China’s Trade Opening: 

Implications for Regional Stability

by Howard M. Krawitz

Strategic Forum

C

hina’s entry into the World Trade Organization could have a decisive impact

on that country’s long-term development as well as on its relations with Asian

neighbors and the United States.

A best-case scenario posits a China

confident of its role in the region, valuing

stability and prosperity. A Chinese middle

class could arise. Prospects would be good

for mutually beneficial U.S.-China relations

and for Chinese social and political reforms.

Although a strong China could become a

regional aggressor, that prospect is unlikely.

It is also unrealistic to expect that China will

not modernize its military and use it to enhance its international influence. A strong,

stable China is likely to cooperate with Asian

neighbors to maintain regional peace and

stability.

A worst-case scenario has Beijing

failing at sustainable reform and finding itself

hard-pressed to manage resulting economic

and social ills and civil unrest. The leadership might encourage nationalism and military aggressiveness to ensure its survival.

Internationally, China could become mired in

a downward spiral of cheating, trade disputes, sanctions, and retaliation. U.S.-China

relations overall would suffer, raising odds

for conflict over sensitive issues such as

Taiwan.

China will show little change in the

short run. Encouraging domestic reforms

ultimately serves U.S. interests, but strong

doses of realism, clarity, consistency, and

patience will be required.

In late 2001, China entered the World

Trade Organization (WTO), a dramatic step

that marks not only the end of a 15-year

odyssey for Beijing but also the beginning of a

new phase in the country’s internal development and its relations with the outside world. It

may sound odd to suggest that joining the

WTO—an organization focused on rules of

conduct for trade and commerce—will influence not only China’s economy but also its

political, military, and social development, as

well as its interaction with the United States.

Yet China’s efforts to play by WTO rules could

affect its internal development far more extensively than has been the case with many new

member nations.

Most WTO entrants must grapple with

difficult economic and social issues at accession. But China will have to come to grips with

such issues on a massive scale. Geographic

size, infrastructure, and population will make

adjustments more difficult, as will the unbalanced nature of the Chinese economy. China

will have to reconcile conflicting economic

systems (socialist versus market-based) and

varying levels of domestic development (technologically advanced and internationally

competitive versus Third-World) as it seeks to

develop a new hybrid economy that can live by

the rules of the global trading system.

Predicting how China will respond to

domestic conditions created by WTO requirements is difficult. Beijing clearly will face

numerous pressures from WTO benchmarks

and timetables for achieving compliance; from

the shocks that such compliance may create for

the country’s economic, financial, and social

welfare systems; and from the near-certainty of

rising domestic political opposition to WTOmandated reforms, particularly at the regional

and local levels.

Beijing’s management of domestic politics

during this turbulent phase will decisively

influence its ultimate ability to transform

China into a major economic power. Pockets of

opposition to joining the WTO existed throughout the accession process, even among the

leadership. Some opposition stemmed from

political and ideological differences. But much

was due to the regional grassroots economic

and social issues dividing the “several Chinas”

that exist in the People’s Republic of China

(PRC) today—eastern/western China,

urban/rural China, rapidly developing/stagnating China—and the fears that WTO membership will make things even worse for those

trapped in these several Chinas.

As an aid to anticipating the future course

of events, we should examine two possible lines

of development—one a positive scenario, the

other negative—and their implications for the

United States. This exercise may help to bracket

the range of possible, mixed positive-negative

scenarios existing between these extremes.

Positive Scenario

In the best-case scenario, inflows of foreign management and legal expertise, foreign

goods, foreign capital, and advanced technology

will improve China’s domestic economic and

social infrastructure, improve the quality of life,

and better prepare the nation’s industries to face

foreign competition at home and abroad.

WTO membership could graft an increasingly Western face onto China’s economy and

No. 193

August 2002

Institute for National Strategic Studies

National Defense University

Key Points

No. 193, August 2002 Strategic Forum 1
society. As China becomes more firmly integrated into the global trading community,

foreign management practices, production

expertise, and labor philosophies could be

expected to diffuse gradually throughout the

country, offering China tools for improving

domestic infrastructure, restructuring its economy, and developing domestic investment and

capital formation markets (now little more

than sanctioned gambling). Ideally, wealth

accrual would advance the reform of worker

rights, improve social welfare systems, and

generally bring about material improvements

in the average person’s quality of life.

China’s neighbors and trade partners

could benefit significantly. A prosperous China

should be more receptive to opening its market

to needed inputs as it renovates old and installs

new infrastructure. Moreover, integration into a

global system that relies on law and legal

precedent for conducting business should

encourage China to adopt the rule of law as its

own standard for governing business transactions and dispute resolution, at home as well as

abroad. As the rule of law concept gains

ground, it should promote development of a

better-educated, more professional Chinese

legal community (that is, law schools, judges,

and lawyers). This, in turn, should stimulate

application of the rule of law across a broader

range of domestic civil and criminal matters,

ultimately improving the general human

rights situation within China.

A wealthier, technologically secure China

should be more confident of its role in the

region, more likely to weigh tradeoffs associated with specific courses of action or behavior.

Odds are that a more prosperous China should

come to believe that it stands to lose rather

than gain from excessive nationalism and

military adventurism and to evolve into a

regional power that sees maintaining regional

peace and stability as the best means of promoting development and prosperity.

Negative Scenario

On the other hand, there is no guarantee

China will hew to a line of stable, sustainable

reforms. In a worst-case scenario, implementing WTO-mandated changes could heighten

political, social, and economic differences at

home. China is already troubled by problems

arising from perceived inequities between new

classes of “haves” and “have-nots.” These

problems exist at macro (regional) and micro

(neighborhood) levels. Efforts to meet WTO

requirements could worsen geographic and

urban/rural frictions, widen an already growing gulf between rich and poor, and generally

make China more ungovernable. WTO-mandated reforms will almost certainly worsen

existing problems with massive unemployment, increases in uncontrolled migrant

populations, major public safety and public

health issues, and rapid degradation of social

welfare infrastructure.

There could be a significant potential

downside for the global marketplace as well.

China could try to twist WTO procedures to its

own advantage—hiding behind time-consuming dispute resolution mechanisms and enjoying member benefits while protecting domestic

markets by delaying implementation of required reforms. Such behavior by new entrants

is not unknown. Indeed, some current members (for example, India) continue to exhibit

problematic compliance with WTO rules. But

in the case of China, the problem and its consequences could be greatly magnified, given

China’s sheer size and its already looming

presence in the global marketplace.

Perceptions among Chinese that they are

not benefiting from sacrifices made to enter the

WTO could offer powerful arguments to conservative elements in China’s leadership for opposing the country’s current, more reform-minded

government. Rising conservatism could feed

nationalism. Perceptions that economic superpowers such as the United States, Japan, and

the European Union are using complicated

WTO rules and procedures either to exploit

China or to contain it could cause a rethinking

of China’s current military philosophy (military development as subordinate to economic

development) and could encourage Chinese

military aggressiveness, as China turns to other

means to establish its dominance in the region.

U.S.-China Relations

Arguably, the U.S.-China relationship is

one of the most important bilateral relationships in existence today, with economics being

very much part of the picture. The United

States is China’s second largest trade partner;

China is America’s fourth largest trade partner.

Both countries are continental economies with

plentiful human and natural resources. Both

seek to maintain spheres of influence in the

Asia-Pacific region and play key roles in regional affairs (America is already there; China

aspires). America dominates through economic

strength, technological superiority, and its

ability to project military power. China relies on

size, proximity, and personal relationships to

exert influence; it seeks to expand its influence

by developing economic and military strengths.

Without question, Chinese efforts to

achieve regional strategic and political goals

will create conditions that bring both nations

into frequent and more intense contact. Avoidance is not an option; the question is whether

the relationship will be one of conflict, competition, cooperation, or some mix.

If Things Go Well

Assuming China’s development follows the

best-case scenario, prospects seem fairly good

for a cooperative, productive, and mutually

beneficial U.S.-China relationship that is based

on shared interests. Prospects would probably

be even better if China were to develop a solid

middle class.

Economic benefits of WTO membership

and WTO-related investment, intellectual

property, and telecommunications agreements

could create in China the proper environment

for developing a broad services sector—one

ranging from high-end telecommunications

and financial and legal services to retail, entertainment, and personal services—and the

starting point for creating a true middle class,

often the source of a nation’s social stability.

More importantly, while a true middle class

is unlikely to arise in China’s countryside, it is

plausible that a new class of prosperous, nonfarming peasants could emerge in areas that

2 Strategic Forum No. 193, August 2002

Howard M. Krawitz, a senior foreign service officer, is a distinguished visiting research fellow in the

Institute for National Strategic Studies at the National Defense University. Mr. Krawitz may be reached by

phone at (202) 685–2343 or by e-mail at krawitzh@ndu.edu.

a wealthier, technologically secure China

should be more confident

of its role in the region
surround wealthy urban centers, to support these

centers’ needs. As “suburban peasants” grow

wealthy in their own right, they will require

goods and services, much of which will likely be

supplied by rural residents even further from

urban spheres of influence.

The concept is not new: the Pearl River

Delta and Beijing’s suburbs already evidence

this process in action. The difference is that

economic and trade benefits of WTO membership might help China more fully realize rural,

as well as urban, development and, in doing

so, more rapidly raise rural standards of living

and education, improve the caliber of the

workforce, and minimize migration, unemployment, and underemployment problems—

in short, optimize prospects for rural, as well as

urban, social stability.

A strong services sector, and the millions

of jobs it will create, would not only support a

real middle class but also slow growth in

China’s chronically unemployed underclass, a

worrisome source of destabilizing social pressure. China must place over 10 million new

workers into the economy every year. It must

also find jobs for an estimated 150 million

unemployed migrants, a number expected to

swell by at least 5 to 6 million a year. Again,

domestic stability is the issue.

Domestic stability in China benefits America. Comfortable, prosperous Chinese citizens

are more likely to share concerns similar to

those Americans have and be more willing to

cooperate on the range of issues relating to

such concerns. For example, China already

shows increased interest in working with U.S.

officials and private experts on environmental

problems (for example, pollution, hazardous

waste, and transportation), drug trafficking,

medicine, and public health. These are now

issues of real concern for Chinese citizens in

more prosperous areas of the country. They are

also issues that transcend borders and have the

potential to draw China into the international

arena as a nation with a stake in making

cooperation work. Dialogue on matters of

mutual interest promotes communication,

increased cooperation, and, ultimately, trust.

A wealthy, stable China can serve U.S.

regional security interests. A China that risks

tangible loss from aggressive and confrontational behavior should be less likely to favor

precipitous action and conflict. It should be

more likely to be interested in preserving regional peace and stability, more open to consulting with Pacific Rim neighbors, and more

willing to cooperate on regional security issues,

strategies, and disputes. Speaking from a vantage point of growing economic strength and

military capability would give Beijing the respect, prestige, and diplomatic stature it craves,

making it easier for China to see itself as a

player whose opinion is given serious weight by

peers. This could calm Chinese fears of being

marginalized or contained, making it easier for

China to find common cause with the United

States, Japan, and others in the region in maintaining calm and promoting dialogue on Korean Peninsula security issues, combating

international terrorism and piracy, and perhaps

even becoming more involved in curbing the

proliferation of weapons of mass destruction.

A More Dangerous China?

Ongoing debate holds that as economic

power gives China the means to build military

might, it will encourage military adventurism

and feed the new nationalism already on the

rise in China. Recent boosts in Chinese military

spending hint this may already be happening.1

This danger cannot be ignored. China’s

leaders are walking a tightrope. WTO-mandated changes and reform policy failures could

engender widespread domestic discontent,

nationwide strikes, riots, and other serious

social disorder. Leaders, believing themselves in

danger of losing control or of being marginalized by economic forces and social changes,

might try to redirect domestic anger by rekindling Chinese xenophobic sentiments and

turning to foreign adventurism as a means of

recapturing power and reestablishing primacy.

The new breed of Chinese capitalist could

become the new breed of Chinese ultranationalist, equating wealth and power with the right

to erase past national shame by establishing

and enforcing a “Beijing Doctrine” in Asia. Or

China might just interpret its own rise in terms

of its neighbors’ declines and simply push to

see what it could get away with.

On balance, however, there is no compelling reason to believe the conditions favoring such a shift exist in strength in China

today. China’s government is neither weak nor

easily exploited by splinter groups or radical

elements. Its present leaders, and likely the

next generation as well, are technocrats focused on economics and development. They

are not overly close to the armed forces and are

not particularly disposed to military adventurism. Indeed, China’s armed services seek a

greater role in political decisions and bigger

budgets, but they do not seem to be pursuing

their goals at the expense of the current order

or by trying to undermine the civilian government. The People’s Liberation Army, even while

seeking a greater policymaking voice, has

essentially adhered to its stated role of serving

the party and its needs and putting China’s

economic development first.

There is little to support the argument

that China seeks to modernize only to become

an empire-builder or an armed bully in the

region. Similarly, however, it is unrealistic to

think that China would work to become a

major economic power and regional policy

player yet not take steps to modernize its armed

forces, make them more professional, and turn

them into a credible tool for enhancing international influence. China considers its military

strength less developed and capable, especially

given its physical and economic size, than the

armed forces of important Asian neighbors.

Even taking recent large military spending

increases into consideration (China views these

spending boosts as attempts to catch up with

militarily strong neighbors), China’s defense

spending has been generally moderate compared to spending by other nations in the

region, even as a percentage of its gross domestic product. Military spending increases can

and should be expected, regardless of the path

China takes. But the factor governing China’s

behavior is still the party, not the military.

In what may be a wonderfully ironic twist

of history, under the optimistic scenario, the

Chinese Communist Party (CCP) may become

the main beneficiary of China’s market-oriented changes, providing the United States and

others with a stable, pragmatic counterpart

with which to deal. Certainly, success with

economic and social reforms and steady growth

could give today’s beleaguered reformers in the

party the help that they need to hold China’s

military in check, keep neonationalist tendencies and latent anti-American sentiments under

No. 193, August 2002 Strategic Forum 3

the new breed of Chinese

capitalist could become

the new breed of Chinese

ultranationalist
4 Strategic Forum No. 193, August 2002

control, and address issues such as official

corruption, a tarnished party image, and a lack

of confidence among average Chinese.

The party itself could evolve as part of this

process. At least, it will face increasing pressures to do so. More technocrats should begin

filling more important positions in the party

and the government. These future leaders are

today being exposed to and learning the languages of international science, the global

marketplace, and international organizations.

Many will likely have studied in the West,

probably in the United States. They will be

more likely to understand the concerns and be

sympathetic with the needs of an emerging 

middle class. They will be more likely to focus

on goals similar to those that interest the

United States and other developed nations. Over

time, they should become easier to work with

in the international arena.

A similar evolution could be expected in

China’s military as a younger generation of

better-educated, more technologically savvy,

more professional officers with more international exposure and experience learn that true

military strength, which itself relies on economic power, is only one of the tools needed to

achieve international eminence.

To be sure, WTO benefits and economic

advancement will not squelch Chinese nationalism, slow China’s drive toward military modernization, or cause CCP downfall, but they

might help redirect China’s nationalistic tendencies toward more positive expressions of

pride and accomplishment and guide China’s

social and military evolution toward more

internationally accepted ends—all of which,

ultimately, will be to America’s advantage.

If Things Go Poorly

The negative scenario, should it occur,

promises its own very different consequences.

Unable to move quickly enough to adapt to or

enforce WTO rules and guidelines, China could

become mired in a downward spiral of cheating, trade disputes, retaliatory behavior, and

unilaterally imposed sanctions. The overall

U.S.-China relationship, not just bilateral trade

relations, would suffer.

Even if China can mollify foreign critics,

Beijing is still certain to meet serious domestic

resistance to implementing the WTO-required

changes. Regional or class differences could

stymie efforts to construct remedies for dealing

with economic shocks and social dislocations

caused by new, externally imposed rules. China

could face serious national unity strains if

wealthier provinces and economic regions

were to seek more autonomy from the center

and try to distance themselves from poorer

areas. Such problems could worsen already

serious public disillusionment with the party

and loss of confidence in China’s leadership as

a whole. There could be a rise in xenophobic

patriotism and a new, more aggressive Chinese

nationalism.

Under these conditions, China’s central

government would be hard pressed to keep

promises made to the United States and other

WTO members. More likely, Beijing would

retain or revive protectionist trade and investment measures and stall commitments to

phase out trade barriers. More dangerously, the

party and the government might come to see

cultivating patriotic nationalism as the best

means for retaining power. Hardliners, in

league with aggressively patriotic military

elements and an emerging class of civilian

neonationalists, could regain political advantage over the present generation of relatively

liberal-minded reformers, forcing them to

change course or change jobs. (The leadership’s cool relationship with the military, an

asset in the positive scenario, would be a liability here.) Pressed by an ascendant military and

egged on by such sentiments as “the China

that can say no” and “wiping out 100 years of

shame,” China’s leaders might feel compelled

to push the envelope in settling the Taiwan

issue and in pursuing policies in the South

China Sea and along the northern/northwestern borders with more vigor than has been the

case to date.

This would set the United States and

China on an increasingly tense and confrontational course. Deteriorating U.S.-China relations would further justify, in the minds of a

populace already suspicious that America

intends to hold China back from its rightful

place in Asia, China’s need to build strong

modern armed forces capable of defending

sovereign interests and restoring national pride.

Military spending could power an increasingly

mercantilist economy. Areas for possible U.S.-

China confrontation might be the presence of

U.S. forces in Asia; possible Chinese efforts

to extend Chinese influence over the Korean

Peninsula; a more aggressive Chinese policy

toward Japan; and Taiwan—the area most

likely to lead to armed clashes.

Managing Relations

Ultimately, whichever scenario prevails,

there may be few noticeable changes in China

for the first few years after WTO accession. Even

so, it will be a crucial period for Beijing. China

will have to reduce tariffs, eliminate subsidies,

dismantle market barriers, modify regulations

to conform to WTO rules, enact implementing

legislation, and train officials in the way of the

WTO. In effect, China will be redefining its

economic, perhaps even its political and military, future.

Helping China with its economic reforms

ultimately serves U.S. interests. The United

States can influence China’s development

along desired paths without giving away the

store or harming national security. Promoting

American management philosophies and

expertise in labor relations, environmental and

safety issues, banking, quality control, and

conservation, to name a few areas, could help

make China a cleaner, safer, more accountable,

and more dependable trade partner, all of

which work to U.S. purposes.

Even so, the American ability to influence

China will depend on its success in establishing

a framework that consistently furthers the

relationship—first in economics, trade, and

the legal mechanisms that support these activities and later in the broader context of the

social development that stems from increasing

wealth and stability. A successful U.S. effort to

construct a productive relationship with China

must pay heed to several factors.

First, the U.S.-China relationship must be

realistic. Shaped by vastly different national

experiences and philosophical traditions,

American and Chinese worldviews differ greatly.

Even when using the same words (for example,

democracy and freedom), American and Chinese speakers may not be talking about the

same things. It is unrealistic to expect that

Chinese leaders, thinkers, and strategists will

Beijing is still certain 

to meet serious domestic

resistance to implementing the WTO-required

changes
embrace American values merely because

Americans say they are desirable. History may

give good reason to think otherwise. It is

equally unrealistic to expect that China will

believe the United States means well when it

takes actions that China interprets as designed

to contain it.

But pragmatism is a strong trait in the

Chinese character. China realistically can be

expected to cooperate in relationships that

bring tangible benefits to both nations and to

expand this cooperation over time. Cooperation

promotes better communication, which, in

turn, builds trust.

Second, there must be clarity and consistency. Frequent U.S. policy shifts and ambiguously defined policy objectives have kept

China’s leadership off-balance and guessing for

2 decades. Definitional problems (saying what

one means and meaning what one says) have

added to bilateral tensions. Given the different

nature of the two societies and cultures, clarity

will always be a fundamental stumbling block

in U.S.-China relations. This makes consistency

an even more important element in managing

the relationship.

Several types of inconsistent behavior have

plagued U.S.-China relations. There is a history

of inconsistency in the international arena in

which the United States applies differing standards for certain issues (for example, human

rights) to China than it does to other countries

in which it has special interests. There is a

history of inconsistency in the bilateral relationship itself; for example, one U.S. administration berating China for actions tacitly accepted by a different administration. Lastly,

there is a Washington history of inconsistency

in defining the very nature of the relationship

itself—calling China everything from a strategic partner to a rival.

This is by no means a one-way problem.

Beijing also has a history of abruptly changing

course as well, generally when it finds itself too

far out in front on domestically sensitive and

controversial issues. More disturbing is the

prospect that Chinese inconsistency not only

will continue but also even worsen as the next

generation of Chinese leaders try to find their

footing, while the balance of domestic political

power gradually passes from old-guard ideologues to the new technocrats.

Consistency in policy will be hard to

achieve, given the ephemeral and ever-changing (by Chinese standards) nature of the American political landscape and Chinese unpredictability. Still, a relatively consistent approach

should be feasible if a realistic policy is established at the outset: decide what is important

and desirable; determine whether it is attainable; and stay the course.

Consistency and clarity in communication

are both possible and the best way of ensuring

a stable, productive bilateral relationship that

could gradually guide China toward goals the

United States finds desirable. Consistency

means keeping communication lines open and

maintaining academic, professional, and even

military exchanges, regardless of the ups and

downs of the overall relationship. It means

maintaining funding and protocol levels for

worthwhile programs such as rule of law exchanges even while both sides are arguing over

some other aspect of the relationship. It also

means managing the level and intensity of

rhetoric aimed at China, positive and negative,

and moderating U.S. responses to Chinese

rhetoric. China tends to be surprisingly concerned with its public image. China is also very

reactive, though often the response evoked is

not the one sought.

Above all, there must be patience. Despite

the not-inconsiderable influence Western

thought has exerted on the Chinese psyche

over the last 2 centuries, the Chinese worldview remains firmly rooted in a belief that

change is a product of evolutionary processes

responding to events and conditions over time.

Americans tend to approach things in a more

linear fashion, based on a relatively direct

cause-and-effect perspective and the belief

that careful planning and a deliberate process

bring the desired result. Given this gulf, mutual understanding has been and probably

always will be difficult.

This is not to say that excuses must be

made. It is to say that patience is paramount. It

will always be difficult to avoid misunderstandings and clashes between two such widely

differing worldviews. But setting a rational

course, maintaining it with minimal variance,

and proceeding in a steady manner over time

will minimize mistakes. If one does it, the

other is more likely to follow suit. Patience and

consistency are the keys to a U.S.-China relationship that is successful over the long term.

Note1

Chinese military spending is clearly increasing but the

magnitude of the increases and the baseline for measuring them

remain points of contention among Western military analysts.

According to analysis by the U.S. Department of Defense (DOD),

the People’s Republic claims to have increased defense spending

in 2002 by about $3 billion, or roughly 17.6 percent, to a total of

$20 billion. DOD, on the other hand, asserts that such figures fail

to include sizable outlays for weapons research, development,

and acquisition. DOD puts the figure for overall military

expenditure at roughly $65 billion, and foresees double-digit

percentage increases in military spending through mid-decade.

For details, see U.S. Department of Defense, Annual Report on

the Military Power of the People’s Republic of China (Report to

Congress Pursuant to the FY 2000 National Defense Authorization Act), 38. Available at <http://www.defenselink.mil/news/

Jul2002/d20020712china.pdf>

No. 193, August 2002 Strategic Forum 5

consistency and clarity 

in communication are the

best way of ensuring a

stable, productive

bilateral relationship

The Strategic Forum series presents original research by

members of the National Defense University as well as

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