| A Rising China and the Flourishing China-Australia Relations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2005/07/11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A Rising Chinaand the Flourishing China-Australia Relations
Submission
By
The Embassy of the People's Republic of China in Australia
To the Senate
Foreign Affairs, Defence and Trade References Committee
In relation to the inquiry into
Australia's Relations with China
June 2005
1.The rapid development of China's Economy
1.1 Tremendous achievements
Since the implementation of the "reform and opening-up" policy in 1978, China's economy has been undergoing a rapid and healthy development. Over the past 27 years, China's annual GDP growth has averaged 9.4 per cent, more than doubled that of the world as well as more than two folds that of the developed nations over the same period. In 2004, China's GDP reached USD1650billion, an increase of 9.5 per cent over 2003.
The GDP per capita in China exceeded USD1000 in 2003. It further grew to USD1,200 in 2004, which is more than 6 times of that of 1979. According to the laws of economic and social development, when the GDP per capita in a nation makes a breakthrough over USD1,000, it will touch off the upgrade of consumption patterns in domestic society, which, in turn, will bring about the upgrade of industrial structure. China's economy has entered a new round of accelerating driven by the significant transformation from investment-orientation to consumption-orientation.
In 2004, China was world No. 3 trading power. The foreign trade volume reached USD1100 billion, a rise of 35.7 per cent over the previous year, making up 6 per cent of world trade total. Import totaled USD561.38 billion while export reached USD593.5 billion. Figures from WTO indicate that while it only took China 16 years for its international trade total to rise from USD100 billion to USD1000 billion. It took the US 20 years and German 26 years. China's economy has now closely integrated with the world economy as its foreign trade dependency is about 70 per cent. . Chart 1: The share of China's imports & exports in world trade
Sources: OECD, CEIC
China's accumulative foreign reserve reached USD609.9 billion by the end of 2004, ranked world second after Japan. Sufficient foreign reserve has not only strengthened China's capacity to fence off the external financial risks but also reduced Chinese enterprises' costs to raise capital outside China, laying a solid foundation for further completing the system of Renminbi exchange rate. By the end of 2004, the outstanding foreign debt totaled USD228.596 billion, 13.8 per cent of GDP.
In 2004, China has drawn paid-in FDI of USD60.63 billion and contracted FDI of USD153.48 billion, ranked world second only after the USA. By the end of 2004, the actual accumulative FDI in China totaled USD562.1 billion and FDI reserve was over USD210 billion. At present, more than 450 of World Top 500 companies have investment and business in China. There are over 700 R&D centers set up in China by foreign investment. Among those, more than 30 are moving their regional headquarters to Mainland China. According to the report The MNCs Investment Trends in China by the Department of Commerce in China, a survey shows that more than 61 percent of MNCs in China have intention to continuously increase its R&D investment in China and 46 percent of which are inclined to set up R&D center through exclusive investment.
1.2 Macroeconomic management
Since the first quarter of 2003, there have been signs of overheating economy in China. The major indicators were: l The strained supply and demand relations in the grain sector; l Inflated investments in fixed assets; l Oversupply of currency and credits on the market; l Shortages of coal, electricity, petroleum and transport.
Since April 2004, Chinese government has taken a series of measures of macro-management including: l Adopting a moderately tight currency policy. The reserve rate against deposit and benchmark rate of deposit and lending for financial institutions has been raised to 1.5 per cent and 0.27 per cent respectively l Actively adjusting fiscal policy. Treasury-bond project funds were reduced by RMB30 billion than 2003. l Strengthening the industrial policy guidance. The capital proportion has been required to increase in the fixed assets investment projects in fields of steel, electrolytic aluminum, cement and property development. l Leveraging the regulating role of pricing. The systems of minimum purchasing price for grains and different pricing scheme for peak and off-peak electricity supply have been adopted. l Reviewing all the undergoing and intended projects and put them in order. l Clearing up and rectifying the land market by strictly controlling land use l Supporting the weak sectors in the economic development with focus on the project construction in fields of agriculture. coal, electricity, petroleum and transport.
The economy progress throughout 2004 has manifested the gradual effect of macroeconomic management. The momentum of over-fast growth in fixed assets was initially checked. There has been evident drop on the growth of fixed assets investment in the whole society. Currency supply and lending growth has slowed down. In 2004, the balance of broad money supply M2 was RMB25300 billion, 14.6 percent higher than 2003. However, it was a 5 per cent drop in growth rate compared with the end of 2003. The increase on CPT tended to stabilize. The accumulative annual CPI has seen an increase of 3.9 percent, a 2.7 percent rise compared with last year. The land market has witnessed significant progress in term of rectification and improvements. Grain output has reversed the trend of drop over 5 consecutive years since 1999.
At present, the overall economy condition is China is good without significant risks of overheating or "hard landing". The Chinese government will continue adopting steady fiscal and currency policies to control investment scales in fixed assets. Other tax, financial and industrial polices conducive to the expansion of consumption are also under implementation. These measures are aimed at maintaining the essential stability of overall price level and ensuring a continuously steady and reasonably fast growth of economy.
1.3 Contribution to the world
The development of China's economy has increasingly played an important role to the development of world economy, in particular the economies of those regions surrounding China. According to the estimate of Asian Development Bank, although China's GDP and foreign trade volume only respectively made up 4 percent and 6 percent of the total of world economy and trade, China's rate of contribution to the growth of world economy and trade has reached 15 percent and 12 per cent respectively. In September 2004, in its publication Trade and Development Report of 2004, the UN Trade and Development Conference pointed out that China has already become another important engine of world economy apart from the United States.
China's consumption of a wide range of products has already been at the forefront in the world. China is now the world's third largest import market and Asia's largest import market. In 2004, China imported USD369.5 billion worth of merchandises from other Asian countries and regions, 35.4 percent more than last year, comprising nearly 50 per cent of the export total in Asia. China's trade deficit with these regions amounted to USD74 billion. Almost all the export growth of the Philippines and Taiwan and nearly half of the export growth of Japan, Malaysia and Korea were attributed to the expansion of China market.
Chart 2: World ranking of China's consumption of major merchandises ( Year 2004)
Sources: 2004 China's National Economy and Social Development Statistics Report by China's Bureau of Statistics, China's Association of Iron and Steel, China's Association of Gold, Website of China's Ministry of Information Industries. Items with asterisk (*) are 2003 figures
Presently China's outputs in more than 50 product categories have ranked first in the world, including grain, meat, cotton, fruit, fertilizer, iron and steel, cement, chemical fiber, textile, program-controlled telephone, mobile phone, colour TV, air conditioner, washing machine, refrigerator and DVD. Quality products made in China available at competitive prices have played a important role in inhibiting the hidden danger of global inflation.
So far among over USD500 billion FDI invested in China, 70 per cent have been centralized in manufacture. Processing and assembling trade constitutes over 50 percent of China's foreign trade total. China's absorption of labor-intensive industries has objectively given the impetus to the industrial upgrade in the economically more developed nations and areas. According to estimate of the China's Ministry of Commerce, since 1990, foreign enterprises have transferred from China over USD200 billion profits derived from their investment in China
China's foreign investment capacity has grown considerably over the recent years. According to the latest statistics from China's Ministry of Commerce, in 2004, China's FDI in non-financial sector amounted to USD3.62 billion, a 27 per cent rise over the same period in 2003. There were 823 enterprises investing outside China after assessment, approval and registration of China's Ministry of Commerce, 62.5 per cent more than 2003. The accumulative total of China's direct investment in foreign countries approached around USD37 billion by the end of 2004.
Chart 3:2004 the Industrial Proportion of China's Foreign Investment
Sources: China's Ministry of Commerce
1.4 Greater extent of opening-up
China has voluntarily reduced its tariff levels for five times since 1992.
China has been actively carrying out its commitments since its WTO accession in 2001. The world has seen in China the drop of the general tariff level from 15.3 per cent in 2001 to 10.4 per cent at the end of 2004 and the cancellation of a majority of the non-tariff measures. In terms of locations, shares and numbers, China has taken steps to cancel the restrictions in more than 90 fields including banking, insurance, telecommunication, wholesale and retail, securities, rail and road, tourism, architecture, audio and video and education to facilitate foreign investment's access to China market.
Starting from 1 January 2005, China's general tariff level has further reduced to 9.9 per cent, involving more than 900 categories of tax items. The average tariff rate of agricultural products was reduced from 15.6 per cent to 15.3 per cent, while industrial products from 9.5 per cent to 9 per cent. Among them, average tariff rate of aquatic products dropped to 10.5 per cent, timber and paper products 4.6 per cent, textiles and clothing 11.4 per cent, chemical products 6.9 per cent, transport vehicles 13.3 per cent, machinery products 8 per cent and electrical products 9.1 per cent.
Since it began FTA negotiation with ASEAN, China has successively started FTA negotiation with North African Tariff Alliance, Gulf Cooperation Commission, Chili and New Zealand. So far China's FTA negotiation has involved 23 countries including 10 ASEAN countries. In addition, China is also conducting preliminary feasibility study into FTA with some countries and areas such as South Korea. China actively supports the progress of world trade liberalization featuring the Doha?-round negotiation and is playing an constructive role in facilitating a multilateral agreement on framework themed around Doha-round global trade negotiation.
China's active reform of the exchange rate of Renminbi and relevant financial systems has been steadily under way since 1994. It is aimed at making the exchange rate of Reminbi to stay at a relatively reasonable and balanced level and realizing the full free convertibility of Renminbi, in the meantime forming a more flexible and resilient mechanism of Renminbi exchange rate that is in line with the market demand. In light of this, Chinese government has adopted three key measures: First, speeding up the financial restructuring and public floating of the domestic commercial banks so that they are able to better adapt to a more flexible exchange rate mechanism in the future;
Second, reducing unnecessary restriction on foreign exchange so that the demand and supply relationships in the market can be better reflected in a greater scope;
Third, improving the domestic foreign exchange market to enable financial institutions and enterprises to adapt to the environment and products of foreign exchange markets.
The reform of Renminbi exchange rate is a complicated and progressive task that requires the consideration of macroeconomic stability and the responsibility for the neighboring countries and the world. Therefore, in light of the economic development level, progress of the economy and international balance condition, Chinese government will, according to its own pace, explore and complete the shaping mechanism of Renminbi exchange rate on the basis of deepening the financial reform, Next, while adhering to the prerequisite of effectively preventing risks, China will take further steps to selectively loosen up the restrictions of cross-border capital trading activities, regulate the management of capital inflow and orderly guide the capital outflow, which in turn will facilitate shaping up a scientific and manageable two-way capital flowing mechanism and earlier realization of the convertibility of Renminbi capital item.
1.5. Market Economy
The market economy has preliminarily come into shape in China after twenty-five years of reform. According to prevailing international standards, China's marketization has reached about 70 per cent. The foundation role played by the market mechanism in the allocation of resources has significantly enhanced. The proportion of commodity prices determined by the market has respectively accounted for 95.8 per cent of the total value of social commodities, 92.5 per cent of the total purchase value of agricultural products and by-products and 87.4 per cent of total sales of means of products. The pattern of coexistence of diverse systems of ownership has preliminarily come into being. The proportion of non-state owned economy in GDP has risen from 54 per cent in 1992 to 63 per cent in 2003. State-owned enterprises have undergone considerable marketization. The reform and restructuring of monopolized industries have yielded some phased positive results. There have been evident changes in the means of macroeconomic management. Chinese government no longer directly interferes the economic activities initiated by the enterprises themselves, instead, they mainly leverage the economic and legal means such as tax, interest rate, pricing and investment policies to macro-manage and realize the transformation from command economy to market economy.
In March 2004, China altered its Constitution to clearly state that "the legal private property of a citizen shall be inviolable" and "in accordance with the legislation, the state shall protect the citizen's rights of private property and inheritance." From early 1992 to date, the National People's Congress of China and its Standing Committee have passed more than 440 legislations, interpretations and law-related decisions, over half of which concerning the economic fields regulating the major market performance and management of market orders.
China's achievement in building market economy has been acknowledged by more and more nations. Thirty-seven countries have already acknowledged China's full market economy status by the end of 2004.
2. China's role in the regional and international security affairs
2.1 Peace and development
With its constant growth, China has played a greater role in the regional and international security affairs. Such a role has always been in line with the national strength and the development goal of China as well as the common interest of international community without posing threats to other countries. The policy of Chinese government is to emerge as a peaceful, cooperative and responsible nation at the international stage and become an important part of international efforts to maintain world peace and promote the global development.
China is big developing country. Despite China's tremendous economic achievements, with a population of 1.3 billion, the GDP per capita is still only one twenty-fifth of the United States and Australia, ranked below No. 140 in the world and the economy total only accounted 4 percent of the world. China still sees inside itself the substantial imbalance in development and existence of various issues. China's development and rise is going to be a long and arduous journey. China has no material basis and subjective intention of seeking hegemony and expansion.
China pursues a peaceful diplomatic policy of maintaining independence and keeping the initiative. The thinking of "peace is the most valuable", "seeking harmony despite the differences" and "maintaining peace and harmony with diverse neighboring nations" has been rooted in the Chinese political philosophy and traditional culture that constantly exerted a great influence over the contemporary Chinese diplomacy. In the majority of time in history, China used to be one of the most powerful countries in the world. However, traditionally the basic way for Chinese to associate with the outside world has been through trade rather than war. In the early 1980s, Mr. Deng Xiaoping, the general architect of China's "reform and opening-up" made a critically new judgment on the international situation, pointing out that peace and development are the dominant theme of our times. Since then, in terms of China's diplomacy, the approach of drawing a line on ideology has been cast away and a central task of assisting in the domestic economy development as well as the essential objective of building a peaceful and cooperative surrounding and international environment have been defined.
China upholds the line of peace and development and pursues a defensive national defense policy. The National Defense of China in 2004 published by the Press Office of China's State Council points out that China's basic goals and tasks in maintaining national security are:
l To stop separation and promote reunification, guard against and resist aggression, and defend national sovereignty, territorial integrity and maritime rights and interests. l To safeguard the interests of national development, promote economic and social development in an all-round, coordinated and sustainable way and steadily increase the overall national strength.
l To modernize China's national defense in line with both the national conditions of China and the trend of military development in the world by adhering to the policy of coordinating military and economic development, and improve the operational capabilities of self-defense under the conditions of informationalization.
l To safeguard the political, economic and cultural rights and interests of the Chinese people, crack down on criminal activities of all sorts and maintain public order and social stability.
l To pursue an independent foreign policy of peace and adhere to the new security concept featuring mutual trust, mutual benefit, equality and coordination with a view to securing a long-term and favorable international and surrounding environment.
China's annual defense expenditure totaled RMB170.778 billion and RMB190.787 billion in 2002 and 2003 respectively. The budget for annual defense expenditure in 2004 was RMB211.701 billion, less than 2 percent of the GDP. In 2003, China's defense expenditure was only 5.69 per cent of that of the US, 56.78 per cent of Japan, 37.07 per cent of the UK and 75.94 per cent of France.
As the only superpower in today's world, the US is playing an important role in both fields of world economy and security. While welcoming the US in playing an active role in the peace, stability and development of the Asia Pacific region, China also hopes that the US respects the security interests and concerns of the countries in the region. In China-US relations, there is no aspect of "one-rise-means–another-fall" competition for seeking hegemony. Actually both the US and China have numerous common interests and have already begun and will continue the dialogues and cooperation in many fields including anti-terror, anti-proliferation, dealing with regional hot-spot issues as well as promoting the regional economic development. China understands that US has historically related military alliances with some countries in the region and respects the policy choice by the relevant countries due to the consideration of self-interests, however, China does not agree with the involvement of such alignment in the regional security issues outside the self-defense needs of the relevant countries.
2.2. New security concept
The postwar world has seen the significant trend of globalization. China's links with the world is increasingly closer with evident intertwining interests with diverse nations. Incidents such as 911, SARS, the Indian Ocean Tsunami suggest that on the increase are those non-traditional security factors including terrorism, prevailing diseases and natural calamities featuring the interweaving with the traditional security issues and cross-nation characteristics. The cooperation with international community is indispensable to the solution to China's security concern.
Since mid 1990s, China has been vigorously promoting a new security concept with mutual trust, mutual benefit, equality and coordination at its core, advocating the settlement of dispute through dialogues and cooperation.
l Mutual trust means that all countries should transcend differences in ideology and social system, discard the mentality of Cold War and power politics and refrain from mutual suspicion and hostility. They should maintain frequent dialogue and mutual briefings on each other's security and defense policies and major operations.
l Mutual benefit means that all countries should meet the objective needs of social development in the era of globalization, respect each other's security interests and create conditions for others' security while ensuring their own security interests with a view to achieving common security.
l Equality means that all countries, big or small, are equal members of the international community and should respect each other, treat each other as equals, refrain from interfering in other countries' internal affairs and promote the democratization of the international relations.
l Coordination means that all countries should seek peaceful settlement of their disputes through negotiation and carry out wide-ranging and deep-going cooperation on security issues of mutual concern so as to remove any potential dangers and prevent the outbreak of wars and conflicts.
In accordance with the principles and thinking of the new security concept, China has played a constructive role in the regional and global security over the past decade, with conspicuous contribution to the peace and development of the world.
China is a growing big nation with its present influence mainly in the surrounding areas. In 2002, the Sixteenth National Representatives Conference of the Chinese Communist Party has decided on the foreign policy committed to "building a good-neighborly relationships and partnerships with neighbors." In October 2003, during his attendance at ASEAN and China, Japan and ROK (10+3) Leaders Summit in Bali, Indonesia, Premier Wen Jiabao further put forward the diplomatic guidelines for dealing with surrounding areas with a focus on "long term stability, good neighborliness and comprehensive cooperation to achieve mutual prosperity".
The land border of China is 22.8 thousand kilometers in length. The sea border is 19.8 thousand kilometers. China has 15 land neighbors and 9 sea neighbors. Based on the principles of mutual consultation, mutual understanding and compromise and peaceful settlement on an equal footing, China has delimited the boundary line covering 98 per cent of total land borders with the majority of neighboring countries. In 2000, China signed delimiting agreement with Vietnam in relation to Northern Bay. In 2001, Declaration on the Conduct of Parties on the South China Sea was signed between China and ASEAN Nations, which affirms the principles of seeking a peaceful settlement through negotiation and actively developing maritime cooperation.
China has been making constructive efforts to safeguard the peace and stability in the Korean Peninsular. When the North Korea Nuclear Issue surfaced, China appealed for Nuclear-free Peninsular and took a clear-cut stand against the appearance of nuclear weapons on the Peninsular. While calling for peaceful solution through negotiation, China also hopes that the relevant parties can also address the reasonable security concern of North Korea. In order to facilitate a peaceful settlement of North Korea nuclear issue, China has played an active role in meditation by holding three rounds of Six-party Talks and three conferences of Working Group for Six-party Talks. At the moment, China is making new efforts to restart the Six-party Talks.
Faced with the challenges in relation to non-traditional security issues, the Chinese government has actively shouldered international responsibility. During the breakout of SARS and Birds Flu epidemic in 2003 and 2004, based on the responsible spirits of frankness and sincerity, trust and cooperation, China and ASEAN nations have developed effective epidemic prevention and quarantine cooperation and established the appropriate mechanisms. China's foreign relief record was reset when China threw in significant amount of human, material and financial resources in international relief efforts for the Indian Ocean Tsunami calamity. The Chinese government offered over RMB500 million worth of direct aid, ranked No. 1 among the developing countries and at present over 70 per cent has already been in place. Non-government sectors contributed funds of over RMB700 million. In addition, the Chinese government and the Red Cross of China sent four medical teams and one DNA identification team to help in the disaster areas.
One of the key components of China's foreign diplomatic policy is to develop friendly relations with South Pacific nations on the basis of the five principles of peaceful co-existence. So far there are eight South Pacific countries which have already established formal diplomatic relations with China, namely, Papua New Guinea, Fiji, Cook Islands, Micronesia, Nauru, Solomon Islands, Tonga and Vanuatu. In 2004, China's trade with South Pacific countries and areas reached USD623 million, a rise of 25 per cent compared to 2003. China is endeavoring to make contribution to the economic growth and political stability of South Pacific regions through commerce, trade and investment. The important projects include mining of Ramu Nickel Project with Papua New Guinea and electricity cooperation with Tonga. China has also granted Fiji, Vanuatu, Tonga and Cook Islands approved tourist destination status for Chinese citizens and joined South Pacific Tourism Organization in 2004.
China's major concern in the South Pacific region is the Taiwan issue. One-China principle is the common understanding of the international community. However, Taiwan authorities wantonly push for "Dollar Diplomacy" and the so-called "countries with diplomatic relations" in the region. By hook or by crook they try to squeeze a position in regional organizations including Forum of Pacific Inlands Countries, Forum Parliament Assembly and South Pacific Tourism Organization. These activities were detrimental to the stability and development of the South Pacific region. Chart 4: Overview of China's participation in UN peacekeeping operations
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