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John W. Lewis is professor emeritus of Chinese politics at Stanford University's Center for International Security and Cooperation and a frequent visitor to China and North Korea. He wrote this for the Mercury News.

Beijing tries to read mixed U.S. signals in Korea diplomacy By John W. Lewis

For the past year China has led the quest for a negotiated solution to the Korean nuclear crisis. It facilitated and hosted three-way talks with the United States and North Korea a year ago this week and two sessions of the six-party talks (adding South Korea, Japan and Russia) in August and February. Its officials crisscrossed the globe to explore potential areas of common interest and compromise and this week hosted North Korean leader Kim Jong Il to explore options for the beleaguered Korean Peninsula. Yet, in each of the formal talks, the Chinese have been discouraged by the minimal results. They are now questioning U.S. intentions toward Korea and, in the longer term, toward China.

Beijing considers the unchecked expansion of North Korea's nuclear weapons to be a real possibility, and its reasoning starts with the record of U.S. policies toward nuclear proliferation. That record, the Chinese argue, is mixed and often contradictory. As a result, China worries that Washington might continue to tolerate the program so long as Pyongyang did not cross key red lines, such as the transfer of nuclear materials to terrorists.

Whatever Beijing's past position on nuclear matters, many senior Chinese now regard nuclear weapons on their border to be a direct threat to their national security and suspect Washington of downplaying that danger. For them, it is no great leap to the conclusion that the unfettered growth of the Korean program might embolden others in Asia, including Taiwan, to acquire nuclear weapons despite verbal opposition from Washington. Beijing's leaders can easily imagine how that nightmarish turn of events would undermine the nation's drive toward modernization and end strategic cooperation with the United States.

Despite the fact that all parties at the six-party meeting in February endorsed the dismantling of the North's nuclear weapons program, the Chinese fear that the talks may be dead in the water. Following that meeting, they began to debate other ways to resolve the crisis. They had already reorganized the leadership team responsible for North Korean affairs, and that team had begun acting to prevent the worst case, including offering further inducements to Kim Jong Il this week. Whereas last fall the talk of deepening U.S.-China cooperation on Korea pervaded the news, now, especially after Vice President Dick Cheney's uncompromising stand on Korea and Taiwan last week, the reverse is occurring.

What China can do in these circumstances is quite limited. Its influence on North Korea is largely determined by what the United States does or doesn't do. By refusing to negotiate on a staged process leading to the eventual dismantlement of Pyongyang's nuclear weapons, Washington has tacitly allowed the North's program to proceed. It has rejected proposals for a temporary freeze, technical talks and any interim steps short of the unconditional and complete ending of the program. The result is virtual paralysis.

Beijing has been able to work with North Korea only when it could find areas of potential compromise between Washington and Pyongyang. It cannot or will not act

alone to exert pressure because this would jeopardize its influence on the North. Contrary to a widely circulated story, Beijing did not cut off energy shipments to North Korea for three days in 2003. Beijing would not take such a counterproductive action when its main influence with the North lies in the kind of quiet diplomacy being practiced this week with Kim Jong Il.

Many in Beijing are beginning to question whether there might be a more promising approach with Pyongyang. Should the Chinese, South Koreans and Russians conclude that making progress toward the common goal of the North's complete nuclear disarmament is out of reach, for example, they reluctantly might translate their joint offer of aid in February into a quid pro quo for a partial agreement, such as a limited freeze, that would allow the situation to stabilize. China could worry that such an independent action could endanger the common front with Washington. At the same time, it could calculate that the United States would be sufficiently pleased with any solution that halted the North Korean nuclear program.

None of these developments may come to pass, of course, but who could have imagined a year ago that Washington would have permitted the situation to deteriorate to the present point?

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The conference seeks to take a fresh look at the geopolitical consequences of a major shift to natural gas in the coming decades; indeed by most estimates global consumption of gas will double by 2030. But in the ares of highest projected demand - North America, Europe, China, and South and East Asia - demand is expected to outstrip indigenous supply. This implies the need for a huge amount of investment in the expansion of cross border gas transport infrastructure to bring gas from supply centers - particularly Russia and the Middle East.

What are the geopolitical implications of a more gas-intensive world? What can the history of cross-border gas infrastructure investment tell us about the political, economic, and legal issues we are likely to face as we become more dependent of natural gas? Is there a "resource curse" for gas? What is the likelihood that gas producers form a cartel to control prices - a Gas OPEC?

Hosted by former Secretary of State James Baker, the Geopolitics of Gas: From Today to 2030 conference will bring together experts from industry and academia to discuss these questions and more. PESD and the Baker Institute will present results from historical case studies of major cross-border gas infrastructure investments and results from the first integrated global gas trade model; keynote speakers include the Minister of Energy and Mines for Algeria.

James A. Baker III Institute for Public Policy, Rice University

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A buffet lunch will be available to those who RSVP by 12:00 p.m. Monday, May 3 to Debbie Warren at dawarren@stanford.edu. Douglas H. Paal is the director of the American Institute in Taiwan, the unofficial instrument for U.S. relations with Taiwan. Previously, he was president of the Asia Pacific Policy Center (APPC), a nonprofit institution in Washington, DC, which advocated bipartisan policy in the promotion of trade and investment, as well as defense and security ties across the Pacific. Prior to forming the APPC, Mr. Paal was special assistant to President Bush for National Security Affairs and senior director for Asian Affairs on the National Security Council, where he also served in the Reagan Administration. Mr. Paal has worked in the State Department with the Policy Planning Staff and as a senior analyst for the CIA. He also served in the U.S. Embassies in Singapore and Beijing. He studied Asian history at Brown and Harvard Universities and the Japanese language in Tokyo. He has published frequently on Asian affairs and national security issues.

Philippines Conference Room, Encina Hall

Douglas Paal Director American Institute in Taiwan
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For the past year China has led the quest for a negotiated solution to the Korean nuclear crisis. It facilitated and hosted three-way talks with the United States and North Korea a year ago this week and two sessions of the six-party talks (adding South Korea, Japan and Russia) in August and February. Its officials crisscrossed the globe to explore potential areas of common interest and compromise and this week hosted North Korean leader Kim Jong Il to explore options for the beleaguered Korean Peninsula. Yet, in each of the formal talks, the Chinese have been discouraged by the minimal results. They are now questioning U.S. intentions toward Korea and, in the longer term, toward China.

Beijing considers the unchecked expansion of North Korea's nuclear weapons to be a real possibility, and its reasoning starts with the record of U.S. policies toward nuclear proliferation. That record, the Chinese argue, is mixed and often contradictory. As a result, China worries that Washington might continue to tolerate the program so long as Pyongyang did not cross key red lines, such as the transfer of nuclear materials to terrorists.

Whatever Beijing's past position on nuclear matters, many senior Chinese now regard nuclear weapons on their border to be a direct threat to their national security and suspect Washington of downplaying that danger. For them, it is no great leap to the conclusion that the unfettered growth of the Korean program might embolden others in Asia, including Taiwan, to acquire nuclear weapons despite verbal opposition from Washington. Beijing's leaders can easily imagine how that nightmarish turn of events would undermine the nation's drive toward modernization and end strategic cooperation with the United States.

Despite the fact that all parties at the six-party meeting in February endorsed the dismantling of the North's nuclear weapons program, the Chinese fear that the talks may be dead in the water. Following that meeting, they began to debate other ways to resolve the crisis. They had already reorganized the leadership team responsible for North Korean affairs, and that team had begun acting to prevent the worst case, including offering further inducements to Kim Jong Il this week. Whereas last fall the talk of deepening U.S.-China cooperation on Korea pervaded the news, now, especially after Vice President Dick Cheney's uncompromising stand on Korea and Taiwan last week, the reverse is occurring.

What China can do in these circumstances is quite limited. Its influence on North Korea is largely determined by what the United States does or doesn't do. By refusing to negotiate on a staged process leading to the eventual dismantlement of Pyongyang's nuclear weapons, Washington has tacitly allowed the North's program to proceed. It has rejected proposals for a temporary freeze, technical talks and any interim steps short of the unconditional and complete ending of the program. The result is virtual paralysis.

Beijing has been able to work with North Korea only when it could find areas of potential compromise between Washington and Pyongyang. It cannot or will not act alone to exert pressure because this would jeopardize its influence on the North. Contrary to a widely circulated story, Beijing did not cut off energy shipments to North Korea for three days in 2003. Beijing would not take such a counterproductive action when its main influence with the North lies in the kind of quiet diplomacy being practiced this week with Kim Jong Il.

Many in Beijing are beginning to question whether there might be a more promising approach with Pyongyang. Should the Chinese, South Koreans and Russians conclude that making progress toward the common goal of the North's complete nuclear disarmament is out of reach, for example, they reluctantly might translate their joint offer of aid in February into a quid pro quo for a partial agreement, such as a limited freeze, that would allow the situation to stabilize. China could worry that such an independent action could endanger the common front with Washington. At the same time, it could calculate that the United States would be sufficiently pleased with any solution that halted the North Korean nuclear program.

None of these developments may come to pass, of course, but who could have imagined a year ago that Washington would have permitted the situation to deteriorate to the present point?

JOHN W. LEWIS is professor emeritus of Chinese politics at Stanford University's Center for International Security and Cooperation and a frequent visitor to China and North Korea.
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Hawke will investigate SOE restructuring issues in the context of attracting foreign investment, through the prism of IMC's experience attempting to buy into Chinese companies on the nonperforming loan lists. IMC Global is the world's largest producer of phosphate and potassium fertilizers, about to merge with the fertilizer assets of Cargill to form a new company.

Prior to joining IMC in 1997, Hawke was a director at Salomon Brothers responsible for investment banking in China and, before that, a vice president of Citibank and Citibank's chief representative in China.

Philippines Conference Room, Encina Hall

Fred Hawke President IMC Asia, Ltd.
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Walter explores the transformation of China's state owned enterprises during the 1990s into corporations able to issue shares, raising billions of dollars internationally, and discusses the consequences of this policy reform. He is co-author of Privatizing China: The Stock Markets and their Role in Corporate Reform (John Wiley & Sons, 2003). Prior to leading JP Morgan?s Beijing office in 2001, he was managing director of China International Capital Corporation and chief representative of Credit Suisse First Boston.

Daniel and Nancy Okimoto Conference Room

Carl Walter Managing Director and Chief Operating Officer Speaker JP Morgan
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Dr. Nasr's talk will focus on the implications of change of the balance of power between Shi'as and Sunnis for regional politics in Iraq and for the emerging trends in Sunni militancy in the region.

Vali Nasr is a specialist on contemporary Islam and its relations to politics in the Muslim world. His recent work is focused on emerging patterns in Islamism, in particular with regard to Shi'i-Sunni sectarianism. He is the author of The Islamic Leviathan: Islam and the Making of State Power (Oxford University Press, 2001); Mawdudi and the Making of Islamic Revivalism (Oxford University Press, 1996); an editor of Oxford Dictionary of Islam (Oxford University Press, 2003). His works on political Islam and comparative politics of South Asia and the Middle East has been published in a number of journals including, the New York Times, Comparative Politics, Asian Survey, Daedalus, Middle East Journal, and International Journal of Middle East Studies, as well as in numerous edited volumes on the Middle East, South Asia, political Islam and comparative politics. His work has been translated into Arabic, Indonesian, Chinese, and Urdu. Dr. Nasr has been the recipient of fellowship grants from the John D. and Catherine T. MacArthur Foundation, the Harry Frank Guggenheim Foundation, and the Social Science Research Council.

Dr. Nasr earned his degrees from the Massachusetts Institute of Technology (Ph.D., 1991), the Fletcher School of Law and Diplomacy (MALD, 1984), and Tufts University (BA, 1983).

Daniel and Nancy Okimoto Conference Room

Vali Nasr Professor, Middle Eastern and South Asian Affairs Department of National Security Affairs, Naval Postgraduate School, Monterey, CA
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As seen in the previous sections, China's reformers, more than anything, have followed a
strategy based on providing incentives through property rights reforms, even though in China the shift to private ownership is today far from complete. The reforms started with the Household Responsibility System (HRS), a policy of radical decollectivization that allowed farmers to keep the residual output of their farms after paying their agricultural taxes and completing their mandatory delivery quotas. Farmers also began to exercise control over much of the production process (although in the initial years, the local state shared some control rights and in some places still do today). In this way the first reforms in the agricultural sector reshuffled property rights in an attempt to increase work incentives and exploit the specific knowledge of individuals about the production process (Perkins, 1994). In executing the property rights reforms, leaders also fundamentally restructured farms in China. Within a few years, for example, reformers completely broke up the larger collective farms into small household farms. In China today there are more than 200 million farms, the legacy of an HRS policy that gave the primary responsibilities for farming to the individual household. McMillan, Whalley and Zhu (1989), Fan (1991), Lin (1992) and Huang and Rozelle (1996) have all documented the strong, positive impact that property rights reforms had on output and productivity. 

In addition to property rights reform and transforming incentives, the other major
task of reformers is to create more efficient institutions of exchange. Markets-whether
classic competitive ones or some workable substitute-increase efficiency by facilitating
transactions among agents to allow specialization and trade and by providing information
through a pricing mechanism to producers and consumers about the relative scarcity of
resources. But markets, in order to function efficiently, require supporting institutions to
ensure competition, define and enforce property rights and contracts, ensure access to
credit and finance and provide information (John McMillan, 1997; World Bank 2002).
These institutions were either absent in the Communist countries or, if they existed, were
inappropriate for a market system. Somewhat surprisingly, despite their importance in
the reform process there is much less work on the success that China has had in building
markets and the effect that the markets has had on the economy.

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Food and Agricultural Organization
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Scott Rozelle
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Increasing population pressure and non-agricultural demand for land have far-reaching implications for the way in which land rights are defined and access to land is regulated with a society. Unless clear and enforceable legal provisions are in place to impose constraints on the behavior of individual actors, this process may hurt the poor and/or have undesirable impacts on productivity. However, many countries, especially in Africa, have found it difficult to bring about legal change. Using the 2003 Rural Land Contracting Law as a point of departure, we describe recent changes of land relations in China, assess how legal provisions relate to practice, and describe progress in implementing the law. We find surprisingly rapid progress in implementation which is driven by a combination of centrally sponsored dissemination and democratic control at the local level. Issues for future research are identified.

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Scott Rozelle
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Mr. Sun will try to establish a new research framework to analyze the monetary policy transmission mechanism. In this field, previous research has usually assumed that the banking sector would completely transmit the purpose of the central bank to the real sector, thus paying attention to the channels from the banking sector to the real sector. Because the transmission of monetary policy in the banking sector is the most important part of deciding the effectiveness of monetary policy, this research focuses on the transmission mechanism of monetary policy from the central bank to the banking sector. The concept of ?cushion storage reserve? was created by Mr. Sun and was introduced to this framework to analyze the comparison of reserve supply and reserve demand. Based on this concept and a related main formula, commercial banks? behaviors were divided into three reactive approaches -- sterilize, forbear, and adjust. According to the different kinds of reactions, monetary policy has different effects. This new analyzing framework makes the analysis of monetary policy operation more concise and effective. At the end of his paper, Mr. Sun will try to use this approach to explain the present monetary situation of China and Japan. Lunch will be provided for those who RSVP by 3/29/04.

Okimoto Conference Room, Encina Hall

Sun Guofeng APARC Visiting Fellow People's Bank of China
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