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1 Edited by Ashley J. Tellis and Michael Wills Country Studies How Domestic Forces Shape the PRC s Grand Strategy and International Impact Kenneth Lieberthal please note: For permission to reprint this chapter, please contact To purchase the print volume Strategic Asia : Domestic Political Change and Grand Strategy in which this chapter appears please visit < or contact 1215 Fourth Avenue, Suite 1600 Seattle, Washington USA

2 executive summary This chapter examines China s international goals and impact through the lens of domestic politics and internal changes and assesses how these factors shape China s grand strategy. main argument: China s grand strategy seeks to sustain rapid domestic economic development for another decade or more. Economic success has vastly enhanced the PRC s global importance. Internal requirements strongly affect the PRC s approach to and impact on the international arena. These concerns make credible China s declared need for long-term peace to achieve national development goals. The nature of China s development and the measures to sustain it, however, pose challenges for the U.S. and others. policy implications: Given the momentum of its development, barring major disruptions China s international importance will continue to grow rapidly in the next five years. The U.S. and China share fundamental interests in many traditional and nontraditional security and economic areas and have developed an impressive capacity for collaboration. Underlying mutual distrust is growing, however, with potentially costly future consequences. Traditional U.S. engagement of China is no longer sufficient. Focused engagement according far greater importance to the extent to which Beijing partners with Washington on issues most critical to the future relationship would be a more effective new approach. China will more likely act as an international stakeholder if the U.S. frames U.S.-China issues objectively, initiates serious efforts to address them, and credibly signals a willingness to engage in long-term bilateral cooperation. By resuscitating its regional diplomacy and addressing Asia s critical regional economic, environmental, and nontraditional security issues, Washington can strengthen the U.S. position in Asia and reduce the negative effects of China s growing role and influence there.

3 China How Domestic Forces Shape the PRC s Grand Strategy and International Impact Kenneth Lieberthal Domestic factors explain only a part of China s foreign policy. Beijing s policies also seriously reflect threat perceptions and other international developments. To a remarkable extent, however, domestic concerns structure the strategic objectives of China s formal foreign policy, and the nature of the domestic system produces many of the outcomes that cause other countries to worry about China s impact and objectives. China is in the midst of change and economic development that is unprecedented in scale and scope. Nearly three decades of efforts have produced an explosion of energy in a political system that, while authoritarian, is flexible, dynamic, and features vigorous competition between different localities. Economic growth has included accepting extensive FDI and promoting foreign trade. After nearly thirty years of reform, the top leaders today harbor a contradictory pair of convictions. The first is that China has become a major country globally and should be treated as such. The second is that rapid growth must continue if China is to avoid massive domestic political instability. In Chinese terminology, the leadership feels they are successfully riding a tiger but to dismount (from a program of dynamic growth) would risk being devoured by that tiger. Three factors the leadership s mentality, Beijing s resulting grand strategy, and the actual spillover effects of the dynamics of China s domestic system are profoundly shaping the international consequences of China s rise. Kenneth Lieberthal is William Davidson Professor of Business Administration at the Ross School of Business, Arthur F. Thurnau Professor of Political Science, Distinguished Fellow and Director for China at The William Davidson Institute, and Research Associate of the China Center at the University of Michigan. He can be reached at

4 30 Strategic Asia The contours of the situation as of 2007 primarily reflect developments since the end of the Asian financial crisis in the late 1990s. China s domestic economy since then has been growing at about 10% per year, and internal changes such as urbanization and privatization have accelerated to an unprecedented pace. The leaders have declared that the country has a strategic opportunity to utilize a period of relative international peace to become a relatively well-off society by the year Since the late 1990s the People s Republic of China (PRC) has developed a sophisticated foreign policy and new security concept to realize this strategic opportunity. After providing an initial overview of China s strategic objectives and grand strategy, this chapter then explains the key issues in China s domestic politics, political economy, and society that affect the PRC s strategic objectives and broader international impact. The concluding section examines the implications for U.S. policy. China s Strategic Objectives China s leaders regard the time between now and the year 2020 as a strategic opportunity to develop the economy and achieve relatively welloff (xiaokang) status. 1 They appreciate that continued rapid economic development and an improved capacity to generate new technologies will not only enhance the PRC s international stature but also raise concerns in other countries regarding China s capabilities and intentions. Leaders in Beijing have therefore shaped China s foreign policy around the goal of discrediting what they term the China threat theory, in part by affirming their unswerving commitment to peaceful development. 2 Fear that seriously faltering economic growth could result in major domestic turmoil makes support of ongoing economic development the core goal of Beijing s foreign policy. China s economic development strategy, moreover, fully leverages opportunities for international engagement. To tamp down looming fears of a China threat arising from the rapid expansion of its capabilities, Beijing has significantly changed its diplomacy since the late 1990s. Until then, the PRC had typically articulated broad principles rather than engage in pragmatic efforts to build institutions and 1 China to Quadruple GDP in 2020 from 2000: Jiang, People s Daily, November 8, 2002; and Qingfang Zhu, Development Indicators for a Comprehensive Relatively Well-off Society in 2020, Xueshu Dongtai Journal, no. 3 (2003). The year 2020 is used symbolically. There are no writings that posit a sudden change as of The PRC is so sensitive to the perception of China s growth posing a threat to others that Beijing dropped its earlier formulation of the peaceful rise of China in favor of affirming the peaceful development of China. Critics in China had noted that use of the term rise (jueqi) might provoke fears on the part of others.

5 Lieberthal China 31 resolve problems. The PRC s stances often sought to place interlocutors at a moral disadvantage. During the U.S.-China negotiations on a bilateral accession agreement for China s entry into the World Trade Organization (WTO), for example, the Chinese side explicated with moral fervor the long history of imperialist aggression against China, intimating that as a consequence the United States owed China special consideration. 3 The changes since then have been remarkable. 4 In Asia and elsewhere Beijing is seeking various forms of bilateral partnerships that are less than alliances but more than simple friendships. Multilaterally, Beijing is supporting the development of various forums and cooperative efforts that are not fully institutionalized but that do involve substantial interaction around defined issues and goals. 5 In both dimensions, the Chinese approach differs significantly from American tradition and practice. China dubs this approach a new security concept. Especially in regard to Southeast Asia, China has become an enormously active and generally astute actor, promoting multilateral efforts, playing to the sensitivities of interlocutors, encouraging regional cooperation, and inviting investment into China. China has taken the lead to propose regional initiatives 6 and has agreed to meet various concerns among Southeast Asian countries, such as pledging to adhere to the Treaty of Amity and Cooperation 7 and signing a declaration of a code of conduct with the Association of Southeast Asian Nations (ASEAN) in Personal observation of the author. 4 Evan S. Medeiros and Taylor Fravel, China s New Diplomacy, Foreign Affairs 82, no. 6 (November/ December 2003): 22 35; David Shambaugh, ed., Power Shift: China and Asia s New Dynamics (Berkeley: University of California, 2005); and Alastair Iain Johnston and Robert S. Ross, eds., New Directions in Chinese Foreign Policy (Stanford: Stanford University Press, 2006), especially part II, The PRC Ministry of Foreign Affairs website provides information on the numerous bilateral partnerships of various types that China has formed since the early 1990s: cn/chn/gjhdq/default.htm. For the best available discussion of this issue and of changes in China s policy over time, see Avery Goldstein, Rising to the Challenge (Stanford: Stanford University Press, 2005). See also Evan S. Medeiros, China s International Behavior: Activism, Opportunism, Diversification (paper presented at the U.S.-China Relations Ninth Conference, March 31 April 8, 2007). 6 In 2003 China proposed a new ASEAN Regional Forum (ARF) Security Policy Conference of military officers and defense officials to promote greater collective security. At China s initiative, in 2004 China and ASEAN signed an agreement of comprehensive economic cooperation that will build a China-ASEAN free trade zone by See Sheldon Simon, Southeast Asia: Back to the Future? in Strategic Asia : Confronting Terrorism in the Pursuit of Power, ed. Ashley J. Tellis and Michael Wills (Seattle: The National Bureau of Asian Research, 2004), ; and China, ASEAN Start Building Free Trade Area, Xinhua News, November 30, Sheldon Simon, Southeast Asia: Back to the Future? John Daly, Energy Concerns and China s Unresolved Territorial Disputes, Jamestown Foundation, China Brief 4, no. 24, December 2004; and Wen, Arroyo Express Satisfaction with China-ASEAN Ties, Xinhua News, January 16, 2007.

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