Having progressed on a steady path since the late 1970s on multiple global economic and political endeavors, the robust international engagement of the People's Republic of China (PRC) since 2000 caught many by surprise and prompted spirited American disagreement and debate over the PRC's foreign policy motivations and objectives. The fact that much of this international engagement has expanded while the United States has been preoccupied with its military involvement in Iraq and Afghanistan also has brought about a period of American introspection. Variously referred to as China's "charm offensive" or its "soft power" approach, Beijing's growing international economic engagement, many fear, is going hand-in-hand with expanding political influence. Although some believe that PRC officials appear more comfortable working with undemocratic or authoritarian governments, PRC outreach also has extended to key U.S. allies or to regions where U.S. dominance to date has been unparalleled and unquestioned, leading some to conclude that Beijing ultimately intends a direct challenge to U.S. global power. As a result, Congress and other U.S. policymakers are focusing attention on the critical implications China's increasing international engagement could have for U.S. economic and strategic interests. This report emphasizes the PRC's foreign policy and diplomatic activities around the world rather than its security policy. China's foreign policy today has changed fundamentally since the nation's founding in 1949. Through the 1950s and 1960s, Chairman Mao Zedong's policy of "self-reliance" greatly constrained the nation's foreign contacts. Beijing's foreign policy goals then centered on promoting Maoist revolutionary parties around the world. A lingering dispute over the Chinese Communist government's legitimacy in the international community facilitated its international isolation. Although Mao's forces had won the civil war conflict on mainland China, many countries, including the United States, continued to recognize the previous Republic of China (ROC) government that had fled to Taiwan as the country's rightful government. While the PRC went unrepresented in much of the international community in its early decades, Taiwan continued to control China's Embassies around the world, to be China's signatory to international agreements, and to hold the Chinese seat in the United Nations and other multilateral organizations. All this began to change in the early 1970s when President Nixon initiated an opening to China and the United Nations voted to recognize the PRC as China's legitimate U.N. representative. Under economic and diplomatic reform policies initiated by Deng Xiaoping in 1978, two years after Mao's death, China began openly to seek and receive substantial foreign investment, technology, and expertise. In the intervening years, the PRC has become an international export powerhouse; has expanded its membership and participation in international organizations; and increasingly has appeared willing to embrace many norms and rules of the global economic system of which the United States is the chief architect and dominant player. Since 2000 in particular, there has been a steady increase in the quantity and sophistication of PRC diplomacy. Beijing has courted foreign governments with high-level diplomatic exchanges, trade initiatives, investment agreements, and tourism and cultural understandings. Although this report focuses on non-military aspects of China's foreign policy, no discussion of China's international rise would be complete without acknowledgment of equally important changes in China's security policy. Paralleling its foreign policy developments, changes in PRC security policy are thought to be based on Beijing's perceptions since the mid-1990's that the country was facing new security challenges. Among these new perceived challenges were the demise of the Soviet Union and international communism, the post-Cold War surge in U.S. global dominance—in particular the decisive demonstration of U.S. military supremacy in the Persian Gulf War—the increasing pro-independence activism on Taiwan, and the benefits and complications accompanying China's own rapid economic growth. As defined in a series of White Papers published by the State Council Information Office since 1995, China's new security concept states that the post-Cold War order requires a more pragmatic security policy based on "mutual trust, mutual equality, and cooperation." The new security concept seeks to assure that China's economic development and military growth is not a threat to its neighbors or the world. In keeping with its new international diplomacy, China's new security approach serves the multiple goals of trying to defuse international instabilities that could adversely affect China's own development; trying to expand China's own wealth and influence in ways seen as non-threatening to its neighbors; and trying to balance U.S. global power in a manner that serves China's interests. Unlike past security challenges to the United States, China's new security approach is difficult to categorize or define: it focuses neither on spreading a political ideology, nor establishing a global network of client states, nor aggressively seeking territorial gains. In tandem with its foreign policy diplomacy, China's new security concept presents a unique and subtle challenge to U.S. policymakers. A discussion of China's international engagement must begin with several caveats about the limits of what is known. First, there is little consensus within the U.S. and global China-watching communities on China's ultimate foreign policy goals or on what motivates and informs China's decisions—either decisions made in general terms or with regard to specific regions or countries. Does China's international engagement have a pragmatic, overarching strategy, or is it a series of marginally related tactical moves to seek normal economic and political advantages? Is Beijing interested in supplanting the United States as a global power or focused mainly on fostering its own national development? Does the PRC feel strong and confident internationally or weak and uncertain? These questions remain unanswered. Many have written on China's foreign policy decision making. Although China's foreign policymaking has become more regularized in recent years, few claim to be certain about how China's decisions are made, about who makes them, or about what long-term goals Chinese policies seek to attain. Some profess certainty; but they have not been able to demonstrate that their convictions lead to any sort of consistency in analyzing or predicting China's foreign policy decisions. In the aftermath of incidents of Sino-U.S. tension or confrontation—such as the case in 2001 when a Chinese fighter jet collided with a U.S. EP-3 reconnaissance plane, or the case in 2007 when the PRC suddenly denied Hong Kong port visits to a series of U.S. ships—U.S. officials have remained largely in the dark about the PRC's crisis management processes and about why and how PRC leaders reached their decisions. The number of unknown variables that still animate China's foreign policy decision-making processes is simply too great. These variables include uncertainties about the clashes and respective strengths of internationalists and hardliners in Chinese politics, about whether and how the interests of various PRC bureaucracies compete and conflict on a given issue, and about the extent to which bureaucratic actors seek to undermine policies that they see as disadvantageous to them. Given these uncertainties, there appears to be no "magic bullet" then—no individual or group with proven answers—that definitively can inform U.S. views or prepare U.S. government and congressional actors on how best to address the challenges China poses to U.S. and global interests. Relatedly, study of PRC international influence is hampered by a lack of reliable data on Chinese foreign aid and by lack of transparency on whether and how the PRC makes and implements large, high-profile investment agreements. According to one 2007 study directed by the International Monetary Fund (IMF), China's outward foreign direct investment (FDI) in 2005 was 5 percent that of the United States, with 80 percent apparently going to the tax havens of Hong Kong, Cayman Islands, and the British Virgin Islands, its final destinations impossible to trace. The PRC does provide assistance to other countries, aid which comes from multiple government agencies with little or no apparent oversight. Moreover, this aid does not appear to be tracked or monitored by one single government entity. Many forms of PRC foreign assistance—loans, debt forgiveness, the building of large public facilities, and trade and investment agreements—do not meet the traditional definition of "overseas development assistance," or ODA, which is how most of the world's donor countries provide aid. Furthermore, PRC assistance is not provided in regularized annual allotments, but appears to follow a funding schedule determined by Beijing's diplomatic priorities. Beijing reportedly also is reluctant officially to reveal the totals of its foreign assistance for a variety of reasons, including out of fear of domestic objection that Beijing is not spending its money at home rather than abroad, or because much of what appears to be the PRC's investment and assistance may be "round-tripped"—or returned back to China as foreign investment. In sum, the extent of PRC foreign assistance to other countries cannot be determined accurately. At the same time that the PRC is providing global aid and investment, it is also on the receiving end of substantial aid and investment. Eligible for World Bank lending as one of 24 Bank-classified developing countries in East Asia and the Pacific (along with the Philippines, Mongolia, Fiji, and Palau), China not only is the largest recipient of World Bank lending in Asia but one of the largest in the Bank's global activities. The Bank's lending to China in FY2008 (June 30, 2007 to June 30, 2008) reached $1.51 billion. Cumulative Bank lending to China since 1981 as of June 30, 2007 was approximately $42.2 billion. The PRC also is the largest recipient of foreign direct investment (FDI) among developing countries. Finally, although U.S.