Tuesday, November 15, 2005

China Commission Report Analyzed

I posted five days ago on the release by the US-China Economic and Security Review Commission of its 2005 report to Congress. At that time, I was only able to offer a link to the analysis of another blogger as I had not yet had time to read the full report. I just completed the report and have some thoughts on their analysis and recommendations.

  • CNOOC's Unocal Bid: The China Commission recommended against allowing CNOOC to acquire Unocal. I posted on this issue here.

  • Mercantilist Oil Policy: The commission accuses China of "mercantilism" in its efforts to acquire fossil fuels:
    China should be strongly encouraged to (1) abandon its policy of acquiring oil at the wellhead or field in a mercantilist fashion; (2) procure oil and gas according to international practices (i.e. purchasing it on the open international marketplace); and (3) cease providing assistance, arms, and proliferation-related technologies to problematic states in possible return for access to their energy resources [176]

    The commission misreads the implications:
    Every barrel of oil that China buys in America, whether it is in North America, Central America, or Latin America, essentially means one less barrel available for the U.S. market. [170]

    While this is true, it is irrelevant whether that barrel is consumed by China or America, the laws of supply and demand still remains true.

    Robert Zoellick has said of the matter:
    Chinas economic growth is driving its thirst for energy. In response, China is acting as if it can somehow "lock up" energy supplies around the world. This is not a sensible path to achieving energy security. Moreover, a mercantilist strategy leads to partnerships with regimes that hurt Chinas reputation and lead others to question its intentions. In contrast, market strategies can lessen volatility, instability, and hoarding.

    Zoellick's comments come much closer to the real problem, which is connected to oil only tangentially. It is explained by the commission as follows:
    In part in order to obtain access to energy resources and raw materials, China utilized and expanded relationships with nations such as Iran, Sudan, and Zimbabwe that have earned international opprobrium for objectionable human rights, terrorism support, and other activities. In these interactions, China focused on its narrow interests while dismissing international concerns. [143-144]

    Whether China spends this political capital to acquire a good deal on oil or not is irrelevant. The problem is the undesirable frienships and weapons sales, not the oil. The macroeconomic effects of China paying less than market price in currency (and probably above market price when the cost of its UNSC vote and other factors are considered) is negligible. China's deal with Sudan or Zimbabwe is similar to the American deal with Saudi Arabia. While both pay a price below market value, neither noticeably effects the market as a whole.

  • USG and Taiwan: The commission finds:
    The U.S. government has not laid adequate groundwork to allow a rapid response to a provocation in the Taiwan Strait. Almost any possible scenario involving U.S. military support to Taiwan would require extensive political and military coordination with the Taiwan government and regional allies, but the foundations for such coordination have not been laid. [117]

    In order to address that deficiency, the commission recommends:
    [T]he arms sales package should remain on offer, and it further believes that Congress should take steps to facilitate strong working relationships through such measures as authorizing the exchange of general and flag officers, conducting interactive combat data exchange with Taiwan defense forces, providing increased opportunities for Taiwan officers to be trained in the United States, and establishing institutional relationships with the Legislative Yuan to improve the oversight of defense matters. [135]

    I agree with the commission's conclusion and recommendation.

  • Six Party Talks: The commission stated:
    The extent of Chinese cooperation in the Six-Party Talks to achieve a complete, verifiable, and irreversible dismantling of North Korea's nuclear weapons and nuclear weapons programs is a critical test of the U.S.-China relationship. [161]

    While the commission is right about the amount of leverage China holds over North Korea (ie: 90 percent of North Korea's energy supplies come from China), the analysis of Angry Chinese Blogger tells us that this is unlikely to be fruitful.

  • Revaluing the Yuan:The New York Times weighed in on this issue with the following:
    Last week, a bipartisan advisory group delivered a report to Congress that sharply criticized China's trade practices and endorsed imposing sanctions, including a tariff on imports, unless Beijing takes forceful steps to allow its currency to move in line with market forces[...] Certainly Mr. Bush should urge China to move toward a more market-based currency[...] But Mr. Bush must resist the advisory group's shortsighted calls to hit Beijing over the head with the blunt instrument of trade sanctions. Smacking China until it complies with us on trade is a short-range policy that doesn't take into account that it is now a political as well as an economic global power. There is more at stake in the world than how many made-in-China T-shirts are on sale at Wal-Mart.

    While certainly more than T-shirts are at stake, the Times is correct. The value of the yuan has a significant impact on the US-China trade imbalance, but tariffs are not the answer. The clearest explanation of the inherent problem is given in Commissioner William Reinsch's dissenting opinion:
    It is clear that the Commission majority has never met a sanction it didn’t like or didn’t want to impose on China. Despite overwhelming evidence that unilateral sanctions fail to achieve their objectives and at the same time impose significant costs on the sanctioning nation, the Commission continues to recommend their imposition or expansion. [218]

  • Defense: The commission's report gets most of its defense information from the Department of Defense's 2005 China Report. One noteworthy addition is a thought provoking quote from Representative Rob Simmons:
    China is buying new submarines literally by the dozen. [123]

    This is certainly true and should be worrying to those who don't wish to see a conflict in the Taiwan Strait.

  • Special Budget: The report states:
    Regrettably, the KMT has blocked President Chen’s legislative efforts to pass a special budget for defense purchases in a purely partisan move to gridlock his government [130]

    I am sure that Michael Turton will be as pleased, as I am, that someone in the American government finally understands the true nature of the KMT's opposition to the special budget--obstructionist, plain and simple. The report explains just how important signals such as these can be to the likelihood of war:
    The government gridlock in Taiwan that has resulted from the political in-fighting over national security issues sends a signal of weakness to Beijing and endangers U.S. security interests in the Pacific. As Princeton political scientist Thomas Christensen pointed out, any weakening of the security relationship between Washington and Taipei diminishes the deterrence presented to Beijing, and this is true whether or not Beijing seeks to avoid a conflict across the Taiwan Strait. [133]

  • Media Control: The China Commission was founded by Congress to analyze the effects of extending PNTR to China. The Clinton administration claimed that free trade would result in an opening up and democratization of China. Due to this mandate, the commission also evaluates how trade with the United States affects the control of the government over information. The commission concluded that the government has as firm a grip over the spread of information as it has in the past. I agree completely. I have written numerous times about the Great Firewall of China and posted an advertisement on the bottom of my blog to the Reporters Without Borders report on control of the internet.