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A SENSE OF ASIA

As world obsesses on Iraq, China advances its agenda


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By Sol Sanders
SPECIAL TO WORLD TRIBUNE.COM

Sol W. Sanders

May 11, 2004

While the world fixates on a bizarre Iraq sideshow, fundamental developments are changing ChinaÕs relation to the world ø and to the U.S.

China is remaking its relationship with Hong Kong, long seen as a test of its future aspirations. It recently sent a military fleet through Hong KongÕs crowded harbor in a crude demonstration against its own people. It was another step in a souring relationship since inept Chief Executive Tung Chee-wha failed to ram through a new ÒsecurityÓ law last year. Public demonstrations supporting the former British colonyÕs political elite only infuriated Beijing. After acknowledging a treaty commitment to expand suffrage under the Basic Law, Hong KongÕs miniconstitution, Beijing announced it alone would decide. Given earlier short-circuiting of Hong KongÕs courts, it is rapidly eroding what Deng Xiaoping promised in Òone country, two systemsÓ.

With its manufacturing having outsourced itself to the MainlandÕs lower wages, Hong Kong is dependent on its entreport role. And that, in turn, is based on its once solid legal system, sadly still wanting on the Mainland. Its 6.8 million ø while recently demonstrating again their commercial virtuosity ø are in trouble. Growing competition as Asia slowly liberalizes its capital markets is going to be fierce. Singapore, for example, is increasingly a choice for Asian regional headquarters. And Beijing favors Shanghai, with or without a commercial code.

One doesnÕt have to be a Cassandra to see a descending spiral of political threat, dissipation of its legal system, and a stagnating economy. MoodyÕs, the international rating agency, has just hinted at downgrading Hong KongÕs bonds because of what it sees as BeijingÕs interference. Concerns appear, too, on the eve of an inevitable downturn on the Mainland economy. A combination of overheated markets, a bankrupt financial system, and empty rhetoric seems certain to bring a hard landing to a period of extraordinary growth.

Hong KongÕs trials and tribulations are not just hers alone. Beijing used Hong KongÕs unique relationship as model for what it would offer Taiwan. That is, it would extend those same benefits to honor Òthe one China principleÓ once held on both sides of the Taiwan Strait. Recent elections in Taiwan ø not just President Chen Hsui-bianÕs victory but his Kuomintang oppositionÕs conceding every argument ø have demonstrated a new Island Ònationalism. For Taiwanese there are more questions than ever about a ÒdealÓ with the Mainland. And what is happening in Hong Kong can only accentuate those doubts.

Meanwhile, Prime Minister Wen Jiabao has just toured five European capitals and the European Union headquarters. WenÕs first European trip as PM permitted him to dispense bounty to the barbarians who would bring more than feathers and bird nests to the imperial center of the world. China overtook Japan last year to become the EU's second largest trading partner; trade increasing at a faster rate than China's other partners, reaching $125 billion just under the American balance of payments deficit.

Wen showered goodies to investors in permissions to invest. But he had a far more important, certainly more dangerous agenda. He pushed the European Union to lift its 15-year arms embargo dating back to the Tien An Mien 1989 bloodbath. As happens so often these days, France leads the wrong side of the argument, with the help of EU bureaucrats who agreed last December to review the embargo. So far some of the smaller powers ø including the Netherlands and Sweden -- have held out. If the EU does move to drop the embargo, it would speed up BeijingÕs rapidly growing armory modernization.

Richard Lawless, US deputy undersecretary of defense, said China is expected to spend $50 to $70 billion dollars on its military this year ømore than double the $25 billion officially budgeted. The PLA is already the largest purchaser of foreign military weapons and technology .Lawless warned the focus of the China's People's Liberation ArmyÕs buildup on the Taiwan Strait "raises serious doubts over Beijing's declared policy of seeking 'peaceful reunification' under the 'one country, two systems' model."

Until now, Beijing has depended largely on Russia for hardware and technology on which it hopes to leapfrog ø fighter aircraft, ships, and other war technologies. But, Moscow media say the Russians, with their own slowing technological capacity, have refused their latest applications [some of which they have promised their other good customer, India]. Most observers believe the Taiwanese [even though they have refused to go forward with the modernization Washington would wish] still hold an advantage against any air and sea thrust from the Mainland. But if European armament coffers opened, there would be a rapid transformation of the strategic situation.

If the Europeans do drop their prohibition against sales to Beijing ø especially on some critical dual use technologies ø the growing list of imponderables in the Chinese situation would reach crisis proportions. It is just what Washington does not need at the moment.

Sol W. Sanders, (solsanders@comcast.net), is an Asian specialist with more than 25 years in the region, and a former correspondent for Business Week, U.S. News & World Report and United Press International. He writes weekly for World Tribune.com.

May 11, 2004

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