The Foreign Service Journal, May 2005

nine protocols on bilateral cooperation, thus fully normal- izing Sino-Indian relations. Both leaders pledged that their countries would work together for regional peace and stability. Progress was also made on their long-stand- ing boundary dispute; the two countries codified the Agreement on the Actual Line of Control and pledged to exchange high-level emissaries to negotiate a final settle- ment of their 34-year quarrel over the disputed territorial boundary. Once the 4,500-kilometer border is fully demarcated, China will have resolved all of its border dis- putes. As part of the agreement, India reiterated its recognition of Tibet as part of China and promised not to support separatist activities by Tibetan exiles in India. China-India trade, which stood at $7.6 billion in 2003, is expected to accelerate (between 2002 and 2003 bilateral trade jumped 53.6 percent). The two countries enjoy complementarities in several sectors, including computer software (India) and hardware (China), although they continue to compete in other areas such as textiles and low-end manufactures. The Sino-Indian summit represented the most recent success in efforts by China to turn one-time adversaries into productive partners. Taken together with China’s ongoing efforts to forge a strategic partnership with Russia and to increase bilateral cooperation overall, Beijing’s suc- cess in building ties with its former adversaries (including South Korea, Vietnam and India) has not only benefited the countries concerned, but has also removed key sources of tension from the Asian region. Expanding Regional Economic Ties China’s growing engagement with the Asian region is perhaps most evident in the economic domain. Accord- ing to official Chinese customs statistics, trade between China and the rest of Asia topped $495 billion in 2003, up 36.5 percent over 2002. During the first eight months of 2004, China’s exports and imports continued to climb; exports to its 13 neighbors grew by an average of 42 per- cent, while imports surged on average 66 percent. … Not only is China increasingly trading with its neigh- bors, and receiving foreign direct investment from them, but it is also beginning to invest more in the region. Approximately 70 percent of China’s inbound foreign direct investment originates in Asia. Meanwhile, China’s direct investment in other Asian countries (including Hong Kong) reached $1.5 billion out of a total of $2.85 bil- lion invested by Chinese companies globally in 2003. China has also begun to increase its aid and development assistance to other Asia nations — for example, allocating loans of $150 million for Vietnam, $400 million for Indonesia, $200 million for Afghanistan, and $200 million for Myanmar (Burma) in 2002. In 2003 China earmarked $300 million in aid for Mongolia. At the end of 2004, Beijing committed $63 million in humanitarian and reconstruction assistance to (mainly Asian) nations affect- ed by the catastrophic tsunami. In sum, Chinese trade and direct investment are fast becoming the engine of economic growth in Asia, and this has done much to invigorate several economies in the region, particularly helping to pull Japan out of its decade- long economic slump. Asian countries thus have a huge stake in China’s continued economic growth and stability. At the same time, however, some in the region have con- tinuing reservations that China’s comparative advantages in labor and capital, combined with the business acumen of Chinese companies and government negotiators, will never permit a level playing field in which smaller Asian countries can compete with China. While Premier Wen describes China as a “friendly elephant” interested only in win-win commercial ties with its neighbors, other Asian nations worry that an elephant, no matter how friendly, will still leave trampled grass in its path. An Enhanced Regional Security Posture China’s new approach to Asia is also evident in the security sphere. ... China has adopted a unilateral approach toward its military modernization, which is being undertaken without great concern for the interests of its neighbors. China has two primary objectives in this regard: to build and deploy a comprehensively modern military commensurate with its status as a major power; and to develop a range of capabilities with respect to Taiwan. … [The] military modernization is a large and complex process with multiple dimensions. Nonetheless, two issues continue to be of particular concern to China’s neighbors: (1) the development of China’s power projec- tion capabilities (and the doctrine that would underlie it), and (2) the potential for the use of force against Taiwan. The People’s Liberation Army does not seem to have made much progress in enhancing its power projection capabilities, nor do these seem to be a priority. No aircraft carrier battle groups are being constructed; few destroy- ers capable of operating in the open ocean have been built; no military bases are being acquired abroad; train- F O C U S 36 F O R E I G N S E R V I C E J O U R N A L / M A Y 2 0 0 5