2017

volume 3 CHINA

STUDIES

Featuring Articles by REVIEW Ned Collins-Chase Amanda Van Gilder Miaosu Li Benjamin Pollok Minh Joo Yi 2017

volume 3 CHINA

© 2017 The China Studies Program of the Johns Hopkins University The SAIS China Studies Review is a Paul H. Nitze School of Advanced International Studies publication of SAIS China Publication of SAIS China and the China Studies Program and the China Studies Program All rights reserved. at the Johns Hopkins School of Advanced International Studies.

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Editorial Board

Editor-in-Chief

vol 3 Kaj Malden | 2017

Executive Editor Adam Lee

Student Editors Christina Connely-Kanmaz Alex Keyserling Kyle Schut Minh Joo Yi Yuqian Zhang

Editorial Advisory Board Carla Freeman Madelyn Ross

 CHINA STUDIES REVIEW vol 3 | 2017

30 39 41 42 10 17 Editors Miaosu Li U.S.-China Impact Report Table of Table Benjamin Pollok Year-in-Review Contents China and India Nuclear Balance Nuclear Research Articles Research An Analysis of the of the Analysis An About SAIS China Amanda Van Gilder Amanda Van SAIS China Studies China’s Environment? China’s A Comparative Review of Review A Comparative through Diaspora Networks: Networks: Diaspora through Is the Wind Industry Helping Industry Wind Is the A Preliminary Environmental Environmental A Preliminary Attracting Foreign Direct Investment Investment Direct Foreign Attracting

6 1 2 Adam Lee Minh Joo Yi Joo Minh Kaj Malden & Kaj Policy Briefs Policy Foreign Policy Policy Foreign under Xi Jinping Ned Collins-Chase Ned Collins-Chase Evolutions in Chinese Letter from the Editors Letter from Capital Account Liberalization: China’s Challenges in Advancing in Challenges China’s The Case of the Qianhai Free Trade Zone Trade The Case of the Qianhai Free CHINA STUDIES REVIEW vol 3 | 2017 1

------. Shanghai, China Washington, D.C. Washington, am B. Lee, Executive Editor Executive Lee, am B. China Studies Review China Studies Ad Kaj N. Malden, Editor-in-Chief Malden, Kaj N. rich intellectual environment that fosters fosters that rich intellectual environment selected a with issue this close we work, this in the list of and topics presented speakers past year at our programs in Washington, and China. D.C. the to gratitude our extend to like would We student authors and editors for their commit youngthis advancing in work hard and ment to the faculty and mentors publication, who advi faculty our to and work, this supported theirfor Ross, Madelyn and Freeman Carla sors, for support unyielding and advice, expertise, the In the second section of this issue, we pres we issue, this of section second the In China’s spanning articles research ent three environment, nuclear weapons strategy, and economy. Miaosu Li analyzes a little energy wind aspect ofunderstood China’s environmen associated the - development processing metal of costs tal rare-earth assessment nuanced more a for calls and - of policy and implemen energy Chinese a provides Gilder Van Amanda tation. analysis ofcomprehensive bal the nuclear and China. United States ance between the the United States while She concludes that the next superiority for will maintain nuclear one to two decades, the gap will close as tech and doctrinal attains gradually China compares Pollok Benjamin parity. nological of investment patterns the the homeward of populations diaspora China and India. success in greater China’s attributes Pollok dias active to its investment this attracting not a strategy — policies engagement pora pursued by India. yet meaningfully We in the China Studies Program are to highlight the high quality of excited Hopkins Johns the student scholarship at Schoolof Advanced Studies International a sense of provide the To in this publication. ------as a platform to platform a as the Editors Letter from from Letter China Studies Review Studies China toward concluding a binding code of concluding a binding toward con leading the affirmed and ASEAN, with duct in implementing the Paris it can play role Agreement. Climate we transformations, dynamic China’s Amid edition of the third to present excited are the ofcontributions the highlight at students of School Advanced Hopkins Johns the under better toward Studies International its and relationships, its China, of standings on the world stage. evolving role brief two features issue this of section first The examines Ned Collins-Chase issue papers. and considers Zone Trade the Qianhai Free as a tool for Chinese capital its prospects account liberalization. Minh Joo Yi surveys policy calculus under Presi foreign China’s growing Beijing’s notes and Jinping Xi dent affairs. in foreign assertiveness China’s evolving political and economic political and economic evolving China’s ambitions dynamics and international many in analysts for ground fertile provide has rate economic growth China’s sectors. moderated to a “new normal” of 6.5 per cent, putting pressure on Beijing as the at leaders its reshuffle to prepares country this fall’s upcoming 19th Congress. Party initiatives, policy new of range a Meanwhile, in Made the to Law Cybersecurity the from mon vigilantly China find Plan, 2025 China Despite elements.” itoring “hostile foreign these anxieties at home, China projects confidence and leadership growing Jin Xi President year, past the Over abroad. champion as an unexpected ping emerged of globalization at the World Economic of in Davos against the backdrop Forum a bearing American administration a new populist mandate. inward-looking more ambitious its also accelerated China has Belt and Road Initiative, made progress CHINA

regulations and capital account liberaliza- of the total planned 28.2 square kilometers economic difficulties, this commitment is 1 China’s Challenges tion. The Chinese government disclosed of the larger Guangdong Pilot FTZ in Shen- far from given. As mentioned, recent devel- STUDIES REVIEW plans for the zone to the public just two zhen.7 The stated purpose of the zone is opments in the Shanghai pilot zone give in Advancing Capital days before its official opening in late to serve as a platform for modern service cause for concern that similar difficulties September 2013. The announcement was industry cooperation between Hong Kong may impede the success of Qianhai. Further Account Liberalization: followed by a three-month silence by the and the mainland as a part of the Mainland concerns arise from the poor performance government, and no official information and Hong Kong Closer Economic Partner- of one of the FTZs’ signature tools in pro- The Case of the Qianhai about the zone was provided to potential ship Arrangement (CEPA) and the broader moting capital flows: RMB-denominated investors. The three-month lag may have “Belt and Road Initiative” introduced by Xi bonds issued outside of China, popularly Free Trade Zone given officials time to win the support of Jinping. The government seeks to capitalize referred to as “dim sum bonds.” After a dif-

skeptics within the government, as well as on Qianhai’s proximity to both Hong Kong’s ficult year for dim sum bonds and offshore vol 3 the opportunity to create further interest financial sector and Shenzhen’s manufac- RMB markets in 2016, prospects continue |

among investors by strategically releasing a turing sector to attract corporations seeking to look bleak for their performance in 2017 series of information leaks regarding the FTZ.2 to develop a modernized service industry 2017.10 It will be difficult for Qianhai to in the region. be successful in broadening capital flows Ned Collins-Chase Salient policies implemented in the Shang- between the Hong Kong RMB market and hai pilot zone included fewer restrictions To incentivize participation in this project, Shenzhen if demand for dim sum bonds on foreign currency exchange; a “negative corporations and investors seeking to do remains weak. list” outlining industries in which foreign business in Qianhai receive preferential Introduction investment is still restricted, in order to facil- treatment, including a steep reduction in Beijing is truly walking a tightrope in itate the ease of investment in industries the corporate income tax rate. There is its attempts at capital liberalization. As China attempts to engage in meaningful without these restrictions; and simplified some disagreement among sources as to On the one hand, China would like to capital account liberalization, it faces a bal- company registration processes.3 Some of exactly how much of a reduction this will see its currency attain greater weight ancing act: implementing reforms to boost the experiments from the Shanghai pilot be; some sources say the corporate tax in the global financial system, not only productivity, spurring development of its ser- zone have since been approved for nation- rate will be 15 percent, while the official for the prestige it would bring, but also vice industry, and enhancing renminbi (RMB) wide implementation, including the use of project website lists the reduction as a 15 because of the belief that an increased convertibility, while at the same time avoiding a negative list and streamlined company percent decrease.8 Both tax rates are lower proportion of trade financed by RMB the risks of capital flight and threats to the via- registration procedures.4 There are also than the 25 percent national rate and the would help China better withstand bility of state-owned enterprises employing early indications that the effects of China’s 16.5 percent rate in Hong Kong. Qualified large-scale crises, such as the 2008 millions of workers. Pilot Free Trade Zones efforts to liberalize capital controls can be individuals within the zone will also receive global financial crisis which threat- (FTZs) have become one of the tools China seen in the Shanghai FTZ, with data show- tax subsidies. Qualified manufacturers can ened its export volume.11 On the will use to implement capital account reforms, ing that Chinese capital controls have had apply for financial support, and foreign-in- other hand, China’s economy is still with the Qianhai FTZ focusing on broad- less impact since the FTZ’s launch.5 How- vested corporations will be able to avoid largely following a model of maintain- ening financial flows between Hong Kong ever, while there is a possible correlation bureaucratic delays by utilizing one-stop ing exports and financing investment and the Shenzhen Special Economic Zone. between looser capital controls and imple- administrative procedures established within through domestic savings, and abrupt While the Qianhai FTZ offers new avenues mentation of the Shanghai FTZ, recent Qianhai. The greater zone will, like Shang- liberalization of currency valuation and for China to continue its experimentation policy reversals have threatened progress, hai, also feature bonded ports outside of capital flows could make China vul- with economic reforms and advance capital and the degree to which novel policies will Chinese customs and value-added tax (VAT) nerable to maintaining a trade deficit account liberalization, these avenues cannot be allowed remains uncertain.6 exemptions. Moreover, to create a more level and the risk of large-scale capital flight.12 be fully explored without appropriate par- financial playing field for foreign corporations Fears of the latter seem confirmed in Chi- allel sequencing of macroeconomic policy The Qianhai FTZ, part of the Guangdong and investors, Qianhai will feature new judi- na’s recent tightening of capital controls in reforms at the national level. FTZ group, is expected to officially open cial and arbitration reforms, which are touted response to the effects of a cheaper RMB, in 2020. It is different from the other FTZs as part of “a law-governed socialist demon- and the action’s deleterious effects on dim in that it specifically seeks to leverage the stration zone with Chinese characteristics.”9 sum bonds in 2016.13 However, if China The role of FTZs in China’s offshore RMB market in Hong Kong. Hong wants to succeed in its long-term aims of economic reform and the Kong is already a major staging point for A major factor determining the success of rebalancing its economy, it must liberalize. prospects for the Qianhai FTZ foreign firms seeking entry to China, and FTZs as a tool for capital account liberal- The necessity of this shift, coupled with the serves as a source for investment that can ization is China’s commitment to actually prospect of humiliating failure should the The Shanghai FTZ, the first among the recent spur the development of more modernized implement policies allowing for looser cap- FTZ experiment prove to be a flop, gives wave of FTZ announcements, was created industrial and services sectors. The Qianhai ital controls. Because of the risks inherent Beijing a strong incentive to redouble its as a testing ground for looser financial district will comprise 15 square kilometers in the liberalization process and recent future efforts and to ensure Qianhai’s success.

2 THE CHINA STUDIES PROGRAM | SAIS China’s Challenges in Advancing Capital Account Liberalization: The Case of the Qianhai Free Trade Zone 3 CHINA

Conclusions and policy more likely to succeed if it demonstrates About the Author Free Trade Zone, Qianhai and Shekou Area

considerations a credible guarantee by the government of Shenzhen.” STUDIES REVIEW to pursue currency and financial liberaliza- Edward (Ned) Collins-Chase is a rising sec- Physical spaces in which to implement tion, while assuaging fears of the growing ond-year SAIS M.A. concentrating in China 9 Ibid. capital account liberalization are neither pains of liberalization among local actors Studies. Ned previously served as Peace intrinsically useful nor harmful in the effort and domestic businesses. Corps Volunteer in Mozambique, and his 10 Rev Hui, “The 2017 Dim Sum Bond to reform capital control systems, but they research interests include China’s economic Disappearing Act,” Global Capital, February 9, may have benefits in the Chinese context. development, Northeast Asian security, 2017, http://www.globalcapital.com/article/ The use of pilot FTZs is indicative of Chi- China’s growing role in Africa, and U.S. b11mqds7v12t9m/the-2017-dim-sum-bond- na’s preference for gradualism in adopting grand strategy in the Asia-Pacific region. disappearing-act; Cathy Zhang, “Dim sum

economic liberalization, like the dual-track bonds under pressure from cheaper yuan and vol 3 reforms created during the 1980s through rise of panda bonds,” South China Morning

1 David Groffman, “Introducing the Shanghai Post, August 9, 2016, http://www.scmp.com/ | Special Economic Zones (SEZs), and may 2017 reflect an effort to marshal support for these FTZ,” International Financial Law Review (2013). business/markets/article/2001364/dim-sum- reforms by building on an existing, and bonds-under-pressure-cheaper-yuan-and-rise- popular, format. If China succeeds in this 2 Ibid. panda-bonds. regard, the choice of using physical spaces to house FTZs is appropriate. 3 Ibid.; “Introduction,” China (Shanghai) Pilot 11 Arthur R. Kroeber, China’s Economy: What Free Trade Zone, 2017, accessed April 3, Everyone Needs to Know. (New York, NY: The formation of the Qianhai FTZ is a 2017, http://en.china-shftz.gov.cn/About-FTZ/ Oxford University Press, 2016). legitimate approach to capital account Introduction/. liberalization in theory, but in practice the 12 David Keohane, “This isn’t the Chinese zone will only be as successful as the over- 4 Ibid. capital account liberalization you’re looking arching capital account liberalization that for,” Financial Times, July 17, 2015, https:// should accompany it. There are concerns 5 Daqing Yao and John Whalley, “The Yuan ftalphaville.ft.com/2015/07/17/2134607/this- regarding the function of the Shanghai Pilot and Shanghai Pilot Free Trade Zone,” Journal isnt-the-chinese-capital-account-liberalisation- Zone that represent real risks to the success of Economic Integration 30, no. 4 (2015): youre-looking-for/. or failure of the FTZ experiment. While the 591-615. Shanghai Zone has already contributed to 13 Zhang. national economic policy reforms through 6 Daniel Ren, “Shanghai FTZ firms’ overseas the broader approval of a negative list, hopes dashed by policy U-turn,” South China ambiguity remains regarding its possi- Morning Post, December 30, 2016, http:// ble contributions toward looser currency www.scmp.com/business/china-business/ restriction and simplified corporate reg- article/2058199/shanghai-ftz-firms-overseas- istration. Further, it remains questionable hopes-dashed-policy-u-turn. whether it can guarantee the implemen- tation of meaningful reforms or create 7 “About FTZ: China (Guangdong) Pilot Free confidence among investors. Trade Zone, Qianhai and Shekou Area of Shenzhen,” China (Guangdong) Pilot Free If China seeks to pursue internationalization Trade Zone, Qianhai & Shekou Area of of its currency, it must maintain a measure Shenzheng, accessed April 3, 2017, http:// of caution, but also become more willing qhsk.china-gdftz.gov.cn/en/fta/201507/ to accept levels of capital outflow. Without t20150701_18141290.html. willingness to accept this risk, the tools at the disposal of FTZs will be considerably 8 Neil Gough, “A Muddy Tract Now, but by curtailed. Regardless of the type of currency 2020, China’s Answer to Wall St.,” New York convertibility and capital account liberal- Times, April 2, 2014, https://dealbook. ization China is willing to pursue, it must nytimes.com/2014/04/02/a-financial-center- commit fully to these policies to maintain is-envisioned-on-a-muddy-tract-in-southern- investor confidence, and to avoid retreating china/; “About FTZ: China (Guangdong) Pilot to tighter capital controls. Qianhai will be

4 THE CHINA STUDIES PROGRAM | SAIS China’s Challenges in Advancing Capital Account Liberalization: The Case of the Qianhai Free Trade Zone 5 CHINA

processes than a direct reflection of Mao’s problems arose, most clearly illustrated by on October 24, 2013, in which he formally

Evolutions in own personality and idiosyncrasies. the extended negotiations over China’s presented the strategy of “striving for STUDIES REVIEW entry into the World Trade Organization achievement (fen fa you wei 奋发有为).”8 Chinese Foreign Compared to his successor Deng Xiaop- from 1986 to 2001. According to Blackwill and Campbell, Xi’s ing, who studied in both France and the assertive foreign policy has been carried Policy Under Soviet Union, Mao had little exposure to Xi Jinping’s leadership style strives to con- out most explicitly in the South China Sea.9 foreign culture and institutions. This back- solidate decision-making power against Chinese coast guard vessels’ harassment of Xi Jinping ground may explain China’s relatively this backdrop of a fragmented Chinese Philippine and Vietnamese fishermen and self-reliant foreign policy during the Mao bureaucracy, and recent political trends in repeated encroachment into Malaysia’s era. Additionally, Mao readily mobilized a China suggest that Xi is likely to exert more exclusive economic zone (EEZ) all illustrate

“century of humiliation” national narrative, influence over the country’s foreign policy China’s determination to secure its claim to vol 3 emphasizing China’s losses and conces- than either of his two predecessors. These this maritime territory.10 |

sions to foreign “imperialist aggressors.” trends include Xi’s holding of top positions 2017 Minh Joo Yi This deep-seated animosity toward foreign in “Central Leading Groups,” supra-minis- As a part of this new active foreign policy powers was reflected in China’s severance terial organs established by the party that strategy, China has also started to establish of relations with the United States, and even “supersede all other government agencies multilateral institutions and regimes exclud- in the deterioration of its relations with the in the power structure.”4 Since 2013, Xi has ing the U.S. in an attempt to inject Chinese Introduction Soviet Union, its fellow socialist comrade. assumed leadership of the Central Leading elements into the existing international Group for Comprehensively Deepening order. These include the Regional Compre- Since Xi Jinping’s assumption of the Chinese foreign policy positioning changed Reforms and the Central Leading Group hensive Economic Partnership (RCEP) and presidency of the People’s Republic of significantly after Deng Xiaoping became for Internet Security and Informatization, the New Development Bank – the Chinese China (PRC) in late 2012, Chinese foreign China’s paramount leader in the late 1970s. and perhaps more importantly, the National equivalents of the Trans-Pacific Partnership policy-making processes have become One of the most prominent changes was Security Commission and the Central Mil- (TPP) and the World Bank, respectively – as noticeably more centralized. Increasingly the gradual emergence of rule by con- itary Commission. These positions ensure well as the Asian Infrastructure Investment confident of its national capabilities and sensus, whereby Deng collaborated with his ability to control internal security, for- Bank. China can utilize these multilateral elevated international stature, China now colleagues in the Politburo Standing Com- eign, and military policies to a degree organizations as a means of exerting seems to have adopted a more assertive mittee to formulate and implement policy. that Hu Jintao did not enjoy.5 The Chinese political leverage on participating Asian foreign policy stance in order to pursue its This was a noted departure from Mao’s media and party officials’ recent references countries, just as it did when it withdrew core national interests around the world leadership style, wherein policy decisions to Xi as the “core (hexin 核心) leader” may approval for a multilateral development and to reshape the Western-led global were perilously dependent on the actions also be an indication of his indisputable plan for India because of its protracted governance structure. This policy memo- and judgments of one individual. These dominance in leadership.6 territorial disputes with the country.11 randum proceeds to outline evolutions in new consensus-driven practices involved China’s foreign policy-making processes a “collective system of checks and balances Several factors account for this shift toward and objectives, as well as their implications that spanned a variety of bureaucratic insti- China’s central foreign more audacious foreign policy behav- for China’s relations with the U.S. and the tutions and included a substantial number policy objectives ior. Xi’s own nationalistic inclinations are world at large. This analysis closes with a of party elites,” which “shunned Maoist cults almost certainly one of them, and espe- consideration of the durability of China’s of personality and embraced the studied Since Xi Jinping’s accession to power, cially make sense in the context of his foreign policy positioning under Xi Jinping. staidness of leaders like Hu Jintao.”1 China seems to have altered its principal increased personal influence over China’s foreign policy objective to take a more foreign policy-making process. On the Under the subsequent administrations assertive stance in order to pursue its core other hand, because China’s economic Chinese foreign policy-making led by Jiang Zemin and Hu Jintao, Chi- national interests around the world. Schol- growth has begun to slow down, the Chi- process from Mao to Xi na’s foreign policy-making process grew ars generally agree that the principles of nese Communist Party seems to be relying increasingly diffuse.2 China’s process of “creating a good external environment to more heavily on nationalism to preserve its Shortly after the founding of the PRC in merging into the international political maintain development” and “keeping a political legitimacy. Moreover, the fact that 1949, Mao Zedong and his cult of person- and economic order required the con- low profile (tao guang yang hui韬光养晦 )” China weathered the 2008 global financial ality concentrated political power in one struction of new domestic agencies, as have guided Chinese foreign policy since crisis better than many other countries may individual, resulting in top-down foreign well as interagency groups (“Leading the reform era, at least until the Hu Jintao have boosted its leaders’ confidence in their policy decision-making. As a result, foreign Small Groups”) responsible for reconciling administration.7 However, Xi Jinping’s country’s potential and capabilities, con- policy formulation and implementation pro- divergent interests among them.3 As these bolder intentions were clearly articulated vincing them that China is powerful enough cedures throughout the Mao era were less a new political actors became a part of the in his speech at the Conference of Diplo- to become the rule-maker, rather than a pas- result of institutionalized and systematized foreign policy-making nexus, coordination matic Work Toward Surrounding Countries sive participant, of the international order.12

6 THE CHINA STUDIES PROGRAM | SAIS Evolutions in Chinese Foreign Policy Under Xi Jinping 7 CHINA

Implications for the United About the Author com.cn/rmrbhwb/html/2016-01/30/ 15 Robert A. Manning and James Przystup, “How

States, China, and the World content_1651531.htm. to Explain Xi Jinping’s Mounting Foreign- STUDIES REVIEW Minh Joo Yi is a rising second-year SAIS Policy Failures,” Foreign Policy, July 21, 2016, As China makes bolder attempts to pro- M.A. student concentrating in China Studies 7 Da Wei, “Has China Become Tough?,” China http://foreignpolicy.com/2016/07/21/how-to- tect its national interests and increase its and Quantitative Methods and Economic Security, Vol. 6, No. 3 (2010): 97-104, 98. explain-xi-jinpings-mounting-foreign-policy- political clout in Asia through its own mul- Theory. Prior to enrolling at SAIS, she was failures/?wp_login_redirect=0. tilateral institutions, one of the most viable an editor at the Institute of Foreign Affairs 8 “Xi Jinping Delivers an Important Speech at and appropriate policy options for the U.S. and National Security, a Seoul-based think the Conference of Diplomatic Work Toward would be to continue its “rebalance” to tank affiliated with South Korea’s Ministry Surrounding Countries” 习近平在周边外交 Asia. By strengthening its diplomatic, mil- of Foreign Affairs. In the summer of 2017, 工作座谈会上发表重要讲话, Renmin ribao

itary, and economic relations with Asian she interned at the New American Bretton (People’s Daily), October 25, 2013, http:// vol 3 countries, the U.S. should seek to prevent Woods II program. politics.people.com.cn/n/2013/1025/c1024-

23332318.html. | China from winning strategic ground and 2017 strive to maintain its primacy in the region.13 1 Robert D. Blackwill and Kurt M. Campbell, Xi Jin- Some may argue that this process would ping on the Global Stage: Chinese Foreign Policy 9 Blackwill and Campbell, 17. involve an escalation of conflict that would Under a Powerful but Exposed Leader, Council result in a major confrontation between the Special Report No. 74, February 2016, New York: 10 Ankit Panda, “China Steps Up Harassment of two countries, but this outcome is highly Council on Foreign Relations, 6. Vietnamese Fishermen,” The Diplomat, July unlikely, given that the U.S. and China are 13, 2015, http://thediplomat.com/2015/07/ highly dependent on each other for sus- 2 David M. Lampton, Following the Leader china-steps-up-harassment-of-vietnamese- tainable economic growth.14 (Berkeley, CA: University of California Press, fishermen; Prashanth Parameswaran, “How Is 2014), 106. Malaysia Responding to China’s South China This foreign policy shift also has implica- Sea Intrusion?” The Diplomat, November 3, tions for China. Unfortunately, the new 3 David M. Lampton, ed., The Making of 2015, http://thediplomat.com/2015/11/how- assertive foreign policy does not seem to Chinese Foreign and Security Policy in is-malaysia-responding-to-chinas-south-china- have generated favorable outcomes for the Era of Reform (Stanford, CA: Stanford sea-intrusion/. China, as can be seen from: the nullifica- University Press, 2001), 16. tion of Chinese “historical rights” within the 11 Raphael Minder, Jamil Anderlini and James “Nine-Dash Line” by the Permanent Court 4 Comment by Zhiqun Zhu, mentioned in Cary Lamont, “China Blocks ADB India Loan Plan,” of Arbitration in The Hague; South Korea’s Huang, “How Leading Small Groups Help Financial Times, April 10, 2009, https://www. decision to deploy the Terminal High Alti- Xi Jinping and Other Party Leaders Exert ft.com/content/033935c2-25e4-11de-be57- tude Area Defense anti-ballistic missile Power,” South China Morning Post, January 00144feabdc0. system (THAAD); Japan’s reinterpretation 20, 2014, http://www.scmp.com/news/china/ of its constitution to allow for collective article/1409118/how-leading-small-groups- 12 Suisheng Zhao, “Core Interests and Great self-defense; and the 2015 U.S.-Japan help-xi-jinping-and-other-party-leaders-exert. Power Responsibilities: the Evolving Pattern defense guidelines that assigned a of China’s Foreign Policy” in China and the wider regional security role to Japan.15 5 David M. Lampton, “Xi Jinping and the International System: Becoming a World Power, These repeated foreign policy failures National Security Commission: Policy eds. Xiaoming Huang and Robert G. Patman may prompt Chinese leaders to examine Coordination and Political Power,” Journal of (Routledge, 2013), 32-56 and 39. whether their assertive behavior is harming Contemporary China, 24:95 (2015): 759-777, China’s national interests by intimidating or 775. 13 Blackwill and Campbell, 30. provoking its neighbors, leading them to militarize and to align more closely to the 6 “Xu Shousheng pays his condolences to the 14 Stephen Roach, “the US and China are trapped U.S. Thus, the durability of this new policy National Defense Branch, the officers of the in a web of economic co-dependency,” stance remains to be seen. Hunan military corps“ [徐守盛看望慰问国防 Business Insider, October 1, 2015, http:// 科大、武警湖南总队官兵], Hunan Channel 湖 www.businessinsider.com/the-us-and-china- 南频道，February 2, 2016, http://hn.rednet. are-trapped-in-a-web-of-economic-co- cn/c/2016/02/02/3903156.htm; “Xi Jinping dependency-2015-9. presides over meeting of the Central Political Bureau” 习近平主持中央政治局会议, people. cn, January 30, 2016, http://paper.people.

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resources into electricity without green- According to a White Paper issued by Pollution on what scale?

Is the Wind Industry house gas emissions. Wind power has China’s State Council in 2012, the rare- STUDIES REVIEW minor negative environmental and ecolog- earth industry causes severe damage to According to China’s Ministry of Environ- Helping China’s ical impacts, which include noise, land use, the environment: mental Protection (MEP), in 2011 there were and limited electromagnetic radiation.3 As more than 300 enterprises in the rare-earth Environment? a result, governments around the world are Outdated production processes and tech- industry. Most firms are located in Inner promoting wind power, together with other niques in the mining, dressing, smelting Mongolia, Jiangxi, Guangdong, Jiangsu, A Preliminary renewables, to curb fossil fuel emissions. and separating of rare earth ores have Fujian, Hunan, Shandong, Guangxi, and severely damaged surface vegetation, Sichuan Provinces. Violations of environ- Environmental In 2012, wind surpassed nuclear to become caused soil erosion, pollution, and acidi- mental regulations have been common

the third largest source of China’s electricity fication, and reduced or even eliminated across the industry, including projects vol 3 Impact Report generation, following coal and hydropower. food crop output...Light rare earth mines and operations without environmental |

China has developed the world’s largest usually contain many associated metals, protection permits, emissions of untreated 2017 wind power capacity, concomitantly build- and large quantities of toxic and hazardous solid, hazardous and/or radioactive waste, ing a supply chain to meet the demand for gases, waste water with high concentration and ecological damage due to careless wind turbines both at home and abroad.4 of ammonium nitrogen and radioactive res- extraction. Starting in April 2011, provin- China’s Thirteenth Five-Year Plan encour- idues are generated during the processes cial environmental protection departments Miaosu Li ages this development by setting goals for of smelting and separating. In some places, investigated the industry and reported that a low-carbon economy, addressing pollu- the excessive rare earth mining has resulted just 84 companies passed their examination. tion, and requiring structural adjustments in landslides, clogged rivers, environmen- The Ministry of Environmental Protection for industry. In the eyes of the government, tal pollution emergencies, and even major ran further assessments and found that Introduction wind power is set to light up the future of accidents and disasters, causing great only 15 enterprises met environmental China’s electricity market because of its damage to people’s safety and health, and protection standards.6 While the industry China has set ambitious goals for reducing environment-friendly characteristics. the ecological environment. At the same has improved, with 87 enterprises meeting its energy intensity, and has made renew- time, the restoration and improvement of environmental standards in 2013, two out able energy an important part of the plan. Nonetheless, if we calculate the environ- the environment has also heavily burdened of three rare-earth enterprises continue to Over the last few years, China’s installed mental footprint of wind power including some rare-earth production areas.5 violate environmental regulations.7 capacity of renewable energy, especially wind turbine production, we find that wind wind power, has grown rapidly. China now power makes significant if unseen contri- has the world’s largest installed capacity butions to environmental damage. The Rare Earth Elements (REE) Distribution in China of wind power and plans further develop- upstream production of wind turbines ment of the industry.1 However, looking at involves massive polluting activities in the the bigger picture, we find that the whole construction of the turbines’ magnetic core. industry is not as clean as first assumed: When the blades of a turbine are driven by the production of neodymium magnets, a the wind, a shaft is turned and spins the key component of wind turbines, involves magnet in the generator. An electric current MONGOLIA Heilongjiang substantial polluting activities through the is created through electromagnetism and Inner Mongolia Jilin extraction and processing of rare-earth sent to the transmission grid. The magnet Liaoning Xinjiang Gansu Beijing NORTH metals. While it is generally understood in a permanent magnet direct-drive gen- KOREA JAPAN Tianjin that wind power is clean and rare-earth erator is made of a neodymium-iron-boron Hebei Ningxia Shanxi SOUTH processing is dirty, few studies have linked alloy. It is the most powerful magnet in the Qinghai CHINA Shandong KOREA REE Regions them together. This report aims to establish world and ensures the high efficiency of Shaanxi Henan Jiangsu Tibet Northern the connection and provide a preliminary the aero generator. It is called a permanent Hubei Anhui Sichuan Shanghai Western assessment of the wind industry’s true magnet because its magnetism will never Zhejiang Jiangxi Southern 2 Hunan impact on China’s environment. fade. The problem is that neodymium is Guizhou Fujian Yunnan a light rare-earth metal that requires an Guangxi Upstream pollution in the involved process of extraction and refining Guangdong TAIWAN Hong Kong wind industry to produce. Massive polluting activities are 1,000 miles a byproduct of the process. Hainan Renewable energy has a reputation for being “green” because it transforms natural Source: metalpedia.asianmetal.com

10 THE CHINA STUDIES PROGRAM | SAIS Is the Wind Industry Helping China’s Environment? A Preliminary Environmental Impact Report 11 CHINA

Due to a lack of comprehensive assess- of cancer, osteoporosis, and skin and respi- would make it easier to regulate the con- and its subsidiaries around the country 16 ments of contamination in the rare-earth ratory diseases in villages surrounding tamination problem. In 2012, the MIIT have been named and condemned by the STUDIES REVIEW industry, a discussion of two representa- Baotou.12 Local governments have been issued the country’s first Rare-Earth Indus- State Environmental Protection Administra- tive cities where most rare-earth permanent forced to evacuate and resettle whole vil- try Entry Standards, in which sections five, tion (predecessor of the MEP) and many magnet materials are manufactured, Gan- lages between the city of Baotou and the seven, and eight state that all enterprises in news agencies. In January 2015, residents zhou in Jiangxi Province and Baotou in Yellow River as a result.13 the industry must comply with regulations in Buning, Jiangsu Province reported the Inner Mongolia, will serve to underscore in Emission Standards of Pollutants from company’s pollution problem to the MEP.21 the environmental impact of the industry.8 While the precise share of rare-earth the Rare-Earths Industry Guidance policy In the case of the Ganzhou Rare-Earth Min- mining attributable to the wind industry is document and that related government eral Corporation, failure to obtain an entry Ganzhou, the largest city in Jiangxi Province, unavailable, a U.S. Geological Survey esti- branches must strictly enforce relevant permit from the MIIT quashed its plan to

17 is the southern center of China’s rare-earth mates neodymium ore accounts for around environmental and security rules. The go public in 2015. But its manufacturing vol 3 reserves. In 2011, over 70 percent of farm- 20 percent of China’s national rare-earth MEP also conducted a three-year study activities continue unchanged.22 Senior

14 |

land in Ganzhou was polluted or damaged reserves. Based on this estimate, roughly on possible technological upgrades to executives claimed the financial burden 2017 due to rare-earth extraction.9 Ammonium one-fifth of the pollution treatment costs reduce pollutant emissions from rare-earth imposed by environmental regulations sulfate fluids are directly poured into the from rare-earth mining are associated with mining and their economic feasibility. In was too large and required the company rare-earth mines to replace rare-earth neodymium permanent magnet production. 2014, the MEP released a draft regulation to go public in order to finance pollution oxides (REOs). The production of one ton titled Guidelines on Available Technologies treatment projects.23 of REOs is associated with injecting seven of Pollution Prevention and Control for the to eight tons of ammonium sulfate fluids Rare-earth regulations Rare-Earth Metallurgical Industry, and is still into the earth, which can easily mix with and their effects in the process of taking advice from the Environmental benefits from

surrounding ground water. The method whole industry and concerned parties.18 wind power development also causes 300 cubic meters of soil deple- Severe and pervasive polluting activities in When and how these regulations will be tion and 2000 cubic meters of tailings, an the rare-earth industry are the outcome of implemented is still unclear. While the upstream industries are industrial waste byproduct, to be created poor regulation. The Ministry of Land and enmeshed in environmental damage, for every ton of REOs.10According to Resources (MLR) has been responsible The big question is how the government will wind power generation itself is not con- former Vice Minister Su Bo of the Ministry for developing production plans for the next follow up after the major crackdown in tributing to clean energy consumption of Industry and Information Technology country’s strategic commodities, including 2011-12. Proposed reforms are attractive at as expected. China has enjoyed the fast- (MIIT), the pollution treatment budget for rare-earth metals. However, decentraliza- the policy level, yet are unclear on imple- est pace of wind power development in the Ganzhou area is 38 billion RMB. The tion in regulating the rare-earth industry mentation and enforcement mechanisms. the world over the last decade. However, annual profit of the rare-earth industry in led to the MLR delegating authority to Worse still is that existing enterprises, skyrocketing installed capacity has done Jiangxi Province was just 640 million RMB provincial governments to manage local including some state-owned giants, con- little to improve the industry’s efficiency. in 2011.11 production quota allocations and assign tinue to pollute and some previously The main cause has been the state devel- output quotas to individual mining compa- eliminated producers have re-entered the opment plan, which overlooked practical The city of Baotou in Inner Mongolia, known nies. Overproduction and direct emissions market. According to the U.S. Geological obstacles concerning market demand and as “the capital of rare-earths” in China, has from both licensed and unlicensed miners Survey’s 2016 Mineral Commodity Sum- technical shortcomings. Upstream polluting the world’s largest rare-earth reserves in its have resulted in disastrous pollution due to maries, despite government efforts, illegal activities in wind turbine production have Bayan Obo mineral district. During decades poorly implemented regulations.15 production of rare-earth materials in China often ended up creating idle wind turbines. of operation, the state-owned Baotou Iron is ongoing.19 In January 2015, local villagers So far, the environmental impact of pursu- and Steel company released a tailings pond In 2008, the Rare-Earth Office was trans- reported the Ganzhou Rare-Earth Mineral ing wind has been net negative. into a ten square kilometer lake, contain- ferred out of the MLR and centralized in Corporation’s Jibu Mine had re-opened ing many toxic chemicals and radioactive MIIT. After the MEP investigation in 2011, after a four-year suspension, even though The concept of curtailment refers to the elements like thorium and uranium. The a series of regulatory actions were under- questionable mining activities had never problem that installed capacity cannot be tailings lake is only about 12 kilometers taken and policy documents were released. stopped and the firm never passed an offi- fully connected to the power grid because away from Baotou and nine kilometers Most of the unlicensed mines were penal- cial environmental assessment.20 of local market saturation or technical short- away from the Yellow River. It slowly trick- ized and closed, despite some pushback comings in interconnecting power grids. In les underground toward the Yellow River, from local interest groups. The MIIT also For the most part, large state-owned China, some 80 percent of onshore wind and when the rainy season comes every supervised a restructuring of the whole enterprises are rarely held responsible for energy capacity is in the “Three Norths” July and August, pollutants quickly flood industry. Many inefficient small companies violations of environmental regulations, region — an area ranging from Xinjiang into the Yellow River through tributaries and other state-owned enterprises were and they continue to emit untreated pol- to Heilongjiang (the north, northeast and flowing from the lake. Various reports and integrated into a group of six major rare- lutants despite repeated criticism. Since northwest of China). Yet 70 percent of total official studies confirm unusually high rates earth firms, in the hope that consolidation 2007, the Aluminum Corporation of China demand lies in central and coastal China.

12 THE CHINA STUDIES PROGRAM | SAIS Is the Wind Industry Helping China’s Environment? A Preliminary Environmental Impact Report 13 CHINA

The distance between the best resources managing pollution in neodymium magnet About the Author December 10, 2013, http://money.163.

for renewable energy generation and the generator production. The Ganzhou case com/13/1210/12/9FNV0RMA002524SO.html. STUDIES REVIEW main areas of demand is a major obstacle clearly shows short-term treatment costs Miaosu Li is a Spring 2017 SAIS M.A. grad- since new transmission and distribution easily surpass the profits of the whole uate with a concentration in the Energy, 8 Fuqu Chen, “Situation Analysis of Rare-Earth capacity entails a large upfront invest- rare-earth industry in Jiangxi Province. As Resources, and Environment Program, and Permanent Magnetic Materials in China” 中国 ment.24 The power grid in the “Three most wind power plants are experiencing a minor in China Studies. Miaosu’s diverse 稀土永磁材料发展现状及前景分析, Qianzhan. Norths” is not sophisticated enough to dis- deficits, the pollution costs have so far not research interests span environmental com, December 12, 2014, http://www. patch large amounts of electricity through been balanced out by the usage of clean policy, U.S.- China relations, energy markets, qianzhan.com/analyst/detail/220/141212- high-voltage, long-distance lines. More- power. In the past few years, we have seen and global governance with a China focus. 0d387fdd.html. over, wind power competes with traditional some policies launched to make the wind

fossil fuel-generated electricity for limited industry a net positive for China’s environ- 1 “China Energy Policy White Paper,” China 9 Mingjie Ren and Xinglong Liu, “Sample of vol 3 dispatch volume. In 2015, some wind ment, from both the upstream (rare-earth National Renewable Energy Centre, November Rare-Earth Pollution in Ganzhou” 赣州稀土污

8, 2012, http://en.cnrec.info/policy/ 染样本：水稻不用肥长得好但却颗粒无收, Sina, | power plants in the “Three Norths” had an production) side and the downstream 2017 average idle rate of up to 50 percent, which (market absorption) side. However, most domestic/2012-11-08-366.html. January 30, 2015, http://finance.sina.com.cn/ caused an annual loss of more than 43 mil- of the major policies have had substantial chanjing/gsnews/20150130/005921431425. lion RMB.25 Industry rumors have cradled implementation gaps. 2 Statistics and data in this report come from shtml. an expectation that the government could Chinese official institutions and industry order a guaranteed quota for wind power There is additional bad news for the associations. As these numbers tend to be 10 Ibid. to be dispatched to eastern and southern Chinese wind power industry’s net envi- poorly obtained and recorded, the scale of markets through high-voltage transmission ronmental impact. In 2015, excess supply pollution, unless specified in numbers, is 11 Yulin Liu, “Ganzhou’s Serious Rare-Earth Mining grids, yet interest groups have made it hard caused prices for rare-earth compounds made by rough estimation after crosschecking Pollution” 赣州开采稀土污染严重, Money.163, to reach an agreement on volume. In 2016, and metals to decline significantly, with multiple sources. Further efforts should be May 7, 2012, http://money.163.com/special/ electricity demand dropped in large areas illegal production in China a major cause.28 made to increase our understanding of the view179/. of China as the economy slowed down. In addition, rare-earth reserves are not as situation. Wind power plants around the country rare as their name suggests. New mineral 12 “The Environmental Consequences of Rare- were ordered to halt production so that sites have been discovered around the 3 “China Wind Power Roadmap 2050” 中国风电 Earth Extraction” 稀土开采环境直通, China local fossil fuel plants could earn a guaran- globe and China’s global share of rare- 发展路线图2050, China National Renewable Environment News, 2011, http://www.cenews. teed share. The practice of giving priority to earth minerals has decreased after years Energy Centre, February 10, 2012, http://www. com.cn/ztbd1/xtkfstzt/. the development and utilization of renew- of unrestrained production.29 Future profits cnrec.org.cn/yjcg/fn/2012-02-10-54.html. able energy in the Renewable Energy Law for China’s rare-earth industry are likely to 13 Keith Bradsher, “China Tries to Clean up Toxic was ironically overlooked.26 Although many fall, making it even harder to cover environ- 4 “China Energy Policy White Paper.” Legacy of its Rare Earth Riches,” New York wind power producers were running below mental externalities. It is hard to estimate Times, October 23, 2013, http://www.nytimes. their breakeven point, more than 31 mil- when China’s wind power industry will start 5 “Situation and Policies of China’s Rare com/2013/10/23/business/international/china- lion kilowatts of wind power capacity were to make profits. At least in the short run, Earth Industry,” Information Office of tries-to-clean-up-toxic-legacy-of-its-rare-earth- brought online in 2015, exacerbating the including environmental externalities in the The State Council, June 20, 2012, http:// riches.html. situation even further.27 calculation of environmental gains shows www.scio.gov.cn/zfbps/ndhf/2012/ that wind power development is causing Document/1175419/1175419.htm. 14 Donald I. Bleiwas and Joseph Gambogi, more losses than gains in China. Preliminary Estimates of Quantities of Rare- Conclusion and discussion 6 “Ministry of Environmental Protection Issues Earth Elements Contained in Selected Products Importantly, this report does not recom- Initial List of Rare Earth Enterprises Meeting and in Imports of Semimanufactured Products At this point, we should not diminish the mend the end of wind power development Environmental Standards” 环境保护部发布第 to the United States, 2010 (Reston, Virginia: contribution of wind power as a clean in China. Despite upstream pollution, wind 一批符合环保要求稀土企业名单, Ministry of U.S. Geological Survey, 2013), http://pubs. energy capable of carbon emission reduc- power generation is still a promising tech- Environmental Protection, November 24, 2011, usgs.gov/of/2013/1072/OFR2013-1072.pdf. tion and air pollution control. Nonetheless, nology that can mitigate pollution caused http://www.mep.gov.cn/gkml/hbb/qt/201111/ the positive effects might not be as promis- by using traditional fossil fuels. It is the t20111124_220518.htm. 15 Pui-Kwan Tse, China’s Rare-Earth Industry ing as originally expected. Despite China’s policy and implementation side that the (Reston, Virginia: U.S. Geological Survey, ever-increasing wind power capacity, some Chinese government must improve so 7 Ruiming Zhai, “Fourth Batch of Rare 2011), http://pubs.usgs.gov/of/2011/1042/ wind-generated electricity has never that this perverse shortcoming of the wind Earth Enterprises Meets Environmental of2011-1042.pdf. successfully been connected to the trans- power industry can be solved. Compliance Standards Bringing National mission system. On the down side, we do Total to 87” 第4批稀土企业环保达标 16 Including China Minmetals Corporation, not know the exact costs associated with 名单公布 全国已有87家, Money.163, Aluminum Corporation of China Limited,

14 THE CHINA STUDIES PROGRAM | SAIS Is the Wind Industry Helping China’s Environment? A Preliminary Environmental Impact Report 15 CHINA

Baogang Group, Xiamen Tungsten Co., Ltd., http://news.xinhuanet.com/finance/2015- between the U.S. and China in East Asia.

Ganzhou Rare Earth Group Co., Ltd., and 11/09/c_128407371.htm. An Analysis of the Although nuclear weapons have not been STUDIES REVIEW Guangdong Rare Earth Industry Group Co., used since 1945, their ongoing presence Ltd.. 26 “Renewable Energy Law of the People’s U.S.-China serves as a means of strategic deterrence. Republic of China,” The State Council, 17 “Announcement No. 33, 2012 of the Ministry August 23, 2014, http://english.gov.cn/ Nuclear Balance The U.S. has never held a doctrine of of Industry and Information Technology of archive/laws_regulations/2014/08/23/ no-first-use (NFU). President Obama the People’s Republic of China: Rare-Earth content_281474983043598.htm. maintained the U.S. precedent of non- Industry Access Conditions” 中华人民共和 use against non-nuclear weapons states 国工业和信息化部2012年33号：稀土行业准入 27 “Promotion of Renewable Energy (NNWS) and against states party to the

条件, Ministry of Commerce, September 27, Development White Book” 促进新能源发展白 Treaty on the Non-Proliferation of Nuclear vol 3 2012, http://www.mofcom.gov.cn/aarticle/ 皮书, State Grid Corporation of China, March Amanda Van Gilder Weapons (NPT) in compliance with their

b/g/201209/20120908362111.html. 15, 2016, http://210.77.180.158/page/1/2016- 2 | non-proliferation obligations. However, 2017 03-15/6/16021283731848930.pdf. the U.S. has not specified the nature of 18 “Opinions on the Consultation of the Technical these non-proliferation obligations. Guidelines for the Prevention and Control of 28 “Mineral Commodity Summaries 2016-Rare Introduction Pollution in the Rare Earth Smelting Industry Earths,” 135. China has held a policy of NFU and assured (Draft)” 关于征求《稀土冶炼行业污染防治 This analysis seeks to define and analyze retaliation, which is a strategy of guaran- 可行技术指南》（征求意见稿）意见的函, 29 “Will China’s Rare Earths Lose Their No. 1 the nuclear balance between the United teed response, since the development of Ministry of Environmental Protection, April Status?” 中国稀土是否将失去世界第一, Rare- States (U.S.) and the People’s Republic of its first nuclear bomb in 1964.3 This commit- 12, 2014, http://www.zhb.gov.cn/gkml/hbb/ Earth Information, October 19, 2015, http:// China (PRC) from the mid-1990s onward. ment to NFU, however, has recently come bgth/201404/t20140418_270752.htm. www.rareearthinfo.com/industrialpolicy/ Such an assessment is important given the into question. A 2013 White Paper pub- industryanalysis/2015-10-19/934.html. increased capabilities of nuclear weapons lished by China’s Ministry of Defense failed 19 “Mineral Commodity Summaries 2016-Rare systems and potential changes in the will- to address NFU for the first time since the Earths,” U.S. Geological Survey, January 2016, ingness to use them since the mid-1990s. initiation of China’s nuclear program. This http://minerals.usgs.gov/minerals/pubs/ The U.S.-China nuclear balance has long omission of an explicit reference to NFU commodity/rare_earths/mcs-2016-raree.pdf, favored the U.S., which has almost 30 could signal the Chinese government’s shift 135. times the number of nuclear warheads of toward a more offensive doctrine that could China.1 However, a full analysis of the bal- eventually include first use. It also leaves 20 Ren and Liu. ance includes more than just the number open to interpretation whether any sort of of warheads. Other factors such as the attack or threat of attack, conventional or 21 Guohua Yang, “Why is CHALCO Repeatedly effectiveness of weapons systems, nature nuclear, could provoke a Chinese strike. Criticized for Pollution?” 评论：多次“涉污”遭批 of nuclear doctrine, and outside political This potential move toward a more offen- 中铝为何如此任性?, Xinhua, January 20, 2015, factors also influence the nuclear balance. sive doctrine will shape the future of the http://news.xinhuanet.com/energy/2015- Given these factors, the nuclear balance will nuclear balance, as it affects China’s deter- 01/20/c_127401511.htm. start to equalize over the next few decades rent and coercive capacity. as the superiority gap continues to narrow. 22 Ibid. In addition to nuclear doctrines, this assessment focuses on the moderniza-

23 Ren and Liu. How to think about the balance tion of weapons and delivery systems. The U.S. military plans to update and 24 Dolf Gielen, Deger Saygin, Nicholas Wagner The nuclear balance is defined by nuclear modernize all three legs of its nuclear and Yong Chen, Renewable Energy Prospects: weapons and doctrines. Nuclear weapons triad, including ballistic missile subma- China (Abu Dhabi, IRENA, 2014), http://www. include both warheads and their delivery rines, strategic bombers, and land-based irena.org/remap/IRENA_REmap_China_ systems, while nuclear doctrine reflects ballistic missiles over the next two to report_2014.pdf, 73. each state’s willingness to use these weap- three decades. Most investments will be ons. Both quantitative and qualitative allocated to Minuteman intercontinen- 25 Haiyan Huang, “ National Wind Power Further factors therefore contextualize the bal- tal ballistic missiles (ICBMs), Ohio-class Deteriorates, Extreme Power Limit Reaching ance. While primarily functional in nature, ballistic missile submarines (SSBNs), and 79 Percent” 全国弃风限电进一步恶化 极端限 the nuclear balance also retains a geo- long-range strike (LRS) bombers. The top 电比例已达79%, Xinhua, November 9, 2015, graphic context given growing competition priorities are to increase precision, create

16 THE CHINA STUDIES PROGRAM | SAIS An Analysis of the U.S.-China Nuclear Balance 17 CHINA

more mobile missile platforms, and force The U.S. operates under a strategy of statesman Deng Xiaoping, China operated U.S. could intercept the strike in its terminal 4 9 life extension. extended deterrence, striving to deter under a national “hide and bide” strategy. phase. This would also allow for extended STUDIES REVIEW attacks on the homeland as well as Deng implemented internal economic U.S. radar capabilities against a Chinese The People’s Liberation Army’s (PLA) mod- against allies. It must be able to provide reforms aimed at rapid growth without threat and leave open the option for a ernization efforts emphasize deliverability the weapons, doctrine, and posturing to an emphasis on exerting external power. retaliatory measure. over effectiveness of warheads, as well as such regional partners as Japan, South Xi has since emerged from and replaced long-range capabilities. This has translated Korea (ROK), and Australia. This has trans- this “hide and bide” strategy with that of into an advancement in weapons mobility lated into the presence of military bases the “China Dream.” The PRC now seeks to Measuring the balance and fuel types as well as long/interconti- and SSBNs in the Pacific and NATO (North translate its internal reforms and strong nental-range and sea-based technology. Atlantic Treaty Organization) missile bases economic growth into global influence. The nuclear balance must be measured

In 2015, the PLA generated its first MIRV throughout Europe. The U.S. must maintain Increasing economic strength and nation- both qualitatively and quantitatively. A vol 3 (multiple independently targetable reen- forces that can project over medium and alist sentiments underpin a reinvigorated quantitative approach includes the number |

try vehicle)-capable DF-5 ICBM. In 2016, intercontinental ranges from land, sea, and Chinese commitment to continue devel- of nuclear warheads and systems each side 2017 it planned to deploy its new Jin-class JL-2 air. Extended deterrence also requires the oping nuclear forces over the next 10 to possesses. The qualitative aspect refers to armed SSBN on its first credible deterrent U.S. to keep open an option of first use. 20 years. the effectiveness of these weapons sys- patrol in the Pacific.5 This deployment has tems and nuclear doctrines. Effectiveness yet to occur. Over the next 10 to 20 years, In addition to deterrence, China and the The U.S. and Chinese objective — to survive includes the deliverability and survivability the PLA will continue to develop its long- U.S. view the nuclear balance as a way an initial attack and retain the ability to of forces. range, MIRV, and sea-based capabilities. to gain or obstruct access to the Pacific.7 launch a counterstrike — also highlights the The U.S. military will meanwhile keep mod- In the context of East Asian competition, emphasis on the deliverability, survivability, The U.S. has and will continue to have a vast ernizing its current nuclear triad. bolstering its nuclear deterrent could aid and long-range capacity of nuclear forces. superiority in number of nuclear warheads. the PLA in staving off U.S. primacy. One of China, with less advanced forces, is now The U.S. is estimated to have roughly 7,100 President Xi’s primary interests is to assert starting to develop and modernize these warheads while China has approximately Comparing U.S.-China Chinese sovereignty in the Pacific. This is capabilities. MIRV-capable ICBMs are both 260.10 This Chinese figure, however, is a nuclear objectives especially pertinent to the U.S. presence long-range and allow for multiple targets. U.S. Department of Defense (DOD) esti- and alliances in East Asia against the back- SSBNs are more difficult to detect and can mate. Lack of Chinese transparency makes Both the U.S. and Chinese governments drop of island disputes in the South and be deployed around the world. The PLA it difficult to determine the exact size of share the ultimate goal of deterring East China Seas and the Taiwan issue. With has an underground missile transfer system its arsenal. It is unlikely that either coun- nuclear and conventional attacks. The PLA more effective nuclear forces and a more that is estimated to be around 3,000 miles try will manufacture more fissile material has typically followed a doctrine of “min- offensive doctrine, the PLA could poten- long.8 By assembling and transferring mis- in the immediate future. China stopped imal deterrence.” That is, with its smaller tially impose this same nuclear-backed siles underground, the PLA and PLARF can producing highly enriched uranium (HEU) nuclear arsenal, its objective has been to threat on Japan, Russia, India, and on better ensure the survivability and retalia- and plutonium in 1987 and 1989, and the deter regional attacks while upholding a China’s Southeast Asian neighbors. Con- tory ability of their forces. U.S. ceased its own fissile material pro- policy of NFU.6 The PLA’s modernization versely, the U.S. strives to counter China’s duction in 1992.11 While each military of the range and capacity of its weapons growing deterrent capacity and maintain During the next 10 to 20 years, the U.S. will can adjust the number of warheads they systems, as well as the obfuscation of its a competitive advantage in the Pacific. also continue to focus on long-range capa- possess by modifying warhead size, they policy of NFU, however, surpasses mini- Possessing both a qualitatively and quan- bilities and force survivability as a means to are limited to their current stockpiles of mal deterrence. In order to have a more titatively superior nuclear arsenal, as well ensure retaliation. The U.S. has possessed a fissile material. effective deterrent, the PLA continues to as a doctrine reflecting the willingness to relatively strong triad force since the Cold strive toward fortifying credible long-range/ employ it, affords the U.S. more flexibility War, as it held this same objective against The U.S. will work toward reducing its war- intercontinental means. For this reason, in pursuing its national interests. The 2009 the USSR. Over the past few years, the U.S. head stockpile through at least 2018 under the PLA Rocket Force (PLARF) will main- U.S. “pivot” to Asia includes this U.S. goal has begun deploying Terminal High Alti- the New START (Strategic Arms Reduction tain focus on developing SSBNs, SLBMs of retaining a relative deterrent and coer- tude Area Defense (THAAD) anti-ballistic Treaty), which allows Russia and the U.S. only (submarine-launched ballistic missiles), cive advantage in the Pacific in the wake of missile (ABM) systems alongside the ROK 1,550 deployed warheads and 800 total and MIRV-capable ICBMs over the next 10 increasing Chinese assertiveness. and NATO. These systems were originally ICBMs, SLBMs, and bomber launchers each.12 to 20 years. Combining these new long- created as a deterrent measure against Only 700 of these platforms can carry war- range capabilities alongside its SRBMs and The nuclear balance is also a tool for Russia and North Korea (DPRK), but their heads. As of 2016, the USAF had 440 ICBMs, MRBMs will fortify the Chinese deterrent China’s larger objectives in line with its range makes it possible to deploy them each deployed with one warhead.13 U.S. against a U.S. attack. hegemonic ambitions. Garnering greater against a Chinese threat. If the PLARF force size and composition have changed nuclear strength has become equated with were to launch a short- or medium-range since 2010 under the New START, with an national power and prestige. Under former ballistic missile at a U.S. base or ally, the emphasis on retaining warheads for SSBNs

18 THE CHINA STUDIES PROGRAM | SAIS An Analysis of the U.S.-China Nuclear Balance 19 CHINA

and ICBMs. By contrast, the DOD estimates in 2016 with its new Jin-class SSBNs armed 23 that China has between 50 and 75 launchers with JL-2 SLBMs, but has yet to do so. Comparative Macro-Indicators 2015 STUDIES REVIEW for 75-100 ICBMs.14 The U.S. military has a Unlike current Chinese submarines, the much more developed nuclear triad with a Jin-class SSBNs possess advanced tech- Macro-Indicators U.S. China greater quantity of every type of launcher.15 nology. The PLAN has six SSBNs in service with eight more planned over the next few GDP (PPP) $18 trillion $19.4 trillion The U.S. has focused on long-range capa- years.24 SSBNs are difficult to detect and bilities since the initiation of its nuclear have a greater chance of survivability com- program during the Cold War, given the pared to conventional submarines.25 Armed Forces 1.4 million 2.33 million distance of the USSR from the U.S. The

USAF first deployed MIRVs in 1970 on The effectiveness of SSBNs is also crucial for vol 3 Defense Expenditures $601 billion ≈$180 billion Minuteman III ICBMs, each outfitted with the U.S. in determining the nuclear balance

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three warheads. Mobile ICBM platforms against China. In addition to their stealth, 2017 would improve the survivability of forces their long range and mobility assist the U.S. Population 324 million 1.4 billion by making missiles more difficult to find goal of extended deterrence. The U.S. Navy and destroy.17 Existing silo-based Minute- has 14 SSBNS, nine of which are currently men III ICBMs are unable to be supported deployed in the Pacific.26 The Ohio-class on mobile platforms in their current form. SSBN fleet is set to begin retiring in 2027, duty force.32 The U.S. military has therefore Due to a lack of transparency, there are no The complete modernization of Minutemen thus requiring some sort of replacement shown a willingness to augment spending concrete figures on how much the Chinese III, including making them mobile-capa- over the next 10 to 20 years.27 The Chinese in areas of R&D, technology, modernization, government allocates to nuclear spending. ble, would necessitate $62.3 billion over will continue to push the development of and weapons procurement. Former Secre- Its budget could also be configured differ- the next 30 years.18 All USAF Minuteman long-range and sea-based platforms as U.S. tary of Defense Ashton Carter estimated ently than the U.S., which divides spending ICBMs will need updates by 2030.19 systems start to retire. in 2016 that nuclear modernization costs between the DOD and DOE. over the next 20 to 30 years will amount The PLA acknowledges that it will not reach Another effective measure of the balance to around $350-450 billion.33 The U.S. has The process of appropriating nuclear and numerical superiority against the U.S. It over the next few decades is the ability of always held an advantage with its triad military funds could also differ. The Cen- therefore seeks technological equity. At the U.S. and PRC governments to fund their systems, which are all set to retire during tral Military Commission of the Communist the beginning of its modernization pro- nuclear programs. Both countries face dif- the same 10 to 20-year period. Future triad Party of China (CMC), with President Xi as its gram in the mid-1990s, the PLA initially ferent conditions restricting their abilities investments will continue to remain com- Chairman, holds jurisdiction over the PLA. moved toward constructing smaller, tacti- to fund nuclear and military initiatives. The petitive against Chinese efforts. The military budget is created through a cal-use warheads.20 These warheads have table (shown on the right) gives an objec- collaborative process between the PLA, the since been used alongside the PLARF’s tive side-by-side comparison of some of Chinese nuclear and defense spending is CMC, and the Ministry of Finance.36 The 2015 development of its first MIRV-capa- the key macro-indicators in each country.28 more complex. The Chinese government president therefore has a more direct role ble ICBM. The ability to launch multiple lacks transparency in its defense activities, in approving the budget. Trends in Chinese targeted warheads at once increases the U.S. nuclear spending primarily comes including its nuclear force size and spend- military spending also coincide with trends deliverability of Chinese weapons as well as from the Department of Energy (DOE). The ing. The DOD therefore makes its own in national economic growth. 2016 marked their deterrent capacity. Although Chinese DOE requested $20.5 billion in FY17 for evaluations regarding Chinese weapons a significantly lower increase in the Chinese missiles and warheads remain unmated in nuclear weapons modernization, research, and fiscal means. The Chinese government military budget at 7.6 percent, compared to times of peace, modernization of select development, and safety.29 $674 million of purposely hides and releases false informa- 10.7 percent growth in 2013, 12.4 percent forces has included a switch from liquid this nuclear spending is mandatory, and tion to stymie the DOD’s ability to measure in 2014, and 10 percent in 2015.37 Since to solid fuels in order to decrease launch not subject to Congressional approval.30 capabilities, thus making it more difficult 2013, Chinese GDP growth has followed times.21 The PLA has recently developed The Office of Management and Budget for the U.S. to plan and invest resources to a similar trend, and recently slowed to less DF-41 and DF-5 missiles which use solid (OMB) reports that U.S. nuclear spending counter China. The DOD estimated FY2015 than 7 percent.38 The future nuclear bal- fuels, are precision-guided, and can be is roughly 3.3 percent of total national Chinese military spending at $180 billion.34 ance will depend on the ability of China launched on a mobile rail car platform.22 defense spending. Overall U.S. defense This constitutes 2.1 percent of Chinese and the U.S. to provide continuous funds spending constitutes around 3.4 percent GDP that year, compared to 3.4 percent in for their respective projected moderniza- Despite ongoing research and develop- of the federal budget.31 Analyzing trends in the U.S.35 Although the U.S. and China have tion programs. ment (R&D) over the past few decades, the defense budget, the base budget (not similar 2015 GDPs (in purchasing power the PLA Navy (PLAN) has yet to possess including Overseas Contingency Operation parity/PPP terms), the U.S. continues to Finally, collective defense alliances are an operative SSBN fleet. It was expected war funds) has generally increased since the spend both a larger nominal amount and an additional consideration in measuring to deploy its first credible deterrent patrol mid-1990s despite a decrease in the active a larger percentage of GDP on defense. the nuclear balance. The U.S. has several

20 THE CHINA STUDIES PROGRAM | SAIS An Analysis of the U.S.-China Nuclear Balance 21 CHINA

collective security agreements in the Pacific Artillery Corps.42 Establishing the PLARF Chinese nuclear modernization started in period. This increase in spending has con-

and is a member of NATO. It has bilateral as its own independent military service the mid-1990s. The Taiwan Strait Crisis of sisted mainly of R&D and restructuring the STUDIES REVIEW collective security arrangements with branch demonstrates a growing empha- 1995-1996 forced the Chinese government PLA, both of which are expected to con- Japan, the ROK, the Philippines, Australia, sis on upholding an effective and efficient to acknowledge its inability to confront the tinue through at least 2020.48 Over the next and Thailand. These agreements emphasize missile force. Xi sees the PLARF as the core U.S. given its forces at the time. Unable to 10 to 20 years, increases in China’s nuclear the geographical element of the balance as of China’s deterrent strength, stating that compete with the quantitative and technical and defense spending will be largely they extend U.S. deterrence. In addition, as “the PLA Rocket Force should strengthen… superiority of the U.S. and USSR, China’s dependent on the rate of economic growth. a means to deter DPRK aggressions in the trustworthy and reliable nuclear deterrence commencement of its nuclear modern- region, the U.S. deployed a THAAD ABM and nuclear counter-attack capabilities, ization program in the 1990s emphasized The Second Artillery Corps/PLARF has dras- system within the ROK in 2016. The system intensify the construction of medium and compact, medium-range, and tactical-use tically improved missile capacity during the

49 can only intercept missiles in their termi- long range precision strike power, and warheads. Contemporary modernization past 20 years. Missiles such as the JL-2 vol 3 nal phase, meaning it cannot stop missiles reinforce the strategic check-and-balance efforts, such as the development of long- and DF-31 deemed “developmental” and

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launched from China to the U.S., but can capability.” Xi interprets U.S.-sponsored range missile and naval-based delivery “becoming available” in 2007 are now in 2017 prevent short- and mid-range strikes.39 ABM systems in the region as a threat. systems, have since demonstrated Chi- use. The CMC and the PLA will continue He believes their radars will track Chi- na’s vision of technological parity with to emphasize long-range and sea-based NATO is another collective security alliance nese military developments and further the U.S. Since 1996, the U.S. and China means in order to increase deterrence that emphasizes the geographic element provoke DPRK aggression.44 Xi has since have both had moratoriums on testing against the U.S., expand theater-level of the nuclear balance. Under Article 5 of partnered with President Vladimir Putin of nuclear weapons under the guidance military effectiveness, and achieve tech- the NATO Treaty, NATO allies would be Russia to announce a joint missile-defense of the Comprehensive Nuclear Test Ban nological parity. The Chinese will keep required to intervene should China attack test in 2017.45 China acknowledges the Treaty.46 Maintaining this moratorium on working toward closing this technological the U.S. Seven NATO allies possess nuclear advantage of the U.S.’ allies in supplying testing could indicate the confidence of and deployment gap. Closing this gap will weapons either on their own or as a part nuclear weapons and interceptors as well the PLARF in its new and modernized give the Chinese greater deterrence capa- of the NATO nuclear sharing program.40 as extending the geography of the U.S. weapons and systems. bility against the U.S. and enable possible In July 2016, NATO declared its ballistic nuclear presence. It will thus continue to hegemonic ambitions in the region. missile defense (BMD) shield operational. try to counterbalance this superiority by In terms of future weapons trends, the BMD radar and interceptors are based increasing the efficiency of its own forces. PLARF may increase its number of war- In addition, since the 1990s, U.S. deterrent in Romania and Poland, respectively. The heads over the next few decades. The initial SSBN patrols have decreased.50 The size system is only able to intercept short- and focus of the PLA’s modernization program of the overall SSBN fleet has remained rel- mid-range threats coming from East Asia Trends and asymmetries in the 1990s was to create smaller, more atively constant since around 2001. With and the Middle East, before the missiles tactical-use warheads. These smaller war- heightening competition and tension in reenter the atmosphere.41 While the NATO Since the mid-1990s, several trends have heads have now been fitted for use on new, East Asia and the deployment of China’s system was originally installed as a deter- emerged that contextualize the current bal- MIRV-capable ICBMs. Using the DOD’s Jin-class fleet, these U.S. Pacific deploy- rent against Russia and Iran, like the ROK ance. Both the U.S. and China have moved upper estimate that the PLARF has 100 ments may increase in the future. The U.S. system, it also serves as a deterrent against toward modernizing their arsenals. How- ICBMs and assuming each ICBM could has shown a trend of continuous invest- possible Chinese short- or mid-range ever, during the past 20 years, the PLA has carry three warheads, the PLARF could ment in the modernization of its already attacks against U.S. allies and regional made relatively greater gains in the devel- potentially expand its warhead inventory superior forces since the mid-1990s. military bases. China does not have this opment of its platforms. Over the next 10 by 300 over the next few decades. same alliance and organizational network to 20 years, U.S. SSBNs and MIRV-capable The nuclear balance is not experiencing a and therefore does not have the ability to ICBMs will face more numerically and qual- Nuclear and military spending serve as growing asymmetry, but rather an emerg- launch missiles from different global bases. itatively equal Chinese counterparts. Both both a way to measure the balance as well ing parity. The U.S. possesses more than It also cannot call upon the same system countries have also exhibited an ongoing as to analyze its trends. Both DOD high and enough nuclear warheads and weapons of allies for deterrence and to assist in a willingness to maintain funding for weapons low estimates of Chinese defense spending to cause irreversible damage to China. potential conflict. development and modernization programs. from 1996-2007 far surpass PRC reports.47 Technicians at the Los Alamos National Overall, examining trends and asymmetries All figures indicate a steady increase in Laboratory estimate that between 10 and With limited outside support in the face in the balance starting in the mid-1990s, defense expenditures since 1996. While 100 “significant” thermonuclear weapons of an extended U.S. nuclear threat, China the future of the balance will most likely the exact amount of annual expenditures could destroy the entire world.51 There has turned to internal restructuring to witness a growing parity. Although the U.S. allotted to nuclear forces is unknown, this are therefore diminishing returns within improve the efficacy of its nuclear forces. will continue to have a numerically greater assessment assumes that nuclear funding the U.S. arsenal. The USAF may have a At the end of 2015, Xi Jinping, as chairman arsenal, Chinese technological advance- follows the general trend of overall defense substantially greater quantity of warheads of the CMC, officially inaugurated the cre- ments and willingness to allocate funds will spending, as spending is highly correlated and weapons, but only a small number is ation of the PLARF to replace the Second start to close the superiority gap. with Chinese economic growth over this necessary to cause significant damage to

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China. Having a numerical superiority is Dalian, and Hainan. The location of these PLA, military leaders are inherently Com- has better overall training. The PLARF is still 61 an important factor in assessing destruc- ports has been confirmed largely using munist Party leaders as well. While this trying to reconfigure its command struc- STUDIES REVIEW tive capabilities, but the drastic difference satellite imagery.57 strong connectivity between the regime ture, duties, and relationships with other between U.S. and Chinese arsenals is more and the military may lower bureaucratic branches. However, this gap will increas- symbolic than practical. barriers to taking action, it could also have ingly narrow as the PLA garners greater, Strengths and weaknesses negative side effects. Discontent among more educated force members, and as the There is a significant asymmetry, however, the Chinese people toward the govern- PLARF matures. in the imbalance of information. The Chi- The U.S. currently holds a relative strength ment could translate into a distrust for nese government has purposely employed in the U.S.-China nuclear balance. It has the military. The one major difficulty the U.S. will con- a strategy of concealing information.52 It is superior technology and experience using tinue to face in assessing the nuclear

difficult for the U.S. government and mili- nuclear weapons and employing a strat- balance is Chinese opacity. Almost all vol 3 tary to plan and invest resources without a egy of deterrence. However, as seen in Implications figures regarding spending, force size, |

concrete understanding of Chinese forces recent trends, China is beginning to have and doctrinal characteristics have been 2017 and probability of use.53 Conversely, the a competitive advantage in the temporal, The U.S. holds the current advantage in the purposely obfuscated by the Chinese U.S. has become more transparent with economic, and political elements of the nuclear balance against China. The U.S. has government. This has forced the U.S. information since the end of the Cold War. nuclear balance. Embedded in former a precedent of an offensive nuclear doctrine military and DOD to rely on intelligence, Arms limitation and reduction treaties with leader Deng’s “hide and bide” strategy, and holds superiority in both the number estimates, and satellite imagery for informa- the USSR forced the U.S. to start reporting the Chinese government frequently puts and quality of warheads and systems. This tion. Meanwhile, China enjoys fairly open on and opening up its nuclear forces for its competitive goals in terms of its 5,000- gap, however, will continue to close as availability of U.S. nuclear data, including inspections. The DOD and DOE are rela- year history.58 The PLA sees time as a tool the PLA develops new weapons systems, location, number, and types of forces. The tively transparent when it comes to such and an asset that it holds over its adver- such as MIRV-capable ICBMs and credible unattainability of this information will con- metrics as force spending, weapons char- saries. It is willing to take as long as it deterrent SSBNs. While the disparity in the tinue to stymy U.S. attempts at analyzing acteristics and locations, and doctrine. needs to garner the necessary resources number of warheads is the most drastic, the balance. to achieve its objectives. Two or three more the difference in weapons systems is the The majority of U.S. nuclear R&D and man- decades of weapons development seem true source of measuring nuclear force The nuclear balance is primarily assessed ufacturing occurs at national laboratories, minimal relative to the entire history and effectiveness. Effectiveness comes from through the deterrent power it allots to specifically the Sandia, Los Alamos, and ascendancy of the Chinese empire. The the deliverability and survivability of forces, each country. While the U.S. will uphold Oak Ridge National Laboratories. Most of centralized nature of the Chinese govern- especially over long ranges. While the U.S. its deterrent superiority in the imme- the silo-based Minuteman III ICBMs are ment also allots greater flexibility to Xi – as currently holds the edge on this front, the diate future, China and the U.S. will known to be situated around Malmstrom, both the PRC President and Chairman of implications of the factors discussed in this gradually reach parity through changes Minot, and Warren Air Force Bases. The the CMC – in modifying nuclear doctrine analysis all suggest that Chinese modern- to China’s doctrine and immense devel- exact locations of Chinese nuclear research and allocating economic resources. While ization efforts will increasingly move toward opments in its systems technologies. and deployment sites are unknown, the U.S. may have a greater military budget, reaching parity over the next few decades. It is unlikely that the U.S. and China will contributing to the large asymmetry in the challenge of ensuring these funds on directly engage in a nuclear conflict in the information. The best estimates of force an annual basis fosters greater uncertainty. The U.S. also has an advantage given its future. The most probable scenario leading positioning come from satellite imagery extensive network of allies, particularly to a confrontation between the U.S. and and intelligence.54 The DOD postulates that A relative weakness of the PLA — and rel- in East Asia. While this is susceptible to China would come from the U.S. being eight of the PLARF’s missile facilities can ative strength of the U.S. military — is the China’s expanding regional alliances, it drawn into a regional conflict based on launch ICBMs. The majority of these sites structure of their militaries and experiences is unlikely to change in the near future. its international obligations. are assumed to be located in the eastern with nuclear strategic competition. The These same alliances, however, will also portion of China, close to Taiwan and the USAF has better training and force plan- continue to drive Chinese modernization Looking toward the future, the U.S. has DPRK border.55 ning than the PLARF. In addition to greater efforts as well as raise the likelihood of a limited options. The U.S. already has an USAF experience from the Cold War, the scenario involving indirect conflict. In the offensive doctrine and has continued All of the U.S.’ SSBNs port in Washington, relatively new PLARF is still reconfiguring its event of an adversarial confrontation, the modernizing its nuclear weapons sys- Georgia, or Virginia. They are deployed at leadership and force hierarchy from that of U.S. and China will both likely be able to tems and warheads. Moving away from sea for 77 days at a time, and then spend 35 the Second Artillery Corps.59 The U.S. mili- survive an initial attack as well as retaliate. either of these actions could poten- days in port.56 The position of SSBNs during tary and USAF also put a greater emphasis Over the course of the fight — whether it be tially decrease tensions with the PRC, their patrols is unknown. Their mobility and on confronting the “fog of war” in war plan- conventional or nuclear — however, the U.S. but would come at the expense of U.S. stealth is what increases their survivability ning. In its training exercises, the PLA tends would still retain an advantage. The U.S. deterrent strength and primacy in East and contributes to their deterrent capacity. to overemphasize formalism, making much military has more experience dealing with Asia. As the PLA strives toward parity with The PLAN has three SSBN ports at Qingdao, of its training impractical.60 Finally, in the deterrent and competitive strategies and the U.S., the U.S.’ main advantage will lie

24 THE CHINA STUDIES PROGRAM | SAIS An Analysis of the U.S.-China Nuclear Balance 25 CHINA

with its extensive alliance network. Over About the Author 9 Sungtae Jacky Park, “This Is Why China Fears Defense Council, November 2006, http://fas.

the next 10 to 20 years, the U.S. will main- THAAD,” The National Interest, March 30, 2016, org/nuke/guide/china/Book2006.pdf. STUDIES REVIEW tain superiority in the nuclear balance; Amanda Van Gilder is a Spring 2017 http://nationalinterest.org/blog/the-buzz/ this advantage, however, will gradually SAIS M.A. graduate with a concentration why-china-fears-thaad-15637. 21 Strojnik, “Fact Sheet: Chinese Nuclear decrease as the PLA progresses toward in Strategic Studies. She came to SAIS Modernization,” 3. doctrinal and technological parity with directly from her undergraduate educa- 10 Davenport and Reif, “Nuclear Weapons: Who the U.S. tion at Baldwin Wallace University in Berea, Has What at A Glance.” 22 Andrew S. Erickson, “Showtime: China Ohio. Her diverse research and profes- Reveals Two ‘Carrier-Killer’ Missiles,” The sional interests have included indigenous 11 “Global Fissile Material Report 2015: Nuclear National Interest, September 3, 2015, http:// human rights, Latin American markets, and Weapon and Fissile Material Stockpiles and nationalinterest.org/feature/showtime-china-

nuclear security. Amanda now works for the Production,” International Panel on Fissile reveals-two-carrier-killer-missiles-13769. vol 3 Department of Veterans Affairs as a Presi- Materials, 2015, 10.

23 US Department of Defense, Annual Report to | dential Management Fellow. 2017 12 Amy F. Woolf, The New START Treaty: Central Congress: Military and Security Developments 1 Kelsey Davenport and Kingston Reif, “Nuclear Limits and Key Provisions (Washington, DC: Involving the People’s Republic of China, 2-26. Weapons: Who Has What at a Glance,” Congressional Research Service, 2016), https:// Arms Control Association, August 2016. fas.org/sgp/crs/nuke/R41219.pdf, 3. 24 “Does China Have an Effective Sea-based https://www.armscontrol.org/factsheets/ Nuclear Deterrent?” Center for Strategic & Nuclearweaponswhohaswhat. 13 Amy F. Woolf, US Strategic Nuclear Forces: International Studies, 2016, http://chinapower. Background, Development, and Issues csis.org/ssbn/. 2 US Department of Defense, Nuclear Posture (Washington, DC: Congressional Research Review Report 2010, 15. Service, 2016), https://www.fas.org/sgp/crs/ 25 Todd Harrison and Evan Braden Montgomery, nuke/RL33640.pdf. “US Nuclear Forces: From BCA to Bow 3 Ibid., 17. Wave and Beyond,” Center for Strategic 14 Annual Report to Congress: Military and and Budgetary Assessments, 2015, http:// 4 Tomaz Strojnik, “Fact Sheet: Chinese Nuclear Security Developments Involving the People’s csbaonline.org/research/publications/the-cost- Modernization,” American Security Project, Republic of China, 109. of-u-s-nuclear-forces-from-bca-to-bow-wave- August 2016, https://www.americansecuri- and-beyond/publication, 19. typroject.org/wp-content/uploads/2016/08/ 15 Woolf, “The New START Treaty,” 3; Hans M. Ref-0198-Chinese-Nuclear-Modernization.pdf, Kristensen and Robert S. Norris. “Chinese 26 Ibid. 6. Nuclear Forces, 2016.” Bulletin of the Atomic Scientists 72, no. 4 (November 2016): 206. 27 “Does China Have an Effective Sea-based 5 Office of the Secretary of Defense,Annual Nuclear Deterrent?” Report to Congress: Military and Security 16 Eryn MacDonald, “The End of MIRVs for Developments Involving the People’s Republic US ICBMs,” Union of Concerned Scientists, 28 “China,” CIA World Factbook, 2016, of China 2016, 25; 26. June 27, 2014, http://allthingsnuclear.org/ https://www.cia.gov/library/publications/ emacdonald/the-end-of-mirvs-for-u-s-icbms. the-world-factbook/geos/ch.html. 6 Strojnik, “Fact Sheet: Chinese Nuclear Modernization.” 17 Kingston Reif, “Air Force Seeks Mobile ICBM 29 “Total US National Security Spending, 2016- Option,” Arms Control Today, April 2016, 2017,” Project on Government Oversight, April 7 Richard Cronin and Zachary Dubel, “Maritime https://www.armscontrol.org/ACT/2016_04/ 11, 2016, http://www.pogoarchives.org/straus/ Security in East Asia: Boundary Disputes, News/Air-Force-Seeks-Mobile-ICBM-Option. fy17_national_security_spending_20160210.pdf. Resources, and the Future of Regional Stabil- ity,” Stimson, February 2013. 18 Ibid. 30 Office of Chief Financial Officer,Department of Energy: FY 2017 Congressional Budget 8 Anthony H. Cordesman, Joseph Kendall, and 19 Reif, “US Nuclear Modernization Programs.” Request: Budget in Brief, February 2016. http:// Steven Colley, “China’s Nuclear Forces and energy.gov/sites/prod/files/2016/02/f29/ Weapons of Mass Destruction,” Center for 20 Hans M. Kristensen, Robert S. Norris, and FY2017BudgetinBrief_0.pdf, 2. Strategic & International Studies, July 21, 2016, 12. Matthew G. McKinzie, “Chinese Nuclear Forces and US Nuclear War Planning,” The Federation of American Scientists & The Natural Resources

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31 Todd Harrison, “Basics of the US Defense 42 Zhang Tao, “China Establishes Rocket Force chinas-nuclear-modernization-and-the-end-of-

Budget” (Lecture, Johns Hopkins University and Strategic Support Force,” China Military nuclear-opacity/. STUDIES REVIEW SAIS, Washington, DC, October 25, 2016). News, January 1, 2016, http://english.chinamil. com.cn/news-channels/china-military- 53 Jacqueline Newmyer Deal, “China’s Approach 32 Ibid. news/2016-01/01/content_6839967.htm. to Strategy and Long-Term Competition,” in Competitive Strategies for the 21st Century, ed. 33 Reif, “US Nuclear Modernization Programs;” 43 Ibid. Thomas G. Mahnken (Stanford, CA: Stanford “US Nuclear Weapons Budget: An Overview,” University Press, 2012), 148. Nuclear Threat Initiative, September 27, 44 “Xi Tells South Korea That China 2013, http://www.nti.org/analysis/articles/ Opposes THAAD Anti-missile Defense: 54 Sean O’Connor, “PLA Second Artillery Corps

us-nuclear-weapons-budget-overview/. Xinhua,” Reuters, September 4, 2016, Technical Report APA-TR-2009-1204,” Air vol 3 http://www.reuters.com/article/ Power Australia, January 27, 2014, http://www.

34 Annual Report to Congress: Military and us-g20-china-southkorea-idUSKCN11B04A. ausairpower.net/APA-PLA-Second-Artillery- | 2017 Security Developments Involving the People’s Corps.html. Republic of China, 77. 45 Zhang Yunbi and Wang Qingyun, “Joint Missile Defense Drill Set for 2017,” China Daily, 55 “Missile Facilities,” Federation of American 35 Niall McCarthy, “The Biggest Military Budgets October 10, 2016, http://europe.chinadaily. Scientists, http://fas.org/nuke/guide/china/ As A Percentage Of GDP,” Forbes, June 25, com.cn/world/2016-10/12/content_27039452. facility/missile.htm. 2015. htm. 56 “Fleet Ballistic Missile Submarines-SSBN,” 36 Evan A. Feigenbaum, “Politics and Process 46 “No Going Back: 20 Years Since the Last US United States Navy, January 12, 2016, in China’s Military Resource Management,” Nuclear Test,” Arms, September 20, 2012, http://www.navy.mil/navydata/fact_display. Commonwealth Institute, October 24, https://www.armscontrol.org/issuebriefs/ asp?cid=4100&tid=200&ct=4. 2000, http://www.comw.org/cmp/ No-Going-Back-20-Years-Since-the-Last-US- fulltext/0010feigenbaum.htm. Nuclear-Test. 57 Hans M. Kristensen, “China SSBN Fleet Getting Ready – But For What?,” Federation of 37 Chris Buckley and Jane Perlez, “China Military 47 Office of the Secretary of Defense,Military American Scientists, April 25, 2015, https://fas. Budget to Rise Less Than 8%, Slower Than Power of the People’s Republic of China 2008, org/blogs/security/2014/04/chinassbnfleet/. Usual,” The New York Times, March 4, 2016, 32. http://www.nytimes.com/2016/03/05/world/ 58 Ibid. asia/china-military-spending.html?_r=1; Wu 48 Cristina L. Garafola, “Will the PLA Reforms Jiao, Zhang Yuwei, and Zhang Chunyan, Succeed?” RAND Cooperation, April 1, 2016, 59 Dennis J. Blasko, “Ten Reasons Why China “Defense budget growth slows,” China Daily, http://www.rand.org/blog/2016/04/will-the- Will Have Trouble Fighting a Modern War,” June 3, 2016, http://usa.chinadaily.com.cn/ pla-reforms-succeed.html. War on the Rocks, February 18, 2015, http:// epaper/2013-03/06/content_16283861.htm. warontherocks.com/2015/02/ten-reasons-why- 49 “The Long March to Be a Superpower,” The china-will-have-trouble-fighting-a-modern- 38 “China GDP growth (annual %),” The Economist, August 2, 2007, http://www. war/. World Bank Group, 2016, http://data. economist.com/node/9581310. worldbank.org/indicator/NY.GDP.MKTP. 60 MS Prathibha. “Recent Transitions in the KD.ZG?end=2015&locations=CN&start=2012. 50 Ibid. Leadership of the PLA Rocket Forces,” Institute for Defense Studies and Analyses, June 6, 39 Sungtae Jacky Park, “This Is Why China 51 “Manhattan District History: Los Alamos 2016, http://www.idsa.in/specialfeature/ Fears THAAD.” Project (Y) Book VIII,” April 29, 1974, transitions-in-leadership-of-pla-rocket-forces_ https://ia802303.us.archive.org/26/items/ msprathibha_060616#footnote3_e22f8p8. 40 “Ballistic Missile Defence,” North Atlantic Treaty ManhattanDistrictHistory/MDH-B8V02P01- Organization, July 25, 2015, http://www.nato. LosAlamos-Technical.pdf. 61 Michael Kiselycznyk and Phillip C. Saunders, int/cps/en/natohq/topics_49635.htm. Civil-Military Relations in China: Assessing the 52 Nicolas Giacometti, “China’s Nuclear PLA’s Role in Elite Politics (Washington, DC: 41 “US Activates $800m Missile Shield Base in Modernization and the End of Nuclear National Defense University Press, 2010), 2. Romania,” BBC, May 12, 2016, http://www.bbc. Opacity,” The Diplomat, April 10, 2014, com/news/world-europe-36272686. http://thediplomat.com/2014/04/

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Net FDI - China & India engaged with their overseas communities Data Source: World Bank Attracting at both the national and local levels. STUDIES REVIEW Foreign Direct 350 Comparative trends in foreign 300 Investment through direct investment 250 Diaspora Networks: Since embarking on economic reforms to open its economy to foreign trade and 200 A Comparative investment in the late 1970s, China has China attracted far more foreign direct investment 150 vol 3 Review of China (FDI) than India. Part of this discrepancy is India

100 |

due to the timeline of economic liberal- 2017 and India ization; China began the reform process Dollars / Billions U.S. more than a decade before India, particu- 50 larly with respect to market entry for foreign investors. However, during the late 1980s 0 and early 1990s, China’s and India’s eco- nomic reforms were “highly comparable,”

Benjamin Pollok and China experienced a period of reform 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 stagnation following the events of 1989 Years while India’s reforms continued following its 1991 economic crisis.3 Nevertheless, Introduction China became a larger destination for China continue to prohibit FDI in numerous One important consequence of the lib- FDI, and this investment has created a sectors, market entry in China was com- eralization policies of the 1980s was the Given that China and India have the world’s snowball effect in China’s development paratively faster due to the creation and increased mobility of China’s workforce. In largest and second-largest populations that has not been mirrored in India (with proliferation of Special Economic Zones 1986, national ID cards were introduced, respectively, it comes as little surprise that the exception of industry-specific FDI in (SEZs) along the coast in the early 1980s. and individuals were able to apply for a per- the two countries also possess the world’s IT and telecommunications). Equally important, however, is India’s lack sonal passport (as opposed to military or two largest diaspora networks. These net- of national and local-level government ini- diplomatic passports) for the first time since works are estimated at over 50 million Another explanation for the sustained gap tiatives to attract diaspora-led investment, the establishment of the People’s Repub- overseas Chinese and over 25 million in FDI inflows is the degree to which the compared to a much more robust set of lic of China (PRC).6 In addition, contractual overseas Indians.1 These estimates reflect Chinese government has courted dias- diaspora-oriented initiatives in China. employment began to replace lifelong ten- the broad definition of a diaspora; that is, pora investors, principally through the ured positions in state-owned enterprises those who are ethnically Chinese or Indian Chinese-speaking diaspora networks in (SOEs), and the explosion of public, private, but who were not necessarily born in China or Hong Kong, Taiwan, and North America. China’s diaspora and mixed ownership businesses along the India, including descendants of Chinese and Until recently, the primary sources of FDI in investment strategy coastal provinces dramatically increased Indian emigrants. The numerical difference Mainland China were Hong Kong, Taiwan, the flow of internal migration. between China and India’s diaspora and the and Singapore.4 FDI was a major factor in Prior to 1978, China’s Communist Party first-generation emigrants is vast; while China China’s emergence as a manufacturing leadership made no attempt to utilize its Under Deng Xiaoping, the PRC made a has a much larger multi-generation diaspora powerhouse in the 1990s and 2000s, and overseas networks as a source of FDI. In decisive shift in policy from ignoring and network, India has a larger emigrant popu- as much as half of that FDI was estimated the 1960s and 1970s, barriers to migration politically shaming overseas Chinese to lation. UN data estimated this population at to originate within the Chinese diaspora.5 were imposed both locally and nationally. actively engaging with China’s diaspora.7 roughly 9.5 million for China and 15.5 mil- Private citizens were also unable to apply The Ministry of Education signed bilateral lion for India in 2015.2 While first-generation In contrast, through the 1990s and 2000s for passports, making legal emigration initiatives with several countries (including emigrant networks are the basis of the flow India received less than one-tenth of China’s and outbound travel from China extremely the United States) to increase the number of of remittances, multi-generational diasporas FDI inflows, and in 2015 still received less limited in the 30 years prior to economic Chinese students and researchers abroad. are critical in generating formal foreign direct than one-fifth of China’s incoming FDI ($44 reform. The centrally-planned economy China intensified efforts to combine senti- investment. This paper will rely on the broad, billion to $250 billion, respectively). Some and extinction of private enterprise in Main- ment and incentives to attract investment multi-generational definition of “diaspora” of this difference can be attributed to the land China severed existing ties to overseas from China’s diaspora networks in other in comparing how China and India have rate of liberalization; while both India and Chinese business and investment. Asian countries (as well as Taiwan), stressing

30 THE CHINA STUDIES PROGRAM | SAIS Attracting Foreign Direct Investment through Diaspora Networks:A Comparative Review of China and India 31 CHINA

patriotic duty while offering generous tax as FDI from Taiwan soared in localities pro- The increased role of local governments in Policy Institute (MPI) report, “Well within the 11 breaks to potential overseas Chinese inves- viding these incentives. Compared to the attracting FDI created competition among past decade, the government of India has STUDIES REVIEW tors. According to You-tien Hsing, diaspora national government, local officials were China’s provinces, instigating a cycle of moved from a position of somewhat disap- FDI became an overwhelming source of more effective in building on the ancestral liberalizing reforms in which the country’s proving indifference toward the worldwide foreign investment following the Tianan- links of diaspora members to attract FDI for largest cities contended for contracts with Indian diaspora to one of actively seeking men Square incident, after which China development at the city or province level. international investors. their involvement in India’s development. was subject to economic sanctions from It has followed a multi-prong strategy, Western nations and capital flight from Jap- For the first two decades of liberalization, In the past decade, China’s efforts to ben- pursuing portfolio investment, direct invest- anese and other investors.8 In this sense, the principal source of incoming FDI in efit economically from its diaspora have ment, technology transfer and trade links government initiatives to attract investment China was not the West, but rather indus- included both transnational engagement through the Diaspora.”17 Although the

from overseas Chinese recognized the abil- trialized Asian countries with large ethnic initiatives and incentives for high-skill work- Indian government’s diaspora engagement vol 3 ity of diaspora members, despite political Chinese populations. Hong Kong and ers to return. Researcher Bo Xiang notes has certainly come a long way in the last |

and bureaucratic difficulties, to operate Taiwan are, of course, most evident in also that new diaspora engagement initiatives twenty years, it is still far from formalizing 2017 within China with greater ease than foreign being “Chinese,” but Singapore, Australia, were created at the national and local an FDI engagement strategy similar to that investors. Diaspora-led FDI is seen as reli- and South Korea also played significant levels to target “new migrants,” or those of China. That same MPI report later states able, sustainable, and long-term, whereas roles in providing early investment to small who had emigrated from China in the last that “the 20 million Indians abroad gener- foreign investment is more contingent on and medium enterprises (SMEs) along Chi- twenty to thirty years.15 For example, in the ate an annual income equal to 35 percent current events and market fluctuations.9 na’s coast. By 1994, roughly $69 billion USD 2000s, the national government launched of India’s GDP, yet have generated less had been invested in Mainland China by a program to attempt to shift labor-in- than 10 percent of India’s rather modest Local-level networks and government 167,000 foreign firms, but less than half of tensive manufacturing investment away $4 billion of FDI — in contrast to the over- initiatives may have been even more these companies were from Japan, Europe, from coastal provinces to its underdevel- seas Chinese, who, as noted above, have important than national policies in attract- or the United States.12 Overseas Chinese oped western provinces. Simultaneously, contributed half of China’s $48 billion.”18 ing diaspora investment. During periods of communities in Asian countries, rather than coastal provinces and autonomous cities This gap has not gone unnoticed by Indian ongoing market liberalization in the 1980s diaspora networks in the West, provided have leaned on their diaspora networks to policymakers. Over the past two decades, and 1990s, provincial governments began the pivotal early FDI flows that led the PRC spur investment and technology transfer national leaders from both the Congress utilizing diaspora networks to capture FDI, to further liberalize its capital markets and for capital-intensive manufacturing. The Party and Bharatiya Janata Party (BJP) have particularly in the construction of new fac- foreign ownership requirements. In this national government also encourages called for deeper outreach with the Indian tories and trade infrastructure. The most sense, the Asia-based Chinese diaspora temporary visits from diaspora members diaspora and an overall improvement in obvious examples are in China’s southern was essential in changing international by creating visa categories for Chinese emi- India’s unwieldy investment climate. provinces (most notably Guangdong Prov- perceptions about China as an unsafe grants and their descendants (something ince), the origin of the majority of overseas investment destination.13 India has also done), and by organizing In 1998, the State Bank of India issued Chinese prior to the beginning of the Cul- conferences to connect overseas Chinese government bonds exclusively for Indi- tural Revolution in 1966. When the Chinese In the late 1990s, Western FDI returned as with employment and investment oppor- ans living abroad (called Non Residential economy opened in the late 1970s, these China once again became a politically and tunities. The “Thousand Talents Program” is Indians, or NRI). The bonds offered a 2 per- provinces were the first to attract overseas economically “safe” investment destination. one of several government initiatives that cent higher interest rate than U.S. bonds investment due to their preexisting dias- With the explosive growth of the country’s seek to bring overseas academics and and were exempt from India’s income pora networks in other Asian countries, as middle class, foreign businesses sought to researchers back to China.16 The initiatives and wealth taxes. Since the first round of well as their proximity to Hong Kong. meet China’s growing demand for more are part of a much larger strategy (at both investment, India has offered two more diverse products. This investment growth national and local levels) to reverse China’s bond issues exclusively for NRIs. A 2002 The diaspora played a vocal role in the was still diaspora-led, with an estimated “brain drain” and incentivize the return of report from the LM Singhvi Committee selection of China’s first Special Economic half of the $48 billion dollars in FDI that China’s most educated and entrepreneurial (convened to consider the role of NRIs Zones (SEZs): it was precisely due to the flowed into China in 2002 originating with diaspora members. in India’s development) placed blame on preexistence of local-level diaspora net- the Chinese diaspora.14 The Chinese gov- the national government for ignoring the works in Hong Kong, Taiwan, Singapore, ernment, as the result of its accession to the potential economic gains from its diaspora. and the U.S. that several cities in Guang- WTO, further reformed its trade and invest- India’s absence of diaspora The report identified two factors that have dong were selected.10 Entrepreneurial local ment laws, creating tax incentives for FDI investment strategy prevented diaspora members from invest- officials in China reduced and streamlined in specific provinces in the country. Local ing in India: unmanageable bureaucracy regulations for foreign investment, and governments in major cities like Shanghai Much like China, the Indian government did and pervasive corruption. Although China’s provided tax incentives at the city and and Guangzhou offered further tax credits, not see its global diaspora as an asset until government faces similar issues, the Indian province-level specifically for Taiwanese reduced transaction costs, and stream- after it began the process of market lib- context is far graver; the decentralized investors. This adaptability yielded results, lined regulations for foreign investors. eralization. According to a 2004 Migration nature of India’s governance structure has

32 THE CHINA STUDIES PROGRAM | SAIS Attracting Foreign Direct Investment through Diaspora Networks:A Comparative Review of China and India 33 CHINA

created overlapping jurisdictions between in multiple sectors. While the easing of than Indian emigrants.23 However, his argu- development potential of diaspora-led FDI,

national and local governments, which regulations will also benefit diaspora inves- ment is largely inconsistent with the role the Indian government has instead focused STUDIES REVIEW make investment in most states burden- tors, there remains a conspicuous lack of India’s emigrants have played in the U.S. on the cultural and knowledge sharing net- some. Additionally, India has not seen a incentives for the diaspora community in and elsewhere. In high-income countries, works offered by its diaspora. national anti-corruption campaign similar government initiatives to attract FDI. Con- Chinese and Indian emigrants actually enter to that of President Xi. Rather than address- sidering FDI in India rose from $36 billion similar professions, such as IT, engineer- The importance of city-level and prov- ing diaspora-specific investment potential, in 2014 to $55.5 billion in 2016, reducing ing, and medicine. In the U.S., more Indian ince-level networks in attracting diaspora however, the Indian government imple- government regulation may be sufficient emigrants have held senior management investment in China speaks to perhaps mented reforms that reduced red tape for to increase investment without direct positions than their Chinese counterparts, the greatest weakness of India’s diaspora overseas investors across the board. For diaspora engagement.20 most likely because of the lack of a lan- engagement: while a national FDI strategy

instance, the government created an Invest- guage barrier and the role Indians have is now taking shape under Prime Minister vol 3 ment Information Centre as a “one-stop In spite of its limited role in attracting played in founding and expanding U.S. Modi, there are very few initiatives at the |

shop” for maneuvering India’s FDI market, diaspora-led FDI, India’s government has technology companies. Business leaders local level to attract FDI. By comparison, 2017 but the Centre had no additional value for a diverse set of diaspora engagement strat- are better positioned than engineers and much of China’s success as a recipient of investors from India’s diaspora. egies that are not focused on investment. scientists to direct investment back to their diaspora investment has been due to city- For example, the transfer of technology country of origin, so India’s entrepreneur- level and province-level FDI incentives. Although the government has recognized and industry-specific knowledge has been ship in the U.S. should translate to greater Given India’s pluralism and the federalist the untapped investment potential of the much more broadly promoted than has FDI in India. approach to state authority, Indian states diaspora, this recognition has not trans- diaspora-led FDI. Rather than identifying can learn from China’s local initiatives in lated to a cohesive engagement strategy, the success of India’s diaspora community Similarly, India has a more open capital attracting diaspora-led investment. nor has it led to an improvement in dias- in the U.S. and elsewhere as a source of market than China, which continues to use pora investment across sectors. Instead, investment, the Indian government has significant capital controls to manage its the Indian government has created incen- instead focused on the technical exper- exchange rate. While neither country has Appendix I: Remittances as an tives for FDI inflows to specific sectors as a tise that can be shared through overseas a particularly advanced set of laws pro- explanatory factor means of leveraging the success of India’s networks. For example, India has offered tecting the rights of foreign-owned firms diaspora in those industries. The most cost-sharing programs with overseas Indian or intellectual property, India has a more Through the 1990s, India received a much obvious example is the Information Tech- executives to “create programs within their transparent judicial system that is more higher share of global remittance flows than nology sector (IT). In the 1970s and 1980s, companies in which Indian programmers likely to protect foreign investment. China, China. For instance, in 1990, India’s formal overseas Indians in the U.S. attempted to could work in the United States with U.S. by contrast, has used its judicial system to remittance inflow was over 12 times that invest in a nascent IT industry in India, but technology (at Indian wages plus travel-re- force foreign firms to share intellectual received by China. By 2000, the gap had their pursuits were “quickly abandoned lated cost).”21 Unfortunately, this diaspora property and continues to require mixed closed somewhat so that India received 2.5 because of bureaucratic obstacles by the engagement too has taken a narrow view ownership for foreign firms operating in times the volume of remittances of China Indian government.”19 Over time, interac- so that only specific industries like IT have many sectors.24 All of this would suggest a — still a major disparity given the relative tion with overseas Indians in Silicon Valley benefited from government-led initiatives. more attractive climate for FDI in India than size of emigrant populations from India helped to convince the government that in China. Why, then, does China continue and China in 2000.25 Remittance flows for diaspora-led FDI in India’s IT industry would to receive four times India’s FDI? the two countries have continued to con- improve the country’s development. India’s Explaining the gap in verge since the early 2000s. While both IT industry became one of the first in the diaspora investment Although it is difficult to compare trends countries have seen an explosion in the country to open to partial, then full, foreign in FDI between two emerging countries, aggregate level of incoming remittances, ownership thresholds. This sector-specific According to a 2006 World Bank Institute India and China provide strong examples of China’s inflows have increased at a quicker liberalization was a direct result of diaspora study, “the earnings of the 20 million-strong how government engagement with its dias- rate than India’s. In fact, remittance flows in advocacy, as many U.S.-based Indians saw Indian diaspora are equivalent to about pora can impact economic development. 2015 were recorded as $59 billion for India the opportunity for a mutual gain in offshor- two-thirds of the gross domestic product While China has pursued an active diaspora and $54 billion for China and are estimated ing production and support services to India. of India.”22 Given the relative wealth of the outreach strategy since early in its reform to be almost equivalent in 2016.26 diaspora, why then has there been low dias- period, India has done very little to attract Recent progress in India’s market liberal- pora investment in India, especially when and simplify diaspora-led investment. The The Chinese government has done rela- ization suggests that India’s government, compared to China? modest gains made in India’s investment tively little to improve the ease of sending under Prime Minister Modi, seeks to climate in the 1990s and 2000s were not remittances. Since the 1980s, the price reduce FDI barriers in the coming years. Devesh Kapur, a leading expert on India’s so much a testament to government flexi- of sending remittances to China from For instance, New Delhi announced in June economic development, contended that Chi- bility as they were a result of the tenacity of most countries has decreased only incre- 2016 that it was relaxing FDI restrictions nese emigrants are more “entrepreneurial” India’s diaspora. Rather than identifying the mentally. China remains one of the more

34 THE CHINA STUDIES PROGRAM | SAIS Attracting Foreign Direct Investment through Diaspora Networks:A Comparative Review of China and India 35 CHINA

About the Author 6 Biao Xiang, “Emigration Trends and Policies in Global Remittance Inflows - China & India

China: Movement of the Wealthy and Highly STUDIES REVIEW Data Source: World Bank Benjamin Pollok is a Spring 2017 SAIS Skilled, Migration Policy Institute, February 70K M.A. graduate, with a concentration in 2016, 11. China Studies and a minor in International 60K Development. Prior to joining SAIS, Ben 7 It is important to note that “abroad” in the worked in international education, where 1980s included Hong Kong, in addition to 50K he developed a passion for access to edu- Taiwan and Singapore. cation issues as an admissions officer for 40K Peking University and as a Campus Rela- 8 You-tien Hsing, “Ethnic Identity and Business

tions Coordinator with a study abroad Solidarity: Chinese Capitalism Revisited,” vol 3 30K China provider. Concurrent with his studies at in The Chinese Diaspora: Space, Place,

India Mobility and Identity, eds. Laurence J.C. Ma | SAIS, Ben interned at the U.S. Agency for 2017 20K International Development, the Carnegie and Carolyn L. Cartier (Oxford: Rowman and

U.S. Dollars (Millions) U.S. Endowment for International Peace, and the Littlefield, 2003), 226. 10K World Bank Group, working principally in social inclusion policy in development insti- 9 Latha Varadarajan, “Diaspora Direct 0 tutions. For the foreseeable future, he will Investment and the ‘growth story,’” Himal, be staying in Washington, D.C. to continue January 5, 2017, http://himalmag.com/ working in development. diaspora-direct-investment-and-the-growth-

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 story/?currentPage=all. 1 Huiyao Wang, “China’s Competition for Global Years Talents: Strategy, Policy, and Recommendations,” 10 Alan Smart and Jinn-Yuh Hsu, “The Chinese Asia Pacific Foundation of Canada, May 24, 2012, 3; Diaspora, Foreign Investment and Economic expensive destinations for remittance pay- for the difference in diaspora-led FDI is Lok Sabha Secretariat, “Indian Diaspora,” 2013, 2. Development in China,” The Review of ments, requiring an average of USD $14 in the tendency for India’s diaspora to send International Affairs 3:4 (2004): 5. transaction fees for every $200 sent, com- remittances rather than FDI. Diaspora-led 2 United Nations Department of Economic and pared to USD $8 for every $200 sent to investment may not only be hampered then Social Affairs, “International migrant stock 11 Hsing, 224. India. Instead of simplifying international by government ambivalence and red tape, 2015,” http://www.un.org/en/development/ remittance transactions, the Chinese gov- but also by the perceived importance of desa/population/migration/data/estimates2/ 12 Constance Lever-Tracy, David Ip and Noel ernment has focused on policies that will sending remittances to family members estimates15.shtml. Tracy, The Chinese Diaspora and Mainland attract greater FDI, technology transfers, back home. China: An emerging economic synergy and high-skill returnees from its diaspora. In 3 Ye Min, Foreign Direct Investment in China and (London: MacMillan Press, 1996), 4. this sense, the rapid growth of remittances India: Role of Diaspora in Homeland Reform (Sin- to China in the past decade is not so much gapore: National University of Singapore East 13 Some have argued that much of this early the product of government policy as it is Asian Institute, 2013), 91. FDI from Hong Kong was “recycled money,” the growth of the sheer size of Chinese meaning it had been funneled from a emigrants abroad, particularly white-collar 4 Shang-Jin Wei, “Foreign Direct Investment in mainland China source through Hong Kong professionals working abroad. China: Sources and Consequences,” in Finan- and diverted back to the mainland in order cial Regulation and Integration in East Asia, eds to access the incentives (tax breaks) afforded Remittances and FDI have very dissimilar Takatoshi Ito and Anne O. Krueger (Chicago: to foreign investors by the national and consequences on a country’s economic University of Chicago Press, 1996), 78. local governments. Estimations vary widely development. While remittances flow on the actual ‘recycled’ amount, but the directly to households and tend to be more 5 Kathleen Newland and Sonia Plaza, “What We World Bank put the number at 30% of all efficient at alleviating individual poverty, Know About Diasporas and Economic Devel- HK-based investments. FDI has more consequential long-term opment,” Migration Policy Institute, September development impacts due to its potential 2013, 5. 14 Kathleen Newland and Erin Patrick, “Beyond for creating infrastructure and employment Remittances: The Role of Diaspora in Poverty opportunities. Given the relative historical Reduction in their Countries of Origin,” importance of remittances in India com- Migration Policy Institute, July 2004, 4. pared to China, perhaps one explanation

36 THE CHINA STUDIES PROGRAM | SAIS Attracting Foreign Direct Investment through Diaspora Networks:A Comparative Review of China and India 37 CHINA

15 Xiang, 14.

SAIS China STUDIES REVIEW 16 Huiyao Wang, “China’s Return Migration and its Impact on Home Development,” UN Chronicle Year-in-Review L, no. 3 (September 2013). 2016-17 Academic Year 17 Newland & Patrick, 5.

18 Newland & Patrick, 5.

19 Abhishek Pandey, Alok Aggarwal, Richard vol 3 Devane, and Yevgeny Kuznetsov, “The Indian

Diaspora: A Unique Case?,” in Diaspora Selected Events at the | 2017 Networks and the International Migration of China Studies Program Skills: How Countries Can Draw on Their Talent in Washington, D.C. Abroad, ed. Yevgeny Kuznetsov (Washington, DC: The World Bank, 2006), 80. Fall 2016 Spring 2017 20 “Modi government approves 100% FDI in aviation and food, easier norms for defence, China Book Talk with Duncan Clark China Studies Special Luncheon pharma, single-brand retail,” The Economic “Alibaba: The House that Jack Ma Built,” with Dr. Gill Bates, Australian Times, June 21, 2016. by Duncan Clark National University “Losing Their Balance?: U.S. Allies and 21 Pandey et al., 80. China Studies/U.S. China Policy Partnerships in Asia in the Trump-Xi Era” Foundation Event with Professor David 22 Pandey et al., 77. Lampton, Lally Weymouth, Robert Sutter China Studies Luncheon with and Alan Romberg Professor Carla Freeman 23 Newland & Patrick, 8. “Tsai Ing-Wen’s Presidency: The First 100 “China and the Global Commons Days for Taiwan’s New Leader” in a World in Transition” 24 “Indian FDI Restrictions,” UK India Business Council, accessed November 30, 2016, https:// China Studies-PPE Special Event with China Forum with Dr. Jessica Chen Weiss, www.ukibc.com/india-guide/how-india/ Dr. Andrew Mertha, Cornell University Cornell University fdi-restrictions. “‘Party Affect’ in Authoritarian Regimes? “U.S.-China Relations Under Trump: The Structure and Process of Thought Collision Course?” 25 Almost 6 million Chinese emigrants and Reform in Contemporary China” almost 8 million India emigrants, according to China Forum with Dr. Yasheng Huang, UN data from 2000. China Studies Seminar with Ms. Beth MIT Keck, Practitioner-in-Residence, “The State of State Capitalism in China” 26 The World Bank, “Annual Remittances China Studies Data,” http://www.worldbank.org/en/topic/ “Doing Business in China: Building migrationremittancesdiasporaissues/brief/ Reputation and Managing migration-remittances-data Government Relations”

China Forum with Dr. Dali Yang, University of Chicago “The Current Issues on Chinese Political Economy”

38 THE CHINA STUDIES PROGRAM | SAIS 39 CHINA

Selected Events at the Selected Events at the SAIS China Studies

Hopkins-Nanjing Center, Tsinghua SAIS About SAIS China Faculty and Associates in Washington, D.C. STUDIES REVIEW Nanjing Dual Degree Program, Beijing The China Studies Review is a publication of David M. Lampton SAIS China, which encompasses all of the Professor and Director, formal China-related programs at the Johns SAIS China Hopkins University School of Advanced Fall 2016 Fall 2016 International Studies (SAIS). It is anchored by Carla Freeman the China Studies Program at SAIS in Wash- Associate Director and Guest Lecture: The Honorable Samuel Student Forum ington, D.C., which offers multidisciplinary Research Professor

Alito, Supreme Court Justice “Beyond China: Refugees, Reaction graduate courses on U.S.-China relations, Director, Foreign Policy Institute vol 3 “Globalizing Law and the Rule of Law” and Post-Conflict Resolution in Europe China’s foreign policy, domestic politics,

David Bulman | and Latin America” leadership, environment, life at the grass 2017 Guest Lecture: The Honorable Max roots level, economic development, and Assistant Professor Baucus, U.S. Ambassador to China Taiwan and cross-strait relations. Students “Future of U.S.-China Relations” also complete courses related to the wider Peter Bottelier Spring 2017 Asia-Pacific region across the school’s more Visiting Scholar than 20 additional areas of study, taught Guest Lecture: Sam Waldo, by leading scholars and practitioners in Deborah Brautigam Spring 2017 Co-founder and CEO of Mantra Inc. their field. Director, International Development and China Africa Research Initiative Roundtable Discussion with Alan Yu, SAIS students have several options to Director of Asian Affairs, pursue coursework in China. The Hop- David G. Brown US Department of Energy kins-Nanjing Center (HNC) in Nanjing Visiting Scholar “U.S.-China Energy Cooperation” began operations in 1986 and is the longest-running partnership between a Michael Chase Guest Lecture with Roseanne Freese Chinese and American university in China. Adjunct Professor (HNC ’87) Director of the U.S. Agricultural It is jointly administered by Nanjing Univer- Trade Office in Shenyang sity and Johns Hopkins SAIS. Students have Ling Chen “China’s Agriculture: Change the option of one- or two-year courses of Assistant Professor, from the Top Down vs. Bottom Up” study in Nanjing, or they can spend one International Political Economy year in Nanjing and continue their studies Guest Lecture: Shen Dingli, Professor of at SAIS centers in Washington, D.C. or Bolo- David Keegan International Relations and Vice Dean gna, Italy. Students must have intermediate Adjunct Professor of the Insitute of International Affairs at to advanced-level proficiency in Chinese Fudan University prior to beginning study in the certificate Natalie Lichtenstein “Xi-Trump Meeting and or masters’ programs at the HNC. Adjunct Professor China-U.S. Relations” The SAIS-Tsinghua Dual Degree Program in Steven Phillips Global Politics and Economics is a cohort- Adjunct Professor based program begun in 2015, offered by Johns Hopkins SAIS jointly with the Madelyn Ross International Relations Department at Tsin- Associate Director, ghua University. Students spend one year SAIS China at Tsinghua University in Beijing followed by three semesters at SAIS in Washington, Anne F. Thurston D.C. With courses taught in English, this Adjunct Professor, program offers the opportunity for students Director, Grassroots China Initiative to gain both a master of arts from Johns Hopkins SAIS and a masters of law from Shahid Yusuf Tsinghua University. Adjunct Professor

40 THE CHINA STUDIES PROGRAM | SAIS 41 Editors

Christina Connelly-Kanmaz Student Editor

Christina Connelly-Kanmaz is a Spring tank community and taught at the School of 2017 SAIS M.A. graduate in international Foreign Studies at the University of Science relations with a minor in European and Eur- and Technology. Kaj is now a Project Consul- asian Studies. Prior to enrolling at SAIS, tant in the Government Relations practice at Christina worked as an educator, both the Shanghai office of APCO Worldwide, a domestically and internationally, in the public affairs consultancy. U.S., Italy, Moldova, and Turkey. She is now working in public affairs and government Kyle Schut relations in Washington, D.C. Student Editor

Alexander de Keyserling Kyle Schut is a rising second-year SAIS M.A. Student Editor student concentrating in the China Stud- ies Program. Prior to enrolling at SAIS, Kyle Alexander de Keyserling is a Spring 2017 worked in a variety of roles in healthcare SAIS M.A. graduate with a concentration management, publishing, and entrepre- in China Studies. Prior to enrolling at SAIS, neurial work. This summer, he is excited to Alexander studied Mandarin in Taiwan on a be interning with APCO in Shanghai. Huayu Enrichment Scholarship and worked in New York in legal services. He is now a Minh Joo Yi Senior Research Analyst at Gartner. Student Editor

Adam Lee Minh Joo is a rising second-year SAIS M.A. Executive Editor student concentrating in China Studies and Quantitative Methods and Economic Adam B. Lee is a second-year SAIS Ph.D. Theory. Prior to enrolling at SAIS, she was candidate in China Studies. Prior to enroll- an editor at the Institute of Foreign Affairs ing at SAIS, Adam performed research in and National Security, a Seoul-based think Beijing’s think tank community and earned tank affiliated with South Korea’s Ministry his M.A. degree at Stanford University’s of Foreign Affairs. In the summer of 2017, Center for East Asian Studies. His research she interned at the New American Bretton interests include U.S.-China relations, cross- Woods II program. strait relations, and maritime disputes in the East and South China Seas. Yuqian Zhang Student Editor Kaj Malden Editor-in-Chief Yuqian Zhang is rising second-year SAIS M.A. student concentrating in Energy, Resources, Kaj Malden is a Spring 2017 SAIS M.A. gradu- and Environment at Johns Hopkins SAIS. This ate with a concentration in China Studies and summer, Yuqian will be working as a research a minor in American Foreign Policy. Prior to assistant for a global health research project enrolling at SAIS, Kaj worked in Beijing’s think in Macau.

42 THE CHINA STUDIES PROGRAM | SAIS The China Studies Program at the Johns Hopkins University School of Advanced International Studies (SAIS)

The Johns Hopkins School of Advanced International Studies (SAIS) offers unparalleled opportunities for graduate-level study of China and international relations. Students may elect to concentrate in China Studies, with 15 courses taught by leading China scholars and practitioners, or take advantage of a range of expertise and courses related to China and Asia across programs such as International Development; Energy, Resources, and Environment; International Political Economy; and other functional and area studies programs. SAIS China encompasses SAIS-wide formal activities across greater China, including China Studies in Washington, D.C., the Hopkins- Nanjing Center in Nanjing, and a dual-degree program with Tsinghua University in Beijing.

Aside from China itself, Washington, D.C. is ground zero for the study of contemporary China and China policy. China Studies is in the center of Washington — amidst embassies, think tanks, NGOs, and government agencies — all with considerable China involvement and expertise. Given their unmatched opportunity to study China from both the inside and outside, SAIS graduates are employed in government, business, multilateral organizations, and NGOs around the world.

China Studies Program The Johns Hopkins University School of Advanced International Studies (SAIS) Rome Building, Suite 606-612 1619 Massachusetts Avenue, N.W. Washington, D.C. 20036 Tel: +1 202 663 5816 http://www.sais-jhu.edu/content/china-studies#overview [email protected]