TO BEIJING AND SHANGHAI SECRETARIAT REPORT 4 –  8 JULY 2005 International Secretariat 19 August 2005 * This  Secretariat  Report  is  presented  for  information  only  and  does  not  necessarily represent the official view of the Assembly. Assembly documents are available on its website, http://www.nato-pa.int

147 ESC 05 E 1 1. 26 members of the NATO Parliamentary Assembly's Economics and Security Committee, led by the Dutch MP Jos van Gennip and the British MP, Hugh Bayley, travelled to Beijing and Shanghai, China from July 4-8. During this first ever NATO PA delegation visit to mainland China, committee members  met  senior  Chinese  government  officials,  central  bankers,  leading  members  of  the National   People’s   Assembly   and   the   Shanghai   Municipal   People’s   Congress   as   well   as representatives of the World Bank and the International Monetary Fund, and faculty and students of the East China Normal University. 2. The delegation arrived in China with several objectives: - to generate information for a report the Committee is writing on the economic implications of an emerging  China.    The  first  draft  of  that  report  has  been  posted  at  the  NATO  PA’s  website  at   http://www.nato-pa.int/Default.asp?SHORTCUT=674    and  will  be  revised  thus  autumn,  based,  in part, on the findings of the mission; -  to  initiate  a  dialogue  with those shaping China's profound economic and social transformation; and, to identify new issues for further study. 3. Several key themes emerged over the course of the week. Firstly, Chinese authorities strongly asserted that with an economy that is increasingly integrated in the global chain of production, and given  persistent  domestic  development  challenges,  they  are  compelled  to  adopt  a foreign policy premised on securing international stability and order through multilateral channels. 4. Government officials told the delegation that China seeks cooperative and friendly relations with the West and with all of its neighbours. The Vice Chairman of the Foreign Affairs Committee of the National People’s Congress, Wang Yingfan, spoke positively of the informal dialogue that is just beginning   between   China   and   NATO,   while   Mr.   Zhang   Yesui,   the   Vice   Foreign   Minister acknowledged that NATO had contributed to regional stability in Afghanistan and the Central Asian region. He also said that his country welcomes NATO's peacekeeping missions and stands ready for further exchanges on major security issues.  Mr. Yingfan echoed this, noting as well that China now supports  the provisional government in Iraq even though it opposed the war. 5.  Over  the  course  of  the  week,  the  delegation  also  addressed  more  contentious  matters, including:  Taiwan,  human  rights  and  democracy  related  issues,  China’s  surging  appetite  for energy, and an array of trade and monetary matters.   6.  The  Taiwanese  question  was  taken up at several junctures.  Officials were at pains to stress that nobody in China wants current tensions over Taiwan’s status to spark a military conflagration. Yet, they also indicated that no Chinese leader would ever be forgiven were he or she to concede to a fully sovereign Taiwan.  In that sense, there appears to be a bottom line at which point the Chinese  government  would  "pay  the  price  for  our  integrity  -  including  the  resort  to  non-peaceful means" as Wang Yingfan said. China's leaders apparently hope to avoid getting to that point. In conversations   with   the   delegation,   authorities   stressed   that   China   and   Taiwan   enjoy   close commercial  ties  and  that  some  300,000  Taiwanese  have  easily  integrated  themselves  into  the urban life of Shanghai. 7.  On  matters  pertaining  to  democracy,  non-Chinese  speakers  told the delegation that the state has clearly accorded the Chinese people far greater liberties than they have ever enjoyed under Communist  rule.  The  country's  economic  take-off  would  not  have  been  possible  without  this fundamental shift. Yet, there are clearly demarcated red lines.  The most apparent of these is that challenges to the Communist Party's political hegemony will not be brooked. The Party itself is in the   midst   of   important   change,   with   membership   soaring   to   some   70   million   people.   The Communist  Party  of  China  (CPC)  is  reaching  out  to  new  social  groups  like  China's  emerging business  elite,  many  of  whom  are  joining  the  party  purely  for  practical  economic  reasons.    The

147 ESC 05 E 2 dilemma for the party, however, is that this recruitment drive will bring greater diversity within its ranks  at  a  time  when  society  itself  is  growing  more  plural.  Speakers  at  East  China  Normal University  suggested  that  this  growing  "pluralization"  is  indeed  welcome  and  observed  that pushing    too    hard    for    the    rapid    adoption    of    western    democratic    norms    could    prove counterproductive. 8.  Chinese-Japanese  relations  were also broached at several points. The old framework for this relationship  is  no  longer  valid;  whereas  China  long  depended  on  Japan,  today  the  Japanese economy is increasingly tied to developments in China. This does not sit well in Tokyo, according to one professor who addressed the delegation. Chinese authorities and the public are also furious that Japanese officials continue to honour the war dead at the Yasukuni Shrine where the remains of many convicted war criminals, including Hideki Tojo, lie.  This has sparked public outrage and riots  in  China,  suggesting  how  sensitive  matters  related  to  Japan's  occupation  of  China  remain. The  delegation  learned  that  a  panel  of  Japanese  and  Chinese  historians  might  help  settle  the issue through careful consideration of the facts, and in so doing might help keep history out of the hands  of  those  who  might  be  tempted  to  misuse  it.  One  speaker suggested that the problem is perhaps exacerbated by the very different rituals of remembrance embraced by each society. But even given those differences, the speaker felt that the Japanese would be well advised to honour their war dead in a shrine without the highly divisive presence of war criminals. 9. On the energy front, officials seemed to downplay widely discussed energy bottlenecks. But the view  of  non-government  speakers  was  that  meeting  China's  energy  needs  has  become  a  core challenge  for  a  leadership  that  once  understood  oil  and  gas  supplies  as  nearly  limitless.  The sudden sense of limitations is strongly conditioning China's international posture. One academic, however, challenged the widely held view in the United States that China aspires to develop a blue water navy capable of checking the American navy's implicit capacity to choke off China's energy supplies.  China,  he  said,  simply  lacks  the  resources  and  technology  to  do  so.  He  did  admit, however,  that  China  was  moving  from  a  "brown  water"  fleet  dedicated  to  coastal  defence  to  a "yellow water" fleet capable of operating in the South China Sea. 10.  In  Beijing  and  Shanghai,  the  delegation  witnessed  for  itself  the  consequences  of  exploding demand  for  automobiles:  gridlock  and  smog.    These  are  of  great  concern  to  both  central  and municipal authorities, and the government is signalling its determination to help tackle the problem of global warming - an issue that China's President Hu Jintao raised at the July G-8 Meeting 11. Finally, on the trade and monetary fronts, one World Bank economist told the delegation that China  has  essentially  become  the  world's  assembly  platform.  It  is  highly  productive  and  has  an abundant, low cost and hard working labour force. There are an astounding 200 million itinerant labourers  in  China  who  have  by  their  mobility  and  flexibility  exercised  enormous  discipline  over labour markets, although wages are ineluctably rising in some coastal regions including Shanghai.   At the same time, China's accession to the World Trade Organization is imposing new obligations on China to meet international commercial standards, while obliging the rest of the world to accept Chinese  imports.    Problems  on  both  fronts  were  acknowledged.    One  university  economist  also suggested  that  China's  exports  will  never  be  sufficient  to  raise  all  of  China's  population  out  of poverty,  and  that  is  why  internal  market  development  and  higher  domestic  demand  are  also essential. At the same time, officials from the Central Bank denied that the Renminbi's link to the dollar was the source of China's ever-larger trade surpluses and gave no indication that they are prepared to revalue the currency over the short term. The Chinese remain concerned that to move quickly  on  this  would  destabilize  its  not  all-together  sturdy  financial  architecture.  An  American official  in  Beijing,  though,  told  the  delegation  that  the  US  government  continues  to  push  for  a revaluation and made no comment on a question about the consequence for the US economy of reduced Chinese lending to the US.  

147 ESC 05 E 3 12.  It  became  very  clear  over  the  course  of  the  week  that  China  has  become  "systemically important".  It  is  increasingly  a  price  maker  in  world  commodity  and  goods  markets.  Its  booming trade surplus, rapidly expanding GDP, rising investment levels and the capacity of its markets to pull people out of poverty all suggest that China's relative economic and diplomatic weight will only increase over time. It is not democratic yet it is growing more plural. There is a clear potential for it to evolve into a more open and liberal society.  It is precisely for this reason that the Economics and Security Committee will continue to track events in China over the coming year.