The Rise of China and Its Effect on Taiwan, Japan, and South Korea: U.S. Policy Choices

Publication Date: January 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Government; International relations

Type:

Coverage: China

Abstract:

The economic rise of China and the growing network of trade and investment relations in northeast Asia are causing major changes in human, economic, political, and military interaction among countries in the region. This is affecting U.S. relations with China, China's relations with its neighbors, the calculus for war across the Taiwan Straits, and the basic interests and policies of China, Japan, Taiwan, and South Korea. These, in turn, affect U.S. strategy in Asia. China, for example, has embarked on a "smile strategy" in which it is attempting to coopt the interests of neighboring countries through trade and investment while putting forth a less threatening military face (to everyone but Taiwan). Under the rubric of the Six-Party Talks, the United States, China, Japan, Russia, and South Korea are cooperating to resolve the North Korean nuclear crisis. Taiwanese businesses have invested an estimated $70 to $100 billion in factories in coastal China. China relies on foreign invested enterprises for about half its imports and exports. For Taiwan, Japan, and South Korea, China has displaced the United States as their major trading partner.

China interacts with Taiwan, Japan, and South Korea on four levels: human relations, economic and financial interaction, diplomatic and political intercourse, and military relations. The temperature of relations at each level ranges from cold to hot depending on the type of interaction and country or state being considered. At the human level the temperatures are mixed, at the economic level hot, at the diplomatic level cold for Taiwan to warm for South Korea, and at the military level, temperatures of interaction are cold.

The implications of China's globalization and rise as a major economic power can be seen in its impact both on Beijing and on policy deliberations in Taipei, Tokyo, and Seoul. The Chinese Communist leadership not only is having to cede space in its decision making process to industrial interests but the leaders themselves are coming into power with experience in the transformation of society that comes from development and modernization after opening to the outside world. China now depends on international investment and trade for the economic growth needed to maintain the party's legitimacy. For China's trading partners, dependency on the Chinese market means that Beijing is looming larger in all aspects of policy making. While this is not likely to challenge U.S. security ties with Japan, South Korea, and Taiwan, it raises several policy issues. One is how to deal with a modernizing and more powerful Chinese military financed by the growing Chinese economy. Another is how to explicitly incorporate into U.S. policy the greater weight that Beijing is being given in policy deliberations in Tokyo and Seoul. A further policy issue is whether to take explicit measures to offset the rising economic clout of China and attempts by Beijing to create East Asian institutions with China at the center and the United States pushed to the periphery. A positive result of the mutual trade and financial dependency that has developed in northeast Asia is that all parties now have much to lose by an international military crisis that would interrupt economic and financial flows in the region. All four governments, therefore, seek stability in international relations. This report will be updated as circumstances warrant.