China/U.S. Relations: Current Economics Issues & Implications for U.S. Policy — China’s Currency — US China Policy Under Obama Video — China Naval Modernization — Military Power of the People’s Republic of China — China’s Military & Security Relationship with Pakistan

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“If the wind comes from an empty cave, it’s not without a reason”

(Moral: There is no smoke without fire!)


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China-U.S. Relations:

Issues and Implications for U.S. Policy

Kerry Dumbaugh, Specialist in Asian Affairs, April 2, 2009

The bilateral relationship between the U.S. and the People’s Republic of China (PRC) is vitally important, touching on a wide range of areas including, among others, economic policy, security, foreign relations, and human rights. U.S. and PRC interests are bound together much more closely now than even a few years ago.

These extensive inter-linkages have made it increasingly difficult for either government to take unilateral actions without inviting far-reaching, unintended consequences. The George W. Bush Administration addressed these increasing inter-linkages by engaging with China, regularizing bilateral contacts and cooperation, and minimizing differences.

The Administration of President Barack Obama has inherited not only more extensive policy mechanisms for pursuing U.S.-China policy, but a more complex and multifaceted relationship in which the stakes are higher and in which U.S. action may increasingly be constrained.

Economically, the United States and the PRC have become symbiotically intertwined. China is the second-largest U.S. trading partner, with total U.S.-China trade in 2008 reaching an estimated $409 billion. It also is the second largest holder of U.S. securities and the largest holder of U.S.

Treasuries used to finance the federal budget deficit, positioning the PRC to play a crucial role, for good or ill, in the Obama Administration’s plans to address the recession and the deteriorating U.S. financial system. At the same time, the PRC’s own substantial levels of economic growth have depended heavily on continued U.S. investment and trade, making the Chinese economy highly vulnerable to a significant economic slowdown in the United States.

Meanwhile, other bilateral problems provide a continuing set of diverse challenges. They include difficulties over the status and well-being of Taiwan, ongoing disputes over China’s failure to protect U.S. intellectual property rights, the economic advantage China gains from not floating its currency, and growing concerns about the quality and safety of exported PRC products.

The PRC’s more assertive foreign policy and continued military development also have significant long-term implications for U.S. global power and influence. Some U.S. lawmakers have suggested that U.S. policies toward the PRC should be reassessed in light of these trends.

During the Bush Administration, Washington and Beijing cultivated regular high-level visits and exchanges of working level officials, resumed military-to-military relations, cooperated on antiterror initiatives, and worked closely on the Six Party Talks to restrain and eliminate North Korea’s nuclear weapons activities.

Although these and other initiatives of engagement are likely to continue in some fashion under the Obama Presidency, their direction and format are still being formulated in the Administration’s early days.

Still, in what some see as a significant Administration signal about China’s importance for U.S. interests, Secretary of State Hillary Clinton included the PRC in her first official trip abroad as Secretary in February 2009, which included stops in Japan, Indonesia, South Korea, and China (February 20-22).

This report addresses relevant policy questions in current U.S.-China relations, discusses trends and key legislation in the current Congress, and provides a chronology of developments and highlevel exchanges. It will be updated as events warrant. Additional details on the issues discussed here are available in other CRS products, noted throughout this report.

For background information and legislative action during the 110th Congress, see CRS Report RL33877, China-U.S. Relations in the 110th Congress: Issues and Implications for U.S. Policy, by Kerry Dumbaugh. CRS products can be found on the CRS website at

See Complete Report: China-U.S. Relations: Current Issues and Implications for U.S. Policy

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China’s Currency:

A Summary of the Economic Issues

Wayne M. Morrison, Specialist in Asian Trade and Finance

Marc Labonte, Specialist in Macroeconomic Policy

April 13, 2009


Many Members of Congress charge that China’s policy of accumulating foreign reserves (especially U.S. dollars) to influence the value of its currency constitutes a form of currency manipulation intended to make its exports cheaper and imports into China more expensive than they would be under free market conditions.

They further contend that this policy has caused a surge in the U.S. trade deficit with China and has been a major factor in the loss of U.S. manufacturing jobs. Although China made modest reforms to its currency policy in 2005, resulting in a gradual appreciation of its currency (about 19% through mid-April 2009), many Members contend the reforms have not gone far enough and have warned of potential punitive legislative action.

Although an undervalued Chinese currency has likely hurt some sectors of the U.S. economy, it has also benefited others. For example, consumers have gained from the supply of low-cost Chinese goods (which helps to control inflation), as well as U.S. firms using Chinese-made parts and materials (which helps such firms become more globally competitive).

In addition, China has used its abundant foreign exchange reserves to buy U.S. securities, including U.S. Treasury securities, which are used to fund the Federal budget deficit. Such purchases help keep U.S. interest rates relatively low.

The current global economic crisis has further complicated the currency issue for both the United States and China. Although China is under pressure from the United States to appreciate its currency, it is reluctant to do so because it could cause further damage to export sector and lead to more layoffs.

China has halted its gradual appreciation of its currency, the renminbi (RMB) or yuan to the dollar in 2009; keeping it at about 6.83 yuan per dollar (from January 1 through April 13, 2009). The federal budget deficit has increased rapidly since FY2008, causing a sharp increase in the amount of Treasury securities that must be sold.

The Obama Administration has encouraged China to continue purchasing U.S. debt. However, if China were induced to further appreciate its currency against the dollar, it could slow China’s accumulation of foreign exchange reserves, thus reducing the need to invest in dollar assets, such as Treasury securities.

China’s currency policy appears to have created a policy dilemma for the Chinese government. A strong and stable U.S. economy is in China’s national interest since the United States is China’s largest export market. Thus, some analysts contend that China will feel compelled to keep funding the growing U.S. debt.

However, Chinese officials have expressed concern that the growing U.S. debt will eventually spark inflation in the United States and a depreciation of the dollar, which would negatively impact the value of China’s holdings of U.S. securities.

But if China stopped buying U.S. debt or tried to sell off a large portion of those holdings, it could also cause the dollar to depreciate and thus reduce the value of its remaining holdings, and such a move could further destabilize the U.S. economy.

Chinese concerns over its large dollar holdings appear to have been reflected in a paper issued by the governor of the People’s Bank of China, Zhou Xiaochuan on March 24, 2009, which called for the replacing the U.S. dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

China has also signed currency swap agreements with six of its trading partners, which would allow those partners to settle accounts with China using the yuan rather than the dollar. This report summarizes the main findings in CRS Report RL32165, China’s Currency: Economic Issues and Options for U.S. Trade Policy, by Wayne M. Morrison and Marc Labonte.

See Complete Report: China’s Currency: A Summary of the Economic Issues

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China Naval Modernization:

Implications for U.S. Navy Capabilities—Background and Issues for Congress

Ronald O’Rourke, Specialist in Naval Affairs, May 29, 2009

In the debate over future U.S. defense spending, including deliberations taking place in the current Quadrennial Defense Review (QDR), a key issue is how much emphasis to place on programs for countering improved Chinese military forces in coming years. Observers disagree on the issue, with some arguing that such programs should receive significant emphasis, others arguing that they should receive relatively little, and still others taking an intermediate position. The question of how much emphasis to place in U.S. defense planning on programs for countering improved Chinese military forces is of particular importance to the U.S. Navy, because many programs associated with countering improved Chinese military forces would fall within the Navy’s budget.

China’s naval modernization effort encompasses a broad array of weapon acquisition programs, including programs for anti-ship ballistic missiles (ASBMs), anti-ship cruise missiles (ASCMs), land-attack cruise missiles (LACMs), surface-to-air missiles, mines, aircraft, submarines, destroyers and frigates, patrol craft, and amphibious ships. In addition, observers believe that China may soon begin an aircraft carrier construction program. China’s naval modernization
effort also includes reforms and improvements in maintenance and logistics, naval doctrine, personnel quality, education, and training, and exercises. Although China’s naval modernization effort has substantially improved China’s naval capabilities in recent years, observers believe China’s navy continues to exhibit limitations or weaknesses in several areas.


DOD and other observers believe that the near-term focus of China’s military modernization effort, including its naval modernization effort, has been to develop military options for addressing the situation with Taiwan. Consistent with this goal, observers believe that China wants its military to be capable of acting as a so-called anti-access force—a force that can deter U.S. intervention in a conflict involving Taiwan, or failing that, delay the arrival or reduce the
effectiveness of intervening U.S. naval and air forces. DOD and other observers believe that, in addition to the near-term focus on developing military options relating to Taiwan, additional goals of China’s naval modernization effort include improving China’s ability to do the following: assert or defend China’s claims in maritime territorial disputes and China’s interpretation of international laws relating freedom of navigation in exclusive economic zones (an interpretation at odds with the U.S. interpretation); protect China’s sea lines of communications to the Persian
Gulf, on which China relies for some of its energy imports; and assert China’s status as a major world power, encourage other states in the region to align their policies with China, and displace U.S. regional military influence.


A decision to place a relatively strong defense-planning emphasis on countering improved Chinese military forces in coming years could lead to one more of the following: increasing activities for monitoring and understanding developments in China’s navy, as well as activities for measuring and better understanding operating conditions in the Western Pacific; assigning a larger percentage of the Navy to the Pacific Fleet; homeporting more of the Pacific Fleet’s ships at forward locations such as Hawaii, Guam, and Japan; increasing training and exercises in operations relating to countering Chinese maritime anti-access forces, such as antisubmarine warfare (ASW) operations; and placing a relatively strong emphasis on programs for developing and procuring highly capable ships, aircraft, and weapons. This report will be updated as events warrant.

See Complete Report: China Naval Modernization: Implications for U.S. Navy Capabilities—Background and Issues for Congress


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Dr. David Lai, Strategic Studies Institute

U.S. Army War College, June 2009

The Chinese People’s Liberation Army Navy (PLAN) turned 60 on April 23, 2009. China held an unprecedented celebration on this occasion. For the first time in its history, China invited foreign navies to the PLAN’s birthday event. Chinese President Hu Jintao and all the People’s Liberation Army (PLA) senior leaders reviewed a parade of China’s major warships from a Chinese destroyer.

The column of PLAN vessels were headed by two nuclear-powered and armed submarines (the first-ever public appearance of China’s strategic submarine fleet) and 21 warships from 14 nations, including major naval powers such as the United States, Russia, the United Kingdom, and France.

The parade took place off the coast of Qingdao, the PLAN Beihai (northern seas) Fleet Headquarters. In addition, China invited many foreign navy chiefs, most notably the U.S. Chief of Naval Operations and the Russian Navy Commander, as well as over 200 foreign military and navy attachés to the party.

The PLAN birthday celebration was like an Olympic meeting for the international navies. Yet behind the smiling faces, the world saw an ambitious Chinese navy eager to edge its way to the center stage of world maritime affairs.

Indeed, as PLAN Rear Admiral Yang Yi, a senior strategic analyst at the PLA National Defense University, noted, “the parade is not just about showing China’s accomplishments, it is more of a new start signaling where China needs to go in the future.”1 Yang did not have time to elaborate on his thoughts at the PLAN birthday party, but he and many other noted Chinese analysts have in recent years put forward an urgent agenda for China’s maritime power.

At the strategic level, China has raised the stakes of its need for great maritime power as a precondition for its becoming a full-fledged global power. The Chinese argue that all global powers are also strong maritime powers. Therefore China must follow suit.

Moreover, China’s quest for maritime power will be broad and comprehensive, going beyond the scope defined by Alfred Thayer Mahan more than a century ago. A powerful navy is still the first and foremost component. China must have a navy commensurate with its growing national power.

This means upgrading the PLAN to a top-ranked world-class naval power, the threshold of which, as the Chinese see it, is the possession of aircraft carrier battle groups and long-range power projection capabilities. There has been a national debate on the pros and cons of aircraft carriers since the Taiwan Strait crisis of 1995-96 (when the Chinese were furious with the arrival of two U.S. aircraft carrier battle groups to check China’s dealing with Taiwan). The debate is clearly settled.

In recent months, Chinese officials have gone on record to state that China has good reasons to acquire aircraft carriers and the world should not be surprised at their decision. China understands that aircraft carrier capability is an expensive undertaking in construction as well as in operation, but having had 30 years of phenomenal economic development and further development carefully planned well into the mid-21st century, China is confident that it can afford to run this business. There are already calls for China to openly launch its aircraft carrier construction project. China may be happy to comply.

The second component of China’s maritime power will be a world-class seaborne merchant fleet to meet the nation’s growing demand for trade and resources supply. Since becoming the “world manufacture center,” China has greatly expanded its seaborne transportation; after all, over 90 percent of China’s trade and resources supply go by sea.

Already China is among the world’s top seaborne transport holders—it has the world’s fourth largest merchant fleet and third largest shipbuilding industry; runs the heaviest container port traffic; and has five of the world’s ten busiest seaports. China wants to continue this advance and develop a blue-water navy to protect these “life supply facilities.”

The third part of China’s maritime power will cover all of its ocean interests, long-claimed (the disputed islands and the entire South China Sea) as well as those expanded by the UN Law of the Sea Treaty (LOST). These include the 200 nautical miles of Exclusive Economic Zones (EEZ) and Extended Continental Shelves (ECS).

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The claimed area is about 3 million square kilometers, as indicated by the blue line circling area in Figure 1. However, this claim complicates China’s old disputes with Japan, the Philippines, Vietnam, Malaysia, and Brunei and brings China new enemies, the two Koreas and Indonesia. All of them are also members of the LOST and entitled to claim their share of the pie (see the overlapping claims in the South China Sea shown in Figure 2.

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Additionally, China has to settle the Taiwan issue with the United States.


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FAS Strategic Security Blog

Comments and analyses of important national and international security issues

New Air Force Intelligence Report Available

By Hans M. Kristensen

The Air Force Air and Space Intelligence Center (NASIC) has published an update to its Ballistic and Cruise Missile Threat. The document, which I obtained from NASIC, is sobering reading. The latest update continues the previous user-friendly format and describes a number of important assessments and new developments in ballistic and cruise missiles of many of the world’s major military powers. The report also helps dispel many web-rumors that have circulated about Chinese, Russian, Indian and Pakistani nuclear forces. In this blog I’ll focus on the nuclear weapon states, particularly China.

Chinese Nuclear Forces

As the DF-3A retirement continues (there are now only 5-10 launchers left of close to 100 in the 1980s), the liquid-fuel missile is being replaced by a family of solid-fuel DF-21 variants. The NASIC identifies four, including two nuclear versions (Mod 1 and Mod 2), one conventional version, and an anti-ship version that unlike the others is not yet deployed.

Thankfully, the report dispels widespread speculation by web sites, news media, and even Jane’s after images began circulating on the Internet, that a DF-25 had been deployed, some even said with three nuclear warheads.  But it was, as I predicted last year and NASIC now confirms, in fact a DF-21.

df21sA column of DF-21s on the road in what could be the Delingha deployment are in Qinghai Province. Several of the vehicles have identical camouflage patterns, raising suspicion that the image has been manipulated. Four DF-21 versions exist, two nuclear, one conventional, and one anti-ship version.

The report also reaffirms that the first of the DF-31s and DF-31As “have been deployed to units within the Second Artillery Corps,” and NASIC estimates that “less than 15” are deployed, up from the “less than 10” estimate in the Pentagon’s March 2009 report (which actually used 2008 data).

The NASIC report states that neither of China’s two types submarine-launched ballistic missiles is operational. This suggests that the multi-year overhaul of the JL-1 equipped Xia SSBN, which was completed last year, was not successful. The successor missile JL-2 for the new Jin-class SSBNs has not reached operational status either. NASIC gives the JL-2 the U.S. designation CSS-NX-14, not a numerical follow-on to the JL-1, which is listed as CSS-NX-3. The “14” could be a typo, but it appears several places in the report. The JL-2 is shown to have roughly the same dimensions as the Russian SS-N-32 SLBM.

NASIC lists single warheads on all of the Chinese missiles, not multiple warheads as speculated by many. “China could develop MIRV payloads for some of its ICBMs,” the report states. Yet it also predicts that, “Future ICBMs probably will include some with multiple independently-targetable reentry vehicles.” Whether that prediction – which appears to hint that China has more ICBMs under development – comes true remains to be seen, and the U.S. intelligence community has stated for years that one development that could trigger it is a U.S. ballistic missile defense system.

The report echoes recent statements from other branches of the U.S. intelligence community that the number of warheads on Chinese ICBM capable of reaching the United States could expand to “well over 100 in the next 15 years.” Unfortunately, “well over 100” can mean anything so it is hard to compare this NASIC’s projection with the CIA projection from 2001 of 75-100 warheads “primarily targeted against the United States” by 2015. That projection only included DF-5A and DF-31A capable of targeting all of the United States, with the high number requiring multiple warheads on DF-5A. But the timeline for the anticipated increase has slipped considerably from 2015 to 2024.


Moreover, ICBMs “primarily targeted against the United States” is a smaller group of missiles than those “capable of reaching the United States,” which currently includes about 60 DF-4, DF-5A, DF-31 and DF-31A ICBMs with as many warheads. For this group to grow to “well over 100 warheads” suggests that NASIC anticipates that China will deploy at least 60-70 DF-31, DF-31A and JL-2 missiles by 2024 (the DF-4 will probably have been retired by then). Assuming that includes 36 JL-2s on three Jin-class SSBNs, an additional 20-30 total DF-31s and DF-31As would have to be deployed to reach 120 ICBM warheads. If five SSBNs were deployed, then only 10 additional land-based ICBMs would be required, or 30 if the 20 DF-5As were retired.

The DH-10 land-attack cruise missile is listed as “conventional or nuclear,” the same designation used for the nuclear and conventional Russian AS-4. But unlike the 2009 DOD report on Chinese military forces, which lists 150-350 DH-10s deployed with 40-50 launchers, NASIC lists the operational status as “undetermined.”

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Military Power of the People’s Republic of China


Section 1202, “Annual Report on Military Power of the People’s Republic of China,” of the National Defense Authorization Act for Fiscal Year 2000, Public Law 106-65, provides that the Secretary of Defense shall submit a report “in both classified and unclassified form, on the current and future military strategy of the People’s Republic of China. The report shall address the current and probable future course of military-technological development on the People’s Liberation Army and the tenets and probable development of Chinese grand strategy, security strategy, and military strategy, and of the military organizations and operational concepts, through the next 20 years.”

China’s rapid rise as a regional political and economic power with growing global influence has significant implications for the Asia-Pacific region and the world. The United States welcomes the rise of a stable, peaceful, and prosperous China, and encourages China to participate responsibly in world affairs by taking on a greater share of the burden for the stability, resilience, and growth of the international system. The United States has done much over the last 30 years to encourage and facilitate China’s national development and its integration into the international system. However, much uncertainty surrounds China’s future course, particularly regarding how its expanding military power might be used.


The People’s Liberation Army (PLA) is pursuing comprehensive transformation from a mass army designed for protracted wars of attrition on its territory to one capable of fighting and winning short-duration, high-intensity conflicts along its periphery against high-tech adversaries – an approach that China refers to as preparing for “local wars under conditions of informatization.”

The pace and scope of China’s military transformation have increased in recent years, fueled by acquisition of advanced foreign weapons, continued high rates of investment in its domestic defense and science and technology industries, and far-reaching organizational and doctrinal reforms of the armed forces. China’s ability to sustain military power at a distance remains limited, but its armed forces continue to develop and field disruptive military technologies, including those for anti-access/area-denial, as well as for nuclear, space, and cyber warfare, that are changing regional military balances and that have implications beyond the Asia-Pacific region.

The PLA’s modernization vis-à-vis Taiwan has continued over the past year, including its build-up of short-range missiles opposite the island. In the near-term, China’s armed forces are rapidly developing coercive capabilities for the purpose of deterring Taiwan’s pursuit of de jure independence. These same capabilities could in the future be used to pressure Taiwan toward a settlement of the cross-Strait dispute on Beijing’s terms while simultaneously attempting to deter, delay, or deny any possible U.S. support for the island in case of conflict. This modernization and the threat to Taiwan continue despite significant reduction in cross-Strait tension over the last year since Taiwan elected a new president.


The PLA is also developing longer range capabilities that have implications beyond Taiwan. Some of these capabilities have allowed it to contribute cooperatively to the international community’s responsibilities in areas such as peacekeeping, humanitarian assistance and disaster relief, and counter-piracy. However, some of these capabilities, as well as other, more disruptive ones, could allow China to project power to ensure access to resources or enforce claims to disputed territories.

Beijing publicly asserts that China’s military modernization is “purely defensive in nature,” and aimed solely at protecting China’s security and interests. Over the past several years, China has begun a new phase of military development by beginning to articulate roles and missions for the PLA that go beyond China’s immediate territorial interests, but has left unclear to the international community the purposes and objectives of the PLA’s evolving doctrine and capabilities.

Moreover, China continues to promulgate incomplete defense expenditure figures and engage in actions that appear inconsistent with its declaratory policies. The limited transparency in China’s military and security affairs poses risks to stability by creating uncertainty and increasing the potential for misunderstanding and miscalculation. The United States continues to work with our allies and friends in the region to monitor these developments and adjust our policies accordingly.

See Complete Report: ANNUAL REPORT TO CONGRESS – Military Power of the People’s Republic of China 2009

Update – 2010 Report

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China’s Military and Security Relationship with Pakistan

Testimony before the   U.S.-China Economic and Security Review Commission – May 20, 2009

My name is Lisa Curtis. I am a senior research fellow at The Heritage Foundation. The views I express in this testimony are my own, and should not be construed as representing any official position of The Heritage Foundation.

Pakistan and China have long-standing strategic ties, dating back five decades. Pakistani President Asif Ali Zardari wrote in a recent op-ed that, “No relationship between two sovereign states is as unique and durable as that between Pakistan and China.”[1] China’s partnership with Pakistan first emerged during the mid-1950s when Beijing reached out to several developing countries, and then deepened significantly during the period of Sino-Indian hostility from 1962 to the late 1980s.

Chinese policy toward Pakistan is driven primarily by its interest in countering Indian power in the region and diverting Indian military force and strategic attention away from China. South Asia expert Stephen Cohen describes China as pursuing a classic balance of power by supporting Pakistan in a relationship that mirrors the one between the U.S. and Israel.[2] The China-Pakistan partnership serves both Chinese and Pakistani interests by presenting India with a potential two-front theater in the event of war with either country.[3]

Chinese officials also view a certain degree of India-Pakistan tension as advancing their own strategic interests as such friction bogs India down in South Asia and interferes with New Delhi’s ability to assert its global ambitions and compete with China at the international level. That said, Beijing has demonstrated in recent years that it favors bilateral Indo-Pakistani negotiations to resolve their differences and has played a helpful role in preventing the outbreak of full-scale war between the two countries, especially during the 1999 Indo-Pakistani border conflict in the heights of Kargil.

Chinese-Pakistan Defense Ties

China is Pakistan’s largest defense supplier. China transferred equipment and technology and provided scientific expertise to Pakistan’s nuclear weapons and ballistic missile programs throughout the 1980s and 1990s, enhancing Pakistan’s strength in the South Asian strategic balance. The most significant development in China-Pakistan military cooperation occurred in 1992 when China supplied Pakistan with 34 short-range ballistic M-11 missiles.[4] Recent sales of conventional weapons to Pakistan include JF-17 aircraft, JF-17 production facilities, F-22P frigates with helicopters, K-8 jet trainers, T-85 tanks, F-7 aircraft, small arms, and ammunition.[5] Beijing also built a turnkey ballistic-missile manufacturing facility near the city of Rawalpindi and helped Pakistan develop the 750-km-range, solid-fueled Shaheen-1 ballistic missile.[6]While the U.S. has sanctioned Pakistan in the past–in 1965 and again in 1990–China has consistently supported Pakistan’s military modernization effort.

China has helped Pakistan build two nuclear reactors at the Chasma site in the Punjab Province and continues to support Pakistan’s nuclear program, although it has been sensitive to international condemnation of the A. Q. Khan affair and has calibrated its nuclear assistance to Pakistan accordingly. During Pakistani President Zardari’s visit to Beijing in mid-October 2008, Beijing pledged to help Pakistan construct two new nuclear power plants at Chasma, but did not propose or agree to a major China-Pakistan nuclear deal akin to the U.S.-India civil nuclear agreement. U.S. congressional Members have expressed concern about China’s failure to apply Nuclear Suppliers Group (NSG) “full-scope safeguards” to its nuclear projects in Pakistan.[7]

China also is helping Pakistan develop a deep-sea port at the naval base at Gwadar in Pakistan’s province of Baluchistan on the Arabian Sea. The port would allow China to secure oil and gas supplies from the Persian Gulf and project power in the Indian Ocean. China financed 80 percent of the $250 million for completion of the first phase of the project and reportedly is funding most of the second phase of the project as well.[8] The complex will provide a port, warehouses, and industrial facilities for more than 20 countries and will eventually have the capability to receive oil tankers with a capacity of 200,000 tons. There is concern that China may turn its investment in Gwadar Port into access for its warships.

The India Factor

China has been able to successfully pursue closer relations with India, especially on the economic front (bilateral trade rose from $5 billion to $40 billion in the course of five years), while continuing to pursue strong military and strategic ties to Pakistan.

China’s interest in improving ties to India over the last decade has spurred Beijing to develop a more neutral position on the Kashmir issue, rather than reflexively taking Pakistan’s side, which has traditionally meant supporting United Nations resolutions calling for a plebiscite or backing Pakistan’s attempts to wrest the region by force, as with Pakistan’s 1965 Operation Gibraltar.[9] A turning point in China’s position on Kashmir came during the 1999 Kargil crisis when Beijing helped convince Pakistan to withdraw forces from the Indian side of the Line of Control following its incursion into the Kargil region of Jammu and Kashmir. Beijing made clear its position that the two sides should resolve the Kashmir conflict through bilateral negotiations, not military force. India was pleased with China’s stance on the Kargil crisis, which allowed Beijing and New Delhi to overcome tensions in their relations that had developed over India’s 1998 nuclear tests.

Despite the evolution in the Chinese position on Kashmir, China continues to maintain a robust defense relationship with Pakistan, and to view a strong partnership with Pakistan as a useful way to contain Indian power. China’s attempt to scuttle the U.S.-India civil nuclear agreement at the September 2008 Nuclear Suppliers Group (NSG) meeting was evidence for many Indians that China does not willingly accept India’s rise on the world stage. The Chinese–buoyed by the unexpected opposition from NSG nations like New Zealand, Austria, and Ireland–threatened the agreement with delaying tactics and last-minute concerns signaled through an article in the Chinese Communist Party’s English-language paper, The People’s Daily.[10] The public rebuke of the deal followed several earlier assurances from Chinese leaders that Beijing would not block consensus at the NSG.

Indian observers claim the Chinese tried to walk out of the NSG meetings in order to prevent a consensus, but that last-minute interventions from senior U.S. and Indian officials convinced them that the price of scuttling the deal would be too high, forcing them to return to the meeting.[11] Indian strategic affairs analyst Uday Bhaskar attributed the Chinese maneuvering to longstanding competition between the two Asian rivals. “Clearly, until now China has been the major power in Asia,” said Bhaskar. “With India entering the NSG, a new strategic equation has been introduced into Asia and this clearly has caused disquiet to China.” Indian official Palaniappan Chidambaram (now Home Minister), citing China’s position within the NSG, said that, “From time to time, China takes unpredictable positions that raise a number of questions about its attitude toward the rise of India.”

Tensions over Separatists and Islamist Extremists

One source of tension between Beijing and Islamabad that has surfaced has been the issue of Chinese Uighur separatists receiving sanctuary and training on Pakistani territory. The Chinese province of Xinjiang is home to 8 million Muslim Uighurs, many of whom resent the growing presence and economic grip on the region of the Han Chinese. Some have agitated for an independent “East Turkestan.” To mollify China’s concerns, Pakistan in recent years has begun to clamp down on Uighur settlements and on religious schools used as training grounds for militants.[12] Media reports indicate that Pakistan may have extradited as many as nine Uighurs to China in April after accusing them of involvement in terrorist activities.[13]

Tension has also surfaced over Islamist extremism in Pakistan. It came to a head in the summer of 2007 when vigilantes kidnapped several Chinese citizens whom they accused of running a brothel in Islamabad. China was incensed by this incident, and its complaints to Pakistani authorities likely contributed to Pakistan’s decision to finally launch a military operation at the Red Mosque in Islamabad, where the militants had been holed up since January 2007. Around the same timeframe as the Red Mosque episode, three Chinese officials were killed in Peshawar in July 2007. Several days later, a suicide bomber attacked a group of Chinese engineers in Baluchistan. Last August, Islamist extremists abducted Chinese engineer, Long Ziaowei, in Pakistan’s Swat Valley. The Chinese protested vehemently to the Pakistani government and Ziaowei was released unharmed in February.

Security concerns about Pakistan could move the Chinese in the direction of working more closely with the international community to help stabilize the country. During President Zardari’s visit to Beijing in October 2008, Beijing resisted providing Pakistan a large-scale bailout from its economic crisis, thus forcing Islamabad to accept an International Monetary Fund program with stringent conditions for economic reform. Beijing did come through with a soft loan of about $500 million, though. China is part of the 11-member “Friends of Democratic Pakistan” grouping that was formed last September and met in April in Tokyo. The grouping has pledged to lend collective support to Pakistan in consolidating its democratic institutions, the rule of law, good governance, socio-economic advancement, economic reform, and progress in meeting the challenge of terrorism.

In another sign that China feels increasingly compelled to pressure Pakistan to adopt more responsible counterterrorism policies, Beijing dropped its resistance to banning the Jamaat-ud-Dawa (JuD–a front organization for the Pakistan-based Lashkar-e-Tayyiba, responsible for the November terrorist attacks in Mumbai) in the United Nations Security Council (UNSC) last December. China had previously vetoed UNSC resolutions seeking to ban the JuD over the last several years.

Recommendations for U.S. Policy

Given that China, Pakistan, and India are nuclear-armed states and that border disputes continue to bedevil both India-Pakistan and India-China relations, the U.S. must pay close attention to the security dynamics of the region and seek opportunities to reduce military tensions and discourage further nuclear proliferation.

China‘s apparent growing concern over Islamist extremism in Pakistan may provide opportunities for Washington to work more closely with Beijing in encouraging more effective Pakistani counterterrorism policies. Pakistan’s reliance on both the U.S. and China for aid and diplomatic support means that coordinated approaches from Washington and Beijing provide the best chance for impacting Pakistani policies in a way that encourages regional stability. Conversely, the more Pakistan believes it can play the U.S. and China off one another, the less likely it will be to take necessary economic and political reforms and to rein in extremists. China’s involvement in the “Friends of Democratic Pakistan” grouping is a positive sign that it may be willing to contribute to a multilateral effort aimed at stabilizing the situation in Pakistan.

The U.S. should also seek to convince China to play a responsible role with regard to its nuclear cooperation with Pakistan, emphasizing the need to discourage nuclear-weapons stockpiling in a country facing the specter of further instability. China and the U.S. share the goal of preventing Pakistan’s nuclear weapons from falling into the wrong hands–China perhaps even more so, given its geographic proximity to Pakistan. Recent encroachments by the Taliban into parts of northwest Pakistan have added a more dangerous dimension to nuclear proliferation in Pakistan and require new thinking among stakeholders in the region for avoiding a nightmare scenario in which al-Qaeda gains access to Pakistan’s nuclear weapons. There is little reason to panic about the safety and security of Pakistan’s nuclear weapons at the moment since the Pakistan military is a professional and unified force that has adopted security procedures to avoid such a worst-case scenario. Even so, recent developments in the country should add new impetus to regional efforts to control nuclear proliferation.

The U.S. should involve China in efforts to encourage greater South Asia regional economic integration and cooperation. Chinese financial aid to Pakistan has been valuable in maintaining economic stability there both before and during the global financial crisis. Chinese direct investment, such as China Mobile’s acquisition of Paktel, and assisting Afghan and Pakistani companies to tap the potentially huge Chinese market would be helpful in the creation of a more prosperous region. Trade flows are relatively undeveloped and would be particularly promising if transport links can be improved. Washington should encourage the Chinese to take part in economic and trade ventures that involve bringing Afghanistan and Pakistan together for mutual economic benefit. This would fit with China’s interest in accessing Middle East markets through Afghanistan and Pakistan and help provide each country with a vested interest in promoting regional stability.


To date China’s pursuit of relations with Pakistan has been aimed primarily at containing Indian power in the region. With rising instability in nuclear-armed Pakistan and the threat of Taliban forces gaining influence there, both China and the U.S. must take responsibility for encouraging greater stability and coherence among Pakistan’s leadership. China’s handling of the current crisis in Pakistan is a true test of its credentials as a responsible global player.

[1]Asif Ali Zardari, “Sino-Pakistan Relations Higher than Himalayas,” China Daily, February 23, 2009, at
(May 13, 2009).

[2]Stephen P. Cohen, India: Emerging Power (Washington, D.C.: Brookings Institution, 2001), p. 259.

[3]John W. Garver, Protracted Contest: Sino-Indian Rivalry in the Twentieth Century (Seattle: University of Washington Press, 2001), p. 188.

[4]Ahmad Faruqui, “The Complex Dynamics of Pakistan’s Relationship with China,” Islamabad Policy Research Institute (Summer 2001), at (May 14, 2009).

[5]“Annual Report to Congress: Military Power of the People’s Republic of China, 2009,” Office of the Secretary to Defense, p. 57.

[6]“Pakistan Profile,” Nuclear Threat Initiative, January 2009, at (May 14, 2009).

[7]Shirley A. Khan, “China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues,” Congressional Research Services Report RL31555, January 7, 2009, p. 3.

[8]Ziad Haider, “Baluchis, Beijing, and Pakistan’s Gwadar Port,” Politics and Diplomacy (Winter/Spring 2005), pp. 96, 97.

[9]Operation Gibraltar was an operation launched in August 1965 by the Pakistani military that sought to infiltrate militants into Indian Kashmir to provoke an insurrection among Kashmiri Muslims against Indian rule in the region. However, the strategy was not well-coordinated and the infiltrators were quickly discovered, precipitating an Indian counterattack that resulted in the 1965 Indo-Pakistani War.

[10]Chris Buckley, “China State Paper Lashes India-U.S. Nuclear Deal,” Reuters India, September 1, 2008, at
(May 14, 2009).

[11]Bhaskar Roy, “China Unmasked–What Next?” South Asia Analysis Group Paper No. 2840, September 12, 2008.

[12]Ziad Haider, “Clearing Clouds Over the Karakoram Pass,” YaleGlobal Online, March 29, 2004, at
(May 14, 2009).

[13]Press release, “Freedom House Condemns Pakistan, China for Uighur Extraditions,” Freedom House, May 7, 2009 at (May 14, 2009).


Background Reading (Uploaded Files):



Export Administration Act of 1979 Reauthorization, Updated January 2, 2003

The Cox Report: Text of a Congressional report on security at US nuclear weapons facilities and on Chinese espionage during the Clinton Administration, Top Secret Report Date: Jan 1999 – Declassified Report Release Date: May 1999  (pdf files not uploaded)

Title: The New Silk Road: How a Rising Arab World is Turning away from the West and Rediscovering China Author: Ben Simpfendorfer Publisher: Palgrave Macmillan (Audio)

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