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The U.S. and China This Week

Week of July 18, 2003

The U.S. and China This Week

U.S.-China Relations: North Korea Problem Heats Up, and So Does Chinese Diplomacy

Slow progress and recent escalation in the standoff between North Korea and the U.S. has prompted Beijing to step up its diplomatic effort to peaceably resolve the nuclear issue on the Korean peninsula. The eight-month standoff began in October when North Korea acknowledged that it had a nuclear weapons program in violation of a 1994 accord. The terms of the accord, known as the Agreed Framework, were that the U.S. and its allies would supply fuel and help build two light nuclear reactors if North Korea would shut down its existing nuclear reactor and abandon all plans to build atomic weapons. As soon as North Korea divulged that it had a nuclear program, the U.S. suspended work on the reactors and stopped shipping fuel. North Korea responded by firing up its five-megaton nuclear reactor, pulling out of the Nuclear Non-proliferation Treaty, and expelling international Atomic Energy Agency (IAEA) inspectors.

Since October North Korea has repeatedly hinted that it would be willing to exchange its nuclear program for yet more economic aid, and has insisted on direct talks with the U.S. over the matter. The Bush administration has asserted that it won’t succumb to blackmail, and insists on a multilateral framework for talks that includes Japan, South Korea, and China. In the most recent escalation, gunfire was exchanged across the DMZ for the first time since November 2001, an apparent North Korean provocation designed to remind South Korean and Western diplomats that it could inflict considerable damage if pushed.

All of this has prompted a barrage of diplomacy from China aimed at peaceably resolving the dispute. Last week Beijing sent Wang Yi to the U.S. for bilateral talks over the North Korea issue. South Korean President Roh Moo Hyun was in Beijing last week for similar discussions. A Chinese special envoy held talks in Pyongyang with NK leaders including Kim Jong Il. During the visit, Chinese Foreign Minister Dai Bingguo handed Kim a personal letter from Hu Jintao. Wednesday U.S. Secretary of State Collin Powel discussed the situation with Chinese Foreign Minister Li Zhaoxing by phone, and arranged for Dai Bingguo to be dispatched to the U.S. for face-to-face talks. Beijing is expected to present a plan for reinitiating talks on a multilateral basis, but with one-on-one discussions between U.S. and North Korean officials taking place on the side.


Chinese diplomacy centers on fostering a stable Asia-Pacific region conducive to attracting foreign investment and reforming and growing its economy. It would not welcome a crisis situation that diverts resources away from its development and modernization drives. Also, a military crisis on the Korean peninsula would assuredly result in a more prevalent American presence in the region, especially if an Iraq-style war and occupation were to take place. China also favors a nuclear-free Korean peninsula due to its worries that a nuclear North Korea would prompt Japan to develop a nuclear capability.


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International: ROK President Visits China

Republic of Korea President Roh Moo-hyun met with Chinese leaders in Beijing this week for discussions on a wide array of regional and international issues. Officials from the ROK's relevant finance and economic departments and a delegation of businessmen from over 30 major companies accompanied Roh to China, indicating the emphasis placed on the two countries' deepening economic relationship in the talks. Since normalization of relations in 1992, the volume of trade between the two countries has increased from US$5 billion to US$44 billion. Roh expressed his opinion that China's rapid economic growth, far from being a threat, constitutes an opportunity for regional prosperity and cooperation. Roh said the two sides should intensify their economic cooperation, and that "the ROK and China should become a regional economic community."

Also high on the agenda was an exchange of views regarding the DPRK's nuclear program, a current focal point of the international community. Chinese president Hu Jintao and visiting ROK president Roh Moo-hyun took the opportunity to jointly reiterate their commitment to maintaining a nuclear-free Korean Peninsula through peaceful means. Both sides also agreed to work for an early resumption of direct talks aimed at resolving the nuclear issue. Progress on the matter has been stalled since largely ceremonial three-way talks took place between Pyongyang, Beijing, and Washington in April, at which time little headway was made in the talks, save for all three countries agreeing that further talks would be useful.

Roh's visit to China follows in the wake of visits to the United stated and Japan, and precedes his upcoming visit to Russia. Roh is expected to finalize his country's foreign policy agenda after visiting all four countries.



 

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U.S.-China Relations: On-Going Debate Over Outsourcing High-tech R&D to China

In June, Senator Joe Lieberman's office weighed in on what is becoming an increasingly front-page-worthy issue: the national security implications of outsourcing high-tech R&D to the PRC. The white paper his office published, entitled National Security Aspects of the Global Migration of the U.S. Semiconductor Industry, explains that "East Asian countries are leveraging market forces through their national trade and industrial policies to drive a migration of semiconductor manufacturing to that region, particularly China." The implication is that China is leveraging access to its market to obtain sensitive high-tech know-how so it can improve its defense capability vis-à-vis the United States. The paper also asserts that "relying on integrated circuits fabricated outside the U.S. is not an acceptable national security option."

For major IT firms the debate centers much less on matters of national security and more on matters of national prosperity. From their perspective, whoever wins the Chinese market wins the world. This is why throughout the 1990's U.S. companies were willing to accept the risks involved in entering into joint ventures with Chinese partners in exchange for market access. They had no choice, as the joint venture requirement was codified in Chinese law. So imperative was it to gain market access, multinationals were willing to expose themselves to the rampant corruption, overstaffing, management headaches, and other risks inherent in Chinese business culture. They were even willing to accept technology transfer requirements, i.e. less control over their intellectual property.

Today, this debate is taking on new life following China's accession to the WTO. Under WTO rules and regulations, China must discontinue requiring technology transfer as a prerequisite for market access. Under the new system, multinationals can opt to set up wholly foreign owned enterprises that will allow them to covet their intellectual property and minimize their investment risks while still gaining market share. By implication, China's ability to leverage market share for dual-use technological know-how will be reduced.

 

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