THE IMPACT OF CHINA’S ECONOMIC AND SECURITY INTERESTS IN CONTINENTAL ASIA ON THE UNITED STATES HEARING BEFORE THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION _________ May 20, 2009 _________ Printed for use of the United States-China Economic and Security Review Commission Available via the World Wide Web: www.uscc.gov UNITED STATES-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION WASHINGTON : June 2009 U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION CAROLYN BARTHOLOMEW, Chairman LARRY M.WORTZEL, Vice Chairman Commissioners: PETER T.R. BROOKES Hon. WILLIAM A. REINSCH DANIEL BLUMENTHAL DENNIS C. SHEA ROBIN CLEVELAND DANIEL M. SLANE JEFFREY FIEDLER PETER VIDENIEKS Hon. PATRICK A. MULLOY MICHAEL R. WESSEL KATHLEEN J. MICHELS, Associate Director The Commission was created on October 30, 2000 by the Floyd D. Spence National Defense Authorization Act for 2001 § 1238, Public Law No. 106-398, 114 STAT. 1654A-334 (2000) (codified at 22 U.S.C.§ 7002 (2001), as amended by the Treasury and General Government Appropriations Act for 2002 § 645 (regarding employment status of staff) & § 648 (regarding changing annual report due date from March to June), Public Law No. 107-67, 115 STAT. 514 (Nov. 12, 2001); as amended by Division P of the "Consolidated Appropriations Resolution, 2003," Pub L. No. 108-7 (Feb. 20, 2003) (regarding Commission name change, terms of Commissioners, and responsibilities of Commission); as amended by Public Law No. 109-108 (H.R. 2862) (Nov. 22, 2005) (regarding responsibilities of Commission and applicability of FACA); as amended by Division J of the “Consolidated Appropriations Act, 2008,” Public Law No. 110-161 (December 26, 2007) (regarding responsibilities of the Commission, and changing the Annual Report due date from June to December). The Commission’s full charter is available at www.uscc.gov. ii June 22, 2009 The Honorable ROBERT C. BYRD President Pro Tempore of the Senate, Washington, D.C. 20510 The Honorable NANCY PELOSI Speaker of the House of Representatives, Washington, D.C. 20515 DEAR SENATOR BYRD AND SPEAKER PELOSI: We are pleased to transmit the record of our May 20, 2009 public hearing on “The Impact of China’s Economic and Security Interests in Continental Asia on the United States.” The Floyd D. Spence National Defense Authorization Act (amended by Pub. L. No. 109-108, section 635(a)) provides the basis for this hearing. In this hearing, witnesses told the Commission that the United States’ interests in Afghanistan and Pakistan are not necessarily incompatible with China’s, and that there may be opportunities for the United States to engage China in Continental Asia and encourage it to take a more active role in promoting peace, stability, and economic growth. China’s relationships in Central and South Asia have been longstanding, but recently it has refocused its efforts on expanding its commercial and energy interests there. As its economic stake in the region grows, its ability to influence security in the region is likely to grow commensurately, and witnesses urged the United States to engage China on promoting high standards for trade and investment that in turn give rise to good governance and improved human security. The Commission received testimony from Deputy Assistant Secretary of Defense Michael Schiffer, who noted that as the United States and China develop areas of common interests in Afghanistan and Pakistan, “[t]he challenge before us is to maximize the space for cooperation in pursuit of common interests, and safeguard against any negative impact resulting from areas of disagreement.” China’s overall approach to the region is to balance relations with all regional powers, including the United States and Russia, while at the same time seeking to advance its relative standing in the two countries. It does not appear currently to be seeking military capabilities to project power in the region. However, he noted that the United States must continue to track Chinese behavior in the region in the event that its military becomes more assertive in the future. Regarding Afghanistan, China’s interest in limiting extremism within its own Xinjiang Autonomous Region has resulted in support for U.S.-led efforts against Al Qaeda and the Taliban. Deputy Assistant Secretary Schiffer noted that China also indirectly benefits from US and NATO forces providing security for key infrastructure and development projects in the region, which may include Chinese commercial ventures. However, these iii protections extend to all countries which have interests in key infrastructure in Afghanistan and there is no special deal for security of Chinese interests between the United States and China. Deputy Assistant Secretary Schiffer testified that investment will play as key a role as military security, and the United States wants China engaged as a partner in Afghanistan. However, he noted that China’s interests in Pakistan are different, as China and Pakistan have had a longstanding military and security relationship. He urged China to be open and transparent regarding its intentions for use of the Port of Gwadar in Baluchistan, and expansion of civil nuclear cooperation with Pakistan. Furthering the discussion of China’s interests in Afghanistan and Pakistan, Dr. Walid Phares, director of the Future Terrorism Project at the Foundation for Defense of Democracies, testified that China is in a “pre-9/11 mood,” not realizing the imminent danger it faces from a jihadi threat if peace is not secured in Afghanistan and Pakistan. This should be the impetus for China’s cooperation with the United States in this region. However, China views the two countries’ security through a broader lens. Mr. Abraham Denmark, a fellow at the Center for New American Security, explained that, “China sees Afghanistan and Pakistan as components of a broader struggle for dominance over South and Central Asia. China’s close relations with Pakistan are largely a check against India’s rise as a dominant power in South Asia….According to this logic, China benefits from an Afghanistan that is stable and friendly to Pakistan, because it allows Islamabad to focus on India.” He argued that stability in Pakistan is central to the United States’ and China’s approach to the region, and that China will benefit from realizing that stability in Pakistan will lead to enhanced regional security. Ms. Lisa Curtis, a senior research fellow at The Heritage Foundation concurred, and advised that the United States should “seek to convince China to play a responsible role with regard to its nuclear cooperation with Pakistan, emphasizing the need to discourage nuclear-weapons stockpiling in a country facing the specter of further instability.” In the third and fourth panels of the hearing, the Commission examined China’s broader engagement in Continental Asia, including its trade and commercial ties. Given that the new U.S. strategy toward Afghanistan and Pakistan places so much weight on economic development, these panels explored how China’s economic interests may affect U.S. strategy, trade, and diplomacy in the region. Energy is one of the sectors for Chinese involvement in Central and South Asia. Ms. Julia Nanay, senior director of Country Strategies at PFC Energy, and Dr. Stephen Blank, professor at the Strategic Studies Institute of the U.S. Army War College, both testified that China’s economic position as a cash-rich country with a growing demand for energy will make it a highly sought after business partner for countries seeking to develop their resources. With this relationship, Ms. Nanay noted, “China strengthens its energy security, while Central Asian countries diversify their export options and get investments and cash.” China is pursuing energy investments through the expansion of pipeline connections that will connect to China’s interior provinces. Dr. Blank explained that an increase in oil and gas supplies through pipelines eases China’s concerns about oil supplies relying on access to the Strait of Malacca, also known as China’s “Malacca dilemma.” iv China’s other commercial engagement in Central and South Asia is focused on securing access to natural resources. Dr. Martin Spechler, professor of Economics at Indiana University, testified that Central Asian nations have pursued an economic policy of “staple globalism,” which “involves state trading of exports and selective imports of capital goods.” In this region, China can and does conduct state-to-state trade through its state-owned enterprises. Dr. Spechler noted that even as trading relationships grow, Chinese exports to the region are unlikely to expand due to the difficulty and expense of transporting goods. Dr. Daniel Twining, senior fellow for Asia at the German Marshall Fund, testified that China has made targeted investments in South Asia, primarily in weak states, and that the United States should consider the strategic impact of this investment. China’s investment in infrastructure, such as the Port of Gwadar in Pakistan, may give it access to strategic shipping lanes or land transportation routes. Furthermore, Dr. Twining argued that China’s military and security assistance may complicate U.S. diplomacy in the region. He noted that since 1990 the top three recipients of Chinese arms exports have been Pakistan, Burma, and Bangladesh. China’s trade and investment in Sri Lanka and Burma have not benefited human security in those countries. Dr. Twining argued, “Both Washington and New Delhi have a compelling interest in investing for the long term in the infrastructure of good governance and rule of law in [Sri Lanka and Burma] both for intrinsic reasons and because transparency and accountability will render them less susceptible to Chinese political influence.” Thank you for your consideration of this summary of the Commission’s hearing. We note that the full transcript of the hearing plus the prepared statements and supporting documents submitted by the witnesses can be found on the Commission’s website at www.uscc.gov, and that these can be searched by computer for particular words or terms.