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Engaging the Dragon

Permanent Link: http://ncf.sobek.ufl.edu/NCFE004385/00001

Material Information

Title: Engaging the Dragon Controversial Dimensions of Chinese Foreign Policy
Physical Description: Book
Language: English
Creator: Korngold, Danielle
Publisher: New College of Florida
Place of Publication: Sarasota, Fla.
Creation Date: 2011
Publication Date: 2011

Subjects

Subjects / Keywords: Chinese Foreign Policy
China
Sudan
Human Rights
Yuan
Foreign Aid
Exchange Rate
Genre: bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: This portfolio thesis analyzes the nature of three controversial dimensions of Chinese foreign policy: human rights, the yuan-U.S. dollar exchange rate, and foreign aid. These topics are then applied to Sino-Sudanese relations�a controversial topic in its own right�as a case study of how these dimensions each affect China�s relations with other nations. The controversial nature of these components stems from the Chinese resistance of international expectations as established by international law and norms. One possible explanation for this is that the Chinese do not perceive it as being in their interests to abide by international expectations. The liberal standards that dominate international laws and norms fail to mesh with the PRC�s realist outlook and the goals of its authoritarian regime.
Statement of Responsibility: by Danielle Korngold
Thesis: Thesis (B.A.) -- New College of Florida, 2011
Electronic Access: RESTRICTED TO NCF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE
Bibliography: Includes bibliographical references.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The New College of Florida, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Local: Faculty Sponsor: Alcock, Frank

Record Information

Source Institution: New College of Florida
Holding Location: New College of Florida
Rights Management: Applicable rights reserved.
Classification: local - S.T. 2011 K84
System ID: NCFE004385:00001

Permanent Link: http://ncf.sobek.ufl.edu/NCFE004385/00001

Material Information

Title: Engaging the Dragon Controversial Dimensions of Chinese Foreign Policy
Physical Description: Book
Language: English
Creator: Korngold, Danielle
Publisher: New College of Florida
Place of Publication: Sarasota, Fla.
Creation Date: 2011
Publication Date: 2011

Subjects

Subjects / Keywords: Chinese Foreign Policy
China
Sudan
Human Rights
Yuan
Foreign Aid
Exchange Rate
Genre: bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: This portfolio thesis analyzes the nature of three controversial dimensions of Chinese foreign policy: human rights, the yuan-U.S. dollar exchange rate, and foreign aid. These topics are then applied to Sino-Sudanese relations�a controversial topic in its own right�as a case study of how these dimensions each affect China�s relations with other nations. The controversial nature of these components stems from the Chinese resistance of international expectations as established by international law and norms. One possible explanation for this is that the Chinese do not perceive it as being in their interests to abide by international expectations. The liberal standards that dominate international laws and norms fail to mesh with the PRC�s realist outlook and the goals of its authoritarian regime.
Statement of Responsibility: by Danielle Korngold
Thesis: Thesis (B.A.) -- New College of Florida, 2011
Electronic Access: RESTRICTED TO NCF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE
Bibliography: Includes bibliographical references.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The New College of Florida, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Local: Faculty Sponsor: Alcock, Frank

Record Information

Source Institution: New College of Florida
Holding Location: New College of Florida
Rights Management: Applicable rights reserved.
Classification: local - S.T. 2011 K84
System ID: NCFE004385:00001


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Engaging the Dragon: Controversial Dimensions of Chinese Foreign Policy Danielle Jacqueline Korngold New College of Florida January 2011 In partial fulfillment of a Bachelor of Arts in Political Science/Economics at the New College of Florida before a committee of Dr. Frank Alcock (sponsor, Professor of Political Science), Dr. Tarron Khemraj (Professor of Economics), and Dr. Nat Colletta (P rofessor of Political Science)

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ii DEDICATION In memory of my best friend, jg er, July 23, 1990 December 28, 2009 your faith and your memory in my heart.

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iii ACKNOWLEDGEMENTS I would like to give my most heartfelt thanks to my thesis committee, Dr. Frank Alcock (sponsor), Dr. Nat Colletta, and Dr. Tarron Khemraj, for working wit h me and for their advice through the whole thesis process. I would have been completely lost without your guidance. I would also like to thank my family and friends for their support.

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iv TABLE OF CONTENTS List of Acronyms List of Tables and Illustrations Abstract Introduction Part I : What Influences Chinese Attitudes towards Human Rights Internationally? Part II Part III : Chinese Foreign Aid Part IV : Sino Sudanese Relations: A Case Study Conclusion Bibliography v vi vii 1 7 32 56 73 91 97

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v LIST OF ACRONYMS CCP Chinese Communist Party CRS Congressional Research Service EAS East Asia Summit FOCAC Forum on China Africa Cooperation IMF International Monetary Fund JEM Justice and Equality Movement MFN Most Favored Nation MNE Multinational Enterprise ODA Official Development Aid OECD Organization for Economic Cooperation and Development PRC RMB renminbi or yuan, the Chinese currency SAF Sudanese Armed Forces SCO Shanghai Cooperation Organization SEZ Special Economic Zone SOE State owned Enterprise SPLA

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vi LIST OF TABLES AND ILLUSTRATIONS Part I Chinese Crude Oil Imports 2008 and 2009 Percentage of Chinese Arms Delivery Values to Developing Nations by Region, 1997 2008 Examples of Human Rights Agreements with PRC Participation Examples of Chinese Domestic Human Rights Laws Part II Yuan/U.S. Dollar Exchange Rate (1990 2004) Chinese Foreign Assets (Including Hidden Reserves) Chinese GDP, Inflation, and PPP Exchange Rate, 1990 2005 PPP International Dollar Exchange Rate Total Exp ort Tax Rebates (RMB billions), 1994 2004 Part III Comparison of ODA and "Chinese" Aid Selected PRC Aid and Investment Projects in Latin America 2008 (Announced or Begun) Selected Latin American Countries with Large Reported Aid/Investment Projects, 2002 2007 Reported PRC Aid by Type and Region, 2002 2007 ($U.S. millions) Part IV Small and Light Weapons Trade, Ammunition, Military Weapons, and Parts from China to Sudan in US Dollars according to UN Comtrade Merchandise Trade Data for the Sudan (World Bank) Chinese Exports to Its Largest Trade Partners in Africa, 1999 2009 (Millions of U.S. Dollars) Chinese Foreign Direct Investment Composition in Sudan, 2000 2007 Sudan Official Development Aid (ODA) Per Capita (Current U.S. Dollars)

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vii ABSTRACT This portfolio thesis analyzes the nature of three controversial dimensions of Chinese foreign policy: human rights, the yuan U.S. dollar exchange rate, and foreign aid. These topics are then applied to Sino Sudanese relations a controversial topic in its own right as a case st nations. The controversial nature of these components stems from the Chinese resistance of international expectations as established by international law and norms. One possible explanation for this is that the Chinese do not perceive it as being in their interests to abide by international expectations. The liberal standards that dominate international laws s authoritarian regime.

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1 INTRODUCTION The has been closely studied and observed in the realm of international relations since it beg a n its evolution as a major international player three decades ago This increased international attention has shed light on various aspects of the foreign policy path pursued by the Chinese. Many of these dimensions are highly controversial. The debates are fueled in part by a lack of verifiable and reliable information on China, which is frequently difficult to come by due to an absence of transparency in the PRC But much of the controversy derives from the fact that the Chinese frequently do not adhere to international expectations as manifested by international laws and norms. This portfolio thesis seeks to explore the nature of three of these controversial d imensions in Chinese foreign policy: human rights, the Chinese yuan U.S. dollar exchange rate debate, and foreign aid. These are three of the most important dimensions to understand in order to comprehend the nature of greater Chinese foreign policy. They also provide a more solid understanding policy. The fourth chapter of the portfolio thesis will survey the impact of each dimension in a case study T o be sure, t here are man y other dimensions to Chinese foreign policy. The topic is immense and highly complex to study as a whole, but by studying it in parts the mechanisms behind its functions become a little clearer. It does not necessarily give the whole picture, although the three dimensions covered in this thesis frequently overlap in certain areas

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2 The human rights chapter will examine the strategic interests that shape influence Chinese behavior with respect to human rights abroad: these interests include regime surviva l and sovereignty, access to export markets, access to primary products, regional hegemony, global influence, and countering U.S. influence. China would prefer to be left to its own devices with respect to its domestic and foreign human rights records. Bu t multilateral partners, China must respond to the scrutiny. It typically defends itself by invoking cultural relativist arguments that emphasize non conceptions of human rights. Diplomatically, China is skilled at maneuvering around and resisting pressure from other states. The chapter on exchange rate s debate centers around currency relative to the U.S. dollar and the range of evidence pointing to whether the yuan is undervalued or not at first with a dual exchange rate system, then with a solid unitary peg, now with a crawling peg. The analysis of the debate will st art with a history of the peg, and then move on to look at the evidence provided by different sides of the debate. Very few believe that the yuan is overvalued; most believe that it is either undervalued or at the right value. Usage of a variety of methodologies in the literature accounts for d ifferences it stands today will follow. Regardless of whether it is undervalued or not, the value is market, which has impacts on other countries, especially other developing countries.

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3 te the role of ideology in prioritizing allocation of foreign aid or, as it turns out, a lack thereof. Foreign aid establishes that there is a particular kind of functional inequality in a bilateral relationship, that one country is providing resources to another because the latter is lacking in some capacity. Foreign aid transactions typically flow from developed to developing countries but over the past twenty years or so there has been an increase of foreign aid between developing countries. China has ta ken advantage of this and has been using foreign aid to accomplish m any of its foreign policy goals, including procuring oil and deterring other nations from diplomatically recognize Taiwan. The final chapter is a case study on Sino Sudanese relations. T his will look at how each of these three dimensions applies to the relationship China has established with the Sudan and what consequences they have. Huma n rights are almost certainly the dimension with the most impact, since Sudan is one of the most high profile human import structure and the exchange rate between the Sudanese pound and the Chinese yuan permits identification of how the pear to be a major bone of contention between the two countries. Foreign aid is given to the Sudan to help develop its oil industry so that China might get access to the lucrative market. This chapter also contains a special section on sovereignty and its importance in the relationship in light of the upcoming January 2011 referendum, which will decide whether the South will split from the North. Regardless of the outcome, the role of the Chinese will drastically change.

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4 Throughout all of these chapters, there are common themes that link these dimensions together. It is important to pay attention to them, because they tell much about the nature of PRC foreign policy and provide a context under which its foreign policy operates. Sovereignty, realism, and th e discrepancy between Chinese methods and international norms are three of the most prevalent themes in this study. Sovereignty Westphalian sovereignty in particular is one of the most significant concepts to understand in gaining an understanding of Ch inese foreign policy. The idea of Westphalian sovereignty began with the Peace of Westphalia of 1648 and is the concept that nation states have sovereignty based on territorial integrity and freedom from external interference with domestic authority struct ures. In contemporary times adherence to Westphalian sovereignty has been whittled away with the establishment of international institutions and actors such as the UN. Despite this shift in the conception of sovereignty, the Chinese aspire to maintain West phalian sovereignty as an international standard. In the context of secessionist elements within China, such as Tibet, and the ever distancing Taiwan, this desire is understandable. By defending Westphalian sovereignty, the Chinese resist external scrutiny insisting that sovereignty means non even the Chinese occasionally depart from this principle because circumstances in bilateral international relations sometimes pul l one country into the affairs of another. The nature of the Sudan case made Chinese involvement almost inevitable. Realist patterns of behavior are evident in Chinese foreign policy. Realism in the context of international relations theory assumes that states are the central actors and that definitions

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5 of power that apply here; some of the relevant definitions include, but are hardly limited to: 1) the ability to induce others to do what you want and influence them, 2) economic wealth, and 3) the capacity to attain your goals and desires. Rea lists evaluate the world in terms of power structures, the amount of power that one state has compared to others. International relations are considered a zero sum game, meaning that power gained by one state means a loss for others. Cooperation in the int ernational realm is based on this power structure. States are said to have two options when facing a more powerful state: balancing or bandwagoning. States that choose to balance find allies to counteract the power that the powerful state possesses or is p erceived to possess. Those that bandwagon ally themselves with the powerful state. The overall Chinese approach to foreign policy is interest and concern with gaining status and influence easily demonstrate this. For e U.S. wherever the U.S. has left a diplomatic vacuum is a characteristically realist strategy to take. There are other instances that will be identified in the analysis and discussed. methods differ from those established by international norms are consistently present and will be pointed out and discussed throughout the analysis. For instance as will be shown throughout the currency and foreign aid chapters in particular and discusse d in the conclusion of this thesis, the Chinese do not constrain themselves to the mainstream neoclassical model of development; the neoclassicalists call for minimal government intervention, while the PRC maintains heavy regulation on certain parts of the economy. The differences between the foreign policy track the Chinese take and the path as established and encouraged by international norms are the

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6 source of these foreign policy debates and give the aforementioned dimensions their controversial nature. This thesis strives to shed light upon the controversial natures of three dimensions of Chinese foreign policy. By analyzing these controversies and the debates behind them, we see the problems associated with a detachment from international expectations as well as get a glimpse of the mechanisms behind the workings of Chinese foreign policy. While it is an incomplete picture, it hones in on both more general and some of the finer points simultaneously.

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7 PART I: WHAT INFLUENCES CHINESE ATTIT UDES TOWARDS HUMAN RIGHTS INTERNATIONALLY? Introduction Many scholars argue that the Chinese have slowly been moving towards supporting greater human rights at home and abroad, pointing to the international laws that China has acceded to and the domestic laws that it has passed and arguing that passage of these domestic laws is necessary particularly in light of the necessity of building a rule of law in conjunction with a growi ng market economy (Wan 2007). This may be true, but there is still a long way to go, particularly domestically. Internationally, at first glance, it has made some major strides. The PRC has increased participation in multilateral human rights agreements ov er the past thirty years; considering its position as a permanent member on the United Nations Security Council (UNSC), it cannot ignore human rights. But b ilaterally, human rights do not appear to be much of a consideration or a priority especially when Sudan and Venezuela. There is very little reason for China to give human rights priority bilaterally, as shall be discussed later. This paper will look at the Chinese attitude towards human rights internationally both on a multilateral basis and a bilateral basis and look at the factors that influence both ; it will not put much focus situation. Human rights in a given country will have a particul ar value based on not only the priorities of that country, but also the means by which these priorities are meant to be economic growth and supremacy for the sake of regime survival is mostly being achiev ed through bilateral trade aid, and

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8 investment agreements, supporting human rights in the countries that the PRC interacts with will continue to take a backseat in the list of foreign policy priorities. Overarching Chinese Interests Here is a brief description of some of the overarching goals of Chinese foreign policy: Regime Survival and Sovereignty Sovereignty. Chinese Communist Party (CCP) needs to maintain legitimacy at home and abroad to stay in power. All other interests in one way or another link back to this one goal. The PRC does not wish to suffer the same fate as the Soviet Union and so concentrates its efforts both domestically and internationally on propping its support and legitimacy (Sutter 2008). The Chinese participate in international agreements to the degree that it does not overstep what they consider to be an acceptable level of relinquishing sovereignty. Sovereignty is a very important principle based on the fact that Chinese actions abroad fit realist patterns of international relations, which is very state centered in outlook; for the Chinese, the sanctity of the state is near inviolable. The realist way of thought in international relations theory relies on sta tes as the primary actors, competing with each other for power, which can be done by balancing (allying with other states to counter another states or several states) or by bandwagoning (allying with the threatening state or states). In other words, it is about each state putting itself in the best position to attain power in order to fulfill its interests. In addition to taking the realist view of international

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9 main go al of regime survival. Interference of other members of the international community is highly undesirable because it places the CCP in a negative limelight and detracts from its legitimacy abroad. Maintaining a viable course of action in carrying out for eign policy goes a long way in the continuance of recognition of the CCP by the international community as the largely follow international laws and norms. However, this does not mean that China has not tried to go its own way to change international norms and the way they are applied for instance, humanitarian intervention. China is becoming big enough that it can assert influence and perhaps effectively change the course of international laws and norms. This will further ensure that the CCP has more leeway to follow policy courses that will allow it to maintain power. Because the PRC It wishes to avoid multilateral monitoring and potential intervention; official Chinese policy openly argues that human rights are a matter of the state, not the international community (Nathan 1994). In regard to bilateral human rights monitoring, China again clings to the sovereignty principle. Human rights monitoring on a sovereignty because it pits one sovereign state against another; it also implies that one state is superior to another. On the other hand reignty of a single state against a community of sovereign and formally equal states and thus

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10 Naturally, the Chinese are not amenable to any kind of human rights monitoring, bilateral or multilateral, as they view such monitoring as a form of interference. Taiwan has been slowly moving towards independence Taiwan by enticing other countries with incentives not to diplomatically recognize Taiwan. falling apart bit by bit; if they allow Taiwan independence, then territories like Tibet are also going to insist on independence, perhaps leading other provinces to do the same. The CCP has used nationalism as yet another pillar to support its monopoly on power, into of maintaining sovereignty and pursuing its nationalistic ambitions (Sutter 2008). This policy of essentially bribing other countries to not recognize Taiwan has only partially been successful, because Taiwan itself has much to offer as well as mainland C hina. maintain sovereignty. Tibet currently stands as an independent autonomous region, but many Tibetans desire independence on the basis of ethnic nationalism and res ist Chinese rule and authority. Over the course of Communist rule in China, the use of the military ensuring order in Tibet, particularly in light of the political instab ility caused by international influences in support of a free Tibet (Karmel 1995). Hu Jintao, the current president of the PRC, became co party leader of Tibet in December 1988 and aided in ds Tibetan religion

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11 conservative making Tibet autonomous in name only in contrast with other regions in which the Chinese have promoted autonomy as a way to encourage lo cal initiative and spur the local economy into rapid growth (Karmel 1995). Tibet is often vilified by the Chinese government and CCP as a region with a considered unfit for hi gh level positions in the CCP, although they do occupy many high ranking government positions. Because of this discrimination, many Han Chinese cadres have made their way to Tibet. The Dalai Lama has accused the Chinese government of ethnic and cultural tension is a source of frustration and anger on the part of many Tibetans, fueling their desire to resist Chinese authority. What have caught the attention of the inte rnational community are Chinese attempts to silence political unrest and dissonance in Tibet. These attempts have been extremely violent, frequently involving extra judicial arrests, imprisonment, and torture. Not only do these actions extend to protesters but also to institutions of political, religious, and educational nature; Chinese authorities have arrested many who belong in (Karmel 1995). China wishes to be able to maintain its domestic policies without interference, but the threat of intervention on humanitarian grounds constantly hangs heavily over the head of the government. Regional Hegemony The Chinese wish to maintain their position as a power in East Asia as a regional hegemon. It is their desire to control the balance of power in the region through various

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12 cooperation with the U.S., and maintaining stability on the Korean peninsu la (Sutter 2008). A great portion of Chinese foreign affairs is concentrated in East Asia, where it can easily assert influence based on commonalities in culture and politics. As will be discussed in the next section, the Chinese have put forth the claim a nd it is hardly the only Asian nation to do so that there is a common Asian culture with its own set of unique values, particularly when it comes to human rights. With this perception in mind, China prefers to interact with these other nations, rather than haggling with nations that do not possess these Asian values. However, many suspect that this assertion of Asian values is a thinly veiled attempt at justifying poor human rights records. Global Influence Despite its preference for interacting with Asian nations, the PRC also desires to have a voice in world affairs. It believes that aside from prestige, it needs to expand its global influence in order to attain the goals of its foreign policy, such as countering U.S. power, Taiwan, economic prominence, a nd so on (Sutter 2008). For this reason China is expanding the amount of participation in multilateral institutions in its diplomacy. As stated before, China wants to have an impact on the way international laws and norms are applied and interpreted. Count ering U.S. Influence Countries that have little to no interaction with the U.S. because of their lack of strategic importance or for their being shunned on the accounts of certain policies or their governmental regimes as a whole are often courted by the Chinese to fill the diplomatic vacuum, so to speak. Even areas where the U.S. has traditionally held a great deal of

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13 influence, such as Central and South America, are increasingly turning more to China. The decision to counter U.S. influence stems from Chi realpolitik approach to international relations; in this case, the Chinese have decided to balance U.S. power by allying with other nations. Countries that the U.S. has shunned often have egregious amounts of human rights violations on their records Chinese often ignore this fact in the attempt to counter U.S. influence; they view it as an opportunity dropped by a powerful rival. States like Venezuela, Iran, and the Sudan have human rights rec ords ranging from suspect to egregiously horrific ; regardless of status, China supports all of these regimes through diplomatic interaction, trade, investment, and aid. Access to Primary Product Markets This is perhaps the most important interest. As Zafa r (2007) succinctly states and the need for resources The CCP uses domestic economic growth to help maintain itself in power. has led it to requiring vaster amounts of resources, so they are sought wherever they can be found. This is especially true of Africa. Oil and minerals are the most sought by the Chinese; countries with these resources are thus heavily courted by the PRC, gross human rights violations notwithstanding. China also seems to wish avoiding buying oil and other resources on the open market in order to escape the price fluctuations that accompany such commodities (Zafar 2007). The graph below demonstrates the eno rmous priority that oil in particular has in the overall procurement of primary products.

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14 which is the concept that developing countries well endowed with natural resources have lower growth rates. Literature has revealed mixed results as to whether to resource curse is a real occurrence; regardless, it is undeniable that natural resources do have problems associated with the ir procurement and use Resources are often utilize d by governments of developing nations to support their regimes, frequently leading to rent seeking behavior in the absence of a formally functioning governance structure. Moreover, in the majority of internal conflicts, resources play a foremost role in t heir initiation or perpetuation. Groups rebelling against a national government will compete with the government to take control of natural resources as well as foreign aid to fund their efforts against the other. Numerous examples follow. One factor perpe tuating the Somalian conflict is the control of food aid provided by other countries. The Angolese conflict has been spurred by struggles over resources such as oil and diamonds. Rwanda has the highest density per acre of arable land in the world. search for natural resources is such that considerations of human rights violations that might follow from purchasing primary products from resource rich Angola, and other s support this. These are all countries with egregious human rights violations on their records.

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15 Chinese Crude Oil Imports 2008 and 2009 (Source: U.S. Energy Information Administration) The graphs above show that China procures the highest volumes of oil from countries with poor human rights records: in fact, almost every country that China consistently imported high levels from across both years has some of the worst human rights records Some of the reasons behind this have been mentioned before. Other Chinese Crude Oil Imports by Country 2008 (Thousands of barrels per day) Saudi Arabia (725) UAE (91) Angola (596) Iran (425) Russia (232) Sudan (209) Venezuela (121) Kuwait (118) Kazakhstan (113) Others (646) Chinese Crude Oil Imports by Country 2009 (Thousands of barrels per day) Saudi Arabia (740) Oman (275) Angola (451) Iran (544) Russia (299) Sudan (217) Kuwait (171) Kazakhstan (97) DRC (115) Libya (93) Others (582)

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16 of sovereignty makes trade with China more desirable, because it means that the governments do not have to worry about losing a major trading partner on the basis of the state of domestic affairs or the nature of the regime. Another reason is that quite a few of these countries have been diplomatically shunned by Western countries on the account of the ir regimes and China has seized the opportunity in their absence. Export Markets In addition to needing partners to provide primary commodities, the Chinese also on the lucrative use of nurturing the export sector. Many countries, particularly those in Sub Saharan Africa, that export items like textiles, have a difficult time competing with the Chinese. The Chinese work to make their exports competitive in the world mark et, particularly by controlling the yuan U.S. dollar exchange rate and keeping it at what many claim to be at an artificially low rate. This makes their exports more attractive, particularly to China the United States. The Chinese use their export sector to ensure that they maintain an edge in global competition. Their comparative advantage lies in producing commodities that are labor intensive, evident by its enormous population and workforce. Since many other developing c ountries also specialize in labor low cost exports and enormous production capabilities often have a negative impact on the competitiveness of those developing countries. On the other hand, other countries benefit fr om trade with China, particularly those who are resource rich. Chances are, particularly in these resource rich countries like the Sudan, Chinese trade is helping out the government and possibly other groups involved in the conflict:

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17 ent in the Sudanese economy, and the oil sector in particular, are of concern because of the manner in which the fruits of that growth benefits of this growth. To the contrary, Dar fur has suffered because of the position where it can readily fund its military and its weapon purchases (Save Darfur Coalition 2007). But the problem for China with eliminating trade on the account of human rights is that trade sanctions are often useless. It means that the country being sanctioned against will find alternative sources for trade, something China cannot allow in the light of its own self interests. Although the Chine se are one of the largest importers of conventional arms, particularly small arms, they are also a large conventional arms exporter one of the top ten, according to Amnesty International especially to other developing countries. The table below demonstrate s the distribution of arms deliveries made to developing countries by region between 1997 and 2008. Percentage of Chinese Arms Delivery Values to Developing Nations by Region, 1997 2008 1997 2000 2001 2004 2005 2008 Asia 48.28% 61.29% 47.83% Near East 27.59% 25.81% 28.26% Latin America 3.45% 0.00% 8.70% Africa 20.69% 12.90% 33.33% (Source: Congressional Research Service) *As a percent of total Chinese conventional arms deliveries to developing countries The majority of conventional arms deliveries go to Asia, which makes sense in Middle East and Northern Africa) are consistently high throughout this period. Arms trade with Latin American developing na tions has ultimately increased, though it remains in this table is in the percentage of arms deliveries to the African region (here, Sub

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18 Saharan Africa) from 2001 2004 to 2005 2008, which has increased by over two fold. In Saharan Africa and the fact that China is competing with Russia in selling arms to Africa, this value is likely to increase Many are concerned that the countries with which China trades arms, especially in Sub Saharan Africa, contribute to human rights violations in those countries. This is an issue particularly in the Sudan; the Chinese claim they do not contribute arms to the Darfur conflict, but becaus e they trade with the Sudanese government, it is almost certain that Chinese arms get distributed to combatants involved in the conflict, such as the Arab militia group the Janjaweed. Amnesty International released a report in 2006 in which they analyze th e ways that Chinese arms trade has helped sustain conflict and human rights violations in countries such as the Sudan, Nepal, and Myanmar. The report ultimately concludes that China has largely ignored circumstances surrounding countries with which they tr ade arms, in great part due to their respect for sovereignty. Although the Chinese have updated regulations on international arms transfers by the PRC government, assessing the effectiveness of these changes is nearly impossible, because transparency regar ding actual transfers of military, security, and police equipment is sorely lacking (Amnesty International 2006). Multilateral Participation in International Human Rights Chinese participation in the international human rights regime has increased a great deal. Based on Chinese interests, China uses the multilateral regime to shift current international norms on human rights so that there is less overall scrutiny, which eas ily explains this increase in participation. There is uncertainty as to how effective these efforts are or will continue to be in the future; as large and influential as China is, it is

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19 unlikely that it will singlehandedly shift international norms toward trends more suitable for its interests. The Nature of International Human Rights I nternational human rights by nature, are fraught with controversies and debates. Many claim that there are universal human rights; others belie ve that there are not, on the basis of diversity in cultures and politics. Some are skeptical of human rights as they currently stand; Bov (2002) argues that human rights are a normative tool used by neoliberal regimes in a globalizing system that perpetu ates violations of those very same norms. There are a wide variety of arguments and viewpoints regarding the nature of human rights. In discussing human rights violations, the focus is generally on governments committing atrocities against their people: t orture, disappearances, political prisoners, genocide, terror, and many more. But there is much more to the story There are ethnic and religious groups committing such acts against each other (such as in Rwanda and the Sudan, respectively) as well as tran snational terrorist organizations, though it is true that any one of these groups might be backed by one or even several governments. Ethnic violence is generally within the domestic jurisdiction of the state it occurs in and transnational terrorist organi zations by nature belong to no one country. This makes humanitarian law difficult to enforce, except for governments that are subject to the international community as it stands today. The question of what international human rights actually are leaves r oom for noncompliance among states under the arguments that they are culturally unique and thus must follow their own cultural norms, such as the Asian countries have done (Sen 1997;

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20 Chan 1998). Many human rights supporters and scholars on the subject of h uman rights emphasize its universal nature. In response to these assertions, wa Mutua (2001) argues which does not make them intrinsically inferior or superior but ra ther limiting in terms of diversity; there must be openness to allowing other cultures to contribute to the foundation for the human rights movement, its ideas have been emb raced by diverse contribute to it, sometimes by radically reformulating it, sometimes tinkering at the ence of a complete human rights corpus perhaps the corpus exists, but it remains incomplete as it stands today. The Chinese are fond of the argument that their human rights are distinctly ism. This is a somewhat shaky argument. Amartya Sen (1997) demonstrates that human rights such as freedom and tolerance are no strangers to Asian cultures; he points out that there are Asian traditions such a s Buddhism which value freedom highly; even Confucianism does not eliminate freedom as a right, despite its emphasis on order. He cites historical examples of Asian leaders who promoted such rights in their regimes. In contesting the universality of human rights, China also argues a different line of thought on who has the right to bestow human rights onto individuals: Chinese official jurisprudence views rights not as natural but as given by the state, to be limited and defined by the law; sees constitutional rights not as limitations on th e law but as goals whose realization is to be spelled out in laws; stresses the priority of social and economic rights over civil and political rights,

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21 and of national relations of self determination and development over the rights of individual citizens w ithin countries; and holds that the rights of individuals are the concern of their governments, and not of the international community (Nathan 1994). n the most general form, the notion of human rights b uilds on our shared humanity. These rights are not derived from the citizenship of any country, or the membership of any nation, but taken as entitlements of Another major issue in international human rights is the conflict between human rights and sovereignty. The UN charter states that the UN shall not intervene in matters uman rights international law (Nathan 1994). The trend in the international human rights regime is an increased use of moral suasion, economic sanctions, or military humanitarian intervention on the grounds of human rights violations (Nathan 1994). The lat ter of these presents the biggest problem, as humanitarian intervention can establish a dangerous precedent; if one country can intervene, what stops another from doing the same? Worse, the intervention can occur under the guise of humanitarian interventio n but in reality be an action taken to further other interests. China fears this kind of breach of sovereignty, which bolsters its argument that human rights should not be the concern of the international community. Chinese Participation in the Internation al Human Rights Regime Since Deng Xiaoping came to power in the late 1970s, China has been increasingly participating in multilateral human rights agreements. Wan (2007) explicitly names three reasons that China began acceding to international human rights laws in

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22 it impossible to avoid, 2) China accepts UN legitimacy along with its institutions and laws, and 3) Chinese human rights legalization has been indirectly affect ed by international politics, largely by pressure from developed democracies for China to improve its human rights. Hathaway (2004) has a rather different idea of why an authoritarian nation such as China would partake in the international human rights re gime. She surveys 160 nations over the course of forty years, analyzing the number of international anti torture agreements being ratified or ascended to. Based on empirical evidence, she argues that slightly more likely to ratify the original). On the other hand, democratic countries with worse torture ratings are less likely to ratify on the basis that, as a democra cy, pressure to abide by international law will be stronger than in an authoritarian state. Hathaway states that the Convention does not have an effective enforcement mechanism, thereby providing less incentive to abide However argument. The PRC is not a typical authoritarian nation it is in a position of power on the international stage vis vis its seat on the United Nations Security Council (UNSC). This positi on of power changes the nature of the game considerably. The reasons for authoritarian nations. China now has a reputation to consider and in consideration of its

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23 foreign p dynamism in the international human rights regime has been coupled with an increased Foreign c have regarded political imprisonment, religious suppression, problems with criminal procedure, capital punishment, Tibet, coercive population planning, and prison maltreatment and labor camp exports (Nathan 1994). These observations have resulted in criticisms from many international institutions and organizations, including Amnesty International and the UN, domestic huma n rights situation. In the UN in particular, the Chinese have used heavy political pressure to ward off the writing of such a resolution, which would prove China is also a unique example because of its transitional legal system. Part of international human rights regime internalization of norms. The legal system in the PRC is still in formation but has begun to establish rule of law, though it remains weak at present; very few authoritarian nations can claim to have a legal system that abides by the rule of law, even to a small degree. This budding legal system, however, has proven to have the capability of internalizing international human rights norms and putting them means as the legal system strengthens that international human rights agreements are more likely going to participation in the international human rights regime will be more than superficial, done

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24 however, the more l ikely that a nation will have make changes domestically to accommodate international law, the less likely it will sign on. But China has been holds true for China, we w ill see a decline in such participation as its domestic institutions enumerate and strengthen. As it stands now, it is too early to tell if China follows the rule or is the exception. There are hints of dissonance in the CCP that in the long run may grow and have group of 23 elder members of the CCP wrote a letter, demanding more democratic reforms. Many of these, according to the BBC, were highly influential officials, including a former editor of the and a former secretary to Mao Zedong (BBC 2010). Censors are currently attempting to wipe out any trace of criticism of the CCP, but th e fact that there are hints of divisions within the Party itself could foreshadow change in the long run. The Economist also reports possible divisions among leaders regarding ons, should they grow and solidify, will be interesting to observe. Although China has resisted observation and criticism of its own human rights situation, it has nevertheless become more involved in the international human rights regime. There is some e Constitution was a big step in improving legalization of human rights. These rights include equality before la w, freedom of speech, right to vote, and freedom of the press,

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25 along with numerous others. The table below reflects the absorption of some international norms in human rights in Chinese law. Since 1992, the Chinese have heavily borrowed laws from abroad (c however, it continues to be an authoritarian regime where the CCP controls and dominates in all facets of political life and where policy dominates over law (Wan 2007). This dominance will restrict the advancement of true human rights internalization. Over time, China has accepted human rights as a legitimate aspect of the uch acceptance, however, did not betoken a new attitude of passive compliance, but rather hera (Kent 1995). Kent demonstrates through a thorough study of dialogue that took place in different committees of the UN non intervention and sovereignty waned considerably. However, such usage has since resurfaced as China has become more resistant to pressure regarding human rights. Herein lays managed to intertwine itself economicall y wherever it sees an opportunity, making it a valuable trading partner and increasing its influence worldwide. Therefore it has the ability and the will to resist any pressure to act on human rights issues, particularly its own.

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26 Examples of Human Rig hts Agreements With PRC Participation Agreement Year PRC Ratified/Acceded Human Rights Covered Enforcement Mechanism? Convention on Prevention and Punishment of the Crime of Genocide 1983 Makes the acts of genocide, conspiracy to commit genocide, attempt to commit genocide, complicity in genocide, direct and public incitement to commit genocide Yes: Punishment for those charged with genocide shall be tried "by a competent tribunal of the State in the territory of which the act was committed, or by such in terna tional penal tribunal as may have jurisdiction with respect to those Contracting Parties which shall have accepted its jurisdiction" (Article 6) Convention Relating to the Status of Refugees 1982 Relates to the treatment and rights of refugees No Protocol Relating to the Status of Refugees 1982 Attempts to cover areas of rights that may not be covered by the Convention No International Convention on the Elimination of All Forms of Racial Discrimination 1981 Lays out the rights that all races should have, including civil rights, right to freedom of thought, conscience, and religion, right to inherit, etc. Yes: Parties must submit reports to the Secretary General of the UN on the administrative, legislative, judicial, and other types of reforms they have taken towards fulfilling the ends of the Convention; the Committee on the Elimination of Racial Discrimination monitors such progress

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27 International Convention on the Suppression and Punishment of the Crime of Apartheid 1983 Makes apartheid a crime against humanity Yes: Any person charged with the crime of apartheid will be tried by a tribunal (Article 5): monitoring by the Commission on Human Rights Convention on the Elimination of All Forms of Discrimination Against Women 1980 Lays out the rights that all women should have, including rights to education, representation, etc. Yes: The Committee on the Elimination of Discrimination against Women monitors the progress made on the implementation on the Convention; Parties must submit reports of their progress to the Secretary General of the UN Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment 1988 Further provides (along with various other conventions) that "no one shall be subjected to torture or other cruel, inhuman or degrading treatment or punishment" (Preamble) Yes: The use of u niversal jurisdiction; persons charged with such crimes will be tried by a tribunal (Sources: Nathan 1994; hrweb.org; treaties.un.org; unhcr.org) Examples of Chinese Domestic Human Rights Laws Laws Date Human Rights Applications The Law on the Autonomy of Ethnic Minority Regions Adopted: May 31, 1984; effective: October 1, 1984 Rights of ethnic minorities The Prison Law Adopted: December 29, 1994; effective: December 29, 1994 Regulations on prison police The State Compensation Law Adopted: May 12, 1994; effective: January 1, 1995 Right to seek compensation for damages caused by government agencies such as illegal detention The Administrative Litigation Law ( ALL) Adopted: April 4, 1989; effective: October 1, 1990 Allows lawsuits against government agencies for damages caused by

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28 administrative acts Adopted: February 28, 1995; effective: February 28, 1995 Regulations on police The Revised Criminal Law (of the 1979 Law) (CL) Adopted: March 14, 1997; effective: October 1, 1997 Crime and punishment decided by law, equality before law, and proportionality between rrevolutionary (Source: Wan 2007) Human Rights Participation on a Bilateral Basis For the Chinese, the majority of their foreign policy goals are carried out on a bilateral basis, which is their preferred method of diplomatic relations. Essentia lly, China has taken a kind of networking approach, especially in Africa and Latin America, in which they combine financial assistance and infrastructure projects in exchange for natural resource commodities (most often oil); thus they build relations with a large number of countries and create allies and energy suppliers (Zafar 2007). (Lack of) Bilateral Participation China is not in the habit of dealing with humanitarian issues in its bilateral dealings with other nations unless the other party makes it an issue. Human rights are an almost absent issue in (most) Chinese bilateral relations. Rarely, if ever, has China ever acted against another nation on account of its human rights situation. China has been known to offer some humanitarian aid, but this ai d amount is dwarfed by aid that China offers in other areas of bilateral relations; for example, China has offered only $11 million in humanitarian aid to Darfur, an insignificant amount compared to the economic aid it gives to the Sudanese government (Sav e Darfur Coalition 2007).

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29 To provide a co ntrast to bilateral interactions where human rights have little importance, there are examples of cases in which China has managed to resist bilateral pressures from countries where ideologically human rights have m ore value and priority. China severely dislikes human rights monitoring of any kind, multilateral or bilateral. As an example, when the U.S. criticizes China for its human rights record, China has both denied the claims against it and struck back by critic izing certain human rights issues in the U.S. The best example of is the May 1994 with the U.S. For a few years after the 198 9 Tiananmen Square Massacre, the U.S. rights as a trump card; in 1993, right before the U.S. announcement of whether MFN renewal would occur, the Chinese took two politica l prisoners. Finally in 1994, after much pressure from both the Chinese and the American business sector, the Clinton administration decided to remove human rights as a factor for consideration in renewing MFN status (Sutter 2008). This example shows that even when the other country in question f orces human rights as an issue even one as powerful as the U.S. China has managed to make itself economically important enough that it can successfully resist. Conclusion We have looked at the factors affecting Chi a multilateral level and a bilateral level. Studying these factors separately helps explain China is willing to participate in multilateral human rights agreements and there is small

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30 evidence that these international human rights norms are having some effect, as the divisions on the human righ ts debate in the CCP. However, it seems within bilateral relations it is a different story. In the interest of attaining particular goals what these may be varies by what each country has to offer China will often put human rights to the side, much to the consternation of the international community. human rights can allow us to further comprehend the interplay between international norms and national interests. The case of China makes it clear that the permeation of at least, for human rights is contingent upon its priorities, both foreign and domestic. In other words, there must be a degree of consent to al lowing these norms to filter into policy and practice. China shows that it will only consent to the degree that it does not interfere with its priorities. Even though there is evidence of international human rights ideals entering into the growing Chinese legal system, these norms will show no signs of effectiveness until they are put into practice; this will not occur until there is sufficient internal pressure for such change. As China becomes more and more powerful economically and politically, there wi ll be increasing pressure from the international community for it to improve its human rights situation. Improvements will only come over time with the internalization of then will China start to become more compliant to international human rights law and reflect

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31 concerns of supporting its authoritarian regime will continue to submerge human rights as a low priority.

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32 PART II: Introduction policies and actions. Many Chinese policies have been and continue to be assailed by a hail of criticisms from abroad, but the Chinese have held a firm stance. The question of whether the yuan is undervalued is one of the most important ones, with an enormous amount of literature an d analyses arguing many possible answers. This debate has intensified in light of the issues and problems linked to it ; for example, these issues and problems include questions such as whether such a policy violates IMF rules and how it affects the bilater al U.S. trade deficit. The purpose of this paper is to look at the nature of the yuan debate and the problems associated with it. From there I will draw conclusions about some of the political and economic implications stemming from this issue. This will n ot be an exhaustive survey, but rather a brief summarization of analyses conducted and conclusions drawn by experts in the field. I will also make no personal judgments on For this analysis, excludes the autonomous regions of Macau and Hong Kong, as these are essentially separate economic entities, as well as Taiwan, whose status as a part of China is presently under question and is al so in effect autonomous. The official Chinese currency is known as the yuan or the renminbi (RMB) and both names are used equally throughout academic

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33 History of the Peg In 1981 China developed a dual exchan ge rate system. For those Chinese and foreign companies conducting business locally, the exchange rate was 1.5 RMB/U.S.$ (the official rate); for Chinese companies doing business abroad, it was 2.8 RMB/U.S.$ (the international settlement rate). Eventually, the latter was devalued further to encourage exporters. In 1985 it was replaced by a foreign currency swap market, which still maintained a secondary exchange rate and an official rate. Over time Chinese companies, particularly those with operations abro ad and those local exporters, were permitted to retain an increasing amount of their foreign exchange earnings. This foreign exchange retention system was differential by industry within the export sector, but it was highly effective in encouraging more ex portation. In 1994 the swap rates were unified and the retention system was eradicated. Later that year the peg to the U.S. dollar was established (Bowles and Wang 2006). In July 2005, the peg was officially dropped, but a crawling peg has taken its place This is a heavily managed float that allows small changes at a regular interval (in (Pugel 2009). These changes occur within a minute floating band. For example, in May the inter trading prices of the RMB against the U.S. dollar in the inter bank spot foreign exchange market will float within a band of 0.5% around the central parity publicized on the same

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34 While officially the U.S. dollar is the main reference currency for the PRC also uses a basket of currencies, specifically a selection from all over eastern Asia. Yuan/U.S. Dollar Exchange Rate (1990 2004) Year Yuan per U.S. Dollar 1990* 5.222 1991* 5.434 1992* 5.7158 1993* 5.8 1994 8.4462 1995 8.3174 1996 8.2982 1997 8.2798 1998 8.2787 1999 8.2795 2000 8.2774 2001 8.2768 2002 8.2773 2003 8.2767 2004 8.2765 (Source: Bowles and Wang 2006) *During these years there were two rates: the official rate and the swap market rate. The one shown here is the official exchange rate. Nature of the Yuan Debate Arguments and Evidence Arguments in the yuan debate fall under three categories: it is undervalued, overvalued, or neither that is, at a price resembling equilibrium value. Most in the academic realm have come to the conclusion either that it is in fact at an equilibrium price o r that it is undervalued. The sheer variety of answers given to undervaluation methodologies being employed but also a theoretical issue of what constitutes an Wang 2006). Methodologies extend from analyzing purchasing power parity (PPP), real

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35 capi tal account inflows and outflows, trade surpluses and deficits, and more. Undervalued U.S. expand exports to China rather than limit imports, the latter being consistent U.S. polic y. This restriction on Chinese imports as opposed to increasing exports suggests that the U.S. is turning to protectionist measures. Mohamed El Khawas (2007) advocates the U.S. allowing exportation of high technology products to China and thereby permittin g freer trade policies. But the nominally low exchange rate of the yuan against the dollar makes purchasing goods from the U.S. expensive, making it difficult for the U.S. to sell its exports. And in the current global economic depression, the depreciation of the U.S. competitive edge. Many economists agree that the yuan is undervalued based on analyses of PRC foreign exchange reserves. These reserves were accumulated to (p resumably) defend the exchange rate, to prevent it from appreciating. The 1997 Asian financial crisis also had an up their dollar reserves to protect themselves f rom future currency crises and avoid problem is determining how large the reserves must be to be able to conclude undervaluation. Some claim it is not possible to make such a det ermination based on foreign reserves in a country like China because of its heavily enforced capital controls,

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36 would occur under an open capital account as Chinese resi dents and firms diversified Chinese Foreign Assets (Including Hidden Reserves) (Source: Drezner 2009) The graph above shows that the proportion of reserves to total foreign assets is declining as the time a dvances, so it is entirely plausible that this trend could continue into the future. the yuan is undervalued, because it means that far more exporting has been occurring tha n importing. When a currency is undervalued or merely depreciated compared to another currency, it has more selling power and makes the goods it produces cheaper. exports a re too cheap, indicating undervaluation. As with foreign exchange reserves, however, it is difficult to determine a benchmark value for trade surpluses to designate

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37 Overvalued Few have come to the conclusion that the yuan is overvalued, but one factor is worth looking at. The possibility exists that if the Chinese capital account were to be liberalized, capital outflows would lead to a depreciation of the yuan, which would require defending the fixed exchange rate; as it is, the capital account remains mostly closed to such outflows. Does this mean that the yuan is in fact overvalued? This is a difficult question to answer, because there is no guarantee that the volume of outflows would be higher than what it is current ly or that it would increase by all that much even with liberalization. As it is, it does not look like the capital accounts will be opened any time soon. Equilibrium Value Finally, there is the standpoint that the yuan is at an equilibrium value. Dan Ciur real terms [my italics], and it has adjusted substantially in real terms through domestic price shifts as analyze the real value of the yuan is to look at the power purchasing parity exchange rate. The table immediately below has it in terms of U.S. dollars; another common way is to compare it to international dollars, which is in the second table below.

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38 Chinese GDP, Inflation, and PPP Exchange Rate, 1990 2005 Year Current account balance in percent of GDP Gross domestic product, constant prices, annual percent change Inflation Inflation, annual percent change PPP US dollar exchange rate Scale N/A Ratio Percent Index, 1995=100 Percent U.S. dollars 1990 3.1 3.8 54.531 3.1 1.239 1991 3.3 9.2 56.385 3.4 1.276 1992 1.3 14.2 59.994 6.4 1.344 1993 2 13.5 68.813 14.7 1.504 1994 1.4 12.6 85.397 24.1 1.766 1995 0.2 10.5 100 17.1 1.956 1996 0.9 9.6 108.3 8.3 2.033 1997 4.1 8.8 111.332 2.8 2.01 1998 3.3 7.8 110.442 0.8 1.938 1999 1.6 7.1 108.896 1.4 1.868 2000 1.9 8 109.331 0.4 1.846 2001 1.5 7.5 110.096 0.7 1.825 2002 2.8 8.3 109.216 0.8 1.799 2003 3.2 9.1 110.526 1.2 1.816 2004 2.4 9 114.947 4 1.831 2005 2.8 7.5 118.396 3 1.836 (Source: International Monetary Fund, World Economic Outlook Database, September 2004) PPP International Dollar Exchange Rate Year China Implied PPP Conversion Rate* 2006 3.462 2007 3.621 2008 3.798 2009 3.872 2010 3.922 2011 3.946 2012 3.952 2013 3.944 2014 3.937 Source: International Monetary Fund, World Economic Outlook Database, April 2009 *National currency per current international dollar

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39 The two tables above show that on the basis of real exchange rate terms that is, PPP evidence shows that the yuan dollar exchange rate is fairly close to what is considered equilibrium; relative equilibrium for the yuan is clear if one were to compare PPP exchange rates across the board for all countries. Under this measurement, the closer a currency gets to 1, the closer it is to an equilibrium value real exchange rate. Still, it is the perception of an undervalued exchange rate that remains a problem, bec ause the average consumer is unlikely to take the difference between nominal and real into account when making a purchasing decision. It is upon these perceptions that people tend to act, including the U.S. Senate when it decided to enact a 27.5% tariff on Chinese imports, a figure that was derived from a variety of measures provided by various studies presented to Senatorial committees (El Khawas 2007; Ciuriak 2004). Another method that brought on this conclusion is analysis of inflation rates. Artificiall y low nominal peg rates are only temporarily beneficial and will eventually be overridden by rising inflation. Looking at the first table above, inflation rates between 1990 and 2005 are fairly low. Likely they would be much higher if the yuan was truly un dervalued. Why this kind of Policy? Two questions are worth asking: 1) Why was the value set so low in the first place? and 2) Why is China fighting so hard to keep the fixed value of the yuan? The answers to this question are best understood by looking a policy and its economic policy.

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40 Nature of Chinese Foreign Policy Chinese foreign policy stems from the realist school of international thought, which usually calls for a method of alliances involving either 1) balancing (allying with other nations to counterbalance another power or group of powers) or 2) bandwagoning (allying with the power or powers in question). The method that the Chinese seem to have chosen, at least in the case of the United States, is bala ncing. China has exhibited a habit of moving in where it perceives a diplomatic vacuum, befriending nations diplomatically shunned by other nations especially if the U.S. or Taiwan count among the latter. El is on domestic and East Asian regional issues. To a large extent, this is true. Yet in a sense the purpose of pushing world there is no way to ignore international a ffairs without self detriment; China recognizes this all too well, as well as the fact that there is much opportunity for political and economic gain in the international community. To aid in determining their priorities abroad, PRC leaders have a cost bal ance system of foreign policy, underpinned by a desire for obtaining the greatest economic gains possible from its foreign relations. The more leverage they have on other nations, the better. This is precisely why many American officials are worried about the enormous bilateral trade deficit that the U.S. has with China. Daniel Drezner identifies a pattern of countries, including China, Russia, and the best, an ambi

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41 this makes a lot of sense in the framework of its realist approach; it ensures some kind of security vis vis foreign direct investment. Neil Hughes best summarizes what is probab economic diplomacy: directly to the source rather than relying on global markets; Chinese companies are allowed to make direct investments i n foreign producers, thus integrating production to assure the availability of the inputs they need....[Additionally there run a global scale enterprise, if necessary by buying a successful multinational company such as IBM (Hughes 2005). The resulting so particularly among other developing countries. Strongest evidence of this lies in the foreign aid. They issue aid unconditionally this description is somewhat misleading, but it refers to offers of aid without requirements of certain economic and/or political reforms, not that there are no conditions whatsoever and have actually crowded ou t the World Bank and the IMF in multiple situations, especially in Africa. By offering aid, China has established a kind of paternity (although the Chinese would prefer the label fraternity) with the countries it lends to and incites a sense of obligation to do favors for China in the future (Hattori 2001). Chinese Economic Policy When it comes to economic policy, China over the past few decades has shown a albeit some times flawed, economic strategies such as the establishment of Special Economic Zones (SEZs) in the 1980s and the export tax rebate system in the 1990s. Here just two of many relevant elements, capital controls and the export tax rebate system, are discuss ed to get an idea of Chinese economic strategy.

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42 Capital Controls. manipulates the exchange rate system, but that it relies too heavily on price and capital intense government regulation and involvement. When the SEZs were first established, they were the only regions in China where foreigners were permitted to make capital investments. These restrictions were soon lifted for all of China; now it has become one of the single largest recipients of FDI in the world. Undoubtedly this has had a large hand in augmenting Chinese export volumes, as by all accounts empirical evidence shows that FDI usually increases both ex ports and imports of host countries (Tamirisa 1999). Investments from Chinese investors were once fully prohibited, but now it has been lifted, though it remains strictly regulated. Such limitations prevent further depreciation of the yuan, but it also ha mpers the benefits that investors get from putting their money into other markets. Capital controls are not entirely negative, because they can encourage higher savings rates, which in turn allow investments in export sectors to rise and thus increase tra de (Tamirisa 1999). The PRC has taken full advantage of this; Chinese consumers have one of the highest savings rates in the world and their export sector is one of their most successful sectors, if not the most successful. Moreover, if full capital accoun t Export Tax Rebates. When the foreign exchange retention system was abolished along with the dual exchange rat e system, the export tax rebate system replaced it. It had been originally introduced in 1985, where it had only been applicable to companies in the

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43 production of a select few goods. After the peg was established in 1994, the export tax rebate was applied to all exporters, though producers of some commodities were granted approach (Bowles and Wang 2006). The foreign exchange rate retention system and the export tax reba te policy have essentially the same effect. Both are differential systems, favoring the export sector, and are intended to encourage development of economic prominence both at home and abroad. Furthermore, the export tax rebate te has been partially circumvented by flexibility in the application of the export and Wang 2006). Total Export Tax Rebates (RMB billions), 1994 2004 Year Total Rebate 1994 45.02 1995 54.87 1996 82.77 1997 43.27 1998 43.63 1999 62.71 2000 81 2001 107.15 2002 125.94 2003 203.9 2004 219.59 (Source: Bowles and Wang 2006)

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44 If the export tax system functioned problem free, China could potentially revalue and at the same time retain its competitiveness in the world market, if it so desired. A problem free system such as this effectively encourages production through consistent and reliable monetary incentives. But it is an imperfect system, exacting a vast cost to the government, which has not paid all of the promised rebates to date. For this reason, the PRC government is reluctant to revalue even under enormous international pressure. Issues There are a host of issues associated with the yuan debate which lend themselves the most important ones are discussed below. Regional Leadership and Leadership of the Developing World There has been under a great deal of pressure for China to maintain its image as a o integrate itself into international affairs. Most of this has been seen in the context of its emergence into Asian political and economic cooperatives, such as ASEAN. The other East Asian nations perceive the PRC as a leader, though not quite a hegemon. taken on the responsibility of setting an example for other developing nations. This also includes its policy of unconditional foreign aid, as previously mentioned, which has al so desperate developing nations, which sometimes precludes the World Bank and other international lending institutions from aiding them. In so doing the door has been opened for new partners to which to send exports

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45 By putting itself in these leadership positions, China now must hold its ground under international pressure. In the eyes of the PRC government, if it were to concede on the yuan issue, which they have clearly and repeatedly stated they will not back down on, it will be a sign of weakness and a loss of respect. Chinese Economic Growth The PRC government has made it clear that they intend to become an economic powerhouse. Some might argue that they have already, yet they are still in development and without the necessary reforms China will not be able to sustain the accelerated growth pattern that it has, averaging some 9% a year by most estimates. Much of the the Un ited States within the next century. What will happen when China, with a sixth of for the U.S.? For Europe? How will it change the status quo of the world order? Is an other Cold War in the making? Regarding the yuan, claims have been put forth that the Chinese authorities manipulating the currency to extract the most economic growth possible. Clearly it has been put to good use, since the low nominal rate maintains com petitiveness in the global debt. Is this true manipulation? Or is it just enough within the boundaries to be considered strategic planning? The worry is that, as time goes on and China continues to grow, they will be able to bend the rules more and more as they gain further influence. There is always that question of the link between economic might and political influence.

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46 How liquid are they in transferring from one to the other? How are they related? This is the query that lies at the heart of the China question. International Trade As globalization takes hold, there have been more and more complaints and accusations of overly protectionist measures and unfair competit ion practices brought past decade, it has been the target of more than one seventh of all dumping investigations worldwide On low prices and foreign exchange reserves, respectively, Hughes points out that supply and lack of demand and that the low prices are due to price wars occurring there domestically. Furthermore, China is an attractive investment destination and location for multinational enterprises (MNEs) setting up branches, which explains why Chinese foreign exchange reserves are so large it is not purely for reasons of cheap labor a nd currency (Hughes 2005). Some view the low peg as a form of protectionism. Currencies with low value relative to other currencies will be more competitive in the international market. By pegging the yuan to a prominent currency such as the dollar at such a low value, the crawls up the ladder of appreciation, it is a sign that these protections are being lifted, because the Chinese are confident that their markets w ill continue to do well even as prices go up for their exports and despite the fact that importing from the U.S. will become less expensive for Chinese consumers.

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47 domestically, that C hina is trying to reduce foreign trade by trying to encourage exporters to focus inward. This, in a sense, would be another form of protectionism: autarkical there is no danger in China of today doing so. As an April 2008 article in the New York Times reads: an economist at Credit Suisse manufacturers may may be the result of a loss of competitiveness for low cost manufacturers in China, many of whom operate on thin margins and sell cheap goods to the United States (Barboza 2008). However, this policy methodology. There is very little evidence that China intends to cut back on foreign trade when it has been so profitable. China and the U.S. Debt Many analysts are convinced that Chi grants the PRC a proportional amount of influence in swaying U.S. foreign economic policy. Or from a different perspective, it forces U.S. leaders to consider China heavily in their foreign economic calculus. There are a few reasons that this might not be the case. Some fear that one day China will cash in on its share of U.S. debt, demanding repayment. This fear does not have a solid foundation; China is well aware that simply cashing in on debt to force U.S. leader s to take a desired course of action would ultimately be disastrous. The dollar would come crashing down and since the yuan is linked with the dollar even though the

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48 official peg has since been removed this would be equally catastrophic for the PRC. The fa ct that the U.S. debt to China is denominated in dollars, rather than in another currency, means that China cannot afford to allow the yuan to appreciate against the Alternatively, the link between political might and financial might, regardless of direction of causality, may not be as strong as believed. Drezner confronts the idea that financial might can be converted easily to political might in the context of great power politics. He concludes that in the case of China and the U.S., China has not been terribl y successful at all in politically influencing U.S. foreign economic policy. Leverage has limitations, so if country X targets country Y economically to force some kind of concession, they face the following obstacles: 1) country Y likely has alternative l ines of credit; 2) cooperation is required in enforcing leverage but is difficult to obtain; 3) often there are low costs of retaliation, allowing country Y to strike back with little loss; 4) sanctions are less effective if there are low expectations of f uture conflict; and 5) the type of monetary regime could be an issue, especially if country Y has a floating exchange rate. Such limitations necessitate very specific circumstances in order for the sanction to work. Should China let the Yuan Float? Closel y tied with the issue of undervaluation is the question of whether China should transition to a floating regime for the yuan. Advocates of a floating regime will argue that flexible exchange rates absorb external shocks effectively and allow for an

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49 indepen dent monetary policy, which will let the government or monetary authority to respond to internal and external crises as appropriate. But although there are many other merits to a floating regime, many analysts point out factors specific to the Chinese case that could make such a change at this point in time so as costs outweigh benefits. Surprisingly, there is some agreement that the yuan should remain fixed for the time being. Some acknowledge the benefits that the U.S. has received from the fixed exchange large amounts of dollars to prevent the Chinese currency from appreciating. The money is used to purchase U.S. government bonds, meaning that China is partly responsible for lowering long because of the sheer volume of exports to the U.S., which shows that there is mu tual benefit. Price flexibility might also be an indicator as to whether a regime change is necessary. If internal prices in China are relatively flexible, adapting rapidly to world price conditions, then it matters little whether it is fixed or flexible; if not, then real exchange rate disparity will result, creating pressures on the trading system (Ciuriak 2004). Others challenge the assumption that a revaluation would lower the value of the U.S. trade deficit. Bowles and Wang argue that the effects of a revaluation on the U.S. many of the goods which it imports from China and will therefore have to turn to higher

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50 un, a floating yuan might even exacerbate the problem, especially if the yuan appreciates, because it would mean that the U.S. would be forced to purchase more expensive goods from China since some of those goods are not produced domestically. The current debt would decrease in real value, but expecting benefits to come from that operates under the assumption that it will remain at the same nominal value or be decreased by that time, both of which are unlikely. The bottom line is that the U.S. is likely goi ng to have a difficult time getting rid of the debt for a long time yet. Some foresee the yuan becoming a major international reserve currency in light of renminbi requ ired, it was argued, a stable exchange rate against the U.S. dollar. The case Mohamed El Khawas offers an insightful view of wha called stubbornness: The Beijing government is stuck between a rock and a hard place. It fears that many exporters and manufacturers into bankruptcy and might put many Chinese out of work. They prefer to allow the yuan to float gradually and according to their own timetable in order to avoid a rise in unemployment among urban labor at a time when growing unrest is already widespread in rural areas (El Khawas 2007). If the PRC government were to change to a floating exchange rate, it would towards economic growth, this would not be acceptable in the immediate futur e,

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51 appreciation of the renminbi translates into a book loss of 3 percent of China An appreciation of the yuan would have resounding international consequences as well, most especially for developing countries. Developing nations struggle to profit in a highly competitive, globalizing world economy. Countries with low value currencies Chinese products and services highly attractive perhaps unfairly so to international consumers, becaus e it means their own currency has more purchasing power and the transaction is therefore cheaper. Permitting the yuan to float would give other developing countries the opportunity to profit from exports, since their currencies would (likely) depreciate re lative to the yuan and increase the likelihood that their products would be purchased by international consumers. Naturally, this is assuming that a floating yuan would appreciate and the evidence so far indicates that this would be the case, especially in consideration of the enormous demand for its exports and thus its currency. Implications Political Bowles and Wang (2006) highlight the difficulty that China faces in pursuing policies that will be beneficial at home and abroad; it is caught between these two intense pressures. The question, they propose, will be whether China will determine its international monetary policies based on conditions and goals on the home front or based on pressures from the international community. China has repeatedly stated that they will not give in to international pressure and thus far they have demonstrated their

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52 determination to follow up on their word. However, should something threaten their e if such an alteration was deemed appropriate according to their goals; China holds its international interests among their highest priorities. Perhaps there is a much bigger issue behind this which no one seems to mention. Many, if not most, of the poli ticians in power at present both in the U.S. and China grew up during the Cold War era. Maybe there is some remnant of the Cold War attitude party, authoritarian state does not sit well with the United States and historically such states never have; tension between the two nations over the past several decades reflects this clearly. It is possible, then, that there is a subconscious sentiment of arguing against the fixed exchange rate as a kind of protes t against the heavy hand China has in governance not just in the economy but for the state as a whole. Political liberalization is a long time in coming. Economic liberalization has made incredible progress over the past thirty years or so, yet it is not c omplete. Such sentiments must be reflected on and challenged. Even if they have merit, these views must be controlled and put aside in the interest of the greater good. If attitudes do not change, then no progress can be made; indeed, it may only irritate the situation. The U.S. and China relationship will be one to be watched carefully, because extreme actions on either side will have resounding consequences for each other and the world. Naturally none of this may be the case, though it is something to be considered. Nevertheless, the debate of the value of the yuan remains important and has proven to

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53 have many political and economic implications and consequences, though the political ones are much more obvious and immediate than the economic ones. China ha s undoubtedly asserted itself as a member of the international community; still, it is a nation in transition that might require different standards for evaluating its policies. This is not to say that China should be allowed to do what it wants on an inte rnational level, but rather to allow some leniency. Liberalization is far less likely to occur the way other prominent free market countries desire if they constantly push at every angle. Economic In a New York Times editorial, Nobel laureate Paul Krugma currency policy is a problem particularly because of current global economic conditions. Policymakers have had a difficult time encouraging spending to lower unemployment currency policy ex acerbates the problem, in effect siphoning much needed demand away from the rest of the world in the pockets putting more pressure on the Chinese to revalue, telling them tha t by not doing so This is, of course, assuming that the currency is indeed undervalued and Krugman that it cause s a problem, but if the Chinese revalue when the yuan is already at equilibrium, the impact on the Chinese economy must be taken into account. If other nations continue to put pressure on the PRC to change its monetary policy, China will continue to resis t with equal force; the recent brief Sino U.S. trade war

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54 (though more like a childish squabble) in late 2009 got the U.S. nowhere, nor have any other protectionist measures U.S. officials have implemented had any effect. There must be an offer made suffici ently large and beneficial enough to entice the Chinese into revaluing. Such an offer would necessitate cooperation among various nations most affected by Chinese currency policies because the cost of such an offer will be enormous; the PRC government will sacrifice potential growth for nothing less. Up until this point, the discussion throughout this paper has focused primarily on the short run effects and issues. But in the long run, the peg might even be harmful for is the key to financial distortion in the world economy to day. If it persists for much longer, China risks losing the very foundation of Such foresight is not common in Chinese foreign policy; the cost balance system runs on now for the long term. As brilliant as the Chinese have proven themselves to be, they must be made to see that if they do not start seeing beyond extracting maximum immediate gain, they will protract the real gains they can receive with long term failures. Conclusion The debate on the yuan will not quiet down anytime soon; indeed, it will only intensify as China grow s and gains international respect and importance. Negotiations on resolutions for some of the issues discussed as well as the yuan question itself must get underway soon in light of the state of the world economy. It will take compromise on the part of bot actual value should be, China will demand maybe even truly require economically

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55 assuaging. Those involved in such a diplomatic scheme will be required to consider all sides of this debate and the impact of any compromise they (hopefully) come to. With any luck, China will gain some diplomatic maturity that will silence the debate by way of reach ing a valid compromise.

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56 PART III: C HINESE FOREIGN AID Introduction For the past two decades China in world affairs has been steadily increasing interactions with other developing nations. Despite all the difficulties that China has been encountering in a variety of areas domestically it has continually given aid to other developing nations, extending and enhancing its reach and impact on those nations. This is especially true for Africa and Latin America. policy strategies towards developing countries, addressing fellow socialist nations? Venezuela and Cuba are both cases of interest in this regard; events happening in both countries are being watched closely, because they will have and have had in the past enormous implications for the region and perhaps for the rest st governments, both of which have attracted enormous amounts of criticism from the international community, in some cases to the point where they have not been recognized as legitimate and could have lasting implications for China itself. The rest of this essay will be broken down as follows. First the concept of foreign aid will be more precisely defined for the purposes of analysis. Second will be an ir underlying motivations towards other developing countries in general. Third will look at the nature of Chinese foreign aid to Cuba and

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57 Venezuela compared to foreign aid China is giving to other developing countries and pull conclusions about what is dri The conclusion will address implications and questions that these policies leave us with. What is Foreign Aid? For the purposes of this paper, the parameters of what foreign aid is must be first bri efly drawn out. Tomohisa Hattori (2001) does a thorough analysis on the concept of gift m of giving that often goes unreciprocated if it occurs between two countries of unequal developmental or economic standing. Hattori also argues that it also serves as a form of orm of spend[s] a social all not to be confused with economic exchange, which is the exchange of goods and/or services for monetary payment at an arranged time. As a note of caution, in analysis of Chinese foreign aid in particular, there is bound to be some error partly because China itself neither releases foreign aid data inclusion of grants and investments with foreign aid packages: The OECD defines official development aid (ODA) as flows of official financing to developing countries provided by official agencies which have a clear development or anti poverty purpose and are at leas t partially concessional in nature. Based on the above definition, the amount of China's foreign aid may be

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58 overestimated since Chinese official announcements usually mix up concessional loans and subsidized investment with interest free loans and grants. More than often, concessional loans and government backed investment take the major share within the entire aid package (Tso 2009). Because China considers this part of its foreign aid, however, it will be included with the forthcoming analysis. Although not all foreign aid offered by China is for developmental purposes, the vast majority of it is developmentally related. Lum et al provides a table that sums up the differences between OECD defined development aid and Chinese development aid: Comparison of ODA and "Chinese" Aid Government to Government Financing through Development Agency Strong Links to Donor Country Economy Concessional or Favorable Lending Terms Receives Payment of Debt in Kind Grant Element of at Least 25% Private or Corporate Financing OECD Aid Donor yes yes no yes no yes no China yes no yes yes yes no no (Source: Lum et al 2009). China Towards Other Developing Countries: Strategies and Motivations Western nation like China is usually less to amass power than to secure and affirm an identity as a nation state within the general foreign policy has been described as extremely pragmatic, strikingly similar to realpolitik of the late 19 th and early 20 th centuries; it takes the realist approach to international relations. Lei Guang defines realpolitik eng has frequently involved economic and political maneuvering to attain a balance of power. e Taiwan.

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59 With other developing nations China takes a slightly different approach. There are several goals, primarily establishing and continuing economic stability at home, domestically maintaining legitimacy of the Chinese Communist Party (CCP) through economic prowess and prosperity, and, perhaps most importantly, putting China forward as a lea der of the Third World. Here we discuss four of the main sub strategies and the motivations behind them, as this will paint a clearer picture as to why China is engaging with them in the first place. Diversification of Trading Partners Diversification of t rading partners is another strategy and simultaneously a holdings of U.S. a ssets could be problematic. As Drezner points out, should China scale back on purchasing those assets, perhaps to achieve some geopolitical aim, it would 10 percent appreciation against the dollar translates to a three percent loss in GDP in its foreign exchange reserves (Drezner 2009). Second, economic action taken by one nation against another to obtain a desired political result can be detrimental, especially if t he target is dependent on or heavily influenced by the other nation. Economic sanctions can be particularly devastating for developing countries; Cuba is a primary example of this. However, Drezner states that targeted nations often can find other sources for financial aid, trade, and political

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60 interaction with minimal cost; the more nations that participate in a sanction, the more effective it will be (Drezner 2009). Without support, a sanction is often meaningless, even if it is being enforced by a great power such as the U.S. Third, developing countries perceive themselves as vulnerable to protectionist measures taken by industrialized countries to protect their own markets. Often this does hold true, so they must find other nations like themselves to op en their markets to. This allows them a variety of options for continued access to resources and materials that may elerate domestic industrialization by increasing imports of required equipment and raw materials not available at home, and by e to put all your eggs in one basket; ultimately, extreme reliance on another single nation or a spare few nations financially or economically (i.e. as lenders) can make the debtor nation vulnerable under the right circumstances: Dependence on foreign cred itors alters the distribution of power through two theoretical pathways: deterrence and compellence. In a deterrence scenario, lenders use their financial holdings to ward off pressure from debtor countries; in a compellence scenario, lenders threaten to u se financial statecraft to extract concessions from debtor states (Drezner 2009). Naturally there are circumstances where these efforts can be constrained, but there is safety in numbers and variety. Opportunism and Counterbalancing Following its realpolitik methodology, China strives to counterbalance the nations of the West; that is, when not actively attempting to court them. China turned to the Third

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61 World after the fall of Communism in Eastern Europe in 1989, turning away from its strategy of courting the U.S. and Europe in defense (Mora 1997). In this counterbalancing method there is a sense of opportunism: China tends to move in to cultivate relations with nations that West has neglected (such as many of the African nations) or has outright d enounced (such as the Sudan, Venezuela, and Cuba) in other words, regions where a diplomatic vacuum has been left, which gives them strategic value to China. In filling these vacuums China has reaped great benefits, earning access to valuable natural resou rces in Africa, the Middle East, and Latin America and opening markets for Chinese exports: 1997). Realpolitik and balance of power notwithstanding, this is a general trend ; there are certainly exceptions. China still relies on a carefully calculated cost balance system and if they feel that a nation will not offer China sufficient economic benef it, they are far less likely to initiate any kind of interaction. Additionally, engagement has not been appear more comfortable working with undemocratic or authoritari an governments, PRC outreach has also extended to key U.S. allies or to regions where U.S. dominance to date has been unparalleled and unquestioned, leading some to conclude that Beijing ultimately ). Sabotaging Taiwan into the Third World. Taiwan over the years has become a successful economic Asian

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62 entity, actively engaging with countries all over the world and increasi ngly gaining legitimacy as an independent nation. However, China, ever determined to reunite Taiwan with the mainland, makes every effort to diplomatically outmaneuver Taiwan and they have done so with great success. In the case of Latin America, Mora asse 1980s has been to deny Taiwan a diplomatic presence in the region by any means, including emphasizes, this has not been without negative consequences for China. China uses economic incentives to entice countries that Taiwan has courted and gained legitimacy from to reverse their Taiwan policies. At the same time, these countries cannot ignore T aiwan, which also has offered economic incentives. It puts them in a very difficult position and often sours relations between them and China. Multilateral Institutions According to an April 2008 Congressional Research Service report for the Senate Commit 2008). These include the East Asia Summit (EAS), the Shanghai Cooperation Organization (SCO), and Forum on China Africa Cooperation (FOCAC). China has pointedly excluded the U.S. from joining these organizations. In a world undergoing globalization, institutions are tools of international governance that, when used properly, can have positive wides pread impact. China has lucratively made use of such institutions to establish itself as an important entity, especially in Africa and Asia, and to establish economic and political allies.

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63 Aid Tying and Economic Motives: Opening the Doors to Exports and En ergy Sources What makes analyzing Chinese foreign aid so difficult is that foreign aid packages requirements to the reception of the aid and is meant to further the interests of the nation or international institution offering the aid. In traditional Western foreign aid, this usually means the recipient must initiate reforms in economic and politica l governance; with Chinese aid, it means that investment and trade are requisites to receiving aid. Why use aid tying? What are the motives behind it? The way the Chinese conditionalize their aid is very telling. Attaching aid to trade and investment agr eements means there are exceptionally strong economic motives behind it. The nature of these agreements says much about what kind of benefits the Chinese are looking to get out of them. In particular, the Chinese are most interested in opening their export s to new markets and in finding suppliers for their energy needs. enormous amount of growth, the PRC must search for new doors to open for their exports. Trade and investment agreements combined with aid are conducive to attaining this end. Investment agreements in particular are often used to develop the target economies in purchase Chinese prod ucts. Aid is the carrot used to encourage other nations to allow Chinese exports to flood their markets. energy sources, most particularly oil. The PRC makes extreme efforts to s eek out trading

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64 agreements consist of investment in the energy sector, particularly primary product extraction. Interestingly, in many investment agreements such as extractio n of primary products and infrastructure projects, the Chinese will send Chinese workers to take care interest in these agreements, because the Chinese workers are getting t he jobs and the pay that could be earned by the local workers instead, which would stimulate the local economy. Case Study: The Nature of Chinese Foreign Aid to Venezuela and Cuba In this section the nature of Chinese foreign aid to Venezuela and Cuba wi ll be analyzed in comparison with Chinese foreign aid given to other developing countries. Then conclusions will be drawn based on the available information, combined with the aforementioned Chinese foreign policy strategies towards the developing world. F oreign Aid to Venezuela and Cuba Of the Latin American nations, China established relations with Cuba the earliest precisely because of their mutually socialist systems back in 1960, yet the road has not Soviet con Cuban relations were particularly tense [in the late 1970s] because Beijing and Havana both claimed t years they have strengthened their relationship economically and diplomatically. With Venezuela, the history has been somewhat shorter, relations established back in 1974. With the election of Hugo Chvez as president in 1998 and his call for m in the 21 st

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65 attractive investment spot. The bilateral relationship has certainly intensified since Chvez came to power. It also appears that a triangle of sorts has formed between Venezuela, Cuba, and China. Economically, all are fairly tightly linked, particularly between the two Latin American states. Although China is at the forefront of trade for both Cuba and Venezuela first (The Free Library 2009) neither country is on the top 30 list of investment are Brazi large recipients of foreign aid from China, as the tables below testify: Selected PRC Aid and Investment Projects in Latin America 2008 (Announced or Begun) Country Assistance or Investment Type Funding Source Description Value ($U.S.) Brazil Infrastructure/Public Works Government sponsored Investment Power Plant $850 million Brazil Natural Resources Concessional Loan Oil Exploration $10 billion Chile Infrastructure/Public Works; Natural Resources Concessional Loan Ports, Shipping, Mining $100 million Costa Rica Infrastructure/Public Works; Natural Resources Grant/Donation Stadium, Oil Refinery $130 million Cuba Humanitarian Concessional Loan Hurrican e Relief -repair of hospitals $70 million Grenada Infrastructure/Public Works Concessional Loan Tourist Marina $83 million Venezuela Infrastructure/Public Works; Natural Resources; Development Concessional Loan Infrastructure, Electricity, Health, Education $4 billion (to be paid back in oil) (Source: Lum et al. 2009)

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66 Selected Latin American Countries with Large Reported Aid/Investment Projects, 2002 2007 Country Main Exports to China Pledged Aid, Loans, Credit Lines, Investments ($U.S.) Major Types of Financing (as reported) Major Types of Projects Financed (as reported) Venezuela oil $16.4 billion investment oil, gas exploration and production; transportation; telecom; light industry Brazil iron ore, agricultural commodities, oil $8.2 billion investment, loans infrastructure (ports, aviation, rail) Chile minerals, ores $5 million investment natural resources (copper) Columbia iron, oil $4 million investment steel, oil exp l oration, mining Costa Rica electrical machinery $4 million grants, loans humanitarian, infrastructure (Source: Lum et al. 2009) The data in the tables above are just selected cases of aid issued by China there are numerous more examples and it is uncertain the precise full amounts of aid that China has imparted. Take the fact that the number of joint ventures has augmented over the years between China and both Latin American nations. To name three examples: 1) In November 2007, China contributed U.S.$4 billion and Venezuela U.S.$2 billion to a joint development fund for financing loans to be used for projects pertaining to infrastru cture, energy, and public works (CRS 2008); 2) Cuba Petroleum (CUPET) and SINOPEC Cubana 2006); and 3) China in September 2009 signed an investment agreement with Venezuela worth U.S.$16 million (BBC Mundo 2009). In July 2009 China agreed to give Cuba U.S.$600 million in aid (in this case in the form of loans) for a variety of purposes, including telecommunications and credit lines (The Free Library 2009). Consideri ng that

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67 this is a nation that calculates carefully before making a commitment to any sort of agreement, this increase demonstrates the value that China puts on these two countries and Latin America in general: from 1989 to 1995 alone the total in the regio n quadrupled from 40 to 160. The aid offered here for both Cuba and Venezuela, it can be argued, is entirely for developmental purposes, even the humanitarian aid offered to Cuba. The defines of humanitarian aid over the past two decades have become blurr ed with those of developmental aid, so that humanitarian aid cannot be easily offered without some kind of supplementary aid for development. The vast majority of aid for Latin America as a whole goes towards enhancing the production and extraction of nat ural resources; this holds true for both Venezuela and Venezuela is unquestionably oil. For Cuba, mineral ores (especially nickel) as well as oil (Unin Liberal Cubana 2 006), although Cuba has started relying progressively more heavily on China to help fulfill its transportation needs (United Transportation Union public works (su ch as transportation lines), technological cooperation, and humanitarian aid are all secondary. Military aid and arms trade are of even less importance here; that i t is of no importance in Latin America. China has continued pursuing its strategy of opportunism in providing military aid when the U.S. back in 2006 passed a law requiring reduced U.S. military presence in Latin America (Pessin 2006). Comparison: Foreign Aid to Other Developing Nations

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68 The table below allows for a comparison in a brief glance of the distribution of Chinese aid between Africa, Latin America, and Southeast Asia: Reported PRC Aid by Type and Region, 2002 2007 ($U.S. millions) Africa Latin America Southeast Asia Natural Resources Extraction/Production 9,432 18,585 4,788 Infrastructure/Public Works 17,865 7,535 6,438 Not Specified/Other 5,024 608 2,276 Humanitarian 802 32 159 Military 4 0 170 Technical Assistance 10 1 3 (Source: Lum et al. 2009) of foreign aid to Latin America and puts it in perspective. Aid in the amount of $18.585 billion dollars has been bestowed to Latin America for natural resource extraction and production, more than that given to Africa and Southeast Asia combined, confirming that remain secondary as well. The patterns of Chin follow a similar pattern. Motives Behind the Money The main reason for looking at foreign aid to Cuba and Venezuela is to analyze th transparency when it comes to publicly releasing information on its foreign aid practices, the numbers that are available say that neither of the two receives preferential treatment over non socialist nations. This fits the

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69 China looks for like minded governments, particularly on issues like hum an rights, and its opening of further dialogue with Cuba after the fall of Communism in Eastern Europe in the early 1990s was certainly ideologically charged, at least in part. In addition, the literature on the subject of Chinese Latin American relations is rather sparse as far as studies go; if some kind of ideological bias was detected as things stand today, there would likely be more written about it. by some as mercantilis colonial rulers took away natural resources from [their colonies] in the 19 th century and to the way Western multinational corporations controlled the oil fields in the Gulf countries before the carrying out its foreign policies, this is a convincing argument. Natural resource abundant interests well, will ingly once offered the right incentives. international financial institutions such as the World Bank and the IMF, China grants aid to nations without asking for any kind of reform in areas like human rights (Nam 2007; DeAngelis 2009). In some ways this could be self defeating. The effect is similar to problems of food programs in humanitarian aid. Often humanitarian organizations will offer free food at the expense of the local agricultural market no farmer attempting to make any kind of living by selling his products will earn any profits by virtue of the fact

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70 effort, and funds for m aking the necessary changes to qualify for aid from an institution like the World Bank will jump at the chance to receive aid without having to undergo any kind of reform. Nations like Cuba and Venezuela that have oppressive governments are going to fall u nder this category. This is an effective way for China to cultivate solid relationships with nations like itself that employ governance practices viewed as method can rea lly carry that label is up for debate, though it certainly appears to border on it. China is keen to ensure that it has markets open to its exports and its vigorous activity in pursuing joint ventures and outward FDI testify to this. Although it is clear t hat infrastructure and public works projects are secondary, aid for such purposes is still large. China has ample reason to invest in the prosperity of its fellow developing nations, even as others argue that it does not care about the long term welfare of the nations in which they invest and give aid. Utilization of unconditional aid lends itself to this argument, because imposing conditions is a way to buffer the risk being taken. When China provides aid, it expects something in return and should the reci pient not be able to reciprocate in kind in one way or another, this will result in great losses for China. It can then be contended that China is invested in the prosperity of its aid destinations in the short term rather than the long term; the Chinese a re plainly more concerned about what can be gained now rather than what can be made in future payoffs. Conclusion Why exactly is it so important to look at motives behind Chinese foreign aid to countries like Venezuela and Cuba? Not only is it a great ca se study for economic

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71 interaction between developing nations, but it emphasizes that conducting an ideological conflict Cold War style is no longer the trend in the international realm today, even if there are residual tensions between ideological opponent s. It also shows folly on the part of the West: by neglecting to engage seemingly unimportant nations and it must be there is lost opportunity economically, diplomatically, and cult urally. Most of all, it gives a glimpse as to how powerful and influential China truly is in the Third World. While China may not yet be able to translate financial and economic leverage into real geopolitical pull with the great powers, it has fruitfully done so with its fellow developing nations. Whether the developed world likes it or not, China is a force to be reckoned with. Chinese use of economic diplomacy is a strategy that simply cannot be ignored or side stepped; it is too effective, especially f or developing countries that lack these resources. To reiterate on the nature of foreign aid itself, the act of giving means that the recipient lacks something that the giver possesses, that there is some kind of deficiency on the part of the recipient. Fo r developing nations, there is much to be desired in the way of resources necessary for growth and further development. China knows this and uses it to its advantage. Stephen F. DeAngelis on his Enterprise Management Resilience Blog brings up a valid poin t: he argues that China offers unconditional foreign aid, a disturbing trend among authoritarian and non term consequences for the recipients could be disastrous, if not for China as well (DeAngelis 2009). This is slightly misleading, however, because as mentioned before, aid tying is used by the Chinese to conditionalize

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72 their aid; however, such conditions do not necessarily benefit the aid recipient in the long t erm, as Western aid conditions are meant to. By not imposing stringent conditions developmental aid is intended in part to help establish enough self sufficiency that the count ry can maintain successful political and economic practices that allow it to prosper. Those reliant on aid are at risk for crises or even collapse, especially in the event that they no longer have access to aid funds. It is for this reason that some argue that the long term welfare of its fellow developing nations has little importance to China. To emphasize term gains with little consideration for consequences in the future. One diplomacy strategy really is in the long term. From here, more follows. When China becomes an industrialized nation and there is little question that it will get there, even if it takes a few more decades how effective will this strategy be on developing countries? For a long time China worked to gain relationships with nations in the Third World on the basis that China, another developing country, would lead the Third World. With t hat commonality gone, what then? Will China be an even more attractive partner? Or will the developing countries lose a champion in the end? More questions like this exist and the answers are long in coming. Still, it is important for those involved with C hina (i.e. every other nation active in world affairs) to consider them now so that it can formulate future policies for dealing with it because whatever the result, the repercussions will be widespread.

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73 PART IV: SINO SUDANESE RELATIONS: A CASE STUDY Int roduction Sino Sudanese relations are frequently discussed and studied in terms of weapons trade, oil, and their effects on the conflict going on in the Sudan, but seldom are other policy strategies on the Sudan? Not all of them are n ec essarily positive, although those positive aspects might override the negative ones Chinese relations with the Sudan are of international attention focused on the relationship (Large 2007). How has this had an effect? As an attempt to answer some of these questions and look at some of the other aspects of Sino Sudanese relations, this chapter devalued currency, foreign aid, a nd human rights as components of its relations hip with the Sudan. These three contentious policy areas have varied but significant impacts on every country that crosses paths with the PRC. The Sudan is one of the best case studies for highlighting these ef fects because it exemplifies precisely why these are controversial aspe cts of Chinese foreign policy: 1) It is a fellow developing country, so it is likely to be from China and is thus subjected to its foreign aid strategies, and 3) Sudan is undergoing a conflict that includes genocide, so human rights has been a primary focus in studies of the country. This paper will also examine how China applies its principles of sovereignty to the Sudan I which will determine

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74 China is faced with a dilemma based on its interests This subject is closely tied with human rights, but because there are other significant implications and ties with other topics, I have made it a separate analysis. Conflict in Sudan: A Brief Overview The First and Second Sudanese Civil Wars Since the British granted Sudan independence in 1956, there has been a state of almost perpetual civil conflict between the North and the South. The British had administered each of these regions separately, primarily beca in geography, resource availability, religion, and racial consistency. The North i s mostly arid desert with few natural resources, inhabited by Arab Muslims; the South is resource rich, consisting mostly of rainforests and is inhabited by black Africans who practice Christianity or traditional religions (Alley 2001). These divisions ser ved as points of contention in the conflicts that have occurred over the past half century. The First Sudanese Civil War began with the departure of the British in 1955 and it would last seventeen years until 1972. The new government that had been erected largely did not take into account the needs of the South; very few Southern officials had been appointed to positions in the new government. The North also had designs of trying to envelop the South into embracing Arab and Islamic ways (Alley 2001). The S outh, which felt disenfranchised, initiated a conflict intended to create a more autonomous state, though some Southern leaders called for outright secession. The Second Sudanese Civil War began in 1983 and ended with the Comprehensive Peace Agreement (C PA) in 2005. The war broke out following the Islamicization campaign of the Khartoum government of the South, which demonstrates

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75 that the second conflict was mostly a continuation of the first, because the peace of 1972 that had ended the latter had failed to handle the underlying issues. The CPA called for measures that would directly address these issues, including allowing the South to determine whether it wishes to follow sharia (Islamic law), splitting oil revenues evenly between the North and the Sout h, and granting autonomy to the South for six years, to end January 9, 2011, which would then be followed by a referendum that would allow the South to determine whether it desires to secede from Sudan or not. Genocide in Darfur (SPLA) and the Justice and Equality Movement (JEM) attacked government targets; they accused Khartoum of favoring Arabs over black Africans and oppressing the latter in the proces s (BBC 2010). The Khartoum government is believed to have ties to the Janjaweed militia, an Arab armed group that is accused of driving out black Africans from land under contention; land allocation and grazing rights have been a major source of dispute be tween nomadic Arabs and black African farmers in the region. The Janjaweed and the Sudanese Armed Forces, the U.S. and human rights groups claim, are committing genocide in the process of driving these black Africans out of their lands. There are almost 3 million IDPs (Internally Displaced Persons) and refugees and 300,000 are believed to have died in this conflict, although Sudanese President Omar al Bashir claims it has only been 10,000. Human Rights It is difficult to do a case study on Sino Sudanese relations and not analyze the impact of human rights on the relationship. It is precisely because Sudan is such a high

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7 6 profile human rights crisis that we can look at what circumstances and factors affect Chinese behavior regarding human rights; Sudan is s uch a case that will likely bring about change in the way China manages human rights in its bilateral relations. International Attention and the Chinese Role in Sudanese Politics indeed, genocide has broug ht the relationship between China and Sudan to the attention of the international community. There is little doubt that this increased attention has had some effect on the way China manages human rights in its relations with Sudan. International pressure l ikely played a role in convincing China to encourage Khartoum to allow a UN peacekeeping force into Darfur in 2007. But beyond that, it is difficult to determine how much of an impact lly resisting such pressure in the diplomatic realm. Many states and NGOs have resorted to diplomacy of shame regarding China and pressure applied to a norm violating st and publicly calling out China on its actions; the UN Security Council has several times time successfully fended off by the C hinese. However, the effectiveness of such methods international norms to evade pressure, but w hether this can be considered a victory for international pressure is uncertain.

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77 The outright pressure for improvement in the treatment of human rights for both countries has largely come from the international community rather than internally; ironicall the Chinese government faces the challenge of reconciling its formal, established policy of non interference with the more substantive Chinese economic involvement in Sudan that has grown over the past decade as well as change in Sudanese politics after the Comprehensive Peace Agreement (CPA) of January 2005 between Northern and Southern Suda Sudan had been largely isolated by the Middle East and the United States, the latter of which listed Sudan as a state sponsor of terrorism, and because it had enormous as yet untapped res ource potential. Now that Sudanese politics have drastically changed in light of the upcoming January 2011 referendum, China is in a position in which it needs to change its approach regarding human rights. China will have to make a decision on how it wil l deal with the South, as it has traditionally always dealt with the North. Furthermore, should the South decide to secede, China will likely be playing a large role in brokering negotiations regarding oil in particular and the peace in general. This is no t an insignificant role, as the North has threatened to renew war with the South if there is no agreement on the oil issue before the referendum. Arms Trade: Following the Guns China and the Sudan have had extensive arms trade relations since the incepti on of relations between the two in 1959. Data from various sources show that the violence in

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78 Darfur has not necessarily slowed down arms transfers particularly small arms. data show that during 2004, 2005, and 2006, China sold Sudan about 90 percent of its China was helping militarily in Darfur in the form of Chinese military trucks and Chinese made bullets; however, this is incredibly hard to prove, as the Chinese may have well provided military materials and weapons to Khartoum but not provided them directly to the Darfur region; such an indirect link would technically not violate the arms embargo. Small and Light Weapons Trade, Ammunition, Military Weapons, and Parts from China to Sudan in US Dollars according to UN Comtrade 2003 2004 2005 2006 2007 2008 As Reported by Sudan 2,824,999 19,864,146 23,292,923 9,546,241 5,976,229 102,902 As Reported by China 420,438 176,245 35,920 38,584 -102,902 (Source: Lewis 2009) UN Comtrade data, such as that shown above, is limited and unreliable as a tool for determining how responsible China is for supplying arms that fuel conflict in Sudan. Many authors on the subject of arms trade between China and Sudan point to such numbers as damning evidence to condemn China. There is little, if any, enforcement of reporting arms trade data, which means that it is very likely that the information provided here is incomplete and/or inaccurate. The discrepancies seen above demonstrate that t ransparency is sorely lacking in Sudanese arms trade on both sides and thus cannot be solely relied upon to draw any conclusions about how responsible China is for fueling the conflict with its supply of arms.

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79 Of course, it could be argued that by tradin g arms at all with Sudan, China is contributing to the violence. While there is little valid statistical evidence, there is photographic evidence as well as physical evidence of the presence of Chinese arms at sites of conflict. As an example, the Military Industry Corporation (MIC), the main producer of arms in Sudan, has rights from the Chinese to produce the Type 56 gun, an AK 47 knockoff that the Chinese produce for export only; the fact that they sell the Type 56, renamed the MAZ 7.62mm submachine gun, is in plain view on the MIC website (Military Industry Corporation Official Website, http://mic.sd/images/products/wepons/en/MAZbn.html ) In terms of direct impact, the Chinese supply arms to the government in Khartoum; indirectly, Chinese arms end up in the hands of non state armed groups. Lewis (2009) identifies six mechanisms by which non state armed groups attain weapons: (1) supply from stockpiles of governments of neighboring countries ; (2) arms supplied by the SAF [Sudanese Armed Forces]; (3) arms captured from the SAF stocks; (4) arms arms across Sudanese borders. By trading arms with Sudan, the Chinese make their weapons available for interception and arms flows that permit all parties to the conflict to continue the violence. Furthermore, Sudan is not the only questionable recipient of Chinese weapons; governments as well as non state actors have received weapons, including the Mugabe regime of Zimbabwe, the Myanmar junta, and rebel groups in the Democratic Republic of the Congo (Hartung 2008). Oil and the Resource Curse

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80 petroleum sector is the effect it has on human rights. This concern is grounded in the possibility that Sudan, as a country whose economy relies heavily on natural resources, suffers from the resou rce curse: the idea that countries that have a heavy dependence on natural resources will be cursed with a slow growing and slow developing economy. There are many explanations of what mechanisms underpin the resource curse, but a solid portion of them are related to mismanagement of profits and rent seeking behavior (Collier and Hoeffler 2005) There is evidence that the resource curse is at play: resource and land allocation is one of the reasons for the conflict in Darfur. Oil is not a lootable resourc e as are diamonds or gold, but it provides just as much revenue. Control of the oil fields is an important factor in the conflict. As part of the Comprehensive Peace Agreement of 2005, the North and the South split revenue earned from the sale of oil, beca use the North requires Southern resources and the South needs depth Africa 2010). The vast profits that the Sudanese government in Khartoum receives are undoubtedly used to arm the SAF and the Janjaweed, the latter a non state group consisting of men from various Arab tribes in Sudan and eastern Chad and a major player in the Darfur conflict. The Southern Sudan likely also uses its share of the profits to arm the SPLA and armed rebel groups. The fact that both sides receiv e revenue from oil sales allows the conflict to continue along with the human rights violations. Nature of Trade Relations and the Currency Issue This section will look at the content and volume of trade between the Sudan and China and using that informa tion make some brief observations about how the currency

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81 issue affects relations between them. While the currency issue is not a major one in Sino Sudanese relations, it demonstrate s some of the effects that the currency issue has on other developing natio ns. The Content and Volume of Sino Sudanese Trade exports destined for China (see table below). There is an assortment of other exports including cotton, gum Arabic, sesame, hides and odest at best; on Merchandise Trade Data for the Sudan (Wor ld Bank) MERCHANDISE TRADE Value Annual percentage change 2008 2000 2008 2007 2008 Merchandise exports f.o.b. (million US$) 11 671 26 57 31 Merchandise imports c.i.f. (million US$) 9 352 25 9 7 2008 2008 Share in world total exports 0.07 Share in world total imports 0.06 Breakdown in economy's total exports Breakdown in economy's total imports By main commodity group (ITS) By main commodity group (ITS) Agricultural products 3.6 Agricultural products 13.8 Fuels and mining products 74.7 Fuels and mining products 0.5 Manufactures 0.5 Manufactur es 85.7 By main destination By main origin 1. China 79.5 1. Saudi Arabia 25.0 2. Japan 7.3 2. European Union (27) 10.6 3. United Arab Emirates 2.3 3. China 7.9 4. Yemen 1.8 4. Russian Federation 4.5 5. Egypt 1.4 5. Japan 3.9 Unspecified destinations 0.0 Unspecified origins 22.9 (Source: World Trade Organization) below. China exports a much wider variety of exports to Sudan than Sudan does to China:

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82 food products, crude materials, manufactured goods, m achinery, transportation equipment, textiles, petroleum and petroleum products, and chemicals (Maglad 2008). Chinese Exports to Its Largest Trade Partners in Africa, 1999 2009 (Millions of U.S. Dollars) DESCRIPTOR 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 EXPORTS TO AFRICA 3297. 1 4151. 5 5061 0 6012. 6 9017. 3 12090 .5 16316 .0 22925 .5 31870 .0 43293 .5 40583 .3 EXPORTS TO ALGERIA 1 60.0 172.9 222.7 351.9 645.9 980. 8 1404. 7 1951. 6 2709. 2 3685. 3 4180. 1 EXPORTS TO BENIN 159. 3 370.3 520.8 420.9 471. 1 577.2 953.0 1452. 4 1957. 7 2303. 4 1952. 6 EXPORTS TO LIBERIA 12. 4 126.0 112. 8 30.1 26. 2 181.8 149.6 529.8 805.7 1136. 8 1880 0 EXPORTS TO NIGERIA 39 6 0 549. 5 919. 4 1047. 1 1786. 8 1719. 5 2305. 3 2855. 7 3800. 2 6758. 1 5477. 6 EXPORTS TO SUDAN 229. 3 158. 4 226.6 392. 3 478.3 815. 9 1293. 8 1416. 9 1536. 2 1850. 7 1705. 3 EXPORTS TO SOUTH AFRICA 860. 6 1013. 7 1051. 4 1311. 6 2029. 7 2952. 3 3825. 9 5768 8 7428. 9 8595. 64 7365. 9 (Source: International Monetary Fund) The Currency Issue While the issue of the Chinese currency exchange rate does not appear to be a major bone of contention in Sino Sudanese relations, it does have an impact. The exchange rate for the Sudanese pound to the Chinese yuan is approximately 3 yuan to 1 pound or 0. 33 pounds to 1 yuan; this means that the Sudanese pound has three times the buying power of the yuan, making Chinese imports cheaper but far more difficult for the Sudanese to effectively export what little manufactures and agricultural products they do pr oduce. Analyzing the export structure of each country relative to the other, it is clear that at work here. As we shall later see, China has put very little effort into aiding Sudan with developing its agricultural and manufacturing sectors, placing its energies and money into the oil sector. Coupled with the fact that Sudanese manufacturing and agricultural exports

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83 are comparatively much more expensive than Chinese ones, Sudan exports almost none of these products to China and very little anywhere else. Furthermore, because its largest trade partner has little demand for such products, there seems to be little incentive for Sudan to truly develop these sectors. Thi s leads to an with other factors, such as foreign aid, it could certainly contribute. There is also the possibility that this is a Dutch disease case. The Dutch disease is the phenomenon that the manufacturing sector contracts when there is the discovery of a natural resource. The reason for this occurrence is because materials and resource s needed for manufacturing are transferred to the natural resource development efforts. The developmental focus away from agriculture and manufacturing. Foreign Aid Relations Amo unt and Types of Aid According to Lum et al. (2009), China contributed at least $4.2 billion in aid between 2002 and 2007 to other developing countries the vast majority of which was development aid towards oil production; this was in combination with inv estment agreements. The other types of aid included infrastructure, hydro power, and humanitarian. In all likelihood, this figure is lower than the actual amount of aid: China has also granted debt cancellation and easing as well as a great deal of militar y aid. There

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84 is evidence that the amount of aid is growing, although the precise amount is uncertain because of the nature of Chinese aid. Chinese Foreign Direct Investment Composition in Sudan, 2000 2007 (Source: Maglad 2008) Since 1997 the China Natio oil producing state owned enterprise (SOE), has operated at least a 40 percent share in (Large 2008). The CNPC, CNPC subsidi aries, and various other Chinese oil companies have entered into joint ventures with Sudanese oil companies to help with developing oil extraction capabilities. The number of joint ventures the Chinese participate in for their foreign development projects has increased substantially over the past twenty years. S udan Official Development Aid (ODA) Per Capita (Current U.S. Dollars)

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85 (Source: World Bank Database Group) Chinese aid is not counted as ODA, but if the amount of Chinese development aid were added to the total amount of ODA Sudan receives, the graph above would shift upward considerably. However, this does not necessarily mean that the aid is being used to the benefit of the whole country. Those areas with great amounts of oil are seeing the most development. Chinese development aid to the Sudan is streamlined to focus almost exclusively on oil extraction. This narrow focus has led to the neglect of other area s of export structure, where the amount of oil exports outstrips that of agricultural and manufacturing products put together several times over. Naturally, the Chinese are not particularly keen to help develop these areas because they likely want to retain their comparative advantage in exports, particularly labor heavy sectors like manufacturing in which the Chinese specialize. Aid Tying and Conditionality It is diff given to induce some kind of desirable action; unlike Western aid, Chinese aid is often lumped in with investment and trade agreements and frequently comes without any condition of economic or political reform. This is especially true for aid destined for the Sudan, the majority of which comes in the form of development aid coupled with investment agreements meant to enhance the growth of the oil sector. The Chinese use aid tying In most cases, China does not get much involved in the development processes of other

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86 countries, but in this case it has paid off in oil. China frequently allows countries to pay off loans in oil and Sudan is no exception. The North, the South, and Sovereignty: A Special Dilemma In light of the upcoming referendum for Southern Sudan in a decision of whether to split away from the Sudan and form its own country, China has found itself in a difficult position on the issue of sovereignty. It has now been forced to answer the question of which side it will support Khartoum in the North or Juba in the South? There are a variety of reasons for China to support the North. The Chinese have provided Khartoum with large amounts of aid and investment through which it has essentially single ed much military aid and a long established arms trade. Furthermore, there is also the issue of supporting separatist elements. China has long feared that if it should support the South, separatist groups within the PRC itself may be stirred to action and press for independence, such as Tibet. The amount of time and effort the Chinese have put into nations it is little more than a drop in the bucket. Even still, the Chi nese appear to be fairly loyal to Khartoum. Contessi (2010) finds through her study of Chinese discourse in the UNSC regarding the Sudan that China works to defend against any normative attacks on state sovereignty. Sudanese and agreements that have ambiguous wording that would even potentially allow the UNSC to subvert such consent. She also finds there is another common theme

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87 maintenance of peace and security and (m findings are largely consistent with realist, interest driven patterns of behavior, which is the type of behavior under which China seems to operate in most areas of international affairs. In spite of these factors, it seems that China has altered its course and decided to support the South, primarily because that is where the oil is located. standing efforts to maintain respect for territorial integrity and national sovereignty. If it had decided to continue supporting Khartoum, there is a chance that the country would have been kept together. However, by supporting the secessionist South, it is almost certain that Southern Sudan will make the b reak with the North. New countries have little chance of succeeding without other nations to support it and Chinese backing will do much for the Southern Sudanese. Although the Chinese currently will not say whether or not they would diplomatically recogni ze a Southern Sudanese state, the courtship that the Chinese have take any opportunity to establish links to states with great amounts of natural resources. Why thi s reversal in general Chinese foreign policy? What is it about the Sudan case that makes it decide to break its pattern of supporting sovereignty? While many would point to the vast amounts of oil in the South, the truth is that there is more to the story

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88 face diplomatic pressure on human rights for supporting the South; the Southe rn Sudanese government is viewed globally as a far less repressive regime. China also has concerns that supporting secessionist elements abroad would encourage secessionist elements at home. Likely China foresees that the South will definitely secede from the North and has thus decided to make moves on it early. If the outcome of the referendum is that the South should split with the North, relations with the North thereafter ? Oil is going to be a key in this reconciliation. Sudanese President Omar al Bashir has threatened renewed civil war if there is no resolution to how the oil revenue will be divided (Lauria 2010). Due to its position as an important partner to both Kharto um and now Juba, China will likely be a major player in brokering such a resolution. Up until recently, the Chinese almost exclusively provided arms to the government in Khartoum. Very little was provided to the South and what was provided was simpler in accelerating arms supplies to the SPLA and in far greater volume and sophistication to SAF forces are developments involving regional and international patterns of supply established i n the early to mid 1990s during the second Sudanese civil war. [This article] further asserts that these flows are grounded in governmental allegiances: military, well def ies the consistency of this observation.

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89 Even the PRC breaks from its most closely followed principles when the circumstances call for it. Flexible action is necessary in situations where the political circumstances are prone to significant and frequent change, as they are in war torn Sudan. In t he face of dissolving sovereignty, China decided to follow the oil and avoid facing even more pressure, it would like to avoid it wherever possible. Conclusion Sudan has provided an interesting case study for looking at particular conventions of Chinese foreign policy. Sino Sudanese relations operate chiefly in the economic realm, but human rights have had a great hand in shaping the relationship. When two nation s that frequently defy international norms interact, many aspects of the relationship become controversial. Here we have examined the currency issue, foreign aid, and human rights. In all of them, one factor remains constant: oil. Oil seems to be the backb one of the relationship, but ultimately for Northern Sudan, this could end up being a problem, should the South secede. One important question remains: What does the future hold for Sino Sudanese relations? By all preliminary accounts, the South will almos t certainly secede from the union, which will leave China in the position of having to reconcile relations with both the North and the South, particularly on the issue of oil. China will likely continue its relations with the North, since the North is larg ely isolated from much the rest of the world, but without the oil, the importance of those relations will probably decline, perhaps with a corresponding drop in investment, trade, and aid. China will continue to support the South, mainly in the interests o f oil. It will be interesting to see how Chinese

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90 development efforts will affect the South, many areas of which have not been adequately affected by such efforts.

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91 CONCLUSION This thesis covered three controversial components of Chinese foreign policy and then proceeded to apply them to Sino Sudanese relations to analyze how they work in practice. These three dimensions play major roles in Chinese foreign policy. Exchange ds for attaining its foreign policy goals; China has an uneasy relationship with international human rights, which them, reflecting their controversial nature. What is it about these components of Chinese foreign policy that makes them so controversial? The answer lies in the fact that they all in some way resist following international expectations. These expectations are manifested in international laws and nor ms meant for all countries to follow to some measure, but in some areas China does not seem to follow them, or does to only a very small degree. China openly disagrees with the rest of the world about the nature of human rights and what role human rights should play in international relations. China largely treats human rights with the view that it tends to get in the way of attaining its goals; if China worried about human rights in countries such as the Sudan, it would not be able to obtain much needed o il. On various occasions the PRC has successfully resisted international diplomatic pressure to subscribe to human rights, rather than subverting them by sidestepping them as an issue or trying to change them; studies such as that of Contessi (2010) show t hat China has tried to change international norms regarding humanitarian intervention by encouraging the use of more traditional peacekeeping methods. Beyond

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92 rights, wh ich is with indifference at best. Support of human rights is seen as one of the vital steps toward establishing a proper democratic regime; without that, countries such as China are viewed in a more negative light, rebelling against greater international h uman rights norms. development mechanism. It is considered a form of cheating, so to speak, and undercuts the efforts of other developing countries to be competitive in the international market. It does not follow the neoclassical methods that have been dominant in international development. These methods advocate a more laissez faire approach to development minimal governmental intervention and allowance of markets to drive growth. The Washington Consensus, which up until very recently had been the most widely accepted formula for development by most mainstream economists, called for ten reforms: 1) Fiscal discipline; 2) Reordering priorities in public expenditures; 3) Tax re form involving the construction of a tax system combining a broad tax base with moderate marginal tax rates; 4) Liberalizing interest rates; 5) Establishment of a competitive exchange rate; 6) Trade liberalization; 7) Liberalization of incoming FDI; 8) Pri vatization; 9) Deregulation; and 10) Property rights (Williamson 2002). In managing the yuan, China has ignored more than half of these recommended reforms. What makes this issue even more effective in Consensus methods. Foreign aid given by the Chinese to other developing countries is not conventional according to general international standards as set by ins titutions such as the

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93 World Bank and the IMF. Chinese aid does not come with a set of required reforms in economic and political governance and structure, unlike Western aid; therefore aid like intended to improve the economic and political bases necessary to establish a smoothly running market economy and a strong democratic political system, respectively. But Chinese aid has no such requirements and because of this it is vi ewed more negatively: the primary motive behind Chinese aid is economic self interest, rather than being concerned about effects of the aid being given and working to enhance the economic and political well being of the recipient. The assumption behind thi s is that market economies and democracies are inherently superior economic and political systems, a belief that seems to be widely held by the Western world. Additionally, there is a fear that because China is an authoritarian nation that its influence as serted in its relations with other developing countries will undermine any traditions of democracy in the countries it interacts with. their interest to do so. These interests are shaped predominantly by domestic considerations, the main one being the legitimacy of the sovereignty, regional and global influe nce, and others. These are all meant to bolster the legitimacy of the CCP at home and abroad and to keep the Party in power. By virtue of its political nature, the Chinese authoritarian regime defies many of the standards accepted and maintained by most th e rest of the world. In addition, its actions follow a

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94 realist approach to international relations; this means that China is out there for itself, as it perceives all other nations to be. The conflict between human rights and sovereignty is one reason that China does not necessarily adhere to international expectations. As a major advocate of traditional Westphalian sovereignty, China opines that advancing human rights internationally oversteps the bounds of sovereignty, especially humanitarian intervention Additionally, China wants as little attention as possible heeded to its own human rights situation, which is one of the primary criticisms of the CCP and for many detracts from its legitimacy. The PRC often points out that human rights in China have dras tically improved since the Mao era and that they are on the rise. But it is clear that there is still a long way to go. The PRC relies heavily on its export sector as a method of development and a way to become and remain competitive in the international market. By heavily managing its currency value, China can remain competitive in its exports, artificial though it may be compared to its value if the yuan were to be allowed to float. This leaves little incentive for the Chinese to change their strategy i n the face of debate and international pressure because currency management has worked so well and it is questionable that they would fare as well if the yuan were allowed to float. Economic growth has been one of the gle to maintain legitimacy; why, then, should they change strategy if the one they have been using has worked so well? meant to entice other countries to enter into business with the Chinese, allowing them to open their markets to more economies a key element to supporting their growing and lucrative export driven

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95 economy. Lack of reform requirements as conditions to rece iving aid makes Chinese aid an attractive option for many developing countries. The reforms required for the receipt of Western aid are often extremely costly, so developing countries with the option of avoiding such conditions will be inclined to do so. T ying aid to investment and trade agreements adds further incentive for the recipient nation. Through manipulation of the incentive structure associated with aid and prioritizing their trade partners strategically, the Chinese have worked out a way to obtai n exactly what they want from the countries they interact with. What, then, is to be done, if anything? There are various problems associated with little chance of getting China to drastically change its ways. Still, there is one question to be considered: how can we know that the international community is a better judge than the Chinese themselves of their own needs? Questions such as this one frequently face those involved international relations and international development and there is no easy answer. The way the CCP handles issues at home and abroad is certainly flawed, but they have done well for themselves thus far and are improving. There can be a lot of con clusions drawn from the way China approaches situations at home and abroad, but this does not mean that the international community is all knowing, nor is its opinion necessarily the end all, be all. The best that can be done, then, is to resolve the prob strategies to the best of our ability by way of compromise: allowing the Chinese to keep some of the benefits gained from their strategies while eliminating as much of the related problems as possible. One way of doing this is fo r the international community to reshape

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96 the incentive structure that helps dictate the strategies that the Chinese use. This will not necessarily force a complete change in PRC methodology, but it will likely encourage them to modify it in ways more amena ble to individual countries and the international community as a whole.

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