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America and China:

Two Middle Kingdoms in Search of a Stable Strategic Relationship

Speech by the Honorable Alan W. Steelman

former Member of U.S. Congress, Texas


The International Professional League

And The Dallas Council of World Affairs

September 30, 1996


America and China: Two Middle Kingdoms in Search of a Stable Strategic Relationship


History and National Self-Perception

For most of the 4,000 years of recorded Chinese history, China has viewed itself as the “Middle Kingdom,” believing that it occupies a special place in the universe.  According to this view, “God is in his heavens, the Chinese occupy a kingdom in the middle, and residing below in a lesser kingdom are the ‘barbarians’” – meaning all other peoples.  Viewing the world through China's eyes is fundamental to the relationship the U.S. will develop with the world's most populous country as it re-enters the mainstream of world affairs.


China’s Loss of Face

China suffered a tremendous loss of face when it had to concede territory to several European powers during the 19th century.  The memory of this has not receded.  The British brought opium as a good to trade for Chinese silk and teas and in the process created a widespread drug dependency which reached even as far as the Imperial Court in Beijing.  China wasn’t strong enough to repel the opium invasion and ended up giving Hong Kong to the British as a means of getting them off the mainland.  They also gave Macau to Portugal and made several territorial concessions to the French, Belgians, and Germans in Shanghai and further up the coast.

In this century, Manchuria was taking by the Japanese in the 1930’s.  The Chinese then suffered millions of casualties to the Japanese during WWII.  During the Mao period, it was repeatedly affronted by its erstwhile Soviet allies, who considered it the junior partner in the relationship.  Finally, after enjoying a long-term strategic relationship with the United States during the 1970’s and 1980’s, it feels now it was cast aside after its usefulness as a counterweight to the Soviet Union expired.

150 years of “turning the other cheek” has left China resolved to reclaim its respect and lost honor.  When Macau returns to China at the end of this decade, the final chapter of Western dominance will have concluded.  For the first time in 400 years, every inch of Asian soil will be controlled and managed by Asians.


America as Missionary

Like China, America too has believed for all its 200+ years that it occupies a special place in the Universe.  It feels that it has been especially blessed by God and in return has been given the task of carrying out a special mission.  This mission is two fold.  First, to serve as a beacon to the rest of the world.  And second to convert other nations to the concept that each human being has certain inalienable rights, vested at birth.  These rights are entitle to protection by the role of law under a stable system of government run by officials who are democratically chosen.  In the 20th century, it was this view which inspired President Woodrow Wilson in his campaign for the League of Nations.  It inspired the war effort during WWII, and it provided the intellectual rationale for the U.S. intervention in both Korea and Vietnam.

This concept of “special place” helps us understand the attitude and behavior of both China and the United States.  It also helps explain the tension and mutual distrust as we both try to come to terms with each other to lay the foundation for a new strategic relationship.


How It Drives the Behavior of Both China and the United States

Lecturing China on human rights and threatening economic sanctions to ensure compliance is a direct outgrowth of this idea of a “special mission”.   Former Secretary of State, Henry Kissinger, in his book, Diplomacy identifies that two separate and distinct strains of thought which are most characteristic of U.S. foreign policy debate.  One is the real politik school of thought, where the principal motive in making strategic choices is choosing that which serves the interest of the United States; intervention is then justified only in those cases where there is direct threat to U.S. interests.  This view takes no heed of other factors such as humanitarian concerns.  The “America has a special mission, we own the high ground” school of thought advocates a special American role in the world: peacekeeper, arbiter of disputes between other countries, and apostle for human rights.  Debates in the U.S. Congress invariable revolve around these two adversarial points of view.

While the realpolitik school has a substantial following in any given dispute, the “special mission” point of view usually prevails because it is decidedly the more dominant strain in American thinking on its rold in the world.


Asians, Including the Chinese, Want a Continued American Presence in the Region

This willingness on the part of America to take up the “cause of freedom” is not without its admirers even within Asia.  Yet increasingly Asian leaders are beginning to lecture back on topics like the decline in Western values and the negative effect many Asians feel that American music, films and other form of entertainment are having on traditional Asian values.

Lee Kuan Yew, the former Prime Minister of Singapore, arguable the most admired leader in Asia, and a key adviser to the Chinese government argues for a continuing role for the U.S. in Asia and says that “America is the only major power in recorded history to have used its influence and resources for mostly benign purposes.”  Many Asians feel that this stands in favorable contrast to their experience with not only their former European colonizers, but with Japan as well.  In a recent book by Mao Tseteng’s personal physician of 22 years, entitled My Life With Mao, Mao is said to have had an affectionate view toward the United States and felt like Lee Kuan Yew that China had little to fear from the United States unless it was directly provoked.  Even within the Chinese leadership today, there is a view that a continued presence on the part of the U.S. is desirable in order to serve as a counterbalance to a resurgent Japan and the rapid growth of Korea as a power.


Containment or Engagement?

Most discussion on U.S./China policy today revolves around whether America should seek to “contain” China’s growing influence or whether America should “engage” China and thereby become a facilitator of China’s reintegration back into world affairs.

Since the end of World War II and up to the end of the Vietnam War, 1945 to 1974, American foreign policy in Asia was preoccupied with containing the spread of Communism to other parts of the region, helping to rebuild Japan and assist in its reintegration back into the family of nations, assisting South Korea, and forging friendships and alliances with the nations of Southeast Asia.  Containing Communism in Asia largely meant containing China as it was lending support to many of the indigenous Communist=led insurrections in the region.  This “containment” policy came to and end in the period leading up to and following the visit of President Nixon to Beijing in 1971.

Our policy toward China following President Nixon’s trip to Beijing in 1971 shifted to cultivation friendlier relations as a way to contain the Soviet Union.  Even thought both were Communist and were on the surface allies, there were serious fractures in the relationship.  This enabled the U.S. to drive a wedge between the two thereby giving the Soviet Untion a potential threat on its own doorstep.  Since that time the U.S. has not had a coherent policy and finds itself in a reactive posture lurching from event to event and crisi to crisis as seen in recent years with the recent Taiwan elections, the dispute over intellectual property and other issues like the World Trade Organization membership for China and Human Rights.

China’s rapid economic growth, its importance as a market and its determination to retake its rightful role in the exclusive club of world powers make it imperative that the U.S. think through and formulate a coherent strategy in relations toward China and indeed the entire Asia-Pacific region.


An Integrated Approach Towards Both Asia and China Is the Most Important Foreign Policy Challenge Facing the U.S. Today

The emergence of Asian and more particularly China and the need for a carefully crafted U.S. approach to the region to guide its actions for the future is the single most important foreign policy challenge facing the U.S. today.  This challenge exists in the face of a national mindset where most Americans still consider Europe to be the region of the world which should receive the most attention.  Center stage has shifted, and the Asia Pacific region, particularly China, demands more attention if we are to capture the opportunity and avoid the peril of further neglect.


Why It Matters

Relations with China have to be seen within the context of Asia as a region.  It is a holistic approach requiring a policy process which must take into account several problem areas.  It is a process with both economic and military dimensions.  Because of the globalization of trade it may be the first time when U.S. policy makers must weave a complex set of economic and military choices into one integrated and coherent approach to the region.  It is also, arguably, the first time in our history when the economic dimensions of the policy choices we must make outweigh those of a military and diplomatic nature.

This presents no small talk given the split responsibilities which exist between the State Department, the National Security Adviser, the Commerce Department and the U.S. Trade Representatives office.  The economic issues include Most Favored Nation trading status, World Trade Organization membership for China, handling the increasingly large trade deficit with China, and respect for intellectual property.

Because the economic issues have such far reaching implications for the U.S. economy, it is important that busyness and labor play a far larger joint role that they have in formulating American foreign policy to date.  The military challenges include the dispute between China and several Southeast Asian nations over the Spratly Islands, the dispute between China and Japan over the Diaoyu Islands, and the continuing question of Taiwan’s status.


An Economic Marker Equal to the Size of the U.S. and Europe combined

The size and dimension of the region in both geographic and economic terms is awesome.  Of the more than five billion people who live on the planet, more than half reside in Asia.  Over 20% of the world’s population lives in China alone.  1.2 billion people live on a land mass roughly equal to that of the United States.  There are 8 provinces in China which have more population than the largest European country.  Guandong Province with 65 million people larger than France; Hebie Province with 63 million people is larger than England; Sichuan Province with 110 million is larger than Germany and is 70% the size of Japan.

Within five years, it is estimated that Asia’s combined GNP will be double that of Europe.  Asia will represent one third of the entire world economy.  Over 500 million Asians will be middle class within the next 5 years.  That’s a marker roughly equal to the U.S. and Europe combined.  With India included, there are 3 billion people in the region- half of them are under 25.  In the 21st century, Asia will be both our biggest market, and it certain industries, our biggest competitor.


A Deep Understanding of Regional Realities Should Drive the Design of U.S. Policy

A the U.S. starts the process of confronting the complex set of challenges facing it in formulating this new policy, the discussion should take place with a far more complete understanding of the realities which Asia and China present today:

  • There are two Chinese nations, not one: In addition to Mainland China, there is another Chinese nation: the Overseas Chinese numbering approximately 55 million.  They live in Taiwan, Hong Kong, the Philippines, Thailand, Malaysia, Singapore, Indonesia, Australia, Canada, the United States, Europe and in many other parts of the world.  It is estimated that the GDP of this Overseas Chinese nation is the third largest of the world and today exceeds that of Mainland China.  The Overseas Chinese Network is a very important factor in how China develops and how it interacts with the rest of the world.  The Chinese government depends on certain members of this network for ongoing counsel and advice.  Much of the capital, technology and management talent fuelling China’s rapid growth is coming from the Overseas Chinese.
  • Different value systems with respect to traditional U.S. “rights”:
    The Asian way is family first, harmony in relationships, discipline, conformity, and a preference for persuasion rather than confrontation.  The Western way, if not the American way, is civil liberties, free speech, diverse lifestyles, open debated and a willingness to confront opposing views.
  • Primacy of economic issues: Deng Xiaoping in introducing the reforms which led to the market economy which characterizes China today, said, “to get rich is glorious.” A prominent Hong Kong businessman said recently: “Hong Kong people care about one thing, making money.  Democracy? We never heard this word before Governor Chris Patten arrived.”
  • Importance of alliances: The Darwinian “survival of the fittest” concept which dominates Western economic thinking is alien to the Chinese and Asian way of thinking.  The large Chinese family conglomerates which dominate the economies of Taiwan, Hong Kong, Thailand, the Philippines, and Indonesia have been built on a bedrock of alliances, joint-ventures, and relationships with each other and with large American and European multi-national corporations.
  • Asia is energy destitute: Except for Indonesia, Malaysia, and China, all the countries of Asia are net importers of oil.  The rapid growth of the region and the voracious appetite for oil to fuel this growth is forming the conditions for military conflict as a means of taking the necessary energy supplies.
  • Importance of the Confucian model: A strong authority figure in the family, the company, and at the head of the government is considered essential to maintaining order, stability, and the perpetuation of the enterprise.  Filian piety, where age and experience are venerated, is another important Confucian principle.  Open challenges to this authority aren’t tolerated.  While Confucian teaching were discarded during the Cultural Revolution as old and outmoded, the teachings of the sage are so ingrained in Chinese tradition as to be almost a part of the genetic code.
  • Market economy/authoritarian state: While China still officially considers itself to be a Communist system, it is in fact no longer Communist.  The market economy is booming and double digit growth rates have been the norm since the late 1980’s.  Deng Xiaoping said “it doesn’t matter whether the cat is black or white as long as it catches mice.” He was referring to the need for China to embark on a long overdue set of economic reforms and saw no need to go through the wrenching and potentially bloody exercise of having the government officially renounce its Communist label.
  • Existing strong basis for U.S./China positive relationship: There are several factors which can provide the foundation for a stable if not strong friendship: The attractiveness of each other’s economic markets; the moderating influence of the Overseas Chinese who have considerable influence on both sides; and the desire among all Asian countries including China for the U.S. to help maintain a balance of power in the region.


The Table is Set With a Full Range of Socio/Economic/ Political Issues

Taiwan: In spite of the recent Chinese missile testing exercises in the Taiwan Straits, Taiwan investment on the mainland continues to grow rapidly. Estimates of mainland investment in China run as high as $40 billion.  Trade between Taiwan and the mainland now exceeds trade between Taiwan and the U.S.  While China is willing to show some patience on the issue of reunification, it considers this to be a non-negotiable item over the long term.  Opinion in Taiwan is divided.  There is a significant percentage of the population who favor eventual reunification under the right conditions.  How China manages the transition in Hong Kong is a key factor in the eyes of Taiwan.  If China honors the “one country, two systems” agreement over the next 5-10 year period, the likelihood of a China/Taiwan agreement on unification improves.

Human Rights: The differences in relative importance given this concept between the U.S. and China over treatment of its citizens vis à vis other considerations such as economic development present an area of ongoing potential conflict.

Nuclear Proliferations: Sales by China to Pakistan and Iran of ring magnets allegedly for the use in production of weapons grade nuclear fuel is a cause for concern.  Beijing has since promised to stop technology transfers to unmonitored facilities.

Market Access/Intellectual Property Rights: Market access for U.S. software, books and movies are contentious issues as is the need for protection against software piracy.

Hong Kong Post-1997: The agreement is that China will respect a “one country, two systems” arrangement for 50 years.  This is a key issue and will be watched very carefully in Taiwan to see if a similar agreement might provide an opportunity for reunification with the Mainland.  China “bashers” will have a field day if the transition isn’t carefully managed within the parameters of the agreement.  China fully understands the importance of managing the transition and the post-handover period well.  Hong Kong will become the international gateway to China, its showcase city, and will be its biggest earner of foreign exchange.  China is working closely with its Hong Kong advisers even now to meet each situation with a “quick response” mid-course correction if it feels it has mishandled a situation.  The big question isn’t the will and desire to honor the “one country, two systems agreement” it has made with Hong Kong, but rather its level of skill in taking over the only true “laissez-faire” economy in the world and navigating the many challenges it will face it doing so.


Trade and Economic Co-operation Is the Key Building Block

All these issues are contentious.  They will require ongoing consultation and patience on both sides in order to properly manage.  The core building block for the relationship to go forward is trade and economic co-operation.  Government has a big role to play, because only it can formally negotiate and make binding agreements.  Nevertheless, the business community and individual companies, large and small, need to step forward and become more active in helping develop the region’s policy.  Organizations like the American Chamber of Commerce have very active, agile chapters in all the Asian countries.  Along with the Hong Kong Trade Development Council they exemplify groups seeking to influence the relationship between America and China as well as the entire region.

An example of how business investment can influence the overall political and diplomatic picture is the current relationship between China and Taiwan.  They key element in the relationship, the one which keeps them talking and thinking constructively, is the enormous investment already made on the mainland by Taiwan investors (as much as $40 billion by some estimates).  The Chinese government recognizes that Taiwan is an enormously valuable source of capital, technology, and management skill.


Guiding Principles for Business Investment:

Alliances/Joint Ventures: There is an art to a successful alliance with an overseas partner.  The significance of the right partner to the long term viability of an overseas venture cannot be overemphasized.

Importance of the Overseas Chinese: The resources of the Overseas Chinese network in making intelligent choices about investments can be a very important element in a company’s international strategy.  They are good sources of advice as well as good potential partners.

“Guanxi”: Translates roughly as relationships or connections.  Having the best business proposal, or highest return doesn’t always carry the day.  Establishing good long-term relationships is the best foundation for success in Asia.

The economically active: Many companies look at the population of Asia and China and ask, “How can we miss”? The answer is we can miss, and plenty have.  1.2 billion sets of teeth in China doesn’t automatically translate into being able to sell that many toothbrushes.  There are about 150 million in China today who fall into the category of “economically active”.  This means not only possessing the consumer purchasing power, but also being within reach of distribution channels.

Long term view:  Many American companies, particularly those whose shares are publicly listed, have an investment test which says, “revenue before expense”.  This means profits need to flow in the short term in order to justify the investment.  China investment to date is starting to pay off for many companies who invested there in the middle 80’s.  They were willing to take a longer term view than they normally do.


The Pacific Rim Century

While many glibly speak of the 21st century as the Asian Century, a more careful analysis better supports the case for it being a Pacific Rim Century.  The size and scope of the region, its close ties to North America, the need for continued U.S. involvement in the region and the economic interdependence among nations east and west along the Pacific Rim make it essential that all parties forge a strategic relationship with each other which promotes peace, stability, and continued growth.


Alan Steelman is a Senior Principal in a large international management consulting firm.  After serving in the United States Congress representing the Fifth District of Texas (Dallas), he lived in Singapore for eight years.  There he served as Group President of the Asia Pacific region for an international consulting firm.  Today Mr. Steelman divides his time between the U.S. and Asia and serves on the Advisory Board of several Asian companies.



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