Since the establishment of the People's Republic of China (PRC) in 1949, the country's foreign affairs policy has frequently been labeled as irrational because of its priority of feverish ideologies over measurable national interests. Whether this is in fact the case, China has used this perception to achieve tremendous diplomatic benefits. China's perceived willingness to promote ideology at any cost has enhanced the credibility of its threats. As a result, the country has enjoyed negotiation leverage incompatible with its actual strength. This "rational irrationality" is China's most frequently used diplomatic ploy, as it is both cheap and rewarding.
Twenty years along in China's liberalization, this tactic is facing unprecedented problems. A closed-door policy and a self-sufficient economy were the main reasons for the tactic's past success, for before 1979, China's foreign policymakers did not need to consider outflow of capital and reduction of foreign trade as potential costs of using this tactic. They, therefore, had considerable freedom of movement.
Today's policy makers face a completely different situation. According to statistics, over the past twenty years of reform, China's foreign trade-dependency ratio averaged 18 percent and net exports and foreign investment contributed 20 percent and 10 percent, respectively, to the country's GDP growth. In other words, out of each 100 dollar increase in China's GDP, 30 dollars came either from the international market or foreign investors. Furthermore, 47 percent of China's foreign trade is derived from foreign investments in China. Approximately 12,000 foreign businesses and joint-ventures hire 17 million people, approximately one-tenth of the urban labor force in China. Economically speaking, China is more reliant on the international community than most other countries.
The increase in reliance on the foreign countries restricts the freedom of China's foreign policymakers. These policymakers still habitually rely on threats, but it has not been difficult for the analysts to discover that most of these threats are within a manageable framework. To China's opponents, the credibility of these threats have decreased significantly. The Sino-US and Sino-Taiwan relationships are the best demonstrations of this change.
Since 1990, the US has remained China's second largest trading partner and its largest export destination. In 1998, China's exports to the US were valued at US$38 billion, about 20 percent of China's total exports. China enjoyed a trade surplus of US$21 billion with the US in the same year, 48 percent of China's total trade surplus for the year. From 1990 to 1998, China in total earned US$65.8 billion from its trade with the US, about 56 percent of the country's foreign reserve growth for the period. On the investment side, the US loaned China US$38 billion between 1990 and 1997, making the US China's second-largest creditor country. These statistics indicate that the US has successfully gained a firm grip on China's economic lifeline through a policy of "interaction."
If we add Japan to the equation (China's largest trading partner and creditor), US influence on China becomes virtually incalculable. A rough estimate indicates that each 1 percent drop in China's GDP increases the urban unemployed population by five million. The combined annual GDP contribution of the US and Japan are far in excess of 1 percent. As the urban unemployed population has reached 18 million in China, any further deterioration in the relationship with the US would seriously impact the stability of the Chinese communist regime. China's decision to resume its relationship with the US and reduce "interference" from nationalist ideology at the recent Beidaihe Conference (北?河會?) reflected the Chinese leadership's awareness of their decreasing ability to rely on threats.
Taiwan has also repeatedly angered the Chinese leadership. This also reflects the reduced credibility of China's threats. Although economic reliance on foreign countries has not change China's claim to national sovereignty over Taiwan, it has significantly raised the cost of enforcing this sovereignty through the use of force. Although the missile demonstrations in 1995 and 1996 were not without effect, facts indicate that Taiwan never seriously considered the possibility of China actually using force against the island.
The threats made by China when the "special state-to-state concept" was first declared may have caused the Taiwan stock market to drop by more than a thousand points, but Shanghai B shares also dropped by more than 40 percent as a result. Although China's exposure to the stock market is far less than Taiwan's, a drop in the Hang Seng made it difficult for Chinese businesses to raise money from the Hong Kong stock market and caused fluctuations in the exchange rate between the renminbi and the Hong Kong Dollar. The price of a further deterioration in Sino-US relations would be even higher. China's Foreign Minister Qian Qichen's (錢其琛) response was to view the "special state-to-state concept" as no more than Lee Teng-hui's (李登輝) personal opinion, while Jiang Zemin (|蕞A民) simply reiterated China's position on "peaceful unification" during his speech in celebrating the founding of the PRC.
We cannot predict to what degree China's determination to preserve national sovereignty will be restricted by its economic exposure to the international market. But one thing we can be certain of is that as long as the Chinese government continues to pursue Deng Xiaping's (
Liang Wen-chieh is the Deputy Director of the Democratic Progressive Party's (DDP) Chinese Affairs Department.
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