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Economic and Political Review of Selected Asian Countries

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Inside Asia ReportChina - US Relations Enter A New EraAsian Growth Prospects

COUNTRY REPORT - China -US relations enter a new era
Prepared for "Asia and Pacific Review 2001"

The end was hardly another storming of the Summer Palace, let alone a Third Opium War. However, the resolution had echoes of Lord Maccauley's phantom kowtow to the Emperor. In that respect, it was ultimately a very Asian face saving exercise for both sides: what the Japanese call "dreaming different dreams in the same bed". To the Chinese it sounded enough like an apology to get them off the hook, but the US gave up nothing, except the plane - and that - or at least its secrets - was already lost.

Bush has, however, strengthened his position domestically as a result of his first foreign test. He avoided a Carter-like panic and reversed the Clinton grovel. More importantly, the hawks on China gained by allowing diplomacy to work but, at the same time, exposing the resurgent voice of the military in the Chinese leadership that has been hidden from the complacent American public.

As the foreign policy of the new Administration develops - and staffing is still woefully slow - China policy will be front and centre. Asia and Latin America are the Administration's announced priorities. Accommodating a growing China, that may not be as stable as it appears on the surface, will be the number one medium term goal in Asia. The key points of friction are Taiwan and the South China Sea where there are rival claims from at least five contiguous South East Asian countries for the rights of passage and the important underwater oil and gas rights.

Decisions on Taiwan must be taken in the coming weeks. Taiwan's armed forces have been denied substantial quantities of modernised equipment since normalisation of relations between the US and the PRC in 1979. Their equipment is now outdated and the forces inadequately trained. President Zhang Zemin, who leaves office in 2002, has said that the future issue of Taiwan's status should be resolved before he leaves office. With modernisation of the PRC's forces continuing apace, Taiwan would be much more vulnerable to hostile Chinese action by the time of the next Taiwanese elections in 2004 if their forces are not modernised.

The actions over the spy plane make it easier for Bush to sell modern equipment, including the advanced Aegis destroyers to Taiwan. The Aegis destroyers can also act as a platform for National Missile Defence when that becomes available. They could be particularly effective in the early boost phase where the effectiveness is likely to be higher. Any equipment assistance will need to be supplanted with training assistance for it to be effective.

Bush will probably face three options in dealing with China. The first would be a continuation of the Clinton policy of a straight-forward commercial relationship whilst ignoring its growing and possibly destabilising military capabilities in the region, hoping that Taiwan will eventually sell-out to real politique. The direct alternative would be to develop a hostile economic and political relationship and the third would be continued co-operation on economic issues but a much more sceptical military relationship.

The third alternative: continuing the economic relationship, somewhat more circumspectly, together with the tougher military approach are almost certain to be the most acceptable to domestic US commercial interests. This probably means that China's accession to the WTO will finally proceed later this year. (Taiwan would join in parallel.) Greater efforts will be taken to get the Japanese air and naval forces to expand their areas of operation and develop closer relations with India on the military front.

The other countries of South East Asia watch warily. Only Lee Kwan Yew, the Singapore Senior Minister, has come out with characteristic force saying China respects strength not weakness. Whilst quietly concerned about China's expansionary plans, they would be direct beneficiaries from any trade and investment diversion were US business urged to proceed more cautiously with their business plans for China.

European business could be expected to pick up any slack in China trade and investment should US business take a more sceptical position. They can provide many of technologies the Chines require, if not the cutting edge advanced technologies needed by the military.

The two hundred years love-hate relationship between the US and China, that has been all smiles since Nixon went to China thirty years ago, is entering a new and more confrontational phase. The old Chinese phrase is ever apt: may you live in interesting times.

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