No. 231, April 2008 Strategic Forum 1

the balance of influence. A concerted effort to 

refocus and enhance U.S. engagement with 

Asia is sorely needed. This should include 

active and high-level participation in regional 

diplomacy, enhanced cooperation on nontraditional security issues, welcoming a constructive Chinese regional role, and development of a comprehensive, government-wide 

strategy to pursue the full range of American 

objectives in Asia.

China’s Resurgence

Asia’s strategic landscape is shifting. With 

colonialism and the Cold War now distant memories, regional political alignments are more flexible, open-ended, and constructive than they have 

been since the mid-20th century. Region-wide 

stability and the adoption of market-oriented economic policies have unleashed growth and sparked 

record levels of trade and investment. The peaceful management of disputes has become the rule 

rather than the exception.

Of the various structural changes marking this new landscape, none stands out more 

than China’s resurgence as the leading power in 

East Asia. China’s combination of a large and 

growing economy, newfound military restraint, 

and skillful diplomacy is a recipe for expanded 

influence. Its growing regional role reflects 

both an increase in underlying power resources 

(fueled primarily by rapid economic growth) 

and improvements in Beijing’s ability to translate power into influence via effective diplomacy.

Until the mid-1990s, China was wary of 

regional organizations, preferring to deal with 

other Asian governments on a bilateral basis. Its 

The balance of power in East Asia is stable 

and favors the United States, but the balance 

of influence is tipping toward Beijing. China’s 

growing weight stems from its size and market 

dynamism, reinforced by newfound military 

restraint and skillful diplomacy that have 

enhanced its ability to translate power into 

influence. The shift in the balance of influence, 

if unaddressed, could undermine U.S. interests.

China’s regional goals include expanding 

Chinese influence, isolating Taiwan politically, 

marginalizing Japan, maximizing energy security, and limiting vulnerability to U.S. pressure 

without stimulating balancing behavior. Beijing 

has sought to avoid confrontation with Washington and to reassure its neighbors of China’s 

benign intentions. Most East Asians now view 

China as a key trading partner and an economic 

opportunity rather than a threat.

China’s influence in Asia does face limits. 

Its booming export industries depend on imports 

from other Asian countries, and its military 

power lags far behind that of the United States 

and will continue to do so for the foreseeable 

future. Severe social and environmental problems tarnish China’s image.

Asian elites regard China’s military buildup 

as primarily aimed at Taiwan but harbor a 

residual wariness about China’s long-term 

intentions. East Asian governments are hedging 

by engaging China bilaterally and multilaterally 

while maintaining security ties with the United 

States and encouraging a larger Japanese and 

Indian regional role.

A perceived U.S. neglect of the region, 

coupled with American preoccupation with 

the war on terror, is accelerating the shift in 

 Strategic Forum No. 231

April 2008

Institute for National Strategic Studies

National Defense University

http://www.ndu.edu/inss

Key Points

China’s Rising Influence in Asia: 

Implications for U.S. Policy

by Ellen L. Frost, James J. Przystup, and Phillip C. Saunders

regional security behavior was mixed, to say the 

least. China maintained assertive positions on 

its territorial and sovereignty claims and sometimes used military means to reinforce its positions. In February 1995, China seized Mischief 

Reef in the South China Sea, and its military 

forces conducted military exercises and missile tests near Taiwan in July-August 1995 and 

March 1996—both provoking critical reactions 

from the region and the United States.

Beijing’s concerns about the unfolding “China threat” debate prompted a significant adjustment in its approach to the region.1

Chinese leaders decided that economic modernization and the maintenance of domestic stability required constructive relations with the 

United States and a peaceful environment in 

Asia. These goals in turn demanded restraint 

in the use of military threats and active efforts 

to reassure neighboring countries of China’s 

benign intentions.

This policy reorientation included, or was 

at least consistent with, more diplomatic engagement with other Asian countries, skillful use of 

commercial diplomacy (including trade agreements, foreign aid, and investment), and a more 

welcoming approach to participation in regional 

institutions. Beijing now plays a constructive 

role in the Asian integration movement and has 

embraced interactions with regional organizations such as the Association of Southeast Asian 

Nations (ASEAN).2 Most East Asian officials and 

defense intellectuals now see China as a statusquo power, at least for the foreseeable future.

China’s strengths in the region should 

not be exaggerated, however. Its soft and hard 
2 Strategic Forum No. 231, April 2008

power alike lag far behind the United States. 

Much has been made of China’s alleged soft 

power, but its behavior and stated intentions 

reflect adjustment to Southeast Asian norms, 

not vice versa.3 Moreover, China’s domestic 

political stability remains vulnerable to potential moves by external actors that lie largely 

outside of Beijing’s control. These include decisions affecting the future of Taiwan, the fate of 

the North Korean regime, the legacy of Japan’s 

wartime record, and the outcome of territorial disputes in the East and South China Seas. 

Also relevant to China’s domestic future are 

possible U.S. moves to restrict Chinese imports, 

American and European pressure to revalue 

the yuan, and the possibility of a global recession. Any combination of such events could stall 

China’s economic modernization, thwart rising 

expectations, and threaten domestic stability.

East Asian elites are well aware of 

China’s severe social and environmental problems, authoritarian political system, and ugly 

human rights record. They have no intention 

of becoming dominated by China or anyone 

else. They respect American power, even if they 

think it is misused. Virtually all of them want 

the United States to engage with the region 

on a more sustained and high-level basis. It 

is China’s surging economy—not its popular 

culture, educational system, or form of government—that commands the most attention 

and respect.

China’s Market Power

China’s size and market power convey leverage. From the 1960s on, Japan and the so-called 

Asian Tigers (South Korea, Taiwan, Hong Kong, 

and Singapore) experienced explosive growth. 

But no single nation has ever opened its economy and expanded its international economic 

role as quickly as China, and none of the others 

had a noteworthy military force at the time of its 

growth. Expectations that China’s rapid growth 

will continue and support the development of 

other forms of power in the future reinforce and 

amplify Beijing’s current political influence.

Since economic reforms began to take effect 

in the early 1980s, China’s share of global trade 

has grown tenfold. In 2004, China overtook 

Japan to become the world’s third largest trading economy, and in the following year, trade 

reached a ratio of 69 percent of China’s nominal 

gross domestic product (GDP). (The equivalent 

ratios for Japan and the United States are about 

25 percent.) In some coastal provinces, this ratio 

exceeds 100 percent. In 2007, China’s foreign 

exchange reserves exceeded $1.5 trillion, and its 

current account surplus surpassed $262 billion.4

Although the world sees China as a giant 

export machine, imports have also soared. Until 

2004, when the Chinese government began 

to take steps to restrain domestic investment 

growth, rising imports kept pace with rising 

exports, and China avoided large trade deficits 

or surpluses. The Chinese economy is now more 

open than the Japanese and Korean economies were at comparable stages of development. 

Between 2000 and 2005, imports into China 

nearly tripled, from $225 billion to $660 billion. 

Imports as a ratio of GDP skyrocketed from 4 

percent in 1978 to 30 percent in 2005—two and 

three times larger than the ratio in the United 

States and Japan, respectively.5 Imported parts 

and components account for over 50 percent of 

China’s exports and in some manufacturing 

sectors perhaps as much as 75 percent.

Foreign direct investment (FDI) in China 

has grown even more rapidly than trade, 

playing a crucial role in transferring the capital, technology, contacts, and management 

skills that have supported China’s economic 

takeoff. Initial foreign investments came primarily from ethnic Chinese living outside of 

China. Sources of investment diversified in 

the mid-1990s, and by 2007 annual FDI had 

grown to $67 billion, compared to $15 billion in India and about $29 billion in Japan.6

China has attracted more than $750 billion 

in investment, more than all other developing countries combined. An estimated 55 to 

70 percent of “Chinese” exports are manufactured by foreign firms operating in China 

or by partnerships between foreign firms and 

Chinese entities.

A related structural change stems from globalization, namely the rise of region-wide production networks. Parts and components make 

up the fastest growing product category of traded 

goods, accounting for roughly a quarter of both 

Asian exports and imports as opposed to 16 to 18 

percent 10 years earlier.7

In the 1970s and early 1980s, when China’s 

economy was relatively autarkic, Japanese companies pioneered production networks in Asia by 

investing heavily in South Korea and Southeast 

Asia. China has now moved from the periphery to the center of these arrangements. Many 

Asian exports formerly destined for the United 

States or Japan now go to China for further processing before being reexported to global markets, especially North America and Europe. Just 

as individual Asian countries have become more 

dependent on China, China likewise has become 

dependent on global markets.

High-technology products illustrate the new 

pattern. In 2005, China was not only the third largest exporter of electronics products and components 

(up from tenth in 2000) but also the second largest 

importer (up from seventh in 2000). Technologyintensive exports assembled in China typically 

consist of high-tech components imported into 

China from Japan, South Korea, Taiwan, and the 

Philippines combined with lower-tech components 

and raw materials imported from the rest of Asia. 

Meanwhile, Chinese manufacturers are moving up 

the value-added chain: China’s top exports to the 

rest of East Asia include parts for office equipment 

and telecommunications equipment, along with 

toys and footwear.8

Production networks are forcing companies in other parts of Asia to specialize in 

niche products. Companies located in countries with reasonably competitive economies and attractive investment climates, 

such as Singapore, Malaysia, the Philippines, 

and (increasingly) Vietnam, have been able 

to increase their manufacturing exports to 

China, while others, including Indonesia, are 

lagging behind.9

Balance of Dependence

China’s size and growth have forged new 

patterns of dependence. On the one hand, 

Dr. Ellen L. Frost is an Adjunct Research Fellow in the Institute for National Strategic Studies (INSS) at the 

National Defense University and a Visiting Fellow at the Peterson Institute for International Economics. 

Dr. James J. Przystup and Dr. Phillip C. Saunders are Senior Research Fellows in INSS. Comments may be 

directed to przystupj@ndu.edu and saundersp@ndu.edu.

China’s surging 

economy—not its culture, 

educational system, or 

government—commands 

the most respect
No. 231, April 2008 Strategic Forum 3

individual Asian countries have become more 

dependent on China than China is on them. 

The volume of Chinese trade with East Asia has 

increased dramatically over the last decade, 

but the share of Chinese exports going to East 

Asia (excluding Hong Kong) has declined from 

34 percent in 1996 to 24 percent in 2006.10

On the other hand, China has become heavily 

dependent on imports from Asian suppliers and 

on Western markets.

Asian economies are globalized, but since 

the turn of the millennium, China has become 

the first or second largest trading partner of 

most countries in the region (see tables 1 and 

2). Despite periodic political tensions, Japan’s 

trade with China (not counting Hong Kong) 

now exceeds Japan’s trade with all 10 members 

of ASEAN and surpassed U.S.-Japan trade levels in 2007. China has become South Korea’s 

number one customer, far surpassing the 

United States. Taiwan’s economic ties with the 

mainland have also blossomed. Despite crossstrait political tensions, Taiwanese investors 

send an estimated 70 percent of their foreign 

investment to China.11 Such investment is concentrated in electronics. As many as 1 million 

Taiwanese, almost 5 percent of the population, 

now live and work on the mainland.

According to a World Bank Study, from 

1985 to 2001 China accounted for the largest or second largest increase in export market 

share for 11 out of 13 East Asian countries. From 

1995 to 2001, those exports grew at the average annual rate of 11.5 percent, compared to 3.8 

percent for world trade as a whole.12

Economic ties with China are important 

for Southeast Asian nations for three reasons. 

First, production networks have forged new and 

promising commercial links between Northeast 

and Southeast Asia. In sharp contrast to intraEuropean trade, intra-ASEAN trade has rarely 

accounted for much more than one-fifth of the 

trade of member states, in part because ASEAN 

economies (except for Singapore) tend to be 

competitive rather than complementary. Asian 

companies want to find a profitable niche in 

China-centric production networks and increase 

their share of China’s imports. Their governments know that such opportunities create jobs, 

stimulate productivity, and improve the balance 

of payments.

Second, trade with China is a stimulus 

to quality improvement and export diversification away from raw materials. Between 1990 

and 2004, ASEAN’s share of China’s imports of 

 Table 1. Percent of Imports from China (China’s Rank as Import Source)

Japan South Korea Taiwan ASEAN 6 India

1986 4.7 (4th) 0 0.28 (33d) 4 (6th) 0.55 (27th)

1996 11.6 (2d) 5.7 (3d) 3 (7th) 3 (5th) 1.9 (18th)

2006 20.4 (1st) 15.7 (2d) 12.2 (2d) 11 (3d) 9.4 (1st)

 Table 2. Percent of Exports to China (China’s Rank as Export Market)

Japan South Korea Taiwan ASEAN 6 India

1986 4.7 (4th) 0 0 2.3 (12th) 0.74 (28th)

1996 5.3 (5th) 8.8 (3d) 0.54 (23d) 2.9 (12th) 1.8 (14th)

2006 14.3 (2d) 21.3 (1st) 22.7 (1st) 8.8 (3d) 6.6 (3d)

Sources: United Nations Commodity Trade Statistics Database (UN Comtrade), available at <http://comtrade.un.org/>; Taiwan trade statistics from Taiwan’s Bureau of Foreign Trade, available at <http://cus93.trade.gov.tw/english/FSCE/FSC0011E.ASP>. The ASEAN 6 countries 

are Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

Notes: For India, 1986 data from International Monetary Fund Direction of Trade Statistical Yearbook 1990; for Taiwan, 1989 data (the earliest available) used for 1986 figure; ASEAN 6 data for Brunei use 1985 data and 1998 data to substitute for unavailable 1986 and 1996 data. 

ASEAN 6 rankings consider intra-ASEAN 6 trade with other ASEAN 6 members (for example, ASEAN 6 exports to Singapore) as trade with 

other countries for ranking purposes.

manufactures jumped from 31 percent to almost 

56 percent. This growing interdependence is 

marked by increasing specialization and reliance on a small number of product categories.

Third, access to the Chinese market 

attracts foreign investors. In 2007, foreign direct 

investment in ASEAN countries reached a record 

$51.4 billion, surpassing that prevailing during 

the boom years of the 1990s. (China, with more 

than twice the population, attracted about $67.3 

billion.)13 An unknown but presumably large 

percentage of this investment is geared toward 

China-centered production networks.

China’s huge market, rapid growth, and 

likelihood of continued economic expansion 

endow it with implicit leverage that smaller countries lack. Only in rare cases is it necessary for 

Chinese diplomats to resort to explicit pressure. 

With the exception of Taiwan, China usually 

employs an indirect approach, expressing its displeasure by lecturing other governments, cancelling official visits, or postponing commercial 

deals. These instances usually involve an issue 

that Chinese leaders regard as vital, such as the 

status of Taiwan or proposed Japanese membership on the United Nations (UN) Security Council 

(for example, China suspended trade negotiations 

with Singapore after Deputy Prime Minister Lee 

Hsien Loong visited Taiwan in July 2004).

Economic dependence, however, is mutual. 

Chinese authorities rely on trade and investment 

to create wealth, raise China’s standard of living, 

facilitate technology transfer, and accelerate the 

growth of national power and regional influence. 

The stimulus provided by trade and investment is 

also important to Chinese leaders because rising 

prosperity is the single most important guarantor 

of the government’s perceived legitimacy. Ideology 

is dead and democratic elections are absent, leaving satisfaction of rising economic expectations 

as the primary basis for Communist Party claims 

for popular support. The level of social unrest is 

already high, and an economic shock followed by 

prolonged recession could rupture domestic stability. Nationalism and xenophobia could also reach 

dangerous levels. Chinese authorities thus have a 

huge political stake in both the prosperity of the 

Asia-Pacific region and the continued openness of 

North American and European markets.

China has also become more dependent 

on energy imports. Skyrocketing demand in the 

transportation sector puts a premium on oil. 

It is estimated that by 2020, China will likely 

import 70 percent of its oil needs, up from 40 

percent today. Seeking to diversify supplies, 

China has signed energy partnership agreements with several Asian (and African) countries. Although Beijing has resolved almost all of 

its land border disputes, it still claims disputed 

areas in the East China and South China Seas 

where energy deposits have been reported. There 

is even speculation that China intends to build 

an oil pipeline from the Bay of Bengal through 

Burma (Myanmar) to southern China. Such a 

route would reduce China’s dependence on the 

long sea lanes stretching from the Middle East 

through the Strait of Malacca, which are currently safeguarded by the U.S. Navy.
4 Strategic Forum No. 231, April 2008

China’s New Diplomacy

Whereas former president Jiang Zemin 

emphasized great-power diplomacy and relations with the United States, the Hu Jintao–

Wen Jiabao regime has focused more attention 

on cultivating countries on China’s periphery. 

Chinese officials assign their best diplomats 

to Asia. Backed by active commercial engagement and benefitting from the more restrained 

posture of the People’s Liberation Army (PLA), 

Chinese diplomats have been able to adopt a 

nuanced, flexible, and responsive stance on 

most issues and employ a range of tools to 

expand influence.

China’s commercial diplomacy has benefitted from the region’s widespread interest 

in free trade agreements (FTAs), which began 

to mushroom in Asia in the late 1990s. Most 

Asian FTAs are bilateral, but a few involve 

ASEAN as a whole. FTAs involving Singapore, 

Australia, New Zealand, and the United States 

are genuinely trade-liberalizing, but many if 

not most of the others protect politically sensitive industries, set up long phase-in periods, and contain no enforcement provisions. 

Japan’s offerings, known as economic partnership agreements, cover investment, services, 

and intellectual property, but exclude agriculture and are not enforceable.

Given their limited scope but high visibility, it is clear that FTAs and economic partnerships stem as much from political and security priorities as from economic considerations. 

For China, FTAs offer a means of using access 

to the China market to cultivate influence and 

compete with Japan and the United States. For 

other Asians, FTAs with China are geopolitical expressions of peace and security as well as 

doors to economic opportunity.

Along with Beijing’s policy reappraisal, the 

Asian financial crisis served as a catalyst that 

prompted China to launch a far-reaching set of 

commercial diplomacy initiatives. The collapse 

of the Thai baht in July 1997 triggered financial devastation that spread throughout much 

of the region. To the dismay of East Asian governments, the United States did nothing. East 

Asian leaders contrasted this passive response 

with U.S. assistance to Mexico during a similar 

crisis a mere 3 1⁄2 years earlier. American failure 

to respond opened the door for China’s diplomacy. Shielded from the worst of the crisis by 

rigid capital controls, China took credit for not 

devaluing its currency and announced a series 

of trade-related relief measures, such as a free 

trade agreement with crisis-strapped Thailand, 

trade offers to other ASEAN countries, and measures to stimulate visits of cash-rich Chinese 

tourists to ASEAN countries. After a Japanese 

proposal to establish an “Asian Monetary Fund” 

collapsed under U.S. and other Western pressure, 

Beijing joined a Japanese-led effort to establish a 

network of currency swap agreements.

The most visible symbol of Beijing’s foray 

into commercial diplomacy was Beijing’s proposal of a China-ASEAN FTA in 2000, which 

would encompass almost 2 billion people and a 

combined GDP of over $3 trillion. It is an open 

secret that Chinese leaders directed their chief 

trade negotiator to propose the plan for essentially political reasons. Two years later, Chinese 

and ASEAN leaders formally announced a decision to start negotiations aimed at establishing such an FTA within 10 years. The initial 

phase of this agreement is now in effect, but 

many details—governing exceptions for “sensitive” sectors, phase-in periods, dispute resolution mechanisms, and other significant provisions—are still being worked out.

Another instrument of China’s commercial diplomacy is large-scale financial and 

technical assistance for infrastructure projects, particularly in poorer countries and/or 

countries with energy resources. Such projects include ports, highways, bridges, and 

popular sites such as sports stadiums, built 

almost entirely by Chinese companies using 

imported Chinese workers. These projects are 

popular with recipient governments because 

they typically come without the strings characteristic of loans from the World Bank and 

other aid agencies. But they create few local 

jobs, and some have been marred by serious 

safety problems.

China’s military power has increased significantly over the last decade, creating both 

respect and heightened concerns in other Asian 

countries. The PLA has enjoyed double-digit real 

budget increases every year since 1997. The official 2007 budget was approximately $45 billion, 

but estimates including military-related and offbudget spending suggest that total 2007 spending may range from $97 billion to $139 billion.14

This money has underwritten higher salaries, 

expanded training and facilities, and the acquisition of advanced Chinese and Russian arms. 

Many of these weapons appear to be focused 

primarily on deterring possible U.S. intervention in a Taiwan crisis, but some significantly 

expand PLA ability to project power within Asia. 

These include development of more accurate 

short-range and medium-range conventional 

ballistic missiles, acquisition of Kilo-class submarines and Sovremenny destroyers, deployment of tankers and air-refueling technology to 

extend the range of Chinese fighters, and efforts 

to improve airlift and sealift capability. Chinese 

military officials are now openly discussing 

building an aircraft carrier.15

China’s accelerated military modernization 

program has been accompanied by efforts to reassure its neighbors that a more powerful PLA will 

not threaten their security. China has not repeated 

the military activities that alarmed its neighbors 

in the mid-1990s and has behaved with relative 

restraint to various provocations from Taiwanese 

president Chen Shui-bian. China has sought to 

demonstrate that its military and paramilitary 

forces can make useful contributions to regional 

and global security, including via increased participation in UN peacekeeping missions. China 

has also offered to increase regional cooperation 

on nontraditional security issues such as disaster relief, counterterrorism, and counterpiracy. 

Although the resources committed to these missions have been modest, they are intended to 

showcase a constructive role for Chinese military 

power. In addition, China has made modest efforts 

to increase its transparency on military issues as a 

confidence-building measure. China began publishing biannual white papers on national defense 

in 1998 and has recently begun to participate in 

military exercises with neighboring countries.

China has improved the quality of its 

participation in multilateral security dialogues at both the official and unofficial 

levels and has established bilateral security dialogues with most major countries in 

Asia. China now formally subscribes to the 

Declaration on the Conduct of Parties in the 

South China Sea, a pledge of good behavior 

drafted and ratified by ASEAN to preclude war 

over the Spratly Islands and other disputed 

maritime boundaries. Beijing was also the 

Chinese diplomats are 

nuanced, flexible, and 

responsive on most 

issues, employing a 

range of tools to expand 

Beijing’s influence
No. 231, April 2008 Strategic Forum 5

first non-ASEAN government to sign ASEAN’s 

signature treaty, the Treaty of Amity and 

Cooperation, a nonenforceable set of principles enshrining the principles of national 

sovereignty, noninterference, equality, territorial integrity, renunciation of the threat or 

use of force, and peaceful settlement of disputes. Russia, India, Australia, and all other 

regional powers have signed the treaty, but 

the United States has not.

East Asian Reactions

Although concerns persist about how a 

stronger China may behave in the future, the 

view of China as a near-term threat is now 

a distant memory. Asian governments are 

determined to preserve security ties with the 

United States, but they see the rise of China 

as an opportunity that should not be missed. 

(Even Taiwan leaders welcome China’s economic growth and supported China’s membership in the World Trade Organization.) 

Most East Asian security experts do not see 

China’s military buildup as a direct threat to 

the rest of the region. They are well aware of 

improving Chinese military capabilities and 

concerned about China’s lack of transparency, but they tend to believe that Beijing’s 

buildup is aimed primarily at Taiwan.

Today, most Asian governments are still 

struggling to consolidate nation-building 

efforts, manage ethnic and religious tensions, 

and cope with crime, pollution, disease, and 

other cross-border threats. In many countries, 

democratic governance has replaced dictatorship, but corruption, weak institutions, and 

absence of the rule of law undermine public 

confidence and erode stability. The financial 

crisis of 1997–1998 demonstrated vividly that 

Asian destinies are linked and stimulated a 

move toward closer regional integration to 

foster economic growth and minimize shared 

vulnerabilities. However, residual mistrust 

and domestic political constraints frequently 

limit cooperation.

China’s economic and diplomatic transformation has encouraged other Asian governments to seek closer cooperation with China for 

at least three strategic reasons. First, Asian governments still harbor a certain degree of wariness about China’s political evolution and longterm intentions. They calculate that embedding 

China in a web of agreements encourages 

peaceful and cooperative behavior. Similarly, 

they believe that contributing to China’s economic growth through regional engagement 

promotes openness and raises the likelihood 

that one-party rule will gradually soften into a 

less repressive form of governance.

Second, many East Asian governments calculate that closer ties with China enhance their 

leverage with the United States, as well as with 

Japan, Australia, and India. They expect that 

these powers will pay more attention to their 

region and that competition will induce offers 

of assistance on favorable terms.

Finally, cooperation with China has relatively low costs. Beijing insists that Asian countries accept its position that Taiwan is part of 

China, but this condition appears reasonable 

to many Asian governments facing separatist issues of their own. Aside from a brief episode in 1998, Beijing has not asked Asian countries to give up their security relationships with 

the United States. Beijing has not complained 

much about import restrictions on products or 

presented its Asian partners with a list of harsh 

trade demands.16

At the same time, East Asian governments 

differ considerably in their perceptions of China. 

Japanese leaders are among the most wary. They 

know that they are engaged in a subtle competition for influence with China and do not 

want Beijing to monopolize regional leadership. 

Unlike most other countries in the region, they 

view China as a potential long-term security 

threat. While watching China’s military modernization, Tokyo is engaging China as much as 

possible even as it strengthens its bedrock alliance with the United States. Both former Prime 

Minister Shinzo Abe and his successor, Yasuo 

Fukuda, have made improving relations with 

China a policy priority.

In the Republic of Korea (ROK), attitudes 

toward China are mixed. China is now the largest ROK trading partner, but South Koreans 

have grown concerned with the competitive 

challenge that China poses to Korean firms in 

key industries. South Koreans share Chinese 

concerns about the destabilizing impact of a 

North Korean collapse or a military conflict on 

the peninsula and appreciate the key role that 

China is playing in the Six-Party process and 

denuclearization of North Korea. At the same 

time, South Koreans are concerned about the 

long-term implications of China’s growing economic presence in North Korea for unification 

of the peninsula. Beijing’s recently reasserted 

claims to the historic kingdom of Koguryo 

have also unsettled a broad cross section of the 

Korean public. Strategic planners in Seoul are 

aware that a more assertive China could pose a 

threat to South Korean security and sovereignty.

In Southeast Asia, governments have 

reacted to the rise of China in different ways. 

Roughly speaking, China’s influence is inversely 

proportional to distance. Mainland Southeast 

Asian countries share cultural ties with China, 

but express varying degrees of concern about 

being drawn increasingly into China’s orbit. 

Some express a sense of fatalism about China’s 

emergence as a dominant regional power. Laos, 

Cambodia, and Burma are not equipped to 

deal with China except as recipients of technical and educational assistance. China’s plans to 

build more dams on the Mekong River threaten 

the livelihoods of people downstream, but none 

of the affected governments is in a position to 

challenge these decisions.

By contrast, Indonesians have a greater 

sense of freedom of maneuver. They are proud 

of their fragile democracy and view China’s 

activities in Burma as unhelpful. They also harbor bad memories of China’s efforts to destabilize their government in the 1960s. Nevertheless, 

the Indonesian government maintains cordial 

and cooperative relations with China, as does 

Malaysia, the Philippines, and Singapore. Of 

that group, Malaysia tends to side with China on 

regional issues more than the others and is only 

now overcoming its Mahathir-era resentment 

and suspicion of the United States.

Despite their differences, all Southeast 

Asians are opposed to domination by a single outside power. They are concerned that a shift in the 

balance of influence would take the form of subtle but grinding political and diplomatic pressure 

rather than military occupation. Domination by 

an outside power could stifle their foreign policy 

independence and subordinate local economic 

goals to the priorities of the hegemon. ASEAN 

spokesmen are careful not to single out China as 

the object of their concerns, but China obviously 

comes to mind.

for Asian countries, 

regional integration 

enhances security 

by embedding 

China in a web of 

multilateral structures
6 Strategic Forum No. 231, April 2008

The ongoing processes of military transformation and the realignment of U.S. force 

deployments in Asia have strengthened 

American power projection capabilities in the 

region. Recent and planned efforts include 

shifting an additional aircraft carrier to the 

Pacific fleet, moving attack submarines to 

bases in Guam, and upgrading Anderson Air 

Force Base in Guam to support B–1 and B–2 

bomber operations. More broadly, transformation is intended to improve the U.S. ability to flow forces from one theater to another 

in response to unexpected contingencies. The 

United States has also used exercises, such as 

Valiant Shield in June 2006, to demonstrate its 

ability to rapidly deploy combat assets.

The United States has the ability to make 

important contributions to regional security. 

U.S. Pacific Command, and in particular the 

Seventh Fleet, offers training and joint exercises 

to Asian militaries eager to upgrade their skills. 

Pacific Command also proposes and participates in joint efforts to address nontraditional 

security threats, such as piracy, illegal trafficking, and terrorism. (Pacific Command officials emphasize that they are sensitive to Asian 

fears of U.S. domination and prefer letting others take the initiative, at least publicly.) Relief 

operations after the tsunami in December 2004 

and Pakistan earthquake in October 2005 also 

demonstrated unparalleled U.S. capabilities to 

employ military logistics capabilities to conduct 

humanitarian relief operations halfway around 

the world. U.S. Government agencies have expertise, technology, and experience that can help 

The ASEAN-driven pan-Asian integration 

movement should be seen in this context. The 

effort to create an Asia-wide “community” has 

acquired a certain momentum even though it has 

produced more “visions” and declarations than 

tangible results. For China, participation in the 

integration movement opens up new opportunities for influencing political and security developments in its most important neighborhood. For 

other Asian countries, creating a framework for 

regional integration enhances their security by 

embedding a rising China in a web of dialogues 

and agreements even if these efforts exclude the 

United States. Japan and South Korea are trying 

to exploit this new diplomatic space to advance 

their diplomatic goals without Americans looking 

over their shoulders.

Of all of the Asia-wide regional organizations, the group known as ASEAN 

+ 3—ASEAN, China, South Korea, and 

Japan—is the most important from a strategic perspective (see table 3). ASEAN + 3 has 

become quasi-institutionalized, spawning some 

four dozen committees and working groups. On 

financial issues, Japan has the lead; on most 

other issues, China tends to overshadow Japan 

(but takes care to avoid the appearance of overt 

leadership).

In the wake of the financial crisis, ASEAN 

+ 3 finance officials established a web of currency swap arrangements and continue to meet 

regularly. They share best practices and discuss such topics as improving the efficiency of 

cross-border financial transactions, enhancing 

financial transparency, defining a reference 

currency unit derived from a basket of Asian 

currencies, and establishing a regional bond 

market. This is one area in which Chinese and 

Japanese officials get along well and in which 

discussions have produced tangible results.

China’s implicit power to sway decisions in 

the other “+ 3” functional groups has prompted 

Tokyo to strengthen ties with Canberra and New 

Delhi and to favor the East Asian Summit grouping (the ASEAN + 3 countries plus India, Australia, 

and New Zealand, also known as ASEAN + 6), in 

which China’s influence is diluted. Singapore and 

Indonesia also welcome the inclusion of these others. Where Americans see overlap and duplication 

of effort, Asians see safety valves.

The U.S. Role

The erosion of American influence in the 

diplomacy of the Asia-Pacific region stems in 

large part from the widespread perception that 

Washington is distracted and preoccupied by 

events outside the region, particularly in the 

Middle East. As long as the United States maintains large numbers of combat troops in Iraq 

and is narrowly focused on antiterrorism as the 

top foreign policy priority, this perception will 

linger in Asia. At the same time, Washington’s 

refusal to talk directly with North Korea until 

quite recently and the tendency of senior U.S. 

leaders to skip regional meetings has reinforced 

a perception of U.S. disengagement.

Nevertheless, the United States retains 

enormous advantages in Asia. Only the United 

States can provide region-wide security. In 

recent years, the United States has undertaken 

ambitious efforts to transform its alliances 

with Japan and South Korea and to improve 

its power projection capabilities in Asia. The 

U.S.-Japan alliance has broadened its focus 

to include global and regional security challenges beyond the defense of Japan, joint development of ballistic missile defenses, and efforts 

to improve military cooperation for future contingencies. Disagreements about how to deal 

with North Korea have created tensions in the 

U.S.–ROK alliance, but efforts to create a more 

equal military relationship and to relocate U.S. 

troops out of downtown Seoul have created a 

more sustainable political foundation for the 

alliance. The United States has also upgraded 

its alliances with Australia, Thailand, and the 

Philippines and expanded security cooperation 

with key Asian countries such as Indonesia, 

Singapore, and India.

Table 3. Membership in Asia-Pacific Organizations

ASEAN ASEAN + 3 East Asian Summit APEC

Brunei Darussalam

Cambodia 

Indonesia 

Lao PDR

Malaysia 

Myanmar

Philippines 

Singapore 

Thailand 

Vietnam

ASEAN members

China 

Japan

Republic of Korea

ASEAN + 3 members

Australia

India

New Zealand

Southeast Asia: Brunei 

Darussalam, Indonesia, 

Malaysia, Philippines, 

Singapore, Thailand, Vietnam

East Asia: China, Japan, 

Republic of Korea, Hong Kong, 

Chinese Taipei

Oceania/South Asia: 

Australia, New Zealand, Papua 

New Guinea

Pacific Rim: Canada, Chile, 

Mexico, Peru, Russia, United 

States
No. 231, April 2008 Strategic Forum 7

this positive direction, the United States should 

commit appropriately high-level officials, including the President, to the region every year to 

attend key regional meetings. The Department of 

State’s appointment of an Ambassador to ASEAN 

is a step in the right direction, and the nominee should be expeditiously confirmed by the 

Senate. But the appointment of an Ambassador 

is not enough. The next President should express 

willingness to go to Asia to attend a U.S.–ASEAN 

summit, which the Bush administration cancelled in 2007.

In strategic terms, the Asia Pacific 

Economic Cooperation Forum (APEC) is a 

trans-Pacific counterweight to ASEAN + 3. The 

United States should energize its participation 

in APEC and ensure that budgetary resources 

correspond to a renewed political commitment. Washington should coordinate closely 

with Japan (which now views APEC more favorably than it did 5 years ago), South Korea, and 

Australia. Washington should also support 

APEC observer status for India.

Building on the Pacific Command’s 

record as a provider of security, the United 

States should propose enhanced multilateral 

regional cooperation on nontraditional security issues. Washington should pick issues 

that pose problems for both the United States 

and Asian governments where U.S. expertise and resources can make real contributions, such as countering piracy, infectious 

disease, pollution, and even financial instability. These initiatives should be open to any 

Asian government that shares a sense that 

the particular issue is a problem and is willing to work toward solutions. China should 

be invited to join. These initiatives should be 

pursued quietly and with consideration for 

Asian sovereignty concerns to avoid putting 

China (and others) on the spot. But over time, 

greater emphasis on nontraditional security 

cooperation could make tangible contributions to Asian (and American) security and 

add positive content to U.S. public diplomacy 

in the region.

The United States needs to take more 

advantage of soft power resources as well as 

its economic and technological strengths. 

Less burdensome visa requirements and 

expanded opportunities to study in the United 

States would go a long way in reviving and 

projecting U.S. influence. More technical and 

grassroots assistance in health and education would be popular in Asia. Lower tariffs 

address critical nontraditional security challenges such as infectious disease, piracy, environmental degradation, and terrorism. U.S. nongovernmental organizations and private sector 

actors can complement U.S. Government efforts.

Along with Europe, the United States is 

the final market for a high proportion of Asian 

exports to China. America’s higher education 

system, job opportunities, management skills, 

entrepreneurship, services, technology, and popular culture are prize assets that could convey greater influence if wielded more adroitly. 

Current skeptical views of the U.S. global role 

are balanced by a more positive appreciation of 

American capabilities to solve problems in Asia. 

A 2006 poll indicates that the United States is 

still viewed as the most influential country in 

Asia and that majorities in China, India, and 

South Korea all see the United States as playing 

a “very positive” or “somewhat positive” role in 

resolving key problems in Asia.17

Recommendations

Based on this analysis of China’s rising 

influence and the U.S. position in the region, 

we recommend a concerted effort to refocus 

and enhance American engagement with Asia. 

The balance of power in East Asia is stable, but 

the balance of influence is shifting in China’s 

direction. The latter balance is not zero-sum. 

U.S. influence is declining relative to China, 

but not in absolute terms. The United States 

will remain the strongest power in Asia for the 

indefinite future. China’s rising influence in 

Asia does not threaten near- and medium-term 

U.S. interests. On the contrary: China’s economic openness, diplomatic flexibility, military 

restraint, and willingness to help deal with terrorism and other nontraditional threats contribute to peace and prosperity in the region.

Uncertainty about China’s future political 

evolution—and about whether the current pattern of Chinese restraint will persist as it grows 

stronger—complicates U.S. policy choices. Given 

the uncertainties, a U.S. policy that encourages 

China’s reform and constructive engagement in 

regional and world affairs while hedging against 

uncertainty is prudent and preferable to actions 

that stoke Chinese fears. Active U.S. engagement in 

the region—including continuation of U.S. alliances and the U.S. security presence—can help 

encourage continued Chinese restraint and cooperative behavior while discouraging aggression 

and hostility. Conversely, U.S. efforts to “contain” 

China, impose sanctions, or otherwise hinder 

China’s growth would meet stiff resistance in Asia.

The United States should welcome China’s 

growing ability and willingness to make contributions to security and stability in Asia. But it should 

also work more actively to ensure that China’s growing regional influence does not begin to erode the 

foundations of the U.S. security presence. Such a 

tipping point would occur if U.S. political relationships in the region deteriorated to the point where 

the United States could no longer rely on bases and 

other military assets to counter aggression.

Toward this end, the United States needs 

to engage more actively in regional diplomacy. 

Current risks are limited, but over time the 

drift toward China, if unchecked, could reduce 

American influence, call the rationale for U.S. 

alliances into question, weaken Japan’s position, 

further isolate Taiwan, and constrain the independence of Southeast Asian countries.

Over the last 2 years, American attention to 

Southeast Asia has revived and some constructive initiatives have been proposed. But available 

funds do not match ambition, and most of these 

proposals are unknown outside of narrow bureaucratic circles. A combination of a few simple initiatives and better public diplomacy “packaging” 

would help, but there is no substitute for high-level 

engagement and commitment. The United States 

must do a better job of translating its underlying 

power into influence.

Although antiterrorism is a priority of 

Asian governments, Asian leaders face many 

other pressing problems. It is unrealistic to 

expect the United States to turn away from 

the Middle East and the threat posed by international terrorism. Nevertheless, Washington 

should broaden its regional agenda, increase 

its nonmilitary presence, make better use of 

its soft power resources, and become a more 

responsive and understanding listener.

As a first step, the United States should signal its renewed interest in and commitment to 

Southeast Asia by signing the Treaty of Amity 

and Cooperation. Although the Asian integration movement has produced few tangible results 

to date, the fact that the region remains at peace 

and is stable cannot be discounted. To reinforce 

the United States 

must do a better job of 

translating its underlying 

power into influence
8 Strategic Forum No. 231, April 2008

launched by the two sides will not always be 

compatible, and other Asian governments will 

have their own ideas. But narrowing differences, identifying common interests, and living with disagreement are what foreign policy 

is all about. Provided that Washington maintains a hedging strategy, remains prepared 

to counter military aggression, uses both its 

nonmilitary and military assets, and actively 

engages in regional diplomacy, the United 

States has everything to gain from a cooperative, comprehensive, and forward-looking strategic response to China’s new role in Asia.

Notes

1 See David Shambaugh, “China Engages Asia: 

Reshaping the Regional Order,” International Security 29, no. 

3 (Winter 2004–2005), 64–99; and Yong Deng, “Reputation 

and the Security Dilemma: China Reacts to the China Threat 

Theory,” in New Directions in the Study of China’s Foreign 

Policy, ed. Alastair Iain Johnston and Robert S. Ross (Stanford: 

Stanford University Press, 2006), 186–214.

2 For an overview of the Asian integration movement, see 

Ellen L. Frost, Asia’s New Regionalism (Boulder, CO: Lynne 

Rienner, 2008), chapters 6–9.

3 Bronson Percival, The Dragon Looks South: China 

and Southeast Asia in the New Century (Westport, CT: 

Praeger Security International, 2007), 112. 

4 Figures available at <www.pbc.gov.cn/detail.

asp?col=100&id=2507>; also see “China’s Foreign Exchange 

Reserves Higher,” Associated Press, January 11, 2008, accessed at 

<www.washingtonpost.com/wp-dyn/content/article/2008/01/11/

AR2008011100578.html>. National trade ratios are available 

from the World Bank’s Web site.

5

 Center for Strategic and International Studies and the 

Institute for International Economics, China: The Balance Sheet 

(New York: PublicAffairs/Perseus Book Group, 2006), 73, 84.

6 Figures for 2007 are preliminary estimates from United 

Nations Conference on Trade and Development (UNCTAD), 

“Foreign Direct Investment Reached New Record in 2007,” press 

release, January 8, 2008, available at <www.unctad.org/>. 

7 Guillaume Gaulier, Francoise Lemoine, and Deniz 

Unlal-Kesenci, China’s Emergence and the Reorganisation 

of Trade Flows in Asia, Working Paper No. 2006–05 (Paris: 

Centre d’Etudes Prospectives et d’Informations Internationales, 

March 2006), 12, figures 1 and 2.

8 John Ravenhill, “Trade Developments in East Asia 

since the Financial Crisis,” paper prepared for East Asia—A 

Decade After the Crisis sponsored by the Australian National 

on selected commodities and products from 

developing Asia would help counter images of 

growing U.S. protectionism. The aim should 

be to translate the full range of U.S. capabilities into enduring influence that promotes 

peace and prosperity in Asia and thereby 

advances U.S. long-term interests.

In order to provide an ongoing policy 

framework for these (and other) initiatives, reassure U.S. friends and allies in Asia, and keep the 

support of Congress and the public, Washington 

needs to draw up a comprehensive, governmentwide strategy toward Asia that integrates military and nonmilitary components of U.S. policy. 

The last American East Asian regional security 

strategy was issued in 1998. Asia has changed 

greatly since then. The time is ripe for a new 

regional strategy that assesses Asia’s new strategic landscape and derives appropriate U.S. goals.

Such a strategy should identify the full 

spectrum of U.S. objectives in Asia—political, 

economic, security, environmental, energy, 

health, and humanitarian. It should attempt 

to weigh the tradeoffs between them, reconcile them with other regional policies and 

priorities, seek a better balance between U.S. 

military and nonmilitary tools, and calculate 

adequate human and budgetary resources.

China’s long-term future is unknown, 

and so is its likely attitude toward the U.S. 

presence in Asia several decades from now. It 

is certainly possible that Chinese leaders may 

seek to marginalize U.S. influence, undercut American alliances and security relationships, and put long-term U.S. interests at 

risk. Beijing could define its legitimate security interests in Asia in ways that Washington 

finds unacceptable. This possibility highlights the need for a continuing American 

role in Asia and for the United States to consider what Chinese interests in Asia it accepts 

as legitimate.18

Nevertheless, the near- and medium-term 

risks to U.S. interests in Asia are manageable, 

and the opportunities to deal with nontraditional threats cooperatively are promising. The 

main challenge for the United States is to pursue its regional security needs in a manner 

that takes account of China’s growing power 

and legitimate interests and does not stoke 

Chinese fears of containment. The comparable challenge for China is to exercise its influence in a manner that contributes to common 

goals and does not threaten either the United 

States or other Asian governments. Initiatives 

University and the University of California, Berkeley, July 

21–22, 2006, table 5.

9 For a more complete discussion, see John 

Ravenhill, “China’s ‘Peaceful Development’ and Southeast 

Asia: A Positive Sum Game?” in China’s Rise and the 

Balance of Influence in Asia, ed. William W. Keller and 

Thomas G. Rawski (Pittsburgh: University of Pittsburgh 

Press, 2007).

10 Percentages are calculated from Chinese export statistics as reported in the UN Comtrade database.

11 Interview with economists at the Taiwan Institute of 

Economic Research, Taipei, December 2005.

12 Francis Ng and Alexander Yeats, Major Trade 

Trends in East Asia, Policy Research Working Paper 3084 

(Washington, DC: World Bank, 2003), tables 6.1 and 6.2.

13 Figures for 2007 are preliminary estimates from 

UNCTAD press release. Also see Thomas Fuller, “Southeast Asia 

Group Seeks to Accelerate a Trade Zone,” The New York Times, 

August 23, 2006, C5.

14 Office of the Secretary of Defense, Military Power of the 

People’s Republic of China 2008 (Washington, DC: DOD, 2008), 

32. The figures are a U.S. DOD estimate of total China defenserelated spending.

15 Ibid.

16 Beijing complained in 2007 when several Southeast Asian 

countries tried to tighten inspections on Chinese goods due to food 

and product safety concerns, which may presage a less solicitous 

Chinese approach to the trade concerns of ASEAN countries.

17 Chicago Council on Global Affairs, The United 

States and the Rise of China and India: Results of a 2006 

Multination Survey of Public Opinion (Chicago: Chicago 

Council on Global Affairs, 2006), 50–53. Percentages of those 

viewing the United States as playing a “very positive” or “somewhat positive” role in resolving Asian problems were 59 percent 

in China, 66 percent in India, and 58 percent in South Korea.

18 Former Deputy Secretary of State Robert B. Zoellick’s 

formulation of the “responsible stakeholder” concept raises 

this issue but does not define which Chinese regional interests should be regarded as legitimate. See Robert B. Zoellick, 

“Whither China: From Membership to Responsibility?” 

Remarks to National Committee on U.S.-China Relations, New 

York City, September 21, 2005, available at <www.state.gov/s/d/

former/zoellick/rem/53682.htm>. Also see James J. Przystup 

and Phillip C. Saunders, Visions of Order: Japan and China 

in U.S. Strategy, Strategic Forum No. 220 (Washington, DC: 

National Defense University Press, June 2006), available at 

<www.ndu.edu/inss/Strforum/SF220/SF_220.pdf>.

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