China, Inside and Out: a Collection of Essays on Foreign and Domestic

C O R P O R A T I O N CHINA, INSIDE AND OUT A Collection of Essays on Foreign and Domestic Policy in the Xi Jinping Era CHINA China today is guided by a few overriding philosophies. Outwardly, it is promoting a “new type of great power relations” between itself and the United States, and a “community of shared interests” within Asia. Inwardly, it is guided by the “Chinese Dream,” a vision for DaiLuo/Flickr increased prosperity, greater social stability, and a higher Published by the RAND Corporation, quality of life for China’s people. Santa Monica, Calif. © Copyright 2015 RAND Corporation

Stephan Kistler, Managing Editor This collection of essays Dori Gordon Walker, Designer explore some of the realities Melissa Bauman, Communications Analyst R® is a registered trademark. of these philosophies—how Limited Print and Electronic Distribution Rights This document and trademark(s) contained herein they are reflected in Chinese are protected by law. This representation of RAND intellectual property is provided for noncommercial use policy, how they affect China’s only. Unauthorized posting of this publication online is prohibited. Permission is given to duplicate this document for personal use only, as long as it is unaltered relations with the United States and complete. Permission is required from RAND to reproduce, or reuse in another form, any of its research and U.S. allies in the region, and documents for commercial use. For information on reprint and linking permissions, please visit how policy is responding to and www.rand.org/pubs/permissions.html. RAND’s publications do not necessarily reflect the also changing the ways Chinese opinions of its research clients and sponsors. citizens work and live. Support RAND Make a tax-deductible charitable contribution at www.rand.org/giving/contribute www.rand.org This project was supported by the Tang Institute for Cover photos, clockwise from top left: U.S. Navy photo by Fire Controlman U.S.–China Relations, a part of the RAND Center for 2nd Class Kristopher Horton; Olympic Park Observation Tower, Beijing, by See-ming Lee/Flickr; children with water: DaiLuo/Flickr; Shanghai traffic: Asia Pacific Policy, with an additional gift from the Henry Carlos ZGZ/Flickr Luce Foundation. CHINA, INSIDE AND OUT A Collection of Essays on Foreign and Domestic Policy in the Xi Jinping Era

1 7 CHINA The Chinese Dream: Stabilizing Military-to- Strategic and Policy Military Ties Between Priorities of the People’s the United States and Republic China Timothy R. Heath and Scott W. Harold Bonny Lin

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The Tip of the Spear: China’s Nascent Aircraft Solutions to Reducing Air Coast Guard Takes the Lead Carrier Program Pollution in China and in East and South China Sea Reveals China’s Grand Their Costs Disputes Ambitions Keith Crane Lyle Morris and Andrew Scobell and Michael S. Chase Cortez Cooper

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The Effectiveness of China’s Making Cities More Concluding Thoughts Policies for Developing Livable Amid China’s Michael Rich High-Technology Industries Great Migration Keith Crane Liisa Ecola Chinese graduates crowd stalls at a job fair in Bozhou city, east China’s Anhui province, June 7, 2015. Imaginechina via AP Images via Imaginechina 1

The Chinese Dream: Strategic and Policy Priorities of the People’s Republic

TIMOTHY R. HEATH AND BONNY LIN

“By the time the People’s Republic celebrates its 100th anniversary, we will become a prosperous, strong, democratic, civilized, and harmonious socialist modernized country on its way to the ultimate great rejuvenation of the Chinese nation. This is the greatest dream of the Chinese nation in modern history.” — Xi Jinping, January 16,2013

he challenge of gov- Pursuit of the Chinese erning the world’s Dream most populace nation and its second largest Reflecting a history of long-term, economy rests in the extensive planning, the CCP has hands of the Chinese outlined an ambitious vision to be Communist Party (CCP)—an organi- achieved by mid-century. Called the T Chinese Dream by Xi, this vision zation that, despite its anachronistic name, has reinvigorated its ideology essentially repackages in a more con- and governing methods in recent temporary form the long-standing years. The CCP has called fulfilling CCP goal of the “rejuvenation of the the “fundamental interests” of the Chinese people” (zhonghua minzu people its primary aim. It intends to fuxing). do this through policies that raise In effect, the Chinese Dream is a col- the standard of living and ensure the lection of policy objectives intended country’s rise to greatness. Beijing to increase prosperity, promote social is developing primary domestic and stability, ensure a higher quality of foreign policy objectives aimed at life for citizens, and advance Chi- realizing this vision while facing nu- na’s standing as a world power. In merous challenges to doing so. Xi’s words, the Chinese Dream is the goal of building a “prosperous, strong, democratic, civilized, and harmonious socialist modernized country” to “definitely be realized” by the People’s Republic of China’s centennial in 2049. To ensure the country remains on course, the government has dozens of benchmarks to be achieved by 2021.

While primarily focused on the nation’s rise, the Chinese Dream extends beyond collective ideals. PRC officials state that the Chinese Dream must ensure the “happiness of individuals.” This shift reflects the reality that China’s future economic growth will increasingly depend on the spending power of its consumers. The following domestic and foreign policies reflect how authorities hope to advance this vision.

Domestic Policy: Fulfilling Fundamental Needs

Since 2002, the CCP has designated IQRemix/Flickr The National Library of itself a “governing party” oriented China in Beijing. With a toward fulfilling the people’s “funda- collection of over 31.1 mental interests”—a major evolution million items, it is the largest library in Asia and from the Deng Xiaoping era’s near one of the largest in the exclusive focus on rapidly increasing world. economic production. The CCP’s strategic objectives and policies aim to meet the people’s interests in five areas: economic, political, social, cultural, and environmental.

Economic The CCP leadership has incremen- tally added new policy objectives to address economic issues that affect quality of life. The earliest objectives from 2002 focused on raising incomes. Since 2003, however, the party has expanded its economic objectives to emphasize balanced, sustain- able growth. Beijing has moved to facilitate growth in the western and southwestern regions, increase urbanization, and raise incomes in rural areas, which are home to nearly half China’s population.

2 China, Inside and Out: A Collection of Essays Political Foreign Policy: Shaping the destiny” (mingyun gongtong ti), which PRC leaders maintain that the Regional and Global Order envisions a high degree of economic party’s rule is the only acceptable integration to realize potential form of government. However, they As China has ascended into the growth. Policies that reflect this acknowledge the need to accom- upper echelons of global power, imperative include the Silk Road, modate citizens’ demands for more Beijing is discovering that its devel- Economic Belt, and 21st Century influence in policymaking and for opmental and security needs are in Maritime Silk Road (“one belt, one a fairer, more responsive judicial some ways at odds with the current road”), Asian Infrastructure Invest- system. Corruption, incompetence, international order. It is also finding ment Bank (AIIB), and proposed and malfeasance in both government its developmental and security regional free trade agreements. and the judiciary have driven public interests expanding around the dissatisfaction to dangerous levels, world. As a result, China has artic- spurring leaders to increase invest- ulated numerous goals for shaping ment in domestic security to a level the global and regional orders, and Corruption, exceeding even that of the military. for defending its core interests. incompetence, and The Fourth Plenum—a four-day International order meeting of the CCP’s powerful Cen- Chinese leaders since 2005 have malfeasance in both tral Committee—in 2014 outlined promoted a vision of a “Harmoni- government and the numerous judicial reforms, though ous World” to guide foreign policy they have not yet been implemented. toward shaping a world order judiciary had driven Social amenable to China’s rise. This public dissatisfaction Growing public dissatisfaction with idea, which features prominently the high costs of rapid economic in the Chinese Dream, upholds the to dangerous levels, growth drove the party to address authority of the United Nations and spurring leaders to the people’s diverse social welfare the basic structure of the existing needs. In the mid-2000s, the party economic and political order, but increase investment in introduces new institutions and developed more policies aimed at domestic security to improving education and health organizations as well as reforms to care, and reducing poverty and existing ones to better serve the a level exceeding even income inequality, although imple- needs of rising powers. Beijing also mentation remains inconsistent. promotes political principles, such that of the military. as the “Five Principles of Peaceful Cultural Coexistence,” as basic norms for PRC leaders have developed pol- international laws and rules. PRC This vision also carries security and icies to cultivate Chinese culture policy objectives support developing political connotations. According to domestically and expand its appeal multilateral organizations to address Vice Foreign Minister Liu Zhenmin, internationally. It has also promoted disputes in a consultative manner. the community of shared destiny political and moral values favored by For the United States, Beijing seeks gives Asian countries “primary the CCP. to establish a relationship defined by greater equality, cooperation on responsibility” for ensuring the Environmental shared concerns, and U.S. accommo- region’s security. Xi has similarly At the 18th Party Congress, leadership dation of PRC core interests. declared, “Asians have the capacity adopted policy objectives directed to manage security by themselves.” at cleaning up the country’s heavily Regional cooperation China’s leaders cite the Shanghai contaminated water, air, and soil. Under Xi, relations with the Cooperation Organization (SCO), the Authorities have also outlined policies Asia-Pacific region have increasingly Korean Peninsula Six-Party Talks, to improve the quality and safety of become a strategic foreign policy and the Conference on Interaction food and other products. As with many priority. China’s policymakers have and Confidence Building Measures other policy objectives, authorities con- called for a “community of common in Asia (CICA) as examples of initia- tinue to grapple with implementation. tives that support this imperative.

The Chinese Dream: Strategic and Policy Priorities of the People’s Republic 3 Security: Defense of Internet and social media have also Chinese leaders Core Interests challenged the CCP’s control by providing citizens with more means recognize that Over the past ten years, China to share information, vent frustra- has spoken of security in terms of tion, and organize protests. Leaders problems of debt, protecting or defending its “core in Beijing are particularly sensitive overcapacity, social national interests” (hexin liyi). to activities by foreign powers that Leaders describe those interests in might exacerbate threats to its discontent, and various ways, but most include some control. During the 2014 Occupy variation of these three goals: Central protests in Hong Kong, for environmental 1. Preserving China’s basic state example, the Chinese Ministry of degradation system and national security (i.e. Foreign Affairs responded strongly engendered by CCP rule) to a British statement on Hong Kong’s electoral reform and urged decades of rapid 2. Protecting national sovereignty the United Kingdom “to cease acts of and territorial integrity interference in Hong Kong’s affairs.” economic expansion

3. Maintaining international The second core interest is national has rendered many conditions for China’s economic sovereignty and territorial integrity, development and protecting with Taiwan, Xinjiang, and Tibet as long-standing policies economic interests abroad. areas of particular concern and sen- obsolete. sitivity. China’s 2013 Defense White The first goal concerns sustaining Paper notes the dangerous rise of the In line with Xi Jinping’s declara- Communist Party rule. Chinese lead- “three forces” of terrorism, separat- tion that China will “not sacrifice ers see a range of potential domestic ism, and extremism in these regions an inch” of its sovereignty, Beijing threats, including social unrest, and across the country. Chinese has demonstrated a greater will- natural disasters, security accidents, authorities have taken a harder line ingness to pressure rival claimants, and public health incidents. The on maritime claims in recent years. punish perceived transgressions,

Occupy Central protest, Hong Kong, 2014. Andrew Fong/Flickr

4 China, Inside and Out: A Collection of Essays and consolidate de-facto control PRC leaders also recognize that, THE AUTHORS of disputed maritime regions. (See to improve the quality of life for “The Tip of the Spear: China’s Coast its people, they must reverse the Guard Takes the Lead in East and immense toll taken on the country’s South China Sea Disputes.”) environment. (See “Solutions to Reducing Air Pollution in China and Finally, maintaining the accesses Their Costs.”) Structural reforms Timothy Heath and resources necessary for China’s under way since 2013 led by Xi are Timothy Heath is a senior economic development is also international defense aimed largely at breaking the power research analyst at the considered a core interest. This of elites and interest groups that RAND Corporation. Prior refers to securing the economic stand to lose from reform. How the to joining RAND in October 2014, he served as the raw materials, markets, sea lines of CCP resolves these issues bears communication, and other resources senior analyst for the directly on the people’s quality of USPACOM China Strategic critical to sustaining development. life as well as the prosperity and Focus Group for five years. Threats include piracy and other stability of the country, the region, Fluent in Mandarin Chinese, nontraditional risks in China and he has extensive experience and the world. analyzing China’s national abroad. China’s 2015 Defense White strategy, politics, ideology, Paper urges the PLA navy to shift and military. from only conducting “offshore Recommended Reading waters defense” to also engaging Publications and documents upon which in “open sea protection” to better the authors relied in their analysis, and safeguard the country’s maritime recommended for those desiring further and overseas interests. reading, include:

“Xi Jinping Explains Meaning of Chinese Bonny Lin Dream,” Xinhua, January 16, 2013. Conclusion: The Elusive Bonny Lin is an associate political scientist at the “Highlights of the Communique of the Chinese Dream RAND Corporation. Fourth Plenum,” Xinhua, October 23, 2014. Despite impressive economic She holds a doctorate in political science from Yale gains accumulated over decades of “Full Text of 17th Party Congress Report,” University, a master’s rapid growth, Beijing faces for- Xinhua, October 24, 2007. in Asian studies (China) midable obstacles in realizing its from the University of “Full Text of 18th Party Congress Report,” policy objectives. Chinese leaders Michigan, and a bachelor’s Xinhua, November 17, 2012. in government from Harvard recognize that problems of debt, College. overcapacity, social discontent, and “Wang Yi: China, a Staunch Defender of environmental degradation engen- International Rule of Law,” PRC Foreign Ministry Website, October 24, 2014. Avail- dered by decades of rapid economic able at: http://www.fmprc.gov.cn/mfa_eng/ expansion has rendered many wjb_663304/wjbz_663308/2461_663310/ long-standing policies obsolete. t1204247.shtml

In response, PRC leaders seek to “Build a Community of Shared Destiny to rebalance the economy and increase Ensure Regional Peace and Stability,” Ren- min Ribao, November 27, 2014. Available domestic demand to drive growth. (in Chinese) at: http://world.people.com. This will require them to break up cn/n/2014/1127/c1002-26101342.html powerful special interests, improve market mechanisms, enhance “Xi Jinping Speech at Conference on Inter- research and development, and carry action and Confidence Building Measures,” Xinhua, May 21, 2014. out other initiatives to transform the mode of economic growth. (See “The Effectiveness of China’s Policies for Developing High-Technology Industries.”)

The Chinese Dream: Strategic and Policy Priorities of the People’s Republic 5 Gen. Martin E. Dempsey, chairman of the Joint Chiefs of Staff, welcomed Chinese Gen. Fang Fenghui, chief of the General Staff of the People’s Liberation Army, to the Pentagon during a full-honor arrival ceremony May 15, 2014. This was the first full- honor ceremony Gen. Dempsey had hosted since 2012. DoD photo by D. Myles Cullen DoD photo by D. 7

Stabilizing Military-to-Military Ties Between the United States and China

Scott W. Harold

hile U.S.– tary-to-military relationship. China relations have In response, the U.S. Department broadened, of Defense began looking for ways deepened, to stabilize the military-to-military and grown relationship. In early 2011, the first increasingly institutionalized since outlines of the department’s plan W to “build greater cooperation” in the normalization of ties in 1979, the relationship between the two coun- the U.S.–China military-to-military tries’ militaries has been a notable relationship were described publicly exception. This underdeveloped mil- in a speech by Deputy Assistant itary relationship—severed formally Secretary of Defense for East Asia five times since the 1989 Tiananmen Michael Schiffer, signaling the Square massacre—has been a source Pentagon’s new approach to relations of growing concern for U.S. defense with China’s military. Then–Vice leaders. With the two sides operat- President Xi Jinping articulated Chi- ing in greater proximity as China’s na’s response during his February armed forces modernize, the chance 2012 visit to the Pentagon—a visit of an accident, misunderstanding, or he reportedly insisted on despite miscalculation has become signifi- resistance from the uniformed PLA. cant, and a weak military-to-military Xi called for China and the United relationship could magnify the risk States to build a “new-type great of such an unintended clash. The power relationship.” rapid and substantial deterioration U.S. defense officials viewed this in U.S.–China diplomatic ties in development as an opportunity 2009–2010 added further impetus to push ahead with their plans to for putting a floor under the mili- stabilize and improve U.S.–China RAND’S RESEARCH HIGHLIGHTED TEN AREAS WHERE Bilateral Military-to-Military Cooperation Could be Deepened 1. Leadership contacts 2. Counter-piracy 3. United Nations peacekeeping operations 4. Humanitarian assistance and disaster relief 5. At-sea search-and-rescue 6. Participation in third country-hosted exercises 7. Expanded professional military education contacts 8. Efforts to reduce pollution and energy usage 9. Military medicine 10. Semi-/un-official policy dialogues China Disaster Management Exchange/Flickr China

military-to-military ties. Shortly as these could enable U.S. forces to on more-frequent contact between after Schiffer’s speech, U.S. Pacific ascertain and target PLA weaknesses the two sides’ defense leadership) Command asked RAND to evaluate (see sidebar). Moreover, because the and bottom-up (building ties at the possible engagement options for military-to-military relationship is a operational level). It should also be stabilizing relations between the two function of the broader political rela- closely coordinated from within the militaries. The results of that study tionship between the two countries, U.S. Department of Defense out were documented in the 2013 article many analysts saw it as unlikely to to the U.S. military’s combatant “Expanding Contacts to Enhance improve substantially so long as the commands (with a special lead role Durability” published in the journal overall U.S.–China relationship con- for Pacific Command) and across the Asia Policy and are summarized here. tinues to be plagued by high levels of service branches. strategic distrust. Such an engagement strategy A top-down, bottom-up Despite these reasons for pessimism, should start with easier areas before approach improving military-to-military rela- moving to address more-demanding tions with the PLA is possible and or politically sensitive ones, should Traditionally, the Chinese People’s could contribute to reduced tensions. be expected to produce only lim- Liberation Army (PLA) has adopted Based on interviews with 21 Chinese ited results, and would need to be an approach to deterrence and and American subject-matter experts sustained over an extended period of coercion based on the view that and extensive research in U.S. and time. Finally, the U.S. military should transparency favors the powerful Chinese source materials, the best focus on identifying and extending while ambiguity and opacity magnify approach appears to be broadening to the PLA symbolic opportuni- a weaker force’s ability to manipulate contacts so as to incentivize greater ties for respect and “face,” and be its potential adversaries. For this stability in the military-to-mili- prepared to present their Chinese reason, it was widely believed that tary relationship. This strategy counterparts with an American set the PLA was opposed to improved should be both top-down (focused of “asks.” military ties with the United States

8 China, Inside and Out: A Collection of Essays WHERE CHINA’S MODERNIZING MILITARY Comes Up Short Scrutiny of the People’s Liberation Army (PLA) tends to focus on the large investments and huge strides it has made over the past few decades toward becoming a professional and capable fighting force. But China’s military transformation is incomplete—a fact widely discussed among China’s military media, academics, and even the PLA’s leadership.

THE PLA’S WEAKNESSES GENERALLY FALL INTO TWO AREAS: 1. INSTITUTIONAL The PLA’s organizational structure and human capital are obstacles standing in the way of it reaching its desired level of joint operations, particularly as it attempts to project power beyond its borders. The Chinese military suffers from rampant corruption and outdated command structures, and PLA publications lament that its human capital is undereducated and lacks the technical proficiency to operate increasingly complex systems. Other shortcomings include difficulties accepting military discipline and maintaining operational security. 2. COMBAT CAPABILITIES Chinese military publications indicate that the PLA faces gaps in joint operations capabilities, training, and support functions. These publications suggest that although the Chinese invest heavily in military hardware they struggle with the troops’ ability to operate it. While new surface combatants and submarines boast impressive capabilities, the Chinese navy grapples with integrating complex modern weapons and platforms. And China’s air force has made similar technological strides but wrestles with its large force of multiple generations of aircraft, a shortage of key special mission aircraft, and inadequate strategic transport capability. The PLA also faces potential weaknesses in its ability to protect Chinese interests in space and the electromagnetic spectrum, particularly cyberspace. Meanwhile, China’s defense industry has made impressive advances, but still suffers from widespread corruption, lack of competition, delays and cost overruns, and quality control issues. Although the PLA’s capabilities have improved dramatically, its remaining weaknesses hinder its ability to successfully execute some of the missions Chinese Communist Party leaders may assign, including those confronting various Taiwan contingencies, maritime claim missions, sea lines of communication protection, and some noncombat operations.

However, the PLA is working aggressively to address these vulnerabilities. As the PLA continues to modernize, it is critical for U.S. analysts, planners, and decisionmakers to improve their understanding of the PLA’s shortcomings—and Chinese People’s Liberation how the PLA itself sees these weaknesses and vulnerabilities. This is key to Army (PLA) honor guard identifying the PLA’s future modernization paths; enhancing military-to-military soldiers line up as they rehearse for a welcoming ceremony for engagement; tailoring deterrence strategies to be the most effective in influencing New Zealand’s Governor-General the Chinese leadership’s decision calculus; and devising strategies for countering Sir Jerry Mateparae at the Great Chinese use of force if deterrence fails. Hall of the People in Beijing, Tuesday, July 21, 2015. Adapted from Michael S. Chase, Jeffrey G. Engstrom, Tai Ming Cheung, Kristen Gunness, Scott Warren Harold, Susan Puska, and Samuel K. Berkowitz, China’s Incomplete Military Transformation: Assessing the Weaknesses of the People’s Liberation Army AP Photo/Mark Schiefelbein AP Photo/Mark The strategy that RAND developed focuses on building a coalition of actors within the PLA and the broader Chinese establishment who would have an interest in maintaining a stable U.S.–China military relationship over time, which might give China an incentive to avoid cutting bilateral military ties casually to express dissatisfaction with U.S. policy.

By accelerating the frequency of exchanges between senior-level defense and military officials to the point where the planning for the next iteration of contacts is at all times fairly advanced, the costs of canceling any given visit would serve as a disincentive to cutting off ties. At the same time, the U.S. military should strive to expand contacts with lower-ranking and operational Chinese military officers through cooperation on operational-level issues so as to gain insight into aspects of the PLA that are other- wise hard to observe. Such contacts also provide opportunities to counter the anti-America propaganda to which Chinese officers and soldiers are routinely exposed. Top to bottom: U.S. Navy photo by Chief Mass Communication Specialist Peter D. Lawlor; Cpl. Bryan Nygaard Bryan Cpl. Lawlor; D. Peter Specialist Mass Communication Navy photo by Chief U.S. to bottom: Top Top: People’s Liberation Army Navy Of course, in order to get something (PLAN) Lt. Cmdr. Hao He, commanding of value from the PLA, the United officer of the Datong FFG 580, points States has to offer something of out navigation landmarks to Chief of value in return. The post-Tiananmen Naval Operations (CNO) Adm. Jonathan Square massacre sanctions regime Greenert as he looks out on the horizon and the FY2000 National Defense and the Datong gets underway, in Dalian, China, July 17, 2014. Authorization Act give clear guidance and place firm constraints on Bottom: The People’s Republic of China the U.S. Department of Defense’s Minister of National Defense Gen. ability to engage with the PLA. Liang Guanglie was greeted by Brig. Gen. Christopher Owens, the deputy They ban transfers of armaments commanding general of II Marine and defense technology and place Expeditionary Force, upon arriving at barriers on any forms of contact that Marine Corps Base Camp Lejeune, N.C., would improve the PLA’s ability to May 9, 2012. project force, improve its war-fighting capabilities, or enhance its ability to engage in domestic repression. In light of these legal constraints, the

10 China, Inside and Out: A Collection of Essays engagement process must necessarily including the PLA’s participation in and the Office of Personnel Man- concentrate on steps that are low- the Cobra Gold and the Rim of the agement. cost, focused on military operations Pacific (RIMPAC) 2014 exercise. other than war, and/or largely The United States and China have While the hacking indictment caused symbolic in nature. Finally, the also expanded their cooperation China to suspend its involvement in U.S. Department of Defense should on counter-piracy; engaged in a cybersecurity dialogue with the reach out beyond traditional PLA exchanges on humanitarian assis- United States, this series of disagree- interlocutors to actors inside China tance, disaster relief, and disaster ments has not halted the military who might seek to dissuade Chinese management; practiced search-and- exchanges or caused the suspension leaders from suspending the mili- rescue missions; discussed coordinat- of the broader military-to-military tary-to-military relationship with ing more closely on United Nations relationship. the United States in the wake of even peacekeeping operations; consulted Although it is still early in the period relatively serious disagreements. on military medicine; explored deep- of enhanced engagement, the U.S. ening cooperation on professional approach appears to be working. military education; and exchanged But patience will be required, as the Early Successes visits of cultural and athletic troupes. depth of mistrust is substantial and Since the RAND study was pub- Is the strategy working? It has the number of differing interests lished in 2013, military leaders from been tested by several recent and values between the two sides the two sides have traded visits at an disagreements: is large. In spite of these obstacles, accelerated pace, including the June though, the slow, steady, top-down visit by central military commission • The PLA is dissatisfied with the and bottom-up approach to increased vice-chairman Fan Changlong, U.S. decision in April 2014 to reaf- military-to-military relations holds exchanges by the U.S. Secretary of firm the applicability of its defense promise for a safer and more stable Defense and the Chinese Minister commitments to the Japanese-ad- U.S.–China relationship. of Defense; the U.S. Chairman of ministered Senkaku Islands. the Joint Chiefs of Staff and the Editor’s Note: The essay was adapted from • The United States raised China’s Chinese Chief of the General Staff; Scott W. Harold, “Expanding Contacts service chiefs and secretaries from hackles in November 2013 with to Enhance Durability: A Strategy for the U.S. Army, Air Force, and Navy, its response to China’s declaration Improving U.S.-China Military-to-Military and the Chinese Navy; and the of an East China Sea Air Defense Relations,” Asia Policy, Number 16 (July U.S. Pacific Command Commander Identification Zone (the U.S. Air 2013), 103–37. Force promptly flew two B-52s and the commander of the Beijing THE AUTHOR Military Region. The two sides have through the zone without provid- also announced plans for a dialogue ing advance notification). between their strategic planning • The U.S. Justice Department departments, are planning an army- indicted five PLA officers on charges to-army dialogue, and have already of hacking and economic espionage carried out an expanded set of Scott W. Harold against U.S. firms in May 2014. contacts between their two navies. Scott W. Harold is deputy director of the RAND Center • China has continued massive Operational-level contacts have also for Asia Pacific Policy artificial-island construction in the expanded. These include bilateral and a political scientist at South China Sea and its intrusions the RAND Corporation, exercises and ship visits (with the into maritime areas claimed by its where he specializes in PLA Navy visiting Honolulu and Chinese foreign policy. neighbors, including U.S. allies San Diego, and the 7th Fleet’s USS Prior to joining RAND, Japan and the Philippines. Harold worked at the Blue Ridge command ship visiting Brookings Institution’s Qingdao); trilateral exercises (a • There is widespread suspicion in John L. Thornton China ground forces–focused exercise Center. Harold is a term the United States that the Chinese member of the Council on hosted by Australia in both Octo- government was behind the recent Foreign Relations from ber 2014 and again in September hacks of Anthem, United Airlines, 2012 to 2017. He is fluent in 2015); and multilateral exercises, Mandarin Chinese.

Stabilizing Military-to-Military Ties Between the United States and China 11 A crew of the China Coast Guard vessel watch a Philippine government vessel as they attempt to block the latter from entering the Second Thomas Disputed Shoals to resupply and replace Philippine Marines, March 29, 2014. AP Photo/Bullit Marquez AP Photo/Bullit 13 CHINA’S MARITIME AMBITIONS In 2015, the U.S. military is focused on countering Yellow the very real threat China’s growing capabilities pose Sea East to U.S. forces based or operating in China’s vicinity— China what the Pentagon refers to as “anti-access and Sea South area denial (A2/AD).” Beijing labels this maritime China Sea region—encompassing the East China Sea, the Yellow Sea, and the South China Sea—the “near seas.” But China’s naval capabilities are expanding apace, and increasingly the People’s Liberation Army Navy (PLAN) is looking beyond these adjacent bodies of map: pop_jop/iStock map: water to what the PLAN refers to as the “far seas.”

NEAR SEAS NOW The Tip of the Spear: China’s Coast Guard Takes the Lead in East and South China Sea Disputes

LYLE MORRIS AND MICHAEL S. CHASE

s the United States China used this strategy in May rebalances to Asia, 2014, when it deployed a deep-water one of the most oil rig in disputed waters between challenging policy the Paracel Islands and the Vietnam- problems it and its ese coast, along with a huge flotilla allies confront is of coast guard, surveillance, and Aresponding to China’s provocative fishery vessels. Chinese maritime employment of nonmilitary capabil- law enforcement (MLE) ships and ities in maritime territorial disputes fishing vessels rammed Vietnamese in the East and South China Seas. coast guard and fishing vessels, This approach—using nonmilitary sinking at least one Vietnamese ship. ships while keeping the People’s Lib- China used similar tactics to take eration Army Navy (PLAN) vessels control of Scarborough Shoal after largely in the background—allows a standoff with the Philippines in China to intimidate its neighbors April 2012 and to assert its claims to and gain leverage in these disputes the Senkaku/Diaoyu Islands, which at relatively low cost and with limit- are administered by Japan but also ed risk of escalation. claimed by China and Taiwan. As China seeks to defend its territo- At the National People’s Congress in to cooperate with Chinese MLE rial claims more staunchly, under- March 2013, policymakers addressed agencies, in particular with China standing Chinese MLE strategy and the issue by reorganizing four of Marine Surveillance (CMS). CMS how it affects regional stability is the five MLE agencies under the personnel have received training at becoming increasingly important to administrative control of the State PLA naval academies in Nanjing, U.S. policymakers and their counter- Oceanic Agency (SOA) and renaming Anhui, and Dalian since October parts in the region. them the China Coast Guard (CCG). 2009. By co-mingling law enforce- The restructure was a major step ment personnel with the military toward China’s longstanding goal for education and training, the two Recently Chinese of establishing a unified coast guard institutions are able to overcome tasked with protecting the Chinese cultural gaps and implement stan- vessels are sovereignty claims and carrying out dard practices to enable improved increasingly adopting law enforcement activities along communication and coordination. China’s maritime periphery. more aggressive The PLAN has also conducted drills Additionally, China established the alongside MLE fleets. The first actions, such as State Oceanic Commission (SOC), a publicized large-scale joint exercise, high-level consultative and coordi- dubbed “East China Sea Cooperation shouldering, using nating body on maritime operations. 2012,” was held in October 2012. water cannons, The SOC will reportedly issue Vessels from the PLAN East Sea “specific tasks” to the SOA and act Fleet, the Fisheries Law Enforce- ramming, and in some as a civilian-military coordinating ment Command East China Sea cases even sinking body overseeing the overall strategy Bureau, and the SOA East China related to maritime law enforcement Sea branch took part. The training government and policy. involved a scenario in which Chi- nese fishing vessels were “followed, fishing vessels from With the reorganization still in its harassed, and hindered” by vessels other countries. infancy, many questions remain from another country, according unanswered. Ships have been to China National Radio Online. repainted, uniforms changed, and PLAN frigates then “quickly took up new nameplates set, but issues positions right and left of the Marine persist over integrating the different Surveillance and Fisheries Law China Reorganizes the cultures, work styles, and command ‘Five Dragons’ Enforcement vessels and warned, structures of the four agencies. monitored, intimidated, and blocked” To bolster its MLE strategy, China Another issue is the extent to which the foreign vessels, the news report has reorganized a number of pre- MLE vessels will be armed. Recent said. Such drills illustrate Beijing’s viously separate MLE agencies deployments of CCG vessels seem aspiration to integrate the command into the new China Coast Guard. to indicate that some are armed, but and control of Chinese military and Before 2013, China’s MLE agencies whether all vessels will be armed and civilian law enforcement agencies to (sometimes referred to as the “five how they might be utilized during a more effectively conduct sovereignty dragons”) were a decentralized set conflict is not clear. protection and law enforcement of bureaucracies whose overlap- patrols in disputed waters. ping missions created problems for Chinese officials. For example, dual PLA Cooperation with responsibilities and competing inter- Maritime Law Enforcement Evolving Rules of ests among the different agencies Agencies Engagement created infighting and competition Recent training exercises highlight One key issue that should concern over funding and relevance in growing institutional interaction policymakers is the rules of engage- China’s push to assert its maritime between the PLA and Chinese ment (ROE) that Chinese MLE per- sovereignty claims. MLE forces. Even before the 2013 sonnel adopt in the East and South overhaul, the PLA had started China Seas. Chinese MLE vessels

14 China, Inside and Out: A Collection of Essays RECENT TERRITORIAL DISPUTES ROIL THE WATERS Some notable skirmishes with Japan, the Philippines and Vietnam:

APRIL 2012: Two Chinese surveillance ships block a Philippines Navy ship at the disputed Scarborough Shoal after the Navy vessel attempted to intercept eight Chinese fishing boats harvesting coral, giant clams, and live sharks at the reef. Manila and Beijing break the standoff by withdrawing their ships, but China continues to deploy vessels at the shoal and retains effective control over it.

SEPTEMBER 2012–PRESENT: Japan nationalizes three islands in the Senkaku Islands chain, prompting China to issue a diplomatic demarche and dispatch large numbers of maritime law enforcement vessels in an attempt to assert administrative control.

MARCH 2014: The China Coast Guard attempts to block a Philippines military mission to resupply and rotate a Marine detachment stationed at Second Thomas Shoal—an unprecedented challenge to the Philippine presence on the reef. Philippine Marines have stood watch at the shoal since 1999 aboard an old tank landing ship purposely grounded there as an outpost.

MAY 2014: China positions an oil rig about 120 nautical miles off Vietnam near the Paracel Islands, an archipelago both nations claim. Up to 120 Chinese maritime law enforcement vessels supported by aircraft and helicopters establish a cordon around the rig that prevents Vietnamese vessels from approaching. Chinese vessels fire water cannons, ram ships, and even sink vessels to keep the Vietnamese Coast Guard and fishing ships at bay.

A Chinese vessel approaches a Vietnamese Coast Guard patrol ship near an oil rig (right, background) installed by China off the Paracel Islands in South China Sea on May 28, 2014. The Yomiuri Shimbun via AP Images via Shimbun Yomiuri The

The Tip of the Spear: China’s Coast Guard Takes the Lead in East and South China Sea Disputes 15 have until recently taken a relatively nonconfrontational approach with other countries’ fishing and law enforcement vessels. However, changes to Chinese ROE became discernible around 2011. Before, Chinese ROE were focused primarily on 1) querying other vessels of their purpose for deployment; 2) declaring Chinese sovereignty; and 3) engaging in close-proximity maneuvering. But recently Chinese vessels are increasingly adopting more aggressive actions, such as shouldering, using water cannons, ramming, and in some cases even sinking government and fishing vessels from other countries.

This activity became more visible Times/Reddux York New Aznar/The Jes Renato Etac, who says during the 2012 Senkaku/Diaoyu Chinese vessels routinely Island dispute with Japan and chase and try to ram with the Scarborough and Second the small fishing boat Thomas Shoal incidents with the he captains, docked on Philippines, though Beijing seems to Subic Bay in Olongapo, Philippines, August 8, want to avoid further escalating its 2015. “I can’t even count confrontations with both Tokyo and the Chinese ships I see, Manila. More-aggressive activity there are so many,” said also became more routinized during Etac. the May 2014 oil rig standoff with Vietnam, which suggests a greater level of risk acceptance, at least when it comes to Hanoi. During the standoff, dozens of Chinese MLE vessels repeatedly harassed, sur- rounded, and rammed Vietnamese vessels that entered the self-declared Chinese buffer zone around the oil rig. Most notably, nongovernmental vessels, such as maintenance and supply ships, trawlers, and even tugboats, have adopted some of the more aggressive tactics. In one case, a large Chinese fishing trawler pre- sumed to be owned by the Shandong Homey Aquatic Development Co. Ltd. rammed and sank a wooden Vietnamese fishing vessel; the Viet- namese coast guard saved the crew.

16 China, Inside and Out: A Collection of Essays The evolution to more-aggressive • Increasing the level of risk or THE AUTHORS ROE, especially with respect to uncertainty Chinese decisionmak- Vietnam, indicates increasing con- ers must accept when they engage fidence on the part of China’s MLE in coercive tactics commanders and captains of their ability to employ ever-increasing • Helping allies and partners escalatory measures without trig- improve their own MLE capabili- Lyle Morris gering military retaliation. Further- ties by providing more modern and Lyle Morris is a project capable vessels and the training to associate at the RAND more, the actor involved may dictate Corporation, where he the type of ROE adopted. For operate them focuses on foreign policy example, China may calculate that it and security issues related • Assisting allies and partners with to China and East Asia. can successfully carry out more- the development of maritime Prior to joining RAND, aggressive ROE tactics with non- domain awareness and communica- Morris was the 2010–2011 U.S. allies (such as Vietnam) than Next Generation Fellow tions capabilities with U.S. allies (such as Japan or the at the National Bureau of Asian Research (NBR) Philippines). Finally, the involve- • Promoting ties among allies and and a research intern ment of nongovernment-affiliated partners by encouraging more with the Freeman Chair vessels, such as fishing, tugboat, and powerful countries to provide in China Studies at the Center for Strategic and maintenance vessels, represents a equipment and training to less International Studies. From new—and potentially risky—tac- capable countries in the region. 2004 to 2008, Morris tic in which Chinese government lived in Beijing, China, where he studied Mandarin entities can claim immunity while Recommended Reading Chinese at Peking and still engaging in escalatory behavior Tsinghua Universities and later worked at Dentsu that successfully deters other coun- Other publications that have examined Advertising and the China tries’ vessels. This raises questions various aspects of coast guard and maritime Economist Journal. about the degree to which nongov- law enforcement developments in the ernment vessels receive guidance Asia-Pacific include: from the CCG. Ryan Martinson, “Here Comes China’s Great White Fleet,” The National Interest, October 1, 2014. Deter, Defend, and Ally Bonnie Glaser, and Brittany Billingsley, China’s reliance on nonmilitary “The Promise and Peril of China’s New Michael S. Chase capabilities to project power in the Coast Guard,” The Diplomat, August 7, Michael S. Chase is a East and South China Seas leaves the 2013. senior political scientist at RAND and an adjunct United States and its allies confront- Lyle J. Goldstein, “Non-Military Escala- professor in the China ing a series of policy and strategy tion: China Cultivates New Heft in Civil Studies and Strategic challenges. One is how to develop Maritime Forces,” China Brief, Vol. 12, No. Studies Departments at Johns Hopkins University’s 23, November 30, 2012. approaches to deter Chinese nonmil- School of Advanced itary but coercive actions. Another is International Studies Lyle J. Goldstein, “Five Dragons Stirring how to respond if deterrence fails. (SAIS) in Washington, Up the Sea: Challenge and Opportunity in D.C. His current research China’s Improving Maritime Enforcement In rising to these challenges, the focuses on Chinese Capabilities,” U.S. Naval War College, military modernization, United States and its allies should China Maritime Studies Institute, No. 5, China’s nuclear policy and consider approaches calibrated to April 2010. strategy and nuclear force decisively influence Chinese behavior modernization, Taiwan’s defense policy, and Asia- without running unnecessarily high Editor’s Note: This essay was adapted from Pacific security issues. risks of further escalation. These Chase studied Chinese at the Lyle Morris, “Taming the Five Dragons? Hopkins-Nanjing Center in could include activities such as China Consolidates its Maritime Law Nanjing, China. Enforcement Agencies,” China Brief, Vol. 13, No. 7 (March 28, 2013).

The Tip of the Spear: China’s Coast Guard Takes the Lead in East and South China Sea Disputes 17 A Jian-15 fighter jet takes off from China’s first aircraft carrier, theLiaoning, during a sea trial in Qingdao in east China’s Shandong province on Saturday, Sept. 21, 2013. CHINA’S MARITIME AMBITIONS 19

FAR SEAS FUTURE Nascent Aircraft Carrier Program Reveals China’s Grand Ambitions

ANDREW SCOBELL AND CORTEZ COOPER

he People’s Liberation Four observations come to mind Army Navy (PLAN) when considering PLAN drivers is experiencing a and goals and what China’s naval “paradigmatic change” ambitions and capabilities mean (zhuanxing) in naval for the United States. thinking from the T“near seas” (jinhai)—encompassing the East China Sea, Yellow Sea, 1. China’s carrier program and the South China Sea—to the has been driven by an “far seas” (yuanhai), according to an overarching strategic authoritative Chinese military pub- logic reinforced by great- lication. One of the most dramatic power aspirations and indicators of its far seas ambitions is bureaucratic initiatives. China’s aircraft carrier program. Beijing views an aircraft carrier The PLAN commissioned its first as a necessary accoutrement of a carrier, the Liaoning, to great fanfare great power. It would be “com- in September 2012. The Liaoning pletely unthinkable,” according to is reportedly the first of as many Major General Zhang Shiping of as five planned aircraft carriers. the Academy of Military Science, What does this program tell us “for China to become a major world about China’s far seas intentions power without an aircraft carrier.” and expanding naval capabilities? This platform has come to symbolize

Hu Kaibing/Color China Photo/AP Images In this Tuesday, Nov. 26, 2013 photo, CHINA’S AIRCRAFT CARRIERS a crew member of Chinese People’s Liberation Army (PLA) Navy monitors Where Are They Now? on the deck of the China’s aircraft carrier, the Liaoning, sailing on the East China Ship Year Cost Status Sea for sea trials. purchased HMAS closely inspected, 1985 $1 million Melbourne scrapped 1998 Minsk $5 million tourist attraction completely 1998 Varyag $20 million refurbished as Liaoning 2000 Kiev $8.4 million tourist attraction AP Photo

the overwhelming dominance that China in a latter-day version of as vice chair of the Central Military the U.S. Navy has long enjoyed gunboat diplomacy that harkens Commission in 1997, acquiring a over the PLAN. To Beijing, aircraft back to the Century of Humiliation, carrier had become a high-priority carriers are the primary vessels by when Western powers bullied China goal for Beijing. which the United States intimidates into signing the so-called unequal treaties. But what ultimately powered China’s carrier program into being was an China’s far seas The Chinese carrier program was overarching and evolving strategic ambitions are the pet project of the most powerful logic. While nationalism and bureau- PLA flag officer of the post-Mao cratic interests have played—and propelled less by reform era: Admiral Liu Huaqing continue to play—important roles (1916-2011), who is revered as the in the program’s trajectory, the push expansionism than by “father of Chinese aircraft carriers” for a Chinese carrier could not have a growing desire to and “China’s Mahan,” after Alfred been sustained across many decades Thayer Mahan, a prominent U.S. and ultimately triumphed without protect Beijing’s far- Navy admiral and geostrategist. Liu the impetus of a larger strategic flung interests, which first floated the idea of China acquir- rationale and the emergence of a ing a carrier in 1970, according to coherent naval strategy. now stretch around his memoirs. While his suggestion gained no traction at the time, Liu In the early 1980s, Admiral Liu set the globe. persisted, and by the time he retired a course for this naval strategy, a

20 China, Inside and Out: A Collection of Essays course in which the PLAN would Macau, located in southern China years ago has the U.S. Navy faced gradually extend its reach into the not far from Hong Kong. However, the specter of a non-allied navy that Pacific Ocean in a phased expansion when the Varyag eventually arrived has surface and subsurface platforms of Chinese power. In the first phase, in China in early 2002 it docked well with global reach. In the coming by 2000, the PLAN was to extend away from Macau—in the northern decades, U.S. Navy vessels will its area of operations in the near seas port of Dalian. increasingly share the high seas with as far as the so-called First Island PLAN vessels. Chain: the Kuril Islands, Japan, This flurry of activity and subse- the Ryukyu Islands, Taiwan, the quent substantial investment—prob- Nevertheless, the Liaoning itself will Philippines, Borneo, and Indonesia’s ably in the range of $100 million—in have little if any operational impact Natuna Besar. In the second phase, completely refurbishing the former in the short term; it primarily is by 2020, the PLAN aimed to project Soviet-era hulk indicate that Beijing to serve as a training platform for its operational reach to the so-called is very serious about an aircraft the first three to five years and will Second Island Chain: the Bonins, carrier program. operate mostly within the First and the Marianas, and the Carolines. Second Island Chains. Most opera- China’s far seas ambitions are tional PLAN ships have three-digit In the third phase, by 2050, China propelled less by expansionism would be a global sea power on par Arabic numeral identifiers, but the than by a growing desire to protect Liaoning has a two-digit identifier with the U.S. Navy. To date, the Beijing’s far-flung interests, which PLAN’s efforts have put it on a tra- (16), indicating it is officially viewed now stretch around the globe. China as a training vessel. Moreover, a jectory to coming close to meeting has become increasingly enmeshed in this timeline. second carrier, currently under the global economic system, and the construction, is unlikely to come into lion’s share of its trade is seaborne. service for at least five to six years. 2.The carrier program By 1993, the PRC had become a net But the PLAN is working to muster importer of petroleum. All this sig- emphasizes that China new platforms—surface vessels, sub- naled China’s growing dependence marines, aircraft—and operational has serious medium- and on the sea lines of communication long-term naval ambitions capabilities (including ballistic and radiating through the near seas cruise missiles) together in ways that that extend well beyond its and beyond the First Island Chain. will make any prospect of confron- immediate neighborhood. China’s growing oceanic interests tation or tangle with the PLAN A key observable indicator of Bei- have fueled expanded operational increasingly difficult for the U.S. jing’s degree of determination is the demands for the PLAN at greater Navy. Greater attention by the Pen- level of effort it has put toward an distances from home ports. These tagon to the so-called “anti-access expensive and input-intensive naval missions include protecting China’s and area denial (A2/AD) challenge” power projection platform. Between fishing and merchant fleets. highlights that China’s military can 1998 and 2000, for example, various hold at risk U.S. platforms operating in the Western Pacific. Chinese entities separately purchased 3. China’s carrier program three Soviet-era aircraft carriers. The cost of these acquisitions—the underscores the rising level In peacetime, an aircraft carrier Minsk and Varyag (both in 1998), and and increasing complexity provides a high-profile presence the Kiev (in May 2000)—reportedly that the PLA’s growing wherever it steams. A Chinese carrier totaled some US$33.4 million. All of capabilities are starting to would symbolize China’s power and this suggests a degree of high-level present to the U.S. Navy commitment without necessarily coordination. The which raising alarm. But the challenge in Varyag, In 2011, then–PACOM commander became the , was purchased the not-too-distant-future will be Liaoning Admiral Robert Willard observed by the Chong Lot Tourist and how to operate a carrier close to that when a Chinese carrier did come Amusement Agency, where several home without being perceived as on-line, the psychological impact retired PLAN officers sat on the threatening by China’s neighbors. on the Asia-Pacific region would board of directors. Ostensibly, the While a carrier is much more likely probably be more significant than was to become a floating to be warmly welcomed outside Varyag its operational impact. Not since the casino in the gambling mecca of the First and Second Island Chains end of the Cold War more than 20 than within them, the vast distances

Nascent Aircraft Carrier Program Reveals China’s Grand Ambitions 21 significant combat operations in the foreseeable future. Thus the Liaoning and any subsequent Chinese aircraft carriers can expect considerable noncombat operations. Since at least 2008 China’s armed forces have emphasized military operations other than war (MOOTW) as an increasingly important doctrinal component for the PLA. These MOOTW missions for China’s navy include protecting sea lines of communication and conducting humanitarian assistance/disaster relief. China became acutely aware of the value of an aircraft carrier during the U.S. Navy’s response to the Southeast Asia tsunami in 2004. Recent PLA Images An xin/Imaginechina/AP In this TV grab taken on November 28, 2013, experiences with noncombatant China’s first aircraft carrier the Liaoning, evacuations in places such as Libya enroute to the South China Sea, passes through the Taiwan Strait. The ship was on its way to in 2011 have also highlighted the a training mission in the South China Sea. value of air and naval assets. It took about 10 hours for the carrier and its four escort ships to get through the strait The Liaoning’s short takeoff and separating the Chinese mainland and Taiwan. arrested recovery (STOBAR) design It was escorted by two missile destroyers, suggests that its missions will be the Shenyang and the Shijiazhuang, and two more limited than those of U.S. missile frigates, the Yantai and the Weifang. aircraft carriers. A ski jump and the absence (to date) of catapults limit the size and weight of aircraft that can take off from the deck (which restricts the payload and amount of fuel a jet can carry). Thus, the on-board aircraft will focus on air defense missions to protect the carrier and to escort vessels during operations at sea. Moreover, the involved in far seas operations will 4. China’s growing naval Liaoning is conventionally powered, also provide the greatest challenges capabilities expand which limits its range and necessi- to Chinese carriers, with refueling both opportunities for tates regular refueling. being the key issue (U.S. carriers cooperation and potential are all nuclear-powered and far China’s first carrier also provides less constrained in their mobility, for confrontation with the navies of the United States added valued in wartime. Most although fuel for aircraft does need significantly, a carrier offers the and other states. to be resupplied). A carrier operat- PLAN extended capability on the ing off the coast of Africa or Latin There are great opportunities for the high seas and an improved capacity America would be a strong symbol PLAN to cooperate with the inter- for anti-submarine warfare (ASW) of Chinese national pride and could national community in peacetime and airborne early warning (AEW) also serve as a goodwill ambassa- noncombat operations. The PLA support. However, ASW and AEW dor, whether in port visits or in has neither had recent warfighting require multiple carriers, and the patrolling the global commons. experience nor does it anticipate Liaoning’s size and configuration

22 China, Inside and Out: A Collection of Essays carrier program. The program’s THE AUTHORS lengthy gestation and repeated early Adding carriers to failure to gain traction are attrib- an already sizeable utable to the absence of a strategic imperative until the end of the Cold non-allied navy War. This mounting strategic ratio- nality and the emerging operational Andrew Scobell operating in the Andrew Scobell is a senior demands in the 21st century for a political scientist at the same waters will only carrier program correspond to a rise RAND Corporation. Prior to in PLA thinking beyond a Taiwan this he was director of the further complicate China certificate program Strait scenario. When China’s mili- at Texas A&M University the operating tary was narrowly focused on oper- in College Station, Texas. ations against Taiwan, an aircraft Scobell has published carrier did not make much sense. several works on China. He environment for the was born and raised in Hong But the operational value of a carrier Kong and regularly makes U.S. Navy, especially is more evident in other scenarios, research trips to the region. during any state of especially beyond the First Island Chain. Moreover, the strategic and heightened tensions operational value increases as the between Washington PLAN expands its horizons beyond the First and Second Island Chains. and Beijing. Adding carriers to an already sizable Cortez Cooper non-allied navy operating in the Cortez A. Cooper III is a senior international same waters will only further com- preclude the launch of larger aircraft policy analyst at the plicate the operating environment that would perform these missions. RAND Corporation. Prior for the U.S. Navy, especially during to this, Cooper was the Nevertheless, a fully operational any state of heightened tensions director of the East Asia aircraft carrier can provide the PLA’s Studies Center for Hicks between Washington and Beijing. first steps toward extended air and and Associates, Inc. He However, this will not fundamentally has also served in the U.S. air defense cover for operations in the shift the balance of forces in the Navy Executive Service Asia-Pacific. This includes a modest as the senior intelligence Asia-Pacific. Chinese carriers signal increase in air defense for escort analyst and Asia regional the emergence of an increasingly specialist in the Pacific vessels. However, vulnerabilities in global-oriented PLAN. The result Theater, advising U.S. anti-submarine warfare and airborne Pacific Command leadership will be increased opportunities for early warning remain too great on trends and developments cooperation in peacetime and greater for the Liaoning to be successfully in the Command’s area of challenges for the U.S. military in responsibility. employed in high-intensity maritime any future conflict. combat. In short, there are limita- tions to what one aircraft carrier can do, especially one deployed with only modest operational experience. Editor’s Note: This essay was adapted from Andrew Scobell and Cortez Cooper, “Car- rier Dreams or Coherent Naval Strategy? China’s Aircraft Carrier Program and Conclusion: Greater What It Means for Taiwan,” in Monique Opportunities for Chu and Scott Kastner, eds., Globalization Cooperation—and Conflict and Security Relations Across the Taiwan Strait (Routledge, 2015). Driven by a dominant strategic logic, China’s navy is moving toward a far seas future. One of the most tangible pieces of evidence is the PLAN’s

Nascent Aircraft Carrier Program Reveals China’s Grand Ambitions 23 Aerial view of a junkyard piled high with scrapped vehicles in Hangzhou city, east China’s Zhejiang province, March 19, 2015. As China is stepping up environmental protection levels to fulfill its commitment of curbing pollution, an increasing number of pollutive vehicles have been removed from roads and scrapped.

Li jiangang/Imaginechina /AP Images 25

Solutions to Reducing Air Pollution in China and Their Costs

Keith Crane

WORLD HEALTH ORGANIZATION ACCEPTABLE AIR-QUALITY LEVEL

ir pollution is one of proved by some measures, concentra- the most pernicious tions of pollutants in virtually every consequences of major urban area exceed the stan- China’s past three dards recommended by the World decades of economic Health Organization (WHO). transformation and explosive growth. Although China’s To illustrate the extent of air pollu- A tion, consider just one pollutant: par- federal, provincial, and municipal governments have made consider- ticulates less than 2.5 microns in size able efforts and air quality has im- (PM2.5). In the past few years peak SOURCE: U.S. Embassy in Beijing. Major sources of sulfur concentrations of PM2.5 in Beijing the installation of pollution control dioxide emissions in 2010 have exceeded WHO’s standards of equipment on power plants has 25 parts per cubic meter of air by as reportedly curtailed emissions of much as 40 times. TSP, emissions of sulfur dioxide from ELECTRIC power plants rose 31 percent over POWER China’s extreme air pollution takes a this period due to increased con- 52.8% OTHER substantial toll on its citizens’ health. sumption, and concentrations of TSP 26.9% A recent study found that life expec- have remained high. tancy there plummets three years for every additional 100 micrograms of In China’s urban areas, households total suspended particulate matter and small businesses produce a (TSP) of all sizes. The same study disproportionate share of TSP found that very high levels of TSP METAL- emissions because they burn coal, LURGY in northern China, where air quality industrial and household waste, 9.9% tends to be worst, have reduced life and wood and biomass for cooking CEMENT expectancy there by an average of and heat, which generate greater AND OTHER 5.5 years compared to the south MINERALS emissions than do alternatives 10.4% (which is heavily polluted itself). such as natural gas or propane. In 2011, households and commercial The health and other economic SOURCE: China Environmental Statistical establishments burned 114 million costs of air pollution totaled 6.5 Yearbook, 2010, Emission and Treatment of tons of coal—3.2 percent of the coal percent of China’s gross domestic Waste Gas tables. consumed in China. product (GDP) each year between 2000 and 2010. The related costs of On another front, the number of health care, shorter lifespans, lost vehicles in China has skyrocketed productivity from missed work, and from 17.4 million in 2004 to 126.7 damage to buildings, equipment, and million in 2013, according to the farmland added up to an estimated China Statistical Yearbook. As a $535 billion in 2012. And these result, they have become an increas- costs—especially for health care— ing source of urban air pollution, are rising as more Chinese move to especially nitrogen oxides, volatile urban areas, where they are exposed organic compounds, and TSP from to poorer air quality. Economic diesel engines. And while China has costs are also climbing as lost work followed European Union standards time and the shortened lifespans for cars and trucks and, like the of China’s increasingly productive EU, has progressively tightened workforce impose a higher toll. emission standards for new cars, 14.5 million older vehicles with only rudimentary pollution control What Are the Main Sources equipment or none at all remain on of Pollution? the road; though they comprised Electricity generation accounts for less than 10 percent of China’s most emissions of sulfur dioxide, a vehicles in 2011, they accounted for key pollutant in China. Together, nearly half of all emissions. power generation, cement production, and metallurgy account for almost three-quarters of this pollut- What Can China Do? ant. Coal is the main source of both The government has been imple- sulfur dioxide and TSP emissions. menting anti-pollution measures Between 1990 and 2010, China’s similar to those of other industrial- coal consumption tripled. Although ized economies:

26 China, Inside and Out: A Collection of Essays • Subsidizing or mandating the use States—40 percent in 2013—and are manufactured by joint ventures of cleaner fuels such as natural gas, many countries in Europe. To match between international automakers nuclear, and renewables the U.S. figure, China would have and Chinese companies, so Chinese had to reduce coal-fired generation producers have access to their part- • Mandating pollution-control by 39 percentage points, or 1.918 ners’ pollution-control technologies. equipment on major point sources trillion kilowatt-hours (KWh), in In fact, the most stringent technol- and motor vehicles 2012. This would require substan- ogies are already being installed on tial additions to China’s generating vehicles sold in Beijing and other • Requiring that older vehicles, capacity from other sources but cities, where reducing vehicle emis- boilers, and other high-emission would have great benefits. Retiring sions is a priority. equipment be scrapped the worst-performing coal-fired Scrapping the 14.5 million older For China’s urban air quality to plants near cities could reduce vehicles with little or no pollution reach safe levels, more aggressive national emissions of particulates control equipment is the most implementation of these policies is and sulfur dioxide by well over 25 efficient way to reduce air pollution necessary. We evaluated the effects percent and substantially improve from existing vehicles. In 2009, this and costs of three strategies. urban air quality. would have eliminated 70 percent Policy 1: Substituting natural gas How much energy from other of carbon monoxide, 70 percent of or propane for coal for residential sources would be needed to replace volatile hydrocarbons, 61 percent of and commercial use coal-fired plants? Expanding hydro- nitrogen oxides, and 76 percent of To meet WHO’s air quality stan- electric power capacity from 249 particulate matter emitted by cars dards, residential and commercial gigawatts (GW) to 325 GW, which and trucks. users must stop burning coal, China is currently planning, would biomass, and plastic waste in urban generate an additional 0.264 trillion areas. Most countries have found KWh, equivalent to 5.3 percentage How Much Would These that effectively reducing emissions points of coal-fired power in 2012. Policies Cost to Implement? from urban boilers used for heating Expanding wind could generate The measures proposed here, which and hot water requires replacing 0.996 trillion KWh, or 20 percent have already been partially imple- coal with natural gas, propane, or of the electricity China generated in mented by national or municipal other cleaner fuels. To replace the 2012. China would need to install governments in China, will reduce 114 million tons of coal burned by an additional 540 GW of wind urban concentrations of particulate households and commercial users in capacity beyond its 2012 capacity of matter, sulfur dioxide, and nitrogen 2011, China would have needed an 62 GW to reach this goal. Nuclear oxides by at least a quarter and prob- additional 88 billion cubic meters power plants could supply the ably much more. But they do not of natural gas—60 percent more difference—0.658 trillion KWh, or come without cost. For example, we than the 147 billion cubic meters of 15.2 percent of China’s 2012 electric estimate that the recurring annual natural gas it consumed in 2012. power output. To achieve this costs could run as much as $32 bil- goal, 84 GW of additional nuclear lion for replacing coal with natural Policy 2: Replacing coal with capacity would be needed—45 gas for residential and commercial cleaner fuels to generate electricity percent more than China’s current heating, and $184 billion for replac- Half of the coal combusted in China goal of an additional 58 GW by ing half of China’s coal-fired electric generates about 79 percent of its 2020. These estimates do not take power generation with renewables electricity. To reach healthy air into account greater demand for or nuclear power. Combined, total quality levels, China needs to replace electricity from continued economic recurring costs could be $215 billion a substantial amount of coal-fired growth. However, in 2013 and 2014, annually. Subtracting the value of the power, especially in or near major growth in demand for electricity in coal ($75 billion) for which these fuels population centers, with power from China moderated to the point that would substitute, net annual costs cleaner sources. consumption of coal has dropped. in aggregate would run $140 billion to $160 billion annually. However, Coal generates a much smaller Policy 3: Scrapping older vehicles the costs of air pollution in China share of electricity in the United Most motor vehicles sold in China exceed $535 billion annually, so these

Solutions to Reducing Air Pollution in China and Their Costs 27 SOLUTION TO REDUCE AIR POLLUTION IN CHINA ANNUAL COST What would it cost to replace coal-fired electricity with other fuels?

Cost to replace coal with

NUCLEAR Robert Pepper/iStock dam: Romanov/iStock; Askold icons: Energy $82B

Cost to replace coal with Cost to replace coal with WIND NATURAL GAS $32B $78B Depends on price of liquefied natural gas at time of replacement. Cost to replace coal with HYDRO

$24B Based on 2012 dollars. SOURCE: RAND Calculations investments represent less than one- costs of scrapping highly polluting The cost of this policy would primar- third of that amount. vehicles could run from $21 billion ily fall on urban residents, and, to a to $42 billion. lesser extent, commercial establish- China is well on its way to scrapping ments in the form of increased costs older, highly polluting cars and for heating and hot water. However, trucks. More than a third of these Which Proposed Policy these are precisely the individuals vehicles that were on the road in Should Take Priority? who suffer most from air pollution. 2012 are to be scrapped by the end of Of the three policy initiatives discussed Municipal subsidies for expanding 2015, and all should be gone by the here, the near-term priority should be natural gas distribution networks end of 2017. However, getting the substituting natural gas or propane for or purchasing new furnaces would worst-polluting cars and trucks off coal or other solid fuels for residential alleviate some of the burden. At $32 the road even sooner would be bene- and commercial use. Ending the use billion a year, the costs of this policy ficial. China may wish to implement of these fuels would substantially would run about $50 per capita for “cash-for-clunkers”-style limited improve air quality in urban areas, urban dwellers, or $4 per month. buyback programs, like the one in especially in winter months, greatly Although not inconsequential, the Dongguan, Guangdong province, to reducing the number of days when air costs are manageable for most urban accelerate the process. The one-off quality is extremely bad. dwellers in China. Lower health

28 China, Inside and Out: A Collection of Essays SOLUTION TO REDUCE AIR POLLUTION IN CHINA A ONE-TIME COST What would it cost to scrap old vehicles? Based on 14.5 million vehicles $21B $42B

If older vehicles are all cars If older vehicles are all trucks

Based on 2012 dollars. SOURCE: RAND Calculations costs (which could conceivably offset increasing the energy costs of all up its efforts to undo the damage. the price of the policy) suggest this Chinese households. On balance, would be very beneficial from both ending the use of coal for residential Editor’s Note: This essay was adapted from economic and health perspectives. and commercial purposes within Keith Crane and Zhimin Mao, Costs of urban areas is likely to be the higher Selected Policies to Address Air Pollution in At $184 billion, the cost of replacing near-term priority. China (RAND Corporation, 2015; available coal-fired power with hydro, wind, at www.rand.org/t/rr861). and nuclear is the most expensive of At $21 billion to $42 billion, expedit- the three policies we evaluated, but ing the retirement of highly pollut- it would contribute most to reducing vehicles is the least expensive ing overall emissions of TSP and measure, and the cost is diminishing sulfur dioxide. However, the impact by the day since the vehicles are on urban air quality might not be already being steadily scrapped. That as great as the expected decline in said, if expeditiously implemented, THE AUTHOR emissions suggests because most programs to accelerate retirements Chinese power plants are not in would still have positive benefits. urban areas. Although wind-borne air pollution from coal-fired plants After decades of tradeoffs between is a major factor in urban air quality, China’s economic growth and the costs to its citizens’ health and the abating pollution sources within the Keith Crane environment, the bill is coming due. city limits would generally have a Keith Crane is director of the more direct impact. The costs of a Economically, pollution is taking a RAND Environment, Energy, greater move away from coal-fired daily toll through greater health care and Economic Development costs, shorter lifespans, lost produc- Program. Crane is engaged in power would be borne more widely issues pertaining to U.S. energy than those of the residential and tivity, and property damage. Socially, production and consumption, China, commercial changes; electricity the issue has generated political the Middle East, Afghanistan, the transition economies of Eastern would grow more expensive, cutting pressure as China’s increasingly affluent population demands better. Europe and the Commonwealth of into the profits of the energy-in- Independent States, and post- tensive manufacturing sector and China would benefit from stepping conflict nation building.

Solutions to Reducing Air Pollution in China and Their Costs 29 Chinese workers install solar panels at a photovoltaic power station in Hengfeng county, Shangrao city, east China’s Jiangxi province, March 28, 2015. Beijing in March announced a solar installation target of 17.8 gigawatts (GWs) for 2015, up 70 percent on the previous year, to boost the use of renewable energy and prop up China’s solar panel industry, the world’s largest. Zhuo zhongwei/Imaginechina/AP Images Zhuo zhongwei/Imaginechina/AP 31

The Effectiveness of China’s Policies for Developing High-Technology Industries

Keith Crane

n an effort to restore higher Economic Development growth rates, raise per Zones capita incomes, and reduce pollution, the Chinese Since China’s economic reforms government has staked out began in 1978, the government the goal of transitioning has used a variety of policy instru- Ifrom the lower-value, lower-wage ments to foster innovation. One key manufacturing economy of its re- instrument for experimenting with cent past to a mixed industrial and economic policies in general and service economy. Future growth is policies to spur technological change to be driven more by innovation in and innovation, in particular, is the its many forms than by investment economic development zone (EDZ). and the continued reallocation of low-skilled labor from agriculture EDZs have generated a substantial to manufacturing. share of China’s industrial output and value-added exports, and they But this leaves China facing a crucial have also attracted a large share of question: Will its investments in foreign direct investment. While this transition pay off in a climate the initial focus of EDZs was to of strong competition from neigh- attract foreign direct investment boring economies? We examined and expand manufacturing and two areas where China is focusing exports, of late, the aim has been to its efforts: Economic Development encourage the migration of indus- Zones and developing “national tries to China’s poorer western champions” among industries it provinces and to foster the growth views as strategic. of high-technology industries. What can China do to help its EDZs achieve the latest goal of fostering innovation? Consider the case of the new Sino-Singapore Guangzhou Knowledge City. Jointly developed by the Guangzhou Development District (GDD) and Singbridge of Singapore, Knowledge City is to be an environmentally and technologi- Laboratory National Lawrence Livermore cally advanced city that hosts innovative industries and the knowledge workers that staff them.

RAND worked with the GDD to identify how public policy levers could be engaged to create a center of innovation. We proposed three 7 Tech Industries Worth goals (and several policy actions for China’s Time realizing them) for fostering innovation in this new EDZ: In work RAND conducted for the Tianjin Binhai New Area and its Tianjin Economic-Technological 1. attract high-technology companies Development Area, we identified the most- and enable their growth promising emerging technology applications to 2. attract and retain highly skilled, pursue as part of their plan for growth. Seven innovative people emerged as particularly promising: 3. ensure the availability of innovation-oriented financing. 1. CHEAP SOLAR ENERGY To foster the growth of clusters of 2. ADVANCED MOBILE COMMUNICATIONS AND RADIO- high-technology companies, GDD FREQUENCY IDENTIFICATION PLATFORMS must attract an anchor institution or for sensing, processing, storing, and communicating multiple types institutions (defined as a prominent of data company, research institution, or university that will attract research- 3. RAPID BIOASSAYS ers and suppliers), and improve the tests to quickly detect the presence or absence of specific biological overall innovation environment. substances A new government office could be created to assist companies with all 4. MEMBRANES, FABRICS, AND CATALYSTS legal, administrative, and financing to desalinate, disinfect, decontaminate, and help ensure water quality issues, providing each investor with a case worker to help the investor obtain the benefits for which he 5. MOLECULAR-SCALE DRUG DESIGN qualifies and give other individual- development and delivery ized assistance. To allay concerns about intellectual property rights, an 6. ELECTRIC AND HYBRID VEHICLES area in which China has performed 7. GREEN MANUFACTURING PROCESSES poorly, we recommended that GDD that minimize waste and environmental pollution while optimizing declare Knowledge City an enforce- the use and reuse of resources ment zone and expand assistance for international patenting.

32 China, Inside and Out: A Collection of Essays To attract and retain innovative peo- technologies, and materials have commercial aircraft without foreign ple, GDD should adopt policies that enabled the country to enter more assistance. To create a domestic directly attract new talent (especially technologically sophisticated commercial aviation manufacturing from among Chinese returning from industries. To spur several high-tech industry, the Chinese government abroad), enhance labor flexibility, and industries that the Chinese govern- has employed the following policy facilitate the creation of networks. ment has denoted as strategic, the instruments: To help formulate these policies, government has employed industrial we proposed that GDD create an policies, both formal and informal, • Tasking COMAC with becoming a advisory council for Knowledge City to foster the development of national global competitor in the commer- composed of foreign and domestic champions—state-owned companies cial aircraft manufacturing industry that are to develop internationally investors. Due to their greater • Providing subsidized loans and competitive products and become education and incomes, skilled equity to COMAC workers expect a high quality of global leaders in high technology life, so Knowledge City will require industries. As part of this strat- • Compelling state-owned airlines to first-rate schools, urban amenities, egy, the Chinese government has purchase Chinese aircraft and entertainment opportunities. attempted to induce the transfer of GDD must also ensure adequate and technologies from foreign manufac- • Targeting orders to foreign frequent rail connections between turers to Chinese companies. To the manufacturers that have assembly Knowledge City and the rest of extent that these policies have been operations in China or source Guangzhou, as many knowledge successful, they have accelerated from China workers will have spouses who work shifts in production and employ- • Stipulating that foreign suppliers in other parts of Guangzhou. ment from industries in other enter into joint ventures with countries to China. To ensure the availability of inno- Chinese suppliers to COMAC vation-oriented finance that will Consider a case study of one of these • Encouraging foreign countries help entrepreneurs overcome the national champions: the country’s to purchase aircraft produced by challenges of accessing early-stage emerging commercial aviation manu- COMAC through diplomatic per- financing, GDD could create formal facturing industry. Although China’s suasion and the provision of loans. networks of angel investors who government has had a long-standing regularly review promising invest- interest in manufacturing commer- Despite these measures, commercial ment opportunities. International cial aircraft, to date it has not had aviation manufacturing still generates experience shows mixed results much success. Until recently, the only a small fraction of China’s total from government-sponsored venture industry produced aircraft almost industrial output (0.17 percent in funds; private venture capital has exclusively for the Chinese military, 2010) compared to 3 percent of U.S. been better able to judge business so almost all commercial aircraft manufacturing output. China’s share prospects and risks. One way to have to be imported. In 2008, China of the world export market for avia- involve private venture capital is created a state-owned commercial tion products was just 1.3 percent in by forming partnerships between aircraft manufacturing company, the 2011 compared to the United States’ foreign or domestic firms and Commercial Aircraft Company of 37 percent share of the global market government-sponsored firms. Even China (COMAC), to build a regional and the European Union’s 44 percent. if innovation-oriented financing is jet, the ARJ-21, already under available, innovative firms will still development, and a narrow-bodied One hurdle to convincing foreign need commercial banking services, so aircraft, the C919. companies of any kind to invest Knowledge City will need a competi- in China is the real and perceived tive commercial banking presence. To advance the industry, China lack of safeguards for intellectual adopted a strategy of first engaging property and technologies. The most in domestic production and assembly common strategy employed by those Developing ‘National using foreign designs, then devel- that have been active in China for Champions’ oping its own designs with foreign years is manufacturing key com- assistance, culminating in completely ponents outside China, which the Improvements in the quality of independent local development of a joint venture then imports for final China’s workforce, manufacturing

The Effectiveness of China’s Policies for Developing High-Technology Industries 33 champion have not yet borne fruit. problems are given all the atten- Although output has grown rapidly, tion, what can and should the U.S. China’s government the shares of China’s industry in government and the EU do with would be well advised world exports and gross industrial regards to commercial aviation man- output have not markedly increased. ufacturing specifically and China’s to create a more The ARJ-21 is constructed largely, industrial policy in general? equitable business if not entirely, from foreign components, and the C919 will likely • Engage in bilateral negotiations environment for both follow suit. Projected dates for the with the EU to discourage the certification of the ARJ-21 have been use of purchases of components foreign and Chinese postponed several times, and the as a marketing tool by Airbus and manufacturers. C919 will definitely face delays. In Boeing short, China has yet to prove that • Push for more transparent tenders it can produce commercially viable for aircraft purchases by Chinese aircraft, much less show that it can state-owned airlines assembly. The fact that all materials become globally competitive. and components used on aircraft • Ensure that Chinese aircraft must be certified by aviation regu- components submitted for certifi- How Should Western latory agencies such as the Federal cation by the FAA or EASA do not Aviation Administration (FAA) or Countries Respond to incorporate intellectual property the European Aviation Safety Agency China’s Industrial Policies? taken from other companies (EASA) also helps to lessen the risk. Both the United States and the • Work with domestic companies Because Chinese manufacturers must European Union face a conundrum: with operations in China to vol- obtain international certification for China’s leadership appears con- untarily report whether and how their components—even those used vinced of the efficacy of industrial investment decisions have been in Chinese aircraft—foreign compa- policies in fostering new industries influenced by Chinese industrial nies that believe Chinese companies and expanding exports. In contrast, policies have violated intellectual property the United States and the European rights can attempt to prevent the Union have moved away from using • Continue to press the Chinese certification (and hence the sale) of industrial policies to foster growth government in bilateral forums those products. in specific industries because of and at the WTO to dispense with cost, lack of efficacy, and an interest industry-specific industrial policies Aviation component manufacturers in creating a level playing field for from outside of China have under- international trade. • Intervene promptly through the lined the importance of innovation in WTO and bilateral forums in preventing the emergence of Chinese In both the United States and the response to efforts to use subsidies competitors. This is especially true in European Union, the “squeaky or other supports to enter foreign the subcomponents industry, where wheel” rule reigns. Trade issues markets the barrier posed by certification are placed on bilateral agendas or is not as high. To stay competitive, brought to the World Trade Orga- Without a dramatic change in Chi- many companies now design some nization (WTO) by a government na’s policy of supporting “national products specifically for China, and only if a domestic company com- champions,” none of these measures a number have been able to surpass plains. Trade negotiators focus on is likely to level the playing field their Chinese competitors even at the industries where competition from in China for Western manufactur- lower end of the market by focusing Chinese firms threatens to have ers. However, persistent efforts to on quality, manufacturing efficiency, immediate consequences rather than reduce the trade-distorting effects of and distribution. on markets—such as commercial China’s industrial policies through aviation manufacturing—that U.S. countervailing duties or other In our view, China’s policies to and European firms still dominate. measures may mitigate some of the promote commercial aviation In a world in which immediate effects of China’s policies. manufacturing as a so-called national

34 China, Inside and Out: A Collection of Essays What Should China Do? COMAC, this is an opportune time THE AUTHOR for the Chinese government to China has aggressively pursued the rethink its investments and poli- development of a number of indus- cies targeting specific industries. tries, including high-speed trains, Focusing its energies on creating a wind turbines, and automobiles. In business-friendly environment for all all three cases, the government has firms—private, foreign, and state- Keith Crane stipulated that to manufacture in owned alike—will be much more Keith Crane is director of China, foreign companies must enter the RAND Environment, likely to result in a higher payoff. into joint ventures with Chinese Energy, and Economic Development Program. firms. In the case of wind turbines One goal of China’s leadership Crane is engaged in and high-speed trains, Chinese has been to put the country at the issues pertaining to U.S. joint-venture partners developed forefront of global advances in science energy production and consumption, China, the their own products outside the joint and technology. China’s talented engi- Middle East, Afghanistan, venture and then captured the vast neers and scientists have registered the transition economies majority of sales in China. In both significant advances in a large num- of Eastern Europe and cases, state-owned companies have the Commonwealth of ber of industries, including space and Independent States, and been the principal purchasers of the telecommunications. China also has post-conflict nation building. final product. However, deficien- successful multinational companies cies in the technologies of Chinese of its own. However, to the extent manufacturers have limited their that foreign companies are not given ability to export. Because China has the same treatment as their Chinese been the largest market in the world counterparts or fear their intellectual for high-speed trains and wind property rights will not be safe, they turbines, its industrial policy had will remain cautious about what tech- an appreciable effect on the Chinese nologies they bring to China. China’s sales of foreign firms. government would be well advised to create a more equitable business envi- In the automotive sector, foreign ronment for both foreign and Chinese manufacturers must also set up joint manufacturers. The benefits for China ventures with Chinese partners. would be considerable in terms of In contrast to high-speed trains better allocation of investment, better and wind turbines, joint-venture integration into global technology products continue to dominate the supply chains, and the ability to put automotive market. In this indus- the substantial funds now employed try, the principal purchasers are in the support of national champions individuals or private companies; to better use. joint-venture manufacturers do not face a single, state-owned customer for their products. Editor’s Note: This essay was adapted from Keith Crane, Howard J. Shatz, Shanthi China would benefit from carefully Nataraj, Steven W. Popper, and Xiao Wang, An Outline of Strategies for Building an Inno- reviewing its policies of government vation System for Knowledge City, (RAND support for commercial aviation Corporation, 2012; available at www.rand. manufacturing and making a consid- org/t/mg1240) and Keith Crane, Jill E. ered decision whether this activity Luoto, Scott Warren Harold, David Yang, is a good use of China’s resources. Samuel K. Berkowitz, Xiao Wang, The China is spending well over $7 Effectiveness of China’s Industrial Policies in Commercial Aviation Manufacturing, (RAND billion for the C919; the ARJ-21 has Corporation, 2014; available at www.rand. also been expensive, and the com- org/t/rr245). mercial success of both is doubtful. In light of the many hurdles facing

The Effectiveness of China’s Policies for Developing High-Technology Industries 35 Night view of the crossings of elevated highways in Beijing. A massive new economic megalopolis—integrating more than 100 million people living in Beijing, Tianjin and the neighboring province of Hebei—will become an independent region influencing its own urban planning over the next five years, according to an official report released on June 23, 2015, and said to be a pet project of Xi Jinping.

Inset: A Chinese migrant worker carries luggage as he exits the Shaoxing Railway Station. 37

Making Cities More Livable Amid China’s Great Migration

Liisa Ecola

hina’s cities are grow- is now challenged to improve the ing at an extraordi- quality of life in cities that are poorly nary pace. Each year, planned, choked with traffic, and suf- a population the size fer from poor air and water quality. of Moscow shifts from The pace of growth is such that for- rural to urban China, mal planning processes cannot keep Cadding 16 million more people to up with demand for new develop- the nation’s already-crowded cities. ment. Vehicle ownership per capita, Roughly half of China’s 1.3 billion while low compared with developed people now live in urban areas, and countries, is skyrocketing, and along that percentage is ultimately expect- with it, demands on road capacity. ed to reach 70 percent—about the Air and water quality have been same as in developed countries. diminished in the rush to increase industrial production. Yet for many, While some of this urbanization is the prospect of higher incomes and the result of formerly rural areas access to better services in cities far being re-designated as urban because outweighs the disadvantages. of population growth—China has more than 160 cities with over 1 How can China continue its eco- million residents—it is mostly the nomic growth—with the resulting result of a large migration from challenges from urbanization—while less-affluent rural areas to medium making tangible improvements and large cities. in quality of life? RAND recently assessed how to both improve quality With all of this migration in a of life and measure those improve- relatively short period of time, China ments in the nine Pearl River Delta

Tian zhe/Imaginechina/AP Images; inset: Li ruichang/Imaginechina/AP Images cities in China’s Guangdong province. of transportation (it is not uncom- Chinese cities are currently con- These cities have benefited enor- mon to find cars parked in bicycle fronted with haphazard land use, mously from the economic opportuni- or bus lanes). Meanwhile, the uptick especially on the fringes of urban ties made possible from being the first in automobile use has come with a areas. This unplanned development of China’s “special economic zones” diminished use of public transit and ends up fragmenting both rural and in the late 1970s. However, breakneck bicycles, with predictable impacts on urban land and makes it difficult growth has exacerbated many of their air quality and congestion. for governments to provide public urban problems. To retain existing services efficiently. Even where residents and attract new ones, the To better manage parking demand planning processes exist, the speed province is seeking a new growth and supply, China’s metropolitan of development often exceeds the model, one based on a transition areas could charge more for parking ability of planners to keep pace. In to cleaner businesses that provide and develop a smartphone applica- addition, local governments depend higher-paying jobs and a better tion to make it easy to pay. The first heavily on revenue derived from quality of life. tactic has reduced parking demand developers because until recently, few in other cities around the globe, and local governments were allowed to While RAND’s work is specific to several cities are experimenting with levy property taxes; the conversion Guangdong, many of the issues that the second, using technology both of rural land to urban developments the province is facing are common to manage how prices are set and has been their primary source of to cities across China. Our project to allow drivers to pay with their funding. Such conversions are par- assessed quality of life improvements smartphones. Cities could measure ticularly troubling in a country that in five areas: progress by the extent to which has one of the lowest rates of arable drivers use the app. farmland per capita in the world. Transportation Land use Beyond steps to discourage cars in Given these challenges, increasing Environment cities, China could also create incen- contiguity—that is, keeping rural Housing tives to use alternate forms of trans- lands rural and building new hous- Economic development port. To make public transit easier to ing and offices near areas that are use, cities could offer a stored-value already developed—by creating and The project team created an indicator fare card that can be used across enforcing limits on the development system linked to defined policy goals buses, trains, and subways. Riders of valuable agricultural land is a key to measure progress across all five put money on the card, and the policy goal for China’s planners. This areas. We did not set out to rank cost of each ride is drawn from the could be accomplished by designat- cities or to combine the indicators balance. This makes it easier for ing urban growth boundaries (sim- into an overall score; rather, each indi- riders to transfer between systems, if ilar to the “ecological control lines” cator is intended to measure current needed, and the cards could be used that already exist) and measured by conditions accurately so that policy- for other purchases as well. the amount of agricultural land that makers can gauge progress toward remains undeveloped. goals to improve quality of life. We made specific suggestions regarding Land Use each area. Generally speaking, land use is diffi- Environment cult to incorporate into an indicator The pursuit of rapid economic Transportation system. There is no correct “for- growth, coupled with a lack of mula” for how much land should be enforcement of environmental laws, As they become more affluent, many devoted to specific uses or how high has created major challenges for Chi- Chinese put a motor vehicle at the population density should be. But nese cities on three fronts: air quality, top of their wish list. With vehicle balanced and appropriate land use is water quality, and soil contamination. ownership rapidly increasing, demand important to goals such as reduc- Guangdong province has sufficient for road space and parking far exceeds ing vehicle emissions or making it water, unlike northern and western supply in most large cities. This convenient to walk, bicycle, or ride China, but the quality is extremely contributes to illegal parking that in public transit. poor. More than 20 percent of the turn hampers the use of other modes river sites that are monitored in the

38 China, Inside and Out: A Collection of Essays PUBLIC POLICIES CAN Put the Brakes on Chinese Car Culture China is the world’s largest car producer—and its biggest market. As economic growth puts more money in Chinese wallets, will people adopt a U.S.-style car culture? Our research finds that unlikely. While economic growth and rising incomes make car ownership more economically viable, income alone does not determine how much people drive in a given country. We found that numerous factors tend to increase driving, including

Pro-car policies, such as low vehicle taxes Plentiful and good roads, and a lack of alternatives to driving Inexpensive fuel and the existence of domestic oil A large working-age population Strength of the domestic car industry The distribution and density of the urban population Favorable car culture Many—if not most—of these pro- will likely trail fellow BRIC nations example, license plates are avail- car conditions exist in China, but Russia and Brazil in driving growth able only by lottery. we expect the prevalence of driving and barely outpace India. A second RAND study focused on to grow only moderately compared Why is the forecast so modest? future mobility in China confirmed to current rates in developed Existing transportation policies in these trends. It found that the countries. We estimate that once China’s most populated areas tend greater China’s economic growth, the growth in automobile travel in to tamp down demand and mod- the more drivers are likely to be China levels off, Chinese drivers erate the effects of other factors. on the road; however, restrictions will travel about 4,850 miles per In some major cities, car use and on the purchase and use of vehicles capita per year, compared to 8,700 ownership are restricted; no matter could have a moderating effect. miles for American drivers. China how may cars you can afford, for

Adapted from Liisa Ecola, Charlene Rohr, Johanna Zmud, Tobias Kuhnimhof, Peter Phleps, The Future of Driving in Developing

Carlos ZGZ/Flickr Carlos Countries (RAND Corporation, 2014; available at www.rand.org/t/rr636).

Making Cities More Livable Amid China’s Great Migration 39 province are so polluted they cannot creating so-called villages-in-cities. employers need. The success of both be used to supply drinking water. These villages are collectively owned approaches can be measured with by the inhabitants. statistics such as the number of While environmental regulations in workers in key skill categories. China have been strengthened over One way to increase the number time, lax enforcement remains a of housing units is through “land problem. Fines imposed on violators readjustment,” a policy aimed at Conclusion are too small to change behavior, redeveloping some of these villages- Once in place, trends in urbanization and a lack of transparency allows in-cities to both create more housing are difficult to change. None of these both corrupt regulators and viola- and bring existing dwellings up to policies is easy to implement, and tors to escape public notice. Beefing modern standards. Under such a the outcomes may vary dramatically up enforcement and penalties is one policy, an enclave’s landowners agree depending on the steps local gov- strategy for reducing illegal dis- to provide some portion of their land ernments take to improve quality charges into rivers and groundwater. to create new infrastructure (gen- of life. However, the continued This could be measured in several erally roads and public spaces). In migration to cities and increasing ways: the number of trained inspec- exchange, the government develops demands for higher-quality services tors per 100 facilities, the percent the infrastructure and returns to the provide a major incentive to dra- of facilities in full compliance with landowners a smaller parcel of land, matically enhance quality of life by their permits, and the amount of but one that is more valuable because improving how cities are planned, fines collected annually. of the surrounding improvements. built, and managed. This process acts as an incentive for the owners to develop or further Housing improve their properties so they can Editor’s Note: This essay was adapted from Debra Knopman, Johanna Zmud, Liisa collect higher rents made possible by Until the late 1970s, most Chinese Ecola, Zhimin Mao, Keith Crane, Quality lived in housing supplied by their the government’s improvements. of Life Indicators and Policy Strategies to work unit; the quality was often Advance Sustainability in the Pearl River Delta poor, but affordability was not an (RAND Corporation, forthcoming 2015). issue. Several waves of reform have Economic Development created a housing market, but today Guangdong is one of China’s most it caters to more affluent buyers. economically successful provinces, Housing prices have soared in the due largely to export-oriented manu- THE AUTHOR past two decades, making affordable facturing. However, moving “up the housing hard to find for lower- and value chain”—that is, transitioning middle-income households. In the from low-wage assembly operations Pearl River Delta cities, high-income to higher-value activities that require individuals purchasing housing as an workers with higher skills—presents investment exacerbates the problem, a major challenge to the growth of Liisa Ecola especially because many of the units industry. Such a shift would also Liisa Ecola is a senior project associate at the are not rented out. help alleviate the large disparities in RAND Corporation, leading income within the province. a project on future mobility An unusual feature of China’s urban- in China. Prior to joining ization is the different treatment Without directly addressing business RAND, Ecola worked in transportation, land use, given to rural and urban lands. The creation, one policy goal is ensuring and policy consulting; she state owns urban land (homeowners that the workforce is capable of also served as a Foreign are essentially long-term leasehold- supporting these new businesses. Service officer for six ers), while the original inhabitants This can be accomplished in two years, stationed in Warsaw and Taipei. of the local community collectively ways: Improving local quality of own rural lands. In rapidly urban- life to attract high-skilled workers, izing areas like Guangdong prov- and developing new training pro- ince, development springs up and grams to teach the existing work- surrounds enclaves of rural land, force the skills these high-value

40 China, Inside and Out: A Collection of Essays Chinese tourists make their way on an algae-covered beach in Qingdao city, east China’s Shandong province, July 19, 2015. Huge algae blooms have taken over the beaches here every summer for the past eight years. Huang jiexian/Imaginechina AP Images jiexian/Imaginechina Huang

Making Cities More Livable Amid China’s Great Migration 41 See-ming Lee/Flickr See-ming

The Olympic Park Observation Tower, shown here under construction, was completed and opened in 2014 43

Concluding Thoughts

Michael Rich

aken together, these The topics covered in this collection property challenges. As CEO of essays articulate a also point to how complex U.S.-Sino RAND, I am extremely proud of this compelling and com- relations really are. China is neither prominent body of work. plicated story about friend nor foe. While the sheer size the People’s Republic of China’s population and land mass The challenges involved are highly of China. With its deep make it a potential threat to U.S. complex and stretch across virtually experience and expertise in the re- interests, China is perhaps focused every policy domain. With our sig- T nificant experience working across gion, RAND is uniquely positioned to so much on its own inner workings help policymakers piece together the that its threat to the United States is the issues relevant to U.S. China pol- puzzle that is China. more appearance than actuality. icy, our deep bench of experts on the region and its most-pressing topics, Economically, China is a powerhouse Nevertheless, what happens next in and our demonstrated proficiency in that recently overtook the United that country will have a profound policy research, RAND will continue States as the world’s largest economy impact on the region, the United to connect the dots. in terms of purchasing power parity, States, and the rest of the world. It but China’s focus is shifting from is crucial for the U.S. decisionmakers acting as the world’s manufacturer to who are responsible for China poli- THE AUTHOR developing its own consumer class. cymaking to have objective, nonpar- Militarily, China has an enormous tisan, data-driven research informing force—but its troops are poorly their decisions. educated and China’s leadership has military ambitions that dwarf its RAND researchers have conducted thought-provoking research related actual capabilities. Politically, the Peo- Michael Rich ple’s Republic is focused inward to a to the country’s military, political, Michael D. Rich is president great extent as it attempts to meet the and trade relations, especially with and chief executive officer of the RAND Corporation. demands of a population that grows Taiwan and Japan; its environmental, more sophisticated and demanding by economic, and health policies; and its the day. international business and intellectual

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