China Eye October 2013 Issue 3 by China Energy Fund Committee

China Energy Fund Committee (CEFC) is a nongovernmental, nonpartisan Chinese think-tank registered in Hong Kong. It has Special Consultative Status with the United Nations Economic and Social Council (UN ECOSOC). With partners and associates in China and overseas, CEFC conducts research and related activities focusing on transnational topics such as energy security, issues relating to Chinaâ&#x20AC;&#x2122;s emerging place in the world, and Chinese culture and thought. CEFC is dedicated to promoting international dialogue and understanding via offices throughout China and the United States.

China Energy Fund Committee 34/F, Convention Plaza Office Tower, 1 Harbour Road, Wanchai, Hong Kong, China Tel: (852) 2655 1666 Fax: (852) 2655 1616 E-mail: com@chinaenergyfund.org www.chinaenergyfund.org

CHINA EYEâ&#x20AC;˘Issue4 October 2013

Editor-in-Chief Patrick C.P. HO Executive Editors Andrew C.O. LO, Albert LIN,

ZHANG Ya

Assistant Editors Jeremy Y. LEE, CHOW Siu Tong, Vivian H.L. WONG, Beatrice Y.Y. KWOK, Koch C.H. LEE -------------------------------Board of Advisors YE Jian Ming, CHEN Qiu Tu, LI Chun Kit, Martin W. ZHANG, --------------------------------Published by China Energy Fund Committee 34/F, Convention Plaza Office Tower, 1 Harbour Road, Wanchai, Hong Kong Visit our website at www.chinaenergyfund.org --------------------------------For enquiries of distribution in the United States, Please contact CEFC(USA) 25/F, 1100 Wilson Boulevard, Arlington, VA, USA --------------------------------Editorâ&#x20AC;&#x2122;s Note The authors whose original contributions were written in Chinese have given their permission for the articles to be translated into English, although not necessarily having vetted the English translation. -------------------------------All rights reserved. No part of this publication may be reproduced in any form or by any means without the written permission of the publisher.

CHINA EYEâ&#x20AC;˘Issue4 October 2013

Editor’ s Notes

For thousands of years, Chinese had a dream On 2012, Xi Jinping, General Secretary of the Communist Party of China (CPC) Central Committee, laid out his vision of the “the China Dream” in these words: “Realizing the great renewal of China is the greatest dream for the Chinese people in modern history”. After his election as President of the People’s Republic of China, Mr Xi made another call for “the China Dream” when he said that to achieve it, China must adhere to the path of socialism with Chinese characteristics. This path is hard-earned, with impressive progress over the past 30 years of reform and opening-up, through the continuous exploration over 60 years since the establishment of New China, in the often painful 170 years of the development of the Chinese nation in modern times, and against a backdrop of a legacy going back 5,000 years to an ancient civilization. The China Dream is a national dream, but also a very personal one to every Chinese. However, no personal dream is fulfilled by oneself alone. Every dream must ultimately involve the country and society in some way. Thus, your dream affects mine, and vice versa. But “the China Dream” represents the Chinese people’s collective desire, and encompasses the essence of many individuals’ visions and expectations. The grandest dreams, at the level of the nation and State, are peace, security and prosperity. Dreams of much smaller scale, reflecting those of the man in the street, are food, housing, education, a decent standard of living, old age security, and dignity of the individual. Such dreams of China’s 1.3 billion people have interwoven to form the grand dream - the modern dream of China. That Dream is for China’s prosperity and strength, national rejuvenation, economic development, political integrity, cultural vibrancy, happiness for all, a harmonious society and ecological wellbeing. A key feature of this Dream is an acknowledgement that our destinies are intertwined. This much larger National Dream contrasts with those driven by individual aspirations, in that it seeks to provide a better life for everybody. It is a national calling to a common purpose and for a collective approach in our pursuit. In response to the enthusiasm of the international society to learn more about the progress made by China, and the direction the new leadership might take in moving it forward to achieve its lofty ambitions, China Energy Fund Committee (CEFC) decided to organize a Forum on Sustainable Development and Governance. Also it invited a group of erudite international thinkers to give their interpretation of China’s overall planning approach that covers economic, political, cultural, social and ecological development and to share the country’s experiences during the past three-and-a-half decades of pursuing sustainable development.

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Speakers presenting their views to an audience of various national delegates to the United Nations plus U.S. scholars include Professor Cheng Siwei, the Vice-Chairman of the Standing Committee of the Ninth and Tenth National Peopleâ&#x20AC;&#x2122;s Congresses; Professor Qu Xing, President of China Institute of International Studies; and Professor Yao Zhizhong, Assistant Director of the Institute of World Economics and Politics, Chinese Academy of Social Sciences. The transcripts of their speeches have been included into this edition of the journal. This China dream, is not only the Dream of 1.3 billion Chinese over 5,000 years, it is also a World Dream. It is a Dream of Peace under Heaven, and the World as One.This dream belongs to all of us. It belongs to you, and me.

Dr. HO Chi Ping, Patrick Deputy Chairman and Secretary-General China Energy Fund Committee

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CONTENTS Editor’ s Notes For Thousands of Years, Chinese had a Dream HO Chi Ping, Patrick (何志平)

Feature: A CHINA STORY - UN Forum on Sustainable Development and Governance Challenges for the Future of Chinese Economic Growth CHENG Siwei (成思危)

An Emerging China in Pursuit of Peace and Prosperity QU Xing (曲星)

Five Crises in the Process of China’s Reform YAO Zhizhong (姚枝仲)

Five Pillars of Chinese Sustainable Development HO Chi Ping, Patrick (何志平)

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Energy Security No need to go to war for energy in the New Era ZHANG Kang (張抗)

The “Brumaire” marks a turning point for environmental reform CHEN Weidong (陳衛東)

The Chinese Strategy of Asian Energy Cooperation XU Qinhua (許勤華)

China and Russia should enter the age of “back-to-back” HUAI Chang (懷暢)

Geopolitics

How to Build a Positive China-U.S.-Japan Trilateral Relationship ZHANG Tuosheng (張沱生)

We should be focusing on understanding FALLON, William J.

China’s Four Strategies to Overcome Hostility WANG Haiyun (王海運)

How to Reform China’s Maritime Management System YU Zhirong (郁志榮)

Stranding of Chinese and American warships in the Filipino Sea is no coincidence MA Yao (馬堯)

Filipino submission of the South China Sea Question to International Arbitration is neither legal nor justified JIN Yongming (金永明)

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Economy Household registration should be a motive power of the new series of reforms Zhou Ziheng (周子衡)

What pushes up China’s housing prices? Gao Liankui (高連奎)

Culture For Peace to Prevail on Earth, Let Peace Prevail in Us HO Chi Ping, Patrick (何志平)

Reexamining the Source of Civilization and Constructing Human Ethics Xu Jialu (許嘉璐)

Mystery of Dialogue Cardinal McCarrick

Geo-Religion as a New Way Forward XU Yihua & ZOU Lei (徐以驊、鄒磊)

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Challenges for the Future of Chinese Economic Growth CHENG, Siwei (成思危)

Feature: A CHINA STORY - UN Forum on Sustainable Development and Governance

Challenges for the Future of Chinese Economic Growth CHENG Siwei (成思危)

An Emerging China in Pursuit of Peace and Prosperity QU Xing (曲星)

Five Crises in the Process of China’s Reform YAO Zhizhong (姚枝仲)

Five Pillars of Chinese Sustainable Development HO Chi Ping, Patrick (何志平)

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Challenges for the Future of Chinese Economic Growth CHENG, Siwei (成思危)

am very glad to be here to share my thoughts with you. Since I am already officially retired from the Vice-Chairmanship of the National People’s Congress of China, what I am saying here is mainly based on my own views and my research results at the Chinese Academy of Sciences. I am going to talk about three parts, the first of which is the characteristics of China’s economy. This is a must to understand. In particular, there are four points I would like to mention: First, China is a developing country. Our GDP per capita is behind about 100 countries. And our productivity in terms of value created per person per year is much lower than developed countries. For example, our productivity in agriculture is only onehundredth of America’s. Our productivity in the manufacturing sector is only 1/5th of the Germans’. So, we are really a developing country. Second , China is the largest developing country in terms of its population. China has 1.35 billion people. Any number multiplied by 1.35 billion is huge but any number divided by 1.35 billion is very small. So this is something to bear in mind. But because we have such a big population, so in some cases we can centralize our resources to create some achievements which some developed countries cannot do, for example our manned space

flights, high-speed trains and so on. Third, China has a dual economic structure since the rural area is much more backward than the urban area. This is because after the First Opium War in 1840, China became a semi-colonial and semi-feudal society. And actually, the urban area was moving more along the semi-colonial path while the rural areas still retained more feudal elements. And this situation is still existing today. For example, urban residents’ income is three times higher than that of rural residents. The urban residents’ purchasing power is four times higher than the rural residents, and they enjoy much better public service, education, culture/entertainment, social security and so on. So this is the largest unfairness in China. But to fill the gap is a very difficult job that may take years and years. But despite the obstacles, we must do it. Fourth, China is a country in transition towards the socialist market system. Therefore, on the one hand we must let the market play a fundamental role in resource allocation and learn from those developed countries which have hundreds of years’ experience in market economy. So that is why China now has a stock market, a futures market, venture capital and so on. So we need to learn from them boldly and adapt them according to Chinese characteristics. But on the other hand we have to improve

Professor Cheng Siwei is Vice-Chairman of the Standing Committee of the National People’s Congress (NPC), Chairman of the China Democratic National Construction Association (CDNCA) Central Committee and Chairman of China Soft Science Research Association.

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Challenges for the Future of Chinese Economic Growth CHENG, Siwei (成思危)

our socialist system to guarantee social fairness and justice, especially to protect the vulnerable groups and their legal rights. This is what we call the socialist market system. So we are still in this transition period, which is not yet complete. Today, the government is much stronger over the market. In this case, we need to reform the administrative system, and to make our government a service government, rather than a command government. These are what I believe to be the four major characteristics of China’s economy. For the second part, let us consider the lessons we learnt from our past experience, and from the more recent global financial crisis. As you know, after we adopted the reform and opening up policy in 1978, we enjoyed a high growth rate. Over 9% annual growth rate. And from 2003 to 2007, we even enjoyed 2-digit annual growth rates. 10%, 10.1%, 10.4%, 11.4%, and 13% in 2007 respectively. But on the other hand, the shortcomings of a high growth rate were gradually exposed, especially when the global financial crisis broke out in 2008. In response to this crisis, we launched a four trillion RMB stimulus package in the fourth quarter of 2008. According to my research, without this stimulus package, the growth rate in 2009 would have been 2.4%. That would have been a really big problem. With this stimulus package we achieved 9.2% growth rate in 2009. But we have to look at both sides of the coin. While there were positive sides to the stimulus package, its the negative side side became obvious in recent years. It showed that our growth model in the past relies mainly on investment and foreign trade between 2003 to 2007 after China’s accession to the World Trade Organization. But in 2009, of the 9.2% growth rate, 8.7% was contributed by investment. Domestic consumption contributed 4%. Foreign trade contributed -3.5%. So that meant that in 2009 our growth was mainly achieved through massive

investment. And the negative side of such huge investment emerged. In 2009, our total investment was 22.5 trillion USD, about 2/3rds of our GDP that year. If we look at that year’s growth, the high investment brought some negative effects. First, its excess capacity. Among our 24 industries, 21 had excess capacity. Second was the problem of over supply. Because, despite the reduced foreign demand, the production side of industry still made more products, causing over supply. Until this year we are still in the process of digesting this over supply. Factor No. 3 is our low investment return. We have a very simple parameter/indicator for this. Put simply it is if investment increases by one percent, how much will GDP grow? Theoretically, it should be 0.7%. But in the year 2009, as I mentioned, our GDP increased 9.2%, and our investment increased 30.1%. That means only 0.3%. That is because of the heavy investment, the investment efficiency was greatly reduced. Finally the environmental cost is growing. According to our research, in 2005 our environmental cost, including pollution, low energy efficiency and damage to our ecosystem, comprised 13.5% of our GDP. But that year, our GDP increased by only 10.4%. That means we were leaving our environmental debts to our children and grandchildren. Certainly it’s unsustainable. And because of the heavy investment, the money supply was growing in 2009, with an increase in the banks’ credit by 9.6 trillion RMB. The result, certainly, is the danger of inflation. As you know, if the money supply exceeds the demand of the real economy, it will bring the danger of inflation. So, in the years 2010 and 2011, inflation emerged. And in 2011 it reached a rate of 5.4%. Second is the booming debts of local governments. According to our audit agency, by the year of 2009, the accumulated debts of local governments were 10.7 trillion RMB. This is a huge burden. In discussions about this with some

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Challenges for the Future of Chinese Economic Growth CHENG, Siwei (成思危)

Professor Cheng Siwei at the“A China Story Forum on Sustainable Development and Governance”

local officials they told me that “the banks encouraged us to borrow. We thought it’s stupid not to borrow. It’s more stupid to borrow less. It’s most stupid to pay back.” So in this case, the local governments borrowed lots of money. And according to our research, 1/3rd of the local governments don’t have the capability to pay back. In October, 2009, I said, the subprime that the United States is because the banks lend their money to the people that don’t have the capability to pay back. While the subprime of our economy with Chinese characteristics is that the banks lend the money to local governments which couldn’t pay back. So we have to pay more attention to this. Actually in the last three years, the central government has made lots of effort to reduce the local debt, but it seems still high. Finally we have to contend with the asset bubble. Our stock market is not so good, so many investors went into housing. n Just the one year of 2009 housing sales increased by

33.4% , and housing prices boomed, causing some bubbles in the housing market. Therefore, after 2009, the major work of our government was to solve these several problems I have detailed. So, we learnt the lesson from our own practice in the past, and especially from the global financial crisis. I just published a book last year, in both Chinese and English, titled “The U.S. Financial Crisis: Lessons for China”. I didn’t mention the lessons for the Americans because that is their business, not mine, but I most certainly explained the lessons for China. So, from these lessons, we found out the Chinese economy is unbalanced, uncoordinated, and unsustainable. So that means we have to change our development pattern and growth model. Otherwise we will meet serious problems. Now, in the third part, I will talk about changing our development pattern, and our growth model.

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Challenges for the Future of Chinese Economic Growth CHENG, Siwei (成思危)

At the 18th Congress of the Communist Party of China we raised the issue of such change and many new ideas were floated -- too many to mention here. I just want to emphasize three points. First point is, while economic growth is certainly very important, we must take a systematic view of development. That means we cannot solely focus on economic growth. We have to integrate the economic growth together with political, cultural, social and ecological growth into what we call “Five-inOne Development”. This is a very important thought in the report of Hu Jintao at the 18th Congress of CPC. This means that only by adopting a comprehensive development pattern can we build up a harmonious, prosperous society. The grand goal we have set ourselves by the year 2020 is to double the 2010 GDP and income per capita (both of urban and rural residents). This is a difficult job since it means that by 2020 our GDP per capita would be close to $US10,000, and we will be categorized among the high-income countries, according to the United Nations. The total GDP may be around $US14 trillion, or even $US16 trillion, by that time. Second point, we must change our growth model, but how? In my opinion, three changes must be made. The first is to change from relying more on foreign demand to domestic demand, especially relying on domestic consumption. This is not an easy job because to rely on domestic consumption means we have to raise people’s incomes so they can buy the products. So we need to make some institutional arrangements to raise people’s incomes. We must synchronize people’s incomes with our economic growth, an accomplishment we almost reached last year. Next we need to link the salary of employees with the inflation rate. In all provinces in China we already link the minimum salary with CPI, but not for all employees. Third, we need to raise workers’ incomes along with the rise in productivity.

Moving on from these very important institutional arrangements to raise people’s incomes and thus their purchasing power, two additional measures are needed. One is to raise the floor of personal tax from 800 RMB to 1600 RMB, then to 2000 RMB and finally 3500 RMB. That will give people more purchasing power. The other is to promote credit consumption, because at present our banks’ loans are mainly going to stateowned enterprises and local government, with only 15% going to individuals. This is quite different from the system In Western countries, where maybe 60% or 70% goes to individual borrowers. So there is some room to encourage credit consumption but we don’t want to encourage too much, of it, thus risking the same problems now existing in the United States. But we do need to raise the people’s income so they can buy the products we would be making for the domestic market. Equally important, we need to improve our social security system so that people will dare to consume, and this is already happening. We have expanded the coverage of social security in both urban and rural areas, we are improving the medical care system, and our education system. We are also building housing for low-income people. That is also very important. Finally, we must provide more new products to encourage people to purchase them, because as people’s incomes increase, so will their demand for higher quality and better products. At the time of the Cultural Revolution, a family’s three major assets were a bicycle, sewing machine and watch. That’s nothing today. In the beginning of the reform and opening up, the three major assets became a color TV, washing machine and refrigerator. Today, however, such possessions are very common. So we must provide useful new products or the people will save their money and put it in the banks. We must innovate to create more new products to attract people to consume. China

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Challenges for the Future of Chinese Economic Growth CHENG, Siwei (成思危)

needs more people like Steve Jobs. Also, look at the serious competition we face from Samsung, who can provide new products from iPad, iPad Touch, iPad Nano, from iPhone 2, iPhone 3G, iPhone 4, iPhone 5 … iPad 1, iPad 2, New iPad and now iPad 4. These are examples of new products that attract consumers. However this doesn’t mean we shouldn’t pay attention to foreign trade. But we should upgrade our foreign trade structure, upgrade the products we export, and improve our import structure. Also we must change from extensive growth to intensive growth. What is “extensive growth”? It means that if we want to add capacity we just build a new plant. In this case, certainly, the investment is very important, but the productivity has not been raised. Intensive growth means that first, we must raise productivity so that value is also increased. This is very important. For example, in the manufacturing sector one Chinese worker creates about 90,000 to 100,000 RMB in value or only one fifth of the value generated by a German worker. This 90,000 RMB in value would then be divided into three parts: one part, through tax, goes to the government. The enterprise will reserve the second part, so that only about 1/3rd will go to the employees. This means that if we don’t raise productivity, it is very difficult to raise people’s incomes. In my opinion, the current European debt crisis in Greece and other countries is that they cannot create enough wealth to support the high governmental expenditure, the high social welfare and the high personal consumption. So what the governments do is to borrow money to fill the gap. As long as they could get new debt, no problem. But when they couldn’t get new debt, the European Debt Crisis inevitably occurred. This is another argument for why we must raise productivity. Say that the government didn’t take one cent in taxes, and that the

enterprise didn’t put one cent into its reserves, and instead the whole 90,000 RMB went to the employee. That is a little higher than the unemployment subsidy in developed countries. This is very important. Second, we need to encourage innovation, because only through innovation can we change the development pattern. Third, we must reduce the environmental cost and promote a green economy. Fourth, we must train our people through education. In my opinion, the fundamental role of education is on the one hand to raise the people’s knowledge of science, technology, and so on. On the other it is to foster innovative spirits. Only when employees can raise their innovative spirit and raise their creativity can we finally raise our productivity. So as I have said many times, economy can only guarantee our today, science and technology can guarantee our tomorrow, but only education can guarantee our day after tomorrow. So investing in education is investing in our future. Furthermore, I am glad to tell you that according to our education law, our investment in education should be over 4% of our GDP, and last year we reached this number. The third change is to change from external momentum to internal momentum. The external momentum is relying on foreign investment, on banks, loans, government subsidy, and so on. And internal momentum relies on activity and creativity of employees. In my opinion, the employee is the most valuable asset of the enterprise. We need to rely on their productivity and creativity. So these three changes are a must for changing our growth model. Additionally we need to promote further our reform and opening up policy. So, as mentioned earlier, we must deal with these four relationships very carefully: Rule of law vs. rule of man. We have to put forward … raise the respect for our Constitution. This is very important. We must also ask all the government officials to behave

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Challenges for the Future of Chinese Economic Growth CHENG, Siwei (成思危)

according to the law. So this is first. Next is the relationship between equality and efficiency. I said efficiency without equality is unstable efficiency, because if the gap between poor and rich expands, the society will become unstable, so you will have no efficiency at all. On the other hand, to have equality without efficiency is a lowlevel equality, you cannot satisfy everyone’s increasing demands. So, in this case, we have to carefully handle the relationship between equality/equity and efficiency. Next comes the relationship between government and market. In the report of the 18th Congress of CPC, the major problem in our economic reform is to treat the relationship between the government and market correctly. Especially, we need to respect the market rule and we need to let the government play a suitable role. This is very important because as I mentioned the government is now much stronger than the market, so we limit the market orientation reform. Finally comes the relationship between centralization and decentralization. China is a huge country and every province has special conditions. We cannot expect that a sole policy can be adopted by all provinces. We have to treat the relationship between centralization and decentralization very carefully. In conclusion let me draw attention to three points.

c) Although our path is full of pitfalls, we are confident to reach our goal, relying on the creativity and activity of the Chinese people. I am fully confident that by 2020 we will build up a moderately prosperous society in all aspects. And by 2050 we can build a China that will become a prosperous, strong, democratic, culturally advanced and harmonious country.

* This article is an extract from the author’s speech on “A China Story: Forum on Sustainable Development and Governance” organized by the China Energy Fund Committee on April 16, 2013 at the United Nations Head

a) Although we have achieved tremendous progress, we still have a long way to go, because China is the largest developing country with a dual economic structure and in transition towards a socialist market system. b) While we still have a long way to go, we are on the right path. That is, socialism with Chinese characteristics. We are changing our development to the “Five-inOne” development pattern and changing our growth model.

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An Emerging China in Pursuit of Peace and Prosperity QU Xing (曲星)

he most important changes in the global arena in recent years include the expansion of the western democratic model in developing countries, the pressure of the economic downturn caused by the global financial and economic crisis, the call for sustainable development due to rising awareness of global environmental protection, and the restriction of ruling powers as a result of the civil rights awakening in the Internet society. Considering this background, China has to face many challenges and resolve numerous problems in the near future. These differences include divergences between China’s political system and the Western democratic model, the over-reliance of the Chinese economy on the external economy, the high environmental cost of China’s development, the aging of the population, a widening income gap, increasing social conflicts, the absence of effective administrative monitoring of food and drug safety incidents, and grave corruption in certain fields. During the 18th National Party Congress in 2012 and the latest session of the People’s Congress in 2013, it was in this context that we not only summarized past achievements but also offered a rational analysis of future challenges. President Xi Jinping and Premier Li Keqiang gave their own proposals on how to face these challenges and solve related problems. Their basic idea is to push China’s

development forward in a scientific way by promoting economic, political, cultural, social, and ecological construction at the same time. The first point I will touch upon concerns economic development. The key is to restructure the economy, transform the mode of economic development, increase domestic demand in order to reduce overdependence on foreign trade, and push China’s economic growth with domestic demand instead of foreign trade. The breakthrough point is to promote the urbanization and integration of urban and rural construction. This idea is highly feasible. In developed countries, urbanization rates are generally above 75 percent, while in China it was 43 percent in 2005 and 47.5 percent in 2010. According to the 12th “FiveYear Plan,” China’s urbanization rate will reach 51.5 percent by 2015. Even at that time, however, if we want to reach the average level of developed countries, China still needs to raise urbanization rates by at least 20 percent. This means that about 350 million rural citizens will enjoy the living standard of urban populations in the next 30 years, almost equivalent to moving the entire United States population from rural to urban areas. The second point concerns political construction, the key to which is to steadily push forward the reform of the political structure. Some European and American observers

Prof. Qu Xing is currently the President of China Institute of International Studies (CIIS), Chairman of China Arms Control and Disarmament Association and Professor of China Foreign Affairs University.

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An Emerging China in Pursuit of Peace and Prosperity QU Xing (曲星)

Professor QU Xing at the“A China Story Forum on Sustainable Development and Governance”

have a common misunderstanding of the reform of the political structure. They judge China’s political reform in reference to a Western democratic standard. Actually, China does not disavow the accomplishments that democracy has brought to Western countries. More than that, China is willing to learn good practices from them. China does not believe, however, that Western style democracy fits all countries. Admittedly, China has its own perceptions about the great changes that took place in the former Soviet Union and other Eastern European countries 20 years ago. China does not believe that changes in Afghanistan and Iraq 10 years ago, changes in Egypt and Libya 2 years ago, and changes in Syria that may take place in the near future will bring better lives to the people in these countries. As President Xi Jinping mentioned in his speech at the Moscow State Institute of International Relations, “only your feet know whether the shoes fit.” Of course, China fully

respects choices by the people in the countries concerned. China stands ready to establish and has already established friendly relations with these countries. The development of democracy in China should proceed according to China’s national conditions. China was faced with a very important choice when big changes took place in the Soviet Union and Eastern Europe. In hindsight, if China had chosen the road pursued by Mikhail Gorbachev and supported by the West, it would never have been able to achieve today’s success. The third point concerns cultural development. This point encompasses four aspects. The first is to construct the socialist core values system with Chinese characteristics, which include prosperity, democracy, civility, and harmony; to uphold freedom, equality, justice and the rule of law; and to advocate patriotism, dedication, integrity, and friendship, among other values.

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An Emerging China in Pursuit of Peace and Prosperity QU Xing (曲星)

The second is to improve civic morality in an all-around way by intensifying education in public morality, professional ethics, family virtues, and individual integrity. The third is to enrich people’s intellectual and cultural lives. The fourth is to enhance the overall strength and international competitiveness of Chinese culture. Reform of the cultural system should be deepened in order to liberate cultural productivity. Rapid development and a comprehensive flourishing of the cultural industry and cultural services should be promoted. The overall objective of Chinese cultural promotion is to enhance the soft power and international influence of Chinese culture. The fourth point deals with social development. First, better education should be delivered. Priority should be given through bigger investments and better equality. Overall financial investment in education should account for 4 percent of the GDP. With China’s GDP growing at a high rate, budget allocation for investment in education should keep pace. More educational resources should be channeled to rural, remote, poor, and ethnic minority areas. Children of migrant workers in the city should enjoy equal educational opportunities. Second, better jobs will be provided in creating employment. In the last five years, over 58 million jobs were created and close to 50 million farmers migrated into cities. This year, we are targeting the creation of over 9 million jobs and the registered unemployment rate in urban areas should be less than 4.6 percent. Third, individual income, which will grow at the same pace as national economic growth and annual salary increases, should increase by no less than 7 percent. The Government has stated that the fruits of development should be shared by the country’s people. Reform of the income distribution system should be undertaken with the objective of

narrowing income gaps. Fourth, social security systems in rural and urban areas should be promoted in a coordinated manner. Generally speaking, the entire Chinese population is covered by basic health insurance programs. It is envisioned that the rural social pension program will cover the whole population by 2012 and that the social security system will cover the whole population in 2020. Fifth, health and medical services should be strengthened. Community health services in cities and medical networks in rural areas should be improved. Development of private hospitals should be encouraged. Safety supervision over food and drugs should be strengthened. One of the important measures in the government institutional reform plan announced at the National People’s Congress is the establishment of a General Administration of Food and Drug, which will integrate and consolidate supervisory functions that were previously scattered among different government departments. The fifth point deals with the promotion of ecological progress. Measures to be taken are numerous. First, there is the reduction of greenhouse gas emissions. It is envisioned that, by 2020, carbon dioxide emissions per unit of GDP will be reduced by 40-45% from 2005 levels. Second, there is the optimization of energy structure. By 2020, the proportion of renewable energy, including water, wind, solar, nuclear, and others, should grow from the current level of 9 percent to 15 percent. Third, there is the increase of research and development investment. By 2015, R&D investment at the national level should grow from its current level of 1.75 percent to 2.2 percent of GDP. Fourth, there is the promotion of forestation. Forest cover among the national land area should grow from 18.2 percent in 2005 to 21.66 percent in 2015. Fifth, arable land should be preserved at an area of no less than 120 million hectares (1.8 billion MU), which is a compulsory goal to be resolutely

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An Emerging China in Pursuit of Peace and Prosperity QU Xing (曲星)

A China Story Forum on Sustainable Development and Governance

implemented. The final point concerns China’s foreign policy. We are now faced with a foreign policy challenge – how can we make the international community feel comfortable with China’s development? To address concerns from big powers, China is willing to establish a new type of major power relations. It is commonly asserted that, throughout the history of international relations, emerging powers are bound to seek hegemony. We believe that China can break this logic and seek mutual benefits through cooperation. To address concerns from neighboring countries, China has always stood for direct negotiations among the countries concerned to seek solutions based on mutual understanding and accommodation. It was on the basis of mutual understanding and accommodation that China resolved over 90 percent of the territorial disputes with its neighbors through peaceful negotiations. As long as the countries

concerned are willing to sit down for talks, we are confident that there will be solutions to China’s maritime disputes. President Xi Jinping has mentioned the idea of a “China Dream” on a number of occasions. The fundamental connotation of the “China Dream” is that each ordinary Chinese citizen has an equal opportunity to pursue his or her dreams. Only with equal opportunities for citizens can it be possible for the country and the nation to materialize its dreams. The purpose of China’s implementation of the Five-Pillar Overall Development Plan is exactly to create such equal opportunities for every citizen.

* This article is extracted from the author’s speech on “A China Story: Forum on Sustainable Development and Governance,” organized by China Energy Fund Committee on April 16, 2013.

CHINA EYE•Issue4 October 2013

Five Crises in the Process of China’s Reform Prof. YAO Zhizhong (姚枝仲)

efore 1978, China had a highly centralized system of planned economy. This model was supposed to meet the basic needs of the people, increase investment, accelerate economic growth, and catch up with advanced countries. Under this system, however, China did not catch up with the advanced countries. In order to increase the investment rate (fixed-asset investment to GDP ratio), China then adopted a market-oriented economy, starting in the rural areas. Managerial autonomy was given to rural areas; peasants were no longer confined to an economy based on land. Several special economic zones were then established on the southeast coast. Private enterprises and foreign investors were given permission to operate in these special economic zones, with freedom to make pricing and production decisions. The market-oriented reform was successful, but it was hard-earned. During the process of reform, China had to avert many crises. I. CRISIS OF PRICE REFORM In the first stage of reform, commodities were partly priced by the government, although enterprises were allowed to set prices according to market forces. This was known as “dual track price system,” meant to maintain the original planned economic system, while promoting the development of the newly-emerging market and private

economy. It marked an important step in China’s economic reform. The dual track price system, however, had an inherent problem. The planned prices of the same commodities were generally lower than the market prices, increasing the opportunity of corruption, since government and stateowned enterprise officials had the power to set the amount of commodities to be sold at the market price. China could not totally liberalize prices, because that would have caused high inflation. On the other hand, if China maintained the dual track price system, corruption would increase, leading to social instability. Therefore, China gradually liberalized prices to withstand inflation, firmly continuing market reform but in phases. II. CRISIS OF STATE-OWNED ENTERPRISES (SOES) China’s reform is incremental in nature. At the initial stage, when the fundamental management system of SOEs remained unchanged, China allowed the non-state economy to develop. By decontrolling prices, China forced SOEs to compete with non-SOEs in the same market. The competitiveness of SOEs was far lower than private enterprises and foreign-owned enterprises, which adhered to market principles. As a result, the SOEs incurred heavy losses. China’s adherence to market principles

YAO Zhizhong is an Assistant Director and Senior Fellow, Institute of World Economics and Politics, Chinese Academy of Social Sciences.

CHINA EYE•Issue4 October 2013

Five Crises in the Process of China’s Reform Prof. YAO Zhizhong (姚枝仲)

YAO Zhizhong at the“A China Story Forum on Sustainable Development and Governance”

ultimately forced unsustainable SOEs to go bankrupt or to be reorganized. A large number of SOEs were privatized, and the government retained only the large-scale SOEs which had a great impact on the lives of the people. The laid-off SOEs workers were helped in three ways: by the government’s social welfare system, by being employed in the emerging non-state-owned economy, or by starting their own businesses. III. FISCAL CRISIS Before the reform, government’s revenue was based on SOEs. After the reform, economic growth no longer relied on SOEs. Since the growth of the economy did not increase the tax base, the ratio of government’s revenue to GDP rapidly decreased. Government revenues in GDP fell from 31% in 1978 to 10% in 1993, which seriously affected the financial capacity of the central government. Fiscal crisis would

definitely have occurred if revenues continued to drop. China, therefore, instituted tax reform in 1994, establishing a value-added tax based system and revising central and local government taxes. It ensured the growth of fiscal revenue at all levels of governments and increased China’s total government revenue. IV. FINANCIAL CRISIS China’s financial industry has experienced two major crises since 1978. In the early and mid-1990s, when China began financial marketization reform, it allowed the development of the stock, bond, and futures markets, as well as other derivative products. Private financial transactions were also allowed. Such a situation led to financial chaos. That was the first financial crisis. A second financial crisis took place in the late 1990s and early 21st century. The large scale losses of SOEs resulted in unemployment and social upheaval.

CHINA EYE•Issue4 October 2013

Five Crises in the Process of China’s Reform Prof. YAO Zhizhong (姚枝仲)

In order to prevent the situation from deteriorating, government subsidized SOEs by providing loans when they were financially unsustainable. That resulted, in turn, in longstanding accumulations of non-performing loans in the state-owned banks. China’s banking sector, therefore, suffered deficit and bankruptcy. Therefore, China adopted a banking system reform attuned to market principles and strictly regulated the banking sector. As a result, China’s banking sector became one of the world’s most stable. V. CRISIS OF THE REAL ESTATE MARKET

income and enhancing their living standards. At the same time, China was fully aware of the market’s weaknesses, especially as regards macroeconomic stability and financial stability. Therefore, China reduces its interventions on the economy and makes full use of government’s authority.

* This article is an extract from the author’s speech on “A China Story: Forum on Sustainable Development and Governance,” organized by the China Energy Fund Committee on April 16, 2013 at the United Nations Headquarters.

China has experienced two real estate market crises. After 1992, China put forward as the goal of its economic reform the establishment of a socialist market economy system. It attracted a large number of speculators to the real estate market. Funds from banks further increased land and housing prices. Macroeconomic regulation was, therefore, adopted by the central government to suppress any housing bubble. With an increasing number of people moving to big cities, China had to reform its housing allocation system. China realized the problem of excessive growth in housing market prices and thus instituted certain measures of inhibition. As a result, China successfully overcame the global financial crisis triggered by the US subprime mortgage crisis. In the process of economic stimulation after the financial crisis, local governments used land for financing, in order to support stimulation projects and give impetus to the rise of real estate. China encountered a lot of challenges and crises in the process of reform. However, by maintaining its market orientation, China was able to move the labor force and various factors of production into more efficient industries and cities. The reform changed people’s living spaces, while raising their

CHINA EYE•Issue4 October 2013

Five Pillars of Chinese Sustainable Development HO Chi Ping, Patrick (何志平)

Five Pillars of Chinese Sustainable Development HO Chi Ping, Patrick(何志平)

ollowing the 18th Congress of the Chinese Communist Party last November which ushered in a new team of top leaders in China, the Chinese National People’s Congress to be held this March in Beijing announced a series of new policies and initiatives. The world eagerly awaits learning more about the direction and thinking of the new Chinese leadership as it takes China down the road of sustainable development. The Chinese experience in pursuit of a sustainable future, in the modern Chinese context, has five pillars: effective governance, prosperous economy, dynamic culture, social justice, and environmental protection. Discussions and presentations of successful as well as not-so-successful stories of how China rose to the challenges, and reviews of lessons learnt, could serve as valuable references for other developing states to consider. Therefore, it is worth studying modern China in its quest to attain “the future it wants”. ACHIEVEMENT OF REFORM AND OPENING-UP After China adopted its reform and opening-up policies in1979, the late Chinese leader Deng Xiaoping set a target for the country to realize “Xiaokang”, (which means a moderately prosperous society) by 2000. Since then, China has successfully transformed itself

from a low-income rural-based country to a middle-income country with a widespread industrial economy. Life expectancy rose from 68 to 74 years; the urbanization rate increased from 18% to 52%. In 2012, its government revenue increased exponentially from $US180 million in 1978 to $US1.8 trillion in 2012. Its total GDP output reached $US8.28 trillion, which is 142 times larger than for 1978. In 2002, then Vice Premier Hui Liangyu said, “The problem of rural residents’ survival, food and clothing has been basically solved since the 16th Congress (2002)”. Starting from that point, China is going to continuous its route on building its overall Moderately Prosperous Society. OVERALL MODERATELY PROSPEROUS SOCIETY In 2003, an evaluation system in respect of building a moderately prosperous society in all respects was introduced with 23 indicators in six sectors related to economic development, social harmony, living quality, democracy and legal system, culture and education, and resources and environment. Relevant statistics are: • Per capita GDP reaches $US5,000; • Proportion of urban population reaches 60%;

Dr. Patrick Ho is Deputy Chairman and Secretary General of China Energy Fund Committee. He has been appointed a member of the 8th, 9th, 10th, and 11th (National) Chinese People’s Political Consultative Committee and is a former Secretary for Home Affairs of the HKSAR government.

CHINA EYE•Issue4 October 2013

Five Pillars of Chinese Sustainable Development HO Chi Ping, Patrick (何志平)

Dr. HO Chi Ping at the “A China Story Forum on Sustainable Development and Governance

• Gini Coefficient is between 0.3-0.4; • Engel Coefficient is less than 40%; • Per capita usable floor space is 27m2; • Mortality rate for under-fives is less than 20%; • Life expectancy is more than 75 years; • Average length of education reaches 10.5 years. In 2012, China set the goal of completing the building of an overall moderately prosperous society in all aspects by 2020, requiring a new model for economic growth.

“Two Doublings”. In 2010, China’s annual GDP is $US6.42 trillion, it will be doubled to over $US12.84 trillion in 2020. In 2010, China’s per capita income for urban residents was $US3,082 while the per capita income for rural residents was $US955. In 2020, these figures therefore will be doubled to over $US6,164 and over $US1,909 respectively. To achieve the “Two Doubles” in 2020, the average annual growth rate of GDP should reach about 7.1%, while the average annual growth rate of per capita income should reach about 7.2%.

THE “TWO DOUBLINGS” Under the new guiding principles, the country’s 2010 GDP and per capita income for both urban and rural residents should be doubled. This was the first time that per capita income has been included in the economic growth target set for 2020, and was termed the

NEW URBANIZATION MODEL - A SUSTAINABLE DRIVING FORCE In order to accomplish this goal, China new leaders have launched a new urbanization plan. According to the reports by Chinese

CHINA EYE•Issue4 October 2013

Five Pillars of Chinese Sustainable Development HO Chi Ping, Patrick (何志平)

media, the government now has plans to move 400 million people into small and medium sized towns and cities with under 2 million residents over the next 10 years and involving a capital investment of $USD 6.4 trillion, resulting in 70% urbanization of its population at completion. The urbanization plans will be a major driving force for China’s future developments. EVOLUTION OF THE FIVE PILLARS OF CHINESE SUSTAINABLE DEVELOPMENT Since Deng Xiaoping in 1978 rolled out reform and opening-up for China’s development, economic growth has dominated China’s agenda for three decades. In 1997, Deng Xiaoping Theory was written into the Constitution as a realization that China would remain in the primary stage of socialism for a long period of time, and should make economic development the central task. Despite the double-digit annual growth rate for about three decades, the Chinese economy is now strained by a shortage of energy and resources, the wealth gap, inequitable income distribution, corruption and environmental woes. In 2003, President Jiang Zemin’s “Three Represents” was incorporated into the Constitution to clarify the three aspects of socialism with Chinese characteristics. These are economic (advanced productive forces), cultural (advanced cultural direction) and political (the fundamental benefit of people) developments. Around the same time, the idea of building a harmonious socialist society was put forward by Hu Jintao adding social development to the combination of economic, political, cultural development. In 2003 the concept of Scientific Outlook on Development was put forward. China started to advocate ecological progress. And in 2012, Mr. Hu elevated ecological progress to a higher strategic level, in which

he outlined the “overall approach” for China’s modernization development in five aspects -- economy, politics, culture, society, and ecology. And these five pillars make up the Chinese interpretation of an overall approach to sustainable development. At the same time, the concept was enshrined in the Party’s Constitution. SCIENTIFIC OUTLOOK ON DEVELOPMENT In placing such importance on the Scientific Outlook on Development, the top priority is to promote economic and social development; the core value is to put people first; the fundamental requirement is to pursue a comprehensive, balanced, coordinated and sustainable development; the basic method is to adopt a holistic approach; and the spirit is to free up the mind, seek truth from facts, keep up with the times and to be realistic and pragmatic. ECOLOGICAL DEVELOPMENT: THE FIFTH PILLAR The 18th Party Congress in 2012 incorporated the building of ecological civilization into the country’s scheme of overall development. It is a landmark move in support for sustainable development across the world. During the period of (2006-2010), China’s quantity of sulphur dioxide emission decreased by 14.29%, while the quantity of chemical oxygen demand fell by 12.45%. As for land, China’s total forest area increased from 2.39 billion acres in 2002 to 2.93 billion acres in 2011. In addition, the percentage of forest coverage rose from 16.55% in 2002 to 20.36% in 2011. Concerning water, in the seven main river basins, water of standard quality rose from 29.1% in 2002 to 61% by 2011. In 2002, the area with seawater quality reaching Grade 1-II covered 49.7%, while by 2011 it had risen to

CHINA EYE•Issue4 October 2013

Five Pillars of Chinese Sustainable Development HO Chi Ping, Patrick (何志平)

62.8%. As for air quality, in 2011, among 325 cities at or above prefecture level, 89% of them met the Grade II national air quality standard, an improvement of 26% in 2002. “BEAUTIFUL CHINA” In 2012, President Hu Jintao put forward plans for ecological development to build a “Beautiful China”. It consists of considerations for geographical space, all round resource conservation, protection of ecosystem and environment, and system building to promote ecology. National space has to be planned carefully for production, living, and ecology. Marine resources will be developed. Resource conservation involves reducing energy, land, and water consumption, imposing ceiling on total energy consumption and a cap on total water consumption. In his report, Mr. Hu called for efforts to leave to future generations a beautiful homeland with green fields, clean water and a blue sky. By doing so, China pledged in its 12th Five-Year Program to cut energy consumption per unit of GDP by 16% while slashing carbon emissions by 17% in the five years to 2015. That will help China meet its pledge of reducing carbon intensity by 40% to 45% by 2020 from their 2005 levels. Ecosystem and environment protection includes protecting biodiversity, water conservancy projects and a holistic approach to prevent and control water, soil and air pollutions. Systems will be built to promote ecology, protect geographical space, farmland, water resources, system for paying for resource consumption, and for compensating for damages, as well as for trading energy savings, emission rights, and water rights. The building of a “beautiful” China is not simply a national image project. It demonstrates the sincerity of the Chinese people and its government to assume the

responsibility of sustainable development for future generations and for the world as well. CALL FOR SHARING EXPERIENCE Significant progress towards sustainable development has certainly been made in the last three decades. There is an urgent need to summarize all our previous accomplishments and experience to shore up our aspirations towards a more inclusive, equitable and sustainable growth development, and translate them into decisions and actions. Development results from the complex interaction of multiple competing considerations, including economic, political, cultural, social and ecological factors. It is time-specific and also context-specific. Each country has its unique cultural, demographic, geographic, historic legacies and governing traditions, and political and social philosophies. There is no universal blueprint, for any one country to follow or simulate while overcoming these disparities and deficits. However, while there is no “model” of development that can be replicated or exported to other countries, experience accumulated in the process and lessons learnt can be shared, reviewed, and analysed to benefit all stakeholders.

CHINA EYE•Issue4 October 2013

No need to go to war for energy in the New Era ZHANG Kang (張抗)

Energy Security No need to go to war for energy in the New Era ZHANG Kang (張抗)

The “Brumaire” marks a turning point for environmental reform CHEN Weidong (陳衛東)

The Chinese Strategy of Asian Energy Cooperation XU Qinhua (許勤華)

China and Russia should enter the age of “back-to-back” HUAI Chang (懷暢)

CHINA EYE•Issue4 October 2013

No need to go to war for energy in the New Era ZHANG Kang (張抗)

he macro assessment of the long-term energy situation, including oil and gas, has been a basic factor in shaping the major power relations. In the first decade of the 21st century, both petroleum production and consumption grew at a similar low pace around 1.1%. Supply and demand were basically in balance and there was no global shortage of oil supply. Gone are the days when war broke out as a result of competition for resources during the cold war. First of all, there is a sharp decline of oil consumption in many OECD countries, especially in the United States, Europe and Japan. Recently, the increased oil and gas output brought by the shale gas revolution made the United States able to greatly reduce its oil and gas import and thus make some progress in its energy independence strategy which consequently can also relieve the pressure of global oil and gas supply. On the other hand, the emerging economies, especially those posited in the arc shaped region of East Asia, South Asia and Middle East have seen their energy consumptions increasing rapidly and continually. Global supply and demand of oil and gas have reached a dynamic equilibrium through all these changes. OIL SUPPLY HAS NEVER BEEN IN SHORTAGE

Secondly, from the viewpoint of supply capacity or more precisely from the safety guarantee capacity, oil supply exceeds demand. Many outsiders do not understand this, but it will become clear when we have a general analysis on the excess production capacity of oil. Excess production capacity refers to the capacities that have been closed, suppressed or suspended deliberately by men. In other words, it means that when the oil reserves were explored and related pipelines, roads, electricity and living facilities were installed, the valve of production however, was not turned on. For OPEC, excess capacity is one of its supporting pillars to restrict production and thus to keep the prices high. Since the beginning of this century, the excess capacity of the OPEC countries ranged between 1.4 mb/d (millions of barrels per day) and 6 mb/d with the average number at 3 mb/d (around which the current oil prices fluctuate). Even when the oil prices were at their peak, there was still 1.4 mb/d excess capacity, which was almost equivalent to the production capacity of the Daqing oil field and Shengli oil field in China combined . In addition, we should also note the fact that OECD countries have an oil reserve equivalent to more than three months’ consumption while the emerging economies, some of them large oil consumers,, have only one to two months of commercial and strategic reserves. This means that the world is quite capable

Zhang Kang is a senior advisor to China Energy Fund Committee and the Deputy Director of the Consultant Committee of the Petroleum Exploration, Development and Research Institute of SINOPEC.

CHINA EYE•Issue4 October 2013

No need to go to war for energy in the New Era ZHANG Kang (張抗)

ZHANG Kang at the “Sino-US Colloquium III A Trialogue with Japan”

of coping with regional energy shortage as a result of contingencies. The facts have shown that despite the political turmoil (including wars in the oil production regions) and natural disasters, world energy supply did not have substantial shortage. Furthermore, the oil exploration and production in the major oil production countries has been subjected to man-made interferences and suppression. Once the external interferences were reduced and the normal productions could be restored, hundreds of millions of oil productions and reserves can be released. Take Iraq and Iran, the two oil rich countries for example. In spite of six years of recovery after war, the total production capacity of Iraq is only 81.2% of its capacity before the Iran-Iraq War. For Iran, influenced by sanctions, its oil production in 2012 was only 60% of the level in 2008. For Mexico and Venezuela, it was largely their policy mistakes that led to the consecutive decline of their oil production in recent years.

When their policies could be restored to a right track, the production will increase for sure. The discussion so far has been just about conventional oil and gas. What is more notable is that unconventional oil and gas, including those in the deep sea, have shown huge potential. The great change brought by the shale gas revolution made the oil and gas strategists confident to speculate that by the middle of this century, unconventional oil and gas production will likely rival conventional oil and gas production, or even surpass them. It can also be expected that driven by the technological advance, the competitive new energy sources will grow rapidly and will increasingly replace high carbon energy sources to the benefit of the environment. In the second half of the century, a more ideal energy mix mainly formed by non-fossil fuels and natural gas can be realized. The production of coal and oil will decrease as consumption drops.

CHINA EYE•Issue4 October 2013

No need to go to war for energy in the New Era ZHANG Kang (張抗)

Thus, when we talk about energy and oil security, it should not only be the concerns of the consuming and importing states. From a medium-to-long-term perspective, the oil exporting countries will be more worried about the security of the markets. TO RESOLVE CONFLICTS AND DECELOP JOINTLY From the above analysis, it is apparent that arguments like the “peak oil” theory and the “oil depletion” theory are unfounded. Oil and gas resources are sufficient to meet our current and future needs. It is also unreasonable to adopt a cold-war mentality in understanding the contemporary world. Exaggerating the normal competitions or disagreements between importing and exporting countries over oil and gas as confrontation and making war predictions based on that is insane. Modern countries especially those major powers that are closely economically inter-dependent, no longer need to go to war for oil. Cooperation between China, Japan and the United States will only benefit each other and the world. Now, the common topic being discussed in the “Global Village” is energy security and environmental protection. If the global energy security system is “insecure”, major production countries, as well as major consumption states will all suffer. It is obvious that modern states can no longer live by themselves. Selfishly looking for one’s interest at the cost of others is not advisable. In this aspect, China, the United States and Japan, the world’s largest, second largest and fourth largest energy consumers, whose total oil consumption combined accounted for 43.7% of the world’s total consumption and also the largest three oil importers who take 46.1% account of the world’s total oil imports, share common responsibilities, interests, and concerns. As a developing country, China should learn from the experiences of developed

economies, especially the United States and Japan, in energy conservation, unconventional oil and gas development, new energies, management and mechanism building. China also needs to learn their lessons in market operation, intelligence property protection and their experiences in multi-lateral technological cooperation that are based on market principles. Exchange of views can reduce misunderstandings and limit conflicts. Only by cooperation can we achieve joint development. Communications between non-government organizations and scholars have proved their unique effectiveness in facilitating cooperation when official diplomacies are hindered. The cooperation between the developed economies and the developing economies and the cooperation between China, United States and Japan will have a great impact on the world energy and economic development.

* The article is excerpted from the author’s speech at the “Sino-US Colloquium III: A Trialogue with Japan” held by China Energy Fund Committee in January 2013.

CHINA EYE•Issue4 October 2013

The “Brumaire” marks a turning point for environmental reform CHEN Weidong (陳衛東)

ith Beijing free from its menace in January for only five days, the “smog” has become the talk of the town, ever since “Brumaire” quite veritably found its way into the Chinese calendar and into its history books. The “Smog Month” has been aptly named, a marker of accomplishment in the thirty-year economic miracle; its damaging environmental excesses have finally placed China on a par with the superpowers. One may now speak proudly of the people’s capital as an equivalent of the western metropolis, in the sense that Beijing possesses nothing less than London’s “Great Smoke,” Los Angeles’s “Photochemical Smog,” and Japan’s “Itai-Itai Disease” – all of them combined. In fact, China’s blind pursuit of the painful path towards industrialization, which others deserted half a century ago, has shown itself to be a fool’s errand, in which the country has had to accept every single consequence of its own environmental abuse. The over-depletion of resources and the subsequent inevitable swell in the cost of preventing and fixing the blight of China’s environment resulted from a blinkered view (unwittingly or knowingly or both) towards crash-developmental experiences imported from elsewhere. Out of the dustbin of modernization creeps the classical gentleman who “holds the world by his breadth of character through selfdiscipline and diligence.” If you come across one of these on the streets, you should better advise him to hold his breath (and yours, too)

for as long as possible, with as much selfdiscipline and diligence as our never-failing ancient wisdom can furnish us in the face of a modernity gone berserk. That said, Chinese government officials, especially those in Beijing, are deeply aware of the causes and the dangers of air pollution. One does not need to go too far to find a demonstration of this consciousness. When Beijing was making its bid for the 2008 Summer Olympics, the city decided to remove the Shougang Steel Complex and converted the vast majority of power and heating plants from coal to gas-burning. Petrol used in Beijing – at National Standard IV, with only one-tenth of the sulphur content of National Standard III – is the best available in the country. Dusty construction works were halted months before the Opening Ceremony. Even coal-burning power plants within a 250 km radius were put out of operation to make way for the Games. Within the Fifth Ring Road, which encircles Outer Beijing, vehicles with odd or even-numbered license plates were allowed to run only on alternate days. THE “BEIJING COUGH” IS NO LONGER RESERVED FOR EXPATS These temporary measures, although acting as a guarantee of satisfactory air quality during the Games, were hardly sustainable beyond the Closing Ceremony and were lifted soon after. A contingency plan like this

CHEN Weidong is a guest contributor to China Energy Fund Committee, and the Chief Analyst of China Offshore Oil Energy and Economic Research Institute.

CHINA EYE•Issue4 October 2013

The “Brumaire” marks a turning point for environmental reform CHEN Weidong (陳衛東)

could produce nothing more than changes of a provisional nature in balancing Beijing’s outmoded energy structure. It could not produce a substantial effect on the rapidly escalating pattern of energy consumption. The environment is exacting its punishment on us – even the natives are getting the “Beijing Cough,” which is no longer a privilege of the expat population – and there is no escape from it. If the experiment during the Olympics has proven anything, it has confirmed our suspicions about the causes of air pollution and has shown that we are capable of knowing how to control the pollution effectively. What is not sustainable is an energy structure that refuses to accept major readjustments, under which the huge cost of keeping the air clear will soon be unbearable. Who is going to pay for the enormous economic and social costs if construction works were to be banned within the Fifth Ring Road, where cars were only let out on alternate days, and all the big power plants in Hebei had to grind to a halt? Each stage in social development carries with it a specific energy pattern. Two major transitions have taken place since the Industrial Revolution – the first, marked by the invention of the steam engine, made coal the principal source of energy, kick-started the industrial revolution itself, and turned its birth place, Britain, into an empire where the sun never set; the second, symbolized by the internal combustion engine and the automobile, marked the beginning of the age of oil. The US, which pioneered the modern oil industry, became the greatest superpower in history and maintains this status even today. Its one-time rival power, the Soviet Union, was also a giant in terms of resources and energy production, and the area where it used to be still possesses immense potential, not the least thanks to oil and gas reserves. Our world is at the gates of its third energy transition, which will entail the ascendance to dominance of a pluralistic structure of lowcarbon energy resources, in which natural gas

will be the key. What has been done in Europe may serve as an indication of the way to the future, for its present energy structure consists of the strictest emission standards and environmental demands in the world. Coal, once the staple of Europe’s energy diet, now only makes up around 15% of the overall figure. Its proportion is overshadowed even by solar power, which has the lowest emission rates among all sources of energy. Due to concerns about technical ability and local reserve capacity, the generation of electricity by natural gas was once subject to restrictions in the US, where the coal-electricity structure reigned during a long period of history until a revolutionary breakthrough in shale gas technology during recent years caused a drastic cut in the price of natural gas. When accompanied by a rising social consciousness about low-carbon consumption, this resulted in the exponential growth of the proportion of gas-generated electricity, which has risen to 35% of the total figure and is expected to overtake that of coal-generated electricity, which dropped to below 40% in 2012. The direct consequence would be a dramatic decrease in the discharge of greenhouse gases in the US. It has even been reported that the rate of decrease in the US last year has met the requirements of the Kyoto Protocol. THE EXCESSIVE GROWTH OF ENERGY CONSUMPTION China ranks first globally as an energy consumer and as an emitter. However, at only 5% of total primary energy used, China has almost the lowest rate of natural gas consumption among all countries, while its coal consumption, standing at 70%, is almost the highest worldwide. Fossil fuels are the principal source of energy in today’s world, with coal, oil and natural gas making up a ratio of 35%, 29%, and 24%, respectively. In China that ratio is 70%, 18%, and 5%, respectively. Our energy pattern is the highest

CHINA EYE•Issue4 October 2013

The “Brumaire” marks a turning point for environmental reform CHEN Weidong (陳衛東)

in terms of its carbon content, not dissimilar to energy patterns typically found fifty or sixty years ago. An outdated energy structure, coupled with breakneck growth in energy consumption, necessarily entails severe air pollution. There is no doubt that the “month of smog” serves to warn us that the present energy structure is in dire need of reform. Energy patterns vary across different cities in the country in relation to their unbalanced economic growth. Beijing is the most advanced in terms of its energy structure, for its natural gas consumption per capita is already three-times that of nearby Tianjin, while its coal consumption per capital is only a fifth of the latter. Beijing’s oil products are the best nationwide in quality. Beijing was not spared from the “month of smog” in northern China, for air flows were bringing in much of the pollutants from other places. Although the accumulation of greenhouse gases and the benefits of emission reductions are global in nature, there is no doubt that the local population is their most direct beneficiary. The “month of smog” in northern China, which shocked the country and the world, was the product of decades of accumulated abuse. Economic investment and construction resulted in a build-up of five million vehicles in Beijing and a yearly coal-consumption of 70 million tonnes in Tianjin alone and 270 million tonnes in the whole of Hebei Province. Given the right climate, the smog will definitely return. Cutting emissions is by no means simple reversal; it will be a long and difficult process if large scale reductions are to be sustained, given continued growth in the energy supply. On the part of politicians, it will require a clear sense of direction and the determination and courage for change. It will demand the full support and cooperation of all sectors of society. Only when these have been realized will it be possible to pay higher costs of investment and to bear the risks of possible failure. In addition, constant effort and patience are essential. Britain, Europe, Japan, and the

US have accomplished their energy transitions and have managed to cut their emissions. For our people and country, we must do the same, and we are more than capable and determined to do it. “Brumaire” was a watershed, a callto-arms, and a fresh start for each and every one of us.

CHINA EYE•Issue4 October 2013

The Chinese Strategy of Asian Energy Cooperation XU Qinhua (許勤華)

n the early 1990s, China adopted a “going out” strategy for energy development and became deeply engaged in international cooperation. In 1993, the country for the first time became a net oil importer. In 1996, it became a net crude oil importer. If we take the year 1993 as the first year that marked the beginning of China’s cooperation with international society on energy themes, we are witnessing its 20th anniversary in 2013. 2013 also marks the first year since the grand opening of the 18th National Congress of the Communist Party of China in 2012, it can be expected that, with the coming of a new political period in China, the country’s international energy cooperation will be facing both opportunities and challenges. In the past 19 years, China has made remarkable progress in international energy cooperation. Its engagement with the outside world has also moved faster. Some major achievements of China are: Energy diplomacy. By frequently paying senior-level visits to foreign governments and sending delegations to energy summits, China signed framework agreements with many countries, laying a solid foundation for bilateral and multi-lateral energy cooperation. Multiple oil and gas cooperation sectors. China now has more than 100 oil and gas cooperation projects in more than 33 countries. China has established five major international oil and gas cooperation zones

in Africa (the Sudanese projects), Middle East (the Oman and Syrian projects), Central Asia and Russia (the Kazakhstan projects), South America (the Venezuela and Ecuador projects), and Asia Pacific (the Indonesian projects). These projects paint an overall picture of China’s strategy in seeking global collaborations on oil and gas resources. As a result, by 2011, the total production of Chinese oil and gas companies overseas exceeded 85 million tons of oil equivalents (TOEs). Energy trade system. China has now developed a systematic energy trade framework covering major energy resources, including oil, liquefied natural gas (LNG), natural gas, coal, and uranium, as well as a major transportation network, mainly comprised of sea route tankers supplemented by land pipelines and railways. China has also developed various financial tools for energy trade settlements, using currencies, futures, and long-term procurement agreements. Improved energy corporations. The major Chinese energy companies have not only learned how international energy projects are operated, but have also accumulated experience in capital maneuvering and contract negotiation, essential skills enabling them to greatly improve profitability and credibility. ASIA-PACIFIC REGION: AN IMPORTANT TRIAL FIELD FOR CHINESE COMPANIES

Xu Qinhua is a guest contributor to China Energy Fund Committee and the executive director of the Research Center for Energy Policies of Renmin University of China.

CHINA EYE•Issue4 October 2013

The Chinese Strategy of Asian Energy Cooperation XU Qinhua (許勤華)

XU Qinhua at the “Sino-US Colloquium III A Trialogue with Japan”

The year 2012, which may be called a Year of Elections, arguably marked the beginning of a new political period in the world. From the perspective of major power relations, the overall trend of the decline of the West and the rise of emerging powers have not changed. In international affairs, multi-lateral diplomacy has become mainstream, and the time that a single state or mechanism could dominate the world order is over. Under this general context of power transition, the rise of China and the US strategy of “pivot to Asia” inevitably made the Asia-Pacific region the center of the global political-economy. In this situation, China is faced with a highly increased possibility of having disputes with its neighboring countries. Whether China and the surrounding powers can establish a normal inter-state mechanism to keep potential conflicts managed and keep crises from escalating will be crucial in the next few years. In this context, the Asia Pacific Economic Cooperation (APEC) will become

more prominent in facilitating dialogue and creating win-win opportunities. In 2013, China is experiencing even bigger challenges and opportunities. With the intensification of climate change discourses around the world, a new industrial revolution is on the horizon and can be expected to fundamentally change the world’s economy and people’s lifestyles. In this process, the energy revolution will serve as a key. The energy revolution will radically change the way of production and the composition of energy commodities. The shale gas revolution, started in 2009, is a perfect example of the transition from conventional fossil fuel sources to unconventional oil and gas sources. CHINA SHOULD DO MORE TO PROJECT ITS VOICE APEC has now developed into a massive integral platform consisting of 21 economic units, including China, the US, Russia, and

CHINA EYE•Issue4 October 2013

The Chinese Strategy of Asian Energy Cooperation XU Qinhua (許勤華)

Japan, located along the vast territory of the Pacific Rim. But the geographical interconnections among the member states cannot mask the disparity of economic development and natural resource endowment among them. Under the framework of APEC, the member economic entities reached a number of multi-party energy cooperation that involved businesses like energy efficiency and conservation, new energy and renewable energy development, energy transportation, and infrastructure building. Among the international frameworks in which China has participated, APEC can be said to be the most important. On the other hand, China’s influence on APEC has been increasing as well. As the world’s second largest energy consumer, China has to use diplomacy to seek for energy sources. China, however, should do more to explain itself to the international society. It must also strictly abide by principles such as trustworthiness and reciprocity. Only by doing this can it have sound foreign energy policies. The strategic nature of energy makes energy security a sensitive topic. In order to safeguard their own security, states usually compete with each other for energy. China has territorial disputes with several neighboring countries, which could make its energy security even more sensitive. Such a complex and sensitive situation hinders the effectiveness of energy cooperation between China and other countries in the Asia Pacific region. But if the energy cooperation between states could be supplemented by the active participation of entrepreneurial and civil forces, the political tension that exists in state-level energy cooperation can be largely alleviated. Enterprises, after all, are the final executors of government energy plans or initiatives. Any agreement between states in the Asia Pacific region needs enterprises for implementation. Thus, encouraging enterprises and even civil forces to participate

in the APEC framework of energy cooperation is very important.

* The article is excerpted from the author’s speech at the “Sino-US Colloquium III: A Trialogue with Japan” held by China Energy Fund Committee in January 2013.

CHINA EYE•Issue4 October 2013

China and Russia Should Enter the Age of “Back-To-Back” HUAI Chang (懷暢)

China and Russia should Enter The Age of “Back-To-Back” HUAI Chang (懷暢)

fter being elected secretary general of the party in 2012, Xi Jinping described the relationship between China and Russia as “strategic partnership in prior development.” The visit early in 2013 of Foreign Minister Yang Jiechi to Russia and the return visit of Russian Deputy Prime Minister Devorko Abramovich to China fostered Sino-Russian military and energy cooperation. Last March 9, Yang confirmed that China’s new leaders will hold their first state visit to Russia. The two countries have started building a special partnership that may be called “back-to-back.” The two countries will hold a joint naval drill in Sea of Japan and a “Peace Mission 2013” joint naval drill. These two maneuvers will upgrade the scale and level of military cooperation between China and Russia. China’s new leaders will bring a basket of agreements on energy projects. The trade of crude oil between China and Russia will rise from the current 20 million tons to 50 million tons; the pipeline trade will rise from the current 15 million tons to 30 million tons. The two countries will start projects in electricity, nuclear power, natural gas, new energy, and clean energy. They will take part in the overall coordination of energy and economics. THE MODE OF WAR IS CHANGING It is inevitable that China and Russia will develop a special partnership in the future. In ten years, there will be a radical change in the three structural factors (power, wealth,

and social coherence) which form the core of international relations. The US factor is important in looking at Sino-Russia relations. The appearance of laser weapons, new unmanned aircraft systems, and microsatellite constellations, as well as concepts such as joint space operations and prompt global strikes have strengthened the aerial hegemony of the US. By 2020, the US plans to be able to do space-based laserintegrated flight experiments, using second generation space shuttles, reusable carrier rockets, and microsatellite constellations. By 2020, the US can deploy missile defense systems, space-based laser weapons, space-based synthetic aperture radar, aerospace fighters, and general aviation aircraft. That will mean a qualitative change in the military profile of the US, characterized by low costs, flexibility in performing tasks, protraction of air force duty, accelerated promptness of strikes, and integration of forces of space, air, land and sea. This new military menu is a radical improvement over Cold War strategies such as nuclear confrontation and large-scale mechanized war. When the US upgrades its military capabilities, it neutralizes the whole national defense systems of its competitors. As the only potential competitors against the US in the world, this upgrade of US military power will force China and Russia to come together in a special relationship.

HUAI Chang is a strategic analyst of China Energy Fund Committee.

CHINA EYE•Issue4 October 2013

China and Russia Should Enter the Age of “Back-To-Back” HUAI Chang (懷暢)

SINO-RUSSIAN RELATIONSHIP IS NOT SPECIAL YET In economics, finance capitalism as represented by Wall Street has led to the separation of capital from real economy, employment from economic development, and capital from technology advancement. With these three “separations,” capitalism in the US and Europe has already abandoned the “ethics of capitalism” in which capital produces real wealth. Finance capitalism has become a cancer which restricts global economic development. Although emerging economies, which include China and Russia, account for the larger portion of the global economy, they have not yet formed an effective global economic system which can replace capitalism in the US and Europe. In ten years, however, this will change. It will be a critical period of competition for the new global economic order and growth of wealth. With Web 2.0, social networks and mobile Internet devices have changed the way people interact. The traditional mode of society formation has changed. Communication through the Internet makes modern society, compared to traditional society, more unstable. This is especially obvious in China and Russia, which are left behind by the US and European countries in Internet technology. In ten years, because of the changes in the three main global factors (military, wealth, and social coherence), in order to be able to face the US, China and Russia need to develop a special partnership and strategic alliance. Although China and Russia have already established a “partnership of strategic coordination,” they have not formed a real special partnership. This is obvious in the aspect of economics. The trade amount between them has not gone over USD 100B. Negotiations for natural gas are delayed. Russia insists on selling natural gas to China at the European “international price,” which China cannot afford. As regards geopolitical

issues, Russia has a territorial dispute with Japan, but it stays neutral on the Diaoyu Island issue. VARIETY OF POSSIBILITIES IN ECONOMIC COOPERATION Chinese people complain that Russian people are not friendly, but China in turn has not yet recognized the sovereignty of Abkhazia and South Ossetia, which is supported by Russia. Although there are three million Russians travelling to China every year and 100,000 Russians living in China, China has not allowed the Orthodox Church to function. The Russians in China do not have a place for religious activities. China and Russia must learn the lesson of not acting only according to common international rules. Only when the two countries find a special way to get along or, in other words, actually be “deinternationalized,” can they establish a real partnership. After World War II, the coal and steel communities of France and Germany did not operate according to common market rules. Following their example, Russia and China can form an energy and economic community to trade oil and gas at the prices which are set by themselves but not by the international community. They can develop a mutual financial market. They can establish a mutual energy fund to subsidize the energy enterprises of both countries. In energy, economics, military, diplomacy and strategy, China and Russia can break the so-called international practice, act in a special way, and really become a special partnership with actual achievements. They can then enter the age of strategically “back-to-back.”

CHINA EYE•Issue4 October 2013

How to Build a Positive China-U.S.-Japan Trilateral Relationship ZHANG Tuosheng (張沱生)

Geopolitics How to Build a Positive China-U.S.-Japan Trilateral Relationship ZHANG Tuosheng (張沱生)

We should be focusing on understanding FALLON, William J.

China’s Four Strategies to Overcome Hostility WANG Haiyun (王海運)

How to Reform China’s Maritime Management System YU Zhirong (郁志榮)

Stranding of Chinese and American warships in the Filipino Sea is no coincidence MA Yao (馬堯)

Filipino submission of the South China Sea Question to International Arbitration is neither legal nor justified JIN Yongming (金永明)

CHINA EYE•Issue4 October 2013

How to Build a Positive China-U.S.-Japan Trilateral Relationship ZHANG Tuosheng (張沱生)

How to Build a Positive China-U.S.Japan Trilateral Relationship ZHANG Tuosheng (張沱生)

he stability of the trilateral cooperation among China, the U.S., and Japan is crucial to the peace and development of the Asia-Pacific region. In the last two years, that trilateral relationship has deteriorated. The most obvious causes of this situation are the rise of China and the U.S. global strategy readjustment. First, the rise of China has caused a big shift in the power ratio among China, the U.S., and Japan. China’s power is continuously increasing, despite its being still a developing country. The U.S. is still a superpower, but in relative decline. Japan has lost its economic momentum: its overall GDP was surpassed by China in 2010 and it now ranks third behind the U.S. and China. It is difficult for the three countries to accept the new world ranking. The U.S. is under tremendous external pressure to keep its position. China is internally pressured by over-optimistic voices and rising nationalism to claim the Number One position. Japan has still not accepted that it has reached the end of its economic momentum. Second, the American global strategy readjustment starting 2011 has brought a lot of uncertainty to the trilateral relationship. Is the “Pivot to Asia” aimed at China? Is the U.S. attempting to contain China by using Japan? Experts in the three countries, as well as in the

rest of the world, disagree on how to view the current situation. POLICY SIMILARITIES AND DIFFERENCES AMONG THE THREE Currently, the policies in China, the U.S., and Japan differ in many aspects, but also share a number of similarities. China will continue its policy of peaceful development and win-win cooperation. It will not change its policy to resolve territorial and maritime disputes through peaceful dialogue. China would like to end the increasing conflict with the U.S., to keep the overall stability of the bilateral relations, and to actively cooperate with the U.S. in building a new type of great power relationship. On the other hand, while continuously safeguarding its sovereignty over Daioyu Island, China will strengthen its crisis management, striving for a more stable, relaxed, and improved bilateral relationship, to get the Sino-Japanese relationship finally back on the right track. Since Barack Obama became president, the “Rebalancing Toward Asia” has become the U.S. administration’s fundamental policy. The U.S. continues to strengthen its bilateral military alliances, to bolster its relations with other countries including China, and to readjust its military deployment. It also strives

Mr. ZHANG Tuosheng is currently a Senior Fellow, Chair of the Academic Committee and Director of the Center for Foreign Policy Studies, China Foundation for International and Strategic Studies. He is a Former Research Fellow of the Institute for Strategic Studies at the People’s Liberation Army (PLA) National Defense University of China.

CHINA EYE•Issue4 October 2013

How to Build a Positive China-U.S.-Japan Trilateral Relationship ZHANG Tuosheng (張沱生)

ZHANG Tuosheng at the “Sino-US Colloquium III A Trialogue with Japan”

for economic benefits, reinforces its soft power, and increases its influence on regional multilateral issues. The U.S. has the strategic objective of managing and maintaining a good relationship with China, thereby preventing the rise of China and the weakening of U.S. leadership. Japan continues its right turn in foreign policy. Shinzō Abe is a conservative realist. With Japan getting closer to the U.S. and fiercely competing with China, Abe seeks to improve Sino-Japanese relations. In his own words, he intends “to improve JapanChina relations by returning to constructing a mutually beneficial relationship based on common strategic interests.” One can be prudently optimistic and hope that the three countries will maintain good relations and avoid conflict and confrontation. Their prominent common interests, such as economic relations, trade relations, and global challenges, should ensure the stability of Sino-U.S. and Sino-Japanese relations.

However, in the traditional security arena, especially in disputes of national sovereignty and geopolitics, discords exist and the risks are growing. In the future, there are two possibilities for the relationships among the three countries. First, the relationship among the three may become more unbalanced, conflicts between China and the U.S. will increase, the relationship between China and Japan will worsen and even lead to small-scale military confrontation. The U.S. and Japan will get closer to each other, working together to deal with China or even to contain it. This is possible if miscalculation happens in China or in the U.S. and neither China nor Japan can manage the crisis. If this is the case, there would be no winner. The national interests of all three countries, as well as regional stability, will be severely damaged. Second, the relationship among the three will move forward and gradually reach a new equilibrium, similar to what happened from

CHINA EYE•Issue4 October 2013

How to Build a Positive China-U.S.-Japan Trilateral Relationship ZHANG Tuosheng (張沱生)

2006 to 2009. The prerequisite conditions for this are that all the three countries will evaluate each other’s policies correctly and objectively, that all of them will adopt a pragmatic and realistic policy, that all of them can manage risk and crisis, and that all of them will cooperate based on common interest. Both scenarios are possible, based on the current foreign policies of the three countries. Which scenario will occur? The key to the answer lies on the new leadership of the three countries – will they have the insight, wisdom, and responsibility to build strategic trust among the three? Although many people think it impossible to build strategic trust relations between China and the U.S., or between China and Japan, it can be achieved, in my opinion, if all the three parties work together. The main components of strategic trust are mutual respect for each other’s core interests, a clear understanding of each other’s bottom line, the development of vehicles to facilitate trust building, and active cooperation in areas where common interests are identified.

leaders and the people of the three countries must watch out for. In order to build a healthy interaction among China, the U.S., and Japan, the three countries have to start a trilateral security dialogue. The aims of this trilateral dialogue are to construct “mainly collaborative, fundamentally stable, and relatively balanced” trilateral relations. The major agenda should be “strengthening cooperation, management of discord, elimination of misunderstanding, and trust building.” The main objective of the trilateral dialogue is to build a new type of great power relationship which is “nonconfrontational, non-enemy oriented, mutually respectful, and mutually beneficial.” One of the key points is that the U.S. and Japan should give up the traditional idea of an alliance that searches for enemies. The idea of strengthening an alliance to contain China has to be dropped. A successful China-U.S.Japan security dialogue will facilitate the transformation of the U.S.-Japan alliance and open a window of hope for future dialogue, connection, and cooperation among the three countries.

STARTING A DIALOGUE ON STRATEGIC DISTRUST One of the priorities in Sino-U.S. relations, as well as Sino-Japanese relations, is to lower the level of strategic distrust. Strategic distrust is rooted in structural conflict, interest divergence, and misunderstanding. The first and the second factors can be managed, and the third can be eliminated. The process can be initiated by think tanks in the three countries, starting from dialogues on the rising strategic distrust. “The China Threat,” “The Remilitarization of Japan,” and “The U.S. Encirclement of China” are topics which deserve further discussions. At this moment, there are many misunderstandings and miscalculations; those misunderstandings and miscalculations can produce a vicious cycle and a self-fulfilling prophecy. This is what the

* The article is excerpted from the author’s speech at the “Sino-US Colloquium III: A Trialogue with Japan” held by China Energy Fund Committee in January 2013.

CHINA EYE•Issue4 October 2013

We Should be Focusing On Understanding FALLON, William J.

will refer to my comments earlier as a foundation of my discussion. I really believe we should – if we’re going to make progress – be talking about things we know, things we understand from our own experience. Let others talk about their experiences, rather than us trying to put ourselves into their heads to explain their positions. If we do a successful job of explaining ourselves as the first step, then I think we can take subsequent steps to try to make progress. In keeping with that idea, I’d like to talk a little bit about the U.S. situation regarding this Pacific focus, and why it is that the U.S. is interested in this region. I will borrow from some of our previous speakers, with a couple of fundamentals. Certainly, the vast size of the population of the world that inhabits the Pacific area, the Pacific Rim, and all of the adjacent countries is the biggest reason. We’re very, very interconnected and interdependent in this world of ours, and the vast majority of the population lives in this region. Second is the tremendously large and increasing amount of economic activity, the trade between countries, and the continued growth and acceleration of this growth among the nations of the Pacific Rim. The third point that I would make is something that is unique, I believe, to the U.S. Let me go back to what I should have said at the start. What you’re hearing are my views.

They’re not the views of the U.S. government. I don’t intend or mean to represent my government. I’m giving you my opinion. That said, I’ve spent about forty-five years engaged in the world as a representative of my country. Now I’m a private citizen and I can reflect my views, but they’re shaped certainly by my experiences over the last four decades plus. And so, let me share with you a uniquely U.S. view. My country is very young, very new, compared certainly to China and to Japan. We have existed as a government, as it’s currently structured, and as a people for only a little over 200 years. But I think it’s worth remembering that the U.S. began, in fact, in a part of the country distant from the Pacific – on the Atlantic coast. It was primarily begun by immigrants from Europe. My country essentially was and still is an immigrant country. It has been called a melting pot. It has attracted people from all over the world, and over time, this pot has continued to grow. It’s worth remembering that the initial ingredients into this pot of people were almost all from Europe. But over time, the number of people coming from other countries, particularly Asian countries, has continued to increase. In my country, there has been a tradition that goes back almost to its inception of looking West. The West depends on where you are. It was quite interesting earlier today that we had a map with a view of the world

William FALLON is Chairman of the advisory board of the MIT Center for International Studies. He was formerly U.S. Commander of Central Command, Pacific Command and Fleet Forces Command and Vice Chief of the U.S. Navy.

CHINA EYE•Issue4 October 2013

We Should be Focusing On Understanding FALLON, William J.

from a perspective that I can tell you is rarely seen in the U.S., because we have our own perspectives, so we view the world through our lens. I can tell you that in the U.S., ever since its founding days, the view has been “look west.” Over time, the U.S. has, in fact, expanded west in North America to the Pacific shores. I would propose that that view continues for many reasons, not least of which are these two I have mentioned – population and economic activity. But if you were to look at the U.S. today, you would see a significant change from our founding a couple of hundred years ago. The demographic and geographic orientation of the country today is still to the west. But the west for the U.S. is where? It is here, the AsiaPacific region. There were comments this morning that I thought were very interesting and were in keeping with my philosophy. There were attempts made to explain terms that are used in common language, in the media, and among the people discussing issues today. The terms were given us from the perspective of individuals from both China and Japan, and I think that’s very useful. But I also saw a tendency to do a lot of prescriptive things, to give advice to others. We first ought to be focused on explaining ourselves. There has been a lot of discussion about this pivot to Asia of the U.S., this socalled new focus. In fact, the U.S. has been looking to the west for some time. At the end of the Cold War, not ten years ago, but beyond that, in 1989 and 1990, when the dynamic tension that existed for decades between East and West began to dissolve, the U.S. refocused then on its continuing look to the west. Ever since then, we’ve been developing, certainly in the economic sphere, greater and greater ties and significant growth in this region. So I would take issue with the term “panic reaction” to events in the last decade. In fact, there’s been a continued attention on this area, as there has been for a long time. The U.S. was very focused in the last

decade on the Middle East, for reasons that we’re well aware of. But since that is being resolved, the focus is again returning to this region. We have many common issues that we could address. Let us consider some of these. The foundation of the conference has its roots in energy - a common need for energy, population growth, development - high demand for energy, for transportation, for electric generation, and so forth. There are lots of opportunities here. But I think we should be mindful things are rapidly changing. Patrick (Dr Patrick CP Ho, Deputy Chairman and Secretary General of CFC) set the scene for us this morning with the view from Hong Kong of the world. I will tell you that, in the energy domain, things are changing very rapidly. I would predict that, over the next couple of years, the dynamic is going to give us some new opportunities. The U.S. has been the biggest consumer of natural resources for energy, certainly oil and gas resources, and has had a high demand for those resources outside of the U.S. That picture is changing quite rapidly. Even in the last couple of months, there’s been a dramatic decrease in the importation of these things into the U.S., since we’ve now rediscovered through progress in technology how to actually find these resources at home. Just as important if not more important, the U.S. is trying to be more efficient in the use of energy resources. This is a rapidly changing situation. We have to deal with our profligate misuse of some of these resources. We are creating significant problems, I believe, for our children and our grandchildren in the misuse of our natural environment. We’re polluting the Earth, and we’re going to have to stop. This isn’t something unique to any of our nations. It’s something we share in common. If we’re going to come up with solutions to address this problem, which I think we should do very urgently, we’re going to have to figure a way to do it cooperatively, because as we well know, there’s no lid over the countries. So

CHINA EYE•Issue4 October 2013

We Should be Focusing On Understanding FALLON, William J.

whatever goes up into the atmosphere is going to be around the world in very short order. Each one of these challenges that we find in the region and in the world are opportunities. We can speculate about what might happen in the future. We all have our opinions, but as I look at the range of possibilities, there’s one that strikes me as certain to occur. Certainly there will be some natural disaster - some flood, earthquake, tsunami; the history is pretty clear. It’s just a matter of time. So, how can we help ourselves? It seems to me, by preparing cooperatively. I thought it was very interesting that, when the disaster in Japan occurred last year, with a lot of people suffering, there was a lot of interest around the world. The technology allows us to be virtually anywhere, almost instantaneously. Just before this event, there was increasing tension between China and Japan. I was told from several sources that, in the wake of this event, many people in China saw the reality of individuals, human beings, just like we all are in every country, suffering, through no fault of their own. They just happened to be in the wrong place at the wrong time. This struck me as one of the baseline understandings of people throughout the world. We ought to be able to capitalize on this mutual vulnerability to what’s certain to happen again and help ourselves cooperatively to prepare for these things. The aim of the discussion today, this meeting, is regional stability and security. How to make it better. How to get somewhere. So, what can we do? How do we do it? We’ve heard about lots of challenges today. We certainly know about the historical animosities, the territorial disputes, the competition for resources, unfinished business - the Korean Peninsula for one. We’ve talked about common areas, like the seas. As a sailor of many years, I’m still waiting to find those lines out there on the ocean that say this is yours, and this is mine. They’re not there! This is a world commons. That’s how we ought to think about these things.

I’m reading a book someone was kind enough to give me a couple of days ago. The book is new, and it happens to be about Eisenhower, a U.S. president more than half a century ago. As I read this book, I’m struck by what was going on 50 to 60 years ago, and what is going on today. There’s not much new today. There are challenges between nations, there are challenges with people, with different viewpoints, people who are very boisterous, politicians who are strong and good leaders, politicians who are not good leaders. In the world, we’re all people. Scientists tell us that 99% of us are identical. Despite the way we look, the voices you hear, we’re very much the same people, with the same issues we’ve been dealing with for centuries. That ought to encourage us to set ourselves to work for the future. How could we do that? How can we approach security and stability? First, our minds. The mindset. We come into this discussion recognizing that we are one people, on one planet, we have limited resources that we have to share, we have many common interests, the cost of conflict is enormous. We could spend hours discussing the pain and loss – personal, economic, you name it – as a result of conflict. Haven’t we seen enough? There has to be better ways than friction and locking horns. We need actions to begin to build trust. If we listen to people, listen to their viewpoints, we might begin to have some understanding. And again, don’t lecture me about what I should be doing. Let me tell you about the way I think and the way I see things, and you tell me the way you think and you see things. I think that would be a good start. We could then go to the next level, and say, okay, you think this way, I think this way, is there another way? What can we figure out that we have in common? I’ve ticked off many issues that we could undertake that would be to the benefit of all of

CHINA EYE•Issue4 October 2013

We Should be Focusing On Understanding FALLON, William J.

us. We can take advantage of technology. In the energy area, there are rapidly developing techniques, procedures that should enable us to not be competing for limited resources, but being much more efficient in the use of those, and sharing the technology so that we can all gain advantage. Patrick mentioned confidence building measures. There are lots of opportunities to do this, things that we can demonstrate through our actions that people would believe. You know, they actually care about some of the same things that we care about. Let’s focus on our own actions. I’ll speak for my own country. I believe very strongly that the most important things the U.S. can do is undertaking things at home, inside the U.S., to fix our own position, to get our own act together - as I call it in a slang vernacular, to increase our own credibility to ourselves, and then to other people in the world, not going around the world, getting our fingers into a thousand things, but fixing fundamentals at home. We’re struggling in the dynamic current situation. Then we’ll be much more credible, I believe, in helping ourselves and helping you and others in the world. So, my prescription for ourselves is, fix our challenges at home, and then we’ll be happy to come out and engage. We’re not going to disengage from the world. We’re certainly going to stay engaged, but we’ve got some challenges at home. We know that. We’ve made a mess of ourselves economically, but we have huge potential. I believe that people in the U.S., just like people everywhere in all of the countries, fundamentally want to do the right thing. We share common interests. Particularly when it comes to security and stability, it’s first and foremost the things that are very close to home. It’s our families, our immediate neighborhoods. That’s why political leaders, in my opinion, need to be leaders, not to look around and ask what others want. We choose leaders to lead. And so, that’s what we

expect from ourselves. In this room we have many leaders, with a lot of experience and good voices. I don’t think we should allow the media, for example, to drive the agenda, to take the phrases and terms, and to provide a perception of conflict. We ought to be the leaders in driving this agenda. But be mindful that if we continue to talk about problems, without finding solutions, if we continue to talk about conflict, if we highlight the potential for war, we could have a self-fulfilling prophecy. That’s not what we should be doing. We should be focusing on understanding, building common interests, and moving forward collectively. I think we’ll make it a better world when we’re finished.

* The article is excerpted from the author’s speech at the “Sino-US Colloquium III: A Trialogue with Japan” held by China Energy Fund Committee in January 2013.

CHINA EYE•Issue4 October 2013

China’s Four Strategies to Overcome Hostility WANG Haiyun (王海運)

ecently the US has expressed increasing hostility towards China, even giving the impression to our neighbors that China is doing something bad for the region. China, however, should not be overly concerned. Despite the tactical noise from the US, China’s “Period of Strategic Opportunity” appears certain to continue successfully. The main reason is that seeking peace and development remains a strong desire of most countries in the world. Provoking China to get involved in a large-scale war will prove futile. Globalization of the world’s economy is still the growing trend. The national interests of different countries have made cooperation, rather than conflict, the objective of most countries. AWARENESS OF NONSENSE Today, China is no longer the weak country that was the victim of bullying in the past. Merely a handful of countries are now hostile towards China. However, even these countries are concerned about the consequences of cutting relations with China. In this sense, the viewpoint that “China is exposed to enemies on all sides” is sheer nonsense. Nevertheless, we must clearly recognize that China has entered an “annoyance-prone period.” China is a socialist country governed by the Communist Party. It is easy for Western powers to think of China as “different.” The

success of China’s development model can easily be regarded as an ideological challenge. Historically, the rise of any major country has always caused changes in the international order. Thus, it is hard for the international community to believe that China is going to be peaceful. Most Western media retain the mindset of Cold War. They vigorously publicize the message that the “expansion of a new rising power is historically inevitable and China shall not be the exception.” For most of its history, China was already the world’s major power and retained a culture of strategic insight equal to her power. Unfortunately, in the past one and a half centuries, China suffered Western exploitation, seriously weakening its strategic awareness as a major power. Although China has regained the status of one of the world’s great powers, some Chinese still think of China as a weak country. Paradoxically, other Chinese blindly believe that “China has been strengthened” and already has the capability of challenging other major powers. STRATEGIC POSITIONING: DEVELOPING GREAT POWER How China can ride out this “annoyanceprone period”? The author believes that China should strengthen four types of awareness. First, awareness of the national situation. The Chinese must accurately grasp the national strategic positioning. China should

WANG Haiyun is the Director of the Energy Diplomacy Research Center of the China Foundation for International Studies, and a Major General of PLA.

CHINA EYE•Issue4 October 2013

China’s Four Strategies to Overcome Hostility WANG Haiyun (王海運)

view itself as a developing great power, a veritable “developing country.” China must continue to adhere to her “low profile” policy, but in the meantime, do something significant as a major power. Thinking that China is already a great power in the world and thinking that China is still a weak country are both harmful to the Chinese people. Second, awareness of the overall global situation. The biggest challenge for China is to maintain national stability and ongoing development. It is necessary to secure both regional and international peace and harmony to ensure that the “Period of Strategic Opportunity” is effectively conducted. We must endeavor to build a “neighboring friendship zone” in the surrounding region rather than seeking to have an exclusive sphere of influence. We should behave as a great power, tolerating irresponsible statements and deeds by small countries. Third, awareness of the strategic situation. We must understand that national interests should include strategic and tactical interests, as well as long-term and short-term interests. We must develop a clear diplomatic strategy. We must unswervingly adhere to the underlying national policy of peaceful development, an independent foreign policy of peace, and the military policy of defensive strategy. We should adhere to the combination of integration, utilization, and modification. Fourth, awareness of stratagem. In Chinese traditional culture, stratagems are well developed and established. “Art of War” and “Thirty-Six Stratagems” are classic books that have even influenced the world. However, some Chinese professors today make reckless statements with no awareness of the external situation. We must recognize that diplomacy is the art of compromise. The national diplomacy policy must not only adhere to national principles, but must also be flexible. Therefore, we should take advantage of the external situation, but we should not go on a rampage. We should adopt multi-polarization as our strategy to balancing the powers. We should

work with our coalition allies to avoid selfisolation. We should also foster relationships with countries that advocate cooperation with China. We should strengthen media diplomacy in order to ensure that the world can perceive a realistic picture of China. This can be achieved by encouraging experts who truly understand China’s national interests to make more statements to guide public opinion. In addition, we should also carry out patriotic education vigorously, but we must beware of the rise of extreme nationalism that will ruin our national opportunities.

CHINA EYE•Issue4 October 2013

How to Reform China’s Maritime Management System YU Zhirong (郁志榮)

ow should China’s maritime management system be reformed, particularly its maritime law enforcement system? At present, China’s management system, commonly known as the “five dragons governance at sea,” consists of the following institutions: (1) the China Marine Surveillance Corps (CMS) of the State Oceanic Administration, (2) the Fishery and Fishing Harbor Supervision Authority of the Ministry of Agriculture, (3) the Anti-Smuggling Bureau of the General Administration of Customs, (4) the Maritime Safety Administration (MSA) of the Ministry of Transport, and (5) and the Border Control Department of the Ministry of Public Security. For the past 30 years, despite criticism, no successful reform in the system has been made. The author believes that there are three major reasons for the lack of change in the system. First, the current maritime management system appears reasonable, despite its being costly, inefficient, contradictive, disputative, complicated for legislation, and difficult for law enforcement. The system does cover all the maritime sectors and industries and does not neglect any management area. Maritime management theory and legislation are mature. The management level, standard, and efficiency meet the needs of China’s present maritime development. The system was not invented by a national institution nor a small group of people, but was based on extensive

solicitation and consolidation of opinions and then manifested, enforced, and developed by legislation. The objective of reform is not to displace the current system, but to establish a higher and broader perspective, more responsive to the needs of the current national situation. REFORM WILL TAKE TIME Second, attempts to reform the system encountered problems in the past. The Chinese central government elections occur every five years; a new series of government institutional reforms usually follow. The maritime management system reform, however, is subject to its own complexity, systematization, and particularity. In the past, reform meant to be completed within a short time always resulted in failure. The system has also been in place only for a short period of time. It is difficult to make an objective assessment of the system, given its short life. Institutions tasked with reform, moreover, tended to attract opposition from other institutions. For example, the State Commission Office for Public Sector Reform (SCOPSR) was once assigned to research and prepare a reform program. The SCOPSR, however, is not an authority on maritime management systems. Also, there is no ready-made model for reform.

YU Zhirong is a Researcher at Shanghai Japan Studies Center, and former Deputy Chief Captain for the East China Sea Patrol of China Marine Surveillance.

CHINA EYE•Issue4 October 2013

How to Reform China’s Maritime Management System YU Zhirong (郁志榮)

CONFUSION BETWEEN MANAGEMENT AND ENFORCEMENT Third, the public does not have a clear concept of what reform means. Most people mistake the concept of “maritime management” with “maritime law enforcement.” They ignore the complexity of reform and mistakenly believe that merely unifying the “five dragons” into a new China Coast Guard will solve all the problems. Indeed, the maritime law enforcement system forms the most important part of China’s maritime management system, but it is only a part. We must first clarify the definition of reform before we can carry it out. Only on this basis can the reform be conducted scientifically and accurately, increasing the probability of success. The maritime management system is not limited to the “five dragons.” The Department of Boundary and Ocean Affairs of the Ministry of Foreign Affairs, the Law Committee of the National People’s Congress, and the State Council Legislative Affairs Office, as well as prosecutors and courts, are also crucial in the enforcement of the maritime management system. There is also a lack of maritime awareness, a weakness in theoretical development, a faulty legal system, an unhelpful administrative system, and incompetent personnel and outdated equipment. We cannot just concentrate on the reconstruction of the “five dragons” and disregard the national situation by merely copying methods adopted by foreign countries. Most important, we cannot take either of the two extremes – do nothing or indiscriminately adapt a one-size-fits-all solution. China’s modern maritime management system has been there since the 1980s. It is about time to adjust and reform the current system. But we must first study the matter thoroughly to be able to put forward a scientific and rational reform program. We

should learn from our failures in reforming the health system, the education system, and the wage distribution system in the past. COMPREHENSIVE VIEW OF THE WHOLE PICTURE The author puts forward the following three proposals: First, China’s maritime management system reform should be made on the strategy level. We should not merely look into the reorganization of the current “five dragons.” At the upper levels of governance, research, decision-making, coordination, and implementation should be considered as a whole. On the law enforcement aspect, legislation, judiciary, and law executors should have the same ideals and objectives. On the social sector aspect, political, academic, military, media, and non-governmental circles should have the same goals. On the institutional level, CMS, fishery, MSA, coast guard, customs, and navy should work as a team. Second, the reform must be led by the National Development and Reform Commission. The reform should go up to the state and national levels. We can assign a permanent institution to organize the research and to make recommendations based on research. The reform must be scientific, rational, and practical. As an experiment, we can perhaps initially unify CMS and fishery to create synergistic efficiency. Third, the reorganization of the maritime management system implies a revisit of all pertinent laws and regulations. We must plan the best sequence of legislation to implement institutional reform. The reform must neither alter the existing legal procedures nor affect the current maritime management system. China should formulate an agenda for maritime basic law legislation. The comprehensive development of China’s maritime dedication is not only a good idea, but also the people’s long-awaited wish.

CHINA EYE•Issue4 October 2013

Stranding of Chinese and American warships in the Filipino Sea is no coincidence MA Yao (馬堯)

n January 17, 2013, USS Guardian, an Avenger-class minesweeper, ran aground on its way to a port call on a coral reef in the Indonesia Sulu Sea, according to a report by the U.S. Seventh Fleet. Coincidentally, a similar incident had occurred to a Chinese navy vessel not too long before on July 11, 2012, when a corvette was stranded off the Half-Moon (Banyue) Shoal in Nansha, a mere 63 nautical miles from Filipino territory. Within the space of less than a year, two warships belonging to the two greatest economic powers in the modern world have been grounded in the waters off the coast of the archipelago nation – and this is definitely no coincidence. Zbigniew Brzezinski, the renowned American geopolitical theorist, believes that the aim of American geopolitics in the postCold War era is to prevent the emergence on the Eurasian continent of a single country, or a union of several countries that would defy American hegemony. Not only will America as a consequence need to control all the oceans, it will also need to develop the military abilities required in joint air-sea-land combat operations controlling coastal areas, so that American power may be taken inland in a politically significant way. American troops are firmly based on the Eurasian continent and maintain a firm grip over the Persian

Gulf. Lu Bobin, an academic specialising in international issues, has further pointed out that China possesses great geopolitical potential for maritime expansion, for the size of Chinese territory and its comprehensive internal communications provide the necessary strategic foundations for China to develop continentally-based naval power. THE POINT OF MARITIME POWER CONTENTION SHIFTS TO THE SOUTH CHINA SEA Dominance at sea is a precondition of maintaining American hegemony. This is precisely why China has been seen by America as its top geopolitical rival. Yang Zhen and Zhou Yunheng (2011), Chinese researchers on maritime power, have written that China would be dependent on the ocean in not only its future security, economy, resources, environment and politics, but even in its development of aerial abilities. American command over the waters surrounding China implies American-imposed control over Chinese economic development, energy importation, environmental pressure relief, and sustainable development on a national level, besides strangling Chinese aerial power. American strategists generally believe that transitions between superpowers are

MA Yao is an advisor to China Energy Fund Committee, and a military expert of “Center for Non-Traditional Security and Peaceful Development Studies”, Zhejiang University.

CHINA EYE•Issue4 October 2013

Stranding of Chinese and American warships in the Filipino Sea is no coincidence MA Yao (馬堯)

inseparable from the rise and decline of maritime prowess. Sino-American conflict in the maritime arena has been on the rise for this reason. Yang and Zhou have prophesised that the focus of contention for Sino-American maritime rivalry will shift from the Yellow Sea to the South China Sea. The Chinese corvette and the American minesweeper have run aground in locations around, if not within, the South China Sea, a semi-enclosed body of water which together with neighbouring archipelago groups, constitutes the components of a siege on the Chinese continent, as would be obvious on any map of the region. The South China Sea, a vital access for the continental powers to the ocean, and the point of strategic contention between the maritime powers, occupy an extremely important geopolitical strategic position. A CLEAR DEMARCATION OF RIGHTS ACCORDING TO THE LAW OF THE SEA This marginal sea, occupying a surface of over three million square kilometres, is the strategic passage between the Indian Ocean and the Pacific, and the lifeline of Japan. Contemporary maritime rivalry symbolises the transitional reality of regional and global power foundations and structures. As the key area of geopolitical strategy, the ebb and flow of the maritime balance of power in the South China Sea pushes for structural changes in the entire region and for interactions in realpolitik between superpowers such as China and America. There is without doubt an American strategy of maritime superiority in the AsianPacific region underneath the increasing sophistication of the disputes in the South China Sea, to which America has made its return in the wake of the end of the Cold War. Its repeated policy declarations on its intention to maintain a firm grip over the South China Sea are more or less explicit warnings to China, whose rising maritime power have

created worries and anxieties embodied in these American manifestos. The fact that American minesweepers have frequently been seen in the Philippines serves to show the intense level of American armament in the region. The stranded USS Guardian is a member of the Avenger-class of mine countermeasure vessels which are unique for having both minesweeping and submarine-detecting functions which allow them to spot and identify various kinds of underwater explosives. The hulk of these vessels are constructed of oak and fir and covered with a layer of fibreglass, giving the ships a low magnetic signature. Ships of the Avenger-class are auxiliary vessels in combat, with low firepower and speed, and require cover from aircraft carrier fleets and carrier-borne aircraft which provide sufficient firepower. The fact that Avengerclass vessels have appeared in the Philippines, which are in geographical proximity to and in maritime dispute with China, implies clearly that – 1. An immense American combat system is already, or will soon be, in place within the region to provide cover to these vessels, and that 2. This is directed against rival China, which is renowned for its abilities in asymmetrical warfare on sea involving the use of mines, and that 3. For the Philippines it is a confirmation of American support in maritime dispute. The area of a country’s maritime sovereignty became a matter of legal definition under the United Nations Convention on the Law of the Sea (UNCLOS), from which point on a legal basis came into existence for demarcating maritime frontiers without having to resort to wantonly trampling over the maritime rights of neighbouring states under a “might is right” logic. Seaborne nations are now learning how to confront actions that infringe on their maritime interests through justified, effective and reasonable means, to be found in the provisions of the Law of the Sea. This is certainly conducive to fostering a peaceful maritime environment in which the

CHINA EYE•Issue4 October 2013

Stranding of Chinese and American warships in the Filipino Sea is no coincidence MA Yao (馬堯)

existence of a benevolent maritime order will promote the economic development of coastal areas. RECONNAISSANCE TECHNOLOGY PREVENTS MISJUDGEMENT Signatories of the UNCLOS comprise of a diverse range of social systems and levels of economic development. Imperfections and insufficiencies are natural to a document that was the product of long-term rivalry, compromise, consultation, moderation and accommodation between different forces. Certain provisions of the UNCLOS are predisposed to exploitation by opposing interest parties in conflicts, and they have to a certain extent provided incentive to on-sea confrontation and clashes. Such a predicament has found realisation in the Sino-American rivalry for sea power and the Sino-Filipino maritime dispute. Yet the message brought forth by the stranding of the Avenger-class minesweeper does not necessarily imply war between China and the United States in the South China Sea. From an objective point of view according to Shi Yinhong, a Chinese expert on international relations, the value of war as a tool to sustain national interest has been on the decline since the Second World War due in large part to five phenomena – 1. The cost and destructiveness of war has drastically increased due to advances in weaponry; 2. Such weaponry is usually conducive to defence rather than offensive action, and the prospect of a foreseeable “failure of invasion” has served as deterrent against potential invaders, thus lowering the need for pre-emptive strike; 3. Advanced military technology can hardly be kept within closed borders, and the gradual equalisation of military abilities between rival states has also served to deter invasion; 4. Reconnaissance technology, notably through the use of satellites, has reduced room for misjudgement, and thus, the outbreak of war as a result of

blind optimism; 5. The horrors of the Second World War have served as a principal factor of discouragement for military conflict to the majority of developed and underdeveloped countries in the contemporary world. The South China Sea will be a sea of peace, if the Philippines will learn to respect the rightful maritime interests of its neighbours, and if America will give up on its Cold War mentality. Antiquated vessels, like USS Guardian, now well beyond their second decade in service, would no longer have to risk stranding themselves on futile missions in distant, sophisticated waters. The coming of this day will be as much an occasion for rejoice for the American people as it will be for the Asian peoples – including the Chinese and the Filipinos.

CHINA EYE•Issue4 October 2013

Filipino submission of the South China Sea Question to International Arbitration is neither legal nor justified JIN Yongming (金永明)

n blatant disregard of Chinese protest, the Filipino Government submitted the South China Sea Question to the International Tribunal for the Law of the Sea (ITLOS) for arbitration. The ITLOS then proceeded to appoint an arbitrator representing China, even though this country had expressed its non-recognition of the arbitration process. A judicializing tendency has thus entered the disputes on the South China Sea. The South China Sea Question consists of two interlinked but distinct disputes – the main one that is territorial, involving shoals around Nansha, and another that is maritime, involving the demarcation of borders. Because the primacy of land over the sea is a basic tenet of the Law of the Sea, it is only possible to demarcate borders in overlapping and disputed waters if sovereignty over the shoals can be determined. The Philippines submitted the Question to ITLOS in the hope that the “Nine-Dashes” which mark the Chinese border in the South China Sea would be declared illegal for having constitutionally violated the United Nations Convention of the Law of the Sea (UNCLOS). The aim was to expropriate for the Philippines the sovereignty and maritime interests of the South China Sea, thereby removing the obstacles that stand in the way of its exploiting

the undersea oil and natural gas resources to the west of the archipelagic nation. Is the Philippines justified in its unilateral submission for arbitration to the ITLOS of the South China Sea Question? CONSEQUENCES OF A UNILATERAL SUBMISSION Article 286 of the UNCLOS stipulates that the precondition to a submission for arbitration is that a dispute has not yet been solved after all dialogues between the two parties in question have been exhausted or terminated. A submission is only justifiable on the part of the Philippines if it decides that no solution is possible to the Sino-Filipino maritime dispute after bilateral negotiations, including an exchange of views, have ceased. In principle, maritime disputes between countries should be resolved through peaceful means. Because the cessation of negotiations is a judgement on the Filipino side, the country should bear all consequences such a judgement will bring, including any resolution of the dispute through non-peaceful means. The Filipino submission was in contradiction to the consensus embodied in the “Declaration on the Conduct of Parties in the South China Sea.” Article

JIN Yongming, Doctor of Laws and Doctor of Theoretical Economics, is Deputy Research Analyst of the Maritime Law Research Center at Shanghai Academy of Social Sciences; Director of the Center for Oceans Law and Policy; and Secretary-General for the Youth Academic Salon of the Science of Law.

CHINA EYE•Issue4 October 2013

Filipino submission of the South China Sea Question to International Arbitration is neither legal nor justified JIN Yongming (金永明)

7 of the Declaration stipulates that all parties concerned should “stand ready to continue their consultations and dialogues concerning relevant issues, through modalities to be agreed by them, including regular consultations on the observance of this Declaration, for the purpose of promoting good neighborliness and transparency, establishing harmony, mutual understanding and cooperation, and facilitating peaceful resolution of disputes among them.” The Filipino violation of the consensus embodied here has another clear consequence – from now on, this country can be reasonably excluded from all discussions which create legally-binding documents like the ASEAN Declaration.

Convention.” This means that ITLOS shall have no jurisdiction should the relevant states be unable to conclude an international agreement that will settle the dispute. On August 25, 2006, China submitted a written declaration to the SecretaryGeneral of the United Nations announcing its non-acceptance of international judicial and arbitrational jurisdiction on matters concerning the demarcation of maritime borders and disputes of a territorial or military nature. The arbitrational processes stipulated in Clause 3 of Article 297 of the UNCLOS are thus irrelevant to the case of China.

ITLOS POSSESSES NO JURISDICTION

The South China Sea Question should be resolved through the principle of acquisitive prescription in international law rather than the clauses of the UNCLOS. The UNCLOS itself makes clear in its preamble that it recognizes “the desirability of establishing . . . with due regard for the sovereignty of all States, a legal order for the seas and oceans” and that “matters not regulated by this Convention continue to be governed by the rules and principles of general international law.” The institutional provisions of the UNCLOS are only applicable to the question of the demarcation of maritime boundaries in the South China Sea. It is obvious, therefore, that it was wrong for the Philippines to submit the South China Sea dispute to the ITLOS for arbitration. China would never agree to such an act. The arbitrational court set up by the ITLOS holds no jurisdiction on the matter. That the ITLOS has as a matter of fact been attempting to set up such a court serves little purpose beyond fomenting hostile international opinion against China by creating the impression that the country is posing a challenge against international protocols. Under present circumstances an effective and practical resolution of the international

Article 286 of the UNCLOS says that any dispute submitted to the ITLOS or to an international court with territorial jurisdiction must be one where interpretations of the convention may be applicable. Does the South China Sea Question fulfil this requirement? Nullum crimen sine lege (no crime before the law exists) is the foundation of the concept of Intertemporal Law, which holds that a legal right can only be established in accordance with the law as it existed at the time. The “Nine-Dashes” were created long before the UNCLOS came into legal existence. Therefore the UNCLOS is of no use in establishing the legal status of the “Nine-Dashes,” which is not subject to any ruling made by the ITLOS. Moreover, the ITLOS is also powerless to rule over territorial disputes like those over the shoals, unless an international agreement has been made by the relevant countries providing jurisdiction to the ITLOS. This is because Clause 2 of Article 288 of the UNCLOS says that an international court “shall . . . have jurisdiction over any dispute concerning the interpretation or application of an international agreement related to the purposes of this

THE FOSTERING OF PUBLIC OPINION HOSTILE TO CHINA

CHINA EYE•Issue4 October 2013

Filipino submission of the South China Sea Question to International Arbitration is neither legal nor justified JIN Yongming (金永明)

dispute over the South China Sea should be peaceful and political. For a reasonable settlement of the South China Sea dispute, the countries in question must demonstrate their true sincerity for returning to negotiating in the direction of a political solution, which would entail the sharing of resources and interests among them, thus ensuring the peace and security of the region. We need to acquire a fresh understanding of the true nature of the South China Sea Question.

CHINA EYE•Issue4 October 2013

Household Registration Should Be a Motive Power of The New Series of Reforms Zhou Ziheng (周子衡)

Economy Household registration should be a motive power of the new series of reforms Zhou Ziheng (周子衡)

What pushes up China’s housing prices? Gao Liankui (高連奎)

CHINA EYE•Issue4 October 2013

Household Registration Should Be a Motive Power of The New Series of Reforms Zhou Ziheng (周子衡)

ince the cases of Zhan Haite in Shanghai and Zhang Shujun in Shandong, cases related to household registers have happened frequently. At the end of last year, the central leadership stated clearly that the household registration system had to be reformed, so that rural migrant workers would become citizens and their housing problems would be solved. China is going to be the world’s largest economic entity. Its most important economic factor is not capital nor land, but labor. If millions of rural migrant workers become citizens, this will increase China’s enormous social and economic vitality. On the other hand, if this is not done, it will be difficult to maintain the existing achievements of economic reform. In other words, if there is no reform in the household registration system, there will not be other reforms in China. Over the past 34 years, China’s Reform and Opening Up has been aimed at increasing productivity. The main method was to promote economic, price, and enterprise reform under marketization, thus maximizing the wealth of the society. Under that method, nationalization of reproductive rights was adopted. The extreme implication of this concept was to regard the human being as a mere tool of economic and social development, not its aim or destination. Because of the downplaying of the human factor, agricultural prices were suppressed, cheap labor was increased,

urban and rural areas were kept distinct, the monopoly and control of land transfer was maximized, and the huge urban-rural household registration system was maintained. THE FUNDAMENTAL RELEASE OF LABOR POWER The center of the new reforms should be the reform of the social and economic structure in urban and rural areas, in order to increase productivity. The main method should be the total reform of the household registration system, including changing rural migrant workers’ household registers and the reform of the property system. The human resources of China’s almost 1.4 billion population cannot be ignored. For the first time early last year, China’s urban population overtook its rural population. Most of the second generation of peasants have moved out of villages. Many of them were born and grew up in cities. Keeping their rural household registers and excluding them from urban finance and public services have made people unequal because of their place of birth. This is against the nature of China’s social economic structure and should be corrected. Traditionally, China’s economy and society were agriculture-oriented. The management of household registers and land was the lifeblood

Zhou Ziheng is a guest commentator of China Energy Fund Committee; and financial expert at the Institute of Finance and Banking, Chinese Academy of Social Sciences.

CHINA EYE•Issue4 October 2013

Household Registration Should Be a Motive Power of The New Series of Reforms Zhou Ziheng (周子衡)

of the national economy. In modern times, under the pressure of industrialization, China’s economy and society were divided into urban and rural types. The agriculture-oriented institutions were abandoned, while urban institutions developed. In the late 1940s, China launched an unprecedented movement of land reform to equalize land ownership. The People’s commune movement in the 1950s centralized land ownership. It also monopolized purchase and sales in order to control the food supply. These were necessary for rapid industrialization. Under the instruction of “Take grain as the key link,” rural sidelines were, in fact, restricted, and peasants were tied down to the land. Under collective farming, the economic conditions of peasants lagged far behind those of urban workers, because of the price differences between industrial goods and agricultural produce. In the early 1960s, China suffered a great famine. There was a large decline in urban industries, forcing an enormous number of rural migrant workers to return to their villages. Some of them, however, were unwilling to return to the villages. They were stranded between cities and were called “the aimlessly drifting population.” To control this drifting population, the authorities established a policy of custody and investigation. They sentenced the drifting population to reeducation through labor. At the same time, long-distance traffic was considered “engaging in speculation and profiteering” and became a crime. In that period, the interaction of labor and goods in different regions was inconceivable. EXCHANGING LAND RIGHTS FOR HOUSEHLOD REGISTERS The institution of custody and investigation continued early this century and was abolished only after the case of Sun Zhigang. The free flow of rural laborers and commodities began in the early 1980s. In the 1990s, many rural

laborers crowded into the emerging industrial enterprises in the coastal areas. Thus, they became the world’s largest group of “economic migrants.” Working away from home became the way for China’s rural laborers to make a fortune. Cheap agricultural produce, cheap land, and cheap labor stimulated the expansion of cities and their economies. Rural laborers decided to stay in cities. Conflicts in demolition areas often happened. In this period, the country lost about USD 40B of agricultural tax annually, while rural migrant workers were owed hundreds of billions of dollars in wages. The difference between the land revenues of urban and rural areas reached a trillion dollars. After the suppression of identity by industrialization and the planning institution, the largest group of peasants became rural migrant workers. These cheap laborers who lost their land could not be included in urban household registers. Their children were placed at the edge of social economic systems in cities or even excluded. Paradoxically, rural areas and peasants have made tremendous contributions and sacrifices much larger than those in the era of planned economy. Peasants and their descendants are still at the bottom layers of China’s economic society. They still have the institutional birthmark of the era of planned economy. Ignoring the rural migrant workers will make not only the urban economy but the whole country’s economy disintegrate. If the household registration system is not changed, hundreds of millions of peasants and their descendants will keep on making sacrifices. This spells economic, social, and political disaster. If hundreds of millions of rural migrant workers and their families change their household registers to settle in cities, they who make up the most energetic generation in China’s vast rural areas will permanently give up their land rights. In the game of “exchanging land rights for household registers,” how many peasants and their descendants will choose to stay in rural areas?

CHINA EYE•Issue4 October 2013

Household Registration Should Be a Motive Power of The New Series of Reforms Zhou Ziheng (周子衡)

Can they stay? Similarly, can urban residents change their household registers to rural areas to obtain land rights? Household registration reform and land reform complement each other. They will completely renew China’s property institution. This will not only greatly affect China’s society and economy, but will also bring great changes to China’s democracy, freedom, and rule of law.

CHINA EYE•Issue4 October 2013

What Pushes Up China’s Housing Prices? Gao Liankui (高連奎)

hina’s housing prices have been rising. Property developer Ren Zhiqian says, “Housing prices have increased by 5 times, and China’s M2 has also increased by 5 times.” This makes it appear that broad money (M2) pushes up housing prices. Actually, however, inflation does not push up housing prices; on the contrary, the rise in housing prices pushes up inflation and the growth of money. Broad money and base money are not the same. Base money refers to printed bank notes. Broad money is an accounting concept not related to the printing of bank notes. After a bank gives a loan to a corporation, the corporation does not spend the money immediately nor does it put it in a safe. Instead, the corporation deposits the money in the bank. There is then a new deposit in the bank. Once a bank makes a loan, a new deposit is made. This process does not cause a decrease but an increase in deposits. Most deposit balances announced by the People’s Bank are derived from loans in this way. This is the main source of the growth of broad money and can be called the recycling of money. “MONEY MULTIPLIER” CAN BE INFINITE The ratio of broad money to base money is called the “money multiplier.” Theoretically, banks have an unlimited amount of money to

use, and the money multiplier can be infinite. However, if the money multiplier is infinite, the financial risk is also infinite. If the original deposit is withdrawn, all recycling chains collapse. Therefore, every country has a reserve requirement. Banks are not allowed to lend all the money they have; they must reserve a part of it. The required reserve ratio limits the amount of the money multiplier. Thus, the amount of broad money depends on the amount of base money, as well as the money multiplier. A little change in the money multiplier will cause a great change in broad money. This is not related to the printing of bank notes, but depends on the willingness of banks to lend. After September 2009, the money multiplier of the U.S. has decreased to 4.63, which is the lowest since 1959. From 1959 to 2013, the highest money multiplier of the U.S. was 12.44 in March 1985. Its average money multiplier is 9.74. Between 2001 and 2010, the highest money multiplier of China was 5.17 (July 2006); the lowest was 3.68 (December 2008). The median is around 4.45. Between 2003 and 2006, China modulated its required reserve ratio when its money multiplier was over 4.6. This was the starting point of tight monetary policy. When the money multiplier went below 4.00, fears were raised of an economic downturn. Normally, the money multiplier of the U.S. is double that of China. This means that the U.S. has a greater ability in financial

Gao Liankui is a specially invited commentator of China Energy Fund Committee and a Researcher at Shanghai Jiao Tong University.

CHINA EYE•Issue4 October 2013

What Pushes Up China’s Housing Prices? Gao Liankui (高連奎)

recycling. An economic crisis can reduce the money multiplier by half. In the U.S., the money multiplier decreased by about 4.00, which means that its broad money decreased to four times its base money. In contrast, China’s broad money decreased to twice the amount of its base money. MARKETIZATION AFFECTS HOUSING PRICES Business loans are conventional. In China, new loans are mainly housing loans. In the U.S., the decrease in housing prices led to a decrease in the money multiplier. In China, the increase in housing prices led to an increase in the money multiplier. Buying a house is an important process to create broad money. If somebody borrows RMB2 million to buy an apartment in a firsttier city, RMB2 million in M2 will be created. In second-tier cities, each family creates around RMB500 thousand in M2 by buying houses. In third-tier cities, each family creates around RMB300 thousand in M2. Each family creates several hundred thousand dollars in broad money. Broad money, therefore, necessarily increases. Inflation is not the cause of the increase in housing prices. It is the other way around: rising housing prices push up inflation. There are three basic causes of inflation in China. One is related to food, another is related to imported commodities, and the third is related to housing. Currently, food is controlled by the government. The price of food fluctuates widely in the short term, but remains stable in the long term. The influence of imports of commodities has been offset by the technical advancement of local enterprises. The only change related to inflation is the increase in housing prices. Whenever China’s annual inflation is greater than 5%, the prices of most goods do not rise. For example, the prices of electric appliances, cars, and consumer electronics,

which account for the largest consumption in China, do not rise. They can keep falling. If money supply were responsible for inflation, the prices of these goods should increase by five times. If the price of consumer electronics decreases because of the technological revolution, then how can we explain the stability of the price of cars? In China, the property developer is not the only one who is responsible for the increase in broad money. As long as houses are supplied under marketization, it is difficult to afford them. People buy houses in cities. Under the law of supply and demand, people are sure to pay much more than the cost of building materials and land price. This does not happen only in China. The housing prices in Tokyo, Switzerland, New York, and London are also very high. The key reason is marketization, not the government nor the property developer.

CHINA EYE•Issue4 October 2013

For Peace to Prevail on Earth, Let Peace Prevail in Us HO Chi Ping, Patrick (何志平)

Culture For Peace to Prevail on Earth, Let Peace Prevail in Us HO Chi Ping, Patrick (何志平)

Reexamining the Source of Civilization and Constructing Human Ethics Xu Jialu (許嘉璐)

Mystery of Dialogue Cardinal McCarrick

Geo-Religion as a New Way Forward XU Yihua & ZOU Lei (徐以驊、鄒磊)

CHINA EYE•Issue4 October 2013

For Peace to Prevail on Earth, Let Peace Prevail in Us HO Chi Ping, Patrick (何志平)

ne of the most distinctive aspects of China as a country, and the Chinese as a community, is the rather upbeat and yet pragmatic ways the Chinese people embrace the future. Far from fearing what lies ahead, we Chinese are aspiring to a new and peaceful world civilization based on principles of benevolence, respect, trust, equality, and continuing human advancement. This vision, driven by humanity’s historic longing for peace and prosperity, is renewed by our appreciation that all of us on this earth of ours share a common fate that each and every one of us has the responsibility to defend, and the sensibility to safeguard. The Chinese are a peace-loving people. During the Ming Dynasty when China’s GDP was one-third of the world’s, Admiral Zheng He’s powerful fleets sailed from the South China Sea to the Indian Ocean, to Africa and, arguably, even to America, some 71 years before Columbus. Whereas Julius Caesar said “I came, I saw, I conquered”, Zheng He and his many sailors said “I came, I saw, I made friends, and I went home”. No battle was fought, no colony seized, and no people were enslaved. This pacifism, that is an ingrained virtue of the Chinese, is founded on a 2500-yearold legacy of Confucian principles that is

so closely woven into our social fabric that Confucianism is part of people’s everyday life, alongside Daoism and Buddhism. Indeed, peace, a core value in ancient Chinese Confucian teachings, can today serve as an effective bridge-builder between faiths, cultures, civilizations, and nations. Confucianism anchors its principles on an ancient religious foundation of Daoism, to establish the social values and ideals for traditional Chinese society. It is human-oriented and stresses honourable conduct in a social context. Confucian philosophy presupposes three “Biospheres” of human interactions: Heaven, Earth, and Humans. And Man must find peace in all three. For the Man-Man biosphere, Confucius emphasized proper conduct in one’s social relations, because it is in the company of others that man reaches his ultimate fulfilment. This code of behaviour is called “Li” or the social and ethical norms that guide people to do the appropriate things at the right time, manifesting respect and kindness. Regarding Man-Earth interaction, we are all ultimately linked to all life on earth and therefore must treat our environment with respect and care. Furthermore, Man’s obsession with development and growth, and particularly still

CHINA EYE•Issue4 October 2013

For Peace to Prevail on Earth, Let Peace Prevail in Us HO Chi Ping, Patrick (何志平)

more things to give us greater convenience, pleasure and comfort, contradicts all teachings against extreme greed, and the principle calling for moderation. Concerning Man-Heaven interaction, Confucius honoured Heaven as the supreme source of goodness upon which every human being is personally dependent. The pinnacle achievement in life is to be at one with Heaven. In fact, this Heaven of Confucius is the inner peace we can all find within ourselves, and is attainable by practising a life enlightened with virtues. The most important of all virtues is benevolence (“Ren”), which is love of fellow humans, a sense of compassion based on the dignity of human life, and great self-respect. We cultivate “Ren” by putting ourselves in the position of others and treating them as you wish them to treat you. Confucius said “Do not do to others what you would not like others to do unto you”, and “Do unto others what you want others to do unto you.” Benevolence means the practice of these two golden principles, which universality permeates all world ethical, cultural, and religious traditions throughout the ages. With incessant pursuit of truth, selfdiscipline, respect for others, and acting with sincerity in accordance with “Li”, one can embody “Ren” or benevolence, the highest level of moral maturation, and thus achieve oneness with Heaven, in harmony with “Dao”, the Way, and so achieve peace. The Chinese understand peace as something internal; it starts from within every one of us, and should be cultivated and nurtured. Before undertaking such a pursuit we must first set our minds in order, and then ensure that our purpose is sincere, so that our quest for wisdom can become complete through a careful discernment of nature. For with nature discerned, wisdom is achieved, and our purpose becomes sincere. Real self-discipline acquired will yield

harmony within the family, paving the way to good governance in the realm, and global peace. This is Confucius’s utopian vision of peace. Peace on earth begins with finding the inner peace inherent in every one of us. We must be at peace with ourselves before we can be at peace with one another. Peace comes from within, not from yonder. For Peace to prevail on earth, let Peace first prevail in us, in our hearts. Let us find peace by loving one another as we love ourselves, and by respecting and loving one another’s country as we respect and love our own country.

* This article is an extract from the author’s speech on “United for a Culture of Peace through Interfaith Harmony” organized by the The United Nations on April 16, 2013, the United Nations General Assembly Hall.

CHINA EYE•Issue4 October 2013

Reexamining the Source of Civilization and Constructing Human Ethics XU Jialu (許嘉璐)

stablished after the cruelest war in human history, the United Nations is committed to maintaining world peace. It is symbolic that a dialogue between Confucius and Jesus Christ is held in its headquarters. International scholars are trying to remove cultural misunderstanding, promote a harmonious world, and build long-lasting peace. Although our opinions may not influence government decision-making immediately, our voices will exert a much more profound influence than the statements or declarations made by politicians. A harmonious or conflicting relationship between countries or races depends on whether we can understand the cultures of our counterparts. Culture still serves as the best channel to facilitate communication across different countries, ethnic groups, and religions. Representing the soul of a nation, culture acts as a base for a nation in determining its future. Increasing understanding of each other’s culture plays an important role in fostering friendship, deepening dialogues, and building trust. Since the United Nations unanimously passed a resolution in 2002 to declare May 21 the World Day for Cultural Diversity for Dialogue and Development, many countries have held dialogues to increase the understanding of different civilizations by scholars and the general public. The second Nishan Forum on World Civilizations, for example, was held on May 21, 2012, in

Nishan, Shandong, the hometown of Chinese philosopher Confucius. The event celebrated the World Day’s 10th anniversary. To reexamine the source of civilization is to review fundamental cultural ideologies at the beginning of civilization. In religious studies, it is to revisit the original religious meaning of the prophets. If we look at the cruel realities in the painful and bitter human development journey, we are often filled with despair and confusion, because we still have not found solutions to all kinds of disastrous consequences caused by ourselves. Due to cultural diversity and current prevailing cultural conflicts, the future of human destiny faces many uncertainties. However, if we interpret the original points of human religions with radical historicism, we can find a common anticipation shared by different cultures. And this is the starting point for finding solutions. Through reflection, debate, and exploration, we can go back to the original intention of sages in the Axial Age — the aspiration to have a universal commonwealth and a harmonious world. Since ancient times, there have been many theoretical arguments among Confucianism, Buddhism, and Taoism. China, however, has never had a religious war. A Chinese saying, “A gentleman uses his tongue but not his fists,” best describes the relationships among them. Thanks to these arguments, the three religions have learned from each other’s

XU Jialu is President of the Organizing Committee of Nishan Forum and ViceChairman of the Ninth and Tenth Standing Committees of the National People’s Congress (NPC).

CHINA EYE•Issue4 October 2013

Reexamining the Source of Civilization and Constructing Human Ethics XU Jialu (許嘉璐)

XU Jialu at the “New York Forum on World Civilizations”

doctrines and rituals. Thus, each of them made unprecedented strides. For example, Buddhism accelerated its localization process; Confucianism strengthened its research on metaphysics and virtue internalization; and Taoism formed its own theoretical system by learning from Confucianism and Buddhism. Since ancient times, Chinese people have tolerated different foreign religions since they find common ethical values in them. Life and death, this life and the afterlife, are central themes in all civilizations. For example, the concept of Sanskrit emerged in Indian civilization before the establishment of Brahmanism; Sanskrit refers to a self, god, spirit, truth, intelligence and happiness. These concepts were absorbed by Brahmanism and Buddhism. The God belief in Hebrew civilization was from the Old Testament; God represents a spirit of infinite power and goodness. Confucianism values virtue on the basis of Ren (Benevolence), which is the highest spiritual level. Goodness and Love are

ultimate goals for all religions. Compared to ancient people, more and more people today care only for material comfort. Compared to spiritual pursuit, material comfort is easier to obtain, but it is also more superficial. Self-discipline and the rule of law are discarded. This is the root cause of all kinds of social issues, environmental problems, and country conflicts in the world today. If each nation could rationally review its national, ideological, or religious history and look for the truth of life and the universe promoted by its original beliefs, people will truly find happiness. More and more people will be inspired to pursue goodness. Although ancient and modern scholars interpret the meaning of goodness differently, goodness is a shared content for all beliefs, regardless of nationality. Hence, it should become the content of common ethics for future human beings. Spinoza, Kant, and other great philosophers devoted their lives

CHINA EYE•Issue4 October 2013

Reexamining the Source of Civilization and Constructing Human Ethics XU Jialu (許嘉璐)

to investigating human ethics and moral reasoning. In the 21st century, we look forward to establishing universally-accepted ethics and contributing to human peace and happiness. One day, people will eventually detest the ethics and politics that drive whole nations into antagonizing, dangerous, and fighting situations. A new world dreamed by Jesus Christ, Sakyamuni, and Confucius will finally come true. * This article is excerpted from the author’s speech at the “New York Forum on World Civilizations,” sponsored by China Energy Fund Committee, in January 2013, at the United Nations Headquarters.

CHINA EYE•Issue4 October 2013

Mystery of Dialogue Cardinal Theodore E. McCarrick

ifty years ago, the Blessed Pope made a startling announcement to the Catholic community throughout the world. He said, “We are going to have an ecumenical council, the Second Vatican Council.” In the history of the Catholic Church, which goes back 2,000 years, there have been less than 25 ecumenical councils. That Second Vatican Council had many documents of great importance for the world. One document that began with “Nostra Aetate” (“In Our Age”) proposed that we look not only to the churches with whom we have been in contact, but all the other churches and religions around the world. It begins by presenting the reason for the Council. “Men expect from the various religions answers to the unresolved riddles of the human condition, which today, even as in former times, deeply stir the hearts of men. The questions, what is man? What is the meaning, the aim of our lives? What is moral good? What is sin? Whence come suffering and what purpose does it serve? Which is the road to true happiness? What, finally, is the ultimate inexpressible mystery which even now encompasses our existence: where do we come from, and where are we going?” These are great questions that men have asked before Confucius, before the Buddha. These are natural questions. The “Nostra Aetate” then says: “From ancient times down to the present, there is found among various peoples a certain

perception of that hidden power which hovers over the course of things and over the events of human history. This perception and recognition permeate their lives with a profound religious sense.” It adds: “Buddhism, in its various forms, realizes the radical insufficiency of this changeable world. It teaches a way by which men, in a devout and confident spirit, may be able either to acquire a state of perfect liberation, or attain, by their own efforts or through higher help, supreme illumination.” “Nostra Aetate” ends by saying, “The Catholic Church rejects nothing that is true and holy in these religions. She regards with sincere reverence those ways of conduct and of life.” The Catholic Church as it relates to the non-Christian religions has been having a new rebirth, a new renaissance, of all the things that we are trying to do in this society. We must deal obviously with our own family; we must deal with the other Christians because they are basically what our revelation holds. But we must learn how to deal and how to love our brothers and sisters in the other religious traditions. If we do not do this, then we are not being faithful to what our Lord tells us we must do. The Catholic community in the United States has a number of groups which are discussing our relations with Anglicans, Presbyterians, and Muslims, but there is no group which discusses our relationship with Confucianists. We need to begin in a formal way to establish a group of people who can get

Cardinal McCarrick is the Archbishop Emeritus of Washington and Counselor of the Center for Strategic and International Studies (CSIS).

CHINA EYE•Issue4 October 2013

Mystery of Dialogue Cardinal Theodore E. McCarrick

Cardinal McCarrick at the “New York Forum on World Civilizations”

together and speak from time to time about this subject. This is basically what we proclaimed fifty years ago at the Second Vatican Council. Dr. Ho in his op-ed piece in “China Daily” spoke of dialogue. Quoting the Chinese scholar Tu Weiming, Ho says that dialogue “is an extremely common experience in interpersonal encounters, in which selfawareness is heightened and our ability to understand others is deepened.” I have seen three kinds of dialogue. In Malawi, the poorest nation in Africa, I saw a dialogue of charity. When there are so many poor people, people who don’t eat as much as they should, people who can find no work, people whose income is less than one dollar a day and can’t feed a family that way, there is a dialogue of charity. And it’s a dialogue that’s very beautiful, because it is people who don’t have much themselves giving to others. In Paraguay in Latin America, I saw a

dialogue of partnership. Three hundred years ago, the Jesuit fathers came to Paraguay and found the Indians, the Guaranis, who they found to be great architects, great artists, great musicians. The Jesuits were entranced by the wisdom and the cultural background of all these people. They didn’t ever want to take it away; they wanted to build on it. They built towns and houses for these people, but the style was theirs, not the Jesuits’. The architecture, the music, the poetry was theirs. So it was a dialogue of participation, a dialogue of partnership, and in that partnership, there is so much good and so much to remember. In Iraq, I found a dialogue of forgiveness, because everyone suffered over the years, from one oppressor to another, from one war to another, from one difficult problem of poverty to another. Constantly, this was their cross. And yet they are living with each other. So I found these three dialogues, in these three journeys. Each of them is a mystery.

CHINA EYE•Issue4 October 2013

Mystery of Dialogue Cardinal Theodore E. McCarrick

Can you give a poor person something without causing them to be embarrassed? If you do it with love, you can. Can you teach something to someone who is already filled with knowledge without trying to impose on them? You can, if you do it with love. Finally, can you forgive someone, the person who has hurt you, without belittling them? You can, if you do it with love. And so when I speak of dialogue as a mystery, it really must be a mystery of love. As Sun-tzu said, “If you are to be in the same boat with somebody crossing the river, it better be peaceful, because if it’s not peaceful, the boat is going to capsize.” We need two things in a dialogue. First, great courtesy. People have to appreciate the human dignity of the person to whom they are speaking. Secondly, great self-awareness. You have to know who you are or you will never be in any state to learn who anybody else is. You’ll never be able to understand your neighbor unless you first understand yourself. Over the years I have developed these five steps in dialogue:

Committee in January 2013 at the United Nations Headquarters.

1) You say what you want to say. 2) You listen to what the other person says. 3) You understand what they mean. 4) You appreciate what they mean. 5) You cooperate with them. That is the ultimate end of dialogue, where you can work together. It is important for us to be with our neighbors, to try to put ourselves in their position and to learn from them the great glory, the great beauty, as the Second Vatican Council said, the great wonder of the truth and the goodness that are in other religions and in other people and in other philosophies.

* This article is excerpted from the author’s speech at the “New York Forum on World Civilizations” held by China Energy Fund

CHINA EYE•Issue4 October 2013

Geo-Religion as a New Way Forward XU Yihua & ZOU Lei (徐以驊、鄒磊)

ith the globalization of China’s national interests, how people should adjust to the significant rise of its national power and what geopolitical strategies should be in place to match its strength have become the central themes in the study of current Chinese foreign affairs. If attaining greater power and strategic advantage is the core of geo-politics, while maximizing access to economic resources and markets is the core of geo-economics, then the attainment of moral high ground, the right to speak, persuasiveness, and popular thought constitute the core of geo-religion. Geo-politics and geo-economics are based on political geography. They consider geography as a basic factor that influences and even dictates the political and economic behavior of a country. In the 20th century, countries used geo-politics and geo-economics to formulate their security, foreign, and economic policies. However, neither geopolitics nor geo-economics adequately explains the 21st century global religious revival, today’s religious regional conflicts, nor the world situation brought about by the frequent occurrences of “Identity Wars.” The concepts of geo-politics and geo-economics have to be extended to account for transnational and trans-regional religious influences which affect national security, foreign policy, and international geostrategic games; these could be categorized under “geo-religion” and its

corresponding “geo-religious studies.” CHINA’S GEO-RELIGIOUS SITUATION Unlike its very complicated geo-political situation, China’s geo-economic and georeligious situation is clear. Geo-economically, not only is China the largest trading partner of the majority of its neighbors, but it also plays a key role in various regional, sub-regional, and global economic cooperation initiatives, acting as a major player, promoter, and supplier of public goods. This is the regional geo-religious situation: Chinese Buddhism has significant influence in Korea and Japan. Theravada Buddhism is the main religion in Southeast Asia. A revival of Tibetan Buddhism is occurring in Mongolia. Hinduism remains the dominant faith in India. Islam dominates Southern Asia. A great revival of the Orthodox Church is happening in Russia, Central Europe, and Eastern Europe. This is the international geo-religious situation: Islam’s sphere of influence extends from North Africa and West Asia in the west to Malaysia and Indonesia in the east, forming the East-West “Islamic Corridor.” Christianity, while continuing to be the mainstream influence in the West, is expanding on all fronts in Latin America and the developing

Prof. XU Yihua is a guest contributor for China Energy Fund Committee and a professor of the School of International Relations and Public Affairs, Fudan University. ZOU Lei is a PhD candidate at the School of International Relations and Public Affairs, Fudan University.

CHINA EYE•Issue4 October 2013

Geo-Religion as a New Way Forward XU Yihua & ZOU Lei (徐以驊、鄒磊)

countries in sub-Saharan Africa, leading to the North-South expansion of the global Christian development. One may say that the East-West direction of the “Islamic Corridor” and the North-South expansion of “Global Christianity” constitute China’s basic global geo-religious environment today. In geo-religious terms, China is distant from regional and global religious conflict hotspots. It maintains a good relationship with much of the Islamic world. China is neither a victim nor a target of international religious terrorism. It has never been a threat to other countries in terms of religion. Over 200,000 personnel from Middle Eastern countries visit Yiwu annually, more than the average 180,000 that visit any U.S. city annually. Connecting China, the Middle East and the Arab-Islamic world is the “New Silk Road,” which is a vivid symbol of China’s geo-economic strength and geo-religious potential. In 2009, China surpassed the U.S. in becoming the largest importer of goods from the Middle East and the largest buyer of Saudi oil. The construction of the “New Silk Road” does not just rely on cheap “Made in China” products, channels for oil, or miscellaneous infrastructures (such as the Mecca Rail built by the China Railway Construction Corporation), but it is also brought about by the products of religion and the comings and goings of religious believers. In recent years, the Agricultural Bank of China and the China Construction Bank made large-scale public offerings in the Middle East. This enabled Middle Eastern countries and institutional investors, such as Qatar, Kuwait, and the Gulf Cooperation Council, to become major shareholders of these banks. As the most dynamic emerging market economy in the world, China has become the primary target of global Islamic foreign investment, amounting to trillions of dollars. With the large-scale exchange of personnel, products, and funds, the traditional georeligious friendship between China and the

Islamic world has started to exhibit strategic importance. STRONG GEO-RELIGION TO THE EAST AND WEST AND WEAK TO THE NORTH AND SOUTH As part of China’s national development strategy, Xinjiang’s “go-west” initiative and Ningxia’s inland open-economy pilot area (Yinchuan comprehensive bonded zone) are both designed to strengthen economic and cultural linkages with the Arabian Islamic world and revive the Silk Road on land. Today, in the cities of Yiwu, Guangzhou, Yinchuan, Kashi, Mecca, Dubai, and Damascus, there are close economic ties between East Asia and the Middle East. Therefore, in a more implicit manner, there is healthy interaction in religion between China and the Islamic world. In 1993, Zhao Puchu, then chairman of the Buddhist Association of China, proposed creating a Buddhist “Golden Link” among China, South Korea, and Japan. In his view, “cooperation and exchange among Buddhists form the most important and fundamental part of the history of cultural exchanges between China, South Korea, and Japan.” Parallel to the “New Silk Road,” religious interaction now thrives within the “Golden Link.” This culminated in the World Buddhist Forum, an organization representing a huge Buddhist population. Given the complex geopolitical landscape in East Asia, the “Golden Link” based on Chinese Buddhism provides a new perspective and approach towards boosting friendship between the three nations on nongovernmental fronts. The religious landscape around China, however, is unbalanced, strong in the eastwest direction and weak along the south-north line. On the east-west belt, the Buddhist “Golden Link” between China, South Korea, and Japan and the “New Silk Road” between China and the Islamic world in Central Asia and the Middle East appear robust. Along the south-north line, however, Tibetan Buddhism

CHINA EYE•Issue4 October 2013

Geo-Religion as a New Way Forward XU Yihua & ZOU Lei (徐以驊、鄒磊)

does not strengthen the China-Mongolia relationship. Southern Buddhism and China’s folk beliefs are highly popular in the Chinese communities across Southeast Asia, but do not provide strong religious resources to China. Currently, China’s “go-global” strategy aims to cover a wide range of areas, but is faced with serious imbalance. Generally, China has strong economic clout globally, but lags behind on the political, military, cultural, and religious fronts. China also has yet to remove its resistance against religious intervention. China’s overseas economic interests and civil rights are seriously impaired in many cases due to the lack of a safe investment environment and of diplomatic, political, and military support. China’s overseas interests are at great risk in war-torn countries, such as Iraq, Afghanistan, and Liberia, and countries prone to ethnic and religious conflicts, such as South Sudan, North Sudan, and Nigeria. These countries are largely located at the juncture of the “Islamic Corridor” and the “Global South,” thus setting the tone for global religious geopolitics. Historically, resource-rich or strategically vital regions often emerge as battlefields for leading powers or civilizations. Through political expansion, empires significantly increase their national and religious influence. Unlike borderlines, ethnic and religious bonds and roots are largely firm and steady. Political territory may expand or shrink with the rise and fall of a country. In contrast, national and religious landscapes will flourish and last long once they take root. CHINA NEEDS TO DEVELOP SOFT POWER IN RELIGION The rich resources or strategically vital locations of some developing countries have triggered frequent power struggles among various ethnic and religious groups. Political turmoil and social disorder caused by these conflicts, coupled with political or military

interventions under the name of “protection,” “human rights,” and “humanitarianism,” now pose a huge challenge to the political stability and construction efforts of these countries. They also increasingly threaten China’s growing overseas interests. The Darfur issue in Sudan provides a typical example. North Sudan and South Sudan, divided by the Sahara Desert with Islamic forces in the north and Christian forces in the south, have long been marred in conflict. Their internal conflict has spread to countries along the Sahara Desert, such as former Sudan, Nigeria, Chad, and Niger, complicating their national building efforts. Religious conflicts usually last a long time, making religion a long-term factor that affects China’s efforts to protect its diplomatic and overseas interests. The logical relationship between global geo-religion and China’s overseas interests can be simply illustrated as follows: resourcerich / strategically important regions > a historical intersection of great powers > a complex landscape involving various ethnic and religious forces > weak nations / strong religions > frequent regional conflicts, political and social turmoil, inability to develop the country, prone to overseas forces > China’s overseas interests under threat. We must look beyond the international relations and the political architectures of developing countries and focus on their internal structures, specifically on the interaction between religions, society and religion, and politics and religion. To protect its overseas interests, China should take into account regional ethnic and religious landscapes, especially the strong influence of local tribal chiefs and religious leaders. To boost its global strategy, China urgently needs to build various channels for nongovernmental communication and interaction, increase contact with local societies and peoples, win more respect and recognition from both ordinary and elite citizens of other countries, and enhance

CHINA EYE•Issue4 October 2013

Geo-Religion as a New Way Forward XU Yihua & ZOU Lei (徐以驊、鄒磊)

China’s international image. Since its political and military powers cannot safeguard China’s growing overseas interests, it is both urgent and feasible to build an extensive network of soft power through cultural and religious beliefs. China’s geo-religious or religious soft power is still nascent. China is a great religious power, both traditionally and currently. In addition to a rich reserve of religious traditions, classic texts, and ideas, it is also the world’s largest base for religious production and distribution. Benefiting from Chinese religious believers across the globe and the overseas landscape of “China Faith,” diverse and harmonious religious traditions, and external religious exchange, China is well-positioned to communicate and live in harmony with any other country and religion. It has become a key strategy in raising China’s profile in the global arena to promote Chinese culture to the outside world and build soft cultural power that matches its international status. To make China more politically influential, more economically competitive, more obviously friendly, and more morally inspirational, China should promote the Chinese religions that form the foundation of Chinese culture and reveal the spiritual world of the Chinese people in the global context.

CHINA EYE•Issue4 October 2013

Geo-Religion as a New Way Forward XU Yihua & ZOU Lei (徐以驊、鄒磊)

Call for Papers China Eye is an international academic journal on geopolitics, energy security, economy and culture. It is published by China Energy Fund Committee (CEFC) - a non-governmental nonpartisan Chinese think-tank registered in Hong Kong. This English publication aims to facilitate a better understanding of China by providing a forum for diverse views, carrying Chinese as well as non-Chinese perspectives. Would-be contributors should forward their proposed original contributions with a synopsis, to include: (1) title; (2) author’s affiliation, and (3) e-mail address, phone and fax numbers. Our contact details are: E-mail: Phone number: Fax number: Address:

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CHINA EYE•Issue4 October 2013

Geo-Religion as a New Way Forward XU Yihua & ZOU Lei (徐以驊、鄒磊)

CHINA EYE•Issue4 October 2013