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    A 21st Century Powerhouse: China Rising
    By Tim Johnson
    Knight Ridder Newspapers

    Monday 18 July 2005

    Wuhu, China - If the 20th was the American century, the 21st may belong to China.

    Just five years into it, China has become the world's third-largest trader, one of its fastest-growing economies, a rising military power in Northeast Asia and a global player extending its influence in Africa, the Middle East and Latin America.

    Americans and people around the globe can feel the effects of China's voracious appetite for resources and the enormous output of its factories, staffed by an endless stream of migrants who toil for $2 a day churning out low-cost goods, undercutting foreign competitors and upending the low-end global work force.

    The world has never seen a nation as big as China rise as far and as fast as China has in the last 20 years. Its ascent, like those of the United States, Germany and Japan before it, is challenging more established powers. Its continued progress depends on harmony with these and other nations.

    Whether China's rise lifts all the world's boats or sinks some of them will depend, first, on whether its rapid economic development continues. There's no certainty. Most of the country is backward and poor. Small-scale rural protests erupt with growing frequency, and leaders fear a spark that could set off wider turmoil. Corruption erodes the credibility of the country's communist rulers. Citizens have huge expectations about rising standards of living.

    It would be unwise, however, to bet against China. With the exception of India, no other country has such enormous scale, including such a huge pool of highly educated people. And in an age of globalization, no country has been better able than China to swallow the innovations of others and leap ahead of them.

    In coming months, Knight Ridder will examine important parts of the story of China's rising power, including its mounting demand for energy, its military buildup, the degradation of the environment and the growing political and economic "soft power" it wields abroad. Other stories will describe how China has largely tamed the Internet, and how U.S. companies have succeeded - or failed - at cracking the Chinese market.

    China's conglomerates are on the prowl. Following a path Japan once took, Chinese firms are scouring the globe. But instead of buying trophy buildings and movie studios, they've bought IBM's personal computer business, and they're looking at Maytag and Unocal, the oil company.

    Economist Nick Lardy, an expert on China, said its economy was likely to grow rapidly over the next five to 10 years because of its openness to foreign business, high savings rate and huge pool of underemployed rural workers who are eager to work in factories, even for low wages.

    Although much of China's production is still low-tech, the government is pushing innovation and research into areas that have both civilian and military high-tech potential.

    American analysts figure it will be years before China's military is on par with America's. But it doesn't have to be an even match to pose a serious threat. China's submarines soon will acquire supersonic missiles that could slow or damage U.S. aircraft carriers if they moved to defend Taiwan.

    In its quest, China has extended its influence to Africa, the Middle East and Latin America. Its "see-no-evil" foreign policy sometimes puts it at odds with the U.S. interest in promoting democracy, human rights and nuclear security. With investment and diplomatic support, for example, China bolsters oil-rich Iran and Sudan.

    China's Communist Party - authoritarian and pro-business - has had a monopoly on power since it won a civil war in 1949. Opposition is banned. While communist ideology has faded, the party stakes its legitimacy instead on its ability to meet rising expectations with rapid economic development.

    China's global ambitions - and the hopes of many Chinese for a freer society - rest on the prospect of sustained growth. In the long run, economic openness might lead to greater political freedom, as it has in Taiwan and South Korea. As people get richer, they tend to want to join groups of people with similar interests, they seek to protect their rights in court and, finally, they want a say in how they're governed.

     But China's gap between rich and poor yawns ever wider, fueling frustration and resentment.

     Other potential obstacles:

    China's very size - 1.3 billion people - makes questions about its future all the more important.

    "China is the largest laboratory of social, economic and political change in modern history," said Zhang Weiwei, a Chinese political scientist who lives in France.

    The ripple effects of such rapid, large-scale economic development are being felt in Asia and the rest of the world.

    China's growing tensions with Japan, for example, are partly because of disputes over undersea oil deposits in the East China Sea.

    But China's economic power isn't only a source of friction; it's also attracted admiration. Australians, who are doing a brisk business selling to China, now view China more positively than they do the United States, an opinion poll by the prestigious Lowy Institute, a research center in Sydney, found in February. Some 69 percent of Australians look positively on China, while only 58 percent do so on the United States, the poll found.

    Eventually, the United States could find itself competing with China for dominance in Asia. It would be the first time the United States faced a challenger with so much economic power.

    China's leaders have sought smooth relations with the United States while they focus on domestic problems. In the meantime, a growing China has started to help solve global problems, from support for the government of Afghanistan to the fight against AIDS.

    "Our children and grandchildren are going to live in a world where China will be a very strong and powerful player on the world scene," veteran U.S. diplomat John Negroponte said during a confirmation hearing for his new job as national intelligence director.

    Urban, middle-aged Chinese marvel at how much their country has changed since they were young.

    For three decades after the 1949 revolution, the state assigned jobs and housing, restricted travel and offered a bare-bones welfare system. Simple belongings, such as wristwatches and bicycles, could take years to acquire.

    "Twenty years ago, I dreamed of having a watch. My family was too poor to buy me a watch. So I drew one on my wrist with ink," said Li Tao, a research fellow in Beijing at Tsinghua University, one of China's premier institutions. "Now I have a car."

    Billboards and TV ads pitch the latest BMW models, liquors and perfumes. Chinese can move about the country, switch jobs, acquire passports, start businesses, and buy and sell homes.

    "I used to live in a very shabby apartment. . . . The wooden floor was rotten. There were rats everywhere," said Yi Shoucheng, a deputy manager at a cutlery factory in Wuhu, a city in central inland China.

    Yi lives in one of the new apartment blocks that are rising around Wuhu, the last deep-water port along the Yangtze River, where industrial zones throb with activity and bulldozers flatten old homes to make way for apartments.

    The farming hamlet of Xiangfengwei is a 40-minute drive from Wuhu. Running water arrived in 1973, electricity a decade later. Relief from poverty has yet to come. Many people burn straw or coal to cook.

    Rural unrest is a potential flash point in China, and the Communist Party keeps close political control.

    Urban and rural dwellers alike are angry over land grabs by corrupt officials. Banking and stock-market scandals simmer. Underground religious sects appear to be expanding. Expectations of rising standards of living could endanger the party's legitimacy if unmet.

    "Everything could fall apart. It's not that stable," said Wang Gungwu, the director of the East Asian Institute at the National University of Singapore. "It's a single political party with no transparency (and) little accountability."

    Officials censor news of unrest, muzzle troublemakers, jail dissidents, clamp down on the Internet and stifle religion.

    "Their logic is that everything depends on stability," said Wang Yizhou, the deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. "Development, growth, reform, all of it depends on one condition: stability."

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    Unocal Deal Tests US Stance toward China
    By Peter Grier
    The Christian Science Monitor

    Monday 18 July 2005

    Washington - Energy is a strategic commodity - and thus China's purchase of a US oil company would irreparably damage US national security.

    That's the hard line taken by some key members of Congress as debate intensifies in Washington over a Chinese bid to buy California-based Unocal and its petroleum and pipeline assets.

    Some deal opponents - such as former CIA chief R. James Woolsey - say it's "naive" to think that the proposed takeover is just a commercial matter, unrelated to a Beijing strategy for domination of energy markets and the Western Pacific.

    Other experts retort that Congress is experiencing one of its periodic China scares, and that there is little danger in selling a relatively small oil firm to foreigners - even one with close ties to the Chinese government.

    "The question you have to ask is whether there is risk to US security from this. I don't see that there is," says James Andrew Lewis, director of the Technology and Public Policy program at the Center for Strategic and International Studies (CSIS).

    Whatever its outcome, the $18.5 billion bid for Unocal by the Chinese National Offshore Oil Corporation (CNOOC Ltd.) appears to have intensified feelings of ill-will that were already rising on both sides of the Pacific.

    Last month the House, by a vote of 398 to 15, passed a resolution declaring that the deal would threaten national security. Last Wednesday Rep. Duncan Hunter (R), chairman of the House Armed Services Committee, said he might introduce a bill that would prevent the purchase. Congress enjoys the support of the public, 74 percent of whom oppose the deal, according to a Wall Street Journal poll.

    Beijing, on the other hand, has complained that US lawmakers should stop interfering with a matter of business.

    In Washington, opponents see the move as directed, not by market concerns, but by the desires of the Chinese government. CNOOC has lined up cut-rate financing for the deal from state-owned banks, they point out. In addition, CNOOC chairman Fu Chengyu doubles as a high-ranking Communist party official.

    Unocal itself is a relatively small player in US markets, but it is a significant provider of natural gas to Southeast Asia and a primary investor in pipelines that cross Azerbaijan, Georgia, and Turkey.

    "China's purchase of Unocal would dramatically increase its leverage over these countries and therefore its leverage over US interests in those regions," said Mr. Hunter at a House Armed Services panel hearing last week.

    In addition, say opponents of the Chinese effort, Unocal owns sensitive undersea mining technology. For these and other reasons, critics say the deal should at least draw the scrutiny of the Committee on Foreign Investment in the United States, an executive branch interagency body created in 1988 to examine proposed sales of US firms for national security concerns.

    But some complain the committee is not forceful enough. The body has only killed one deal in its 17-year existence, though others have been quietly headed off.

    "A more aggressive oversight system should and will be needed if the Chinese accelerate their buying spree into the American economy," Richard D'Amato, chairman of the US-China Economic and Security Review Commission, told the House Armed Services Committee hearing.

    Others have suggested conditions to the possible deal. James Andrew Lewis of CSIS says if Unocal ends up in Chinese hands, it should be forced to spin off its undersea mapping technology, although he adds that CNOOC has already indicated it would undertake this step. As to Chinese government involvement in the deal, that is besides the point, he argues. The real issue is the effect on US security concerns - and there he sees little problem.

    Mr. Lewis and other experts note that Unocal is small, and the world oil market is a huge and efficient machine. If Beijing bought a Colombian coffee farm, would the House gear up to protect the US against a nationwide latte shortage?

    "We need to try and not think of this in mercantilist terms," says Lewis.

    Unocal represents 0.8 percent of US oil production, and 0.3 percent of consumption. Even if Beijing took all that petroleum for itself, the move would lessen the amount of petroleum that China would have to buy on the world market. The net effect on prices thus would be zero, according to Jerry Taylor, director of natural resource studies at the Cato Institute.