23 January 1998 - 25 January 1998

China and its Neighbours

Chair: The Rt Hon The Lord Hurd of Westwell CH CBE

Ditchley began its 1998 activity with a look at an issue bound to bulk large this year and for many to come : what will changing China become, how will it behave towards others, how should those others treat it?  1997 had been (we mostly agreed) a good year for China, at least to the external eye, with for example the recovery of Hong Kong smoothly conducted, the East Asian economic crisis maturely responded to and assorted pitfalls avoided.  Could this last?

Having dutifully reminded ourselves that no generalisation about China was either wholly true or wholly untrue, we recalled that problems persisted on a scale that would surely invite forecasters of collapse or upheaval in almost any other polity.  There were grave agricultural and environmental problems;  a huge population uprooted and workless;  sharp demographic imbalances;  a state-owned industrial sector grossly unprofitable (if, uncertainly, financial data were to be trusted) yet reformable only at high near-term cost to employment;  widespread corruption and crime;  massive tasks of modernising adjustment facing mindsets and institutions largely ill-suited to managing change.  China wanted simultaneously many things hard to reconcile, and the path was bound to be painful and uneven (as the West ought to remember from its own adaptation over much longer timespans).  All that said, most people were better off than twenty years ago;  and the Chinese instinct for patient or ingenious survival was perhaps heightened now by the remembered warning of the massively traumatising experience - inflicted by Chinese upon Chinese - of the Cultural Revolution.

The surface legitimacy of Communist ideology had almost vanished, and competition for power at the top persisted.  But Chinese history suggested anyway that the real legitimators of power were peace and prosperity, not ideology or due process.  The transition from the era of the veterans had been managed without open strife;  conference participants pointed to a gradual increase in openness and flexibility and in the criterion of competence as the path to power, and to some spreading of democratic practice upwards from village level.  But doubts remained about the attitudes and skills of leadership in managing any resurgence of dissent.  The rule of law - seen in China, so one comment suggested, as just a matter of institutional technology for running a modern state in a global economy rather than as an inherent moral or social imperative - still lacked deep roots.  Regional autonomy and inequality further complicated the scene;  by standards elsewhere China was undergoverned centrally, and it was not easy to see how central-government expenditure currently at little over ten per cent of GDP could (even if tax collection was improving) provide adequate leverage and support to the range of needs ahead, for example in healthcare, social-security protection and infrastructure provision.

The ability of outsiders (and indeed insiders too) to understand all this, and to assess future probabilities, was hugely constrained not only by China’s size and complexity but still more by the mantle of habitual and often deliberately-exploited secrecy that overlay the entire scene.  But the key realities for external actors remained China’s massive importance, including increasingly its weight in the global economy;  the need to recognise that change on the scale now in progress had to be viewed patiently and in the round;  and the fact that China’s stability was crucially in the interest of its neighbours as well as itself.

What sort of future participant in the international system should this China be expected to be?  Uncooperative, with unfulfilled ambitions, reluctant to play by established rules?  or a status quo power increasingly ready to see itself as one of the major stewards of the system rather than, as in the past, the leader and champion of the poor and put-upon developing world?  Neither tidily one nor the other of these, we recognised;  but there were some signs of an accelerating shift towards the latter.  In several fields China seemed disposed less to want the rules actually changed than to be allowed occasional special exemption from them.  China’s behaviour in the United Nations was not generally obstructive, and increasingly it conformed with régimes such as that on non-proliferation of weapons of mass destruction and associated delivery systems.  Nevertheless, the Middle-Kingdom history-resenting cast of mind would not easily be erased;  nor would the temptation to exploit nationalism to divert internal discontents.

It was fair to acknowledge, we knew, that the fact of borders with over twenty other states inescapably set China a complex agenda likely to engender, if not prickliness, at least wariness in external relationships. The Hong Kong success however might well help to foster a more relaxed and confident approach to issues elsewhere.  Chinese reaction to the East Asian crisis, for example in a commendable abstention so far from the temptations of competitive devaluation and in a constructive contribution to rescue packages, was encouraging, even though it was doubtless unrealistic (especially as growth slowed, posing problems for needed reform in a vulnerable banking sector) to look to China - rather than Japan - for a deliberate role as engine of regionwide economic recovery and growth.

Several participants hoped that China would progressively shed its limiting preference for tackling hard issues by bilateral rather than multilateral methods (for all that the interfaces with India and Russia had of late been sensibly managed in the former mode).  There had however been a growing pattern of constructive engagement in Asia Pacific Economic Cooperation and in other regional institutions such as the ASEAN Regional Forum.

Among major neighbours the United States - “everyone’s neighbour nowadays”, a comment noted - posed some problems to Chinese comprehension because of the occasional moral/ideological component in its policy stances and of the Administration/Congress complication (though it was fairly observed that the focus of Chinese discontent upon the United States sometimes reflected the fact that other Western actors tended to take refuge in leaving the United States to speak for all on “awkward” issues).  It was deeply important that the United States and China should not demonise one another.  China needed to acknowledge more consistently that US presence and influence in the region was both inevitable and stabilising - not least in obviating any stimulus to Japan to consider role changes that might feed obsessions about resurgent Japanese militarism.  Japan for its part probably needed to work harder yet on dialogue with China.  It was perhaps regrettable that China seemed reluctant to engage in the triangular China/US/Japan dialogue that would best reflect the region’s underlying realities.

Recent dealings between China and Russia had been amicable, though claims of a strategic relationship might be more rhetorical than substantive, especially given the reversal of relative power (which might well have farther yet to go).  Russia’s foreign policy was in reality preoccupied westward, but longer-term frictions might still arise, for example from the existence of long frontiers with whose historical equity China was still not satisfied at every point, and which were often spanned by significant ethnic-Chinese presence on both sides in areas where Russian population was sparse.

As we turned to more particular issues of external interaction we observed that the future of North Korea was a major uncertainty with unsettling potential.  China seemed so far ready to envisage a degree of multilateral handling of the peninsula’s problems, but some conceivable outcomes could prove a severe test for that approach.

Our discussion of Taiwan - more obviously a live day-to-day issue - evoked a range of differing judgements.  There was little dissent from the view that the status quo was the best option, with gradual blending through economic contact and interest as the surest pragmatic safeguard of peace.  Most Taiwanese seemed of that mind, but there was some unease at the leverage of a vocal political minority anxious for more open independence and perhaps over-ready to assume that US power would automatically protect them from any disagreeable consequence.  China’s own stance was not always easy to read, and the modernisation of Chinese armed forces power gave the impression of an ambition - however unrealistic in strict military calculus - of wanting to construct an option not just of damaging harassment but of forcible seizure.  We were not wholly at one on the real significance of the force modernisation.  On one view it betokened a general aspiration to power-projection leverage;  on another it need be no more than the natural outcome of powerful institutions’ expectations of some share (and at a level still low, so far as could be judged, by world standards of proportionate defence expenditure) in the fruits of economic growth.  We noted that greater openness about military plans and doctrine seemed desirable in China’s own long-term interest, not merely that of apprehensive neighbours;  and also that a cohesive ASEAN could serve as a useful constraint and confidence-builder to allay regional fears.  Recent Chinese behaviour in respect of the South China Sea and the Senkaku issue had not been alarming.

The role of China as a mountingly important factor in the world trade scene posed a range of major issues.  Quite aside from the usual problems and demands to be expected from any developing economy as it adjusted to the norms of global trade, China’s historic sense of self-sufficiency and unfettered autonomy sat uncomfortably with the reality that massive reliance upon imported fuel and food needed corresponding export earnings and therefore a fair and receptive trade system (and good investment flows, though internally-generated savings meant that dependence on external capital was not extreme).  All this inevitably posed special difficulty for state industries  still far below world standards of competitiveness, and China was only slowly coming to terms with the imperatives (and costs) of greater non-discriminatory openness, notably in respect of financial services.  It was essential in the long term, both for China and for the World Trade Organisation itself, that so big a player should enter the WTO, as China mostly seemed now to want for reasons of international-standing as well as for economic growth.  Awkward issues however remained to be settled, for example over willingness to accept trade-dispute procedures and to enforce effectively on the ground global rules, signed up to, such as those on intellectual property rights (in which China might indeed have an increasing interest of its own).  It was strongly argued (from a perception that too much might already have been conceded in respect of external tariffs) that all this needed clear resolution before WTO entry, not afterwards.

There were important themes on which we could touch only glancingly - the wide potential for friction with neighbours over environmental issues;  the régime’s (arguably counterproductive) propensity to harass foreign-media activity;  the significance of the Chinese diaspora as model, as investor and sometimes perhaps as temptation to protective intervention;  the strength and legitimacy of external concerns about human-rights issues (including religious freedom) within China.

Overall, however, we seemed in little doubt that engagement was the right way forward.  The best prospect for China’s becoming, as a global power, responsive and responsible lay in having others (including Europe) treat her so from the outset in multi-track consultation and dialogue, not just on regional issues but on global ones like the Gulf and UN reform.  None of this need mean sentimentalising China, or accepting mystification about it;  China was doubtless different, but of its own necessity becoming steadily less so.

We left ourselves with a final warning : surprise-free extrapolation had an even poorer predictive record about China than about most other changing countries, and with such massive latent forces present (such as the potential for unrest among urban labour) upheaval could be triggered in apparently-minor ways.  But neighbours could not prudently act now on any other central assumption than that future years would be, like 1997, “good”;  and that was at least as sound a prediction as any alternative.

This report reflects the Director’s personal impressions of the conference. No participant is in any way committed to its content or expression.

Chairman: The Rt Hon The Lord Hurd of Westwell CH CBE
Deputy Chairman,NatWest Markets;  Secretary of State for Foreign & Commonwealth Affairs, 1989-95


Mr Thomas E Armstrong QC
Counsel, McCarthy Tétrault, Toronto;  formerly Agent General for Ontario, Asia/Pacific Region, Tokyo
Professor Fred Bild
Ambassador to People’s Republic of China, 1990-95
Dr Gérard Hervouet
Director, Research and Study Group on Contemporary Asia, Université Laval
Mr Colin S Russel
Consul General for Canada, Hong Kong

Ambassador Cheng Ruisheng
Deputy Director-General, China Centre for International Studies;  Ambassador to India, 1991-94

Ambassador Koji Watanabe
Senior Fellow, Japan Center for International Exchange;  Ambassador to Russia, 1994-97
Professor Susumu Yabuki
Professor, Faculty of Economics and Business Administration, Yokohama City University

Mr Dmitri Trenin 
Carnegie Endowment for International Peace, Moscow

Sir John Boyd KCMG
Master, Churchill College, Cambridge;  Ambassador to Japan, 1992-96
Mr Nick Butler
Group Policy Adviser, British Petroleum Company plc
Mr Alastair K R Campbell
Director, Crosby Corporate Advisory (China) Ltd
Sir John Kerr KCMG
Permanent Under-Secretary of State, Foreign and Commonwealth Office
Sir Robin McLaren KCMG
Director, GOVCH Oriental Investment Trust;  Ambassador to People’s Republic of China, 1991-94
Mr Nicolas Maclean
Executive Director, Prudential Corporation Asia Limited
Dr Jonathan Mirsky
China Writer, The Times;  East Asia Editor based in Hong Kong, 1993-98
Mr Peter Montagnon
Asia Editor, Financial Times
Dr Edwina Moreton
Diplomatic Editor & Deputy Foreign Editor, The Economist
Dr Jessica M Rawson CBE
Warden, Merton College, Oxford
Mrs Rosemary Righter
Chief Leader Writer, The Times
Professor Michael Yahuda
Department of International Relations, London School of Economics and Political Science

Congressman Douglas Bereuter
Vice-Chairman, International Relations Committee and Chairman, Asia and Pacific Subcommittee, US House of Representatives
Dr Ralph Clough
Lecturer and Coordinator, SAIS China forum, Paul Nitze School, John Hopkins University
Mr Robert M Conway
Limited Partner, Goldman Sachs International
Ambassador Charles W Freeman Jr
Chairman, Projects International Inc;  Assistant Secretary of Defense, International Security Affairs, 1993‑94
Mr James F Hoge Jr
Editor, Foreign Affairs, Council on Foreign Relations
Mr Elliott F Kulick
Chairman, Pegasus International Inc
Mr Herbert Levin
Executive Director, American China Society;  Special Adviser to UN Under-Secretary General, 1991-94
Ambassador James R Lilley
Director, Institute for Global Chinese Affairs, University of Maryland;  Ambassador to People’s Republic of China. 1989-91
Dr John W Ryan
Chancellor, State University of New York
The Honorable Susan L Shirk
Deputy Assistant Secretary of State (China), Department of State
Dr Casimir A Yost
Director, Institute for the Study of Diplomacy, Georgetown University