THE COSTS OF CONFLICT:

THE IMPACT ON CHINA OF A FUTURE WAR

Edited by

Andrew Scobell

October 2001
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ISBN 1-58487-072-9

ii
CONTENTS

Foreword

Ambassador James R. Lilley .......... . v

1. Introduction

Andrew Scobell and Larry M. Wortzel ..... . 1

2. Chinese Perceptions of the Costs of a Conflict

David M. Finkelstein .............. . 9

3. Conflicting Tendencies: Economic Integration

Versus Political Impasse

Ralph N. Clough ................ . 29

4. Taiwan Dependence: The Strategic Dimension

of Cross-Strait Trade and Investment

John Tkacik .................. . 35

5. The Costs of China’s Military Conflict:

The Korean and Japanese Dimensions

Taeho Kim ................... . 63

6. The Impact of a Conflict on China’s Relations

with Southeast Asia and Australia

Carlyle A. Thayer ............... . 79

7. Taiwan and the Chinese Military

Ellis Joffe ................... . 111

8. Homeland Defense with Taiwanese

Characteristics: President Chen Shui-bian’s

New Defense Concept

Alexander Chieh-cheng Huang........ . 129

9. The Arms Control and Ballistic Missile Defense

Costs of a Chinese Conflict

Wendy Frieman ............... . 163

10. “Eating Imperial Grain”?: The Ongoing

Divestiture of the Chinese Military-Business

Complex, 1998-2000

James Mulvenon ............... . 187

About the Contributors .............. . 217

iii
FOREWORD

There is a need for the United States to move the debate

over the challenge China presents us beyond the

dispositions of the attention grabbing advocates: the

rationalizers who explain Chinese actions in benign terms

with their own political or academic motives, or the

denigrators, who are “The Chinese Are Coming” school—to

wit: China is belligerent, a threat, in short, a monster. It is

increasingly important for Americans to think carefully

about the vast complexities of the U.S.-China relationship,

and the calculations that go into forming courses of action.

The Chinese have to consider some of the same realities we

do when planning military actions and strategy. The key

question is: will China’s so-called first priority of economic

development and its resulting influence on domestic social

stability curtail China’s continuing reliance on military

force as a means of exerting its influence? In addition, will

economic development enhance China’s comprehensive

national power and thus contribute to some of China’s more

unhealthy goals, such as dominating the South China Seas,

seizing Taiwan by force, or grabbing the Senkaku Islands

from Japan? Is the China-Taiwan economic dynamic strong

enough to offset military adventurism? The rationalizers

often say security and sovereignty will always trump

economic determinism, others insist economic factors will

change China—and thus decrease the chances of war,

especially with China winning the 2008 Olympics. How this

dilemma is managed by the United States, China, and

Taiwan will affect the future of Asia, and perhaps the world.

We have tried to present in this book factual and analytical

essays which stress the need for squarely addressing these

questions.

So, this volume should make a valuable contribution by

addressing the issue of what would be at stake for China if

Beijing were to pursue military solutions. The chapters that

follow were originally presented at a conference at the U.S.

Army War College (USAWC) held in December 2000. It is

v
the tenth annual conference on the People’s Liberation

Army (PLA) that I have organized under the auspices of the

American Enterprise Institute and the Heritage

Foundation. This is the third PLA conference volume to be

published by the USAWC Strategic Studies Institute. I

commend it to you.

Ambassador James R. Lilley

Senior Fellow

American Enterprise Institute

vi
CHAPTER 1

INTRODUCTION

Andrew Scobell

Larry M. Wortzel

A widely held belief is that China will not use force

against Taiwan. Frequently, one of two major assumptions

is made to justify this assertion: first, Chinese leaders

realize that the economic cost of such an operation would be

unacceptable; second, China’s leaders recognize that, for at

least the next decade or so, any attempt to seize Taiwan

would be doomed to failure. Both these assumptions are

questionable and indeed downright dangerous.

The basis for the former proposition is the assumption

that China has too much to lose economically to risk a

conflict over Taiwan. Certainly, China’s leaders have placed

the highest priority on economic growth over the past 2

decades. China’s economy has gradually been growing out of

the centrally planned model, and more and more production

and pricing are being determined by the market.

1

 And

China has become increasingly intertwined with the global

economic system through trade and investment.

2

 Moreover,

economic ties increasingly bind the People’s Republic of

China (PRC) together with the larger Chinese diaspora,

particularly with the territories of Hong Kong and Macao

and with the island of Taiwan—what has become known as

“Greater China” or the “China Circle.”

3

 These burgeoning

cross-strait economic links have continued to grow during

the 1990s. This growing economic interdependence is

examined in detail in the chapters by Ralph Clough and

John Tkacik in this volume.

The latter assumption, that China must wait a decade

before it is able to act against Taiwan, has recently been

made by several military analysts, especially those who

have focused on amphibious invasion scenarios. After

1
studying the array of forces available on both sides of the

Taiwan Strait, these researchers conclude such an

operation would not succeed in the foreseeable future.

4

Unfortunately, by focusing on this extreme and, in our view,

least likely scenario and remaining at the operational level,

these analysts miss the strategic considerations that guide

China’s actions vis-à-vis Taiwan. As many researchers

recognize, China, like most countries, tends to play to its

strengths. And in Beijing’s view, the chances of an

amphibious assault succeeding are slight. Rather than

concentrate on launching a seaborne invasion of Taiwan, it

is far more likely to employ its extensive arsenal of ballistic

missiles to bombard the island and/or its submarine fleet to

enforce a blockade.

5

 Moreover, Beijing does not just have

conventional military options. In addition to weapons of

mass destruction (WMD) alternatives, China also can

employ other elements of national power: informational,

political, and even economic.

6

The above discussion begs three questions. First, “Can

China afford to attack Taiwan?” According to a Chinese

economic analyst in Beijing, speaking to New York Times

columnist Thomas Friedman in 1996, the clear answer is:

“No—it would stop investment in China, stop growth, stop

our last chance to catch up with the rest of the world.”

7

 But

inquiring minds will not be satisfied with a single round of

question and answer. Indeed, the follow up question is:

“Would China under certain circumstances use military

force against Taiwan no matter what the economic

consequences?” The answer, according to Friedman, is

“absolutely.”

8

 Many analysts, including the contributors to

this volume, would concur with this judgment. The third

key question, posed by David Finkelstein in his contribution

to this volume, is: “What price is acceptable [to China]?”

This is the hardest question to answer, although as Ellis

Joffe concludes in his contribution it is likely that China’s

leaders are prepared to pay a high price for a war that in

their minds would have a good chance of success (i.e.,

capture Taiwan). Thus, it would be extremely unwise to

2
dismiss China’s insistence that unification with Taiwan is a

key national security objective to be achieved by force, if

necessary, as merely hot air. As Joffe observes, the depth of

Chinese feeling toward the Taiwan issue should not be

underestimated, particularly among military leaders.

Taiwan is vital for the legitimacy of the regime in Beijing as

well as an important strategic asset.

There are important factors that mitigate against the

use of force. There is considerable internal unrest in China

due to economic conditions. This unrest would increase if

foreign investment dropped; if unrest increases, the

People’s Liberation Army (PLA) would be busy protecting

the Communist Party; and China would have a difficult

time reconstituting its combat capabilities. Nevertheless, in

the face of even more daunting problems, such as in Korea in

1950, China has resorted to military force.

Other possible locations for the use of force by China in

East Asia are where Beijing has territorial disputes with

other states. China claims the Senkaku or Diaoyutai

Islands in the East China Sea that are currently controlled

by Japan. Beijing also believes it has sovereignty over vast

swaths of maritime territory surrounding numerous reefs

and atolls in the South China Seas that are claimed by

various other countries in the region. China has only used

indirect threats of force to make good on its claims on the

East China Sea Islands, but it has employed military power

to acquire the Paracel Islands from Vietnam in 1974, in the

Spratly Islands against Vietnam in 1988, and in Mischief

Reef against the Philippines in 1995. While China insists it

wishes to solve the disputes in the South China Sea

peacefully and is willing to cooperate and share the natural

resources in this area, it has refused to renounce claims or

abjure the use of force. Still, given the remoteness of the

claims in the South China Sea and the limited force

projection capabilities of China and its rival claimants, any

warfare is likely to be sporadic and limited in nature.

Analysts have commented on China’s “creeping assertive3
ness” in the region and dubbed its strategy as constituting

“slow intensity conflict.”

9

The obvious flashpoint of greatest concern is the Taiwan

Strait, and it is a discussion of a Taiwan scenario that

absorbs much of this volume. Finkelstein examines China’s

strategic thinking about a possible conflict in the Taiwan

Strait. He contends that Chinese strategists now assume

that a war with Taiwan automatically means a conflict with

the United States. Since, in their view, U.S. power is

growing and China’s will remain limited for the foreseeable

future, Beijing cannot be sanguine about its prospects in

such a military confrontation. The prime concerns of

Chinese analysts tend to be how to keep a conflict from

escalating into an all-out war between China and the

United States, and how to prevent a conflict from triggering

a cold war between China and the United States. Neither a

major hot war nor a prolonged cold war with Washington is

in Beijing’s interests. Finkelstein concludes that Chinese

strategic thinkers are engaged in a careful cost-benefit

analysis regarding a war in the Taiwan Strait.

Ralph Clough and John Tkacik both focus on the

economic dimension of cross-strait relations. Clough

emphasizes what he calls “conflicting tendencies”: economic

integration on the one hand and political impasse on the

other. The extent of the integration is indicated by the fact

that Taiwan currently has an estimated U.S.$25 billion

invested in China and a similar amount in contracted

investments. Moreover, on any given day some 200,000

Taiwanese are living, working, or traveling on the

mainland. Most of these individuals are engaged in

industry, in managing factories producing such diverse

products as shoes, motorcycles, and information technology

(IT) hardware. Clough points out the growing

interdependence between Taiwan (one of the top producers

of computers and computer software), China, and the

United States. This is because much of the actual

manufacturing and assembly of Taiwanese companies’ IT

products are now done on the mainland and then shipped to

4
buyers in the United States. A conflict in the strait would

disrupt this IT triangle and likely result in shortages of IT

hardware in the United States.

In his chapter, Tkacik highlights Taiwan’s growing

dependence on the mainland and argues that the multitude

of economic strings that ties the island to China will deter

Taipei from pursuing independence. Taiwan is now

estimated to do more than U.S.$30 billion in two-way trade

with China annually. Tkacik is concerned that Beijing is

unconvinced of Taipei’s desire to safeguard its economic

well-being.

The impact of a China conflict on countries in the region

is assessed in chapters by Taeho Kim and Carlyle Thayer.

Kim examines the impact of a conflict on China’s relations

with Japan and South Korea and concludes that the costs

would be high. A war would negatively affect trade with

these two countries. Japan is China’s second largest trading

partner with an estimated U.S.$85 billion bilateral trade in

2000. South Korea, meanwhile, is China’s third largest

trading partner with approximately U.S.$33 billion in

two-way trade last year. Moreover, in the security sphere, a

war would likely push Japan to further upgrade its defense

relationship with the United States and lead South Korea to

draw closer to the United States militarily.

Thayer examines China’s ties with Southeast Asia and

Australia. Beijing has good relations with virtually all the

countries in the region although there are some tensions,

notably with Manila, particularly over conflicting maritime

claims in the South China Sea. China’s trade with the

Association of Southeast Asian Nations (ASEAN) countries

grew steadily during the 1990s to more than U.S.$30 billion

by 2000. ASEAN foreign direct investment in China had

reached an estimated U.S.$3.6 billion by the late 1990s.

Thayer concludes that if China becomes embroiled in a war,

these economic ties will likely be damaged and the countries

of the region will very possibly engage in closer defense

5
cooperation. Australia also has growing economic ties with

China but does not tend to see Beijing as much of a threat.

Joffe analyzes the attitudes of the PLA toward Taiwan.

He notes that the PLA has become more professional over

the past 2 decades, but this has had the effect of pushing

soldiers into more prominent and significant policy roles.

This is especially true on the issue of Taiwan. While the PLA

is highly nationalistic, Chinese soldiers are not itching for

war because most recognize that the cost of a conflict over

Taiwan is likely to be quite high. Joffe concludes that,

although Beijing is not confident of China’s ability to deter

U.S. intervention or decisively defeat the American military

on the battlefield, Chinese military leaders seem quite

confident of their country’s ability to withstand sustained

American attacks against China and outlast any initial U.S.

enthusiasm for prosecuting a war in Asia.

Alexander Huang reviews the defense policy of the

administration of Taiwan President Chen Shui-bian. Chen

has long been interested in defense matters dating back to

his days in the Legislative Yuan prior to becoming mayor of

Taipei in the early 1990s. As part of his preparation for his

successful 2000 presidential election campaign, he

formulated a new defense concept dubbed “decisive

campaign beyond boundaries.” This strategy entails taking

the fight to the enemy beyond the coastline of Taiwan. If

China uses force against Taiwan or if there is a clear

indication that China is preparing to do so imminently, then

Taiwan will strike. The new security concept is

controversial in Taiwan because of fears that it is

unnecessarily provocative and will antagonize China.

James Mulvenon outlines the process of divestiture of

the commercial ventures of the PLA and assesses its results.

He argues that the initiative was less rapid and

conflict-ridden than is often assumed. Mulvenon contends

that the process of divestiture was underway well before

Jiang Zemin’s much publicized announcement of the

initiative in mid-1998. He also asserts that there was a high

6
degree of civil-military consensus that the step was needed.

The divestiture process has resulted in the majority of PLA

for-profit enterprises being taken out of military hands,

although a small but significant portion remains. He

suggests that it would be foolish to assume that continued

PLA involvement in economic activities would hinder the

military response in a conflict situation.

Wendy Frieman examines China’s ballistic missile

capabilities and intentions in light of U.S. missile defense

initiatives. She argues that China’s possession of ballistic

missiles lowers the costs to Beijing of resorting to military

conflict. Beijing’s response to American moves toward the

development and deployment of theater missile defenses in

the Asia-Pacific to protect its forces and allies and national

missile defense to protect the U.S. homeland will be to

increase its missile arsenals, suggests Frieman. The costs to

China of building more short range ballistic missiles

(SRBMs) and Intercontinental Ballistic Missiles (ICBMs)

will be strictly monetary, Frieman asserts. The actual

production costs she estimates at approximately the

equivalent of U.S.$ 100,000 for each of the former and

approximately U.S.$12.5 million for each of the latter. Such

costs can easily be absorbed by Beijing. Of course, if, in the

event of conflict, the missiles are actually used, then China

will need to bear the costs of replacing them.

In sum, the authors in this volume tend to believe that

China will incur a significant cost if it resorts to military

conflict anywhere in the Asia-Pacific. The cost of conflict

will not only be measured in PLA casualties and the loss of

military hardware. It will also be measured in terms of the

damage to China’s economy, its relations with countries in

the region, and Beijing’s global reputation. One can only

hope that the substantial costs that would be incurred will

deter China from waging war or at the very least think twice

before doing so.

7
ENDNOTES - CHAPTER 1

1. Barry Naughton, Growing Out of the Plan: Chinese Economic

Reform, 1978-1993, New York: Cambridge University Press, 1995.

2. See, for example, Nicholas R. Lardy, China in the World Economy, 

Washington, DC: International Institute for Economics, April 1994.

3 . See, for example, Robert Ash and Y. Y. Kueh, “Economic

Integration Within Greater China: Trade and Investment Flows

Between China, Hong Kong, and Taiwan,” The China Quarterly, No.

136, December 1993, pp. 711-745; and The China Circle: Economics and

Technology in the PRC, Taiwan, and Hong Kong, Barry Naughton, ed.,

Washington, DC: Brookings Institution, 1997.

4. David A. Shalapak, David T. Orletsky, and Barry A. Wilson, Dire

Strait?: Military Aspects of the China-Taiwan Confrontation and

Options for U.S. Policy, Santa Monica, CA: RAND, 2000; Michael

O’Hanlon, “Why China Cannot Conquer Taiwan,” International

Security, Vol. 25, No. 2, Fall 2000.

5. See Ellis Joffe’s contribution to this volume. Indeed, these are the

scenarios outlined by Chinese analysts to one of the authors. See, for

example, Andrew Scobell, U.S. Army and the Asia-Pacific, Carlisle, PA:

U.S. Army War College Strategic Studies Institute, April 2001, pp.

11-12. See also Harlan W. Jencks, “Wild Speculations on the Military

Balance in the Taiwan Straits,” in James R. Lilley and Chuck Downs,

eds., Crisis in the Taiwan Strait, Washington, DC: National Defense

University and American Enterprise Institute, 1997, pp. 131-166.

6. See, for example, Qiao Liang and Wang Xiangsui, Chaoxian zhan

(unrestricted warfare), Beijing: Jiefangjun Wenyi Chubanshe,

February, 1999.

7. Thomas L. Friedman, The Lexus and the Olive Tree, New York:

Anchor Books, April 2000, p. 258.

8. Ibid., p. 260.

9. Ian James Storey, “Creeping Assertiveness: China, the

Philippines, and the South China Sea Dispute,” Contemporary

Southeast Asia, Vol. 21, No. 1, April 1999, pp. 95-118; Andrew Scobell,

“Slow Intensity Conflict in the South China Sea,” FPRI E-Note,

Philadelphia, PA: Foreign Policy Research Institute, August 16, 2000.

8
CHAPTER 2

CHINESE PERCEPTIONS OF THE COSTS

OF A CONFLICT

David M. Finkelstein

Introduction.

This year, the conference organizers have established an

extremely ambitious agenda. The conference theme, “The

Costs of a Conflict,” should be approached with a high

degree of caution because we are departing somewhat from

our usual roles. Usually, as specialists and researchers, this

group relies on databased empiricism to draw likely

conclusions about our research topics. On this occasion, and

clearly for good reason, given the importance of the subject,

we have been asked to enter the murky world of speculation.

As least I have been asked to dive into murky waters,

because I have been asked to speak to an elusive topic:

“Chinese Perceptions of the Costs of a Conflict.”

To claim to have a clear understanding of this question

would require a level of arrogance that even I have yet to

achieve. So let me be up front. I have no bottom-line truths

on this topic. No one can speak with authority on how the

Chinese who matter perceive the potential costs of a conflict.

Therefore, I have no unassailable insights to offer this

group. Most of what I have to offer is highly subjective. It is

speculative. It is based on a meager handful of articles

published in the mainland press, informed by a limited

number of conversations with interlocutors, and bounded by

my own interpretation of Chinese history. With those

caveats placed upon the table, let us proceed with the topic

at hand.

9
Defining the Question.

It seems to me that there are two questions that need to

be addressed. First, “Do the Chinese even think about the

potential costs they may have to pay should Beijing feel it

has to use military force to attempt to achieve unification

with Taiwan?" Second, “If so, what do we know about what

they think about the potential costs of a conflict?” Phrasing

the questions in this manner requires some further

refinement for the sake of bounding the discussion.

First, what we are talking about is the use of military

force to actually achieve unification—not the use of the

military element of national power to merely coerce Taiwan.

What we are talking about is an actual conflict—a war—not

a demonstration of force to deter Taipei from one course of

action or another, or to “send signals” such as in 1995-96.

Second, for the purposes of this discussion, we need not

attempt to define the military scenario; i.e., how China

might use military force. Third, neither do we need to

speculate about how the conflict would end or to whose

favor.

A Proposition From The Historical Record.

Let me start with a proposition. Even in the absence of

hard data, I would be surprised if the larger community of

security analysis (xitong) in Beijing and beyond, military

and civilian, is not thinking very carefully about the

potential costs and benefits of military conflict over Taiwan.

Stated in the affirmative, I am prepared to assert that

there is likely a good deal of thinking going on about the

potential risks and costs.

I say this even in the absence of hard evidence because

the historical record suggests it. We are talking about a

civilization and culture that has a legacy of strategic

calculation that is more than two millennia in the running.

This is, after all, the civilization that gave the world the

oldest surviving, written treatise on war and statecraft. I

10
refer of course to Sun Zi Bing Fa. Every once in a while it is

good to review what Master Sun had to say about war. What

one finds is that almost the entire treatise is about the need

for proper cost-benefit analyses at the strategic,

operational, and tactical levels of warfare. Indeed, at the

strategic level of warfare, Sun Zi cautions rulers and

generals alike that whether one should engage in a war at

all is the most serious calculation. In fact, the very first

sentence of the very first chapter (Estimates) of Sun Zi Bing

Fa talks to this:

War is a matter of vital importance to the State; the province of

life or death; the road to survival or ruin. It is mandatory that

it be thoroughly studied.

1

In the preface to his own book of commentaries on Sun Zi

Bing Fa published in 1995, Major General Xie Guoliang of

the People’s Liberation Army (PLA) Academy of Military

Science highlighted the seriousness of contemplating war

when he offered that the first of all the principles one can

learn from Sun Zi is, “. . . have adequate respect for war and

be wary of waging one.”

2

Of course, we are talking about a book of uncertain

origins that was purportedly written some 2,000 years ago.

So the question, then, is this: Is it a stretch to postulate that

Sun Zi Bing Fa and all of its emphasis on calculations have

any relevance to current Chinese thinking on the issue at

hand? 

There was a time when I would have answered, “Yes, it is

a stretch.” However, having attended the “5th Annual

International Symposium on Sun Zi’s Art of War” held in

Wuxian City in October 2000, I am now of a mind that the

study of Sun Zi Bing Fa is alive and well among Chinese

military strategists.

Without being sidetracked by the details of the

conference, suffice it to say that over 100 PLA officers—from

Majors to Lieutenant Generals, from Beijing and from at

least three Military Regions outside of Beijing, from

11
military academics to officers of the Second Artillery

(strategic rocket forces)—gathered for 3 1/2 days to engage

in serious and very professional discussion about this

ancient treatise. Much of the discussion was about the

application and relevance of Sun Zi to modern strategic

issues.

3

Of course, the historical record suggesting a legacy of

careful calculations about war by Chinese need not go back

as far as Sun Zi. Closer to our own times we need look no

further than what the Chinese call Mao Zedong Junshi

Sixiang, or, “Mao Zedong Military Thought.”

This particular group needs no introduction to the very

pragmatic approach to warfare taken by Mao. But I always

like to point out that by the end of 1947, Mao was a rather

conservative military planner, having learned many

painful lessons throughout the 1920s, 1930s, and early

1940s. By “conservative” I do not mean “passive.” My use of

the word “conservative” is meant to convey a sense of Mao’s

use of careful calculations and cost-benefit analyses as part

of the operational planning process.

Of the ten famous “principles of operations” Mao

highlighted for his commanders at the Central Committee

meeting at Yanjiakou in December 1947, the one that seems

to have had the most durability since 1949 is Number 5:

Fight no battle unprepared, fight no battle you are not sure of

winning; make every effort to be well prepared for each battle,

make every effort to insure victory in the given set of conditions

as between the enemy and ourselves.

4

The point of this historical digression, then, is to make

the point that, even if we had no data at all indicating that

Chinese leaders and planners are thinking about the

potential costs of a conflict over Taiwan, the historical

record (not to mention just good common sense) would

provide some reason to believe that Beijing will not enter

into such a conflict without some careful analysis.

12
Of course, careful analysis is no guarantee of correct

analysis. So the question remains to be asked: “Do we have

any evidence that Chinese analysts and other concerned

individuals are thinking about what is at stake should

military force against Taiwan be required to achieve

unification?” Do they think about the “downside” of such an

endeavor?

Some Speculation from the Contemporary Record.

My own reading of the mainland press and journals as

well as discussions with Chinese interlocutors leads me to

believe that there are at least some Chinese security

analysts that do understand what is at stake and that the

costs to China, even if victorious militarily, could be quite

high.

There are three indicators that lead me to believe this.

The first indicator revolves about three recent and key

analytic judgments by Chinese analysts that now appear to

be accepted as mainstream thinking. The second indicator

is a meager handful of articles published on the mainland.

The third indicator is some informal conversations with

Chinese security analysts.

Indicator #1: Three Recent and Key Chinese

Analytic Judgments.

Chinese Analytic Judgment #1: War with Taiwan means

conflict with the United States.

Although the United States Government continues to

follow what some have termed a “policy of ambiguity”

regarding its military intentions should Taiwan and China

be at war, the Chinese have come to their own conclusion

and working assumption.

Whether reading mainland journals or talking with

interlocutors, it is very apparent that Chinese security

planners and analysts, both military and civilian, now take

as a working assumption that any conflict between the

13
People’s Republic of China (PRC) and Taiwan will mean

U.S. military intervention on the side of Taiwan.

This judgment, I would argue, is a relatively recent

development. It is a result of what I like to call “The Great

Peace and Development of 1999" that took place in the wake

of NATO’s intervention in Kosovo.

5

Prior to what the Chinese refer to as the “U.S.-led”

Kosovo operation, there were many Chinese security

analysts who questioned whether the United States would

intervene with military force in a hypothetical cross-strait

military scenario. Some argued that U.S. vital national

interests did not warrant a conflict with the mainland over

Taiwan. Taiwan, they argued, is not the Persian Gulf—a

reference to vital U.S. oil interests and the Gulf War (a

Chinese view). Others argued that the United States still

suffered from a “Somalia Syndrome” and does not have the

national will to engage in a serious conflict with China over

the island. The implicit assumption being that such a

conflict will not be casualty-free for the United States. Still

others argued that the nature of the U.S. political system,

especially the “contradictions” between the executive and

legislative branches, would make it difficult to mobilize the

popular political will, or achieve a political consensus quick

enough, to enter a cross-strait scenario even if Washington

wanted to.

Kosovo and the ensuing security debate of 1999

overturned all of these arguments. One result of China’s

national security debate in 1999 was a general consensus

that the analytic conclusions above were not valid. There

was a general assessment that the United States—in order

to maintain its “sole superpower status”—was clearly

capable of using the military element of national power to

intervene around the world in seemingly (to Chinese)

irrational ways that did not necessarily have any pragmatic

logic associated with them. When viewed through the lens of

Chinese perceptions of U.S. policies that are perceived as

directed against Beijing directly, or inimical to Beijing’s

14
interests, a new consensus has emerged that China must

assume U.S. intervention in a cross-strait scenario.

6

 This

analytic judgment was likely reinforced in May 2001 when

President Bush made his comments about the defense of

Taiwan on national television.

Yan Xuetong, former senior analyst at the China

Institute for Contemporary International Relations

(CICIR), summed up this viewpoint in a November 2000 Ta

Kung Pao interview. Asked whether the United States

would intervene in the event of a cross-strait military

conflict, Yan Xuetong pointed out extremely explicitly that:

if a crisis breaks out in the Taiwan Strait, it is certain that the

United States will become militarily involved. There are no

two ways about the United States becoming militarily

involved in the Taiwan strait, and the possibility of them not

getting involved does not exist; the only question is the degree

of involvement.

7

Chinese Analytic Judgment #2: The United States is not

in decline. To the contrary, its “comprehensive national

power” is increasing.

This is yet another example of a critically important

Chinese analytic judgment that, apparently, has been

adjusted relatively recently.

Previously, and as recently as the late 1990s, Chinese

analysts were predicting the inevitable decline of the

“comprehensive national power” of the United States. The

idea that U.S. national power was doomed to slow but

inevitable decline in all areas—political, social, economic,

and military affairs—had been a staple of Chinese analysis

since the mid-to-late 1980s. Indeed, in his excellent volume,

China Debates The Future Security Environment, Michael

Pillsbury underscored the near-sanctity of that analytic line

by asserting (likely correctly at the time of writing) that, “No

Chinese author can today openly argue that the United

States will grow relatively stronger than other major

powers . . .”

8

15
This, apparently, is no longer the case. Chinese analysts

are now inclined to argue that the comprehensive national

power of the United States is not about to decrease any time

soon. Indeed, many argue that U.S. national power has yet

to peak and that it is getting greater. Moreover, the U.S.

position as the dominant and “sole superpower” will be

secure for at least 2 decades, if not longer.

Here are two examples for the sake of illustration. In his

interview in Ta Gong Pao, Yan Xuetong argued that “. . . the

overall U.S. economic situation is good, and the status of the

United States as the sole superpower is on the rise.”

9

Certainly in terms of economic potential, Chu Shulong, at

the time a senior analyst at CICIR, agreed with his former

colleague’s assessment, writing in August 1999 that “. . . the

difference between China and the United States in

economic capability may not be shrinking but growing.”

Chu also made the same argument for the gap in military

capabilities.

10

This type of analysis is related to, and leads us to, a third

Chinese analytic judgment that bears on the issue of

thinking about the potential costs of a conflict.

Chinese Analytic Judgment #3: China must be realistic

about its potential power, now and in the future.

I have a very high degree of confidence in the currency of

the first “Chinese Analytic Judgment” above. I have a good

degree of confidence in the currency of “Chinese Analytic

Judgment #2. ” I have the least confidence in the assertion

that follows, but enough confidence in it to table it in a

speculative monograph such as this one.

“Chinese Analytic Judgment #3” speaks to a growing

realism on the part of some PRC analysts about the

comprehensive national strength of China today and in the

future. That realism dictates that Beijing should not fool

itself into inflating its importance in the world, its current

levels of development, or its future prospects when crafting

grand strategy or making important security decisions.

16
Most of the evidence for this is, admittedly, anecdotal.

However, one can find at least one remarkable journal

article that may represent this school of thought. I refer,

once again, to Chu’s fascinating article in Zhanlue Yu

Guanli published in August 1999, at the height of the great

debate over China’s national security. Some of the key

statements in the analysis from his article, “China’s

National Interest, National Power, and National Strategy,”

are worth listing.

11

• “. . . we must have a clearheaded, realistic

understanding of China’s comprehensive national

capability.”

• “Today’s China remains an economically,

technologically, and militarily backward developing

country.”

• “In terms of the overall size of the economy, China is

ranked seventh in the world, following the United States,

Japan, Germany, France, Britain and Italy, and is

absolutely not the number one or number two power in the

world. It is obviously a great exaggeration of China’s

national power to describe China as the second largest or

third largest economic power in the world . . . ”

• “The gap in terms of China’s military power is even

larger. The U.S. or Russian strategic nuclear force is several

hundred times larger than China’s strategic nuclear force.”

• “In terms of conventional armaments, China is not

only immensely behind the United States, but also behind

such middle-level military powers as Japan, India, and

South Korea.”

• “As far as a specific theater of war is concerned, the

United States, Russia, or Japan can send more advanced

aircraft and warships to a specific theater of war than China

can.”

• “. . . any future armed conflict against hegemonism will

basically be in the form of naval and aerial warfare carried

17
out in coastal areas. Chinese armed forces will find it

difficult to exploit their numerical advantage, while our

opponent will be able to exploit its quality advantage of

having naval and air forces equipped with large long-range

precision weapons.”

• “. . . China is not yet a world power . . . China has a

certain international status, but its international influence

is mainly felt in Asia . . . China has difficulty exerting any

substantive influence on Latin America, the Middle East,

Europe, or Africa . . . ”

• “Chinese culture has some influence in Asia and is

respected in the world, but will not become a worldwide

culture.”

How much currency these brutally frank assessments

have across the board in Beijing cannot be known. But they

may reflect more than just the personal views of the author.

This analysis may reflect the institutional assessment of

CICIR itself that, according to The Washington Post (by

inference) and other knowledgeable individuals, recently

finished a major project comparing the comprehensive

national power of several countries and projecting into the

future.

12

 The alleged results of that study is that China’s

“comprehensive national power” will continue to rank 6th or

7th out of a sample group of seven nations for at least the

next 35 years.

If the three Chinese judgments above are in fact part of

mainstream analysis (and this, of course, is open to

question), then they inject some significant factors into any

Chinese thinking that may be going on about the potential

costs of a conflict over Taiwan. By way of review, these three

judgments hold that:

1. Military conflict to achieve unification with Taiwan

will certainly mean military confrontation with the United

States.

18
2. The United States is not in decline but, to the contrary,

holding its own and possibly enhancing its position as sole

superpower.

3. China’s own current national power is not as great as

some Chinese officials believe, and China will likely not

become a world-class international power for some time to

come.

Indicator #2: Recent Articles of Specific Interest to

the Question At Hand.

Articles from the mainland press that address the

specific issues of potential costs of a Taiwan war are hard to

come by. But there are a couple that are germane and may

provide us some grist for speculation. The first is the article

by Chu Shulong referenced above. The second is by Dr. Shi

Yinhong, who, according to the PRC-affiliated Hong Kong

periodical Ta Kung Pao, is the Director of the Institute of

International Relations of the Nanjing Institute of

International Relations; a university-level school of the

PLA. 

The article by Chu Shulong was written at the height of

the great security debate of 1999, and it should be read in

that context: written during a period of great analytic

confusion, policy ferment, and emotionalism in the wake of

the errant bombing of the PRC Embassy in Belgrade. But

the message of the author seems intended to transcend

those particular events and might be equally applicable to

the question of war or peace over Taiwan. And the author’s

messages are as follows:

1. Throughout modern Chinese history, every time the

government has acted rashly on emotion instead of

cool-headed calculation, the results have been disastrous.

2. China must be coldly realistic about its own

capabilities.

19
3. Unless China’s survival is at stake, comprehensive

national development is China’s fundamental interest.

4. With development, all other issues, to include security

issues and issues of unification can be solved.

To some extent, this article can be read as a warning to

(unknown) others that Deng Xiaoping’s views, strategies,

and priorities should not be abandoned. This particular

article is a “must read” for students of Chinese politics

searching for an example of the existence of a school of

realpolitik among Beijing’s security analysts.

But the topic at hand is addressed even more directly in

articles written by Shi Yinhong of the PLA’s Nanjing

Institute of International Relations. Let us briefly review

some of his thinking. One article of interest appears in the

April 30, 2000 issue of Zhanlue Yu Guanli.

13

 In this article,

there are four arguments pertinent to this chapter.

1. The Risk of Escalation. Shi argues that if military

force is the only way to achieve unification, then concrete

political objectives must be formulated and a desired

political end-state understood beforehand. Otherwise, he

warns, “our attack will involuntarily slip onto the track of

‘absolute war’ that is purely governed by military logic, end

eventually the total price we pay will be far greater than the

total benefit.” In other words, Shi is warning that a conflict

with Taiwan could escalate beyond China’s ability to handle

given the assumption of U.S. involvement. 14

2. The Degree of U.S. Intervention Will Be a

Function of the Type of Chinese Attack. U.S. military

intervention is a “given” for Shi. What is unknown is how

deeply the U.S. military will be involved. But he offers “the

largest scale and most violent military operation (by China)

that hopes to achieve unification at one stroke will be the

most likely operation to cause the most serious U.S. military

intervention.”

3. Adverse World Opinion and a Risk of Cold War.

“In reality, what is of the greatest concern is perhaps the

20
possible international political consequences of China’s

all-out assault to achieve unification in one stroke (or even

achieve radical military victory).” Under this scenario, Shi

warns that even if the United States cannot prevail

militarily, then Washington will be able to rally the opinion

of the developed Western nations and engage in a “Cold

War” against China.

4. A Cold War with the United States Is Not In

China’s Interests. Shi clearly argues that a long-term

Cold War with the United States (and the West) will be

self-defeating to China’s larger national interests. It will “. . .

force us to devote far too much resources and pay too much

attention to military, political, and ideological and cultural

matters to deal with the United States . . . and it will rob us

of most of the economic and political development

opportunities we otherwise would have . . . ”

In the last section of this article, Shi posits the argument

that “China’s basic autonomy, security, and integrity and

its prospects of becoming a world power are most important;

the Taiwan issue is not the final, overwhelming issue.” To

say the least, this is not the typical analysis of the subject

one is accustomed to reading in the mainland press;

especially by authors affiliated with the PLA.

A third article in the Octopber 1999 issue of Zhanlue Yu

Guanli is also written by an author listed as affiliated with

the PLA’s Nanjing Institute of International Relations, and

also surnamed Shi.

15

 This Shi is equally concerned about

the costs of a conflict over Taiwan. Briefly, he raises the

following issues:

• Handling the Taiwan issue by military means

incorrectly has the potential to make the situation worse,

not better. The military option requires careful study.

• The geography of the Taiwan Strait favors the defense,

not the offense.

• The PLA has yet to develop “a large-scale

three-dimensional force offensive capability on high-tech

21
terms, while the Taiwan armed forces have benefited from

abundant fiscal resources and U.S. arms sales to roughly

have a three-dimensional defensive capability...”

• “. . . since the separatist tendency in Taiwan has

acquired impressive political might, an international

climate highly favorable to reunification has always been

lacking . . .”

• “If a large-scale military conflict breaks out over the

Taiwan matter . . . and becomes particularly intense and

protracted due to the diehard resistance of the Taiwan

authorities and a large-scale U.S. military intervention, we

probably would not have high expectations that most of the

mainland Chinese people would forever actively support a

military struggle that would have a huge cost and an

uncertain outcome.”

• “And in consideration of the fact that we would be

facing mostly other Chinese in such a struggle, that is even

more so the case.”

It is important to underscore that none of the

authors cited directly state that the use of the

military element of national power to achieve

unification should be abandoned. 

What they are arguing for is a careful cost-benefit

analysis: (1) be aware of China’s strengths and weaknesses,

(2) be aware of the international forces (on Taiwan and

beyond) that China will face, and (3) be aware of the

potential costs that may accrue.

Shi Guhong brings this all together quite nicely in the

following passage:

While the criteria for weighing the pros and cons are obviously

very complex, including all of the factors mentioned above, we

can say most simply that they hinge on: 1) Their effectiveness in

containing or stopping Taiwan independence, 2) The price that

would have to be paid in lives and economic, political, and

22
diplomatic costs, particularly the negative impact on China’s

reform, opening, and modernization.

Indicator #3: Conversations.

Conversations with interlocutors are the most tentative

and subjective type of evidence to cite on the issue of

Chinese perceptions of the potential costs attendant to a

conflict over Taiwan, so I will not belabor them. Suffice it to

say that over the past year (1999 to 2000), one is acutely

aware that there is growing concern on the part of many

Chinese analysts and military planners that in such a

situation the United States might be inclined to escalate a

conflict beyond what Chinese military planners would

prefer to see. And what is it that they prefer to see as they

contemplate the military option? It is a quick campaign

localized around and over Taiwan. There appears to be

growing concern that the United States might be inclined to

launch pre-emptive strikes on Chinese mainland military

and economic facilities early on in a cross-Strait war. We

need not address the validity of these concerns, only register

them. Evidently, these concerns have been heightened of

late with the recent publication of a RAND study entitled,

Dire Strait? Military Aspects of the China-Taiwan Confrontation

and Options for U.S. Policy.

16

“1999 is Not 1949”: An Economy at Risk?

One of the common concerns that run through the above

discourses, whether in published articles or discussions, is

that some Chinese now assess that China does have much to

lose if the military option must be exercised. Hence, the

need for careful calculation and the avoidance of “rash

decisions.” And at bottom, it appears the most concern is not

about international opinion per se. It is about the collateral

damage that the Chinese economy (and other reform

programs) could sustain as a result of a conflict. This, in

turn, could defeat China’s long-term national objectives of

becoming a strong, modern, and wealthy nation.

17

23
Economic damage, as perceived by Chinese, could come

in two forms. First, a military escalation that places China’s

economic engine at physical risk (the exposed eastern

seaboard). Second, as a result of a protracted “hot” or “Cold

War” against Taiwan and the United States. On this count a

protracted encounter might either force China to radically

change its own domestic priorities from economic reform to

defense, as well as drain its extant wealth. Or a protracted

scenario might drag in the developed Western world and

Japan and dramatically and adversely affect the nature of

foreign investment and foreign assistance to long-term

economic and other modernization programs. As one

interlocutor put it, “1999 is not 1949. When you have

nothing, there is nothing much to lose.”

Conclusions.

So where does this leave us in attempting to address the

assigned topic? First, the original caveats bear repeating.

This chapter is purely speculative. I do not pretend to have

any bottom line on this issue. Data points worthy of a high

degree of confidence are nearly impossible to come by. The

fact of the matter may be that what we can produce may not

reflect the thinking of anyone in China who matters or have

any currency beyond the thinking of a few individuals.

The best we can say is that there appear to be some

Chinese analysts, to include some in the military, who are

thinking about the potential costs of a military conflict over

Taiwan. Let’s review once again some key assessments and

potential “costs.”

• A military conflict over Taiwan will mean a conflict with

the United States.

• A conflict over Taiwan could place at dire risk what

some Chinese consider China’s real primary national

interests: reform and modernization.

• It could result in a prolonged “Cold War” with the

United States and some Western nations.

24
• A military conflict could strengthen the resolve of

Taiwan separatists, not cow them.

• A prolonged military conflict over Taiwan and the

collateral price in lives and treasure might even cost the

regime in Beijing the support of its own people for the

endeavor.

• A military conflict over Taiwan could escalate into a

major war due either to: (1) a failure on the part of Beijing to

have a firm political end-state in mind and a military plan

tailored to it, or (2) due to the unpredictability of the scale of

U.S. military involvement.

As I mentioned earlier, careful analysis on the part of the

Chinese (or anyone else) is no guarantee of correct analysis.

Moreover, even a correct Chinese analysis of the likely costs of

a cross-strait war is not by itself necessarily a valid indicator

of a decision not to engage in one. The calculus for “what

price is acceptable?” or the factors—known and especially

unknown—that would drive a decision for war are likely

much more important than what we think the Chinese

perceive the costs will be.

In closing, I would just add the following. Difficult as it is

to address the topics assigned this year, it is important that

we do so. My own feelings, fears really, are that not enough

people on either side of the Taiwan Strait or the Pacific are

thinking seriously about the implications and costs of a

conflict in the Taiwan Strait. This conference starts to

address that concern. However, I would say that there is a

paper missing from this conference on the costs of a conflict

to the United States.

ENDNOTES - CHAPTER 2

1. Samuel B. Griffith, Sun Tzu, The Art of War, London: Oxford

University Press, 1963, p. 63.

2. Xie Guoliang, Sun Zi: The Art of War With Commentaries (Sun Zi

Bing Fa Yu Pinglun), Beijing: Zhongguo Wenxue Chuban She, 1995, p.

9. In the past, Major General Xie has served as the Director of the

25
Strategy Research Institute of the PLA Academy of Military Science.

Based on conversations with him in October 2000, he still actively

writes, teaches, and advises at the AMS.

3. The proceedings of the 4th Sun Zi Conference, October 1998

(attended by Minister of National Defense General Chi Haotian) were

published in November 1999 by the Academy of Military Science

Publishing House as a bound volume of over 580 pages of edited

presentations that mostly discuss the application of Sun Zi to

contemporary strategic issues.

4. “The Present Situation and Our Tasks,” December 25, 1947,

Selected Military Writings of Mao Tse-Tung, Peking: Foreign

Languages Press, 1967, pp. 345-352.

5. For more on the details of the debate, see David M. Finkelstein,

“China Reconsiders Its National Security: ‘The Great Peace &

Development Debate’ of 1999,” CNA Corporation, Project Asia Regional

Assessment, December 2000.

6. Examples would be U.S. development of theater missile defense,

the pursuit of nuclear missile defense, the strengthened U.S.-Japan

alliance, side-stepping the United Nations to intervene in Kosovo, the

so-called “Clinton Doctrine” on humanitarian interventions, NATO

expansion, and NATO’s “New Strategic Concept,” to name just a few.

Moreover, Washington’s continued arms sales to Taiwan, which are

perceived in Beijing to be of a greater qualitative and quantitative

nature, not to mention the lessons of the 1996 carrier battle group

deployment.

7. Hsu Tao-chen, “Trends in Sino-U.S. Relations after the U.S.

Presidential Election—Interview with Professor Yan Xuetong,” Ta

Gong Pao, November 22, 2000, Foreign Broadcast Information Service

(FBIS). Dr. Yan is currently at Tsinghua University and no longer at

CICIR. My personal, and subjective assessment is that, on the specific

question of the probability of U.S. involvement, Yan’s views are a

mainstream view.

8. Michael Pillsbury, China Debates the Future Security

Environment, Washington, DC: National Defense University Press,

2000, p. xxvii.

9. Hsu Tao-chen, “Trends in Sino-U.S. Relations after the U.S.

Presidential Election.”

26
10. Chu Shulong, “China’s National Interest, National Power, and

National Strategy,” Zhanlue Yu Guanli, August 1, 1999, FBIS. 

11. Chu, Ibid.

12. John Pomfret, “U.S. Now a ‘Threat’ In China’s Eyes,” The

Washington Post, November 15, 2000, p. A 01.

13. Shi Yinhong, “Several Grand Strategy Issues Concerning

Taiwan Require To Face Up To,” Zhanlue Yu Guanli, April 30, 2000, as

carried by FBIS. All quotes in this section are taken from this article.

14. Of interest, as an example, Shi criticizes Mao’s strategic

decision during the Korean War to attempt campaigns beyond repelling

the U.N. forces back over the 38th parallel. This type of criticism is in

stark contradistinction to the usual PLA portrayal of their great

victories and “correct strategic decisions” during the “War To Assist

Korea and to Oppose U.S. Imperialism.”

15. Shi Guhong, “Difficulties and Options: Thoughts on the Taiwan

Matter,” Zhanlue Yu Guanli, October 1, 1999, also carried by FBIS. It is

unclear by only seeing the FBIS article whether the two authors, Shi

Yinhong and Shi Guhong, are in fact two different individuals, whether

they are the same man using a literary pseudonym in one instance, or a

mistranslation byFBIS. All quotes in the following section are from this

article.

16. David A. Shlapak, David T. Orletsky, and Barry A. Wilson, Dire

Strait? Military Aspects of the China-Taiwan Confrontation and

Options for U.S. Policy, Santa Monica, CA; Rand, 2000, summary, p. xxi:

“The need for the U.S. to suppress the PLA’s long-range air defenses

could provide the most compelling rationale for at least limited U.S.

attacks on military targets in China.”

17. Shi Yinhong, in “Several Grand Strategy Issues Concerning

Taiwan Require to Face Up To,” writes:

China’s basic autonomy, security, and integrity and its

prospects of becoming a world power are most important, and

the Taiwan issue is not the final, overwhelming issue. This

value rating limits the price we should pay in terms of the

country’s other basic interests for the sake of prompt

achievement of the unification of the two shores.

27
CHAPTER 3

CONFLICTING TENDENCIES:

ECONOMIC INTEGRATION VERSUS

POLITICAL IMPASSE

Ralph N. Clough

The governments on the two sides of the Taiwan Strait

are caught up in a contradiction. Politically, they are at an

impasse, with the People’s Republic of China (PRC)

pressing for political unification of Taiwan with the

mainland and the government in Taiwan seeking greater

freedom to function independently as a sovereign state in

the world community. Economically, the PRC wants rapid

modernization, in order to catch up with the West. The Chen

Shui-bian administration in Taiwan also wants

modernization, turning Taiwan into a “green, silicon

island.” Economic cooperation across the strait is making an

important contribution to achieving the modernization

goals of both sides, but they have been unable to resolve the

political impasse.

Pressing too hard to achieve conflicting political goals

could lead to a war that would set back for decades the

achievement of economic goals. The achievement of

economic goals requires growing cross-strait economic

cooperation—each side needs the other.

Extensive economic integration does not necessarily

prevent war. The example of England and Germany before

World War I is frequently cited. In that case, conflicting

political aspirations prevailed over economic cooperation.

But economic integration can be an important factor

reducing the risk of war.

29
Trends toward Integration.

The complementarity of the two economies provides a

firm basis for integration. The China mainland offers

cheaper labor and land and a huge market. Taiwan

entrepreneurs provide capital, technology, and marketing

and management skills. Affinities of history, culture, and

language give Taiwan investors an advantage over other

outside investors.

Taiwan entrepreneurs began on a small scale, moving to

the mainland labor-intensive manufacturing that could no

longer be profitable in Taiwan because of the rising cost of

land and labor. An early example was umbrella

manufacturing. Within a few years most umbrella factories

had moved to the mainland; so many had settled in an area

of Guangdong province that it became known as “Taiwan

Umbrella City.”

In 1990 I talked to a shoe manufacturer in Taipei who

had set up a factory in Guangdong. He leased a building,

packed up some used machinery and shipped it to his

Guangdong factory. He did not hire local workers, but

brought some down from Guizhou province because they

would accept lower salaries. After operating successfully for

a year, he wanted to expand his operation. He told his

workers he needed more help and within a few days he had

more down from Guizhou than he could use. I asked him

whether he sold any of his shoes on the local market. He

said, “No, they were too expensive. All were shipped to the

United States.”

Over the past 10 years, trends in Taiwan’s investment

have been toward larger companies, larger investments,

and movement up the China coast and inland. Altogether,

45,000 Taiwanese entrepreneurs have contracted

investments of $45 billion, with $25 billion actually

delivered. People from Taiwan make two million visits a

year to mainland China, and at any given time there are

some 200,000 people from Taiwan on the mainland. The

30
main motivations for investing in the China mainland have

been to exploit the China market and to use China as a base

for increasing exports to the world market. Some examples:

• The Uni-President Group. This large food

manufacturer had by 1996 invested $300 million in 18

plants in China. Its goal was to become the largest supplier

of food to Chinese throughout the world.

• The Ting Hsin Group is a rival of Uni-President in

seeking to supply the world’s Chinese population.

Operating through a subsidiary registered in the Cayman

Islands, Ting Hsin has been very successful in producing

and distributing on the mainland its popular Master Kang

brand instant noodles. As of 1996, it held nearly a quarter of

the mainland instant noodle market.

• The Giant Manufacturing Company is Taiwan’s

largest bicycle manufacturer. In 1999 one-half of its

worldwide production of 3.2 million bicycles were

manufactured by its plant in Qunshan, Jiangsu province,

the remainder by plants in Taiwan and Holland. Giant has

been pressing the government in Taipei to ease restrictions

on mainland investments so that it can further expand its

China mainland production.

• The Kwang Yang Motor Company (KYMCO) is

Taiwan’s leading motorcycle manufacturer. In 1996 it had

invested in four joint ventures on the mainland. At a

meeting in Guangzhou in late 1996, KYMCO’s president

announced plans to surpass Honda by 2010 as the world’s

largest name-brand motorcycle manufacturer. It was

expanding operations in mainland China as well as building

new plants in Taiwan, Indonesia, India, Vietnam and the

Philippines.

The Information Industry.

The most striking current example of economic

integration between Taiwan and mainland China is in the

information industry. Taiwan firms are the world’s third

31
largest producers of information technology hardware, after

the United States and Japan. But in 2000, nearly 40 percent

of these products are being turned out by Taiwan firms’

plants on the mainland. This year, the total value of

information technology hardware turned out on the China

mainland by Taiwan-owned plants and others will, for the

first time, exceed the value of such products manufactured

in Taiwan.

Taiwan’s leading computer company, Acer, has

committed itself to large-scale, long-term operations on the

mainland. It has taken out a 50-year lease on 40 hectares of

land in Guangdong province, where it has a plant producing

motherboards and other computer components. It plans to

build five more factories on this property, making it Acer’s

largest overseas production base, larger than its present

base at Subic Day in the Philippines. Acer also has

subsidiaries in Suzhou and Zhejiang.

Acer’s 10,000 employees on the China mainland

constitute almost one third of its global workforce. Sales of

Acer computers on the mainland rank fifth, after the

leading Chinese computer company, Legend, and several

American companies. Acer aims to become the No. 2

supplier of computers in China’s rapidly growing market.

Most of Taiwan’s producers of information technology

products have now invested in the China mainland, despite

the existence of some restrictions on cross-strait

investment. The government bans investment in single

projects of over $50 million or involving the transfer of

advanced technology. For example, the government

prohibits the manufacture of notebook computers on the

mainland by Taiwan companies. Yet all five of Taiwan’s

leading producers of notebook computers have, or plan to

have, plants on the mainland making components for

notebook computers. The heads of these companies recently

threatened to proceed with the manufacture of the entire

product on the mainland, despite government restrictions.

They say they have no choice, given the shortage of labor in

32
Taiwan and the fact that wages on the mainland are only

one-fourth to one-third of those in Taiwan.

The most remarkable recent instance of cross-strait

cooperation in the information industry is the $1.6 billion

computer chip plant being built in Shanghai in a joint

venture involving Winston Wang, the son of Y. C. Wang,

head of the Formosa Plastics Group in Taiwan, and Jiang

Mian-heng, the son of Jiang Zemin. Jiang is the company’s

vice chairman, and Wang is the president and Chief

Executive Officer. This plant is one of four that they plan to

build on the Shanghai site. Wang has declared that no

Taiwan money is going into the plant, and that he has no

personal financial stake in it.

A triangular interdependence is developing rapidly

among Taiwan, mainland China and the United States. Not

only are Taiwan’s information industry companies

increasingly dependent on production on the China

mainland, but increasing amounts of the final products are

being bought by American companies. Compaq alone

projects purchases from Taiwan companies in 2000 at $9

billion. IBM, Dell, and Hewlett-Packard will buy $4-$5

billion each, and Intel over $1 billion.

Other Recent Developments.

The expected entry of the PRC and Taiwan into the

World Trade Organization has unleashed a rapid increase

in investment by Taiwan firms on the China mainland.

According to the Taiwan government’s official figures,

during the first 10 months of 2000, investment on the

mainland has nearly doubled over the same period of 1999,

to $2 billion.

In other ways, Taiwan and mainland China are being

further connected. The principal telecommunication firms

of the PRC and Taiwan recently signed a memo of

understanding for the construction of a third international

undersea fiber-optic cable that will link the two sides of the

33
strait. Firms on both sides are preparing in a variety of

innovative ways to create a vast network of cross-strait

connections through the Internet.

Conclusions.

What does all this add up to?

1. The Chen Shui-bian government is deeply divided on

whether to ease restrictions on cross-strait trade and

investment.

2. Businessmen in Taiwan are placing heavy pressure on

Chen to ease restrictions.

3. Entry into the WTO will compel the removal of some

restrictions.

4. Many Taiwan entrepreneurs have been able to evade

restrictions, as in the example of the Shanghai chip plant.

5. Thus, economic pressures will continue to promote

integration, thereby increasing the cost of any disruptive

military action.

34
CHAPTER 4

TAIWAN DEPENDENCE:

THE STRATEGIC DIMENSION OF

CROSS-STRAIT TRADE AND INVESTMENT

John Tkacik

Washington policymakers were terrified when Taiwan’s

Democratic Progressive Party (DPP) leader Chen Shui-bian

announced in June 1999 that he was running for the

country’s presidency. The prospect of a DPP politician

actually winning Taiwan’s presidency and moving toward

“Taiwan Independence”—a long-held dream of the

DPP—was a nightmare that both Pentagon planners and

State Department diplomats have often war-gamed in

scenarios that inevitably provoke China into armed conflict.

Well, they needn’t have lost any sleep over it. Since his

March 18, 2000, election, Chen has stepped back from

“independence.” And no wonder—Taiwan, it seems, is too

dependent on China to be independent. Despite their

profound sympathies for a formal “non-Chinese” homeland,

President Chen, most of his major financial backers, and a

majority of his own political party are all too aware of the

central fact of Taiwan’s economic predicament: its entire

export manufacturing sector relies on mainland Chinese

labor and factories for growth. And it’s not just Taiwan’s

“sunset industries” that are being forced offshore, but its

cutting-edge computer and semiconductor industries as

well. Into the 21st century, Taiwan’s drift toward political

“independence” will have halted, and Taiwan’s increasing

economic symbiosis with mainland China will bind the

island ever more tightly to the mainland.

There is not enough room in this short chapter to offer a

comprehensive study of Taiwan’s economic

interdependence with China. I will only attempt to give a

flavor of the political, investment, trade, and labor factors at

35
play in the dynamics of cross-Strait relations. Nonetheless,

the obvious conclusion is reassuring. For the foreseeable

future, no one need worry that Taiwan will seek to change

its “status quo.” What China does is another story.

Turning Point.

The atmosphere in Taipei’s Academia Sinica auditorium

was electric the afternoon of March 10, 2000. There were

just 7 days left before Taiwan’s historic presidential

election. Reporters, photojournalists, and TV cameramen

jammed into the small auditorium to witness that was

perhaps the psychological turning point of the presidential

campaign. On the dais, a lanky and owlish scholar stood up

and moved next to former Taipei mayor Chen Shui-bian, the

DPP candidate for Taiwan’s presidency. The two men had

just completed an hour’s meeting in private and were now

ready to face the cameras.

Nervously, Academia Sinica President Lee Yuan-tseh,

Taiwan’s most respected scholar and winner of the 1986

Nobel Prize for Chemistry, cleared his throat and spoke into

the microphones in front of him. Calling candidate Chen a

“proper national leader,” Dr. Lee pledged to join

President-elect Chen’s National Policy Advisory Committee

and work to help Chen govern Taiwan as the island’s first

non-Kuomintang (KMT or “Nationalist”) party leader since

the end of World War II. “I admire Chen for his

determination to carry out all kinds of reforms and to

eradicate the ‘black gold’ politics of corruption,” Lee said. “I

will help Chen to govern our country if he is elected, to

promote Taiwan’s development.” The unprepossessing

academic explained his support for the former Taipei mayor

was spurred by the sight of “too many known members of

organized crime groups stumping for other candidates.”

Flashbulbs snapped, motor-driven cameras whirred. Dr.

Lee’s endorsement had sealed Chen’s victory.

1

Although former Taipei mayor Chen Shui-bian had

maintained a persistent if slight edge in the polls over the

36
previous 3 months of the 2000 campaign, even this late in

the game there were still lingering anxieties about his

commitment to the pursuit of “Taiwan Independence,” the

defining plank of Chen’s DPP. Although all the opinion polls

leading up to the presidential election showed a small but

increasing sentiment for outright “independence,” they also

showed the vast majority of Taiwanese, nervous about

China’s reaction, favored “maintaining the status quo

indefinitely.” Chen’s own DPP polls told him this latter

group made up the 20-to-25 percent of the undecided voters

who would swing the election.

For over a year, Chen had been backing away gingerly

from his party’s militant stance of full-separation from

China. While China and Taiwan are two separate and

independent countries, Chen would explain to his

constituents and fellow partisans (as well as to uneasy

Americans) this requires no change in Taiwan’s political

status. Taiwan, after all had been sovereign and

independent of mainland China since 1949, and the

“Republic of China” has been a sovereign and independent

nation since 1912. Chen promised to “maintain the status

quo” throughout his term as the Republic of China’s next

president. 

While Taiwan’s voters were sympathetic, they still

needed reassurance that electing Chen wouldn’t be

catastrophically provocative to China. Dr. Lee Yuan-tseh’s

words gave them some of that reassurance.

But as soothing as Dr. Lee’s endorsement was, Chen was

about to get a boost from even more convincing

supporters—Taiwan’s wealthiest and most dynamic

ethnic-Taiwanese businessmen and women. As Chen

turned to the audience, still basking in Dr. Lee’s reflected

glory, Chen revealed to reporters that “I have also received

promises from Taiwan High-Speed Railway Corporation

chairwoman Nita Ing, Chi Mei president Hsu Wen-lung,

Evergreen chairman Chang Jung-fa, and current National

37
Security Advisor Chen Pi-chao, and in addition, Dr. Lee has

suggested I invite Acer Computer’s CEO, Stan Shih.”

The message to Taiwan’s fence-sitting voters was clear.

If Taiwan’s top tycoons could support Chen, then a vote for

Chen was a vote for economic prosperity. And because all

these business leaders had extensive investments on the

other side of the Taiwan Strait, a vote for Chen was a vote

for stable relations with China as well.

A thousand miles away in Beijing, however, Chen’s

support among Taiwan’s top entrepreneurs was cause for

panic. Chinese leaders from President Jiang Zemin and

Premier Zhu Rongji on down were seized by the sudden

realization that maybe this pro-independence politician

could actually win! On March 15, with Taiwan’s election

just 3 days away, a clearly alarmed Premier Zhu called an

unscheduled news conference with foreign reporters. “Let

me advise all these people in Taiwan,” he warned, his voice

cracking with stress, “do not just act on impulse at this

juncture which will decide the future course that China and

Taiwan will follow. Otherwise, I’m afraid you won’t get

another opportunity to regret.” Premier Zhu vowed that

Chinese were ready to “shed blood” to prevent Taiwan

breaking away.

2

If China’s leaders thought Premier Zhu’s hard line

would sway Taiwan’s voters, they were wrong. In the end,

Chen won the March 18, 2000, election with 39.6 percent of

the vote in a hard-fought three-way race. Chen’s campaign

managers said privately that their polls showed Zhu’s

intemperate remarks actually added a percentage point to

Chen’s narrow win. And the following week, Chen invited

his advisors, including Nita Ing, Chang Jung-fa, Stan Shih

and Hsu Wen-lung to help him choose a new cabinet.

Beijing Pressures Pro-Chen Businesses.

The Financial and Economic Times is a small circulation

weekly financial newspaper published in Beijing by the

38
China Securities Market Research and Planning Center,

but on Tuesday, April 11, 2000, its circulation shot up as

Taiwanese reporters scurried around town looking for

copies. Under a front-page headline, “A Minority of Taiwan

Businesspeople who Tout Taiwan Independence Stirs the

Anger of the Mainland,” were four large portraits of none

other than Nita Ing, Chang Jung-fa, Stan Shih, and Hsu

Wen-lung. The paper named these four ethnic-Taiwanese

supporters of president-elect Chen Shui-bian (as well as

three others: future Minister of Economic Affairs Lin

Hsin-yi; E. Sun Bank chair Lin Jong-shong; and I-Mei

Foods’ Kao Chih-ming). The article complained that

although these Taiwan businessmen and women had one

thing in common—massive investments in China—they

nevertheless had the temerity to support Chen Shui-bian

and Taiwan independence.

3

The first target of the newspaper’s attack was Chi Mei

Enterprises’ Chairman Hsu Wen-lung. The paper pointed

out that Hsu’s operations in Taiwan ship over a million tons

of raw petrochemicals to China each year, and account for

over 40 percent of China’s imports in many major

petrochemical sectors. Chi Mei also has a 300,000 ton/year

polystyrene plant in Zhenhai as well as a 125,000 ton/year

joint venture acrylonitrile-butadine-styrene (ABS) plant

under construction.

Next on the list was Chang Jung-fa, chairman of

Taiwan’s Evergreen Group which operates one of the

world’s largest merchant fleets, scores of container ports,

and several international freight forwarding businesses as

well as EVA Airways. Evergreen has 14 offices in China and

cooperates with all of China’s major shipping lines to run

cargo across the Taiwan Strait via third ports. (And it

should be noted that, at the sufferance of the Chinese

government, EVA Airways now ferries 15,600 passengers

weekly between Taiwan and Macao, where most of them

book onward flights directly into China.)

39
The Financial and Economic Times piece then recalled

that Stan Chen-jung Shih’s Acer Computers is already one

of China’s top computer sellers, has plans to invest in over

200 separate internet portals in China over the next 2 years,

and more plans to invest another U.S.$3 billion into the

China market over the next 5 years.

The Financial and Economic Times article was a shot

across the bow. No longer would Beijing “sit idly by” and

“watch Taiwan businesses make money in China to support

Taiwan Independence back home,” it warned. That week,

the planned opening of Evergreen’s Shanghai office was

delayed, and Chi Mei’s shippers and factories along the

China coast were all subject to the incessant inspections of

battalions of Chinese bureaucrats, from tax collectors to

safety inspectors to customs agents and policemen. In May a

platoon of tax inspectors appeared at the doorstep of the Chi

Mei plant near Nanjing, and, while they found no

irregularities, they made it clear to the Taiwanese

managers that the crackdown was tied to Hsu’s support for

Chen. According to a Business Week article,

4

 Chi Mei says

authorities have threatened its mainland customers with

special tax scrutiny. Although Chi Mei has sunk $200

million into China, the company is now threatening to

freeze future investments, and there are rumors that Hsu

Wen-lung is pondering ways of pulling out of China

altogether. 

But Hsu Wen-lung is the exception. Most of Taiwan’s

entrepreneurs hope to remain in Beijing’s good graces.

Acer’s Stan Shih, for example, was so worried about his

appearance in the Financial and Economic Times that he

flew immediately to Beijing where he hoped to meet some

high in the party so he could explain himself, but in the end

he spent just a day and gave a speech at a computer trade

show.

5

 Shih told reporters that he had “never supported

Taiwan Independence,” while Chi Mei’s representatives in

China insisted that their boss, Hsu Wen-lung, “has nothing

to do with the China offices”—as if that would exculpate Chi

Mei’s mainland operations from Mr. Hsu’s political stance.

40
Hsu himself was unapologetic, but he remained quiet

nonetheless. 

Evergreen’s Shanghai office eventually opened, but as

late as November 23, 2000, the Chinese were still

temporizing about extending EVA Airways’ landing rights

in Macao, rights that were due to expire at the end of that

month.

6

 By Friday, November 24, however, Taiwan and

Macao civil air negotiators finally signed an agreement

which increased the number of weekly passenger seats

between Taiwan and Macao by 8,000—half to Air Macao

and the other half split between Taiwan’s EVA Air and

TransAsia Airways. Cargo will also be increased by 400 tons

per week, with 200 tons going to Air Macau, and 100 tons

each to EVA Airways and TransAsia Airways. While the

Chinese clearly wanted the increased air traffic, they were

also willing to hold out to the 11th hour and 59th minute to

make their point that thenceforth EVA Air’s operations in

China would continue on condition of good behavior.

Taiwan Dependence on China.

The Chinese leadership’s new hardline against

ethnic-Taiwanese businesses in following the election of

President Chen Shui-bian has heightened Taiwan’s sense of

vulnerability to Chinese economic pressures. President

Chen’s response has been moderate. In his May 20, 2000,

inauguration address, he acknowledged that “Taiwan’s

industrial development must move toward a

knowledge-based economy, high-tech industries need to be

constantly innovative, while traditional industries need to

undergo transformation and upgrading.” Chen’s fears for

Taiwan’s sunset sectors reflect his private concerns that

most of the island’s light-industrial firms will sooner or later

have to move offshore—to China—in order to remain

competitive, leaving Taiwan’s advanced information

economy to emerge as the engine of Taiwan’s future growth.

Accordingly, Taiwan is becoming the supplier of advanced41
technology components to the labor-intensive assembly

lines in China.

Taiwan’s economic planners are understandably

concerned by this out-migration that is already

“hollowing-out” Taiwan’s manufacturing sector. This isn’t

to say they haven’t tried to control the problem. President

Chen’s predecessor, Lee Teng-hui, instituted a “don’t hurry,

be patient” policy of discouraging Taiwan businesses from

moving to the Chinese mainland.

7

 Earlier, in 1994,

President Lee launched a “Southern Strategy” of

encouraging Taiwan businesses to look at Southeast Asia as

an alternative to China.

8

 But, with the exception of a

large-scale move into Vietnam (where labor is truly cheap),

new investments in China continued to increase at an

annual rate of 13-30 percent. (See Table 1.)

Paradoxically, Chen Shui-bian’s inauguration seemed to

speed-up Taiwan’s manufacturing exodus to China. Chen

campaigned on a promise unilaterally to open up trading

links with the mainland, and after his election he has

ordered a series of policy initiatives to encourage

cross-Strait trade, provided China doesn’t levy a “one

China” precondition. Although China hasn’t obliged,

Taiwan businesses view the new Chen Shui-bian regime as

much more sympathetic to cross-Strait investments than

his predecessor’s, and Taiwan investment flows into China

ballooned in the first 6 months of Chen’s government.

On September 25, Taiwan’s Ministry of Economic

Affairs (MOEA) reported that it had approved U.S.$1.612

billion in new Taiwan investments in China for the

January-August period—representing an annual

expansion of 146 percent.

9

 By October 25, another U.S.$178

million in Taiwan investment applications were approved,

106 percent over 1999 levels.

10

The final tally for the year 2000 confirmed the trend. The

MOEA reported January 30, 2001, that increasing efforts

by the Beijing government had been successful in drawing a

record level of Taiwan investment in China. In 2000, MOEA

42
43
processed a total of U.S.$2.6714 billion worth of PRC

investment projects applications submitted by Taiwan

investors, a 108.1 percent increase over 1999 applications,

and the highest annual level on record. MOEA report said

that the influence of both Taiwan’s and the PRC’s entry into

the World Trade Organization (WTO) likely means Taiwan

investment in China would continue its heated pace

through 2001, as well. Of these projects, electronic and

electrical equipment projects accounted for 54 percent of the

total. But the sector with the biggest increases in

investments wasn’t electronics but services. In 2000,

Taiwan service sector investments totaled U.S.$160

million, a six-fold increase from 1999; electrical/electronics

investments were U.S.$1.4 billion, an increase of 170

percent; plastics sector investments were U.S.$180 million,

up 86 percent, with 80 percent of the new investment

applications for projects in Guangdong and Jiangsu.

Taiwan’s newspapers noted Beijing sources estimate

Taiwan businesses have invested a cumulative U.S.$28

billion in China since 1986, while Taiwan’s own Central

Bank of China (CBC) seemed to think the figure was over

U.S.$50 billion—or maybe U.S.$60 billion.

11

 As late as

November 11, 2000, one Taiwan Legislative Yuan member

claimed the CBC told him Taiwan investments could be as

high as U.S.$100 billion if one includes all the money that

Taiwan businesses borrow for their mainland operations

without seeking Taiwan government approval.

12

 By

comparison, Taiwan’s Commission on Economic Planning

and Development (CEPD) reckons that Taiwanese

businesses have invested a cumulative U.S.$43.7 billion in

Southeast Asia.

13

 In February 2001, Ms. Tan Ching-yu, a

research fellow at Taiwan’s “National Policy Foundation,” a

think-tank closely linked to the Kuomintang (KMT) party,

asserted that “Taiwan’s mainland investments hit a record

U.S.$2.7 billion in 2000 and grew 108 percent compared

with the previous year.” Tan also said “almost 70 percent of

the investments were made in the second half of last year,”

44
that is, made after President Chen Shui-bian took office in

May 2000.

This situation would be truly disturbing even if one

weren’t concerned about the national security implications

of such close economic dependence on a politically hostile

power. In early November, 2000, Taiwan’s cabinet-level

CEPD reviewed the alarmingly high growth of Taiwan

industrial investment in China and recommended that laws

be enacted which will limit investment to 2 percent of

Taiwan’s gross domestic product.

14

 And Taiwan is likely to

continue its national security ban on making very high-tech

computers, powerful motherboards, or high-speed modems

in China.

Still, when all is said and done, and despite the

increasing vulnerability of Taiwan’s economy to pressures

from China, there is no other choice for Taiwan businesses

that hope to remain competitive. China has the labor, the

land—and now, the market—while Taiwan has the capital,

expertise, and entrepreneurship. Already, thousands of

entire production lines have been closed in Taiwan—and

reopened in China.

With Taiwan as dependent as it is on China, President

Chen is not about to provoke Beijing with an independence

challenge. Indeed, Chen held out the olive branch at his

inauguration address by reassuring his Chinese

counterparts that “we believe that the leaders on both sides

possess enough wisdom and creativity to jointly deal with

the question of a future ‘one China’. ” Chen also made his

so-called “Four No’s” vow that

as long as the Chinese Communist Party’s regime has no

intention to use military force against Taiwan, I pledge that

during my term in office, I will not declare independence, I will

not change the national title, I will not push forth the inclusion

of the so-called ‘state-to-state’ description in the Constitution,

and I will not promote a referendum to change the status quo

in regards to the question of independence or unification.

15

45
How Dependent Is Taiwan?

The year 2000 was a benchmark era for Taiwan

investment in China. Taiwan’s investments in China moved

from low and mid-tech into the high-tech sectors, and for the

first time, investments in services showed that Taiwanese

businesses have finally begun to view mainland China as a

major export market in itself. Taiwan’s bean-counters say

the capital injection from Taiwanese enterprises in China

reached U.S.$14.8 billion by mid-2000. But figures compiled

by Beijing showed that Taiwan investors have signed

agreements to invest U.S.$48 billion capital in the

mainland, with actual capital input amounting to U.S.$28

billion.

Much of the early Taiwan investment in China could be

said to have been “overestimated” in an effort to “puff-up”

their claims to preferential treatment in China. Taiwan’s

toy, textile, electrical appliance, and footwear factories in

Fujian and Guangdong, for example, were often older

production lines with obsolescent equipment that had been

crated up in Taiwan and shipped across the Strait.

But not any more. For the year 2000, an astonishing 72.8

percent the total U.S.$25.535 billion production value of

China’s information technology (IT) hardware sector was

manufactured by Taiwan-owned production lines. A more

ominous fact was that China’s U.S.$25 billion IT industry

was bigger than Taiwan’s home-grown U.S.$23.209 billion

industry (according to a November 6, 2000, report by the

Taipei Market Intelligence Center, or “MIC,” at Taiwan’s

government-run Institute for Information Industry).

16

Taiwan-controlled IT production for the year 2000 will

total U.S.$48.076 billion—20.5 percent over 1999—with

only U.S.$23.209 billion worth of the products actually

manufactured in Taiwan. U.S.$18.577 billion worth—or

38.6 percent—of the total will have been assembled in

mainland China, up sharply from 1999’s level of 23 percent,

46
and even that number is expected to rise to 51 percent in

2001. 

In October 2000, Quanta Computer announced it would

invest U.S.$26 million in a motherboard factory and

computer case production line in Zhongshan, making it the

last of Taiwan’s notebook manufacturers to set up shop in

China. As of late September, Taiwan’s desktop personal

computer (PC) manufacturers had moved 42 percent of their

production lines to China, including:

• Mitac International (U.S.$30 million in Shunde,

Guangdong); 

• Hsing Enterprise (Shenzhen, Guangdong);

• Acer Inc. (Zhongshan, Guangdong);

• Tatung (Wujiang, Jiangsu); and,

• First International Computer Inc. (Shenzhen).

17

Taiwan’s Ministry of Economic Affairs judges that up to

48 percent of desktop computers exported by Taiwan

makers are now manufactured in mainland plants, 18

percent turned out by their plants in Taiwan, and the

remaining 34 percent produced in other parts of the world.

At the high-end of the PC spectrum is the notebook

computer, and Taiwan can already claim a 60 percent share

of the global notebook computer market. In 2000,

Taiwanese-operated plants in mainland China assembled

6.5 percent of Taiwan’s notebook output, double 1999’s

figure. 

About 56 percent of Taiwan’s motherboard makers also

had production lines on the mainland, which in the first half

of 2000 produced 45.8 percent of Taiwan’s total

motherboard shipments—a figure that rose to over 50

percent by the end of 2000. Motherboard makers in China

include Hsing Enterprises (Shenzhen); Asustek Computer

(Suzhou, Jiangsu); Gigabyte Technology (Dongguan, and

Huangjiang, Jiangsu); Micro-Star (Shenzhen); and

Elitegroup (Shenzhen). Of Taiwan’s scanner

47
manufacturers, 88 percent had moved to the mainland by

the end of 2000, including Silitek (Dongguan); Avision

(Shanghai, Suzhou); Primax Electronics; Mustek

(Dongguan); and Umax Data Systems (Suzhou). Of

Taiwan’s CD-ROM drive makers, 74 percent have moved to

mainland China, including Chien-Hsin Electronics,

Behavior Tech, Arima, Acer Communications and

Multimedia, and Aopen. And 58 percent of Taiwan’s

computer monitor producers, including Lite-On Technology

(Dongguan) and Compal Electronic (Kunshan, Jiangsu),

have major production lines in China.

18

Labor costs are a major factor in the migration of

Taiwan’s high-tech sector to China, with engineering and

technical staff salaries running about one-third to one-fifth

of Taiwan’s levels, and assembly labor as cheap as

one-tenth. Acer Display Technology, Taiwan’s largest

domestic notebook display manufacturer, announced

October 20, 2000, that it would set up a new liquid crystal

module (LCM) assembly line at Acer’s 53.3-hectare complex

in Suzhou, Jiangsu. The company said an exhaustive study

showed that moving LCM assembly lines to China would

reduce production costs 20 percent. Although Acer’s move

displaces over 800 assembly-line workers at Acer Display’s

Taiwan factory, many of its major Taiwan customers are

setting up notebook assembly lines on the mainland, and

the company has to service them.

19

Taiwan’s Lite-On Electronics announced on October 5,

2000, that it would relocate its entire Taiwan optoelectronic

production line to its factory in Tianjin “due to high

production cost in Taiwan.” Lite-On’s three production lines

in Tianjin cover 750,000 square feet of floor space, have

2,000 workers, and generated about U.S.$62.5 million

income in 2000. The move saves Lite-On about U.S.$1.6

million in production costs and will leave the Taiwan

operation focused on research and development (R&D) and

production of high value-added products.

20

48
But Taiwan’s high-tech sector doesn’t just see China as a

source of cheap labor. It’s a major market as well. VIA

Technologies, Taiwan’s largest chipset designer, reported in

September that China’s 12 major computer assemblers

(including China’s giant Legend Group) have ordered VIA

chipsets and processors, and that VIA intends to take over

50 percent of the mainland Chinese market for chipsets and

between 10 percent and 30 percent of China’s CPU (central

processing unit) market within the next few years. On

October 30, VIA Tech announced it would invest U.S.$16.08

million to establish its first branch in China, an R&D center

in Beijing. VIA sees itself as becoming China’s main

supplier of chipsets by placing VIA-Cyrix III

microprocessors as original equipment manufacturing

(OEM) on the majority of motherboards sold in the

mainland. VIA’s China foray will, of course, put it into direct

competition with Intel, which currently dominates China’s

CPU market, but VIA’s strategy is to beat Intel in the China

market. Taiwan’s motherboard producers already use VIA

chipsets on their China-bound OEM products marketed by

Compaq and Dell.

21

Stan Chen-jung Shih’s “Acer Sertek” said September 25,

2000, that its PC sales in China will exceed Taiwan for the

first time in 2000 making it China’s number three PC brand

after Legend and Founder Group. With China demand

pegged at between seven and eight million units in 2001 and

annual growth rate of between 20 percent and 30 percent,

Acer Sertek sees the mainland as replacing Germany as the

third largest PC market in 2001 and Japan as the world’s

second largest PC market by 2002. To meet the demand,

Acer Group is planning PC manufacturing centers in

Guangzhou and Suzhou and doubling its PC distribution

and service beyond its existing 500 sales centers by first

quarter 2001.

22

The February 9, 2001, edition of Hong Kong’s AsiaWeek

magazine profiled the controversial semiconductor joint

venture in Shanghai run by Formosa Plastics Group (FPG)

Chairman Wang Yung-ching’s estranged son, Winston

49
Wen-yen Wong (Wang), noting that “for Beijing, it’s a dream

venture. But for Taipei, it could be a nightmare.” The article

said Wong’s U.S.$1.63 billion, 240,000-square-meter

computer-chip plant in Shanghai’s Pudong Zhangjiang

High-Tech Park—"Shanghai Grace Semiconductor

Manufacturing"—is part of China’s strategy to become a

major player in the world of high tech. Taipei worries the

“investment, and other projects that are already following,

will accelerate Taiwan’s economic dependence on the

mainland—and sap its political ability to resist

reunification.” According to AsiaWeek, China has only two

major semiconductor makers: a Motorola plant that

produces chips for its own mobile phones, and a small NEC

joint venture in Shanghai. AsiaWeek explained that “Wong

these days seems primarily driven by his desire to get even

with his father,” but is now “coy about the financial

structure of the project, not least because he is under

pressure from Taipei authorities not to go ahead with the

venture.” The holding company, “Grace THW Group,”

already has eight low-tech factories in China which claimed

U.S.$260 million in sales in 2000. Construction on Grace’s

new eight-inch waferfab in Shanghai, the most advanced of

its kind in China, should be in full production by 2002. And

if the venture expands according to its high-tech contract,

the Chinese government will provide an extra U.S.$2.5

billion, with the total likely investment to hit U.S.$6.4

billion.

23

AsiaWeek also reported that another giant Taiwan

computer-chip factory, Semiconductor Manufacturing

International (SMIC) owned by a consortium led by Richard

Chang, is expected to begin pilot production this September.

Together, AsiaWeek said, Wong and Chang are likely to

have up to 12 production lines turning out eight-inch silicon

wafers by the end of 2002, giving China one-fifth of Taiwan’s

50-plus production lines, making it a major computer-chip

manufacturer. Moreover, SMIC plans experimental

production of 12-inch wafers by mid-2002. AsiaWeek

reported that “the Taiwan business community expects the

50
government to relax some investment restrictions later this

month. Taipei may authorize six-inch and possibly

eight-inch wafer operations on the mainland.”

2000 was a key year for Taiwan’s copper-wire

investments in China. Nine of Taiwan’s top electric wire and

cable producers expanded the output of their Chinese

factories to meet the ever-rising demand for cable and wire

in mainland China. Walsin Lihwa has invested U.S.$120

million in 14 factories throughout China to make copper

wire, power cable, fiber-optics, and steel wire. Pacific

Electric Wire and Cable invested U.S.$31 million in

Shenzhen to make bare copper wire. Tai-I Electric Wire and

Cable spent U.S.$17 million in a copper wire line in

Guangzhou, making that factory the largest factory of its

kind in China. Ta Ya Electric invested U.S.$11.8 million to

set up a copper wire factory in Dongguan, Jung Shing Wire

Co., Ltd. invested U.S.$5.21 million to build two copper-wire

factories in Dongguan supply the computer monitor

industry.

24

The petrochemical sector has also been drawn to

mainland China in 2000. Nan Ya Plastics, a subsidiary of

Formosa Plastics Group (FPG), decided on August 27, 2000,

to invest U.S.$49 million to build a refinery in Huizhou,

Guangdong. The FPG parent company is also seeking

Taiwan government approval for a U.S.$100 million

polyvinyl chloride (PVC) refinery in Ningbo, Zhejiang, with

a 300,000 metric ton annual output capacity, and plans

additional ones in Nantong, Zhejiang, and in Xiamen,

Fujian.

25

 Taiwan media reports on September 3, however

indicate FPG is planning to invest over U.S.$13 billion in a

vast 4,000-hectare petrochemical complex at the Ningbo

site. While FPG has long been a pioneer in mainland

investments, Taiwan’s Petrochemical Industry Association

(PIA) which represents the island’s non-FPG-owned

petrochemical manufacturers, have decided to move ahead

with a U.S.$700 million joint venture ethylene cracker with

an annual capacity of 600,000 tons.

51
Despite the enthusiasm that FPG and the PIA

petrochemical producers show for expansion into China,

Taiwan’s now-blackballed Chi Mei Petrochemical seems to

have other ideas. After 6 months of harassment by Chinese

watchdogs, and an unofficial boycott of Chi Mei’s products,

which in late October prompted Chi Mei to announce a

downward adjustment in its November domestic sales

prices of ABS and polystyrene. The company is said to be

looking for ways out of China—perhaps for Vietnam or the

Philippines.

26

These are just a few examples of the major Taiwan

investment initiatives in China during the two

mid-quarters of 2000. And they are, of course, just a

snapshot of the migration of Taiwan’s mid- and high-tech

manufacturing to the mainland. But they also underscore

the growing importance of China’s market for high-tech

products. 

The rest of Taiwan’s U.S.$25 billion to U.S.$60 billion

investment in China’s low- to mid-tech industries has been

there for at least 5 years, in some cases (as with shoes and

light industrial goods) between 10 and 13 years. Taiwan’s

largest light industrial sector players—foodstuffs giant

Uni-President, for example—are now familiar features in

the Chinese landscape. Taiwan is now getting comfortable

with them as well. On October 22, 2000, Taiwan’s Mainland

Affairs Council (MAC) and Ministry of Economic Affairs

approved the first exception to the island’s U.S.$50 million

ceiling on investment projects in China. But it was an

exception that proved the rule. Taiwan’s Uni-President

Group actually applied to consolidate 18 of the Uni Group’s

re-invested firms in China into a large holding company

based in Shanghai and capitalized at U.S.$100 million

which will handle materials management, fund

management, and personnel training for the group’s 20

other re-invested manufacturing firms in mainland

China.

27

52
Patterns of Trade.

Taiwan’s investments in China are the engine behind

Taiwan’s massive trade across the Strait. And China is the

engine for Taiwan’s export sector.

Taiwan’s November 2000 trade with the People’s

Republic of China totaled U.S.$2.25 billion in exports to the

PRC (6.6 percent above November 1999) and U.S.$560

million in imports from the PRC, according to the figures

published in January by Taiwan’s Ministry of Economic

Affairs (MOEA). November’s U.S.$1.7 billion trade surplus

with China brought last year’s January-November total

trade surplus to U.S.$18.27 billion in Taiwan’s favor, 20

percent above 1999’s levels and a new high. Taiwan’s total

cross-Strait trade has tripled in less than 10 years, the

MOEA report said, and Taiwan’s trade surplus with China

broke the U.S.$10 billion mark in 1993, and was U.S.$16.7

billion in 1999. MOEA statistics showed cumulative

January-November 2000 trade with the PRC at

U.S.$29.776 billion, 27.2 percent above 1999 levels,

accounting for 11.2 percent of all Taiwan’s foreign trade.

Taiwan exports during the period totaled U.S.$24.027

billion (24.3 percent above 1999), and accounting for 17.6

percent of all Taiwan’s exports. Imports from the PRC were

U.S.$5.749 billion, 40.5 percent above 1999 and 4.4 percent

of all Taiwan’s imports.

Taiwan’s trade with China hit record levels in July 2000

for the 10th consecutive month of double-digit year-on-year

growth. Exports to China surged a year-on-year 42 percent

in July to U.S.$2.5 billion while imports were U.S.$566

million, up 55.4 percent from the same month in 1999.

Taiwan’s trade with China grew to U.S.$18.38 billion in the

first 7 months of the year, up 30.9 percent from the same

1999 period and accounted for 11.1 percent of Taiwan’s total

external trade.

28

Interestingly, although Taiwan’s trade with China has

doubled since 1994, the level of Taiwan’s export dependence

53
on China has gone from 14.9 percent (of Taiwan’s total

exports) in 1993 to 17.8 percent in 2000. This statistic,

however, masks the level of exports orders (and hence

profits) received by Taiwan-owned factories in China

directly to customers abroad without transiting Taiwan or

relying on components imported from Taiwan. (See Table

2.) 

What does the trade consist of? Mostly components

shipped to Chinese factories for assembly into products for

export beyond China. A report released by the Ministry of

Economic Affairs on March 26, 2000, showed that over 26

percent of all Taiwan export orders received by Taiwan

companies are shipped from Taiwan-run factories in China.

The MOEA report indicated that this 26 percent figure

includes export orders for items made in whole or in part in

China. This means that, while a good chunk of these goods

are re-assembled, sent back to Taiwan, and then exported

from Taiwan as finished products, more than half appear to

be shipped directly from China without showing up on

Taiwan’s export statistics. Still, the implications are

dramatic—over one-fourth of all Taiwan exports, direct or

indirect, in whole or in part, rely on China.

29

That’s a huge figure. But it puts into perspective why

China doesn’t view Taiwan’s foreign direct investment as a

“golden goose.” Instead, the Chinese leadership likely sees

foreign investments in the export-processing sector as a

job-creator. A report prepared by the U.S. Consulate

General in Guangzhou in 1992 included a study of the

footwear industry which cited the example of a pair of Nike

tennis shoes said to cost about U.S.$12.00 ex-factory. Of

that figure, U.S.$1.00 was for labor, about $0.50 was for

rent, electricity, taxes, U.S.$6.00 was for imported

components, and U.S.$2.00 for Chinese sourced

components. At the time, the consulate extrapolated that

for every dollar of exported goods from a foreign venture,

only about 30 percent stayed in China, while the rest went to

other foreign countries which supplied the components and

entrepreneurship.

30

54
55
Taiwan’s reliance on China to fuel its export economy,

therefore, seems far more important to Taiwan than to

China, a fact that seems only recently to have dawned on

Beijing. Beijing’s policy heretofore has generally been to

insulate the Taiwan economic and political spheres.

As the Beijing Financial and Economic Times‘ attack on

Taiwan businessmen shows, the careful separation of trade

and politics broke down after Taiwan president Chen

Shui-bian’s election. A few days before the FET story was

published on April 9, Chinese officials were already

reported in the Taiwan press to be “increasing pressure on

the investment activities of Taiwanese companies which are

thought to be backing the pro-independence policy of

President-elect Chen Shui-bian of the DPP.” These

unnamed Beijing officials warned that they may consider

excluding companies that back Taiwan independence from

cross-strait economic activities. Taiwan’s businessmen and

women, small, big and world-class alike have too much

invested—literally and figuratively—in mainland China to

risk it by actively supporting Taiwan independence.

They—not just the four whose photos appeared on the

front page of a Chinese newspaper—but hundreds of

President Chen’s supporters—certainly wield enough

influence over Chen to restrain any precipitate and overt

move to Taiwan independence—presuming he would want

to in the first place. In short, although Chen’s presidential

term thus far has not been the most predictable, it’s

probably safe to say he would not want to precipitate the

economic collapse that would result if China forced Taiwan

companies to shut down their mainland operations.

Beware of Radical Labor.

If Taiwan’s “new economy” firms see the mainland as an

opportunity for growth and increased competitiveness, its

“old economy” manufacturing businesses see it as the only

way to survive. Taiwan traditionally has had a

characteristically Asian labor market, with unemployment

56
hovering in the high two percentages, and yet the island’s

working wages are far higher than most Asian countries,

due to a combination of a thriving economy and one of Asia’s

narrowest income gaps.

If there is a threat to the political status quo in the

Taiwan Strait, however, it is that the income gap is

widening. Chen’s DPP has traditionally put its

ethnic-Taiwanese platform before its populism, but now

that independence is on the back-burner, the party has been

focusing more on its social and environmental

agenda—hence the Chen administration’s controversial

decision to abandon plans to build a nuclear power plant.

DPP party literature calls Taiwan’s income gap “alarming,”

noting that the richest 20 percent of the population earns

5.5 times as much as the poorest 20 percent.

Ironically, that disparity is probably narrower than its

“communist” neighbor next door—but with thousands of

jobs moving off the island and onto the mainland every

month, it’s not going to get any narrower. Unemployment

was as high as 2.7 percent in May and was creeping up at 0.1

percentage point a month to 3.1 percent in October. On

November 14, 2000, a coalition of Taiwan labor groups

planned to fly to Hong Kong where they would demonstrate

outside the Xinhua news service building to protest the

exodus of Taiwan jobs across the Strait. The prospect of the

independence platform resurfacing under a protectionist,

pro-labor guise is certainly plausible.

Conclusion.

While there is a large Taiwan constituency for labor

relief and efforts to halt the outflow of manufacturing jobs,

there is nevertheless very little political sentiment on the

island for a challenge to the status quo that calls Taiwan the

“Republic of China.” If present trends continue—and there’s

every indication they will—the outlook for the early part of

the 21st century is for ever-increasing Taiwan dependence

on China for its economic expansion. This, of course, means

57
Taiwan’s political leadership will be very circumspect in

dealing with the touchy topic of “independence.”

Of course, there’s no need to bring up the “independence”

issue at all. Taiwan’s formal position is that it’s already

independent and sovereign, and that’s the status quo that

has existed since 1949. Taiwan, therefore, has neither need

nor desire to change this status quo. China, on the other

hand, has declared that “if the Taiwan authorities refuse,

sine die, the peaceful settlement of cross-Straits

reunification through negotiations, then the Chinese

government will only be forced to adopt all drastic measures

possible, including the use of force, to safeguard China’s

sovereignty and territorial integrity and fulfill the great

cause of reunification.”

31

 Strong words. They serve as a

warning that if anyone’s likely to risk changing the status

quo in the Taiwan Strait, it’s the People’s Republic of China,

not Taiwan.

Unfortunately, there’s little evidence one way or the

other to indicate that the Chinese leadership is reassured by

Taiwan’s growing “dependence.” One would think they’d be

ecstatic; that they’d see the trend as pulling Taiwan ever

closer into China’s orbit. And one would think the

reasonable strategy would be to let nature take its course.

But if the February 2000 “White Paper” is to be taken

seriously, the Chinese leadership doesn’t seem to see it this

way. Instead, they focus on the largely hallucinated specter

of “Taiwan Independence.”

Beijing already has proved itself capable of

strong-arming Taiwanese businesses in China into

supporting one China. Indeed, the timid protestations from

Taiwan firms that they are “neutral” or “don’t support

Taiwan Independence,” or better still, “adhere to one

China,” reflects that Taiwan firms see political fealty to

Beijing as a cost of doing business. But there’s a limit to how

much influence even these Taiwan firms have on Taiwan’s

political leadership, and, if further commercial migration to

China means ballooning ranks of unemployed in Taiwan,

58
their leverage would evaporate. So, clearly, Beijing’s

leverage is limited to “keeping Taiwan from declaring

independence”—but the leverage does not extend to being

able to “force Taiwan into unification.”

Without this leverage, Beijing may look elsewhere for

influence over Taiwan. Surely, easing up on a military

buildup that explicitly threatens Taiwan would be infinitely

effective at speeding up Taiwan’s “dependency” trend. But

instead, Beijing seems to be pursuing a diametrically

opposite tactic. Beijing is spending vast new sums on

Russian-made Sovremmenny destroyers, SS-N-22

“Sunburn” supersonic missiles, Sukhoi-30 jet fighters, and

the full fearsome panoply of advanced weaponry that is now

being deployed with the People’s Liberation Army, Navy,

and Air Force.

Needless to say, this is a policy direction that seems

designed not so much to woo Taiwan into the gently

enfolding arms of the motherland, as to placate China’s

military. Others in this volume will assess whether the

Chinese leadership truly intends to use its new armaments

against Taiwan—or anyone else. But one can’t help but feel

that, with all this new equipment, the Chinese PLA will find

some way to use it.

ENDNOTES - CHAPTER 4

1. The event was covered in all the Taipei newspapers on Saturday,

but theTaipei Times has the best best English language description. See

“Chen to visit Lee Yuan-tseh today,” Taipei Times internet edition,

March 10, 2000, at http://www.taipeitimes.com/ news/2000/03/10;

“Chen’s the man, says Lee,” Taipei Times, March 11, 2000, at

http://www.taipeitimes.com/news/2000/03/11; and “Lien, Soong

scrambling on damage control over Lee Yuan-tseh,” Taipei Times,

March 12, 2000, at http://www.taipeitimes.com/news.

2. “China’s Zhu Warns Taiwan to Vote with Cool Head,” by Paul

Eckert, Reuters, from Beijing, March 15, 2000.

3. The full story is in “Beijing Baozhi Dian Ming Yan Bian Qi

Taishang” (“Beijing Newspaper Names Seven Taiwan Businessmen

59
who supported Chen Shui-bian”), filed by journalist Xu Donghai in the

Shijie Ribao (World Journal), New York, April 12, 2000, p. 1.

4. “Uneasy Collaborators: To China, Taiwan Investors are both

Welcome and Suspect,” Business Week, August 14, 2000, p 28.

5. “Hongqi Xiang Zhonggong Baozheng Zhichi Tongyi” (“Acer

Assures PRC that It Supports Unification”), China Times, April 12,

2000; “Shih Zhenrong Yuedi Fang Dalu” (“Stan Shih to Visit Mainland

at End of Month”), China Times, April 19, 2000; “Shangye Zhoukan:

Hongqi Dalu Xinchang Fazhan Kong You Kunjing” (“Business Week

Says Progress on Acer’s New Mainland Factory May Face Trouble”),

China Times, April 19, 2000; “Shih Zhenrong Qiangdiao Ziji Zhengzhi

Lichang Zhongli” (“Stan Shih Insists His Own Political Stance Is

Neutral”), Commercial Times (CommT), April 27, 2000.

6. “Zhang Rongfa wei Liewei Jinru Dalu Hei Mingdan” (“Chang

Jung-fa Hasn’t Been Entered in Any Mainland Black List”), Taipei’s

Commercial Times, April 12, 2000; “Changrong: Cong Wei Zhichi Taidu,

ye bu Zhuzhang Taidu” (“Evergreen: Never Supported Taiwan

independence, Never Advocated Taiwan Independenece”), Commercial

Times, April 10, 2000; “Zhonggong Jinggao Zhichi Taidu Taishang”

(“PRC Warns Taiwan Businessmen Who Support Taiwan

Independence”), China Times, April 9, 2000; “Zhonggong Shiya

Taishang bu Zhichi Taidu” (“PRC Pressures Taiwan Businessmen not

to Support Taiwan Independence”), China Times, April 11, 2000.

Regarding EVA Air’s Macao routes, see “Tai Gang Ao Hangxian Xiayue

Jiang Jixu Yue” (“Taiwan-Hongkong-Macao Air Agreement Will

Continue Next Month”), China Times Express, Taipei, October 17, 2000;

and “Tai-Ao Hangyue Xiayue Di Jieman Houtian Tanpan”

(“Taiwan-Macao Air Agreement Will End at the end of Next Month,

Negotiations in Two Days”), Commercial Times, Taipei, October 23,

2000. Economic Daily News (EDN) reported the Macao-Taiwan civil air

agreement on Monday, November 27, 2000; Reuters reported Saturday,

November 25, that Macao-Taiwan routes presently have a load of 28,200

a week, and some 403,200 Taiwan visitors arrived at Macao

International Airport in the first 7 months of 2000, 86 percent of all

arrivals at the airport.

7. See “Li Teng-hui Defends ‘No Haste, Be Patient’ Policy’,” Taipei,

China Times, December 4, 1997, translated by Foreign Broadcast

Information Service as FBIS-CHI-97-343 OW0912143797.

8. Taiwan President Lee Teng-hui launched his so-called “Southern

Strategy” during his February 9-17, 1994, tour of the Philippines,

Indonesia, and Thailand.

60
9. “Approved Taiwan Investment in Mainland China Up 146

Percent in 8 Months,” China Economic News Service, Taipei, September

25, 2000.

10. “Dui Dalu Touzi Qian San Ji Chuang Xin Gao Chengzhang 106

percent” (“Investment in the Mainland At New High, Grows 106 Percent

in First Three Quarters”), Commercial Times, October 25, 2000.

11. “Taishang Touzi Dalu Qunian Chuang Xin Gao” (“Taiwan

Commercial Investments in the Mainland Hit New High Last Year”),

Taipei China Times, January 31, 2001. Also “Taizi Deng Lu Wei Yu

Sanbai Yi Meiyuan” (“Taiwan Investment Not Over U.S.$30 Billion”),

Central Daily News, November 11, 2000.

12. “Yang Hang: Taishang Touzi Dalu Yu Qian Yi Meiyuan”

(“Central Bank: Taiwan Business Investments in Mainland Over

U.S.$100 Billion), China Times, November 10, 2000.

13. “Taiwan’s Mainland-Bound Investments Estimated at U.S.$60

Billion,” China Economic News Service, Taipei, October 8, 2000. “China

investment hits high,” Taipei Times, Taipei, Taiwan, February 12,

2001.

14. “CEPD Plans Mainland Investment Ceiling At 2 Percent of

Taiwan’s GDP,” China Economic News Service, Taipei, November 2,

2000.

15. “President Chen Shui-bian’s Inauguration Speech” Source:

Office of the President, Republic of China, at the Taiwan Government

Information Office website, http://www.gio.gov.tw. 

16. “Mainland China to Replace Taiwan As World’s 3rd Largest IT

Supplier,” China Economic News Service, Taipei, November 6, 2000.

17. “Half of Taiwanese Desktop PCs Sold From Mainland China”

China Economic News Service, Taipei, August 10, 2000.

18. “Mainland China to replace Taiwan as world’s 3rd largest IT

supplier.”

19. “Acer Display to Set Up LCM Lines in Mainland China,” China

Economic News Service, Taipei, October 19, 2000.

20. “Lite-On Electronics to Move Optoelectronic Lines to Mainland

China,” China Economic News Service, Taipei, October 5, 2000.

61
21. “VIA Technologies Aims For Top Spot in Mainland’s PC Chip

Market,” China Economic News Service, Taipei, September 21, 2000.

22. “Acer Sertek to Rank As Mainland China’s Third Largest PC

Seller in 2001,” China Economic News Service, Taipei, September 25,

2000. 

23. Allan T. Cheng and David Hartung, “Wong’s Dispute with His

Father Has Fuelled His Mainland Ambition,” Asiaweek, February 9,

2001 Vol. 27 No.5

24. “9 Local Electric Wire & Cable Makers Expanding in Mainland

China,” China Economic News Service, Taipei, September 13, 2000.

25. “Nan Ya Plastics Enjoyed Growth in Half-Year Revenue &

Profit,” China Economic News Service, Taipei, August 27, 2000.

26. “Chi Mei Lowers Domestic Prices of ABS, PS for November,”

China Economic News Service, Taipei, October 24, 2000.

27. “Gov’t to Okay U.S.$100M. Mainland Investment by

Uni-President,” China Economic News Service, Taipei, October 22,

2000; “Qunian Taiwan dui Dalu Maoyi Xuncha Chuang Xin Gao”

(“Taiwan’s Trade Surplus With the Mainland Hit New High Last Year”),

Taipei, Commercial Times, January 30, 2001. Also see Ministry of

Economic Affairs website at http://www.moeaboft.gov.tw for a

comprehensive look at cross-Strait trade. Note, most of Taiwan’s

cross-Strait trade estimates are based on a figure equal to 70 percent of

trade with Hong Kong.

28. “Taiwan’s Exports to Mainland China Surged 42 Percent in July:

BOFT,” China Economic News Service, Taipei, September 26, 2000.

29. “Taiwan Jiedan, Dalu Chu Huo Bilu Tupuo 26 percent” (“Ratio

of Taiwan Export Orders to Mainland Shipment of Goods Breaks 26

Percent Mark”), Commercial Times, March 6, 2000. But also see

“Waixiao Jiedan Jin 87 percent Zai Guonei Chansheng,” (“Only 87

percent of Export Orders Produced Domestically”), China Times,

Taipei, June 26, 2000.

30. Unpublished report written by the author. You’ll have to take

my word for it.

31. “White Paper on the Principle Of One China And The Taiwan

Question” Xinhua, Beijing, February 21, 2000.

62
CHAPTER 5

THE COSTS OF CHINA’S MILITARY

CONFLICT:

THE KOREAN AND JAPANESE DIMENSIONS

Taeho Kim*

Would China’s nationalist ambitions and economic drive

increase a chance for future conflicts in the Taiwan Strait as

well as in the supposedly resource-rich disputed areas such

as the South China Sea and the Senkaku/Diaoyu Islands?

Or would Chinese leaders shelve such disputes—at least

temporarily—as China’s economic imperative requires a

relatively long period of internal and external stability?

This crucial question, which has long puzzled China

scholars and strategists worldwide, has taken on new

relevance in light of profound and sustained regional

uncertainty, China’s overall strained relationships with the

United States and with Japan throughout the 1990s, and

the growing polarization of the broader “rise of China”

debate in the media, policy, and academic circles. It thus

stands to reason that East Asia’s future security and

economic trajectories are increasingly tied up with China’s

current and likely future external behavior.

The answer to the question, however, depends on a host

of diverse yet uncertain factors, including domestic

developments inside China, its interactions with Taiwan

and other claimants, and its relations with other major

powers, the so-called “daguo guanxi.” The ongoing yet

inconclusive debate about China’s war-proneness,

1

 though

critical in discerning East Asia’s future, is beyond the scope

 

* The views expressed here are the author’s own and do not

represent the positions of the KIDA, the Mershon Center, or any other

organizations with which the author is affiliated.

63
of this chapter. Rather, it focuses on a subsidiary issue:

What would be the costs of China-initiated conflicts in its

relations with the Korean peninsula and with Japan?

More specifically, this chapter attempts to better

understand the little-discussed consequences and

implications of an armed conflict in the three disputed

cases—i.e., the Taiwan Strait, the South China Sea and the

Senkaku/Diaoyu Islands—on China’s relations with the

Republic of Korea (ROK or South Korea) and with Japan. It

not only takes stock of the current and likely future

evolution of China’s relations with those important

Northeast Asian neighbors, but also addresses the latter’s

possible calculus and options.

A long list of caveats, disclaimers, and explicit

assumptions should precede an intellectual endeavor of this

sort. Most prominent ones include: First, like any objective

discussions on disputed territorial and other claims, this

one does not support or take sides with the positions of any

actual or potential claimants. Nor is it intended to offer

possible solutions to the age-old disputes. Second, the

timeframe for this chapter is 2001-2010—that is, the

current status and likely trend-lines that are discernible as

of this writing do not change significantly 10 years down the

road. Third, as David Finkelstein’s pace-setting chapter in

this volume illuminates, this chapter only highlights broad

diplomatic and security implications of a major armed

conflict—if it ever happens—and does not exhaust its

complex and interactive processes, including its military

scenarios, its duration, and its degree of intensity. Fourth,

in light of severe limitations on the publicly-available

literature or data on the topic—both inside and outside

China, the analysis that follows should be regarded as

tentative and speculative.

Cross-Strait Conflict.

Any major flare-up in the Taiwan Strait is bound to be

extremely costly, disastrous, and tragic in terms of not only

64
the “comprehensive national power” (zonghe guoli) of the

parties directly involved but also overall stability and

prosperity in the region and beyond. In such an eventuality,

in particular, the Chinese cost to its relations with Japan

and the ROK would be exceedingly high.

Foremost among the negative consequences would be

economic. Not only has China’s reform and open-door policy

since the late 1970s required a cultivation of amicable

relations with its Asian neighbors, but the dynamic Asian

economy has held growing importance to China’s domestic

agenda of economic development. As is well known, Japan,

South Korea, and Taiwan are not only economic

powerhouses but also important sources of capital,

technology, and management skills necessary for China’s

economic development.

Japan remains China’s number-one trade partner ($66.2

billion in 1999 and $85.8 billion in 2000, respectively) as

well as the largest provider of foreign direct investment

(FDI), official development aid (ODA) and technological

know-how.

2

 These benefits that are necessary for China’s

longer-term economic development can be withheld or even

cancelled outright, as Japan’s linkage between the

scheduled ODA and China’s nuclear test in 1995 amply

illustrates.

The economic cost to Sino-ROK relations would be very

high as well, as South Korea is now China’s third largest

trade partner with $25 billion in 1999 and $33 billion in

2000, respectively.

3

 If China’s trade volume with South

Korea is added up with those with Japan, the United States,

and Taiwan (which are China’s number one, two, and four

trade partners), the economic cost is insurmountable and

would irrevocably disrupt its economic development. In

such an eventuality, moreover, there are significant

noneconomic costs China would have to bear in its relations

with South Korea and Japan.

Like most other middle powers around the world, South

Korea harbors regional ambitions, especially for a day when

65
it is unified with the North. Its security mind-set, however,

is still predominantly peninsular. Notwithstanding the

historic June 2000 inter-Korean summit meeting and a

flurry of ensuing diplomatic activities, the ROK’s primary

security goal remains the same—i.e., to deter a North

Korean military threat in an overwhelmingly land-based

war and, if deterrence fails, to win a war in a swift and

effective manner.

4

 South Korea’s peninsular-based,

parochial security mind-set, I would argue, has far-reaching

implications for its perceptions of, and its possible responses

to, the three conflicts under review.

South Korea maintains a certain degree of policy

ambiguity on such sensitive issues as a potential armed

conflict in the Taiwan Strait, to which it is not a direct party

but which cuts across major dimensions of its foreign and

security policy. They include the ROK-U.S. alliance,

Sino-ROK relations, peninsular stability, and in the longer

term the regional posture of a unified Korea. What triggers

ROK responses or what are the sufficient conditions for

South Korea to take definitive actions is an intriguing yet

largely unanswerable question.

In a major armed conflict over the Taiwan Strait the

foremost concern for South Korea would be the possible

involvement of United States Forces Korea (USFK) in

particular and its implications for East Asia’s overall

security environment. The possibility of close security ties

between Beijing and Pyongyang cannot be ruled out, even if

the former clearly understands the risks of a two-front war.

The accompanying regional instability could in turn

necessitate an adjustment in U.S. forward deployment in

Asia, higher-level regional militarization, and a

strengthened strategic configuration among the United

States, Japan, and the ROK against an assertive China.

The South Korean elite, on the other hand, seems to be

well aware that it alone carries little weight and few means

to influence any contingency in the Taiwan Strait, except

joining a diplomatic chorus for a peaceful resolution of the

66
conflict through dialogue. South Korea’s official response to

the 1995-96 Taiwan Strait crisis is a case in point, which

was passive, restrained, and neutral.

5

 In a major armed

conflict involving active U.S. participation, however, it also

understands full well that a similar low-profile response

could carry a great risk in alliance maintenance.

While South Korea will weigh carefully the grave yet

uncertain consequences of its role between the United

States and China over a major cross-Strait conflict, it is

worthy of note that how best to balance alliance ties with the

United States and security cooperation with China would

highly likely become its primary security challenge in the

foreseeable future. Viewed in this light, a China-provoked

armed conflict in the Strait could become an impetus for

further consolidating South Korea’s “strategic

prioritization” with the United States, akin to Japan’s

decision in the mid-1990s.

Parenthetically, unlike the majority of the American

and Japanese public, South Koreans throughout the 1990s

and beyond maintained a favorable view of China in general

and of its role in Korean peninsular issues in particular,

reflecting across-the-board improvement in Sino-ROK

relations in the last decade. A major Strait conflict could

lead South Korean public perception of China to become

closer to that of its elite, which can be summed up as

“somewhat negative” toward China and “fairly friendly”

toward the United States.

6

Of longer-term consequence is a sustained confrontation

between the regional superpower and the global

superpower, which could sharply exacerbate their potential

and real differences over a host of peninsular and regional

issues, including Korean unification. In particular, China’s

growing influence over and interdependence with South

Korea amid its continuing rivalry with the United States

could well make untenable the proposition that both

countries can jointly cooperate in resolving a host of

concrete policy issues and longer-term questions on the

67
peninsula. Prominent examples include a North Korean

contingency, future status of USFK, the question of

weapons of mass destruction (WMD) in North Korea, and

the military capability and strategic orientation of a unified

Korea.

To Tokyo, the cross-Strait conflict also cuts across

several important contexts within which Japan’s major

domestic and foreign policy debates are conducted: the

U.S.-Japan alliance, Japan-China relations, and Japan’s

steadily growing political profile and security role in the

region. 

As is well known, the future of China-Japan relations

will have a profound impact on post-Cold War East Asia’s

economic and political order. Japan and China embody the

world’s second and, by purchasing power parity

(PPP)-based calculations, third largest economies,

respectively, and wield growing political clout in regional

affairs. In terms of future regional stability, what is perhaps

more significant is whether the two major regional powers

will develop a relationship that is either strong and

cooperative or weak and confrontational in the years ahead.

Of equal importance is the diverse yet uncertain impact of

this evolving relationship on the future of East Asian

security, particularly in light of the absence of the unifying

Soviet threat and a continued U.S. policy dilemma vis-à-vis

Japan and China.

7

Despite their huge and growing stakes in maintaining

an amicable relationship, however, China-Japan relations

will remain a difficult and often tense one. The persistence

of their traditional rivalry and historical distrust over time

suggests that these attitudes may have more to do with

deeply ingrained cultural, historical, and perceptual factors

than with the dictates of economic cooperation or a shared

interest in regional stability that would be mutually

beneficial.

As befits their traditional rivalry for regional influence

and as the present-day two most powerful East Asian

68
states, Japan and China have a quite broad range of

bilateral concerns with each other. Additionally, China’s

security concerns with Japan are linked up with what

Chinese call U.S. regional “hegemonic” behavior—that is,

the strengthened U.S.-Japan alliance, their joint

development of the Theater Missile Defense (TMD) system,

and, most seriously, continued U.S. weapon sales to

Taiwan.

8

Particularly worrisome to the Chinese leadership is any

possible connection between the strengthened U.S.-Japan

alliance and the Taiwan question, running the whole gamut

of the controversies over the scope of regional contingencies

in “areas surrounding Japan,” TMD, and Taipei’s overall

relations with Washington and Tokyo. A Taiwan Strait

conflict is also directly related to the ongoing debate on

Japan’s regional security role. At issue is a definitional shift

in Japan’s defense contribution from the “defense of the Far

East” (Article Six of the U.S.-Japan Mutual Security

Treaty) to the “areas surrounding Japan,” as stipulated in

the November 1995 National Defense Program Outline

(NDPO) and reconfirmed in the April 1996 U.S.-Japan Joint

Declaration on Security and the September 1997 Review of

the Guideline for U.S.-Japan Defense Cooperation (the

“new Guideline”).

China has adamantly opposed the revised

Guideline—for its possibility of U.S.-Japan collaboration in

a Taiwan crisis and of Japanese militarism.

9

 A major armed

confrontation over the Taiwan Strait involving United

States forces could lead to a further redefinition of

U.S.-Japanese security relations in the years ahead—a step

the United States and Japan took in early 1998 to meet the

requirements of the new Guideline. Implicit in the new

Guideline is enhanced collaboration between U.S.-allied

Japan and South Korea in a contingency, thus opening up

the possibility that the ROK could be at least indirectly

involved in a cross-Strait conflict.

10

69
Finally, in a major flare-up involving both China and the

United States, the ultimate question for Tokyo boils down to

this: Does Japan have any real alternative other than to

take sides with the United States? Japan’s constitutional

constraints, regional suspicions of Japan’s active

participation in regional military issues, as well as its

domestic political considerations, will surely put a severe

limit on Japan’s direct military involvement. But the

opposite is a nonstarter and could seriously impair the

alliance with the United States—a prospect that Japan

cannot afford, now or in the foreseeable future.

11

Conflict in the South China Sea.

Unlike the essentially two-party cross-Strait conflict,

which posits an attack on Taiwan itself, a People’s Republic

of China (PRC)-initiated military crisis in the multilateral

maritime dispute in the South China Sea could trigger

broader—if less intense than the Taiwan case—

consequences in the region and beyond. First, China’s use of

force against one or more disputed territories occupied by

other claimants, not just low-profile armed displacement,

would likely galvanize Association of Southeast Asian

Nations (ASEAN) unity. Second, it would also precipitate

the internationalization of the dispute and U.S.

involvement, especially if it seriously obstructs freedom of

navigation. Furthermore, any disruptions in navigation

through the Sea Lines of Communication (SLOCs) would

have a ripple effect throughout the regional (and Chinese)

economies, which are an integral part of the world economy.

These and other considerations, including lingering doubts

over the PLA’s long reach and sustainability, militate

against the military resolution of the conflicting claims,

even if a viable peaceful solution is not in sight either.

12

The economic costs China has to bear will also be severe.

In addition to its vast economic ties with China, Japan

remains the number one creditor nation in Southeast Asia

and is heavily dependent on shipborne trade and oil imports

70
that pass through the major SLOCs in the South China Sea.

Japan’s high stakes in free passage, like those of the United

States, would most likely force Japan to take punitive

economic sanctions against China to a degree that has not

been seen before. In all likelihood, Japan’s step-by-step and

sequential reaction to Chinese provocation, in conjunction

with the United States and other states involved, would be a

heavy blow against China’s national interests.

Moreover, China’s armed provocation not only could

unwittingly provide Japan with a cause for its expanded

security role in the region with impunity, but it may also

invoke a nightmarish tightening of the U.S.-Japan alliance

vis-à-vis China—a Damocles’ sword in Chinese eyes. It may

eventually end the ongoing yet inconclusive domestic

debate in Japan about its defense objectives and security

role so that the containment of China will become a focus of

its individual or joint efforts with the United States.

On the other hand, while South Korea would likely join a

diplomatic united front with the United States, Japan, and

other claimants for a peaceful and early resolution of the

dispute—especially during the early phase of the conflict, it

is hard to imagine a major conflict in the remote South

China Sea having a direct bearing on its national security.

For South Korea, its consequences would largely be an

economic loss generated from disruptions in oil imports and

seaborne trade, on which it almost totally depends. For

these and other reasons, while South Korea can play no

major role in the conflict’s initial phase, it also understands

full well the grave consequences of disruption in oil imports

and seaborne trade. South Korea’s economic security and its

limited influence on the resolution of a South China Sea

contingency strongly calls for multilateral collaboration

with ASEAN, China, Japan, and the United States.

Its still peninsula-based security mind-set, however,

could be seriously tested if and when a South China Sea

conflict invokes the employment of U.S. forward-based

military power in Asia which, like the cross-Strait case,

71
raises the possibility of a North Korean adventure. While

the level of U.S. commitment is a critical variable affecting

the involved countries’ behavior, including South Korea’s, a

Sino-U.S. confrontation would doubtless make it extremely

difficult for Seoul to remain neutral or to balance the allied

relationship with Washington and the growing ties with

Beijing.

Still, the South Korean public perception of the South

China Sea—i.e., a strategically important yet geographically and psychologically distant place—remains an

unknown variable. If such a detached mind-set continues to

prevail in South Korea, its commitment to the resolution of

a South China Sea conflict would be considerably lower than

in the case of the Taiwan Strait. In nearly zero-sum terms,

the overall costs China has to bear will be considerably less

if allied unity is maintained at a less-than-optimal level.

Conflict over the Senkaku/Diaoyu Islands.

13

Direct parties to any major armed conflict over the

Senkakus/Diaoyus will be China and Japan, as Taiwan, the

other claimant, is not in a position to take sides with either

China or Japan. While the prospects for the use of force by

either side seem low (and there has been no precedent), the

possibility for a potential conflict could grow in the future,

as the frequency and the area of the PLAN’s operations have

increased. In recent years, moreover, the activities of

China’s intelligence-gathering ships within and near the

Japanese Exclusive Economic Zone (EEZ) have sharply

increased from a mere four in 1997 to 16 in 1998 to 33 in

1999. As of September 10, 2000, 24 such sightings were

reported.

14

 Additionally, the number of Chinese “warships”

passing through the international waters in the East Sea

(Sea of Japan), which is situated east of the Korean

peninsula, has shot up from an average twice per year to

seven cases involving 31 ships during the first half of 2000.

15

For its part, Japan also has increasingly dispatched

coastguard vessels to enforce the new fishery agreement

72
with China and to fight pirate attacks in the East China

Sea.

As Japan is directly involved in the dispute, strategic

and economic costs to the Sino-Japanese relationship could

be as severe and consequential as those in the Taiwan Strait

or in the South China Sea, if Japan chooses to take this

course of action.

Recent developments inside and outside Japan,

including the growing strength of “right-wing,” hard-line

politicians, anti-piracy activities by its coastguard vessels,

and its planned acquisition of indigenous military

capabilities, point to the costly consequences of any future

confrontation between Beijing and Tokyo.

In a minor confrontation between China and Japan over

the Senkakus/Diaoyus, South Korea as a nonclaimant

would mostly likely distance itself from the dispute. The

United States, as a general rule, also does not support any

individual claims on territorial disputes. Even in an

unlikely event that the United States-Japan alliance is

invoked, it is inconceivable that South Korea will be asked

to play a substantial role in such a contingency.

South Korea, however, has long been watchful of

developments over those tiny islands for a different

reason—the future of the Senkakus/Diaoyus may offer a

clue to Tokdo/Takeshima in the East Sea (Sea of Japan),

which is claimed by both South Korea and Japan. South

Korea is also concerned with observance of the EEZ, the

median line, and the fishery and other bilateral maritime

agreements negotiated and ratified separately among

China, Japan, and itself during the latter half of the 1990s.

16

Questions for Further Consideration.

In light of the devastatingly negative consequences of

China’s use of force discussed in this and other chapters in

the volume, it stands to reason that Chinese leaders would

73
most probably shy away from taking such an adventurous

course of action for years to come. It is also obvious that

China-initiated conflicts in any of the three cases under

review would have a far-reaching negative effect on its

relationships with Taiwan, ASEAN, Japan, and South

Korea—let alone the one with the United States. Viewed in

this light, fairly low-intensity, short-duration operations

are by far safer and more reasonable courses of action if the

current and future Chinese leadership ever attempts to do

so.

As is the case with Japan and South Korea, regional

perceptions of and reactions to China’s diplomatic and

military behavior will not be uniform. Each regional actor’s

relations with China are shaped by a wide array of factors,

including geographical proximity, historical and cultural

inheritance, territorial disputes, and economic relations.

Moreover, their strategic calculus has often been

significantly influenced by their respective security

relations with the United States, which is also the single

most important external factor restraining China’s

behavior.

If the purpose of analyzing the “Costs of Conflict” is to

better understand their horrible consequences and to

prevent such an eventuality from occurring, it is necessary

to note how best to get the messages across among the

parties involved, including China. First and foremost is the

U.S. determination for a peaceful resolution of the disputes.

Credible and demonstrated U.S. commitment, backed by its

military presence and bilateral alliances, is a must in

preventing unilateral acts of hostility from occurring. U.S.

neutral stance on disputed territorial claims is appropriate;

yet its principles on a peaceful settlement of disputes and on

the freedom of navigation need further clarification—e.g., a

set of shared norms and understandings rather than the

specification of potential triggers.

17

Finally, it is important to recall that a peaceful

settlement of disputes is first and foremost the

74
responsibility of the direct parties to the disputes. While the

United States role and commitment remains essential,

other states should also bear the responsibility for a

peaceful resolution of individual disputes in their respective

areas of concern. U.S. allies, in particular, should be able to

prepare for security and military support in a future

contingency. A shared understanding of the conflict’s

horrendous costs throughout the region should not only

reduce the chance for conflict but also guide the United

States-Asia relationship in the new millenium.

ENDNOTES - CHAPTER 5

1. Over the years, Alastair Iain Johnston has made a significant

contribution to the debate over the sources of China’s external behavior,

including its war-proneness. See his Cultural Realism: Strategic

Culture and Grand Strategy in Chinese History, Princeton: Princeton

University Press, 1995; “Cultural Realism and Strategy in Maoist

China,” in Peter J. Katzenstein, ed., The Culture of National Security:

Norms and Identity in World Politics, New York: Columbia University

Press, 1996, pp. 216-68; and “China’s Militarized Interstate Dispute

Behaviour 1949-1992: A First Cut at the Data,” China Quarterly, No.

153, March 1998, pp. 1-30. Other major works include Michael D.

Swaine and Ashley J. Tellis, Interpreting China’s Grand Strategy: Past,

Present, and Future, Santa Monica: RAND Corporation, 2000,

especially pp. 21-95; Erica Strecker Downs and Phillip C. Saunders,

“Legitimacy and the Limits of Nationalism: China and the Diaoyu

Islands,” International Security, Vol. 23, No. 3, Winter 1998/99, pp.

114-46; Mark Burles and Abram N. Shulsky, Patterns in China’s Use of

Force: Evidence from History and Doctrinal Writings, Santa Monica:

RAND Corporation, 2000.

2. Beijing Review, April 3, 2000, p. 30; Dong-a Ilbo, Seoul, February

23, 2001, p. A10.

3. Beijing Review, April 3, 2000, p. 30; and PRC Customs data. The

ROK Ministry of Foreign Affairs and Trade data for 1999 and 2000,

respectively, were $22.6 billion and $31.4 billion, reflecting minor

discrepancies over balance-of-trade calculations.

4. Notwithstanding a recent series of policy initiatives on the

Korean peninsula since the landmark inter-Korean summit in June

2000, the ROK has repeatedly confirmed that the primary source for its

75
security concern remains North Korea. See The ROK Defense White

Paper 2000, Seoul: The ROK Ministry of National Defense, 2001.

5. See, for example, Chosun Ilbo, Seoul, March 11, 1996, p. 3.

6. Public opinion surveys conducted after the Korean summit have

shown a continuation of similar perceptions on the part of the South

Korean public. According to Joong Ang Ilbo, the respondents believed

that the country which would be most helpful in Korean unification is

China (30 percent) followed by the United States (26.5 percent) and

Japan (14.1 percent). For the country least supportive of Korean

unification, the respondents selected Japan (39.3 percent), the United

States (28.1 percent), and China (9.2 percent). In brief, throughout the

1990s and beyond, the South Korea public maintained a favorable view

of China in its role on Korean peninsular issues. See JoongAng Ilbo,

August 14, 2000, p. 10, at www.joins.com.

7. One of the principal foreign-policy challenges for the United

States in the 1990s has been to provide China with tacit recognition for

its rising status and importance and to assuage its deep-seated

suspicion that the post-Cold War U.S.-Japan alliance is targeted at

China, while at the same time offering security commitment and

credibility to Japan by strengthening alliance relationship with the

latter. See Banning Garrett and Bonnie Glaser, “Chinese

Apprehensions about Revitalizing of the U.S.-Japan Alliance,” Asian

Survey, April 1997, pp. 383-402; Xiaoxiong Yi, “China’s U.S. Policy

Conundrum in the 1990s: Balancing Autonomy and Interdependency,”

Asian Survey, August 1994, pp. 675-91.

8. Recent examples include Ershiyi shiji Zhongguo zhanlue da

cehua: waijiao molue (China’s Strategic Grand Plan in the 21st Century:

Diplomatic Stratagem), Xi Laiwang, ed., Beijing: Hongqi chubanshe,

1996, pp. 133-44; Lu Guangyue, “The Impact of Reinforcement of

Japan-U.S. Military Alliance on the Asia-Pacific Security and World

Peace,” International Strategic Studies, Serial No. 53, 1999, pp. 21-24;

Zhao Dawei, “Riben junshi anquan zhanlue ji qi qianjing” (“Japan’s

Military and Security Strategy and Its Prospects”), Guoji Wenti Yanjiu

(International Studies), No. 2, 1999, pp. 49-54.

9. For the Chinese critique on U.S.-Japan security ties and

especially the new Guideline, see “Cadres Voice Concern over

U.S.-Japan Ties,” South China Morning Post, September 6, 1997, p. 9;

Liang Ming and Ding Zengyi, “How Can One Win the Trust of Others by

Shifting His Troubles Onto Others,” Jiefangjun Bao, May 18, 1998, p. 5,

in FBIS-CHI, June 2, 1998; Robert Karniol, “Japan Promotes Regional

Security with U.S. Accord,” Jane’s Defence Weekly, October 1, 1997, p.

76
15; “Hashimoto Warned on Scope of Security Plans,” South China

Morning Post, September 5, 1997, p. 10; Steven Lee Myers, “Risking

China’s Wrath, U.S. and Japan Bolster Military Ties,” New York Times,

September 24, 1997, p. A7.

10. This is a broad yet implicit understanding of the new Guideline

that the United States, Japan, and the ROK may not openly

acknowledge.

11. Michael H. Armacost, Asian Alliances and American Politics,

Stanford: Asia/Pacific Research Center, Stanford University Discussion

Papers, February 1999.

12. An excellent exposition on regional implications of a

PRC-initiated conflict in the South China Sea is available. See Security

Implications of Conflict in the South China Sea, Ralph A. Cossa, ed.,

Honolulu: Pacific Forum/CSIS, June 1996).

13. Like any other disputed territories, the place in question is

called differently by the claimants. It is called Senkaku by Japanese,

Diaoyudao by Chinese, and Diaoyutai by Taiwanese.

14. See Robert Karniol, “More ‘Spy Boats’ Enter Japan’s EEZ,”

Jane’s Defence Weekly, September 20, 2000; Mohan Malik, “Japan Wary

of Assertive China,” Jane’s Intelligence Review, December 2000, pp.

22-25. 

15. Hankook Ilbo, Seoul, June 5, 2000, p. 12. On May 24, 2000, a

Chinese intelligence-gathering ship passed through the Tsugaru Strait

that abuts Hokkaido for the first time.

16. See FBIS-CHI, May 30, 2000.

17. For a set of nuanced and well-reasoned U.S. policy prescriptions,

see Cossa, Security Implications of Conflict in the South China Sea;

Ronald N. Montaperto, James J. Przystup, and Gerald W. Faber, “’One

China’ and Relations Across the Taiwan Strait,” Strategic Forum, No.

173, September 2000, pp. 1-4. For an excellent argument on the

continuing validity of a web of U.S. bilateral alliances in Asia, see

America’s Asian Alliances, Robert D. Blackwill and Paul Dibb, eds.,

Cambridge: Harvard University Press, 2000).

77
CHAPTER 6

THE IMPACT OF A CONFLICT ON CHINA’S

RELATIONS

WITH SOUTHEAST ASIA AND AUSTRALIA

Carlyle A. Thayer*

Frankly, I think China wants to take over Asia.

Philippine President Joseph Estrada.

1

Introduction.

The purpose of this chapter is to assess the impact of a

conflict on China’s relations with the states of Southeast

Asia and Australia. The most likely scenarios for conflict

involve China and Taiwan, China and Southeast Asian

claimants to territory in the South China Sea, and China

and its land neighbors Vietnam, Burma, and Laos. These

scenarios are discussed in the final section.

In the aftermath of the informal summit of the

Association of South East Asian Nations (ASEAN) in

Singapore and the meeting of the ASEAN Plus Three

(China, Japan, and South Korea) held in November 2000, it

would appear that China is walking triumphantly on

Southeast Asia’s diplomatic stage.

2

 China’s relations with

regional states are probably at an all time high.

3

 Since early

1999, for example, China has negotiated long-term

 

*The views expressed in this chapter are those of the author and do

not necessarily reflect the official policy or position of the Asia-Pacific

Center for Security Studies, Department of the Army, the Department

of Defense, or the U.S. Government. The author would like to thank

Herman Finley for exchanging ideas with him during the preparation of

this paper.

79
cooperation agreements with all ten of Southeast Asia’s

states. China is presently negotiating a code of conduct for

the South China Sea with ASEAN representatives.

Sino-Australian relations equally may be characterized as

very good despite Chinese misgivings about Australia’s

possible participation in ballistic missile defense research.

Historical evidence suggests that over the last 50 years

Chinese leaders have been consistent in the use of force to

secure their interests. A recent quantitative survey of

militarized interstate dispute data for China indicates

Chinese resort to force on no less than 118 cases between

1949-92.

4

 Further, as Feigenbaum has argued, “virtually all

evidence suggests that three motivations . . . have driven

China’s post-1949 use of force: sovereignty claims over

major territories; border disputes; and strategic

considerations connected to the East Asian balance of

power.

5

The central assumption of this chapter is that conflict

between China and Southeast Asia is less likely than

conflict between China and Taiwan. Southeast Asia’s

dilemma in the face of this possibility was aptly

summarized by a Singaporean official in the following

words: “(i)f either one is damaged, Singapore [read

Southeast Asia-ed.] will suffer a loss; if both are damaged,

its loss will be doubled.”

6

Conflict between China and Taiwan could flare up at any

moment. In July 1999, for example, China reacted to the

statement by Taiwan’s President that the two should deal

with each other on a “state-to-state” level by conducting

military exercises in Fujian province and by directing

Chinese fighters to fly close to the “centerline” in the straits.

This led one analyst to conclude, “(t)he risk of an accidental

or deliberate military clash between China and Taiwan is

higher than at any time since March 1996.”

7

 Since then

China has continued to conduct large-scale military

exercises, including simulated amphibious landings, in an

effort to keep up its pressure on Taiwan.

8

 Most recently,

80
Zhang Wannian, Vice Chairman of the Central Military

Commission, declared: “(d)uring the period of the 10th

five-year plan, it is certain that war will break out in the

Taiwan strait.”

9

There are other factors operating which raise the

probability of conflict between China and Taiwan. A recent

study of “enduring rivalries” concluded “(r)esearch shows

that roughly half of the militarized disputes in the

international system take place among enduring

rivalries.”

10

 According to this study four sets of results

appear relevant to the China-Taiwan relationship:

1. Disputes over territory are more difficult to resolve

peacefully and more likely to result in military conflict.

2. Societies undergoing political transformation are

more prone to engage in conflict.

3. Under conditions of perceptual uncertainty, enduring

rivalries will be prolonged; outbreaks of conflict will be more

likely.

4. Enduring rivalries experiencing military build-ups

are more prone to outbreaks of conflict.

The China-Taiwan relationship was classified by Job,

Laliberté, and Wallace as an “enduring rivalry.” After

examining two major factors—perceptual uncertainty and

the military build-up—the authors concluded:

In two critical respects the contemporary PRC-ROC [People’s

Republic of China-Republic of China-ed.] rivalry exhibits

symptoms common to situations that carry a higher risk of

outbreak of conflict. Uncertainty prevails in that for both sides

“holding tough” on Taiwan Strait issues is important for

leaders seeking to sustain prestige with their domestic

audiences. There remain ample opportunity for factional

infighting in both capitals and thus for the pathologies caused

by misperception within and between both the PRC and ROC.

Added to this potentially volatile situation are the exigencies

posed by the fact that the PRC publicly retains the option to

use force in its dealings with the ROC. Both sides, in preparing

81
for this possibility, have acquired a panoply of high-tech

weaponry, which recent history demonstrates has a

self-fulfilling quality to it. That is, even in the hands of highly

trained forces, the availability of such weapons promotes their

intentional or inadvertent usage, with dangerous

consequences.

11

Before discussing conflict scenarios and the costs of

conflict on China’s relations with Southeast Asia and

Australia, this chapter first provides a brief overview of

China’s relations with Southeast Asia and Australia.

China and Southeast Asia.

Historically, China’s relations with Southeast Asia have

been bedeviled by Beijing’s support for communist

insurgents. An improvement in relations was only possible

once China terminated its assistance.

12

 During the late

1970s and 1980s China and Southeast Asia shared two

major goals in common: economic growth and containing

Soviet power. China-ASEAN relations grew particularly

close during the decade 1979-89 when both parties shared

the strategic objective of opposing Soviet-backed

Vietnamese hegemony in Cambodia. Although the end of

the Cold War diminished the salience of this factor in the

relationship, China’s economic growth and potential to

emerge as a major regional power predisposed Southeast

Asia’s states to enhance their cooperation with China.

China’s remarkable economic growth from the late

1970s resulted in a new activism in China’s approach to

Southeast Asia. This was welcomed in the region. According

to one analyst, “economics is most assuredly the driving

force of the relationship.”

13

 Both sides—China and

ASEAN—stand to benefit from growing trade and

investment linkages. Taken as a group, Southeast Asia’s

states represent a formidable economic bloc. In 1995, for

example, the total GDP (as measured by purchasing power

parity) of nine ASEAN states (minus Cambodia) was

estimated at about U.S.$1,600 billion or about 60 percent of

82
Japan’s GDP. That same year ASEAN’s foreign trade

totaled U.S.$636.6 billion, about ten times that of India and

82 percent of Japan’s. ASEAN was ranked the fourth largest

trading unit in the world.

14

China’s relations with Southeast Asia improved in the

1980s and 1990s. Malaysian Prime Minister Mahathir

visited Beijing in November 1985. That same year the

Chinese Foreign Minister visited Indonesia and negotiated

a resumption in direct trade. Premier Li Peng visited

Thailand in November 1988. The Tiananmen massacre of

June 1989 was an important turning point. ASEAN

members either muted their criticism or refrained from

criticizing China, considering the event an internal affair.

China, isolated by western reaction, turned its attention

south. In August 1990, China normalized relations with

Indonesia and then established diplomatic relations with

Singapore 2 months later. In July 1991, Chinese Foreign

Minister Qian Qichen attended the opening session of the

24th ASEAN Ministerial Meeting as a guest of Malaysia,

the host. Sino-Vietnamese relations were normalized in late

1991, and Vietnam Communist Party Secretary General Do

Muoi visited Beijing in November 1995. China became a full

dialogue partner in the ASEAN Post-Ministerial

Conference in July 1996.

15

For China, the 1990s were seen as a transitional period

from the bipolarity of the Cold War to multipolarity. The

end of the Cold War meant that the U.S.-Soviet

Union-China strategic triangle dissolved. According to one

writer, “(t)he Chinese leadership hopes that the emergence

of regional powers and regional organizations in the

developing world will help to bring about a multipolarity

from the traditional one dominated by a small number of

major powers.”

16

 Some Chinese analysts consider ASEAN

one of the poles in a multipolar system. China supported the

creation of the ASEAN Regional Forum (ARF) in 1994. And

in 1995, China supported Vietnam’s membership in

ASEAN, and the membership of Laos and Burma in 1997.

The Cambodian domestic upheaval of 1997-98 witnessed a

83
change of Chinese policy from supporter of the Khmer

Rouge to a backer of the Hun Sen government. During the

Asian Financial Crisis of 1997-98, China earned much

political capital by the support it gave Southeast Asia’s

beleaguered economies. China not only refrained from

devaluing its currency, the renminbi, but it offered one

billion U.S. dollars in assistance to Thailand and provided

monetary support to Indonesia. At the December 1997

informal ASEAN Plus Three Summit, President Jiang

Zemin pledged 46 billion U.S. dollars to the International

Monetary Fund’s program to support Southeast Asia’s

economic recovery.

Chinese concerns were aroused by anti-Chinese rioting

in Indonesia in May 1998. This irritant in bilateral relations

was immediately addressed by President Wahid upon

coming to office. He made his first official overseas trip to

China and gave assurances that Indonesia’s ethnic Chinese

community would be protected. He also sought to encourage

the return of overseas Chinese investment that fled

Indonesia following the turmoil associated with the

downfall of President Suharto. In contrast, Indonesia’s

relations with the United States have become strained due

to U.S. advocacy of human rights and accountability in

cases where human rights have been grossly violated.

Indonesian Minister of Defense, Mohammad Mahfud, no

doubt exasperated by the position his country found itself

in, has stated:

(i)f Indonesia, India, China and Japan unite to set up a joint

defense pact, the U.S. would be limp. The U.S. can be arrogant

but I’m considering cooperation with other countries . . . As a

sovereign country, Indonesia should find other alternatives. We

don’t want to be continuously pressured by the U.S.

17

Trade between China and ASEAN has expanded

steadily. It increased from U.S.$14.29 billion in 1994 to

U.S.$25.04 billion in 1997 to U.S.$31.96 billion in the first

10 months of 2000, a 47.9 percent increase over the same

period the previous year.

18

 China’s exports to Southeast

84
Asia increased 20 percent during the first 10 months of

2000.

19

 But ASEAN’s share of total Chinese trade has

remained modest, 6.04 percent in 1994 and only 7.7 percent

in 1997. Nonetheless, ASEAN ranks fifth among China’s top

ten trade partners, coming after the United States, Hong

Kong, Japan, and the European Union, and before South

Korea, Taiwan, Australia, Canada, and Russia.

20

Southeast Asia is also an important source of foreign

investment for China (see Table 1). Investment from the

region rose from U.S.$1.21 billion in 1993 to U.S.$3.62

billion in 1997. These figures probably understate the total,

as they do not take into account overseas Chinese

investment channeled through Hong Kong. Over

three-fourths of ASEAN’s officially recorded investment

comes from Singapore, which is one of the largest investors

in China. The Singapore government has a major

commitment to developing a new industrial park in Suzhou

city, for example.

But China also competes with Southeast Asia for

investment, trade, loans, and aid. This is set within the

wider pattern of “competition and interdependency among

Japan, the East Asian NIEs [Newly Industrializing

Economies-ed.], and the ASEAN states.”

21

 A recent report

commissioned by ASEAN revealed that in 2000, 61 percent

of foreign direct investment flows into emerging Asian

economies went to China and only 17 percent to ASEAN

states. These figures point to a major reversal of trends a

decade ago and diversion of investment away from

ASEAN.

22

ASEAN members are particularly apprehensive about

China’s impending entry into the World Trade

Organization (WTO). They fear that China’s low-cost

industries, such as textiles and toys, will displace ASEAN

goods in overseas markets. Premier Zhu Rongji, attempted

to assuage these fears during a visit to Singapore: “(t)here

will be definite competition. But there will definitely be no

threat . . . China’s entry into WTO will definitely be

85
beneficial to Asian countries. We would rather not join the

WTO if we were a threat.”

23

 From early 1999 China has

negotiated long-term cooperation framework agreements

with all ten of Southeast Asia’s states. China supports both

the Asia-Europe Meeting (ASEM) and ASEAN Plus Three

processes. Premier Zhu Rongji supported a free trade area

between ASEAN and China and endorsed the proposal for

an East Asian Forum as “a good idea,” at the November

2000 ASEAN Plus Three meeting in Singapore.

24

 Premier

Zhu also expressed China’s interest in developing the

transportation infrastructure of the Mekong River basin

86

Country 1993 1994 1995 1996 1997

Burma 664 289 - 58 268

Indonesia 6,575 11,570 11,163 9,354 7,998

Laos - - - 15 39

Malaysia 9,142 20,099 25,900 45,995 38,183

Philippines 12.250 14,040 10,578 5,551 15,563

Singapore 67,480 117,961 186,061 224,716 280,696

Thailand 23,437 23,487 28,824 32,818 19,400

Vietnam 1,161 1,849 2,830 145 154

ASEAN 120,709 189,295 265,356 318,652 362,301

ASEAN as

a % of

China’s 

Total

3.10% 4.38% 5.51% 5.81% 5.63%

Source: Joseph Y.S. Cheng, “China’s ASEAN Policy in the 1990’s:

Pushing for Regional Multipolarity,” Contemporary Southeast Asia,

Vol. 21, No. 2, August 1999, p. 195, based on State Statistical Bureau,

compiler, China Statistical Yearbook, Beijing: China Statistical

Publishing House, 1995-1998. Data on invenstments from Laos for

1993-95 and Brunei are not available. Cambodia joined ASEAN in April

1999.

Table 1. ASEAN’s Investments in China, 1993-97

(in U.S. $10,000)
including navigation along the Lancang-Mekong river,

25

the Lao section of the Bangkok-Kunming highway, the

Trans-Asian Highway, and the Trans-Asia Railway.

Taiwan and Southeast Asia.

Economic relations between Taiwan and Southeast Asia

have grown noticeably since 1987. ASEAN states improved

their unofficial relations with Taipei in response to

Taiwan’s increased trade and investment activities. In

November 1993, at the Asia Pacific Economic Cooperation

(APEC) Summit, Taiwan announced its “southward policy”

towards Southeast Asia. The next year Premier Lien Chan

paid vacation visits to Singapore and Malaysia; he was

followed by President Lee Teng-hui who visited the

Philippines, Indonesia, and Thailand. At the same time,

Taiwan’s Executive Yuan approved the “Operation Outline

for Strengthening Economic and Trading Relations with

Southeast Asia.” This policy document contained four

objectives: to expand trade and investment relations; to

reduce trade dependence on mainland China by

establishing production bases in Southeast Asia; to promote

economic prosperity of the region; and to participate in the

activities of international economic organizations in

Southeast Asia.

26

Under its southward policy, Taiwan encouraged its

business community to invest in Southeast Asia.

27

 By

mid-1995 Taiwanese cumulative investment in ASEAN

reached U.S.$25 billion. Taiwanese investment is

concentrated in labor-intensive industries such as textiles,

paper and printing, metals, minerals, and electronic

appliances. Figures in Table 2 indicate that, starting in

1989, Malaysia overtook the Philippines and became the

prime beneficiary of Taiwanese investment. In 1990

Taiwanese investment in the region increased noticeably,

but in 1991-92 in the cases of the Philippines, Singapore,

and, to a lesser extent, Thailand, declined. This fall off was

due to a change in Taipei’s investment policy that

87
authorized indirect investments in China. Taiwanese

investments then diverted to the mainland as a

consequence. 

An evaluation of Taiwan’s southward policy indicates

mixed results. As Samuel Ku has demonstrated, there are

three factors that account for this.

28

 First, ASEAN states

are dissatisfied with the level of economic resources

provided by Taiwan. Second, Taiwanese assistance and

influence has been offset by mainland China.

29

 Third, the

role of Taiwan’s private entrepreneurs has been disappointing. Taiwan has also not met its political objective of raising

88

Year Singapore Philippines Indonesia Thailand Malaysia Vietnam

1988 6,433 36,212 1,923 11,886 1,708 na

1989 5,109 66,312 311 51,604 158,646 na

1990 47,611 123,607 61,817 149,397 184,885 na

1991 12,540 1,315 160,341 86,430 442,011 127,139

1992 8,790 1,219 39,930 83,293 155,727 20,167

1993 69,473 6,536 25,531 109,165 64,452 158,396

1994 100,732 9,600 20,571 57,323 101,127 108,378

1995 31,649 35,724 32,067 51,210 67,302 108,146

1996 164,978 74,252 82,612 71,413 93,534 100,479

1997 230,310 127,022 55,861 57,546 85,088 85,414

1998 158,176 38,777 19,541 131,186 19,736 110,078

1988

-98

835,912 520,576 500,505 860,453 1,375,216 708,197

Source: Adapted from Samuel C. Y. Ku, “The Political Economy of

Taiwan’s Relations with Vietnam,” Contemporary Southeast Asia, Vol.

21, No. 3, December 1999, p. 412. Ku relied on Ministry of Economic

Affairs, Statistics on Outward Investment, Technical Co-operation,

Outward Technical Co-operation and Indirect Mainland Investment,

Taipei: Investment Commission, Ministry of Economic Affairs, 1998.

Table 2. Taiwan’s Investments in Southest Asia,

1988-98 (in thousand U.S. $)
its representation in international organizations. Taiwan

was not accorded dialogue status by ASEAN nor was

Taiwan admitted into the ASEAN Regional Forum. In brief,

ASEAN members have held firm to their one-China policy.

Taiwan-Malaysia relations are particularly strong. In

terms of trade, Taiwan is Malaysia’s fourth largest partner

after Japan, Singapore, and the United States. In 1997

two-way trade amounted to U.S.$7.3 billion. In March 1998

Vice President Lien Chan made a private visit to Malaysia,

a month later he was followed by Premier Vincent Siew who

offered to facilitate guarantees by Taiwan’s private banks

for bonds issued by Southeast Asian governments in

response to the financial crisis. At this time Malaysia

offered to serve as host for China-Taiwan talks on

reunification. At the Asia-Pacific Economic Cooperation

(APEC) Summit held in Kuala Lumpur in November,

Taiwan offered to invest U.S.$930 million in ASEAN

countries. In November 2000, Taiwan and Malaysia held

the 13th annual ministerial-level economic conference.

30

Chinese Defense Modernization and the South

China Sea.

Chinese naval modernization has raised regional

concerns and may have contributed to regional force

modernization efforts.

31

 According to Derek da Cunha,

Southeast Asian observers [are] alarmed at the prospect of a

more visible presence by the Chinese navy in the South China

Sea . . . Individually, none of the ASEAN states has the

military capability that could successfully oppose a

determined Chinese advance into the South China Sea and

they are unlikely to have such a capability in the foreseeable

future. Consequently, there is a real but silent fear in

Southeast Asia attached to the directions in the PLA’s

[People’s Liberation Army-ed.] modernization programs and

its operational doctrine.

32

The PLA “is inflexible toward territorial disputes in the

South China Sea, and by extension, it is suspicious of

89
ASEAN’s attitudes toward Taiwan.”

33

 But the “China

threat” has not been the main driver of Southeast Asian

force modernization efforts.

34

According to Jianxiang Bi,

(c)ollective security arrangements remain elusive in East and

Southeast Asia, despite the threat that Chinese joint operations

pose to security and prosperity. Regional powers have agreed to

disagree on forms of security arrangements and priorities to be

adopted.

35

ASEAN is not a military alliance or a collective security

agreement. ASEAN members cooperate in such areas as:

intelligence sharing, counter-insurgency, piracy, drug

trafficking, smuggling, and illegal migration. They hold a

number of bilateral military exercises. But ASEAN is not a

unified bloc. China has military ties with Burma. Since the

early 1990s there have been persistent reports of increased

Chinese military contacts with Burma. In 1992 it was

reported that China had supplied U.S.$1.5 billion in

military arms and equipment to Yangon (Rangoon)

including fighter aircraft, patrol boats, artillery, tanks,

anti-aircraft guns, missiles, and other weapons.

36

 China is

reportedly involved in constructing a base for the Burmese

navy on Hianggyik Island and a radar station on Coco

island. Analysts speculate that the Chinese People’s

Liberation Army has established signals intelligence

facilities at both places. There is also speculation about

whether the PLA Navy will deploy from bases in Burma into

the Indian Ocean and Andaman Sea. In contrast, Singapore

sends its soldiers to Taiwan for training exercises.

Singapore is also a strong supporter of the U.S. military

presence in the region and has provided access to U.S.

warships at its Changi naval base. The United States has

alliance relations with Thailand and the Philippines. The

United States and the Philippines have negotiated a

Visiting Forces Agreement and conducted small-scale joint

exercises.

90
In February 1995 Philippines reconnaissance aircraft

discovered that China had occupied and built what

appeared to be quasi-military structures on Mischief Reef in

the South China Sea. This marked the first occasion that

China had confronted a member of ASEAN so openly in this

area. Previous Chinese incursions into the South China

Sea—January 1974, March 1988, and 1992—were directed

at Vietnam.

37

 Chinese actions provoked ASEAN members

to adopt a unified stance at Sino-ASEAN discussions at the

senior official level held in Hangzhou in March 1995. This

unprecedented action prompted a more conciliatory

Chinese response at the August 1995 meeting of the ARF in

Brunei. There, China indicated for first time that it would

base its claims on international law including the U.N.

Convention on the Law of the Sea.

Flowing from the Mischief Reef incident, China and the

Philippines negotiated a code of conduct. But the

Philippines turned down Chinese offers of joint oil and gas

exploration. In April 1997, at Sino-ASEAN senior officials

discussions held in Huangshan, the Spratly islands were

placed on the agenda for the first time. Prior to this meeting

China had refused to discuss South China Sea issues in a

multilateral setting. In July, shortly after this meeting,

Filipino naval ships destroyed Chinese territorial markers

in the Spratlys. This prompted a Chinese diplomatic

protest. At the end of the year, at the informal summit

between ASEAN and China, South Korea, and Japan, a

joint statement was adopted that declared both sides would

resolve differences and disputes “through peaceful means

without resorting to the threat or use of force” and would

exercise self-restraint in the South China Sea. This

agreement, however, has not stopped a growing number of

minor incidents from occurring, including Philippine ships

ramming Chinese fishing vessels and the shooting to death

of a civilian Chinese boat captain. Chinese actions since

early 1995 have led exasperated Philippine officials to

accuse China of a “talk and take” strategy.

38

 Talks on a

91
South China Sea code of conduct remain stalled as of

September 2001.

According to a Singapore analyst, “part of the current

Southeast Asian defense modernization and expansion

programs is a consequence of contingency planning related

to the Spratlys.”

39

 Another observer has asserted,

(t)he PLA is worried about potential reactions of ASEAN to any

Chinese joint operations. Territorial disputes in the South

China Sea have intensified regional tensions. China may not

seek to take over any country by attack, subversion, or economic

domination, but territorial disputes and a gradually

modernised PLA do threaten stability.

40

ASEAN states have therefore acquired advanced air and

naval weapons and sought informal or formal security

partnerships, and according to Bi, “(t)his weaponry and

these security measures are implicitly, if not explicitly,

targeted against China.”

41

After the discovery of Chinese construction activities on

Mischief Reef, for example, the Philippines revived its plans

for force modernization that included procurement of

aircraft and ships to defend its territorial claims. Concern

about Chinese assertiveness may have motivated Indonesia

to negotiate an Agreement on Maintaining Security with

Australia in 1995. The agreement bound its signatories to

consult in the event of an “adverse challenge to security.”

Indonesian Foreign Minister Ali Alatas is on the record as

stating that tensions in the South China Sea or conflict

between China and Taiwan were examples of “adverse

challenges” that could trigger the consultation process.

42

Finally, Malaysia has moved to acquire diesel electric

submarines.

43

Southeast Asia’s states have not adopted a unified policy

or strategy to deal with the rise of China as a regional power.

They have shaped their responses on a bilateral basis and in

a few instances collective action, such as the 1992 Manila

Declaration on the South China Sea. ASEAN states

92
generally have refrained from statements which would

make the “China threat” a self fulfilling prophecy. During

the March 1996 crisis in the Taiwan Strait, for example,

ASEAN states were generally muted in their response to

China’s missile launches. All ASEAN states adhere to the

“one China policy” and view China-Taiwan tensions as an

internal affair. ASEAN members “wish to avoid any

provocations, confrontations, or even formal multilateral

discussions that China could perceive as part of a policy of

‘containment’.”

44

In the face of China’s military muscle flexing, Southeast

Asia favors accommodation with China not confrontation.

ASEAN strategy, such as it exists, is to encourage Chinese

participation in multilateral organizations, such as the

ARF. ASEAN defense cooperation is mainly confined to

bilateral defense ties. These have been likened to a “spider’s

web.” Quite simply, the lack of shared threat perceptions

has kept ASEAN members from developing multilateral

military ties.

45

 According to Jianxiang Bi,

ASEAN members discuss only regional security issues; it is

unlikely that they would be involved in Beijing-Taiwan

conflicts. They might accept a powerful and unified China,

even if they feared it. On humanitarian grounds, however,

they may show moral support of the Taiwanese people, and

this could deeply embarrass China in the international

community . . . ASEAN deliberately avoids any direct

confrontation with China, and lack of political will and

military capability will minimise any chance that it would be

involved in cross-Strait conflicts . . . Without a firm

commitment by ASEAN, Japan, and the United States to

deter or oppose it, regional reactions to an intervention by the

PLA could be limited to short-term economic sanctions and

political condemnation.

46

Analysts are not agreed, however, whether and at what

point Chinese assertiveness will lead to a united ASEAN

response. According to one writer,

(t)he PLA’s emphasis on improving its capabilities to win

regional wars by employing high-technology will only

93
exacerbate ASEAN’s worries of a ‘China threat’ especially in the

context of China’s territorial disputes with ASEAN states and

its rapidly-increasing energy needs.

47

Derek da Cunha argues that ASEAN will go even

further, 

A suddenly assertive China . . . could well provide a coalescence

in threat perceptions by the ASEAN states, resulting in the

shelving of bilateral disputes so as to deal with the larger

security issue that affects the whole of Southeast Asia and

indeed the wider Asia-Pacific. Thus, China, contingent on its

future regional behavior, could well provide the spark for a

significant strategic rationale to ASEAN, and a unified

strategic policy for the grouping.

48

Da Cunha speculates that a Standing ASEAN Naval

Force might be created to prevent Chinese interdiction of

sea lines of communications. In short, Chinese military

assertiveness that leads to interference or conflict with an

ASEAN member state’s sovereignty could result in the

abandonment of Southeast Asian deference towards China

and the adoption of a unified stance.

49

Australia.

China and Australia normalized relations in 1972. This

signaled a major change in Australian perceptions from fear

of China (1949-early 1970s) to a strategic assessment in

which China was no longer viewed as a direct threat.

Australia’s strategic policy in the 1980s was predicated on

the assumption that China would emerge as a major

economic power in the region. According to Stuart Harris,

the former permanent head of the Department of Foreign

Affairs, 

(t)he five specific objectives of Australia’s policy towards China

were: to shift Australia’s approach from fear of China to one of

friendly relations; to deal with China on its own merits and not

just as part of the East-West confrontation; to see China as an

opportunity rather than as a threat; to recognize China as a

94
potential great power; and to encourage China to participate

as an equal and co-operative member of the international

society.

50

Australia encouraged China’s emphasis on domestic

economic development. Throughout the 1980s Australia’s

strategic policy was based on the liberal premise that

China’s external policy would be more cooperative as it

developed economic linkages with the economies of the

Asia-Pacific. Chinese economic growth was viewed as

mutually beneficial. Moreover, Chinese domestic stability

was seen as being dependent on continued growth. But

sustained high levels of economic growth posed the dilemma

that more resources would be available for Chinese military

expenditures. 

Bilateral relations took a nose-dive in 1989 due to

Australia’s adverse reaction to the Tiananmen massacre.

China reportedly considered the feasibility of punishing

Australia for its highly critical reaction by retaliating

economically, but dropped the idea due to the negative costs

that China would incur.

51

 A major study of Australia’s

relations with China in the period from 1991-95 described it

as the “most difficult and challenging” period because of

China’s rapid rise as a regional power in both economic and

military terms.

52

 Australian concerns about China’s

military potential increased measurably in 1993 and

1994.

53

 In 1995-96 Canberra held three principal concerns:

Chinese assertiveness in the South China Sea, Chinese

nuclear testing, and military exercises directed against

Taiwan. The December 1995 Agreement on Maintaining

Security with Indonesia “constituted an important change

in Canberra’s foreign policy” and largely signaled

Australia’s “concerns about China’s emergence as a major

regional power.”

54

 These concerns directly contributed not

only to Prime Minister Paul Keating’s pursuit of a security

agreement with Indonesia but collaboration with Vietnam

to keep these two countries from being pulled into China’s

orbit.

55

95
Australia also pressed military engagement with

Southeast Asian states so much so that in the mid-1990s—it

could be argued—Australia conducted more military

exercises with ASEAN defense forces than the United

States.

56

 Finally, under the Coalition Government elected

in March 1996, Australia changed its orientation from

defense of Australia to developing capabilities to project

power beyond Southeast Asia. In 1997 Australia even

considered acquiring a cruise missile strike capability.

Australia’s first foreign affairs White Paper, issued in

1997, drew attention to changing power relativities due to

economic growth trends: “(t)en years ago only one East

Asian economy (Japan) was larger than Australia. By 1995

this number, measured in $US GDP terms, had risen to

three (Japan, China and the Republic of Korea).”

57

 The

White Paper further argued, “China’s economic growth,

with attendant confidence and enhanced influence, will be

the most important strategic development of the next 15

years. China is expected to be among the world’s three or

four largest economies within the next 15 years.

58

Five issues have served to fuel tensions between Beijing

and Canberra: nuclear testing,

59

 human rights, Tibet,

illegal migrants, and the South China Sea. According to

Harris, “(t)he most sustained source of tension has been

over the Taiwan relationship. Both China and Taiwan are

major markets for Australia . . . .”

60

 According to the White

Paper, 

(r)egional security could also be disrupted if one of the many

territorial disputes in the region were to flare up; if there were

conflict across the Taiwan Straits; if there were serious internal

instability in China or Indonesia; if countries of the region were

to reverse their support for US strategic engagement or if that

engagement were to come under threat because of domestic

pressures in the United States.

61

Colin Mackerras has argued that the growing bilateral

economic relations are not only the core of the relationship

but the primary reason why it was cordial at the end of the

96
twentieth century. By 1995, Australia had become China’s

tenth largest trading partner, while China had become

Australia’s sixth largest partner. In 1995 it was expected

that after the reversion of Hong Kong to mainland control,

the combined China market would be Australia’s second

largest.

62

Bilateral trade is the most important aspect of economic

relations (see Table 3 above).

63

 According to Mackerras, “It

was mainly the economic factor that drove [John] Howard to

repair the relationship with China after the rather strained

first few months of his prime ministership.”

64

 Indeed, it was

the provision of Australian government loans that led to the

rapid increase of Australia’s exports to China in the

mid-1990s.

65

 Two-way trade has increased every year since

1994. Australia’s imports from China have risen

significantly every year as well. The trade balance is in

China’s favor, reversing previous trends in which the trade

balance was in Australia’s favor from 1980 until 1989.

Australia’s exports to China include: iron ore, wool, copper

ore, oilseeds, and coal. Wool sales are important to Australia

as China imports one-quarter of Australia’s wool exports.

Australian natural resources are of great importance for

the Chinese economy. One Chinese analyst has written that

Australia’s natural resources and technologies were

97

Year Total Exports Total Imports Balance in China’s Favor

1994-95 2 963 666 3 648 776 685 109

1995-96 3 781 020 5 009 693 228 673

1996-97 3 584 393 4 203 342 618 949

1997-98 3 871 826 5 303 281 1 431 455

1998-99 3 947 314 6 106 343 2 159 029

Source: See endnote 63.

Table 3. Australia-China Commodity Trade,

1994-1999 (all figures in Australian dollars).
“indispensable raw materials for China’s iron and steel

industry and textile industry [and were] needed in China’s

economic construction.”

66

Chinese strategic interest in iron ore is illustrated by

Chinese investment in Australia that greatly exceeds

Australian investment in China (see Table 4). In particular,

China has invested in the Mt. Channar Iron Ore Mine in

Western Australia. Australia is presently promoting the

sale of liquefied natural gas.

In the early 1990s Australian investment in China

increased six times in a 3-year period 1993-95. By 1995,

total Australian investment funds in China reached

U.S.$3.52 billion (only U.S.$780 was committed). In terms

of the number of investment projects, Australian ranked

ninth. Also, China and Australia have profited from the

growth of tourism that has been facilitated by the growth of

air linkages between the two countries. Chinese tourist

numbers have risen from 54,000 in 1996 to 76,500 in 1998.

Australian tourist numbers increased from 132,700 to

186,400 over the same period.

Australia’s reservations and concerns about the rise of

China as a regional power in the 1990s did not hinder the

development of bilateral relations. In March-April 1997, for

98

Year

Chinese

Investment

in Australia

Australian

Investment

in China

Balance in

Australia’s

Favor

1995-96 1,397 551 846

1996-97 1,221 984 237

1997-98 2,345 1,241 1,104

Source: Australian Bureau of Statistics. The Statistical Bureau of

China reported that Australia’s “actually used foreign direct and other”

investment figures in China were as follows: U.S. $194 million (1996);

U.S. $314 million (1998) and U.S. $278 million (1998).

Table 4. China-Australian Investment, 1995-1998

(all figures in thousand Australian dollars).
example, Prime Minister John Howard visited China with

top priority assigned to developing economic cooperation.

He stressed the complementarity of the two economies. In

February 1998, China’s Defense Minister Chi Haotian,

visited Australia for the first time as part of the process of

developing a regional defense dialogue. In May, three

Chinese warships visited Sydney in the minister’s wake.

Australia’s Defense Minister, John Moore, paid a reciprocal

visit to China in May 1999. Finally, President Jiang Zemin

visited Australia in September 1999.

Officially, Australia adheres to the one-China policy.

Nonetheless, there is strong domestic support for a

democratic Taiwan, particularly from among the local

Chinese community. According to Harris, it is far from

certain what Australia would do if Taiwan declared

independence, and conflict broke out with China. “While the

issue would be divisive domestically,” he wrote, “the strong

likelihood is that Australia would do little beyond making

what it considered the right declaratory noise.”

67

 Chinese

actions in the South China Sea represent another major

issue that could affect bilateral relations. On this issue

Australian policy will be heavily influenced by its relations

with ASEAN.

Conflict Scenarios.

China’s military doctrine of “local wars” posits that these

conflicts will be brief and of high intensity and will be fought

on Chinese territory; territory which is claimed by China; or

areas close to Chinese territory such as Taiwan, the South

China Sea, and the Diaoyu/Senkaku islands. As noted in the

introduction, the central tenet of this chapter is that the

most likely conflicts involving China are, first, a clash with

Taiwan over national sovereignty issues

68

 and, second,

conflict between China and one or more of the claimants to

territory in the South China Sea (primarily Vietnam and

the Philippines). A less probable scenario involves conflict

99
between China and one of its Southeast Asian land

neighbors—Vietnam, Laos, or Burma.

There are five likely conflict scenarios (see Figure 1): (1)

between China-Taiwan in which the United States does not

intervene; (2) between China-Taiwan in which the United

States intervenes successfully; (3) between China-Taiwan

in which the United States intervenes unsuccessfully; (4)

between China and one of the regional claimants in the

South China Sea; and (5) between China and one of its land

border neighbors. In terms of a China-Taiwan conflict,

Beijing has at least five major options short of invasion or

local war: escalation of invasion exercises; information

warfare attacks; harassment of Taiwan’s commercial

shipping; testing ballistic missiles near Taiwan; and seizure

of one or more of Taiwan’s offshore islands.

69

 The recent

historical record of China-Taiwan relations indicates that

China is likely to alternate coercive diplomacy with political

inducements.

70

This chapter does not propose to examine each scenario

in detail because of the complexity and uncertainties

involved. For example, each scenario branches out as

various possible variations of the factors involved are

100

Scenario 1. Conflict between China-Taiwan in which the United

States does not intervene.

Scenario 2. Conflict between China-Taiwan in which the United

States intervenes successfully.

Scenario 3. Conflict between China-Taiwan in which the United

States intervenes unsuccessfully.

Scenario 4. Conflict involving China and one of the claimants to

territory in the South China Sea.

Scenario 5. Conflict between China and one of its land border

neighbors (Vietnam, Laos or Myanmar).

Figure 1. Five Likely Conflict Scenarios.
considered. Among the major factors are: the kind of

provocation that leads to conflict (e.g. unilateral declaration

of independence by Taiwan); whether the conflict is brief or

protracted; the kinds of targets struck and the extent of

civilian casualties and damage to the infrastructure;

whether or not nuclear weapons are used; and reactions by

the United States and other members of the international

community. 

For example, a unilateral declaration of independence

by Taiwan would not be supported by the United States

under existing policy. Taiwan could not look to Australia or

Southeast Asia for political or other support. These

countries would adhere to their one-China policy while

deploring the use of force and calling for a quick end to

armed hostilities. China would incur minimal political and

economic costs if the conflict was of short duration.

Protracted conflict could incur higher penalties depending

on international reaction. Southeast Asian and Australian

responses would be determined to a large extent by the

reactions of the United States, Japan, and other states.

Australia would be among the first to impose some form of

economic sanctions on the belligerents to encourage a

ceasefire, if agreed by the international community. The

ASEAN position is less certain.

The failure of the United States to intervene in other

scenarios involving conflict between China and Taiwan

would serve to undermine its security posture in the

Asia-Pacific. Quite simply, American security guarantees

would lose their credibility. Australia would move to shore

up its defense links with Southeast Asian states. Singapore,

Malaysia, Indonesia, Thailand, and Vietnam are likely to

hedge their bets by increasing the scope of multilateral

military cooperation. If China prevailed in a scenario

one-type conflict, Southeast Asian states most likely would

continue their pattern of deference and accommodation

towards Beijing. If a stalemate developed, ASEAN trade

and investment would likely decline in both China and

Taiwan until a cease-fire was obtained. But under

101
conditions of stalemate ASEAN states are not likely to alter

their one-China policy, however.

China could incur varying costs depending on how each

conflict scenario unfolds. At one extreme, conflict could

result in political and economic sanctions and the

coalescence of an anti-China military grouping of regional

states under U.S. leadership. Such costs could be incurred

by an unprovoked Chinese attack and unsuccessful

invasion of Taiwan—with or without U.S. intervention

(scenarios one and three). In brief, if Taiwan is able to

successfully defend itself against an invasion launched by

the mainland it would put paid to the one-China policy. If

Taiwan sustained large numbers of civilian casualties and

damage to its infrastructure this could lead to international

sympathy. Domestic pressures in America, for example,

could lead the United States to extend diplomatic

recognition to Taiwan as a sovereign state. Undoubtedly

this would lead to a break in China-U.S. relations. In these

circumstances pressure would mount on U.S. allies, Japan,

South Korea, and Australia,

71

 to follow America’s lead. This

in turn might prompt some members of ASEAN to follow

suit and recognize the realities of two Chinas.

According to one analyst, the South China Sea would be

an ideal arena for “local war” when China improves its

logistics and mid-air refueling capabilities.

72

 These

capabilities will allow China to seize and hold features in

the Spratly Islands. At present Chinese forces can only

attack and destroy targets in this area. The PLA’s Air Force

medium range bombers equipped with air-launched cruise

missiles “would pose a problem for those ASEAN air forces

without airborne early-warning and control aircraft and/or

air defense systems capable of dealing with supersonic

cruise missiles.”

73

 Even without resort to conflict, any

increased presence of PLA naval ships in the South China

Sea would exert a psychological effect on regional states. In

the event of major conflict between China and one of the

claimant states to territory in the South China Sea

(scenario four), China could incur the additional cost of

102
political and economic sanctions by ASEAN states.

74

China’s extensive political ties, embodied in long-term

cooperation agreements, could be undone quickly. The

ASEAN Plus Three consultative arrangements also would

become moribund. Australia could be expected to back

Southeast Asian states in cases where conflict has been

initiated by China.

Short of an attempted invasion of Taiwan, China’s resort

to force in all five scenarios above would reinforce anxieties

about Chinese military power already held by several

Southeast Asian states. This grouping could conceivably

coalesce into a de facto military grouping aligned to

Australia and the United States. Derek da Cunha argues

that one result could be the formation of a Standing ASEAN

Naval Force to participate in safe-guarding of sea lines of

communication (SLOCs).

Finally, it should be noted that conflict between China

and Taiwan under any of the first three scenarios would

result in a momentary fall of foreign investment and a

disruption of trade from Southeast Asia and Australia.

However, the major costs are likely to be borne not by China

but by regional states. As noted above, “(i)f either one

[China or Taiwan] is damaged, Singapore [read Southeast

Asia-ed.] will suffer a loss; if both are damaged, its loss will

be doubled.”

75

 In other words, in a conflict situation the

ASEAN states would be affected by the disruption of or loss

of trade and investment from Taiwan and China.

ENDNOTES - CHAPTER 6

1. David Lamb, “China warming to its wary neighbors,” Los Angeles

Times, November 16, 2000, internet version.

2. Paul Eckert, “China takes big strides in Asian diplomacy,”

Reuters, November 24, 2000, internet version.

3. For background, see Carlyle A. Thayer, “ASEAN Ten Plus Three:

An Evolving East Asian Community?,” Comparative Connections: An

E-Journal on East Asian Bilateral Relations, Vol. 2, No. 4, January

2001, pp. 52-61, http://www.csis.org./pacfor/cc/004Qchina_

103
asean.html; Thayer, “China‘s ‘New Security Concept’ and ASEAN,”

Comparative Connections: An E-Journal on East Asian Bilateral

Relations, Vol. 2, No. 3, October 2000, pp. 65-75, http://www.csis.org/

pacfor/cc/003Qchina_asean.html; Thayer, “China Consolidates Its

Long-Term Bilateral Relations with Southeast Asia,” Comparative

Connections: An E-Journal on East Asian Bilateral Relations, Vol. 2, No.

2, July 2000, pp. 62-72. http://www.csis.org/pacfor/cc/002Qchina_

asean.html; Thayer, “China-ASEAN: Tensions Promote Discussions on

a Code of Conduct,” Comparative Connections: A Quarterly E-Journal

on East Asian Bilateral Relations, Vol. 2, No. 1, April 2000, pp. 51-60,

http://www.csis.org/pacfor/ccjournal.htm; Thayer, “China

Consolidates Long-Term Regional Relations,” Comparative

Connections: A Quarterly E-Journal on East Asian Bilateral Relations,

Vol. 1, No. 3, January 2000, pp. 47-54, http://www.csis.org/pacfor/

ccjournal.html; Thayer, “Beijing Plans for a Long-Term Partnership

and Benefits from Anti-Western Sentiments,” Comparative

Connections: A Quarterly E-Journal on East Asian Bilateral Relations,

Vol. 1, No. 2, October 1999, pp. 39-44, http://www.csis.org/pacfor/cc/

993Qchina_asean.html; and Thayer, “China and ASEAN Relations:

Some Progress, Along with Disagreements and Disarray,” Comparative

Connections: A Quarterly E-Journal on East Asian Bilateral Relations,

Vol. 1, No. 1, July 1999, pp. 37-41, http://www.csis.org/pacfor/

ccejournal.html.

4. Alastair Iain Johnson, “China’s Militarized Interstate Dispute

Behaviour 1949-1992: A First Cut at the Data,” The China Quarterly,

No. 153, March 1998, p. 5.

5. Evan A. Feigenbaum, “China’s Military Posture and the New

Economic Geopolitics,” Survival, Vol. 41, No. 2, Summer 1999, pp.

74-79. Feigenbaum discounts resource-based motivations in Chinese

decision-making to use force. His analysis depreciates energy resources

as a major potential source of conflict in the South China Sea.

6. Jianxiang Bi, “Managing Taiwan Operations in the Twenty-first

Century: Issues and Options,” Naval War College Review, Autumn

1999, p. 15, http://www.nwc.navy.mil/press.

7. James H. Anderson, “Tensions Across the Strait: China’s Military

Options Against Taiwan Short of War,” The Heritage Foundation

Backgrounder Executive Summary, September 28, 1999, p. 1.

8. Deutsche Press-Agentur, “China’s military builds ‘Dragons on the

Sea’,” August 2, 2000.

104
9. Agence France-Presse, “Taiwan Asks US to Help Solve Stalemate

with China,” November 27, 2000.

10. Gary Goertz and Paul F. Diehl quoted in “Assessing the Risks of

Conflict in the PRC-ROC Enduring Rivalry,” Brian Job, André Laliberté

and Michael Wallace, eds., Pacific Affairs, Vol. 72, No. 4, Winter

1999-2000, p. 517.

11. Job, Laliberté, and Wallace, pp. 534-535.

12. N. Ganesan, “ASEAN’s Relations with Major External Powers,”

Contemporary Southeast Asia, Vol. 22, No. 2, August 2000, p. 264.

13. Derek Da Cunha, “Southeast Asian Perceptions of China’s

Future Security Role in Its ‘Backyard’,” in In China’s Shadow: Regional

Perspectives on Chinese Foreign Policy and Military Development,

Jonathan D. Pollack and Richard H. Yang, eds., Santa Monica: Center

for Asia-Pacific Policy, National Security Research Division, The RAND

Corporation, 1998, p. 115.

14. Figures by Lu Jianren quoted in Joseph Y. S. Cheng, “China’s

ASEAN Policy in the 1990s: Pushing for Regional Multipolarity,”

Contemporary Southeast Asia, Vol. 21, No. 2, August 1999, p. 184.

15. “ASEAN-China Dialogue,” ASEAN Secretariat home page,

http://www.aseansec.org/dialog/mchi.htm.

16. Cheng, p. 183.

17. Amit Baruah, “Pact mooted to reduce U.S. influence?,” The

Hindu, October 24, 2000, internet version.

18. Amit Baruah, “China for projects in Mekong basin,” The Hindu,

November 27, 2000, internet version.

19. Xinhua, “China’s Foreign Trade Volume in First 10 Months Hits

$378.1 billion,” November 10, 2000.

20. Ibid.

21. Cheng, p. 193.

22. Reuters, “ASEAN and China eye closer trade ties,” November 23,

2000.

23. Ibid.

105
24. Eckert; and Baruah, “Pact mooted to reduce U.S. influence?”

25. In April 2000, China, Laos, Burma, and Thailand signed an

Agreement on commercial navigation on the Lancang-Mekong River.

China has promised to fund dredging of the river in Laos and Burma.

26. Samuel C. Y. Ku, “The Political Economy of Taiwan’s Relations

with Southeast Asia: The ‘Southward Policy’,” Contemporary Southeast

Asia, Vol. 17, No. 3, December 1995, pp. 282-283.

27. Ibid.

28. Ibid., pp. 294-295.

29. In the wake of Cambodia’s violent upheaval in 1997, the Hun

Sen government expelled Taiwan’s representative office. Relations with

China have grown close since. In November 2000, President Jiang

Zemin paid a state visit to Cambodia (and Laos). China provides a

U.S.$13 million aid package. Lamb, a seasoned reporter, offered this

assessment “[China] has settled a border dispute with Vietnam, become

a major arms provider to Myanmar, helped build a television satellite

receiving station and a hydroelectric power plant in Laos and patched

up relations with Cambodia. . . .”

30. Deborah Kuo, “Economics Minister Lin Hsin-y: Taiwan,

Malaysia To Further Cement Economic Ties,” Central News Agency,

November 8, 2000, internet edition.

31. Jing-Dong Yuan, “China’s Defence Modernization: Implications

for Asia-Pacific Security,” Contemporary Southeast Asia, Vol. 17, No. 1,

June 1995, pp. 67-84. Yuan argues that China’s ability to undertake

military action in the South China Sea is constrained by

politico-diplomatic as well as military-operational factors.

32. da Cunha, p. 119.

33. Bi, p. 16.

34. Carlyle A. Thayer, “Force Modernization Strategies and

Trends,” conference paper, Meridian International Center,

Washington, DC, September 6-7, 2000, p. 6.

35. Bi, p. 14.

36. da Cunha, p. 118.

106
37. Mark Valencia, “Energy and Insecurity in Asia,” Survival, Vol.

39, No. 3, Autumn 1997, pp. 95-97.

38. For background, see Ian James Storey, “Creeping Assertiveness:

China, the Philippines, and the South China Sea Dispute,”

Contemporary Southeast Asia, Vol. 21, No. 1, April 1999, pp. 95-118.

39. da Cunha, p. 116.

40. Bi, p. 14.

41. Ibid.

42. Stuart Harris, “The Role of China in Australia’s Regional

Security Environment,” In China’s Shadow: Regional Perspectives on

Chinese Foreign Policy and Military Development, Jonathan D. Pollack

and Richard H. Yang, eds., Santa Monica: Center for Asia-Pacific Policy,

National Security Research Division, The RAND Corporation, 1998, p.

127.

43. Thayer, “Force Modernization Strategies and Trends,” p. 9.

44. Bi, p. 15.

45. In a recent development, seven ASEAN army chiefs (and three

deputy chiefs from Laos, Burma, and Vietnam) met for the first time to

discuss multilateral security cooperation. The meeting was hosted by

Thailand and focused on peacekeeping operations and humanitarian

disaster relief. Associated Press, “ASEAN Army Commanders Hold

Inaugural Meeting,” November 21, 2000; and OANA-Kyodo, “ASEAN

Army Chiefs to Discuss Security,” November 6, 2000.

46. Bi, p. 20.

47. Cheng, p. 200.

48. da Cunha, p. 124.

49. Ibid., pp. 124-125.

50. Harris, p. 129.

51. Ibid., p. 134.

52. Ann Kent, “Australia and China, 1991-1995: Asymmetry and

Congruence in the Post-Cold War Era,” in Seeking Asian Engagement,

107
Australia in World Affairs, 1991-1995, James Cotton and John

Ravenhill, eds., Melbourne: Oxford University Press, 1997, pp. 170-171.

53. Harris, p. 136.

54. Ibid., p. 127.

55. Ibid., p. 133.

56. Ibid., p. 134.

57. Commonwealth of Australia, In the National Interest:

Australia’s Foreign and Trade Policy White Paper, Canberra: National

Capital Printing, 1997, p. 22.

58. Ibid., p. 27.

59. In June 1996 Prime Minister Howard condemned China for

conducting a nuclear test.

60. Harris, p. 134.

61. Commonwealth of Australia, p. 37.

62. Yu Jiafu, “Good Sino-Australian Political and Economic

Relations Conducive to Security and Stability of Asia-Pacific Region,”

conference paper presented to Sino-Australian Workshop on

Asia-Pacific Security, co-sponsored by the Center for Peace and

Development Studies, China Association for International Friendly

Contact and Center for the Study of Australia-Asia Relations, Griffith

University, Beijing, September 1996, p. 3.

63. Colin Mackerras, “Australia-China Relations at the End of the

Twentieth Century,” Australian Journal of International Affairs, Vol.

54, No. 2, July 2000, p. 195.

64. Ibid., p. 197.

65. Yu, p. 3.

66. Xu Mingde quoted by Mackerras, p. 196.

67. Harris, p. 134.

68. For a discussion of China-Taiwan conflict scenarios, see Denny

Roy, “Tensions in the Taiwan Strait,” Survival, Vol. 42, No. 1, Spring

108
2000, pp. 82-88; and Felix K. Chang, “Conventional War Across the

Taiwan Strait, Vol. 40, No. 4, Orbis, Fall 1996, pp. 577-607.

69. Anderson, p. 4.

70. Suisheng Zhao, “Military Coercion and Peaceful Offensive:

Beijing’s Strategy of National Reunification with Taiwan,” Pacific

Affairs, Vol. 72, No. 4, Winter 1999-2000, pp. 494-512; and Andrew

Scobell, “Show of Force: Chinese Soldiers, Statesmen, and the

1995-1996 Taiwan Strait Crisis,” Political Science Quarterly, Vol. 115,

No. 2, Summer 2000, pp. 227-246.

71. According to former Australian Prime Minister Malcolm Fraser,

“If American policy ever were to support an independent Taiwan, the

outcome would be war between China and America. America would

withdraw to the United States, to her own hemisphere. If we had

supported her, we would be an exposed and isolated ex-ally. Any

government that took any action that could lead to that outcome would

be guilty of a grave dereliction of duty to the Australian people.” Fraser’s

scenario does not take into account U.S. support for Taiwanese

independence following unsuccessful Chinese aggression against the

island. Malcolm Fraser, “All the way with the USA? Not necessarily,”

The Age, November 25, 2000, internet version.

72. da Cunha, p. 119.

73. Ibid. See also Felix K. Chang, “Beyond the Unipolar Moment:

Beijing’s Reach in the South China Sea,” Vol. 40, No. 3, Orbis, Summer

1996, pp. 353-374. Chang argues that a combined Singapore-Malaysia

force would be successful in a war-fighting scenario against a Chinese

task force.

74. Clifforn J. Shultz, II, and William J. Ardrey, IV, “The Future

Prospects of Sino-Vietnamese Relations: Are Trade and Commerce the

Critical Factors for Sustainable Peace?” Contemporary Southeast Asia,

Vol. 17, No. 2, September 1995, pp. 126-146.

75. Bi, p. 15.

109
CHAPTER 7

TAIWAN AND THE CHINESE MILITARY

1

Ellis Joffe

No issue is more volatile in East Asia today than the

triangular relationship between China, Taiwan, and the

United States. Although war is neither imminent nor

inevitable, given the desire of all three sides to avoid it, it

cannot be ruled out, unless major changes occur in the

positions of China or Taiwan. Even without war, this

relationship will continue to be tense in the coming months.

The source of tensions lies in the irreconcilable positions

of the three sides. China considers the reunification of

Taiwan with the mainland under the “one-China” principle

as non-negotiable, and has threatened to use force if Taiwan

declares independence, or if it balks indefinitely at talks on

reunification. The Taiwan government has made

significant moves toward independence, and will continue

to resist reunification under China’s sovereignty. The

United States is committed to the peaceful resolution of the

issue, but has not ruled out military intervention if China

attacks Taiwan.

China’s Military and Taiwan Policymaking.

How the issue unfolds is impossible to predict. Although

Taiwan’s new president, Chen Shui-bian, has vowed not to

declare independence, he has not accepted the “one-China”

principle, which China views as a prerequisite to

negotiations. Since the freezing of the status quo, in which

Taiwan is independent in all but name, is unacceptable to

China in the long run, the Chinese leaders will not give up

the threat to use military force unless taiwan accepts this

principle. and since this is not likely, a peaceful resolution of

the crisis is not in sight at present.

111
This alone is enough to bring China’s military leaders to

the center of deliberations on Taiwan as advisers and

planners due to their expertise. However, their

participation has obviously gone beyond that. They have

become pivotal players in the formulation of China’s Taiwan

strategy. This is to due to their new role on the Chinese

political scene.

2

This role stems from the vast changes that have

transformed Chinese politics in the last decade. Driving this

transformation has been a momentous leadership

changeover from a revolutionary generation to a

post-revolutionary one, which is different in stature, style,

and sentiments. These differences have recast party-army

relations in a fresh pattern that has greatly increased the

political capacity of the military.

The most important difference lies in the stature of the

paramount leader. Unlike his predecessors, Mao Zedong

and Deng Xiaoping, Jiang Zemin does not have the one

outstanding political asset that had enabled them to

dominate the military: personal authority that had ensured

the automatic support of the army chiefs in all

circumstances.

Jiang, in contrast, cannot impose decisions on military

leaders arbitrarily with respect to issues that are of vital

interest to the armed forces. He has to work out their prior

approval in order to ensure compliance, which, in sharp

contrast to previous periods, is conditional. This enables

them to influence policy outcomes as never before.

Another difference relates to the characteristics of

China’s new military commanders. They are more

specialized than their predecessors, more committed to

military values, and more connected by educational and

service ties. In short, they are more professional.

3

 They are

also more inclined to stay out of political involvement, which

diverts the armed forces away from professional pursuits

and can be dangerous.

112
But this has not prevented military involvement in

policy areas that concern their interests. Paradoxically,

professionalism has intensified, rather than reduced, such

involvement. This is because the enhanced sense of

expertise and exclusiveness nurtured by professionalism

impels the military to assume a major policymaking role in

areas for which they feel responsible and qualified.

Taiwan falls most prominently into this category. It is

where new military politics intersect with professionalism.

Politics has brought the military to the center of Taiwan

policymaking; professionalism provides the rationale for

their involvement. And this combination is reinforced by a

resurgent Chinese nationalism of which the military are, in

their own self-image, the nation’s foremost guardians.

Even so, China’s military leaders have not muscled their

way into the policy process. Since the Taiwan issue became

militarized after the Taiwan crisis of the mid-1990s, it has

become clear that major decisions might lead to war with

Taiwan and the United States. Consequently, such

decisions can hardly be reached by the leadership without

military participation. In fact, their participation is

indispensable, in view of the fact that Jiang Zemin and his

generation of colleagues have no military experience and no

military qualifications. The question, then, is not whether

the military are central in this process, but whether, as is

widely reported, they dominate it with a hard line towards

Taiwan.

Taiwan and Civil-Military Relations.

This is a murky area because it cuts to the inner

workings of the Chinese leadership’s policymaking process,

which is shrouded in secrecy. From the little that is known

about it—and about the crisis of 1995/1996—it can be

surmised that under Jiang, the process is probably marked

by divisions and debates but, in the end, rests on a

consensus. PLA leaders define the parameters of China’s

113
Taiwan policy, but do not dictate it. There are other players,

no less important, in the decisionmaking process.

Foremost among them is Jiang. Although his personal

stature does not seem to have improved much during his

years as paramount leader, Jiang appears to have

considerably bolstered his political position. This he has

done by utilizing his institutional prerogatives—especially

the powers of appointment and dismissal–-and political

exposure—especially well-publicized tours in China and

abroad. Given the ethic of compliance with hierarchical

authority imbedded both in China’s political culture and in

the tradition of the People’s Liberation Army (PLA), the rise

in Jiang’s national standing has doubtless strengthened his

hand in relation to the military leaders. While he still needs

their consent behind major decisions, he can presumably

get it if he does not defect peremptorily from the accepted

consensus.

The military also have to contend with other leaders.

Under Mao and Deng the policymaking process had been

much more personal than formal, involved a small handful

of personalities, and relied largely on long-standing

personal contacts and informal consultations. Under Jiang,

it is more diffuse, draws in a greater number of participants,

and is more procedural and impersonal.

The military might also be at a disadvantage in the more

institutionally-oriented policy milieu, because after the

1997 15th Party congress, they have no representative in

the Standing Committee of the Politburo, the Party’s

supreme body. The leadership’s decision not to appoint a

representative to that body was in line with the distancing

of the military from politics and from involvement in the

routine running of the country, and should not be overstated

as a limitation on their power. This is because the two top

military chiefs sit on the Politburo, and, especially, because

Jiang Zemin, as chairman of the Military Affairs

Commission, hears the views of the most senior

commanders and undoubtedly transmits them to the

114
Standing Committee in his capacity as its chairman. Still,

this is not the same as having a military presence in this

Committee.

The result is that, unless there is a military crisis that

calls for military solutions, army commanders presumably

do not carry more weight than other leaders when it comes

to the broader implications of policy decisions. These

leaders have no less a stake in the decisions, and, in the

more open process, surely do not leave the playing field to

the military.

In any case, whatever the balance of forces, there are no

indications of serious conflict between civil and military

leaders over the principles of Taiwan policy. This is because

conflict has been averted by a convergence of views. Such

convergence derives from several sources.

The first and most important is an emotional

nationalism that posits reunification with Taiwan as the

elemental embodiment of China’s sovereignty, national

honor, and prestige, and views its achievement as a

non-negotiable condition for the restoration of China’s

rightful place in the international arena. While these

sentiments are probably strongest in the military, in the

light of their self-image and corporate in-breeding, they are

expressed by all leading political figures.

Whether or not such expressions are genuine is

irrelevant. What is relevant is that the entire Chinese

leadership has committed itself publicly to reunification,

and no leader, most notably Jiang Zemin, can afford to stray

from this consensus. Mao or Deng could redefine the limits

of consensus, Jiang cannot. They could postpone or sidestep

the Taiwan issue, but for Jiang and his colleagues to waver

on Taiwan could be politically lethal.

This is where the military define the issue. They are not

driving the civilians into uncompromising nationalistic

positions, because there is no need for that. But they are

holding the line of national consensus against any signs of

115
backsliding. At any rate, in the current circumstances,

backsliding is not realistic, not only because of Jiang’s

political calculations, but also because he has linked his

historical legacy and the legitimacy of his leadership to the

elimination of this painful reminder that, until Taiwan is

reunified with China, their great victory in China’s civil war

will remain incomplete.

There is also a potent practical side to the military’s

commitment to reunification. Since the mid-1990s it has

provided the underpinning for the increased purchase of

modern weapons, and they will not give it up lightly.

Under Deng the PLA was starved of funds on the

grounds that economic development took priority over

weapons upgrading. This had been a prime reason for

military involvement in money-making economic activities

that damaged their professionalism. At the start of the

1990s, a combination of factors had brought about an

increase in the military budget: the economic surge, Jiang’s

desire to find favor with the generals, and the lessons of the

Gulf War.

However, the military still had to contend with

arguments from civilians that economic progress came

before military modernization, and the acquisition of new

weapons progressed slowly. This process was accelerated

only after the Taiwan crisis of 1995/1996, when the

appearance of two American carrier groups near Taiwan

moved the Chinese to defuse it.

4

 From this crisis, the

Chinese leadership drew several conclusions.

The first was that Taiwan’s leaders were determined to

proceed towards independence, an unacceptable trend that

they would most likely have to terminate by the eventual

use of force. Second, for this purpose, they would have to

acquire an adequate combat capability, the attainment of

which was speeded up. Third, resort to force meant that the

Chinese would have to deter American military intervention or, more likely, confront it. Finally, preparations for the

116
military resolution of the Taiwan issue would become the

main mission of the PLA and the focus of its development.

The Chinese leadership’s unity on Taiwan strategy has

probably not precluded differences over tactics. Surface

manifestations of such differences have been clear before

the election of Chen Shui-bian in Taiwan and after the

election. Statements from military leaders and their press

have been much more extreme in tone and menacing in

content than those emanating from party papers and

leaders.

Still, it is difficult to determine whether these

differences constitute a division of views or a division of

labor. Given the basic consensus, it is more likely that the

military have been assigned, or assumed, the “bad cop” role,

threatening Taiwan with destruction, especially since they

command the weapons to carry out such threats. In

contrast, the civilians play the role of the “good cop,” taking

a softer stance in an effort to convince Taiwan leaders and

people that it is in their interest to back away from policies

that will bring down upon them the fate promised by the

military.

It is also possible that divisions are real. However, it is

difficult to see the purpose of the tough talk from the

military, other than to intimidate the Taiwanese. If the aim

is to pressure the civilian leaders, the question is, to what

end? Given the unpreparedness of the armed forces for

major action at this time, it is not likely that this is their

immediate preference—unless Taiwan declares

independence, in which case it would not be necessary to

push their civilian counterparts.

If the bellicose statements from the military were made

on their own initiative, this would point to their new

autonomy under Jiang rather than to policy conflicts, since

the common purpose is to bend the Taiwanese to China’s

will. Another possibility is that the bluster stems from

bureaucratic rather than strategic objectives—to sustain a

crisis atmosphere in order to support military demands for

117
new weapons. In any case, whatever differences there are

appear to be tactical—how best to coerce Taiwan with words

rather than force—and not over the principle of

reunification.

There are probably differences within the military as

well. These are likely to be primarily between two groups,

which presumably parallel similar divisions among the

civilians.

5

 On the one hand, hard-line officers who support a

threatening verbal stance towards Taiwan, perhaps

accompanied by shows of force, and even limited punitive

action. And, on the other hand, officers who assume that

China will ultimately have to resort to force, but favor

postponing military action until the armed forces are better

prepared. A third, more low-keyed, view among civilians

believes that high-handed attempts to pressure Taiwan

have been counterproductive. This view presumably has no

substantial support in the military.

In any case, whatever views may be prevalent in the

military, only the top commanders communicate with the

civilians. Lower-ranking officers and analysts in military

research organs do not deal in a free-wheeling fashion with

civilian leaders. They transmit their opinions upwards

through proper channels. Despite what is frequently

reported, the leadership is not subject to pressures from all

levels of the military. The Chinese army is a disciplined

hierarchical organization, which is represented only by its

most senior commanders. Although these commanders

might present different assessments and recommendations

in inner councils, there are no public signs of serious

differences on how they view Taiwan.

The Chinese Military Views Taiwan.

The military’s views on how to deal with the Taiwan

problem are no less murky than civil-military relations, but

not for lack of information. These views have been

disseminated in military statements and publications, in

articles inspired or planted in the Hong Kong press, and in

118
conversations with foreigners. The difficulty is that the

publicized views do not tell the whole story, or even the true

story. What China’s military really think or propose to do

remains an enigma. Nonetheless, it is important to look at

what they say for public consumption, and then to assess

their options.

Their public pronouncements are tough,

straightforward, and confident. They have several obvious

purposes. One is to put the military in the front rank of

leaders who speak out on Taiwan. Another is to threaten

and coerce the Taiwanese. A third is to deter the United

States from military intervention. An additional one is to

mislead both Taiwan and the United States about China’s

plans and capabilities. A fifth one is to boost the morale of

the troops. These pronouncements highlight several

themes.

The first is a thunderous threat that no compromise on

reunification is possible. Statements in this vein appeared

in a rising stream on the eve of the March election in

Taiwan, and continued after it. They were marked by

virulent language, and their message was simple: a

declaration of independence by Taiwan meant war, and the

PLA is poised to prevent the separation of Taiwan from the

mainland by force.

6

Elaborating on this theme, a Hong Kong paper quoted a

Chinese military expert as saying that if Taiwan’s new

leaders did not accept the “one-China” principle, China

would not hesitate to smash Taiwan and then rebuild it to

safeguard its national sovereignty.

7

 To underline this,

another Hong Kong paper revealed that after the election

the Central Military Commission had ordered the

redeployment of navy, air force, and missile units to areas

facing Taiwan and had given them priority in the

acquisition of new high-tech weapons.

8

Justification for the military’s commitment to

reunification was provided by a Hong Kong journal, which

published a document that had purportedly been issued by

119
the Central Military Commission, China’s top military

body.

9

 Although the authenticity of the document is in

doubt, it reflects views that the Chinese military

presumably want to propagate for public relations

purposes, which suggests their involvement, if not

complicity, in its publication.

The document portrays reunification as a historical

mission that transcends political divisions and represents

the will of all Chinese, including those in Taiwan. The

Taiwan problem, it says, is a legacy of the civil war and is

China’s internal affair. Its resolution is essential to erasing

the humiliation of colonialism and ensuring China’s

national dignity, because its enemies use Taiwan to block

China’s rise on the global scene.

A second theme sounds a note of pessimism about a

peaceful settlement. It was most explicitly expressed by

Chinese officers in private conversations with foreign

observers.

10

 They were skeptical about the possibility of a

solution after the election, and said that the PLA was

preoccupied with the acceleration of preparations for

military action, for which it had received special funds. They

believed that the United States opposed reunification for

the strategic objective of keeping China mired in the Taiwan

problem. There is, of course, no way of knowing how

widespread such views are, and whether they are genuine

or merely meant to send a message.

A third theme underscores China’s military superiority

over Taiwan. Speaking at a conference in the United States,

a senior Chinese military analyst noted that despite

Taiwan’s purchase of modern weapons in recent years, its

armed forces suffer from serious deficiencies. One is the

absence of integrated weapons systems. Another is the

inability of its military industry to support a protracted war

of attrition. A third is Taiwan’s geography, which does not

provide adequate space for maneuvering. A fourth is the

concentration of its strategic and tactical targets, which

increases their vulnerability to attack.

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In contrast, he said, the PLA is better prepared

psychologically and enjoys more popular support. It has

combat experience and higher morale. The initiative and

timing for action lies in its hands, once Taiwan declares

independence. Moreover, once the Chinese government

orders military action, the PLA will not desist from its

objective: it will launch as many attacks as needed to take

the island.

11

That it has the wherewithal to do this was emphasized in

an article published in a Beijing journal by two military

analysts. The PLA, they said, has accelerated its transition

from a manpower-intensive into a science-and-technologyintensive force, which emphasized quality rather than

quantity. Listing a wide range of improvements that have

occurred in all branches of the armed forces, the writers

highlighted the PLA’s ability to integrate weapons systems

and to carry out combined-forces operations.

12

Taiwan’s weaknesses were also pointed out in the

document ascribed to the Central Military Commission.

Taiwan’s defense system and planning, it said, are not

suited to withstanding a large-scale and extended invasion.

Although the quality of its equipment is not bad, its

quantity is limited. After a massive first strike, Taiwan’s

forces will not be able to put up effective resistance. The

PLA will, therefore, be able to take control of Taiwan before

U.S. intervention, and then concentrate its forces on

fighting the United States.

Regarding this possibility, the document concedes that

from a technological standpoint, the armed forces of the

United States have no match in the world. However, this

applies to the entire American military organization. In the

event of war, only one-third of its forces can be deployed

rapidly overseas.

Furthermore, the United States does not have the

advantage over China that it does over small powers such as

Iraq and Yugoslavia, because the Chinese will fight close to

home, whereas U.S. forces will be exhausted by a far-off

121
expedition. If the war will consist of missile strikes,

moreover, the Chinese enjoy an advantage in the number of

short and medium range missiles.

An additional advantage stems from the lessons that the

Chinese had gained from fighting American forces in

Vietnam, where they had been mainly responsible for air

defenses and had gained considerable experience. Since

then, to be sure, there have been many changes, of which the

most telling have been in personnel qualifications and

equipment of the Chinese. This means that the United

States will not be able to gain the air dominance that it had

over Iraq and Yugoslavia.

In a missile exchange, the document claims, the

strategic superiority of the United States will be nullified by

the fact that both China’s offensive and defensive

operations will be launched from its own territory. Once the

United States launches an attack, its front-line forces and

bases will be vulnerable to Chinese missile strikes, which

will confront them with difficulties in weapons and logistics.

The first aim of the Chinese is deterrence. According to

the document, at an appropriate time the Chinese will

disclose to the United States information on China’s

strategic weapons so that the Americans will be aware of the

price they would have to pay for intervention.

A Chinese military publication was more blunt. The

United States, it said, will not sacrifice 200 million

Americans for 20 million Taiwanese. They will acknowledge

this and withdraw.

13

 Another military journal, quoted in a

Hong Kong paper, said that China had made preparations

to fight a nuclear war with the United States.

14

This possibility was downplayed by the supposed

document of the Central Military Commission. It is against

U.S. interests, it said, to fight a nuclear war for Taiwan, and

even American anti-China politicians will have to respect

public opinion. China is willing to sustain major losses to

defend even one square inch of land, whereas anti-war

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sentiment in the United States will oppose large numbers of

casualties.

Unlike Iraq and Yugoslavia, China has nuclear weapons

that are part of its strategic posture. The PLA, the document

asserted, would gain complete control of Taiwan before the

full deployment of U.S. troops, leaving retaliation as the

only option for the United States. It would then have to try

and bomb China into submission, as it did Iraq and

Yugoslavia. This is wishful thinking.

The reason was explained in the article by the two

Chinese military writers. Despite changes in the conditions

of warfare, they said, “people’s war” is not obsolete as

demonstrated by the war over Kosovo. This was because the

Yugoslavs had relied on the people in helping the armed

forces in a variety of ways—such as camouflage, armaments

production, and catching spies–-to aid the armed forces. In

the view of the writers, the will of the Yugoslav people on the

one hand, and wavering popular support in the NATO

countries on the other, were decisive factors in ending the

bombing.

15

In many publications the Chinese have also stressed the

option of asymmetrical warfare—electronic and

information—in which they will target the “nerve centers”

of a technologically-superior United States.

16

Given the high level of hyperbole in these statements,

there is little doubt that their purpose is to exert political

and psychological pressure rather than to signal impending

military action. The Chinese clearly prefer to prevent the

break away of Taiwan without use of force. If however, they

feel compelled to take military action, their options will be

determined by their aims.

China’s Aims and Military Options.

No aspect of the Taiwan problem has riveted more

attention, nor generated more divisions among observers,

than war scenarios in the Taiwan Straits. And no aspect is

123
more difficult to assess. China’s intentions and operational

plans are a closely-guarded secret, and its possible actions

can only be inferred from indirect indications and

conjecture.

Conjecture has to be focused. There is little point in

running through all possible scenarios, or assessing the

overall capabilities of China’s armed forces in relation to

Taiwan and the United States, without posing a critical

question beforehand: what would be China’s objectives in

attacking Taiwan? Since the PLA’s plans are geared toward

these objectives, speculation on China’s possible options

should first consider what these might be.

The starting point is the assumption that China will

attack Taiwan only in the most extreme circumstances—

first, if Taiwan’s leaders formally declare independence and

separate Taiwan irrevocably from China. Given the

fundamental factors that drive China’s leaders—

nationalism, the linkage between Taiwan and legitimacy,

the state of elite political relations, and the stand of the

military—they will not be able to tolerate such an affront to

China’s national honor and such an infringement on its

sovereignty.

They will also not be able to tolerate an indefinite

rejection by Taiwan of China’s demands for negotiations on

the basis of the “one-China” principle, although since the

Bush administration has come into office, the Chinese seem

to have put these demands on the back burner. This is

tantamount to de facto independence, since behind the

screen of postponement Taiwan’s leaders will continue to

consolidate their international position.

In both cases—declaration or delay—China’s ultimate

recourse will be to military action, although in the first case

China will be under some pressure to respond rapidly,

whereas in the second, it will be able to put off action until

its armed forces are upgraded, and they are in no hurry to

take such action. Since Taiwan’s new leaders are unlikely to

124
declare independence, the ball will continue to be in China’s

court.

If the Chinese decide to attack, the damage to China’s

economic development, international posture, and regional

relations will be incalculable. For such consequences, they

will settle for nothing less than total achievement of their

objectives. And, in contrast to previous crises, these

presumably will be unlimited.

In the past, China’s aim in initiating limited military

activities had been to signal a refusal to acquiesce in an

unacceptable situation—a drift toward a “two-Chinas”

policy in 1954 and 1958, and Taiwan’s moves under Lee

Teng-hui toward an independent international posture in

1995/1996. Its aim in initiating future action will be

different: to bring about the unconditional surrender of

Taiwan’s leaders to China’s demands, or to conquer the

island and eliminate its leaders. Their military courses of

action will be tailored to these ends.

But these ends also limit their options. A broad range of

low-intensity operations—such as shows of force, military

maneuvers, overflights, or capture of Taiwan’s outlying

islands—might have psychological effects on the

population, but are not likely to coerce the leadership into

submission. For this purpose, only three options seem

feasible: blockade of Taiwan’s sea lanes, missile attacks,

and amphibious invasion.

In all these cases, the Chinese have to assume that the

United States will intervene. From their vantage point, this

assumption is underpinned by recent experience. The first

is Washington’s dispatch of two carrier groups to the

vicinity of Taiwan in 1996, which ended China’s menacing

missile tests around the island and defused the crisis.

17

 The

second is the “U.S.-led” NATO bombardment of Yugoslavia

during the Kosovo crisis, which the Chinese view as fueled

by America’s quest to become the world’s sole superpower

that seeks to impose its will on other nations. Foremost

125
among these is China, whose rise to great power status the

United States is determined to block.

Despite their assertions, if the Chinese decide to take

military action against Taiwan, it will not be because they

believe in their capability to deter U.S. intervention or to

neutralize it. It will be because of their belief—also drawn

from Kosovo—in their ability to withstand bombardment by

the United States, which will be restrained by its allies and

by public opinion at home and abroad. Even so, no

leadership will lightly take action that subjects its

population to such hardships.

18

Given the probability of U.S. intervention, all of China’s

options contain a high degree of uncertainty.

19

 In the case of

a blockade—whose forms could range from deterring ships

by marking lanes for missile firing, through physically

stopping them, to submarine attacks—the effects will

certainly undermine Taiwan’s economy, or even destroy it,

if it is effectively enforced for a long period. What is

uncertain is the ability of the PLA navy and air force to

sustain a blockade against Taiwan’s military, and even

more, against the United States.

The second option—missile strikes—would devastate

Taiwan’s strategic centers and cause considerable suffering

to the population. One uncertainty, however, is the form of

American response. Another is the resolve of Taiwan’s

population to rally behind the leadership.

The last option—an amphibious invasion—will not be

realistic for several years because of China’s military

deficiencies, Taiwan’s defense posture, and U.S. power. The

Chinese armed forces are training for such an invasion, and

the leadership is focusing on acquiring modern weapons

systems that are designed to build up sealift capabilities

and upgrade air and naval support for an invasion.

However, they are not doing this on a “quick fix” basis, and it

will take a decade or so before the Chinese are reasonably

ready to undertake such a vast operation.

126
Considering the limitations of all the options, the most

likely seems to be missile strikes. This is, however,

extremely risky. The Chinese leadership cannot afford to

fail, and once it begins such strikes, it will have to continue

until Taiwan surrenders. If the combination of Taiwan’s

determination and U.S. intervention preclude an early

surrender, the Chinese will have to extend bombardment

until they wreak terrible havoc on the population and

destroy the island. Assuming they can pull this off

militarily, the price will be horrific.

Pending major advances in their capabilities, the

Chinese military are not likely to recommend large-scale

operations. They will threaten to use force, and might carry

out low-intensity actions to back up their threats, but they

will stop short of starting a war which will be open-ended,

and for which they are not ready. This is the logical

conclusion. If, however, they feel intolerably provoked by

the political moves of the Taiwan leadership, logic cannot be

counted on to prevail.

ENDNOTES - CHAPTER 7

1. This chapter is used with author’s permission from his paper,

“Taiwan and the Chinese Military,” CAPS Papers No. 29, Richard H.

Yang, ed., Taiwan: Chinese Council of Advanced Policy Studies, July

2000.

2. See my “The Military and China’s New Politics: Trends and

Counter-Trends,” in The PLA in the Information Age, James C.

Mulvenon and Richard H. Yang, eds., Santa Monica: The RAND

Corporation, 1999, pp. 22-47.

3. David Shambaugh,“China’s Post-Deng Military Leadership,” in

China’s Military Faces the Future, James R. Lilley and David

Shambaugh, eds., Armonk, NY: M.E. Sharpe for the American

Enterprise Institute, 1999, pp. 11-55.

4. On the 1995/96 crisis, see Patrick Tyler, A Great Wall: Six

Presidents and China, New York: The Century Foundation, 1999, pp.

21-43.

127
5. Douglas H. Paal, “Cautious Beijing is Bidding Its Time,”

International Herald Tribune, May 24, 2000

6. See, for example, The Washington Post, February 24, 2000; New

York Times, March 7, 2000; Agence France Press from Beijing, March 6,

7, 8, 2000.

7. Hong Kong Ming Pao, Internet Version, April 2, 2000,

http://www.mingpao.com.

8. Hong Kong Tai Yang Pao, April 4, 2000; in British Broadcasting

Corporation, Summary of World Broadcasts, April 4, 2000.

9. Insight Magazine, Internet Edition, March 3, 2000.

10. Private communication.

11. Private communication.

12. “How Will China Handle War in the 21st Century,” Beijing

Liaowang, January 10, 2000; in Foreign Broadcast Information Service

(FBIS), April 14, 2000; internet, http://www.singtao.com.

13 . Philadelphia Inquirer, March 21, 2000.

14. Hong KongSing Tao Jih Pao, Internet Version, April 11, 2000.

15. See note 11.

16. See Michael Pillsbury, “PLA Capabilities in the 21st Century:

How Does China Assess Its Future Security Needs,” in The Chinese

Armed Forces in the 21st Century, Larry M. Wortzl. ed., Carlisle, PA:

Strategic Studies Institute, U.S. Army War College, 1999; and James

Mulvenon, “The PLA and Information Warfare,” in footnote 1, pp.

175-186.

17 . See note 3.

18. See Ellis Joffe, “China’s Military Assesses Kosovo,”

International Herald Tribune, July 23, 1999; cf. Michael Ignatieff,

Virtual War: Kosovo and Beyond, New York: Henry Holt and Company,

2000. 

19. On China’s military capabilities and shortcomings, see Annual

Report on the Military Power of the People’s Republic of China, Secretary

of Defense, Report to Congress FY2000.

128
CHAPTER 8

HOMELAND DEFENSE WITH TAIWANESE

CHARACTERISTICS:

PRESIDENT CHEN SHUI-BIAN’S NEW

DEFENSE CONCEPT

Alexander Chieh-cheng Huang

We must develop our future military readiness in the

directions of “precision deep strike, early warning capabilities,

and information superiority,” under the concept of “decisive

campaign beyond boundaries.”

President Chen Shui-bian

1

On June 16, 2000, President Chen Shui-bian in his

speech at the 76th anniversary of the Chinese Military

Academy in Kaohsiung, characterized his new national

defense concept as “decisive campaign beyond boundaries”

(juezhan jingwai or jingwai juezhan),

2

 suggesting that the

armed forces of the Republic of China (hereafter Taiwan

military) would depart from their “pure defensive” position

and pursue a proactive military posture. Chen’s remarks

immediately generated hard debates within and outside

Taiwan’s defense community, which worried that his

pronouncement would create confusion and invite strong

reactions from Beijing. In addition, some analysts believe

that such a defense concept would raise the anxiety of

foreign countries, especially the United States, over an

increasingly provocative Taiwan.

This chapter examines President Chen’s defense concept

of “decisive campaign beyond boundaries,” its origin,

contents, and possible impact upon Taiwan’s security and

defense policies in the future. The author first reviews the

evolution of the defense strategies of the Republic of China

(hereafter ROC or Taiwan) at different stages in the past 5

decades and observes the emergence of a new defense

129
concept during recent years. Secondly, the author discusses

how Chen Shui-bian and his advisors formulated the

defense concept of the Democratic Progressive Party (DPP),

its roots, substance, and feasibility. Lastly, the author

examines the political and military implications of Chen’s

defense concept with some policy recommendations.

THE EVOLUTION OF TAIWAN’s DEFENSE POLICY

Since the Republic of China government retreated to

Taiwan after it lost the civil war to the Chinese Communists

in 1949, its defense policy has gone through several

adjustments due to changes in the international

environment, domestic politics, and, more importantly, the

U.S.-Taiwan relationship. When Chen Shui-bian took office

as Taiwan’s president, he not only assumed the

responsibility of national security, but also inherited the

legacy of defense policies before him. In the following

sections, the author will briefly review the evolution of

defense policies under each president, from Chiang

Kai’shek to Lee Teng-hui.

Chiang Kai’shek.

Throughout his life since restoring Kuomintang

(Nationalist Party, KMT) rule in Taiwan, President Chiang

Kai’shek never gave up his goal of “recovering the mainland

by force” (fangong dalu). On the other side of the Taiwan

Strait, the People’s Republic of China (PRC) also upheld a

policy of “liberating Taiwan by force” (wuli jiefang). During

that period of political and military confrontation, Taiwan

maintained a large number of forces and an offensive

defense policy, believing the armed struggle would continue

until a final resolution. The U.S.-ROC Mutual Defense

Treaty, signed in 1953, provided a critical security

guarantee for Taiwan, but it also prevented Chiang

Kai’shek from carrying out military adventures against the

PRC. From the early 1950s to about the mid-1960s, the

Taiwan military only conducted several small-scale

130
military actions against the offshore islands held by

Communist China near the Fujian coast without clear

victory. When Washington improved its relations with

Beijing and started the normalization process in the early

1970s, Taiwan’s objective of recovering the mainland faded

away rapidly.

Chiang Ching-kuo.

With the military option shattered, President Chiang

Ching-kuo revised Taiwan’s political strategy to

“reunification with the three principles of the people”

(sanmin zhuyi tongyi zhongguo). Parallel to Chiang

Ching-kuo’s presidency, the PRC also shifted its policy

toward Taiwan to “peaceful unification” (heping tongyi).

Military confrontation was replaced by a political offensive

across the Taiwan Strait. During that period, however,

Beijing maintained that it would not renounce the use of

force to resolve the Taiwan issue. Under such a threat,

Taiwan adopted a defense concept of “converging offense

with defense” (gongshou yiti),

3

 emphasizing mobilization,

readiness, and military modernization.

4

 Although Chiang

Ching-kuo realized the diminishing possibility of a military

solution to the unification issue, he did not rule out a

possible military offensive against the mainland. Under

this concept, Taiwan maintained that large ground forces

are necessary for possible offensive actions.

Lee Teng-hui (1st term).

Following the footsteps of Chiang Ching-kuo, President

Lee Teng-hui modified Taiwan’s political strategy to

“unification under freedom, democracy, equal prosperity”

(ziyou, minzhu, junfu tongyi zhongguo). The end of the Cold

War, the spread of democracy around the world, and

Beijing’s continued focus on economic development

provided a relatively peaceful environment for Lee to

initiate his constitutional reform and political

liberalization. In 1991, he pronounced the end of “the period

131
of mobilization in suppressing communist rebellion,”

indirectly recognizing the legality of Beijing’s rule over the

mainland. Cross-strait relations were further stabilized

when representatives of both sides held their first

semi-official talks in Singapore in 1993, testifying that both

Taipei and Beijing would prefer peaceful means in dealing

with the unification issue. At the same time, under the

pressure of the opposition DPP, Taiwan’s defense policy was

modified to “pure defense” (shoushi fangyu).

5

 In other

words, Taiwan would not seek preemptive military actions

against the mainland, but focused on homeland defense.

Lee Teng-hui (2nd term).

Unlike his first term in office, although Lee Teng-hui

preserved the remote goal of China unification, he gradually

revealed his reluctance to deal with an agenda set by the

Beijing government, especially after the Taiwan Strait

crisis in 1996, when the PRC lobbed missiles against

Taiwan. Since then, Taiwan’s political agenda shifted to

“status quo with separated identity,” while its defense

strategy was changed to “resolute defense, effective

deterrence” (fangwei gushou, youxiao hezu).

6

 Cross-strait

military tension reached a new height in the wake of Lee’s

remarks about “special state-to-state relations” when he

redefined the Beijing-Taipei relationship in July 1999. In

addition to continued political quarrels, small-scale hostile

military contacts began taking place across the middle line

of the Taiwan Strait without real war. The tension brought

Taiwan to change its defense guideline to “effective

deterrence, resolute defense” (youxiao hezu, fangwei

gushou),

7

 a more proactive position than before.

PRESIDENTIAL CAMPAIGN AS A TURNING

POINT

The 2000 presidential campaign highlighted a change in

perceptions of Taiwan defense requirements. By examining

the defense strategies of the campaign platforms of all three

132
major presidential candidates, one could find a clear

tendency that a new proactive national defense concept

would replace Lee Teng-hui’s “pure defense” strategy. KMT

candidate Lian Chan advocated the concept of “active

defense” (jiji fangyu); independent candidate James Soong

8

preferred a strategic concept of “forward defense” (qianjin

fangyu); and the DPP candidate Chen Shui-bian created the

term “preemptive defense” (xianzhi fangyu), all of which are

different from the defense strategy previously pronounced.

Lian Chan‘s Active Defense.

The KMT presidential candidate, then Vice President

Lian Chan, revealed his defense policy platform in his

opening keynote speech at an Armed Forces University

conference on December 8, 1999:

Our current defense strategy is built upon the strategic

concept of “resolute defense and effective deterrence.”

Resolute defense should not be interpreted as passively

awaiting for enemy’s attack; rather, it should be understood as

conducting tactical offense based on our defensive strategy. In

other words, Taiwan’s defense strategy can be moved forward

to that of “active defense, effective deterrence” (jiji

fangyu, youxiao hezu). 9

Lian’s speech marked an ambiguous departure from Lee

Teng-hui’s strategic concept of “resolute defense” and

caused some confusion. Defense analysts were not sure

whether this change was the result of a thorough policy

review by the defense ministry or of premature thinking by

his campaign staff. Besides, Lian did not give any definition

of his “active defense” nor elaborate how the concept differed

from the PRC military strategy of “active defense.” His

remarks generated some debates in local newspapers and

within the Defense Ministry.

Based on his “new” strategic concept set forth in the

speech, Lian went on to suggest that Taiwan’s national

defense should focus on:

133
• Expanding the use of digital technology in the military

build up;

• strengthening missile defense capability; and

• building up credible deterrence by enhancing naval

and air power and developing long-range surface-to-surface

missiles as its second strike capability.

His remarks immediately raised the eyebrows of the

defense community in Taiwan, who questioned the

offensive nature of such a strategy. However the missile

part was deleted in the official press release of the

Presidential Office later that day.

10

 Throughout the rest of

the presidential campaign, Lian did not further elaborate

his concept of “active defense” and the term has been

gradually fading away as a result of Lian’s defeat in the

presidential election.

James Soong—Forward Defense.

James Soong considers Lian’s defense concept of “active

defense” as a move in right direction, but opposes the ideas

of developing long-range missiles for Taiwan’s second strike

capability, arguing that Taiwan does not possess key

technologies for building missiles and it would invite

international sanctions against Taipei. He believes:

When armed conflict breaks out, our first vital issue of concern

is whether we have a preemptive capability to deter invasion.

Taiwan enjoys very limited depth of defense, and military

installations may not be able to survive the first strike.

Therefore, we consider that a strong defense should be built on

the strategic objective of “active deterrence and effective

defense” (jiji hezu, youxiao fangwei) and the defense concept of

“forward defense,”

11

 consisting with 3Cs—Communication,

Capability, and Credibility.

12

Based on his perception of future military challenges,

Soong proposes that Taiwan should push its defense line

westward, close to the Chinese mainland, making China’s

coastline major areas of operations to extend Taiwan’s

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depth of defense. Soong further defines the guideline for his

“forward defense”:

• establishing a 3-step decision process of 1) early

warning system, 2) crisis management mechanism, and 3)

decision for preemptive or retaliation attack against the

mainland;

• developing precision and effective land attack cruise

missiles (LACM) and unmanned aerial vehicles (UAV),

targeting military installations, missile bases, airports, and

ports within the areas of threat to delay or destroy the

offensive capability of the PLA; and,

• increasing the survivability of Taiwan’s defense

capability by acquiring or developing certain numbers of

modern submarines that can mine the Chinese harbors or

wage retaliatory assaults against mainland targets.

13

Given Soong’s close relationship with the military

establishment, it was widely believed that many active duty

and retired generals and admirals have indirectly shaped

Soong’s views on future military challenges in the Taiwan

Strait and contributed to his defense policy. If that was true,

the “proactive” defense concept mentioned above merits

further study.

Chen Shui-bian—Preemptive Defense.

Chen Shui-bian has long been recognized as Taiwan’s

“leading specialist in defense affairs” in the eyes of his

colleagues in the Legislative Yuan. Not only because he was

co-chairman of the defense committee but also because of

his interests in the defense budget and organization. It was

not a surprise that Chen was the first among three major

presidential candidates who revealed his defense policy.

The DPP presidential campaign platform argued:

In the aspect of military strategy, being an island state

surrounded by oceans, Taiwan’s security threats come

primarily from air and naval attacks beyond its boundary.

135
Accordingly, Taiwan should adjust its military strategy from

“pure defense” to that of “offensive defense” (gongshi fangyu).

Taiwan should also abandon the old concept of attrition

warfare, which seeks decisive campaign at beach areas, and

replace it with a military force that can paralyze enemy’s

warfighting capability and keeping the war away from Taiwan

as far as possible. In the aspect of military preparation and

readiness, based on the principle of conducting “decisive

campaign beyond boundary,” Taiwan military should actively

build up capability that can strike against source of threat;

enhancing naval and air forces; develop joint operations and

information warfare capabilities.

14

Based on these perceptions, Chen formulated his

defense concept as “preemptive defense,” which means

maintaining a strong deterrence posture during peacetime

through the development of information warfare and long

range precision strike capabilities. But, in wartime, Taiwan

should apply preemptive measures:

• to maintain information, naval and air superiority;

• to suppress and destroy the enemy’s C4I system and its

warfighting and logistic capabilities;

• to conduct antisubmarine and anti-blockade warfare;

and

• to effectively control the scale of military conflict and

keep war away from Taiwan’s territory.

15

For the purpose of attracting votes, policy platforms and

campaign promises of any presidential candidate could be

seen as more idealistic than reality and may have limited

implications for policy direction once he is elected.

Nonetheless, by examining the defense policies outlined by

all three major presidential candidates, one can find some

commonalities among them:

1. The logic behind their defense policies appears to be

more offensive in nature than that in the Lee Teng-hui era.

2. They agreed that Taiwan should actively seek the

initiative in military operations against the PRC.

136
3. In a war with the PRC, preemptive and/or retaliatory

measures are not excluded in their policy options.

4. They all agreed that the areas of operations in

cross-strait military conflict should be kept far away from

Taiwan.

5. They all gave more emphasis on naval and air power,

and information warfare in a future force build up.

These common perceptions do not, however, suggest

some of these conceptual consensuses would be translated

into policies no matter who was elected president. But they

do reflect some general trends in defense thinking among

political leaders in Taiwan. One of the keys in this strategic

transformation attempt is whether the uniformed services

share the same vision of such changes, and the degree of

support that different candidates could get from the

military. 

CONCEPTUALIZING CHEN SHUI-BIAN’S

DEFENSE CONCEPT

Chen’s position on defense affairs was presented as part

of the DPP National Security White Paper, a collective work

of a small number of DPP leaders and many independent

scholars. There has been no direct evidence showing how

much the Paper reflects Chen’s personal views on defense

affairs. However, by examining his previous works, one can

better understand the origins of Chen’s defense thinking.

DPP and Chen Shui-bian on Defense Affairs.

Chen is one of the very few DPP members who has shown

interest in defense policy. Indeed, the DPP as a whole has

had very limited impact on Taiwan’s defense affairs. It was

because of the “closed system” of Taiwan’s military

community and decision process on the one hand; and on the

other hand, the lack of professional military officers and

civilian specialists who are willing to identify themselves

with the DPP due to its pro-Taiwan independence stance.

137
The Military, Defense Policy, and the DPP. The pioneer

within the DPP in studying defense affairs is Mr. Huang

Huang-hsiung, a senior member of the Control Yuan.

16

 He is

the author of Taiwan’s first but unofficial Defense White

Paper, published in 1989, 3 years before the Ministry of

National Defense issued its first official Defense White

Paper.

17

 Mr. Kang Ning-hsiang, another respected DPP

defense specialist, has been a senior member and chairman

of the Defense Committee of the Control Yuan. Mr. Kang

made his name known by his knowledge of foreign military

procurement procedures and by his investigation of several

corruption cases.

18

 Huang and Kang are the only two senior

members of the DPP who have long public records involving

defense policies.

Chen, as a younger generation legislator, followed the

footsteps of Huang Huang-hsiung in the pursuit of defense

issues in the Legislative Yuan and was rapidly recognized

as the country’s leading legislator who challenged the

military establishment on almost every possible occasion by

verbal interrogation, street protest, and even physical

confrontation. In 1992, He and his protégé, Ko Chen-heng,

co-authored the second nonofficial Defense White Paper,

presenting not only his extended interests in defense

studies but also his dedication to defense reform and

reorganization.

19

 Since Chen was elected the Mayor of

Taipei in 1994, there was no significant DPP presence in

defense affairs in the Legislative Yuan except Dr. Parris

Chang, a professor of international relations from

Pennsylvania State University. Representing the DPP’s

overseas constituency, Chang served as the Party’s

representative in Washington, and a strong critic of the

KMT’s defense policy. He was also the convener of the

defense policy advisory group in Chen’s presidential

campaign. 

Dr. Michael Ming-hsian Tsai made his name as a

long-time supporter of the Taiwan independence movement

in the United States. After returning to Taiwan and being

elected as Legislator representing the City of Taichung,

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Tsai has shown great interest in military affairs and became

a co-chair of the Defense Committee of the Legislative Yuan.

According to former premier and defense minister Tang Fei,

Tsai has been very instrumental in fostering defense reform

and in the passage of the defense reorganization bill in early

2000. It was reported that Tsai was one of the leading

candidates for the position of deputy minister of defense in

the Chen administration. Although he did not get the

appointment, Tsai continues to show his great interest in

defense affairs. In October 2000 he published Taiwan’s first

bilingual defense journal—Taiwan Defense Affairs

(Quarterly)—making it much easier for Taiwan’s domestic

discussions of defense policy and military affairs to reach

interested foreign readers.

In recent years, more DPP legislators, such as Lee

Wen-chung and Chen Chung-hsin, have shown their

interest in defense affairs

20

 by convening public hearings

and participating in various conferences on defense

matters. Through such efforts, they gradually were able to

engage defense officials as well as scholars in the

community.

DPP and Key Defense Issues. In general terms, very few

members of the DPP had shown interest in defense affairs.

This was partly due to the fact that the military has long

been an institution that resisted civilian participation and

intervention. In addition, the Taiwan independence

position of the DPP was considered disloyal to the

Constitution by the military, which upholds the belief in

China’s eventual unity. In such an environment, the only

way for the DPP to exercise influence over defense affairs

was through the legislative process. In analyzing the DPP

tactics of the past 10 years, one can find the following

correlated steps:

• Build up a certain reputation in defense affairs.

Legislator Huang Huang-hsiung chose to deal with the

military establishment by publishing his own Defense

White Paper in 1989. Chen Shui-bian followed the same

139
approach and published his in 1992.

21

 These efforts have

made their names known to professional soldiers, defense

policy circles, and the academic community.

• Push for strategic transformation. By advocating a

defensive military strategy, the DPP forced the KMT

government to openly admit that Taiwan’s defense policy

has been adjusted to “pure defense.” Such a move brought

about two significant implications. First, it showed that an

offensive strategy aiming at recovering the mainland could

not reflect the reality. Secondly, a change of defense policy

would pave the way for defense budget cuts.

22

• Trim down defense budget and resources. Once “pure

defense” became the official defense policy, the DPP pushed

the government to cut the defense budget and divert

resources to other expenditures, such as economic

development and social welfare programs. The DPP also

asked the defense ministry to shorten the time for political

education, reducing political control over the military. By

doing so, the DPP was able to gradually chop off the

influence of the military establishment over domestic

politics.

23

• Call for defense reorganization. The last step the DPP

took was defense reorganization to reflect the defensive

strategy. They argued that, under the new strategy, Taiwan

does not need a force structure for offensive operations since

retaking the mainland by force was no longer a national

objective. By advocating a defense reform with “the

convergence of military policy and military command

systems,” the DPP hoped to institutionalize civilian control

over the military establishment.

24

Through these tactical maneuvers in the legislative process,

the DPP has been successful in not only influencing defense

policies, but also transforming its image from an

anti-military establishment to that of defense reformer.

The Overall Concept of Chen’s Defense Policy. It was

clear that when pushing for force cuts and reduction of the

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defense budget in the first half of the 1990s, the DPP and

Chen were in large part aiming at weakening the KMT’s

party control over the military. Even most DPP members

admit today that at that time they never thought that a DPP

member could become the Commander-in-Chief of the

armed forces before the turn of the century.

When Chen was nominated as a presidential candidate

in 1999, he and the DPP organized a group of advisors and

formulated a new Defense White Paper.

25

 As part of a

general national security campaign platform, Chen’s

defense policy covers a wide range of issues, including

civilian control over the military, defense reorganization,

active defense strategy, joint warfare, advanced technology,

military personnel reform, and the mobilization system.

The following section will keep the focus on Chen’s views on

military strategy and related issues.

Preventive Defense. Chen considers that one of the

highest priorities for the president is to prevent war and

preserve peace. He believes that Taiwan’s security cannot

be assured if both sides get into an arms race. Therefore, the

DPP advocates a “proactive confidence building mechanism

to promote mutual trust between the two states (liang

guo)—Taiwan and China, in order to reduce tensions across

the Taiwan Strait and to forge a peaceful and stable

environment in the Asia-Pacific region for common

development.”

26

 To formulate their preventive policies,

Chen and his defense policy advisors borrowed many

concepts from the practices of foreign countries such as

increasing military transparency, publishing a Defense

White Paper, establishing hot lines, and promoting

personnel exchanges. All of these are idealistic concepts and

are legitimate to be included in a campaign document; but

translating them into effective policies would be extremely

difficult through a unilateral effort by Taiwan.

Active Deterrence. The DPP conceives that Taiwan is

under tremendous military threats from the PRC and

understands that hostile military actions may not be

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prevented even through confidence building and other

measures. Therefore, in peacetime, Chen believes Taiwan

should build up an effective deterrence capability, including

1) maintaining necessary defense forces; 2) improving force

survivability; and 3) preserving a second-strike capability.

If a military crisis escalates to the brink of a war, Chen

believes Taiwan should take active measures, such as a

show of force, military exercise, partial mobilization, and

other actions to demonstrate the determination of Taiwan

to deter military adventurism.

27

Decisive Strike. Should preventive efforts and

deterrence both fail, Chen believes “attack is the best

defense” and calls for decisive military actions against the

enemy. In his mind, extending Taiwan’s defense depth

forward into the enemy’s territory, suppressing and

destroying the enemy’s command and control systems, and

paralyzing the enemy’s capability to wage war against

Taiwan are necessary and “legitimate” measures for

national defense once Taiwan is perceived to be under

attack. Keeping the war/area of operations in the enemy’s

territory, or beyond Taiwan’s boundary is the highest

principle in military operations.

28

Chen’s 3-in-1 defense policy of prevent-deter-strike is

similar to the U.S. national military strategy of

prevent-deter-defeat. Given Taiwan’s unique international

status and limited military capability, however, the

“offensive” nature in military actions called by Chen has

been rather hard to understand for many observers in

Taiwan as well as in international community.

Jue Zhan Jing Wai—The Confused Terminology.

Among Chen’s various defense concepts, the most

debated terminology of “decisive campaign beyond

boundary” surfaced for the first time when Chen’s campaign

platform was published in late 1999.

29

 But the term caught

little attention in Taiwan even after Chen was elected

president on March 18, 2000. In strict terms, “decisive

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campaign beyond boundary” was not an official policy until

President Chen pronounced it in his remarks at the Chinese

Military Academy, which generated a whole host of debate

across the defense community in seminars, talk shows and

the printed press.

Boundary and Beyond. The term “jing wai” could be

translated as areas beyond “boundary,” “territory,” “war

zone,” or “area of operations.” In Chen’s presidential

campaign platform, the DPP did not clearly conceptualize

the term, but loosely implied that it meant areas beyond the

homeland. In geographical terms, “jing wai” could mean the

entire Taiwan Strait, covering the areas from Taiwan’s west

coast to the east coast of the mainland. It could also mean

the eastern half of the Taiwan Strait, an area between

Taiwan’s coastlines and the arbitrary middle line. In

political terms, “jing wai” could mean the areas beyond

Taiwan’s jurisdiction, i.e., any place other than Taiwan,

Penghu, Quemoy, and Matzu. By the ROC constitution,

however, the mainland remains part of national territory;

accordingly, “jing wai” carries no sensible meaning at all. In

reality, Quemoy and Matzu are too far away from Taiwan

and hard to defend. Then the question becomes whether the

two offshore islands are viewed as part of “jing wai.”

Further, in the age of information warfare, how can one

clearly define “boundary” or “territory”? The lack of clear

definition and articulation of such a term by Chen and his

advisors has created great confusion within the defense

ministry and in a larger part the entire military

establishment. 

Decisive Campaign. Decisive campaign is understood as

a large-scale military engagement between conflicting

parties in a particular period of time and at a certain

location by which its result would have significant impact

on the final outcome of a war. When Chen pronounced the

term “decisive campaign beyond boundary” in June 2000,

neither himself nor his national defense advisors offered a

definition of “decisive campaign.” In the context of

cross-strait conflict, it is hard to imagine how a decisive

143
campaign would take place, evolve, and come to an end. In

the post-World War II history, rarely can we find a “decisive

campaign” that could bring about an end of military conflict.

Given the current balance of comprehensive national power

and military strength across the Taiwan Strait, Taiwan

would find it extremely hard to force a decisive campaign on

China’s People’s Liberation Army (PLA). Moreover, China,

by its sheer size and multi-layer force deployment, would

enjoy more freedom of action in a military conflict against

Taiwan. To change the overall strategic posture or

discourage China’s will to continue the war through a

decisive military campaign would be almost impossible.

Even if Taiwan could acquire a strong capability to

decisively defeat the PLA at some point, the conduct of such

a campaign would require clear preparation and planning.

A vague, loosely defined terminology may not be executable

at the operational level.

The confusion and debates over the terminology that

generated in the public surprised many defense watchers

close to the DPP who had been directly involved in

formulating the concept. According to them, the term

“decisive campaign beyond boundary” was deliberately

created by some of Chen’s advisors to challenge the existing

defense concept of “decisive campaign at beach areas”

(tanan juezhan), which was considered too passive and gave

too much emphasis on the ground forces. They argued that

the motivation behind the term “decisive campaign beyond

boundary” was in fact very simple and easy to understand:

keeping the war away from the homeland as far as possible.

For some of Chen’s advisors, it has been rather unfortunate

that the whole defense community and interested

academics went into nasty debates over their laxly picked

terminology.

30

144
THE CONCEPTUAL DEBATES OVER “DECISIVE

CAMPAIGN BEYOND BOUNDARY”

If Chen had lost the presidential campaign, the term

“decisive campaign beyond boundary” might have been

buried or forgotten at least for the next 4 years. However,

meaningful debates are warranted since Chen assumed the

presidency, and publicly pronounced it at a military

institution. So far, the term “decisive campaign beyond

boundary” has not been officially adopted by the Taiwan

military and has not appeared in any official document

issued by the Ministry of National Defense. The debate

within Taiwan’s defense community continues.

In the prolonged debate since Chen’s official

announcement in June 2000, generally three groupings

have emerged: 1) the (young) DPP advisors promoting

Chen’s idea, 2) defense specialists opposing the concept, and

3) the active duty professional military, who are caught in

between.

The Extended DPP Views.

Some young policy researchers and advisors within the

DPP continued to argue that “decisive campaign beyond

boundary” is a right approach in guiding defense policy.

They argue that the concept should not be discarded but

further developed and perfected. According to the

publications by these young scholars, the concept of

“decisive campaign beyond boundary” has some room for

theoretical development and practical implications.

First Strike. Based on Chen’s campaign platform,

Taiwan would not engage in armed conflict with the

mainland until deterrence fails. In other words, once the

PRC initiates a war or shows obvious signs that it is

preparing to use force, Taiwan will have the right to conduct

attacks against targets on the mainland. Since Chen’s

official announcement of “decisive campaign beyond

boundary,” several defense advisors within the DPP have

145
started a new round of assessment on the legality of

“anticipatory self-defense” in international law, the relative

blurred line between first strike and second strike,

31

 the

feasibility of preemptive air strike against the mainland,

32

and other theoretical studies. According to their

perceptions, in the practice of international law it is not

entirely illegal to strike first if the PRC’s hostility can be

verified.

Defense Depth. The DPP defense advisors consider the

short distance, about 70 to 100 nautical miles, of the Taiwan

Strait cannot provide Taiwan sufficient depth of defense.

They believe that “deep strike” (zongshen daji) and “source

attack” (yuantou gongji) is the necessary and best way to

conduct decisive operations. Based on such perceptions,

Taiwan would be able to significantly increase its strategic

depth by expanding the areas of operations far into the

enemy’s territory.

33

Seizing Initiative. Seizing the initiative in military

operations, in the eyes of DPP defense specialists, is the key

to the security of Taiwan. They consider Taiwan cannot sit

idly by, watching the PLA maneuver and assemble on the

other side of the Taiwan Strait, and take no action.

Therefore, the old thinking of passively “accepting the first

blow” (houfa zhiren) and “annihilation of invading enemy at

beach areas” (jiandi yu tantou) are the worst option. They

believe that it is important for the Taiwan military to take

the initiative strategically and tactically to ensure the

possibility of success.

Operational Concept. DPP advisors argued that the

“decisive campaign beyond boundary” idea was not

intended to annihilate enemy forces on a large scale, but to

1) paralyze the enemy’s capability to conduct operations; 2)

alter the enemy’s operational and logistical plans; or, 3) at

least delay the enemy’s offensive to a certain degree.

34

 In

case of air operations, the DPP defense advisors suggest

that the primary targets on the mainland are the air force

bases and short range ballistic missile launching sites

146
within 250 nautical miles in range, and secondary targets

within 500 nautical miles.

35

Political Gain. One of the new concepts developed within

the DPP has been using Taiwan’s strong military capability

as the base to force and increase the country’s international

visibility and participation. They argue, with “certain

long-range strike capability and appropriate naval forces,”

Taiwan would have a better chance to get itself invited to

international and regional security dialogue. Offensive

force build up is politically beneficial by adding Taiwan’s

weight in multilateral security forums and bargaining chips

in future arms control.

36

The Opposition Views.

Since Chen’s announcement of “decisive campaign

beyond boundary,” many prominent defense analysts in

Taiwan have expressed strong opposition to such a concept,

discrediting the concept as strategically unwise,

operationally difficult, technically premature, and

organizationally biased. 37

Strategic level.

• Provocative to China. The strongest critique of Chen’s

defense concept has been the wisdom and rationale behind

the idea of keeping the battle space in the Chinese

mainland. Many specialists consider such a concept may be

a political statement aiming at boosting domestic morale

and confidence, but it could unnecessarily antagonize

Beijing when China has strong suspicions and reservations

about the newly established DPP Administration.

• Damaging International Relations. Most of Taiwan

analysts opposing Chen’s defense concept argue that even if

the President is thinking of offensive military options in a

future conflict with China, it is extremely unwise to “talk”

too much about Taiwan’s offensive options. Given Taiwan’s

difficult international relations, a clear statement that

reveals the intention of taking preemptive actions against

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the mainland would be politically devastating for Taiwan

because it will enrage Washington and neighbors in the

Asia-Pacific region and in the end hurt Taiwan’s foreign

relations. 

• Complicating Foreign Military Assistance. Taiwan’s

military development relies heavily on continuing foreign

military assistance. The cold reality is that nations,

especially the United States, would provide Taiwan

advanced military systems only on the basis that Taiwan

adopts a defensive military strategy. If Taiwan shows its

intention of taking offensive military actions against China,

many countries would take a more cautious policy and

constrain their military sales and technology transfers to

Taiwan. 

• Intentions Surpass Capability. On the preemptive

concept of “decisive campaign beyond boundary,” most

specialists in Taiwan consider it unrealistic simply because

Taiwan does not have the capability to support such an idea.

They argue that Taiwan’s current order of battle, including

tactical combat aircraft, short range antiship missiles, and

limited command and control capabilities, could attack only

limited Chinese targets, but is far from being able to conduct

a decisive campaign on the Chinese mainland. They

question Chen’s unsophisticated knowledge of the real

capacity of the Taiwan military.

• When to Attack? When introducing the concept of

“decisive campaign beyond boundary,” Chen failed to clarify

whether it means preemptive or retaliatory military actions

against China. Even if he implies that Taiwan will not fire

the first shot, it would be extremely difficult to identify the

“proper” timing for the Taiwan military to act. If DPP

advisors consider that a hostile Chinese massive military

assembly in the coastal areas warrants a rapid military

response, the international community may react

negatively and oppose a preemptive attack from Taiwan.

Even if Chen’s new defense concept means that Taiwan will

take the first blow and then retaliate, no one could assure

148
that the surviving military forces after a Chinese

preemptive attack are capable of conducting Chen’s

“decisive campaign beyond boundary.”

• Exit strategy? Finally, if we assume that all the ideas

such as first strike and other preemptive measures

suggested by the DPP may be doable options in Chen’s new

defense concept, still, it does not provide a “guideline to end

a war” (zhongzhan zhidao) for Taiwan’s military. Given the

sheer size of China, the PLA’s ultra-nationalistic way of

thinking, and its enormous war machine, it is hard to

imagine that Beijing would easily bring the military

campaign to an end without a clear outcome. The question

then is how long can Taiwan survive an expected massive

retaliation and sustain a war of attrition across the Taiwan

Strait?

Operational level. 

• Missile Defense. It is widely perceived that in the

initial stage of a military conflict across the Taiwan Strait,

the PRC will most likely start with an air attack on Taiwan

with its short range ballistic missiles, but in the foreseeable

future, Taiwan would not be able to acquire sufficient

capability to defend itself from Chinese missiles. One can

surely argue that the best missile defense is to wage

preemptive assault against PRC’s missile launchers;

however, Taiwan’s limited long-range offensive systems,

lack of surveillance and reconnaissance capability, and

China’s increasingly mobile SRBM systems, all have made

such options unattainable. In fact, Chinese missiles can

destroy most of Taiwan’s critical defense structures without

engaging in a decisive campaign in the sea area and

airspace of the Taiwan Strait.

• Air superiority. For the Taiwan Air Force, maintaining

air superiority relies on active defense in the airspace over

the Taiwan Strait. However, the challenge has been the fact

that the PLA Air Force and Naval Air Force have several

hundred combat aircraft stationed in about a dozen air force

bases in the 250 nautical miles of range opposite to Taiwan.

149
In addition to the quantitative edge in aircraft, the

continuously modernized PLA’s anti-air missiles can now

threaten Taiwan aircraft flying beyond the middle line of

the Taiwan Strait. In the case of air war in the Strait, even if

Taiwan can destroy most of the PLA combat aircraft based

in the coastal provinces; China would still be able to transfer

its second tier air force to the region and force the Taiwan

Air Force into a war of attrition. However, Chen’s concept of

“decisive campaign beyond boundary” requires Taiwan’s

Air Force not only to defend Taiwan, but also to be able to

conduct attacks against China’s military assets well into

the mainland airspace to compromise the PLA’s warfighting

capabilities. But the fact is that unless Taiwan builds up a

meaningful long-range precision strike capability capable of

attacking PLA air force bases 600 nautical miles opposite to

Taiwan, it would be hard for Taiwan to seek a “decisive

campaign” and maintain control of the air over the Taiwan

Strait.

• Sea denial. In order to pursue a “decisive naval

campaign” in the Taiwan Strait, ideally, the Taiwan Navy

needs to be able to shape the tempo of operations and

pressure the PLA Navy for an engagement at a chosen time

and location. The conduct of meaningful sea denial

operations requires the Taiwan Navy taking proactive

actions and pushing the areas of operations away from the

Taiwan coast to maintain navigation and some forms of safe

passage in the Taiwan Strait. More importantly, the

Taiwan Navy must be able to uphold its inner line

superiority by preventing an assembly of the PLA Navy’s

East Sea Fleet and South Sea Fleet in the Taiwan Strait.

38

All of these operations would keep the Taiwan Navy

operating beyond the middle line of the Taiwan Strait and

within the range of China’s coastal artillery, land-based

surface-to-surface missiles, and air force. Whether the

Taiwan Navy can carry out such multi-missions is difficult

to assess, but failing to do that, it would be impossible for

Taiwan to sustain its sea denial operations.

150
• Antisubmarine warfare. Theoretically, antisubmarine

warfare (ASW) operations are better kept away from the

Taiwan coast to reduce the possibility of the PLA Navy

attacking ships sailing in the Strait and conducting

mine-laying operations. In practice however, it has always

been hard for the submarines to locate ships sailing on the

high seas. Accordingly, the PLA Navy submarines are likely

to be deployed near Taiwan’s coastlines and harbor areas.

39

How can the concept of “decisive campaign beyond

boundary” be practically applied in ASW operations

remains a big question.

• Information warfare. In a world of information

revolution, the old concept of geographical “boundary”

makes little sense. When information warfare becomes a

new but ambiguous form of conflict, “decisive campaign”

may become a disconnected concept. In fact the “soft” nature

of information warfare has made both winner and loser

somewhat nonidentifiable. The DPP defense advisors

developed the concept of “decisive campaign beyond

boundary” based on conventional warfare thinking in which

time and locations are critical. When information warfare

becomes a viable option for both China and Taiwan as

offensive measures against each other’s command and

control nodes and critical infrastructures, Chen’s new

defense concept would become almost irrelevant.

Other Critical Concerns. Many critics of Chen’s defense

policy have argued that before developing the concept of

“decisive campaign beyond boundary,” the DPP failed to

consider several critical issues, such as:

• Technology Acquisition. If the current Taiwan force is

not capable of implementing a preemptive strike against

China, what would be the Chen government’s defense

technology policy and weapons systems development

programs which will support the concept of “source attack”

on the mainland? What are the critical military

technologies necessary to support such missions? Would

Taiwan be able to develop and acquire those technologies

151
without external assistance? Knowing Taiwan’s intention,

are foreign countries willing to provide those critical

technologies to Taiwan?

• Weapons of Mass Destruction (WMD) Options? If

Taiwan were contemplating preemptive and/or retaliatory

attacks against the mainland, what are the forces available

to carry out such missions? If Taiwan’s existing

conventional arms are not up to the mission, both in terms of

firepower and delivery systems, is the DPP thinking of other

options? Without sufficient deterrents in Taiwan’s

inventory, Chen’s concept would naturally lead to a

suspicion by the opposition and the international

community that Taiwan may eventually go for a nuclear

option. Can the ideas of developing medium- and long-range

missiles and WMD, i.e. nuclear, biological, and chemical

weapons, survive in Taiwan’s political environment? Would

the international community allow Taiwan to take such a

course without harsh preventive measures and punitive

sanctions?

• Policy Deliberation. Taiwan’s former Chief of the

General Staff, Hau Pei-tsun, questioned whether Chen’s

announcement of “decisive campaign beyond boundary” in

June 2000 was a conclusion of well-deliberated consensus

within the military. In fact, three days after Chen’s

remarks, Defense Minister Wu Shih-wen told the defense

committee of the Legislative Yuan that the Ministry of

National Defense had not yet “clearly thought through” the

definition of President Chen’s concept.

40

 In addition, on July

4, 2000, then Premier Tang Fei admitted in a Legislative

Yuan plenary session that he was not consulted in advance

and personally has reservations regarding the use of such

terms.

41

 According to extensive media inquiries in the wake

of Chen’s public pronouncement of his new defense concept,

it was quite clear that almost the entire defense ministry

and general staff were kept in the dark. If that were really

the case, the DPP advisors owed the Taiwan military a

sensible and comprehensive explanation.

152
The PRC Response. The Chinese government and the

PLA did not fiercely respond to Chen’s call for a new defense

concept. The People’s Daily considers Chen’s announcement

as part of his Taiwan independence agenda, but warns that

Taiwan’s existing military force is not capable of extending

war into the Chinese mainland.

42

 In a workshop hosted by

the Strategic Department of the Academy of Military

Science, PLA officers from the National Defense University,

the Navy Research Institute, and the Nanjing Political

College agreed that Chen’s new military concept is

contradictory to Taiwan’s existing defense concept, and is

not well-received by the military establishment.

43

The Professional Soldiers.

Being caught between the new DPP defense policy

makers promoting the concept of “decisive campaign beyond

boundary,” and realistic defense specialists opposing such

an idea, the Taiwan military as a whole has experienced a

difficult time since June 2000. Chief of the General Staff

Tang Yau-ming chose to swallow all the critiques to protect

the president. The challenge then, has been how to close the

gaps between the intention of the commander-in-chief and

the existing capability of the armed forces.

Although two former military chiefs, General Hau and

General Tang, and many retired senior military officials

openly expressed their strong reservations over Chen’s new

defense concept, the active duty officers at the MND and the

Joint Staff had no choice but to justify the president’s act.

Although admitting that the MND had not yet

conceptualized the new policy, Minister Wu insisted that

the military would carry out any mission assigned by the

president with or without such capability.

44

 Wu suggested

that the concept of “decisive campaign beyond boundary”

could be understood as “resisting Chinese invasion in the

areas 12 nautical miles beyond the island of Taiwan.”

45

 The

Joint Staff went further to identify its position with the

president. To answer the mounting confusion over Chen’s

153
new defense concept, Chief of the General Staff Tang held a

special press conference on July 7, 2000, and suggested the

following interpretations:

• Making it clear that it was the Joint Staff that drafted

Chen’s June 16, 2000 speech; and the president did not

make any change of the suggested text or wording.

• For the concept of “beyond boundary,” the Taiwan

military considers it as the areas of operations in the

Taiwan Strait, but definitely not on the mainland.

• The concept of “decisive campaign beyond boundary” is

not newly created, and in fact has long been the guidance for

the Taiwan military. Keeping the war away from Taiwan

Island has been a concept emphasized by all Chiefs of the

General Staff since the early 1960s.

• The concept of “decisive campaign beyond boundary” is

similar to that of “converging offense with defense” in the

Chiang Ching-kuo era, and is also parallel to the concept of

“resolute defense, effective deterrence” under the Lee

Teng-hui presidency.

• The Taiwan military is more or less capable of keeping

up with the goal of “resolute defense.” Military construction

is an integrated and long-term process and “decisive

campaign beyond boundary” is one of our long-term

objectives.

46

In addition, the defense ministry interpreted the

president’s new defense concept by borrowing a concept

developed by Dr. Ta-wei Yu, defense minister during the

1958 Taiwan Strait Crisis. Dr. Yu has a famous four-step

strategy for Taiwan defense:

1) resist enemy at mainland coast,

2) attack enemy in the strait,

3) destroy enemy at Taiwan coast, and

4) annihilate enemy at beach areas.

47

154
According to General Cheng Shih-yu, executive director of

J-3, the Taiwan military is currently capable of carrying out

the last two missions under the existing military guideline

of “decisive campaign at beach areas.” The military

considers the first two steps are similar to Chen’s concept of

“decisive campaign beyond boundary,” and thus the concept

has been in existence for 40 years.

48

Indeed, the defense ministry worked hard to shield the

president from being interrogated by the opposition and the

press on the issue. Chen himself also somewhat modified his

statement later when he visited the Army Headquarters,

indicating that, should Air Force and the Navy fail to stop

the Chinese invasion, the ground force will be the vital

element for a decisive campaign to ensure national

survival.

49

 In reality, in Defense White Paper 2000, the first

one under Chen’s presidency, the MND does not include

Chen’s new defense concept and maintains its original

position of “effective deterrence, resolute defense” as

Taiwan’s defense guideline. Moreover, some creative

military officers have privately suggested a modification of

Chen’s concept to “military operations beyond boundary”

(jingwai zuozhan) or “resisting invasion beyond boundary”

(judi jingwai), which are much more mild than the DPP’s

use of terminology and closer to Taiwan’s real intention as

well as military capability.

50

REFLECTION AND CONCLUSION

To most Taiwan defense specialists questioning the

concept of “decisive campaign beyond boundary,” the DPP

and its defense advisors are inexperienced, nonpragmatic,

and lack understanding of military affairs and

international realpolitik. However, close watchers of

Taiwan politics may have observed that since Taiwan’s last

presidential election, there has been a growing voice within

Taiwan advocating a military build-up with offensive

characteristics. This may reflect a growing sense of

155
insecurity of the Taiwan people in the face of an emerging

Chinese power.

Politically, Taiwan’s continuing democratization has not

yet led to an improvement in its international status. For

the Taiwan people, Beijing’s peaceful unification pledge is

compromised by its own insistence on keeping the force

option. The rapid growth of China’s comprehensive national

power is gradually changing the strategic balance across

the Taiwan Strait. Militarily, the PRC missile threats are

real, but there is no sufficient way to defend Taiwan from

being harassed. As discussed earlier, technologies of

ballistic and cruise missile defense are not yet matured and

even if sophisticated missile defense systems were to be

available, Taiwan would have difficulty acquiring such a

system due to financial costs and Chinese objections.

Consequently, it becomes easy to understand that

increasing numbers of Taiwan people are contemplating

offensive options to sustain an “effective deterrence”

against the Chinese threat and the uneasy strategic balance

in the Taiwan Strait that has been maintained for the past

50 years.

For the United States and other countries in the

Asia-Pacific region, Taiwan’s emerging offensive concept of

homeland defense may be a source of instability in the

Asia-Pacific region. It would ignite a new round of arms

race, intensify China’s military build up, poison the already

difficult Washington-Beijing relationship, and eventually

damage Taiwan’s own security. To honor Taiwan’s

democratic effort, to prevent Taiwan from being an isolated

fighter, to encourage dialogue across the Taiwan Strait, and

to protect the common security and commercial interests in

the region, it may be necessary for the United States and its

allies to convince the Taipei government to maintain a

defensive military strategy by offering sufficient security

assurance and by keeping a dynamic military balance in the

Taiwan Strait.

156
ENDNOTES - CHAPTER 8

1. Chen Shui-bian, “Declaring the Concept of ‘Decisive Campaign

Beyond Boundary’: Excerpt of President Chen’s Speech at the Chinese

Military Academy” [jingwai juezhan gainian de tichu: Chen zongtong lu

guan yanjianggao jielu], Taiwan Defense Affairs Quarterly [guofang

zhengce pinglun], Taipei: Congressional office of Legislator Michael M.

Tsai, No. 1, October 2000, p. 130.

2.China Times [zhongguo shibao] June 16, 2000,

http://ctnews.kimo.com. tw/2000/06/16/polity/ettoday/404899.html. 

3. Huang Huang-hsiung, National Defense White Paper [guofang

baipishu], Taipei: Taiwan Research Foundation, 1989, pp. 91-92. Chen

Shui-bian and Ko Chen-heng, White Paper on the Black Box of Defense

[guofang heihezi yu baipishu], Taipei: Formosa Foundation, 1992, p.

251. Huang Huang-hsiung, Strategy: Taiwan Marching Forward

[zhanlue: Taiwan xiangqianxing], Taipei: Qianwei Publisher, 1995, pp.

169-170. 

4. Chi-heng Yang, “The Evolution and Adaption of Taiwan’s

Military Strategy,” conference paper, International Conference on

Future Vision of Taiwan’s Defense Policy and Military Strategy, Taipei,

January 18, 2001, p. 6.

5. The reason for such a change in defense policy is discussed in the

following sections in the paper. See Ministry of National Defense,

National Defense Report—1994, Taipei: Li Ming Publisher, 1994, p. 73.

6. Ministry of National Defense, National Defense Report—1996,

Taipei: Li Ming Publisher, 1996, p. 54. Defense guideline for the offshore

islands Quemoy and Matzu was “isolated defense” [duli gushou] which

means the offshore islands have to be self-sufficient in time of war and

should not expect reenforcement from forces based in Taiwan.

7. Ministry of National Defense, National Defense Report—2000,

Taipei: Li Ming Publisher, 2000, p. 64. The change of defense guideline,

emphasizing more on deterrence than on defense, was a response to

Lian Chan’s advocacy of “active defense” in December 1999. See

following section for detailed analysis.

8. James Soong, former KMT Secretary-General, established his

own political party—the People First Party (PFP) immediately after his

thin margin defeat to President Chen Shui-bian. Most of the members of

the PFP were previously KMT supporters.

157
9. The author was in the audience of that conference. See

Presidential Office News Release, December 8, 1999; and Lian Chan,

Lian Chan’s Policy Views [Lian Chan de zhuzhang], Taipei: The

Commonwealth Publishing, 2000, p. 12.

10. In an interview with the person who drafted Lian’s speech after

the presidential election, the drafter admitted that the original

language used regarding acquiring a second strike capability was quite

moderate, however, senior campaign staff later insisted on more

“active” and “precise” wording to make Lian’s position distinct from the

past.

11. James Soong and Chao-hsiung Chang, Soong-Chang National

Policy Guideline for the 21st Century [Soong-Chang kuashiji guojia

zhengce gangling], Taipei: The Soong-Chang Presidential Campaign

Headquarters, 2000, pp. 43-46.

12. The 3Cs concept was borrowed from the three elements of

deterrence in John Baylis, Ken Booth, John Garnett, and Phil William,

Contemporary Strategy, London: Croom Helm, 1987, pp. 70-75.

13. James Soong and Chao-hsiung Chang, pp. 46-47.

14. Chen Sui-bian, New Century, New Future: Chen Shui-bian’s

Blueprint for the Nation—Volume 1: National Security [xinshiji

xinchulu: Chen Shui-bian guojia lantu—diyice: guojia anquan], Taipei:

Chen Shui-bian Presidential Campaign Headquarters, 1999, pp. 50-51.

15. Ibid., pp. 74-75.

16. Huang Huang-hsiung, Strategy: Taiwan Marching Forward

[zhanlue: Taiwan xiangqianxing], Taipei: Qianwei Publisher, 1995, pp.

163-195. Huang served several terms as DPP member of the Legislative

Yuan.

17. Huang Huang-hsiung, National Defense White Paper [guofang

baipishu], Taipei: Taiwan Research Foundation, 1989.

18. By law, members of the Control Yuan should exercise their

power beyond party politics. Mr. Kang has stopped his party activities

since becoming a member.

19. Chen Shui-bian and Ko Chen-heng, White Paper on the Black

Box of Defense [guofang heihezi yu baipishu], Taipei: Formosa

Foundation, 1992.

158
20. Legislator Lee told the author in early 2001, that he is

committed to stay in the defense committee as long as his tenure in the

Legislative Yuan.

21. Huang Huang-hsiung, Strategy, pp. 167-168. Their white papers

primarily follow the format of Japan’s Defense White Paper and include

assessment of security environment, defense policy, budget, and

civil-military relations.

22. Ibid., pp. 168-169.

23. Ibid., pp. 171-178.

24. Ibid., pp. 179-187.

25. Chen Sui-bian’s New Century, New Future includes three parts:

China policy white paper, defense white paper, and foreign policy white

paper.

26. Ibid., p. 64.

27. Ibid., pp. 68-69.

28. Ibid., pp. 74-76.

29. According to the author’s interview with many defense watchers

in Taipei, the term “decisive campaign beyond boundary” was first

coined by Mr. Su Tzu-yun, a young DPP research fellow in his early 30s

with a master degree in strategic studies from Tamkang University.

The concept derived from that term was further developed by a group of

advisors in Chen’s presidential campaign.

30. The author’s discussion with young staff of the DPP’s policy

committee.

31. Su Tzu-yun, “The Feasibility of Making First Strike and

Taiwan’s Rights of Anticipatory Self-Defense,” [woguo diyiji zhanlue

kexingxing pinggu yu yuxian ziweiquan zhi zhuzhang], unpublished

conference paper in Proceedings of Conference on Taiwan Defense

Operations Concept and Air Force Planning 2011, Air War College,

National Defense University, November 4, 2000, pp. 3-2, 3-17. See also

Su Tzu-yun, “The Defense Concept of the Democratic Progressive

Party,” [minjindang de guofang linian], Defense Technology Monthly,

[jianduan keji], Taipei, January 2000, pp. 59-60.

32. Chang Kuo-cheng, “On the Execution of Air Operations Beyond

Boundary” [woguo kongjun zhixing judi jingwai zuozhan zhi yanxi],

159
unpublished conference paper in Proceedings of Conference on Taiwan

Defense Operations Concept and Air Force Planning 2011, Air War

College, National Defense University, November 4, 2000. Mr. Chang is

deputy director of DPP’s China Affairs Department and was special

assistant to Vice Minister of Defense Dr. Peter Pi-chao Chen.

33. Su Tzu-yun, “The Transformation of Taiwan’s Defense Strategy

and Defense Concept of the New Administration” [Taiwan fangwei

zhanlue de zhuanbian yu xinzhengfu de guofang linian], Taiwan

Defense Affairs Quarterly [guofang zhengce pinglun], Taipei:

Congressional Office of Legislator Michael M. Tsai, Vol. 1, No.1, October

2000, p. 125.

34. Ibid.

35. Su Tzu-yun, “The Feasibility of Making First Strike and

Taiwan’s Rights of Anticipatory Self-Defense,” pp. 3-21.

36. Ibid., pp. 3-25.

37. See James Soong, “On Decisive Campaign Beyond Boundary,”

Independent Evening News, August 10, 2000, p. 4; Pei-tsun Hau,

“Decisive Campaign Beyond Boundary Cannot Be Done,,” July 5, 2000,

http://www.chinatimes.com.tw; Jian Chung, “Decisive Campaign

Beyond Boundary: Good Idea, Impossible to Realize,” China Times, July

13, 2000, p. 15; Pinkov, “Decisive Campaign Beyond Boundary? Or

Annihilate Enemy Beyond Island,” China Times, July 8, 2000, p. 2;

Chong-tao Wu, “The Confusion Over Decisive Campaign Beyond

Boundary,” July 5, 2000, http://www.chinatimes.com.tw; Shi-tong Ho,

“Decisive Campaign Beyond Boundary is a Strategy for Strong Power,

Not Small Power,” op-ed section, United Daily News, July, 5, 2000, p. 15;

Hsiung-po Kao, “Are We Capable of Waging Preemptive Attack?” op-ed

section, United Daily News, July, 5, 2000, p. 15; Hsiao-huang Shu,

“Decisive Campaign Beyond Boundary: Mixed Interpretations,” United

Daily News, July 9, 2000, p. 15.

38. Taiwan’s naval officers, interviews by the author, August 17,

2000, in Taipei.

39. Taiwan’s naval officers, interviews by the author, November 31,

2000, in Washington, DC.

40. China Times, June 19, 2000, http://ctnews.kimo.com.

tw/2000/06/19/realtime/70909.html.

41. United Daily News [lian he bao], July 5, 2000, p. 3.

160
42. People’s Daily [renmin ribao], July 13, 2000, http:

//www.peopledaily.com.Cn/GB/channel11/14/ 20000713/142701.html.

43. Liberation Army Daily [jiefang jun bao], August 3, 2000, http:

//www.pladaily.com.cn/pladaily/defence/20000803028011_huati.htm. 

44. China Times, June 19, 2000, http://ctnews.kimo.com.

tw/2000/06/19/polity/pnn/410085.html.

45. Liberty Times [ziyou shibao], June 20, 2000,

http://www.libertytimes.com. tw/today0620/today-p7.htm.

46. China Times, July 8, 2000, p. 2.

47. Lee Yuan-ping, Yu Tai-wei, Taipei: Taiwan Daily Publisher,

1992, p. 236.

48. The Youth Daily [qingnian ribao], June 28, 2000, p. 3.

49. Taiwan Times [Taiwan Shibao], July 5, 2000, http:

//www.ttimes.com. tw/2000/07/05/1/politics/200007040151.html.

50. Author’s private conversations with Taiwan military officers in

July and August 2000.

161
CHAPTER 9

THE ARMS CONTROL AND

BALLISTIC MISSILE DEFENSE COSTS

OF A CHINESE CONFLICT

Wendy Frieman

INTRODUCTION

The theme chosen for this conference, the potential costs

of conflict, offers participants the chance to be more precise

than is usually the case when speculating about Chinese

security policy. Although it is a comparatively easy task to

project the costs of a given conflict for the United States, to

do so from a Chinese perspective is a useful, if more

challenging, exercise. It reveals the degree to which

different countries, and different players within countries,

disagree first, on what constitutes a cost, and second, on

which costs would be bearable.

This chapter is an attempt to address one aspect of

potential Chinese conflict. It is focused on the role of

ballistic missiles in a local conflict and how that role would

change in the context of theater or national missile defense

deployments cum sales by the United States or allies in

Asia.

The chapter begins with assumptions about what local

conflict would mean for China, following which is an

overview of China’s ballistic missile inventory and how

those weapons could be used in that conflict, and the degree

to which the possession of these weapons affects China’s

calculation of the costs of conflict. The third section

re-examines each of the previous questions raised in the

context of potential U.S. or allied missile defense

deployments, and addresses whether or not China’s

perception of the cost of conflict might change as a result of

163
U.S. deployments. The final section of the chapter offers

tentative conclusions about how costs might be raised or

lowered. 

ASSUMPTIONS ABOUT LOCAL CONFLICT

Several key assumptions underpin this analysis. The

first is that (absent an incursion by another power into the

Chinese mainland) China would only become involved in a

local conflict to protect freedom of action with respect to

Taiwan or the disputed territories in the South China Sea

(the Spratly or Paracel Islands) and the East China Sea (the

Senkaku Islands). In either case, the distance between the

Chinese mainland and the theater would be less than 1,000

miles. The second assumption is that between now and the

date of such a conflict, China would not enter into military

alliances with partners who would then also get involved in

the conflict. The third assumption is that between now and

the date of such a conflict, U.S. political and military

arrangements will remain more or less as they are today.

The fourth assumption is that China will remain united as a

political entity, albeit one with a relatively weak central

government, and will not abandon its commitment to

China’s reemergence as a significant regional and global

actor. Finally, this analysis assumes that if the United

States were to become involved, it would be in support of an

Asian country (including Taiwan) in conflict with China.

THE ROLE OF BALLISTIC MISSILES

China’s conventional weapons to support a local war are

being modernized slowly, and the last decade has seen

steady improvements in the capabilities of Chinese surface

ships, submarines, and aircraft, as well as the C4 systems

on which they depend. However, China’s tactical ballistic

missile inventory has been growing much more rapidly,

both in size and in sophistication, and it is very likely that

these missiles would play an important role in a local

conflict. In addition, China is modernizing its strategic

164
missiles, which, even if they would not be deployed in a local

conflict, would nevertheless be relevant.

Theater Ballistic Missiles.

China currently has the following theater missiles in

service (characteristics are summarized in Table 1, and

basing locations are shown in Figure 1).

Sources: Center for Defense Information, www.cdiss.org/china_thtm;

and Monterey Institute Center for Nonproliferation Studies,

cns.miis.edu/iiop/cnsdata.

Table 1. Theater Missiles Characteristics.

1. DF-11 (CSS-7, also known as the M-11). This is a 300

km range missile with a circular error probable (CEP) of

150-200 meters. It has inertial guidance and solid

propellant, and requires a 30-minute launch preparation

time. It can carry a single nuclear warhead (350kt) or a

single or cluster conventional warhead. China has deployed

a total of approximately 40 DF-11s at two bases: one at

Yong’an, 220 miles from Taiwan, and one at the Xianyou

missile complex, about 135 miles from Taiwan. Each base is

equipped with tunnels to store the missiles; each will

support a brigade-size force with 16 truck launchers and 97

CSS-7 mobile missiles.

1

 The manufacturer of the weapon,

the Sanjiang Space Corporation, is currently modifying this

missile. The new system, referred to as CSS-7 Mod 2, or the

M-11 follow-on, is about two meters longer than the Mod 1,

and is believed to have a longer range, a larger warhead,

165

MISSILE TYPE

MAXIMUM

RANGE

PAYLOAD

ESTIMATED

CEP

CSS-2 IRBM 2800 km 2150 kg 3.0-3.5 km

CSS-5 MRBM 1800 km 600 kg .3-.4 km

CSS-6 SRBM 600 km 950 kg .3 km

CSS-7 SRBM 300 km 800 kg

Not 

available
and greater accuracy than the earlier DF-11. According to

International Institute for Strategic Studies (IISS) figures,

China has deployed 40 DF-11s.

2. The DF-15 (CSS-6 or M-9) is a solid-fueled,

single-stage mobile missile whose operational preparation

time is 30 minutes. It is 9.1 meters long and has a range of

200-600 km, a CEP of about 280m, and the ability to carry a

500kg payload (a single nuclear warhead of 50-350 kt or a

conventional warhead). It uses an inertial guidance system

on the warhead section. The DF-15 utilizes a Chinesedeveloped eight-wheeled cross-country Transporter Erector

Launcher [TEL]. A total of 200 missiles are based in three

locations: Leping, Nanping, and Yong’an. Leping, in Jiangxi

Province, nearly 600 kilometers from Taipei, is also the

headquarters of the 815th ballistic missile brigade. The

DF-15 missiles are stored at Leping, which has direct

railway links with Yongan and Nanping. Three to four

hours would be required to transport missiles from Leping

to Yongan via railway.

3. The DF-21 (CSS-5) is a two-stage medium range

ballistic missile (MRBM) with a range of 1800 km and a CEP

of 300-400m. China has approximately 50 in service.

Originally intended only for delivery of nuclear warheads, it

has been modified to carry a single conventional warhead

(600kg) as well. It requires 10-15 minutes of launch

preparation time. It is based at Liangxiwang, Tonghua,

Jianshui, and Chuxiong.

4. The DF-3A (CSS-2) has a range of 2800 km and a CEP

of 2.5-4 km. It is scheduled to be replaced by the DF-21

within 2 years. It carries of a payload of 2150 kg (single

nuclear warhead of 1-5 MT) and requires 120-150 minutes

launch preparation time. It can be launched from either

permanent pads or portable launch stands. An estimated

90-120 DF-3s were deployed in the 1980s. They are based at

Liangxiwang and Dalong.

166
167

 Figure 1. Basing Locations for Theater Missiles

in Service.
Strategic Ballistic Missiles.

China’s land-based strategic forces have been the

subject of many well-researched papers and articles, and it

is not necessary to repeat here the knowledge that is

publicly available on the internet and other sources. The

critical point for this analysis is that China has a survivable

nuclear deterrent. China’s strategic nuclear systems

include the DF-4 (CSS-3), the DF 5/5A (CSS-4), the DF-31,

and the DF-41. These last two are still under development.

The key characteristics of these weapons are summarized in

Table 2. There is general agreement on several points: First,

China is making the conversion from fixed missile sites to

mobile platforms and from liquid fueled to solid fueled

missiles.

2

 Second, China is pursuing multiple independent

reentry vehicle (MIRV) technology, with evidence of

increased activity since 1983, and will likely achieve the

capability to MIRV its strategic missiles.

3

 Third, by any

comparative standard, China’s existing strategic force is

still small, consisting of no more than several dozen

missiles.

4

Most observers also agree that China could easily

increase the size and capabilities of the strategic missile

force. However, much disagreement exists over what the

168

MISSILE

MAXIMUM

RANGE

PAYLOAD CEP

CSS-3 4750 km 2150 kg 3-3.5 km

CSS-4 13000+ km 3200 kg .5-3 km

DF-31 8000 km 700 kg .5 km

DF-41 12000 km 800 kg .7-.8 km

Sources: Center for Defense Information, www.cdiss.org/china_htm;

and Monterey Institute Center for Nonproliferation Studies,

cns.miis.edu/iiop/cnsdata.

Table 2. Strategic Nuclear Missiles

Characteristics.
motivation would be, how quickly this might happen, under

what circumstances, and how large a force China wants.

The increase between 1997 and 2000 in Chinese theater

missile inventories as reported by the IISS is as follows:

5

Numbers for the CSS-2 have been declining because this

system is apparently being replaced. If these figures are

ignored, the table shows an average annual increase of 70

missiles. If current trends continue without further

acceleration, by 2007, China will have an additional 490

missiles for a total of 780 missiles.

Use of Ballistic Missiles in a Local Conflict.

The precise way in which China would use these missiles

in a local conflict would be determined by specific

circumstances. Theater missiles could be used for a wide

range of missions. The only historical evidence to date is

China’s 1996 firing of ballistic missiles across the Taiwan

Strait, which constituted an act of coercion more than an

operational military move. In an actual conflict, China could

designate and inflict damage on a number of important

target sets:

• enemy airfields

• enemy ports

• enemy air defense bases

169

SYSTEM

1997

INVENTORY

1998

INVENTORY

1999

INVENTORY

2000

INVENTORY

CSS-2 38 38 38 30

CSS-5 8 8 8 50

CSS-6 4 4 150 200

CSS-7 40

Table 3. Increase in Chinese Theater Missile

Inventories.
• enemy surface to surface missile bases

• enemy C4 systems

• enemy population centers.

If the United States were to intervene in a local conflict,

Chinese theater ballistic missiles could inflict damage on

U.S. aircraft carriers or other naval vessels, as well as on

U.S. airfields in Japan.

The amount of damage the People’s Liberation Army

(PLA) could currently inflict is open to question because of

the fact that the CEP of many of these systems is larger than

the targets against which they would be used. Whether the

target is an Asian adversary, or U.S. forces deployed in

support of that adversary, the key to success in destroying

military assets with conventional weapons is a low CEP.

Existing weapons, with their large CEPs, are primarily

useful as weapons of coercion because their inherent

inaccuracy is likely to preclude militarily relevant

targeting. If the adversary is Taiwan, a high CEP missile is

an extremely effective show of force given the high

population density—even if the missile does not hit its

target, there will be a lot of collateral damage. If the target is

U.S. forces at sea, high CEP weapons are considerably less

effective. China is currently working on improvements to

existing systems that would dramatically reduce the CEP to

25-40m.

6

 These efforts will have significant payoffs if they

are successful. If China were to achieve a low CEP, the

threat to a regional adversary would increase substantially,

because China could be confident of a successful

pre-emptive strike against key military targets. Moreover,

the resulting threat to U.S. forces would greatly complicate

U.S. military planning and the deployment of U.S. troops to

the region. In addition, a lower CEP decreases the weight of

the warhead, which would allow for an increase in the

potential range of the missile.

The role of China’s strategic missiles in a local conflict

would be much more indirect. The fact that China has a

170
nuclear deterrent by definition affects the degree to which

other Asian countries would be willing to engage in a direct

military confrontation with China. It also, of course, poses

constraints on the degree to which the United States is

willing to become involved, and on the nature and timing of

that involvement. The existence of the Chinese nuclear

deterrent is a strategic “fact of life” that would be implicitly

considered in every decision about how and where to deploy

U.S. forces in an Asian conflict.

Given the rapid growth of China’s ballistic missile

inventory in recent years, it is safe to assume that the

military leadership believes that the possession of these

weapons will lower, and not raise, the cost of a regional

conflict. This assumption is likely to hold true if China uses

the missiles for coercive purposes. In fact, from China’s

perspective, coercion is an extremely low cost option,

because it is likely to meet with only a limited response from

the United States. The mere possession of the weapons

therefore offers to China the possibility of resolving a

situation without overt military activity and loss of life.

Counterbalancing this scenario is a more dangerous

possibility: namely that coercion will not be effective, and

China will actually have to use the missiles against specific

targets. If this happens, the costs could be very high,

astronomical in fact, from both a military and a political

perspective.

COSTS AND BENEFITS OF CONFLICT

IN THE CONTEXT OF MISSILE DEFENSE

Given the attention now devoted to missile defense for

U.S. forces, U.S. allies, and the U.S. homeland, it is worth

asking whether or not the existence of these defenses would

in any way increase the cost of conflict for China under the

conditions set forth above. This analysis examines

primarily the military consequences of theater and national

missile defense.

171
First, it is necessary to review the types of missile

defense systems that could be deployed, the area they could

cover, the number of weapons to be used, and the likely

deployment dates.

Two theater missile defense systems are referred to as

“lower tier.” The first is Navy Area Defense, a vertical

launch platform deployed on cruisers and destroyers (such

as the AEGIS) that can be used for both offensive and

defensive missile launches. The purpose of these weapons is

to defend at short range; they are aimed at enemy short

range ballistic missiles (SRBMs), cruise missiles, and

aircraft. The U.S. Navy intends to deploy this system on 40

ships. The second is the Patriot missile. The original

Patriots were deployed during the Gulf War to destroy

SCUD short-range ballistic missiles. Since the Gulf War

they have undergone considerable modification to improve

their effectiveness, and they are now referred to as PAC-2.

Further modifications will result in a PAC-3 missile that

will defend not only against SRBMS but also against cruise

missiles and aircraft. The PAC-3 is scheduled for

deployment in 2001 (although several observers believe it

will not be ready until later).

7

Two missile defense systems are referred to as “upper

tier.” These weapons are intended to defend against

medium range threats and to provide coverage over a larger

area. One upper-tier weapon is the U.S. Army Theater High

Altitude Defense System (THAAD), a land based missile

that is intended to hit incoming missiles either inside or

outside the atmosphere. It is scheduled to be ready for

deployment in 2007. The Navy Theater Wide (NTW)

system, which might be ready by 2006, uses a booster to

launch a projectile that would kill an enemy missile before it

enters the atmosphere. It cannot be used for short-range

threats such as cruise missiles or SRBMs (which don’t leave

the atmosphere).

Finally, there are numerous options under consideration

for U.S. national missile defense. These must be considered

172
because, if China’s strategic nuclear deterrent is relevant to

a regional conflict, so are developments that might

undermine the viability of that deterrent. The details of

U.S. national missile defense programs have been spelled

out in many other documents, so only a brief description is

provided here. The current program is a combination of

ground-based interceptors and an “exoatmospheric kill

vehicle” intended to stop an incoming missile before it

enters the atmosphere. These weapons are supported by

sensors and radars of various types. Current plans for

deployment in Alaska will provide protection from up to five

single warhead ICBMs equipped with simple penetration

aids. An expanded force of up to 100 interceptors could be

ready by 2007; this system could protect against an attack of

25 single warhead intercontinental ballistic missiles

(ICBMs). 

An alternative to the exoatmospheric vehicle is a

interceptor that would hit the enemy missile in the boost

phase. The earliest date a boost phase weapon could be

deployed is 2008. Four technical options for boost phase

intercept are currently being pursued: the airborne laser,

interceptors launched from unmanned aerial vehicles, a

space based laser weapon, and a sea based boost phase

weapon. The airborne laser, if successful, could potentially

be useful in the Asian theater.

In order to determine how the existence of these

weapons would affect a regional conflict, it is critical to

understand who can acquire them and how they will be

deployed. The relevant Asian players are Japan, which

could be drawn into a regional conflict because of alliance

commitments, and Taiwan. It is unlikely that any of the

Association of South East Asian Nations (ASEAN)

countries with which China is likely to come into conflict

over disputed South China Sea territories will acquire and

deploy theater missile defense. U.S. deployments of theater

missile defense (TMD) are relevant both because the United

States has troops permanently stationed in Asia, and

173
because additional U.S. forces could be deployed in the

event of a conflict.

Taiwan already has PAC-2 and would like PAC-3, as

well as AEGIS equipped destroyers (Navy Area Defense).

Taiwan has requested THAAD, but the United States has

not agreed to sell the weapon when it becomes available.

Taiwan also has an indigenously produced Patriot missile

equivalent called the Sky Bow.

Japan has deployed PAC-2 and can acquire PAC-3 when

the system comes on line. The Japanese are cooperating

with the United States on Navy Theater Wide defense, but

have not yet made a firm decision about purchasing the first

version of NTW (referred to as Block I) when it is available

in 2006. Japan has not indicated interest in purchasing or

deploying THAAD since the early 1990s and appears

unlikely to do so.

The United States has deployed one Patriot battery in

Korea. Although the United States has not stated with

certainty who will be eligible to buy future TMD systems, a

1999 Department of Defense (DoD) analysis provided a

“notional” TMD Asian architecture.

8

 This information,

together with other unclassified sources, make it possible to

make some assumptions based on the range of the weapons

they are intended to defend against. It is likely that THAAD

will be used by U.S. forces in Korea and possibly Japan as

well. Navy Area Wide and Navy Theater Wide weapon

systems will be deployed on ships that are part of the

Seventh Fleet. Table 3 thus provides a summary of potential

and plausible TMD deployments in Asia.

If it is true, as previously suggested, that the possession

of ballistic missiles lowers the cost of China’s decision to use

coercive measures, then it would logically follow that the

presence of anti-missile systems would raise the cost

proportionately. This logic only holds, however, to the

extent that missile defense systems will be either difficult or

expensive to overcome. China appears to have made a

calculation that these systems can be overcome, and is

174
poised to respond in a relatively low cost manner. The

easiest way to neutralize the existence of U.S., Japanese,

Korean, or Taiwanese weapons is to expand offensive forces

until they can overwhelm foreign defenses. In order for this

approach to be effective, China would have to make two

commitments. First, it would be necessary to achieve

substantial gains in CEP, as previously discussed. It is well

established that Chinese scientists and engineers are

working on improved guidance, and there is every reason to

believe that they will be successful in achieving a CEP of

25-40m with commercially available technology. It is true

that improvements in accuracy might take several more

years, but it is also true that it will take a few more years for

the United States to deploy effective TMD. Thus, the two

timelines are likely to converge.

Second, it will be necessary for China to commit to a

substantial increase in the theater missile inventory.

Initially, it might not be possible to offset every TMD system

in Asia, but it is reasonable to expect that China will

attempt to make sure it can overwhelm any TMD weapon

that could plausibly be deployed in Taiwan between now

and 2007. The financial cost of this endeavor will depend on

the exact number of TMD systems that will actually come on

line. There are no official documents that indicate the total

number of TMD weapons that will be available within the

175

SYSTEM/

DEPLOYMENT

DATE

TAIWAN JSDF USFJ KDF USFK

US NAVY

PACIFIC

Patriot

(PAC-3)/’01

X X X X X

Navy Area

Defense/ ‘03

X X X

THAAD/’07 X X X X

Navy Theater

Wide/’06

X ? X X

Table 4. Potential and Plausible TMD

Deployments in Asia.
next 10 years for deployment in Asia or sale to Asian allies.

9

Nevertheless, based on the 1999 report referred to above, as

well as other DoD planning and acquisition documents, it is

fair to make certain assumptions about missile defense

available to Taiwan. These calculations are based purely on

what systems will actually be built, and not on any political

considerations that might affect their sale or deployment. It

is plausible that by 2007, before THAAD is operational,

there could be a total of 330 combined upper and lower tier

ship based missiles, in addition to 48 Patriot missiles

defending Taiwan.

10

 To offset each of these and reserve

some forces for other Asian contingencies, China would

realistically need 1000 more missiles than it has today, or

an additional 166 missiles a year for the next 6 years.

11

Chinese defense contractors have demonstrated the ability

to ramp up production, given the average increase of 70

theater missiles a year for the past 4 years. There would

certainly be a monetary cost, but it would not be beyond

China’s means. Mark Stokes has estimated that the cost to

China, per theater ballistic missile, is approximately

$500,000.

12

 This means an additional expenditure to China

of $83 million a year for the next 6 years. Expanded

inventories pose no other easily identifiable costs, since they

would not violate any treaty commitments, and they would

not, in and of themselves, trigger any economic or political

sanctions.

The same basic argument holds true for U.S. national

missile defense. China’s possession of a nuclear deterrent

provides numerous military options that it would not

otherwise have, in addition to significant prestige and

political power. Although in theory, boost phase intercept

defense systems would not cover Chinese ICBMs, it is very

likely that China will take no chances and will make sure

that the ICBM inventory is large enough to defeat any

plausible U.S. national missile defense. Here again, the

monetary cost involved is minimal compared with the cost of

U.S. defenses. Over the next 10 years, the United States

could conceivably deploy as many as 250 anti-missile

176
weapons. One Chinese analyst therefore speculated that

China would need approximately 250 additional ICBMs

(beyond the 24 missiles China is believed to currently have)

over the next 10 years to be certain of defeating any U.S.

nuclear missile defense (NMD), and further speculated that

each missile would cost China 100 million Chinese RMB, or

approximately U.S.$12.5 million. This would amount to an

expenditure of 25 billion RMB, or U.S.$3.12 billion,

approximately 25 percent of the current announced Chinese

defense budget, or less than 2.5 percent per year for the next

10 years. To be sure, this would entail certain opportunity

costs, and it might entail political costs if significant

progress is made on a Fissile Material Cutoff Treaty. But

even given those potential costs, it is difficult to see how

China could fail to increase its ICBM inventory to

compensate for U.S. national missile defense systems. The

risks that China’s nuclear deterrent could be undermined

are probably, from China’s perspective, medium to high,

whereas the costs of eliminating that risk are, by any

objective standard, extremely low.

13

Whether a further expansion of Chinese theater and

strategic missile inventories would constitute an “arms

race” is an interesting, but perhaps an academic, question.

It is true that historically arms races have been the result of

an “offense-defense” cycle rather than the other way

around. However, there are no analogous situations from

history that can be used to draw inferences about this

particular action-reaction cycle. Even if it were possible to

make predictions with any confidence, the threat of an arms

race does not seem very compelling to any of the

participants. The fact that the original deployment of

Chinese missiles might have started an arms race, and the

fact that U.S. missile defense deployments might be

accelerating that race seem equally irrelevant to both sides.

Because the American missile defense “train” appears to

have left the station, and because it does not seem

reasonable to expect that the Chinese will believe U.S.

assertions that missile defense systems will have no effect

177
on China’s defense posture, the only exogenous event that

could break this cycle is a regime imposed limit on missile

deployment. Unfortunately, international arms control and

nonproliferation experts have had a difficult time designing

and implementing effective regimes to deal with ballistic

missiles. The Missile Technology Control Regime (MTCR) is

not a formal treaty, but rather an understanding among

certain countries that produce ballistic missiles about how

to limit missile and missile related exports. There are very

few items that members are precluded from exporting, but a

large number of items over which members agree to exercise

restraint. Although China has made a number of bilateral

pledges with respect to the MTCR, each one of these

commitments is qualified or limited in some way, and none

constitutes a formal treaty. Even if China were a legal

member of the MTCR, however, its provisions would not

ensure any constraints on Chinese options in a local conflict.

For P-5 countries, the MTCR governs transfers of missiles

and missile technologies, but not inventories. China is not

dependent on missile sales from abroad, and China’s recent

acceleration in missile production would not in any way

constitute a violation or an infringement of MTCR terms,

even if China were a formal member, which it is not.

Moreover, it is not likely that the scope of the MTCR will

expand to cover domestic inventories. Russian Prime

Minister Putin hosted a missile control meeting in March

2000 for G-8 countries, but the focus of this meeting was to

find ways to make MTCR transfer provisions less

discriminatory, and not to expand the arrangement to cover

national holdings, which would likely meet strong

opposition by all P-5 members.

Many U.S. officials and scholars view with alarm

China’s increasing theater and strategic missile

inventories. Whether these concerns are legitimate from a

security perspective, it is too soon to tell. But it is worth

remembering that however troubling these missiles might

be to the United States, Taiwan, Japan, and perhaps other

Asian countries who do not want to say so publicly, there is

178
no international regime of any kind anywhere now, or on the

horizon, that will put a brake on future Chinese

development in this area. It is safe to say, moreover, that

there is not even an international “norm” or consensus that

China’s missiles are inherently destabilizing.

COSTS VERSUS CONSEQUENCES

A minimum of two plausible motivations or intentions

lie behind plans for U.S. theater and national missile

defense, and it is worth enumerating them because they are

often assumed to be one and the same, whereas each has a

different chance of realization. The missile defense effort, in

fact, appears to be a convergence of the views of at least two

different groups of advocates for the system. The first set of

advocates are motivated by the desire to protect U.S. troops,

U.S. allies, U.S. friends (and, in the case of NMD, the United

States homeland) from missiles from so-called states of

concern. This is the official position of the United States

government. Advocates from this group admit that China’s

defense posture will be affected, but insist that China is not

the object of U.S. NMD and TMD programs. The second

group of advocates wants to ensure American protection

from Chinese strategic or theater ballistic missiles, which

they see as a genuine security threat to the United States.

As one analyst expressed it: “. . . The development and

deployment of a robust, highly-capable American ballistic

missile defense (BMD) program must go forward with all

deliberate speed. Washington should stop denying that

there is a link between China’s nuclear modernization,

conventional missile buildup, and proliferation practices

and the requirement for BMD. These issues are related.”

14

Whether the first military objective can be met appears

to be a highly debatable point. This first objective,

protection of U.S. troops, friends, allies, and homeland, is a

monumental task, and recent NMD system tests do not

suggest that it will be accomplished anytime soon. The

second objective, neutralizing an emerging China threat, is

179
equally difficult although for different reasons. In the case

of Taiwan, for example, American TMD systems would

provide relatively little actual defense, and would function

almost exclusively as a political gesture. Based on the

information in the public domain, it is very hard to see a

scenario in which U.S. missile defense deployments will

cause China to stop, or even slow down, its military

modernization program, and many have argued that the

impact will be exactly the reverse.

Implied in the arguments of those who see Chinese

missiles as a direct threat to the United States is the notion

that the Chinese will change their minds if Washington

would only stand up to them. This is consistent with the idea

that the United States needs to “respond” to Chinese missile

deployments and overall defense modernization. In the

words of one critic,

The (Clinton) White House hardly says a word about China’s

ongoing ballistic missile buildup; its irresponsible proliferation

practices, or its robust strategic modernization program. I,

personally, am at a loss for why this silence persists. Chinese

national security policies and practices are critical to peace and

stability in Asia and American interests. The PRC’s actions are

having a direct effect on American deliberations about missile

defenses–plain and simple. We must make this clear to

Beijing.

15

The assumption is that once China understands the

linkage between cause and effect, China will remove all

their missiles from Fujian province and refrain from further

increases in the inventory, or at least that they will start to

behave more reasonably and slow down the rate of

deployment. It is very likely, however, that the Chinese

understand perfectly well that it is their missiles that have

promoted an interest in TMD for Taiwan. In fact, they

understand it only too well, and reject the U.S. response as

inappropriate interference in a domestic issue. They have

probably already assessed in advance the price they will

have to pay, and have decided that the game is worth the

candle. 

180
An alternative approach proposed informally by an

American academic toward the end of 2000 is a compromise

whereby if China agrees to remove its theater missiles (or at

least some of them) from Fujian Province, the United States

would re-think its plans to sell TMD to Taiwan. The

assumption is that the promise of U.S. restraint would

constitute a meaningful incentive. However, it is hard to

imagine China agreeing to such a request. A U.S. offer to

stop doing what China believed to be illegitimate to begin

with hardly constitutes a meaningful incentive. Not to

mention the fact that the idea would be politically

unthinkable in Washington.

Yet another scenario is a compromise in which the

United States would agree to limits on TMD and NMD

deployments in return for Chinese limits on nuclear and

missile modernization, accompanied by transparency

measures. According to a newspaper report of the meeting

at which this proposal was discussed, the Chinese

would have to convince American planners that any nuclear

buildup would go only so far and would be keyed to the size of

the American shield, allowing China to keep something

resembling the minimal capacity for a counterattack that it

has had in the past but not fundamentally altering the

balance. The immediate goal would not necessarily be a treaty.

Rather, the two countries could begin by seeking a more

private and informal “strategic understanding” about the

expected size of the shield, as well as the number and kinds of

offensive weapons China planned to develop.”

16

China’s leadership would have a very difficult time agreeing

to this proposition in a public way. Agreement would appear

to legitimize the U.S. ability to pose limits on Chinese power

and sovereign rights. For the scenario to work, China would,

ironically, have to make a nontransparent commitment to

be more open! And it is likely that conservative politicians

and bureaucrats in Washington would oppose such a

compromise, for exactly the same reason. The United States

would be put in the position of accepting Chinese imposed

181
limits on what many in Washington perceive to be a critical

defense program.

Many others, of course, take a harder line, and suggest

that the United States must ensure that there are

consequences to China for deployment of these missiles. The

underlying assumption is that the United States can find

and impose a consequence accompanied by a cost so

unpalatable that China will rethink its security policy and

its options for dealing with Taiwan. Consequences are not

the same as costs. To date, no one has identified any real

costs for China other than the deployment of a very modest

TMD system, which China could choose to overcome. The

result would most likely not be more acceptable Chinese

behavior, and it might actually be a further military build

up. An effective U.S. response would require the United

States to make a convincing case to the rest of the world that

China’s missile buildup is doing demonstrable harm. It

would require developing an international consensus on the

need for limits on Chinese military, as well as a consensus

on what the limits should be, followed by international

support for enforcing those limits.

Given all these contradictions, a question worth

considering is why the Chinese themselves are so bent out of

shape about U.S. missile defense plans. At face value,

Chinese arguments about the potential harm that could be

done to China by missile defense are way out of proportion to

the actual cost to China of overcoming U.S. defenses, which

are (by Chinese admission) down at the nuisance level.

Perhaps the answer is that China lacks the capacity to deal

with any more nuisances right now, and resents the United

States adding to its list of emerging power problems.

ENDNOTES - CHAPTER 9

1. Most of the information about Chinese theater missile

characteristics is drawn from the Federation of American Scientists

home page (http://www.fas.org/nuke/guide/china/facility/theater.htm);

the Monterey Institute of International Studies Center for

Nonproliferation Studies database (http://cns.miis.edu/cns/

182
projects/eanp/pubs/chinanuc/bmsl.htm); the Center for Defense

Information database (http://www.cdiss.org/china_t.htm); and Mark

Stokes, “Weapons of Precise Destruction: PLA Space and Theater

Missile Development,” in China and Weapons of Mass Destruction:

Implications for the United States, A Conference Report, Federal

Research Division, Library of Congress, Washington, DC, April 2000,

pp. 183-229.

2. Bates Gill and James Mulvenon, “The Chinese Strategic Rocket

Forces: Transition to Credible Deterrence,” in China and Weapons of

Mass Destruction: Implications for the United States, A Conference

Report, Federal Research Division, Library of Congress, Washington,

DC, April 2000, pp. 11-51.

3. U.S. Department of Defense, The Security Situation in the

Taiwan Strait, Report to the Congress Pursuant to the FY99

Appropriations Bill, February 26, 1999. The text can be found at theFAS 

website (http://fas.org/news/taiwan/1999/twstrait_02261999.htm).

4. The Military Balance 2000-2001, London: International Institute

for Strategic Studies, p. 194.

5. Ibid.; The Military Balance 1999-2000, p. 186; The Military

Balance 1998-1999, p. 178; The Military Balance 1997-1998, p. 176.

6. Efforts to increase accuracy, with an emphasis on GPS

technology, are described in Mark Stokes, Chinese Strategic

Modernization: Implications for the United States, Carlisle: Strategic

Studies Institute, U.S. Army War College, September 1999, pp. 91-92.

7. Information on U.S. theater missile defense systems is drawn

from the Stimson Center report on Theater Missile Defense in the Asia

Pacific Region, pp. 1-14 (http://www.stimson.org/pubs/tmd/

tmdreport.pdf); Michael O’Hanlon, “US Missile Defense Programs,”

Conference Paper, prepared for “East Asian Regional Security Futures:

Theater Missile Defense Implications” held at The United Nations

University, Tokyo, Japan, June 24-5, 2000 (http://www.nautilus.org/

nukepolicy/TMD-Conference/ohanlonpaper.txt); the Union of

Concerned Scientists website (http://www.ucsusa.org/arms/fact.

NMDTMDoverview.html); Army: The Magazine of the Association of the

United States Army, 2000-01 Green Book, Vol. 50, No. 10, October 2000,

pp. 272-273; Weapon Systems, United States Army 2000, Washington,

DC: U.S. Government Printing Office, pp. 209, 225; and Michael Green,

“Asian Reaction to U.S. Missile Defense,” NBR Analysis, Vol. 11, No. 3

(http://www.nbr.org/publications/analysis/vol11no3/Essay.html).

183
8. Report on Theater Missile Defense Architecture Options in the

Asia-Pacific Region, U.S. Department of Defense, June 16, 1999; text

can be found at the FAS website (http:/ / www.fas.org/ spp/ starwars/

program/ news99/b05041999_bt211-99.htm).

9. In fact, there are no reliable numbers for total theater missile

system production or likely deployments. Programs have been running

over budget, and numbers have been regularly scaled back.

10. The logic for these calculations is as follows: The total number of

Patriots the Army plans to buy was reported in Inside the Army on

November 27, 2000 (p. 11), to be 824 missiles, down from the original

number of 2,200. This means that the Army will buy approximately 574

missiles over the next 7 years. If half of those go to Asia, and roughly

one-third of those go to Taiwan, which is a high estimate, and roughly

half of those are ready for deployment by 2007, the total comes to 48

missiles. The U.S. DoD article on theater missile defense architecture

referred to earlier suggests that Taiwan would only get 8 percent of all

available Patriots. The U.S. Navy plans to be able to outfit

approximately 80 ships with a combination of lower- and upper-tier

TMD. However, only about a quarter of the available cells will be

outfitted with TMD missiles, since the Navy plans to retain a number of

other types of missiles on its cruisers. One-quarter of the available cells

would accommodate a total, worldwide of 2,000 missiles. If half of those

go to ships in the Asian region, and one-third of those are in the waters

near Taiwan, that gives a total of 330 missiles. Again, this is a high

estimate, because it gives Taiwan 33 percent of the weapons available in

all of Asia. These are, admittedly, the roughest of calculations. However,

it is necessary to make certain assumptions given the reluctance of the

U.S. DoD to provide estimates of numbers of TMD weapons to be

produced and deployed.

11. This means that even if every TMD missile deployed by the

United States in Asia (not just Taiwan) destroyed a Chinese missile, the

People’s Republic of China (PRC) would still have a force of 290 theater

ballistic missile (the current inventory).

12. Mark Stokes, “Weapons of Precise Destruction: PLA Space and

Theater Missile Development,” in China and Weapons of Mass

Destruction: Implications for the United States, A Conference Report,

Washington, DC: Federal Research Division, Library of Congress, April

2000, p. 194.

13. At the conference where this paper was delivered, two questions

were raised about China’s ability to defeat U.S. missile defense systems

simply by overwhelming them with larger numbers of incoming

184
missiles. The first was the possibility that the United States could

detonate an exoatmospheric electromagnetic pulse (EMP) burst which

would destroy Chinese missile guidance. Although it is possible, it

would mean a U.S. decision to use nuclear weapons and would run the

risk of escalating a local conflict into something much larger. The second

one was that China would have difficulty targeting U.S. ships. In fact, as

soon as a ship’s radars are turned on, China would be able to track and

target them. Failing that, the first U.S. salvo will itself make the ship’s

location perfectly clear to the Chinese.

14. Peter Brookes, “Theater Missile Defense: How Will It Recast

Security and Diplomacy in East Asia?” Presentation at The Heritage

Foundation, July 26, 2000.

15. Ibid.

16. Erick Eckholm, “Experts Try To Make Missile Shield Plan

Palatable To China” New York Times, January 28, 2001, p. 1.

185
CHAPTER 10

“EATING IMPERIAL GRAIN”?:

THE ONGOING DIVESTITURE OF THE

CHINESE MILITARY-BUSINESS COMPLEX,

1998-2000

1

James Mulvenon

Introduction.

On July 22, 1998, at an enlarged session of the Central

Military Commission (CMC), CMC Chairman Jiang Zemin

gave a speech in which he called for the dissolution of the

military-business complex, asserting:

To make concerted efforts to properly develop the army in an

all-around manner, the central authorities decided: The army

and the armed police [wu jing] should earnestly screen and

rectify [qingli] various commercial companies operated by

their subordinate units, and shall not carry out any

commercial activities in the future . . . Military and armed

police units should resolutely implement the central

authorities’ resolution and fulfill as soon as possible the

requirements that their subordinate units shall not carry out

any commercial activities in the future.

2

Jiang then sought to consolidate the decree by publicly

releasing the announcement through the party’s extensive

propaganda apparatus. That night, Jiang’s speech at the

meeting was broadcast on the CCTV Evening News, which

has the highest rating in China and is closely watched by

other Chinese media for cues about important stories.

Observers took special note of the fact that the Chinese

leader was shown flanked by the top brass of the People’s

Liberation Army (PLA), implying at least tacit consent to

the decision by the military. The next day, the Party’s

official newspaper, People’s Daily, ran a banner headline,

declaring “PLA Four General Departments Convened in

187
Beijing to Carry Out the Decision of the Anti-Smuggling

Meeting,” with the subtitle “Chairman Jiang Talked

Seriously About Divestiture.”

3

 The announcement was then

publicly seconded in subsequent days by key members of the

military and civilian leadership, including the de facto head

of the PLA, General Zhang Wannian, Chief of the General

Staff General Fu Quanyou (July 23),

4

 General Logistics

Department (GLD) Director Wang Ke (July 24),

5 General

Political Department (GPD) Director General Yu Yongbo

(July 25),

6

 and General Armament Department (GAD)

Director General Cao Gangchuan (July 26),

7

 as well as

Politburo Standing Committee member Hu Jintao.

8

 From

the media barrage, it appeared that the decision might

actually have the political momentum to dislodge the

Chinese military from its difficult Catch-22.

While the divestiture announcement was immediately

picked up by Western and Chinese media and portrayed as a

dramatic reversal of policy, the reality of the situation was

much more complicated. Divestiture was not a sudden

decision at all. Jiang Zemin reportedly first floated the idea

of military “eating imperial grain” (chi huangliang, i.e., be

funded solely by the government) in 1990, but it was judged

to be impractical. In the absence of divestiture, the PLA

underwent over 8 years of rectification and consolidation

campaigns in the military enterprise system, and

divestiture should, in many ways, be seen as the logical

culmination of that effort. Moreover, the July 1998 meeting

was not even the first divestiture announcement. A decision

to divest had actually been made over a year earlier in May

1997, though the major transfers were not set to begin until

3 years later in May 2000. One important prefatory move,

the withdrawal of the preferential tax rates enjoyed by PLA

enterprises (local companies previously paid 33 percent

while PLA enterprises paid only 9 percent), had been

implemented in early 1998, and the PLA had reportedly

drawn up a plan for divestiture at least 6 months in advance

of the July 1998 announcement.

9

188
Thus, Jiang’s order represented only an acceleration of

the divestiture timetable. The complete reasons are not

entirely known, but there are at least two competing stories.

One rumor claims that divestiture was initiated by an angry

Jiang Zemin upon receiving an account of the excessively

corrupt activities of six PLA and People’s Armed Police

(PAP) companies, the most egregious of which involved oil

smuggling that was bankrupting the country’s two

geographical oil monopolies.

10

 Indeed, there were

widespread reports of rampant smuggling by the military

during the Asian economic turmoil in early 1998, allegedly

depriving the government of hundreds of billions of

renminbi of customs revenue and worsening deflation.

11

A second version of the story actually begins with Zhu

Rongji.

12

 According to cited U.S. intelligence sources, Zhu

Rongji angered the PLA at the July 17, 1998, meeting of the

anti-smuggling work conference by accusing the General

Political Department’s Tiancheng Group of rampant

corruption.

13

 In particular, he singled out a case in which

the company had avoided paying RMB50 million in import

and sales taxes after purchasing a shipment of partially

processed iron ore from Australia. “Every time our customs

officials tried to snare these bastards, some powerful

military person appeared to speak on their behalf,” Zhu

allegedly charged at the closed-door meeting. As anger and

resentment spread through the PLA leadership, Jiang

Zemin allegedly appeared at the conference 4 days later to

lend his support to Zhu, confirming that “some units and

individuals” in the PLA were involved in smuggling.

According to this account, Jiang thereupon announced the

divestiture order.

These accounts of the decision to divest the PLA of its

enterprises raise a fundamental analytical question: how

did the PLA and the Chinese Communist Party (CCP) work

their way out of what could only be described as the fiscal

and political Catch-22 of military commercialism? Contrary

to the conflictual civil-military scenario put forward by

many observers in the Hong Kong media, the evidence

189
instead suggests that the divestiture in principle was

largely supported by a corruption-weary military

leadership. They generally agreed with the political,

military, and economic rationales for divestiture. On the

political front, divestiture was aimed at curtailing

corruption within the ranks. The civilian leadership argued

that as long as the military operated in the commercial

economy, it was subject to “negative influences.” Jiang

Zemin reportedly spoke of preventing the military from

“changing color” and of keeping the military “pure.” At a

military level, divestiture was designed to return the PLA to

its primary professional mission: preparing for war. Finally,

from an economic perspective, there was recognition that

the military was not terribly adept at running commercial

operations.

A key condition for military acquiescence to divestiture,

however, was an assurance from the civilians that the PLA

would receive a sufficiently generous compensation

package for handing over its businesses. Indeed, sources in

Beijing confirm that the faultlines in the divestiture process

could be drawn between supporters, including the senior

military leadership and the combat units, and those who

have resisted the ban, especially members of the logistics

and enterprise management structure, military region

(MR) commands, and military district commands that stood

to lose their primary source of legal and illegal income.

14

The heart of the bargain between the PLA and the

civilian leadership therefore centered on financial

compensation—in this case two separate financial deals.

The first was the one-time transfer of the PLA’s divested

enterprises. Reportedly, the financial burden for these

enterprises, including their weighty social welfare costs and

debts, was to be placed upon local and provincial

governments rather than the central government, though

no money was to change hands. This devolution of

responsibility from the center to the localities was seen by

many as yet another attempt by Zhu Rongji to restore some

measure of macro-level economic authority in China by

190
forcing the lower levels of the system to assume greater

financial responsibility for the economic units in their area.

The second negotiation focused on the annual budget

increases to make up for lost enterprise revenues, with the

goal of consolidating Jiang’s earlier decree to the military to

“eat imperial grain” rather than rely on business for

revenue. Before the divestiture was completed, Hong Kong

sources reported that the PLA would receive between

RMB15-30 billion per year, with the exact time frame

subject to negotiation.

15 Two months later, one of the same

authors reported that the PLA would receive RMB50 billion

as compensation for its lost enterprises.

16 The Wall Street

Journal quoted U.S. diplomats as saying the government

offered about $1.2 billion, but the military demanded $24

billion. Sources at the GLD claimed in December 1998 that

the PLA would receive between RMB4-5 billion in

additional annual compensation, complementing continued

double-digit budget increases.

17 

For local units, however, the prospects of a lucrative

budget deal must be have been bittersweet, since it required

them to buy into what might be called “the trickle-down

theory of PLA economics.” Whereas units previously had

relatively direct control over enterprise finances, they now

had to place their faith in the notion that the budget funds

would trickle down through the system from Beijing to their

level. Previous experience with the Chinese military

bureaucracy did not inspire confidence that this would come

to pass. To ameliorate these concerns, the military

leadership took steps in the fall of 1998 to improve the

standard of living for the rank and file. The principal

measure was an increase in the salaries of servicemen by an

average of an additional 10-25 percent, depending on rank

and location.

18

 One lieutenant general in Beijing reportedly

received a raise of RMB400 per month, while two senior

colonels claimed increases of 20 percent from 1700RMB to

2040RMB.

19

 Overall, the average soldier in the PLA was

reportedly expected to receive an additional RMB100 per

month.

20

191
Phase One: Organization and Strategy.

Organization of the divestiture effort actually preceded

Jiang’s July 22 speech. On July 20, 1998, Jiang chaired a

meeting of the Politburo and reportedly asserted that “the

military cannot run businesses any more or the tool of the

proletariat dictatorship would be lost and the red color of

the socialist land would change.” General Zhang Wannian,

Vice-Chairman of the CMC, convened a meeting on July 21

to set up a military leadership small group, and in that

meeting a set of two milestones were reportedly established:

by the end of 1999, all businesses would sever their links

with the military and starting from 1999, the military would

rely entirely on the government budget.

Immediately after Jiang’s July 22 speech, the four

General Departments convened a meeting to implement the

decision, discussing the issue from July 23-26.

21

 The four

directors and political commissar Li Jinai attended the

meeting, which established a special task force to oversee

divestiture. The four general departments eventually

selected 30 cadres to staff the office of the military’s leading

small group. The participants also drafted a preliminary

plan, and began to lay out policies for dealing with issues

such as displaced workers, debts and credits, and real

estate. 

At the same time, a top-level, civilian-led leading group

was reportedly established, with Jiang Zemin’s chosen

successor, Hu Jintao, as the head, and other party,

government, and military leaders, including Zhang

Wannian, and Luo Gan, as members.

22

 Hu’s appointment

served an important prelude to his official appointment as

vice-chairman of the Central Military Commission at the

end of October 1999.

23

 Despite Hong Kong media stories to

the contrary, there do not appear to have been any major

cleavages in the top civilian leadership over divestiture.

24

One well-informed observer relates that Jiang and Zhu

were closely united on the issue, with Jiang providing the

political clout and Zhu providing economic instructions to

192
his subordinates at the State Economic and Trade

Commission (SETC) as to the specifics of the separation.

25

Over the next few weeks, corresponding leadership small

groups at lower levels of the system, including military

units and State Economic and Trade Commission branches,

were also established.

During the summer, the divestiture process was delayed

significantly by the massive flooding, in which the military

played a heroic role. By October 6-7, the situation had

sufficiently stabilized for Central Committee, State Council

and Central Military Commission to convene the

“Divestiture of Military, People’s Armed Police, and Law

Enforcement Organs Work Meeting,” aimed at producing a

detailed plan for the separation of enterprises from units.

26

At that meeting, a new temporary organization was created,

known as the “National Office for the Handover of

Enterprises Under the Army, People’s Armed Police, and

Law Enforcement Organs.”

27

 The office of this leading group

was staffed primarily by personnel from the State Economic

and Trade Commission. The following 18 organizations

were also involved: the four General Departments, the

People’s Armed Police Headquarters, officials from the

Politics and Law Departments of the State Development

and Planning Commission, the Commission on Science,

Technology and Industry for National Defense (COSTIND),

the Ministry of Public Security, the Ministry of Inspection,

the Ministry of Civil Affairs, the Ministry of the Treasury,

the Ministry of Personnel, the Ministry of Labor and Social

Security, the Ministry of Foreign Trade and Economics, the

People’s Bank, the General Tax Bureau, the Industrial and

Commercial Bureau, and the Ministry of State Security.

The Handover Office was tasked with the promulgation of

detailed regulations governing the handover and takeover

of military enterprises, the organization and coordination of

divestiture, and oversight over lower-level offices. The

national office was also given responsibility for the

divestiture of ministry-level enterprises.

28

 Similar offices

were also set up by the State Economic and Trade

193
Commissions of provinces and autonomous regions to take

charge of the takeover of enterprises based within their

geographic purview.

On October 9, after a series of work conferences, the four

General Departments of the PLA again convened another

meeting, entitled the “Divestiture of Military and People’s

Armed Police Work Conference.”

29 Also in attendance were

representatives of the CMC General Office, military region

headquarters, and military district headquarters. At this

meeting, detailed plans regarding the handover of military

firms were prepared. The guiding principle of this effort, as

defined by the Central Committee was: “turning over

enterprises first, consolidating them later.”

30

 Accordingly,

the work teams were sent to the units to get a proper

accounting of the units’ legal and illegal commercial

activities. Information on illegal activities was used to

prepare cases for the military’s discipline inspection

commission, while data on the legal enterprises were used

to give the military leadership a clear picture of the extent

and financial viability of the military-business complex.

Specifically, the work teams sought to assess the number of

enterprises that required transfer, the number of enterprise

employees involved in the process, and the asset/debt values

of the enterprises. This first phase was completed by

mid-October 1998. One official government assessment of

the asset value of enterprises owned by the military was

roughly RMB50 billion (U.S.$6.02 billion).

31

Phase Two: Formal Registration and Asset

Valuation.

The second phase of the divestiture, begun in late

October 1998, involved the formal registration and

assessment of assets of the enterprises, followed by the

expected official transfer of these enterprises to Handover

Offices at the state, provincial, autonomous district, and

municipality level.

32

 The 16-character slogan for this phase

was “comprehensive combing, good planning, discretionary

194
treatment, and step-by-step implementation.”

33

 In general,

stable enterprises were to be transferred to the

governments, while profitable companies were to be placed

underneath the SETC offices. In addition, a considerable

number of banking, security, and trading companies that

were poorly managed and operated, together with those

industrial enterprises that have suffered serious losses

were expected to be reorganized or closed down altogether.

34

More specifically, divestiture affected each of the six

parts of the PLA’s business empire in different ways. The

original divestiture order explicitly targeted commercial

enterprises (jingying xing qiye), mandating that all of these

businesses should be either handed over to civilian

authorities or closed down. For the other five parts of the

system, the leading groups have been forced to adopt a

series of gradual policies:

• Units meeting logistics needs (baozhang xing qiye

providing houqin fuwu), including repair shops, munitions

factories, and uniform factories, were partially divested,

with some businesses handed over to civilian authorities

and others retained by the military. The guiding rationale

asserts that the military does not need to make all of these

things itself, and should be able to outsource some of this

production.

• Farms (nongchang), covering several million mu of

land, have been completely retained.

• Fee-for-service businesses (youchang fuwu), such as

hospitals and research facilities (keyan danwei), were

retained because the facilities have excess capacity and

highly advanced equipment not generally found in the

civilian sector. In the case of hospitals, the military alone

cannot provide enough patients to make efficient use of

these resources. By serving the public, they can raise their

level of expertise and earn a relatively insignificant amount

of money for the military at the same time.

195
• Welfare businesses (fuli xing qiye), including factories

set up to provide employment to military dependents (also

known as jiasu gongchang), were partially divested, with

some closed and others, particularly those in remote areas

where relatives have no other options for employment,

retained.

• Cover operations (yanhu qiye), including enterprises

providing cover for intelligence gathering, national

security, foreign affairs, and united front operations, were

partially divested.

The center [the top-level leading group] decreed that all

military enterprises should be dealt with in one of three

ways. The first option was “handover” (yi jiao) to civilian

authorities. This applied to commercial operations and

hotels, though not to guesthouses (zhaodaisuo). Most

enterprises were to be handed over to local authorities.

Some were handed over to the central government,

specifically to the State Economic and Trade Commission

(Jingmaowei). Local authorities were not to provide any

compensation, which was supposed to come from the central

government in the form of a lump sum. Military employees

of these enterprises could choose to return to the military or

to stay with the enterprise. Not surprisingly, lower ranking

military employees tended to stay with the enterprise, while

higher ranking employees tended to return to the

perquisites of the military. The second option was closure

(chexiao) of the enterprise. There were many reasons for

closure, including commercial nonviability, heavy debts, or

the location of the enterprise within the perimeter of a

military installation, which meant that the business could

not be handed over to the civilian authorities without

creating a security problem. The third and final option was

retention (baoliu), which was generally applied to those

enterprises meeting specific military needs (baozhang xing

qiye).

Not surprisingly, the divestiture encountered some

resistance among military units reluctant to part with their

196
enterprises during this second phase. Some departments

reportedly attempted to fold their enterprises under

subordinate institutions that were not being screened by

the central authorities.

35

 Others tried to shield their

profitable enterprises while willingly sacrificing their

bankrupt enterprises. In cases where the enterprise was

using the label of “military enterprise” (jundui qiye) as a

convenient cover for tax reductions and privileged access to

transport or raw materials, individuals or units tried to

have the enterprises re-classified as nonmilitary

enterprises. A significant number of enterprises were

reportedly transferred to the control of relatives of military

officers or defrocked military officers, meaning that these

enterprises retained their unofficial links to their former

units. Some of this backsliding was considered so serious

that the office of the military leading small group in the first

half of December 1998 was forced to dispatch four work

groups of 30 members each to inspect the larger units.

Even some of the divestiture transfers themselves

involved elements of illegality. One of the military’s highest

profile enterprises, the five-star Palace Hotel in Beijing,

attracted interest from numerous civilian companies.

36

Eventually, the General Staff Department sold their joint

venture stake in the hotel to a state enterprise, China

Everbright Group, Ltd., which was looking to expand its

hotel assets. According to the PRC Joint Venture Law,

however, the remaining co-owners, Hong Kong’s Peninsula

Group (which managed the hotel) and Japanese

construction company, Kumagai Gumi, should have

enjoyed the right of first refusal of the army’s shares.

Instead, Peninsula got to approve the transfer only after it

was arranged. Ironically, therefore, a process designed to

reduce the incidence of illegality among the armed forces

was itself provoking illegal behavior. Moreover, the deal

may even be detrimental to Peninsula Group. In 1997,

China Everbright set up its own hotel management firm,

and might take over from Peninsula when the latter’s

management contract comes up for re-extension in 2002.

197
The emerging details of the second phase also aroused

resentment among the central, provincial, and municipal

bureaucrats, who were being “forced” to take over the PLA’s

many large and bankrupt enterprises.

37

 The transfer of

these enterprises to government offices was seen by many

as another component of Zhu Rongji’s strategy to

re-centralize macro-level decisionmaking authority and

extract more resources from the provinces, many of which

were perceived to have benefited disproportionately from

reform at the expense of central coffers. For the local

governments, however, these enterprises were simply

another burden. The factories were particularly

unattractive to the civilian governments, who would be

saddled with the fiscal costs of free social services

(education, housing, health care, etc.) for thousands of

unemployed or underemployed workers. Furthermore, local

officials would assume responsibility for finding new jobs for

these workers, adding to their already weighty burden in

this area. Some of the problems were addressed at a critical

“transfer work meeting” convened on November 29.

December 15, 1998: Official Handover.

By December 15, 1998, the government officially

announced the end of the second phase. Reportedly, 2,937

firms belonging to the PLA and People’s Armed Police were

transferred to local governments, and 3,928 enterprises

were closed.

38

 The big loser was the GLD, which saw more

than 82 percent of its enterprises transferred or closed. A

partial list of the enterprises can be found in Table 1.

198
One-third of the companies and their subsidiaries were

retained by divestiture offices at the central level, while the

remaining two-thirds were transferred to divestiture offices

at the local level. Profitable regional military

conglomerates, such the Jinling Pharmaceuticals Group in

the Nanjing MR, were placed directly under the direction of

the regional commission.

49 By contrast, the 10 mid-sized

firms and 40 small-sized firms of the Strategic Rocket

Forces, whose businesses had not been terribly profitable,

were given to their local governments.

50 The commercial

elements of China’s most profitable military conglomerates,

such as Xinxing, Songliao, and Sanjiu (999), were not

handed over to local governments for reorganization, but

were instead placed directly under the control of the State

Economic and Trade Commission in Beijing.

51

 Eventually,

it was thought that these large companies would be

independent, state-owned conglomerates. As an example,

the experiences of Xinxing in this process are representative

of the fate of these big firms.

52

 Because Xinxing contained

enterprises engaged in both military and non-production,

its handover was very complicated. In the end, 56 numbered

199

Province

Units

Divested

Workers

Output

Value

Profits

Asset

Values

Debt

Values

Hebei

39

122 1.47b 1.07b

Guangdong

40

390 6700 2.0b

Jiangsu

41

64 1.4b 830m

Beijing

42

68 2300 1.4b

Shenyang

43

47 762 534m

Hainan

44

29

Shanghai

45

9 600 30m 300m

Tianjin

46

67

Jiangxi

47

8 687 45.7m

Lanzhou

48

68

Table 1. Partial List of Divested PLA and PAP

Enterprises.
factories, which produced machines, logistics materials,

clothes, and hats for the PLA, were kept under military

control, but the trade group was transferred to the SETC.

The ten specialized firms owned by Xinxing were reduced to

seven after divestiture, with Xinxing Foundry retained by

the military and two other firms transferred to chemical

groups. At the same time, three new firms, including the

General Logistics Construction Company that built the

Military Museum, the new CMC Building, and the Beijing

301 Hospital, were added to Xinxing, restoring the number

of firms to ten.

All of the large-size firms were subject to a broad set of

rules. The central government would still control the

nomination of the leadership of large-size firms, groups, and

major enterprises of important industries. In terms of

accounting and budget, the Ministry of Treasury would

manage the financial affairs of those firms managed by the

central government. All firms were required to participate

in local social insurance schemes according to geographic

divisions. 

The remaining 8,000-10,000 enterprises, most of which

were the smaller, subsistence-oriented enterprises at the

local unit level, remained in the military.

53

 The reforms

were also “suspended” in some sectors, especially civil

aviation, railway and posts and telecommunications,

because of the “special nature” of these industries.

54

 For

example, the Air Force’s China United Airlines was

permitted to continue operating.

55

 Other notable exceptions

included the 56 numbered factories previously under the

control of the GLD’s Xinxing Group, which remained under

the administrative control of the General Logistic

Department’s pared-down Factory Management

Department (formerly the larger Production Management

Department); and Poly Group, which was divided between

the General Equipment Department (arms trading

elements like Poly-Technologies) and COSTIND.

200
Phase Three: The Real Bargaining Begins.

A Handover Office Work Meeting was held December 28,

1998, at the Jingfeng Hotel in Beijing.

56

 The meeting,

chaired by Handover Office Director Sheng Huaren, was

attended by the CEOs of the 148 large-size PLA and PAP

enterprises handed over to the SETC Handover Office.

According to Sheng, these 148 enterprises and groups

included 903 factories and subsidiaries, all of which had also

been relinquished to the national office, and other military

enterprises, which had been given to local handover offices.

While these moves were significant in their scale and scope,

the Central Committee’s guidance cited above also

suggested that the opening two phases of the divestiture

were only the beginning of a much longer, and more

protracted process of allocating and restructuring

thousands of troubled enterprises. According to Qin

Chaozheng, the director of the Economic and Trade

Commission of the Hebei Provincial Government:

It will be an arduous task to turn these enterprises over to

proper units for their management and to standardize their

operation. More than half of these enterprises are poor in

management. It is necessary to further improve their

management mechanisms and turn them into legal and

competitive entities that are suitable to the market economy

and that are able to conduct management independently.

57

The first task for the third phase of the divestiture

process, which began after the December 15 transfers,

involves going through the accounts of all PLA enterprises,

which must be squared before these enterprises are allowed

to become fully civilianized or merged with civilian firms. It

is expected that this process will take at least 2-3 years,

depending on the number of major corruption cases that are

generated. The asset evaluation was to be performed by

accounting agencies designated by the SETC.

58

 Some initial

results of the third phase have already been publicized.

Among many examples, the PLA’s 9791 Cement Factory

was turned over to local authorities in Tongchuan City on

201
March 30, 1999, and renamed the “Shaanxi Provincial

Lishan Cement Plant.”

59

 In March 1999, it was also

announced that 150 large enterprises formerly owned by

the military and the armed police were being transformed

into state-owned corporate groups.

60

 Xinxing, for example,

remains as an independent, nonmilitary entity, controlling

one of the General Logistics Department’s largest

construction units. The top-level management of the large

enterprises is being selected and appointed by the central

government, especially the Ministry of Finance, which was

placed in charge of supervising the assets of these

enterprises. By contrast, nearly all of the smaller

enterprises have been handed over to local authorities.

Regardless of size, however, all enterprises are being

required to transfer their credit liabilities, as well as

participate in the medicare insurance programs on behalf of

their employees. Those that failed to offset their debts

would be overhauled, shut down or acquired by other, viable

companies.

Exempted from Divestiture: PLA Telecoms.

Military commercial telecommunications ventures were

one sector singled out for special exemptions. Interviews in

Beijing strongly suggest that PLA telecoms in general was

given a “get-out-of-jail-free” card from the central

leadership, because the resulting information technology

acquisition was seen as an essential contributor to the

command, control, communications, and intelligence (C4I)

revolution currently underway in the PLA. To manage the

post-divestiture operations, the PLA created two

communications groups. Reportedly, the first is dedicated

exclusively to internal military traffic at high levels of

security. The second leases capacity of existing networks to

civilian operators. In the latter case, the PLA was

considered to be de-linked if they did not directly enroll

individual subscribers (i.e., deal directly with “the public”),

yet they could lease to operators who did enroll customers

(i.e., cable companies). While radio paging was abandoned

202
(e.g., China International Trust and Investment

Corporation [CITIC] Pacific bought the Bayi radio paging

business in Guangzhou) and many companies had to break

their high-profile links with foreign companies, the China

Electronic Systems Engineering Company (CESEC) in

particular was not only allowed to stay in business but in

some cases expand its operations.

One illustrative case of the new ambiguous status of

PLA telecommunications involves a fiber optic network

previously managed by the Guangzhou Military Region. At

the end of 1998, the network’s managing unit, the Office of

Technology Support for Economic Construction (OTSEC),

was nominally transferred over to the Guangdong

provincial government as part of the divestiture process. By

all accounts, the transfer appears to be a legal ruse to allow

the PLA to continue to be engaged in commercial telecom

activities. The office remains essentially military and it still

oversees much of the military telecom network in the

Guangzhou MR, as well as the optical fiber network. The

OTSEC is still actively negotiating with a large number of

Chinese and foreign companies to lease surplus PLA

telecoms networks and to build an updated high speed data

and voice transmission network. In February 2000, Hong

Kong-based CITIC Pacific purchased the fiber network

itself from the PLA to be the cornerstone of its new network

rollout. It is said that CITIC spent over 2 billion RMB

buying the unused fiber from the military. An $80 million

purchase of optical equipment from Lucent will expand the

capacity of the existing 16,000km of fiber and extend it to

over 32,000km nationwide. Despite the sale of the network

to civilians, however, interviews indicate that the PLA

continues to retain controlling ownership of the lines

through civilian fronts.

Perhaps the most salient example of the uncertain legal

and regulatory status of continuing PLA telecommunications ventures involves the “Great Wall” Code Division

Multiple Access (CDMA) cellular project owned by the

General Staff Department Communications Department’s

203
commercial arm, CESEC. In accordance with divestiture,

CESEC sold its 20 percent share in the Nanjing-based

satellite joint venture holding company with KPN Royal

Dutch Telecom, but retained initial control of the four trial

CDMA networks in Beijing, Tianjin, Xi’an, and Shanghai.

In 1999, CESEC’s civilian partner in the deals, China

Telecom, was ordered out of the projects, so that the

networks could be prepared for handover to China Unicom,

the weak number two telecom player which was betting on

CDMA to help it gain a respectable market share against

the larger Global System for Mobile Communications

(GSM) networks run by China Telecom. As quickly as this

arrangement was offered, however, the central authorities

reversed themselves, and announced that the PLA would be

retaining ownership of the networks. There are many

competing reasons why the transfer fell through. China

Telecom did not want Unicom to get Great Wall’s CDMA

networks, since the combined CDMA assets of the two

players posed a greater threat to the dominant market

share enjoyed by China Telecom’s GSM networks. Unicom

did not want to be bothered with Great Wall’s overhead,

which included significant debt, personnel, housing,

pension, and other social welfare costs. Moreover, the Great

Wall system is a narrow-band second-generation CDMA

standard, and Unicom wanted to move to the broadband

third-generation standard.

Before resuming its CDMA business, however, CESEC

had to solve a big problem. Divestiture explicitly prohibited

the PLA from dealing directly with customers, so they

needed a new partner that could serve as an “interface.”

Eventually, CESEC appeared to partner with ChinaSat,

the satellite communications company spun off from China

Telecom. Since Great Wall was the name of the now defunct

joint venture between CESEC and China Telecom, the

Great Wall joint venture was formally superceded by a

company called China Century Mobile Communications

Company, whose investors reportedly include CESEC,

ChinaSat, the Beijing Municipal Government, Datang

204
Group, and Beijing Zhongguancun Technology

Development Ltd. The latter company, which plans to

invest U.S.$6 million in Century Mobile once it is approved

by the central government, is itself owned in part by two of

China’s best known companies, Founder Group and Legend

Group Holdings, the country’s biggest computer maker.

Additional technical support (and perhaps a small share of

equity investment) will likely be provided by the Chinese

Academy of Telecommunications Technology, a research

institute under the Ministry of Information Industry.

CESEC’s role in Century Mobile is also multi-faceted,

undercutting earlier reports that ChinaSat would be the de

facto operator of the networks with CESEC as a passive

investor. Instead, it appears that CESEC has retained its

primary role as the designer, builder and integrator of

communications networks. As stated by one official from

Shenzhou Great Wall Communications Development

Center, the PLA company overseeing the trial CDMA

network in Beijing: “Other companies will invest in the

network, and we will build it.”

61

The first public hint of these new developments

appeared in late December 1999, when Samsung and a

company named Hebei Century Mobile Communications

began construction of a new CDMA network serving 11

cities in Hebei province. In a press release only circulated in

Korea, Samsung heralded the opening of the Hebei 133

CDMA mobile telephone network. The Korean company

reportedly supplied U.S.$31 million of mobile systems

equipment, including 11 mobile switching centers (capable

of servicing 200,000 subscribers) and 165 base stations, and

expected more than U.S.$200 million in follow-up orders. By

February 2000, this network reportedly had attracted

15,000 subscribers.

62

The Great Wall/Century Mobile case is a striking

illustration of the continuing role of the PLA in commercial

telecoms operations, and certainly suggests that

telecommunications was exempted from divestiture. At the

very least, it suggests that the civilian leadership is willing

205
to turn a blind eye to the activities, because of their side

benefits for the military’s own communications system.

Divestiture, therefore, was not a blanket condemnation of

the military’s participation in business, but instead was a

process capable of making logical exceptions, especially

when it threatened to throw the baby out with the

bathwater. At the same time, the PLA telecommunications

networks continue to operate in a hazy, inchoate gray area,

with neither central approval nor rebuke. At a July 18,

2000, cabinet meeting, for instance, State Council

“Document No. 40" was reportedly issued, ordering the

military once again to turn the Great Wall networks over to

China Unicom as well as the 10MHz of frequency in the

800MHz band that the military was using for its CDMA

systems. For more than a month, the military allegedly

resisted the command, hoping to retain some or all of the

networks and frequencies for its own secure

communications. As of September 2001 it is still not clear

whether the transfer has been completed.

Divestiture Problems: Resource Allocation and

Discipline.

As the divestiture entered 1999,some serious

bureaucratic and political conflicts began to surface.

Overall, they can be divided into two categories: resource

allocation and discipline. Each of these disputes has

important implications for our assessment of the final

success or failure of the divestiture process.

In terms of resource allocation, early trends suggested

that the PLA’s compensation, especially in the area of the

official budget, was going to be far less than the military

expected. In March 1999, Minister of Finance Xiang

Huaicheng announced the military budget for the new fiscal

year in his annual work report:

In line with the CCP Central Committee request, central

finances will provide appropriate subsidies to the army, armed

police force, and political and law organs after their severance of

206
ties with enterprises. In this connection, this year’s defense

expense will be 104.65 billion yuan, up 12.7 percent from the

previous year because of the provision of subsidies to the army

and of regular increases.

63

Outside observers immediately noticed the meagerness

of the figure, both in relative and absolute terms. At a

relative level, the 12.7 percent increase was not

significantly higher than the 12 percent increase of the

previous year, calling into question the notion that the fiscal

priority of the PLA had been augmented. Even in absolute

terms, the increase of RMB13.65 billion between 1998 and

1999 was not that much larger than the RMB10.43 billion

increase between 1997 and 1998, and reportedly included

only a RMB3 billion compensation for the loss of business

income. Where was the additional RMB15-50 billion

reported in the Hong Kong media? Why did the military

receive only RMB3 billion extra when even the official

China Daily newspaper pegged the estimated annual

profits and taxes of the enterprises at RMB5 billion

(U.S.$602 million)?

64

There are several plausible explanations for this

budgeting outcome. The first, and most difficult to prove, is

that that PLA was sufficiently compensated with off-budget

funds that are not calculated into the official budget. Given

the Byzantine nature of the Chinese budgeting process, we

may never have a definite estimate of any off-budget

compensation. The second explanation is that the PLA did

not have as much as leverage in the divestiture process as it

or outsiders thought, allowing the civilian leadership to get

the military out of business “on the cheap.” The third

possibility, supported by a loud chorus of PLA grumbling

and complaining, is that the military was “duped” by the

civilian leadership, the latter of whom had implicitly

promised a higher level of compensation. Indeed, there is

some evidence to suggest that the RMB3 billion of

compensation is based on the conservative profit estimate of

RMB3.5 billion (on total revenue of RMB150 billion) that

the PLA gave to Zhu Rongji before the divestiture

207
announcement in July. This low estimate was very much in

line with previous PLA estimates by the General Logistics

Department, which consistently undervalued the profit of

the military enterprise system in order to lessen the central

tax burden of the commercial units. If the above story is

true, then the major source of the PLA’s animus may be that

it was hoisted by its own petard. At the time of writing,

however, it is difficult to judge which of these three

explanations is correct, but the fact remains that vocal

elements within the PLA appear to be significantly

dissatisfied with the compensation package, above and

beyond the usual bureaucratic rapaciousness for ever

greater resources.

Apart from budgets, additional resource allocation

disputes have arisen over distribution of enterprise assets

in the post-divestiture environment. According to one

well-informed observer, there have been some serious

differences over levels of asset compensation because of the

escalating costs of debts and liabilities incurred by

enterprises.

65

 Many firms were poorly managed with

incomplete accounting records and borrowed from multiple

creditors. The firms’ relationships with banks needed to be

clarified, and licenses needed to be re-registered. Another

problem involved personnel. When military officers and

workers were transferred to the localities, their healthcare

and insurance had to be transferred as well, creating

unwanted social welfare burdens for the new owners.

In other cases, there is intra-military bargaining over

the fate of individual assets. One of the most public

examples of this was the dispute between the Beijing

Military Region and the General Armaments Department

over the fate of the Huabei Hotel in central Beijing.

66

 Under

the rules of the handover, military units at the bureaucratic

rank of military region, which also covers the new GAD, are

allowed to keep only one three-star hotel. Before

divestiture, the Beijing Military Region controlled two

three-star hotels, including the Huabei, which it agreed to

hand over to the SETC Handover Office. Since the GAD is a

208
new organization and therefore had no hotels, it reportedly

coveted the Beijing command’s extra hotel. Thus far,

however, the military region headquarters has declined to

transfer the hotel to the General Armaments Department,

igniting an unresolved bureaucratic struggle within the top

military and civilian leaderships.

The second major set of problems resulting from

divestiture involved discipline issues, mainly corruption

and profiteering. While the data in this area remain

anecdotal, there is some evidence to suggest that the

civilian leadership has aggressively pursued discipline

investigations involving corruption in PLA enterprises,

much to the chagrin of PLA officers who feel that the effort is

gratuitous and harmful to the public reputation of the

military.

67

 Susan Lawrence of the Far Eastern Economic

Review reports from well-placed Chinese sources that the

SETC Receiving Office has a list of 23 company executives

at the rank of major-general or above who have fled the

country since the divestiture was announced.

68

 Seven of

these officers are from the Guangzhou Military Region,

which handed over more than 300 enterprises, and another

five are from PLA headquarters. Among the latter is Lu Bin,

former head of the General Political Department’s

Tiancheng Group, who was arrested overseas and

extradited in January 1999. Other arrestees include a

senior colonel who was the head of one of the PLA’s top

hotels, the Huatian, which is located in Changsha. As the

various receiving offices continue to process the assets and

books of some of the shadier PLA enterprises, one can only

expect the numbers of disciplinary investigations to

increase.

Conclusion.

In a sense, divestiture brings the PLA full circle. The

pattern of the campaign, ranging from the transfers of its

high-profile commercial enterprises to the retention of its

lower-level farms and industrial units, suggests that the

209
military has essentially returned to the pre-1978

“self-sustaining” economy. Thus, the widespread conclusion

that the PLA has been “banned” from business is far too

simplistic. The military will continue to operate a wide

variety of small-scale enterprises and agricultural units,

with the goal of supplementing the incomes and standards

of living for active-duty personnel and their dependents at

the unit level. Profit and international trade, however, will

no longer be critical features of the system. Moreover, the

military leadership hopes that the divestiture of profitable

companies will greatly reduce the incidence of corruption

and profiteering in the ranks, and thereby refocus the PLA

on its important professionalization tasks.

At this point, of course, it is too soon to judge the

long-term impact of this divestiture on the PLA. While

participation in business had spawned endemic levels of

corruption, an honest assessment would also admit that the

military-business complex made positive contributions by

subsidizing an underfunded military, improving the

material life of the rank-and-file, and creating jobs for cadre

relatives. Despite these benefits, however, the military and

civilian leadership in the end decided that the

disadvantages of commercialism outweighed the

advantages, particularly with the prospect of professional

tasks like the liberation of Taiwan and potential military

conflict with the United States on the horizon.

What will the short- to medium-term future hold for the

divestiture process? Most likely, the next few years will

witness repeated “mop-up” campaigns on the part of the

central leadership and significant resistance and

foot-dragging on the part of local military officials,

repeating the pattern of earlier rectifications. An audit in

early 1999 revealed that the military had kept back some 15

percent of its businesses, necessitating the extension of

some deadlines until August 1999. As late as May 2000, a

top-level meeting on divestiture all but admitted that the

military continues to shield some assets from the process,

stating that the withdrawal of the military from business

210
activities had only been “basically completed” (emphasis

added).

69 Nonetheless, it is critical not to downplay the

importance of what has already occurred. There is

significant evidence to suggest that the divestiture has

ended the legal participation of the PLA in commercial

activity, perhaps closing one of most unique and interesting

chapters of the post-Mao revolution.

ENDNOTES - CHAPTER 10

1. This chapter is used with the author’s permission from his book,

Soldiers of Fortune: The Rise and Fall of the Chinese Military-Business

Complex, 1978-1998, Armok, NY: M. E. Sharpe, November 2000.

2. “Jiang Orders PLA-Owned Firms to Close,” Xinhua Domestic

Service, 22 July 1998, in Foreign Broadcast Information Service-China

(hereafter FBIS-CHI)-98-204, July 23, 1998.

3. See People’s Daily, July 23, 1998, p. 1.

4. “Fu Quanyou on Supporting Jiang’s Anti-Smuggling Drive,”

Xinhua Domestic Service, July 23 1998, in FBIS-CHI-98-206, July 25,

1998.

5. Cao Haili, “The Chinese Army Has Sailed Out of the Business

Sea,” Caijing, January 1999, pp. 1-16.

6. “Yu Yongbo Calls on Army to Cease Business Operations,”

Xinhua Domestic Service, July 26, 1998, in FBIS-CHI-98-208, July 27,

1998.

7. “General Armament Department to Fight Smuggling,” Xinhua

Domestic Service, July 26, 1998, in FBIS-CHI-98-209, July 28, 1998.

8. Wu Hengquan, Liu Zhenying, and Wang Jinfu, “Hu Jintao Speaks

on Banning PLA Businesses,” Xinhua Domestic Service, July 28, 1998,

in FBIS-CHI-98-209, July 28, 1998.

9. Cao Haili, p. 3.

10. Personal communication with Tai Ming Cheung, November 12,

1998.

11. Cao Haili, p. 2.

211
12. This account is taken from Susan Lawrence’s excellent article,

“Bitter Harvest,” which can be found in Far Eastern Economic Review,

April 29, 1999, pp. 22-26.

13. Ibid.

14. Personal communication with Tai Ming Chueng.

15. The RMB15 billion number comes from Kuang Tung-chou,

“Premier Promises to Increase Military Funding to Make Up For

‘Losses’ After Armed Forces Close Down All Its Businesses,”Sing tao jih

pao, July 24, 1998, p. A5, in FBIS-CHI-98-205, July 24, 1998. For the

RMB30 billion figure, see Willy Wo-Lap Lam, “PLA Chief Accepts HK47

Billion Payout,” South China Morning Post, October 9, 1998.

16. Willy Lo-Lap Lam, “PLA to Get HK28 Billion for Businesses,”

South China Morning Post, August 3, 1998.

17. The author would like to thank Dennis Blasko for this

information.

18. “Military Reportedly Raises Pay to Avoid Discontent,” Ming pao, 

January 23, 1999, p. 15, in FBIS-CHI-99-023, January 23, 1999.

19. Interviews in Beijing, February 1999.

20. Kuang Tung-chou, “Beijing To Comprehensively Raise

Servicemen’s Remuneration,” Sing tao jih pao, November 25, 1998, p.

B14, in FBIS-CHI-98-349, December 15, 1998.

21. The account of this meeting can be found in Cao Haili, p. 5.

22. “Military Meets Resistance in Enforcing Ban on Business,” Ming 

pao, September 9, 1998, p. A16, in FBIS-CHI-98-253, September 10,

1998.

23. “Hu Jintao Appointed CMC Vice-Chairman,” Xinhua, October

31, 1999.

24. Willy Wo-Lap Lam, “Problems Between CCP, Army,” South

China Morning Post, October 20, 1999, p. 19.

25. Personal communication with Tai Ming Cheung, September 9,

1999.

26. Cao Haili, p. 5.

212
27. Han Zhenjun, “Military Business Said ‘Disconnected’ By 15

December,” Xinhua Domestic Service, December 28, 1998, in

FBIS-CHI-98-362, December 28, 1998.

28. “Work of Disengaging Armed Forces and Armed Police From

Their Enterprises to Be Completed in Mid-December—Over Ten High

Officials Absconded With Money,” Ming pao, December 7, 1998, p. A12,

in FBIS-CHI-98-353, December 19, 1998.

29. Cao Haili, p. 5.

30. Yang Xinhe, “Hebei Takes Over Military Enterprises,” Xinhua

Hong Kong Service, December 12, 1998, in FBIS-CHI-98-350, December

16, 1998.

31. “Separation of Army From Business Done,” China Daily, March

21, 1999, p. 1.

32. Cao Haili, p. 5.

33. “Work of Disengaging Armed Forces,” p. A12.

34. “Military Meets Resistance,” p. A16.

35. Lam, “PLA Cashes In.”

36. This account is taken from Matt Forney, “A Chinese Puzzle:

Unwinding Army Enterprises: Who Gets Them, And What to Pay?” Wall 

Street Journal, December 15, 1998; and Matt Forney, “Chinese Army’s

Exit from Businesses Leaves Partners Guessing at Next Move,” Wall

Street Journal, May 21, 1999, p. A9.

37. “Military Meets Resistance,” p. A16.

38. “March Out of Business Sea: PLA and Armed Police Carrying

Out the Decision of Divestiture,” Shidai chao, March 2000.

39. Yang Xinhe, “Hebei Takes Over Military Enterprises,” Xinhua

Hong Kong Service, 12 December 1998, in FBIS-CHI-98-350, 16

December 1998.

40. “Guangdong Military Hands Over Enterprises,” Zhongguo

xinwen she, November 30, 1998, in FBIS-CHI-98-337, December 3,

1998. A different source relates that 368 of these firms, located in

Guangzhou, Shenzhen, Zhuhai, Shantou, Huizhou, and Shaoguang,

belonged to the Guangzhou Military Region, the South Sea Fleet, the

Guangzhou MR Air Force, the Guangdong Military District, and the

213
Guangzhou People’s Armed Police Headquarters. The other 22

enterprises located in Guangdong were owned by the Beijing, Jinan,

Lanzhou, and Chengdu Military Regions, as well as firms owned by the

Navy’s Guangzhou Maritime Academy. See Cao Haili, p. 6.

41. Jiangsu units also dissolved 194 enterprises, with RMB360

million in assets. Jin Weixin, “The Jiangsu Forces in the Nanjing

Military Region Turn Over All Army-Run Enterprises, Stressing

Politics, Considering the Overall Order, and Acting in Line With High

Standards and Strict Requirements,” Nanjing Xinhua Ribao, February

10, 1999, pp. 1,3, in FBIS-CHI-1999-0222, February 10, 1999. See also

“Jiangsu Troops Hand Over Enterprises to Localities,” Xinhua

Domestic Service, November 27, 1998, in FBIS-CHI-98-337, December

3, 1998.

42. Cao Haili, p. 13.

43. “Shenyang ‘Theater of Operations’ Transfers Enterprises,”

Beijing Central People’s Radio Network, November 25, 1998, in

FBIS-CHI-98-337, December 3, 1998.

44. Bu Yuntong, “Hainan Armed Forces Hand Over Enterprises,”

Xinhua Domestic Service, November 29, 1998, in FBIS-CHI-98-337,

December, 1998.

45. This number refers only to the divestiture of Yunfeng Industries.

See “PLA Garrison Turns Major Business Over to Shanghai,” Xinhua,

November 21, 98.

46. “Tianjin Hands Over All Military-Run Businesses,” Xinhua,

December 8, 1998, in FBIS-CHI-98-342, December 8, 1998.

47. Liu Yi, “Jiangxi Military Hands Over Commercial Firms,”

Xinhua Domestic Service, November 26, 1998, in FBIS-CHI-980337,

December 3, 1998.

48. This number refers only to Lanzhou MR AF enterprises. See

Lanzhou wanbao, January 20, 1999.

49. Jin Weixin, “The Jiangsu Forces in the Nanjing Military Region

Turn Over All Army-Run Enterprises, Stressing Politics, Considering

the Overall Order, and Acting in Line With High Standards and Strict

Requirements,” Nanjing Xinhua Ribao, February 10, 1999, pp. 1, 3, in

FBIS-CHI-1999-0222, February 10, 1999.

50. Cao Haili, p. 9.

214
51. First rumors of Songliao’s transfer began to appear in late July.

See Christine Chan and Foo Choy Peng, “Jiang Demand Threatens PLA

Business Empire,” South China Morning Post, July 24, 1998.

52. This account is taken from Cao Haili, p. 9.

53. Personal communication with Tai Ming Cheung, January 24,

1999.

54. “Separation of Army From Business Done,” p. 1.

55. China United Airlines survived divestiture because many

remote towns protested that the shutdown on the airline would cut them

off from the rest of the country.

56. The account of this meeting is taken from Cao Haili, p. 6.

57. “Hebei Takes Over Military Enterprises,” Xinhua, December 12,

1998.

58. Cao Haili, p. 6.

59. Shaanxi Daily, April 12, 1999.

60. “Separation of Army From Business Done,” p. 1.

61. Conversation with knowledgeable journalist in Beijing.

62. Matt Pottinger, “China’s Military Building Mobile Phone

Empire,” Reuters, February 15, 2000.

63. PRC Finance Minister Xiang Huaicheng, “Report on the

Execution of the Central and Local Budgets for 1998 and on the Draft

Central and Local Budgets for 1999,” Xinhua Domestic Service, March

18, 1999, in FBIS-CHI-1999-0320, March 18, 1999.

64. “Separation of Army From Business Done,” p. 1.

65. Personal communication with Tai Ming Cheung, September 9,

1999.

66. Susan Lawrence, “Bitter Harvest,”FEER, April 29, 1999, p. 24.

67. Ibid.

68. Ibid.

215
69. Wang Yantian and Yin Hongzhu, “CCP Central Committee,

State Council, Central Military Commission Hold TV, Telephone

Meeting on Work of Withdrawing Military, Armed Police, and Political

and Legal Organs from Business Activities,” Xinhua Domestic Service,

May 25, 2000.

216
ABOUT THE CONTRIBUTORS

RALPH N. CLOUGH is a Professorial Lecturer and

Coordinator of the School of Advanced International

Studies China Forum at the Nitze School of Advanced

International Studies, The Johns Hopkins University,

Washington, DC. He is a retired Foreign Service Officer and

was Director for Chinese Affairs in the Department of State,

and served abroad in China, Hong Kong, and Taiwan.

Professor Clough is the author of East Asia and U.S.

Security (1975), Deterrence and Defense in Korea: The Role

of U.S. Forces (1976), Island China (1978), Embattled

Korea: The Rivalry for International Support (1987),

Reaching Across the Taiwan Strait: People-to-People

Diplomacy (1993), and Cooperation or Conflict in the

Taiwan Strait? (1999).

DAVID M. FINKELSTEIN is the Director of “Project Asia”

at the CNA Corporation’s Center for Strategic Studies. He is

a retired U.S. Army Foreign Area Officer for China with

extensive experience in joint political-military assignments

at the national level. Among his various political-military

assignments, he served as the Director of Asian Studies,

J-8; Joint Chiefs of Staff; and Assistant Defense Intelligence

Officer for East Asia and the Pacific. A long-time student of

Chinese security affairs, Dr. Finkelstein holds an M.A. and

Ph.D. in Chinese history from Princeton University and

studied the Chinese language at Nankai University in

Tianjin. Dr. Finkelstein has written many articles on

Chinese security issues and the People’s Liberation Army.

His 1993 book-length study, Washington’s Taiwan

Dilemma, 1949-1950: From Abandonment to Salvation, was

hailed in a Presidential Studies Quarterly review as

“blazing a new trail” and should “take an important place in

the literature of U.S. Chinese relations in the mid-20th

century.”

WENDY FRIEMAN is Director of the Asia Technology

Program at Science Applications International Corporation

217
(SAIC). She was a visiting Scholar at the Sigur Center for

Asian Studies of the George Washington University during

1997-99. Ms. Frieman is a specialist on technology and

defense policies of China and other Pacific Rim countries,

and she has published widely in these areas. In recent years

her research has focused on China’s participation in

international arms control and nonproliferation regimes,

and she is presently completing a book on that topic.

ALEXANDER CHIEH-CHENG HUANG is a Professor of

international relations at Tamkang University and Vice

President of the Chinese Eurasian Foundation (a public

policy think tank) in Taipei. He is also a Senior Associate of

the International Security Program at the Center for

Strategic and International Studies (CSIS) in Washington,

DC. Dr. Huang specializes in Asian and security and

defense affairs, with specific focus on China’s defense policy,

military doctrine, and strategy. He has published many

book chapters and articles on military affairs of the PRC

and Taiwan. His most recent publication is

“Transformation and Refinement of Chinese Military

Doctrine,” The PLA on the Eve of the New Millennium: A

Retrospective View of the Past Twenty Years, (RAND, 2001).

The views in his chapter do not necessarily reflect policies of

the Republic of China government or its agencies.

ELLIS JOFFE is professor of Chinese studies at the Hebrew

University of Jerusalem. He is the author of two books and

many articles and chapters on the Chinese military.

TAEHO KIM is a senior China analyst and Director of

Research Cooperation at the Korea Institute for Defense

Analyses (KIDA), Seoul, Korea, and a nonresidential

research associate of the Mershon Center, Ohio State

University. He is also a co-editor of the SSCI-listed The

Korean Journal of Defense Analysis. Dr. Kim is the author

and co-author of over ten books, policy reports and

monographs, including China’s Arms Acquisitions from

Abroad: A Quest for “Superb and Secret Weapons” (with Dr.

Bates Gill, Oxford University Press, 1995), The Dynamics of

218
Sino-Russian Military Relations: An Asian Perspective

(CAPS, 1994), and The ROK Defense Policy after the

ROK-PRC Normalization (KIDA, 1993). His most recent

English articles include “A Testing Ground for China’s

Power, Prosperity and Preferences: China’s Post-Cold War

Relations with the Korean Peninsula” (forthcoming in

2001), “Sino-ROK Relations and the Future of Asian

Security: A Developing Continental Power Balance?”

(2000), “Strategic Relations Between Beijing and

Pyongyang” (1999), “Korean Perspectives on PLA

Modernization and the Future East Asian Security

Environment” (1998), “A Reality Check: The ‘Rise of China’

and Its Military Capability toward 2010” (1998), “Korean

Views on Taiwan-PRC Relations and the Japan Factor”

(1997), and “China and Virtual Nuclear Arsenals” (1997),

His research interests are Sino-Russian military

cooperation, Chinese arms acquisitions, and China’s

relations with Northeast Asian countries, including

Sino-North Korean relations.

JAMES R. LILLEY was born in China, educated at Yale

University, and served for a number of years in Southeast

Asia. He was the Director of the American Institute in

Taiwan from 1982-84, the U.S. Ambassador to the People’s

Republic of China from 1989-91 and to the Republic of Korea

from 1986-89. He served as Assistant Secretary of Defense

for International Security Affairs from 1991-93 and is

presently Senior Fellow at the American Enterprise

Institute. Ambassador Lilley is the co-editor of Beyond

MFN: Trade with China and American Interests (AEI Press,

1994), Crisis in the Taiwan Strait (NDU Press, 1997), and

China’s Military Faces the Future (M.E. Sharp, 1999). He

has written extensively on Asian issues.

JAMES MULVENON is an Associate Political Scientist at

the RAND Corporation in Washington, DC. A specialist on

the Chinese military, his current research focuses on

Chinese strategic weapons doctrines (information warfare

and nuclear warfare), theater ballistic missile defenses

(TBMD) in Asia, Chinese military commercial divestiture,

219
and the military and civilian implications of the information

revolution in China. He has recently completed a book on

the Chinese military’s business empire, entitled Soldiers of

Fortune (2001). Dr. Mulvenon received his Ph.D. in political

science from the University of California, Los Angeles.

ANDREW SCOBELL joined the Strategic Studies Institute

(SSI) in August 1999 and is SSI’s expert on Asia. He taught

at the University of Louisville, Kentucky, and Rutgers

University, New Jersey. Since 1988 Dr. Scobell has

published articles in such journals as Armed Forces and

Society, Asian Survey, China Quarterly, Comparative

Politics, Journal of Political and Military Sociology, and

Political Science Quarterly. Recent articles and

monographs have focused on China-Taiwan relations,

China military modernization and Asia-Pacific security. Dr.

Scobell holds a Ph.D. in Political Science from Columbia

University.

CARLYLE A. THAYER is Professor of Southeast Asian

Security Studies at the Asia-Pacific Center for Security

Studies in Honolulu, Hawaii, currently on leave from the

Australian Defence Force Academy.

JOHN TKACIK is research fellow for China, Taiwan, and

Mongolia issues at The Heritage Foundation in

Washington, DC. The bulk of his China experience came as

a career foreign service officer, where he spent over 20 years

in the China field, including 5 years in the People’s Republic

of China, 6 years on Taiwan affairs, and 3 years in Hong

Kong. He was Chief of China Analysis in the Department of

State Bureau of Intelligence and Research (INR). After

retiring in 1994, Mr. Tkacik was Asia-Pacific vice president

for external affairs at R.J. Reynolds Tobacco International

from 1996-97, and continued a business consulting firm

“China Business Intelligence” which provides intelligence

support to U.S. companies doing business with China and

Taiwan. Mr. Tkacik graduated from Georgetown University

in 1971, has an MPA from Harvard University, and is a

220
member of the Class of 1989 at the National War College, Ft.

McNair, Washington, DC.

LARRY M. WORTZEL is director of the Asian Studies of the

Heritage Foundation. He retired in November 1999 as a

colonel in the U.S. Army after 32 years of military service.

During his military career, he served in infantry and

intelligence positions in Morocco, Korea, Thailand,

Singapore, and China. Dr. Wortzel also served in the Office

of the Secretary of Defense, the U.S. Pacific Command, and

on the Department of the Army staff. His last position

before retiring was as director of the Strategic Studies

Institute at the U.S. Army War College. Dr. Wortzel is the

author of two books on China and has edited and

contributed to two other books as well as many journal

articles and monographs. Dr. Wortzel earned a B.A. from

Columbus College, Georgia, and an M.A. and Ph.D. in

Political Science at the University of Hawaii.

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U.S. ARMY WAR COLLEGE

Major General Robert R. Ivany

Commandant

*****

STRATEGIC STUDIES INSTITUTE

Director

Professor Douglas C. Lovelace, Jr.

Director of Research

Dr. Steven Metz

Editor

Dr. Andrew Scobell

Director of Publications

Ms. Marianne P. Cowling

Publications Assistant

Ms. Rita A. Rummel

*****

Composition

Mrs. Christine A. Williams