strategic vision, issue 4

STRATEGIC VISION for Taiwan Security

Volume 1, Issue 4 w July, 2012 w ISSN 2227-3646

Huangyan Island Dispute Creates DilemmasDr. Chia-sheng Chen

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Tensions Bubble Up Over Tiaoyu IslandsDean Karalekas

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Integration Theory Applied to Cross-Strait TiesDr. Alvin Yao

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SEF-ARATS Talks Needed for Further AgreementsChin Ta-chih

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Sino-Iranian Ties a Model for Other NationsSerafettin Yilmaz

Submissions: Essays submitted for publication are not to exceed 2,000 words in length, and should conform to the following basic format for each 1200-1600 word essay: 1. Synopsis, 100-200 words; 2. Background description, 100-200 words; 3. Analysis, 800-1,000 words; 4. Policy Recommendations, 200-300 words. Book reviews should not exceed 1,200 words in length. Notes should be formatted as endnotes and should be kept to a minimum. Authors are encouraged to submit essays and reviews as attachments to emails; Microsoft Word documents are preferred. For questions of style and usage, writers should consult the Chicago Manual of Style. Authors of unsolicited manuscripts are encouraged to consult with the executive editor at [email protected] before formal submission via email. Manuscripts are subject to copyediting, both mechanical and substantive, as required and according to editorial guidelines. No major alterations may be made by an author once the type has been set. Arrangements for reprints should be made with the editor. Cover photograph is courtesy of the photographer Philippine Fly Boy and is used under a creative commons license.

STRATEGIC VISION for Taiwan Security

Volume 1, Issue 4 w July, 2012

ContentsHuangyan Island dispute creates dilemmas................................................4

Dr. Chia-sheng Chen

Tensions bubble up over Tiaoyu Islands.......................................................8

Dean Karalekas

Integration Theory applied to cross-strait ties...........................................14

Dr. Alvin Yao

SEF-ARATS talks needed for further agreements..................................19

Chin Ta-chih

Sino-Iranian ties a model for other nations..............................................23

Serafettin Yilmaz

STRATEGIC VISION For Taiwan Se-curity (ISSN 2227-3646) Volume 1, Number 4, July, 2012, published under the auspices of the Center for Security Studies and National De-fense University.

All editorial correspondence should be mailed to the editor at STRATEGIC VISION, Center for Security Studies in Taiwan. No. 64, Wan Shou Road, Taipei City 11666, Taiwan, ROC.

The editors are responsible for the selection and acceptance of articles; responsibility for opinions expressed and accuracy of facts in articles published rests solely with individual authors. The editors are not respon-sible for unsolicited manuscripts; unaccepted manuscripts will be re-turned if accompanied by a stamped, self-addressed return envelope.

Photographs used in this publication are used courtesy of the photograph-ers, or through a creative commons licence. All are attributed appropri-ately.

Any inquiries please contact the Executive Editor directly via email at:[email protected] issues and archives can be viewed at our website: www.mcsstw.org.

© Copyright 2012 by the Center for Security Studies.

EditorFu-Kuo Liu

Executive EditorDean Karalekas

Editorial BoardTiehlin YenRaviprasad NarayananMing-Hua TangFelix Wang

Articles in this periodical do not necessarily represent the views of either the MCSS, NDU, or the editors.

Dr. Fu-Kuo LiuEditor

Strategic Vision

From The Editor

As we move into the summer months, we at Strategic Vision are very pleased to bring you our latest issue, which covers a range of topics from tense standoffs

over tiny land masses in the Asia-Pacific littoral, to economic and energy ties that increasingly define our globalized world.

Dr. Chia-sheng Chen headlines this issue by looking at the recent dispute between China and the Philippines over Huangyan Island, known in the West as Scarborough Shoal, and how as tensions over this small group of islets gradually increase, it forces decision-makers in Beijing, as well as in Washington, to face certain dilemmas in which hard choices have to be made.

Our executive editor, Dean Karalekas, looks at the recent tensions between China and Japan over the Tiaoyu Islands in the East China Sea and how they suggest two very differ-ent views of what constitutes valid claims of sovereignty: one predicated on international law, the other on a primarily his-torical perspective.

Dr. Alvin Yao examines the budding rapprochement be-tween Taiwan and China, as well as their increasingly closer economic ties, from the perspective of integration theory and presents what insights this paradigm offers.

National Defense University’s Chin Ta-chih offers his per-spective on the recently delayed eighth round of SEF-ARATS talks that was to take place last month, and how the important agenda including agreements on investment protection and customs clearance deserves serious attention.

Finally, Serafettin Yilmaz takes a look at the energy ties be-tween China and Iran, and how this lucrative relationship offers a model for other nations in the Asia-Pacific region.

We hope you enjoy this latest issue, and wish you a pleas-ant summer season.

Soldiers with the Armed Forces of the Philippines walk away from a live-fire training course during Balikatan 2012 at Fort Magsaysay, Philippines.

The recent territorial dispute that be-gan April 10 this year between China and the Philippines over Huangyan Island,

which is known in English as Scarborough Shoal, escalated to a point where the international com-munity began to get the impression that hostilities would break out and the two countries would end up fighting over sovereignty of the disputed terri-tory. Although the dispute did not escalate into an interstate conflict, a stable resolution has not yet been found. The confrontation started in early April when the Philippines’ frigate the BRP Gregorio del Pilar, which was purchased by Manila after being decom-missioned from service in the US Coast Guard, began pursuing Chinese fishing boats in the disputed waters

near Scarborough Shoal, a small island group in the South China Sea. This was followed by the Chinese maritime surveillance ships Hai-Jian 75 and Hai-Jian 84, coming to the rescue.

What interested the international community was whether the Philippine Navy would prove a match for the People’s Liberation Army Navy, and the answer did not seem difficult. In such a situation, however, problems arise with regard to whether or not Beijing might choose to employ the use of force to settle the dispute, and whether or not Washington would get involved if its alliance partner Manila were to become embroiled in a war over Huangyan Island. An argument could be made that both Beijing and Washington would encounter different dilemmas

Strategic Vision vol. 1, no. 4 (July, 2012)

March to the Sea

Huangyan Island dispute presents United States and China with dilemmas Dr. Chia-sheng Chen

Dr. Chia-sheng Chen is an assistant professor with the Graduate School of International Affairs at Ming Chuan University. He can be reached for comment at [email protected].

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photo: Michael Holzworth

photo: Tiffini Jones

PLA Navy sailors stand at attention aboard the type 920 hospital ship Daishandao in Qingdao, China.

South China Sea b 5

if the territorial dispute should escalate into a mili-tary conflict. The countries involved would doubtless prefer to have solutions that stop short of the use of military force.

A hard choice

In the face of incremental confrontation in the dis-puted waters, Beijing is faced with choosing either the “hard way” or the “soft way” of achieving its sovereignty-protection goals over the shoal (which is perhaps better described as a group of reefs and small islets or rocks in roughly the shape of an atoll). If Chinese authorities choose the hard way—use of force—then they can expect to encounter at least three thorny problems. First of all, they have to ask themselves whether or not the People’s Liberation Army is ready to fight. If this is the case, then what lies before them is a US-Philippine coalition, rather than just the fragile Philippine Army. The escalation of military conflict would definitely contribute to in-stability in the already tension-filled South China Sea. Second, China’s choice of the hard way would provide

substance to warnings of a rising “China threat” in the region and undermine Beijing’s painstaking ef-forts to craft an image of a “peaceful rise.” Third, they also have to think hard about whether such a tiny land mass—upon which barely four or five people can stand at any given time—is really worth use of force and the consequences thereof.

However, if Beijing chooses the soft way, or backing down from a confrontation, there are three disadvan-tageous factors that need to be dealt with. To begin with, if Beijing yields in the face of US intervention in a Huangyan Island conflict, it would undoubtedly announce to the world that China is willing to render control over this area. Next, Beijing’s backing down would send a signal to other Asian countries that China is a paper tiger, and it would encourage those countries that were friendly toward China to rethink their relations with the United States. Furthermore, the 18th National Congress of the Communist Party of China is coming up, and Beijing’s backing down would obviously result in a severe political crisis within the party. In addition to the rise of Chinese nationalism due to the territorial disputes with the Philippines,

the weakness of the Chinese leadership would be ag-gregated and trigger political instability throughout China, thus jeopardizing the legitimacy of the ruling Communist Party. Therefore, no matter which path is chosen, the Chinese leadership has a dilemma.

The Huangyan Island dispute entails the possibil-ity of US engagement as a result of its security guar-antees. The US government has reiterated its com-mitments as specified in the US-Philippines Mutual Defense Treaty, entered into on August 30, 1951, but the question remains whether the United States today is still willing to respond according to treaty stipula-tions. The problem could be rephrased as whether or not the mutual defense treaty covers any actions that must be taken in the waters near Huangyan Island, which is located between the Macclesfield Bank and the Philippines’ main island of Luzon.

The collective defense arrangement recognizes that “an armed attack in the Pacific Area on either of the Parties would be dangerous to its own peace and safety,” and declares that “it would act to meet the common dangers in accordance with its constitu-tional processes.” Based upon the mutual defense treaty, the United States has a legal obligation to in-volve itself in a Huangyan Island dispute; however,

this would ensnare the United States in a difficult situation in which the administration of President Barack Obama would have to consider whether or not to take direct action to respond in the face of a Chinese military challenge.

Fulfilling or breaking its commitment to the Philippines is, for the United States, a “to be or not to be” problem. If tensions between Beijing and Manila over Huangyan Island escalate into an armed con-flict, Washington would have to decide whether to meet or renege on its security guarantee. If the deci-sion is negative, it presents three risks: first of all, a US denial of intervention would strengthen China’s military position and improve their chances of vic-tory, thus rendering its opponent an opportunity to erode discourse on the importance of freedom of navigation in the South China Sea. China has de-clared the entire sea a core interest, and if the United States does not tightly uphold freedom of navigation, the South China Sea will soon become an arena in which claimants, as well as other states looking for resources, may begin to launch operations in the pursuit of those resources.

Second, the US defense commitments in the region are seen as long-term promises to Asian allies. They would all be watching closely to see how Washington responds to the dispute, especially in its decision and determination. If Obama decides not to engage, US allies would be very surprised and, in turn, would have to re-evaluate US willingness and capability to assist in their own defense. In the long run, US domi-nation in Asia would begin to decay and allies would reconsider other possible defense coalition partners.

6 b STRATEGIC VISION

Soldiers from the Philippines and the USA take part in a joint exercise.

photo: US DOD

“US defense commitments in the re-gion are seen as long-term promises to Asian allies.”

A Philippine Air Force pilot gives the thumbs-up as he returns home to Clark Air Base at sunset after a training sortie.

photo: Philippine Fly Boy

Third, a US lack of willingness to intervene would contribute to a reshaping of the power structure in Asia, and an Asian power struggle may be rebalanced in a way that the United States would definitely not like to see.

Defense commitment

However, if Obama should decide to observe the US commitment to jointly defend the Philippines, two risks remain: first, the US government might face domestic opposition to a military intervention. Whether or not US public opinion would support the government to participate in another armed con-flict is uncertain, so soon after the wars in Iraq and Afghanistan. The American people would not likely tolerate their government burning money—to say nothing of shedding blood—to defend a place that is far away from continental US territory.

Moreover, on January 5, 2012, President Obama made public a strategic document titled “Sustaining

US Global Leadership: Priorities for 21st Century Defense,” in which the Defense Department admitted it had three major challenges: China’s military expan-sion, North Korea’s nuclear and missile development, and defense budget cuts. In this regard, the US mili-tary must continue to prepare itself to meet a grow-ing and increasingly more technically sophisticated People’s Liberation Army on the field of battle, and at the same time to engage in self-restraint imposed by limited defense spending.

In short, the tensions surrounding Huangyan Island are not so much a dispute between Beijing and Manila as they are a web of potential dilemmas that China and the United States each has to face in response to a possible armed conflict. If the United States wants to escape from the awkward situation, a diplomatic approach would be much more effective in order to reduce the possibility of conflict with China. By the same token, if China is willing to deal with a conflict short of war, a diplomatic engagement would be more persuasive than other means to solve the impasse. n

South China Sea b 7

photo: National Land Image Information, Japan MLIT

Tensions between Japan and China have been slowly simmering to a boiling point over the Diaoyu Islands as nationalist rheto-

ric grows in both countries on the sovereignty issue. Although the islets in the East China Sea are under the de facto control of Japan, both countries—as well as Taiwan—have claims over them. The justification for the specific claims made by China and Japan stem from two very different paradigmatic approaches that illustrate a gulf of disunity in the methods employed by each country to conceptualize the issues of sov-ereignty, international law, and dispute resolution.

On June 10, 2012, a delegation of activists and law-makers from the ruling Democratic Party of Japan, including Tsutomu Takamura, Koichi Mukoyama, and Yoichiro Morioka, travelled to waters near the islands, known in Japan as the Senkaku Islands, to stage an unofficial fishing expedition in order to dem-onstrate sovereignty over the territory, Japan’s Asia News Agency reported. Conservative politicians have

been calling for a tougher stance with China over the islands, starting with requests that a team of experts be dispatched to the area to conduct development research.

The following day, Tokyo Governor Shintaro Ishihara reiterated his intention for the Tokyo Metropolitan Government to purchase the islands from their title-holders—a family in Saitama Prefecture that owns four of the five Senkaku Islands—and then to legally sell them to the central government. City officials claim to have received more than 1 billion yen (ap-prox. US$12.5 million) in donations from members of the general public supportive of the Senkaku pur-chase. Uichiro Niwa, the Japanese ambassador to

Dean Karalekas is a researcher with National Chengchi University’s Doctoral Program in Asia-Pacific Studies and executive editor of Strategic Vision. He can be reached for comment at [email protected]

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Dispute Bubbling Up

Tensions seen rising over rhetoric from Tokyo, Beijing on disputed islandsDean Karalekas

Two of the disputed Diaoyu Islands, Bei Xiaodao and Nan Xiaodao.

photo: National Land Image Information, Japan MLIT

photo: Flippy Whale

“The root cause of these many disputes stem from two very different concep-tions of what constitutes justification for sovereignty claims.”

Tiaoyu Tensions b 9

Beijing, warned that talk of such plans could inflame tensions with China.

Niwa proved correct. The Foreign Ministry of the People’s Republic of China (PRC) was quick to re-spond, calling the fishing visit ineffective and ille-gal. At a press conference held in Beijing, ministry spokesman Liu Weimin announced that Chinese diplomats had warned Japanese officials against any repeat visits, characterizing the fishing excursion as a “farce.”

China’s government-run media have likewise been playing up the nationalism surrounding the topic, with television newscasts on the Diaoyu issue illus-trated with animations of fleets of warships and fight-er planes closing in on the islands.

The dispute is reminiscent of the most recent conflict over ownership of the islands that began on September 7, 2010, when a fishing trawler from China intentionally rammed two patrol vessels of the Japanese Coast Guard while fishing in waters near the Diaoyu Islands. The Japanese officers took the captain of the Chinese vessel into custody, spurring Beijing

to push Japan for his release. The methods employed by Beijing to put pressure on Tokyo in this incident offer an insight into how Chinese leaders view the various channels of relations between countries as potential weapons.

In order to exert pressure on Japan to resolve what might have remained a relatively minor skirmish, Beijing went beyond military and diplomatic means and employed trade, tourism, economic, and socio-cultural ties as leverage. In the area of cultural ties, Beijing cancelled planned cultural exchanges and postponed high-level meetings on unrelated topics with officials from Japan. In the realm of tourism, four Japanese nationals in China were arrested for ostensibly trespassing into a military area. Most dis-

The Diaoyutai dispute has spawned nationalistic rhetoric by both Japan and China, reaching as far as Flushing, New York as seen on this protest board.

The Chinese claim on the Diaoyu Islands is based primarily on historical evidence, including maps and ancient texts that refer to the area as a tributary state.

tressingly, on the economic and trade front, China blocked the shipment of rare earth metals to Japan, jeopardizing the manufacture of high-tech products such as smartphones and hybrid vehicles. Moreover, the government either tacitly or implicitly fomented anti-Japanese sentiment among the population lead-ing to street protests and vandalism of Japanese busi-nesses throughout China. Faced with this onslaught of pressure being brought to bear on all fronts, the relatively inexperienced administration of then-Jap-anese Prime Minister Naoto Kan conceded, releasing the Chinese captain and giving the victory to China.

Although it may seem counterintuitive that a rel-atively minor maritime encounter should escalate into one of the most intense diplomatic standoffs in recent years between the two most influential and

ostensibly responsible nations in the region, it sug-gested that China sees itself adopting a new role in the region, one more commensurate with its economic and growing military might.

Given this precedent, and especially the undisputed victory gained by Beijing, China has since continued to aggressively defend what it considers its core in-terests and unilaterally impose its territorial agenda not just on Japan, but on all of its neighbours in the South China Sea and East China Sea, with subse-quent disputes having arisen with Vietnam over the Paracels and the Spratlys, and more recently with the Philippines over Scarborough Shoal.

Unfortunately for Beijing, these actions have pushed several regional actors closer into the American se-curity orbit. Governments in the Asia-Pacific appear to have concluded that the era of China’s “peaceful rise” is over and increased bellicosity over core ter-ritorial interests has become the new norm. A recent


photo: US NavyThe USS George Washington departs Yokosuka, Japan, after a port call. The US-Japanese defense treaty must be factored into Beijing’s calculations.

editorial in the Bangkok Post pointed out that many Asians are wondering what will satisfy China’s desire to secure these core interests, asking, “are there no limits, or does today’s China conceive of itself as a restored Middle Kingdom, to whom the entire world must kowtow?”

Conceptualizing claims

The root cause of these many disputes stem from two very different conceptions of what constitutes justification for sovereignty claims. The international order as it exists today is very much informed by Western norms of sovereignty and international law, with most claimants deferring to the United Nations Convention on the Law of the Sea (UNCLOS) when determining ownership of the various islands dotting Asia’s littoral. China, meanwhile, continues to view its position not as a nation among equals, but as the former imperial center in a “tributary state” system, and its stance on territorial dispute resolution betrays a worldview that continues to be dominated by this

historical position. Thus China presses primarily for an historical basis for determining sovereignty.

According to China’s reasoning, the first, albeit vague, mention of the Diaoyu Islands is in an ancient Chinese document, now held at Oxford’s Bodleian Library, dating back to the 15th century. By the 17th century, the boundary between the Diaoyu Islands and the Ryukyus was being referred to in Chinese texts as the Black Water Trench, or Heishuigou. The island is mentioned again by Xu Baoguang, a Chinese official who was dispatched in 1720 to confer title upon the king of Ryukyu, which at the time was a vassal state of the Qing Dynasty. Xu identified the western demarcation line of the Ryukyuan kingdom as being at Kume-jima, just south of the Black Water Trench.

In 1874, the Ryukyus’ tributary relationship with the Qing Dynasty came to an end, followed by juris-diction shifting from the Japanese Foreign Ministry to the Home Ministry a year later. In 1895, after the Chinese defeat in the First Sino-Japanese War, China officially abandoned its claim over the Ryukyus in

Tiaoyu Tensions b 11

the Treaty of Shimonoseki. This is the justification for their inclusion in Japan’s territories as laid out in the 1952 San Francisco Peace Treaty.

At the end of the 19th century, a Japanese busi-nessman named Koga Tatsushirō built a settlement on the island, where about 200 residents operated a bonito processing facility. The endeavor was unsuc-cessful, however, and the islands have been uninhab-ited since the plant closed in 1940. The islands were administered and used as training facilities by the US occupying forces from the end of the war until 1972, although the Americans did not equate this ad-ministration with actual sovereignty, and the official stance was that the relevant parties must sort this question out for themselves. In light of this ambiguity, a resolution was passed by the Okinawa Legislative Assembly in 1970 declaring the Senkaku Islands to be Japanese territory. Factions within both the Republic of China (ROC) and PRC protested the move, with each launching sovereignty claims.

International norms

The Japanese, whose own claim is more consistent with the norms of international law, generally view the Chinese and Taiwanese counterclaims as being primarily driven by the possibility of lucrative oil deposits in the area. While this is no doubt a con-tributing factor, it ignores the strong influence of the Chinese worldview which is unaccustomed to—and therefore distrustful of—multilateral conflict resolu-tion mechanisms and international law in general.

Beijing prefers to rely on historical evidence, claiming that it holds rightful sovereignty because the islands were at one time a tributary territory to Imperial China. It is no surprise, then, that modern states should be wary of embracing this line of rea-soning—especially states such as Japan, South Korea, the Philippines, Vietnam and a number of others with territory that, during one dynasty or another,

was part of that same tributary system. It is these two divergent worldviews, employing

radically different logic, that will ensure the dispute between China and Japan will continue to flare up occasionally, as it did in 2010, and as it is threaten-ing to do now.

Officially, Taipei has been largely silent on the issue, and even the hard-line factions that demand a tough stance are marginal forces that are largely ineffectual. A group in Taiwan called the World Chinese Alliance in Defense of the Diaoyu Islands had planned to travel to the disputed waters for a photo opportunity waving the ROC flag, but the plan failed as they were unable to find a boat willing to take them to the is-lands, which are located at a point that is equidistant from Taiwan and the Ryukyus. In a subsequent, more successful voyage, a protestor surnamed Huang, who serves as the president of the alliance, arrived at the islands brandishing the five-star red flag of the PRC. When interviewed, he claimed to have forgotten the ROC flag at home.

While events such as this hint at a faction in Taiwan supportive of Beijing’s hard-line stance over the is-lands, they do not reflect official policy. There is no widespread interest in Taiwan in launching a mili-tary effort to occupy the islands and taking them by force from Japan, a fellow democracy. If for no other reason, it is because Taiwan’s position is the weakest of the claimants, despite the fact that, at the official level, Taipei appears to be acting more responsibly than the other stakeholders in the dispute.

It is this last point that was highlighted at a recent seminar held by Tamkang University’s Graduate


“There is no interest in Taiwan in launching a military effort to occu-py the islands and take them from Japan by force.”

photo:archiveTaiwan’s claim on the islands dates back to 1971,when this march was held.

ing to a separate poll conducted in Taiwan, respon-dents listed Japan as their favourite foreign country, at 41 percent, compared with 8 percent each for the United States and China. Just 1 percent of Taiwanese respondents cited the Diaoyutai dispute as a concern.

Recognizing that Taipei’s position is the weakest of the three claimants, most experts at the seminar agreed that rather than compete with China and Japan on asserting sovereignty over the islands, the ROC government should restrict its efforts to secur-ing fishing rights in the disputed waters and safe-guarding the interest of Taiwanese fishermen.

It is equally important that Taipei avoid cooperat-ing with Beijing on this issue, as the third principle enunciates. Mainland Affairs Deputy Minister Liu Te-shun made this point July 12 at a regular coun-cil briefing, adding that while the ROC maintains its position of full sovereignty over the Tiaoyutai Islands and South China Sea island groups and their surrounding waters, these topics must be viewed as international matters, and not as cross-strait ones.

This position is more far-reaching than a group of uninhabited islands, however: As has been shown, Beijing’s position on the islands is predicated on an anachronistic worldview and thus represents the thinking of the past. Taipei would do well to adopt a stance that is more consistent with international norms and principles—a stance, it should be noted, that Taipei already appears to be acting in accordance with by pragmatically focusing on protecting fishing rights and leaving the sovereignty dispute aside for another day when cooler heads in Beijing and Tokyo shall prevail. n

Institute of International Affairs and Strategic Studies, where Taiwanese scholars gathered June 15, 2012, to discuss options and examine policy alternatives on the islands, long referred to as Tiaoyutai in Taiwan.

Scholars pointed out that previous administrations have managed to avoid pushing the issue to a head by holding fast to four principles on the islands pro-mulgated by former President Lee Teng-hui. The first is an acknowledgement of the sovereign status of the Tiaoyu Islands as part of the ROC. The second is a determination to handle the issue peacefully and ra-tionally. The third principle stipulated no cooperation with Beijing. Finally, the government must protect the rights of Taiwanese fishermen operating in the area.

Interestingly, despite Taipei not being recognized by either party and therefore unable to enter official negotiations, Taiwan’s society and government have behaved with the most maturity and restraint, es-pecially by not engaging in the sort of nationalistic jingoism and escalatory rhetoric displayed in both China and Japan. The administration of President Ma Ying-jeou, as much as the people of Taiwan them-selves, are to be commended for this.

According to a recent poll, 84.3 percent of Japanese and 64.5 percent of Chinese respondents reported a negative impression of the other country, with 48.4 percent of Japanese and 40 percent of Chinese cit-ing the East China Sea dispute as the main reason for this animosity. In contrast, cross-strait tensions are lower than they have been in years, and accord-

Tiaoyu Tensions b 13

“Taipei would do well to adopt a stance that is more consistent with international norms and principles.”

Delegations from the ROC and PRC applaud as their respective negotiators shake hands across the table at the seventh round of SEF-ARATS talks.

photo: SEF

President Ma Ying-jeou began his first term as president of the Republic of China (ROC) in May 2008 and initiated a degree of

political rapprochement with China. Over the past four years, the two sides of the Taiwan Strait have rapidly reached a détente of sorts via economic and functional exchanges, having held several rounds of negotiations between Taiwan’s Straits Exchange Foundation (SEF) and China’s Association for Relations Across the Taiwan Straits (ARATS). The two parties have signed 16 agreements on functional issues including weekend charter flights, the accep-tance of independent Chinese tourists in Taiwan,

cross-strait air and sea transport, postal services, and food safety, among others.

Theoretically speaking, the logic of integration the-ory suggests that increased interaction on economic or energy issues serves to decrease the chances of war and instability, and should advance cross-strait relations. According to Denny Roy, a senior research fellow at the Asia-Pacific Center for Security Studies, economic cooperation with Taiwan could help fulfill Beijing’s wishes of unification by creating an eco-nomic dependency, as well as creating an opportunity to weaken Taiwan’s economy to such an extent that supporters of Taiwan independence lose their influ-

Dr. Alvin Yao is director of research at the Prospect Foundation. He can be reached for comment at [email protected].

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A Theoretical Link

Integration theory logic and its implications for cross-strait rapprochementDr. Alvin Yao

Cross-Strait Détente b 15

ence, while for Taiwan, embracing closer cooperation with China could be a means whereby the Taiwanese economy is reinvigorated and the security threat less-ened thanks to a more peaceful political environment. The historical evolution of cross-strait interaction explains lukewarm experiences by shelving political disputes but hardly avoiding political interference. Integration theory illuminates precisely the economic logic of cooperation and interdependence in cross-strait dynamics and explains the current phenomena of opening multiple channels and tackling different agendas. The theory does not, however, explain po-litical disputes in terms of unavoidable sovereignty and security dimensions.

Integration theory points out the political impli-cations of economic exchanges. Many of the mutual policies shared by Beijing and Taipei are based on integrationist assumptions. Taiwan’s willingness to approach rapprochement on the basis of ambiguous political principles such as “mutual non-denial,” “the 1992 Consensus,” and the “Three Nos” policy of no independence, no unification, and no use of force. This allows China to take a more accommodative stance toward Taiwan.

The two governments are both optimistic about the beneficial effects of economic integration and its spillover implications, though furthering cross-strait economic integration does not necessarily guarantee political unification in the long run. In terms of dif-ferent political systems, asymmetric national capabili-ties, and the Chinese military threat that continues to exist in cross-strait relations, the reality has the effect of constraining Taiwan’s ability to fight back should China revise its current approach and radi-cally change the status quo in the Taiwan Strait, or should Beijing decide to penalize Taipei for delaying political unification too long. During the adminis-trations of former presidents Lee Teng-hui and Chen Shui-bian, a lukewarm attitude toward unification and interruptions in the political progress across

the strait suggested that shelving political issues in cross-strait cooperation would not necessarily build enough momentum to drive bilateral cooperation.

The gradual increase of communication channels between Taiwan and China will not necessarily result in political integration across the Taiwan Strait if the socio-economic and political conditions of the two parties remain unbalanced, according to Hsin-hsing Wu, author of “Bridging the Strait: Taiwan, China, and the Prospects for Reunification.” Academia Sinica’s Wu Yu-Shan holds that, facing China’s de-fection in the integration process, Taiwan would be left with limited measures to leverage China—mea-sures like domestic opinion among the voting public and diplomatic relations, especially with the United States. Notably, reaching a minimum political solu-tion may spill back into the economic realm and cause relations there to deteriorate. The sovereignty dispute and military buildup will thus lead to un-resolved uncertainties in the cross-strait dynamic.

Former ROC President Lee’s Southward Policy was an attempt to diversify Taiwan’s economic interests to avoid becoming economically beholden to China. This policy, as well as public opposition to President Ma’s push to form the Economic Cooperation Framework Agreement (ECFA) with China, were both based on an acceptance of integrationist theo-ry and a desire to mitigate its negative effects. Since China’s dreams of political unification are expressed, in part, through its ongoing military buildup, the Ma administration desires more economic benefits to consolidate its approach toward China.

By the same token, Beijing is so far tolerating the

“China’s preferred solution is to persuade the ROC government ... to rejoin China.”

People’s Liberation Army soldiers stand in formation. Some are skeptical of China’s soft power, seeing instead united front tactics aimed at unification.

photo: Luther Bailey

pace of cross-strait engagement and seems confident that, over time, support for unification will strength-en. Beijing’s preferred solution is to persuade the ROC government (and in particular the Kuomintang) to rejoin China in some form by offering a carrot while carrying an enormous stick. The danger, as Shelley Rigger points out in Ma’s Puzzling Midterm Malaise, is that Chinese leaders may lose patience if they determine that even the Kuomintang (KMT) leader is unable to deliver any of what Beijing wants.

In “The Security Dilemma: Fear, Cooperation and Trust in World Politics,” Ken Booth and Nicholas Weeler argue that the security dilemma is a two-level strategic predicament in relations between states, with each level consisting of two related dilemmas which force decision-makers to choose. The first is a dilemma of interpretation—about the motives, inten-tions, and capabilities of the other state. The second is a dilemma of response, and it concerns policymaking

and how to find the most rational way of respond-ing. A dilemma of response, they point out, logically begins when the dilemma of interpretation has been settled. If the dilemma of response is predicated on

suspicion over motives and intentions, and decision-makers react in a confrontational way, this can create mutual hostility. The security paradox develops when leaders resolve their dilemma of response in a man-ner that creates a spiral of mutual hostility.

Responsible leaders have to decide whether military developments are for offensive purposes or if they are


“If a pro-Taiwan independence leader takes power in a future election, China may believe that Taiwan is drifting away from its ‘one China’ paradigm.”

defensive. Given the uncertainty that exists in cross-strait relations, a resurgence of tension over issues of sovereignty may be the result of the security dilem-ma in the Taiwan Strait. There are several scenarios according to which this may become exacerbated.

The first scenario revolves around a Chinese fear of Taiwan’s sovereignty and security position. If a pro-Taiwan independence leader takes power in a future election, China may believe that Taiwan is drifting away from its “one China” paradigm. Even the elec-tion of a leader committed to maintaining the status quo would risk raising Beijing’s ire, if Chinese lead-ers feel the political unification they desire is not be-ing tackled enthusiastically enough. Another, albeit less likely, situation would be if China perceives that Taiwan’s military transformation is an offensive move toward peaceful secession and that China’s “core in-terest” in unification is put at risk.

There are many that perceive cross-strait social ex-changes and economic integration as little more than elements of China’s united front tactics toward uni-fication designed to undermine Taiwan’s position of sovereignty. This is exacerbated by a Chinese military buildup that appears to focus on offensive weaponry tailored specifically for use in a confrontation in the Taiwan Strait. This perceived emergent menace to-ward Taiwan’s security could lead to a decision to strengthen Taiwan’s defensive capability, requiring more robust arms sales from the United States.

Risk of escalation

Given the nature of the US security guarantee that obviates the need for Taiwan to acquire offensive weaponry and helps minimize the possibility of a cross-strait arms race, a Sino-Taiwan security di-lemma risks escalating into a US-China security di-lemma. This is especially possible if Beijing chooses to interpret US arms sales to Taipei as an infringe-ment upon China’s “core interest.” Thus, China may

become more belligerent and assertive vis-à-vis the United States on the Taiwan issue.

Moreover, the United States is slowly beginning to perceive a Chinese unwillingness to become a constructive actor and stakeholder in the interna-tional system, especially as Beijing strives to limit US influence in the Taiwan Strait and the region in general—witness Beijing’s lack of transparency in its growing military buildup and its overt military stance toward Taiwan.

The question then becomes: how can the two parties improve cooperation while bearing in mind security-dilemma sensibility, which is defined as an actor’s in-tention and capacity to perceive the motives behind, and to show responsiveness toward, the potential complexity of others’ military intentions?

Booth and Weeler hold that security competi-tion can never be escaped in international politics. However, states can recognize that the danger of

Cross-Strait Détente b 17

Weekend charter flights and independent Chinese tourists in Taiwan are among the 16 agreements on functional issues signed by the two sides.

photo: Eric van Wijk

For the time being, as Hsin-hsing Wu points out, both China and Taiwan have responded, and will continue to respond, to each other’s messages, needs, and actions cautiously and adequately and without resorting to violence, so long as both believe that proceeding with integration is in their best interests. From this viewpoint, current cross-strait cooperation should continue to be focussed on economic, func-tional, and low-politics cooperation. Ma’s commit-ment to the 1992 Consensus has convinced China of his intention to resist moves toward independence. Within the broader “one China” framework, China could give more merits to Taiwan on any concrete deal. Although “shelving controversies” under “the 1992 Consensus” will likely maintain the momentum of cross-strait functional cooperation for a time, it cannot resolve the core predicament in cross-strait relations, though the process of cross-strait integra-tion has been and will remain a learning process. n

conflict can be managed by reducing uncertainty. Accomplishing this would require that policymak-ers establish security regimes based on norms of re-straint, enabling them to achieve long-term coopera-tion to build trust and reduce mutual tension.

This is the application of what Booth and Weeler term “mitigator logic,” which is the idea that security competition can be ameliorated for a time, but never eliminated. Here, notions of regimes and societies are key, blunting the worst features of anarchy in the international order.

Cooperation as tactical manoeuvre

In “The Tragedy of Great Power Politics,” Mearsheimer touches upon this dynamic, averring that states on either side may enter into cooperative arrangements as tactical manoeuvres designed to enhance their own long-term capacity to renew security competi-tion at a later date.

Security dilemma sensibility or not, Taiwan and China agreed to adopt a pragmatic approach of shelv-ing controversies and finding commonalities despite their differences. Since May 2008, the two sides have agreed to focus on economic and functional exchang-es, made possible through Ma’s “Three Nos Policy,” and Chinese President Hu Jintao’s reciprocal stance, defined by a six-point proposal to: (1) abide by the “one China” principle; (2) advance economic coop-eration; (3) promote Chinese culture; (4) strengthen two-way visits and expand exchanges; (5) safeguard national sovereignty; and (6) end the state of hostil-ity and reach a peace agreement.

To build mutual trust, Hu advocated that Taiwan and China lay aside disputes, seek consensus while shelving differences, and create a win-win situation. Ma also expressed the same concept, though it was framed differently: by facing reality, adhering to mu-tual non-denial, working for the benefit of the people, and seeking cross-strait peace.

A soldier stands guard during a parade in Beijing on October 1, 2009.

photo: Daniel Jansson


An eighth round of cross-strait talks scheduled to be held in late June was postponed due to a failure on both sides

to sort out implementation details beforehand. The talks, which were eventually rescheduled to August 8, were widely expected to play a vital role in insti-tutionalizing rapprochement between the two sides of the Taiwan Strait and were to have yielded several agreements, including those on investment protec-tion and cross-strait customs cooperation. The two agreements have been hailed by some as strong an indicator of Sino-Taiwan economic cooperation as the landmark Economic Cooperation Framework Agreement (ECFA) that was seen by many as the defining achievement of the first term of recently

re-elected President Ma Ying-jeou. Going into negotiations, share prices on the Taiwan

stock markets had been showing a trend toward weakness, largely blamed on multiple external fac-tors, including the European debt crisis and the ris-ing cost of oil, as well as associated internal factors, such as domestic prices for electricity and refined gasoline, and the recent debacle over the proposed implementation of a capital gains tax in Taiwan. It is within this environment of economic negativity that the talks were held—by Straits Exchange Foundation (SEF) Chairman Chiang Pin-kung and his counter-part Chen Yunlin, president of the Beijing-based Association for Relations Across the Taiwan Straits (ARATS)—and as such they were invested with high

Chin Ta-Chih is a military instructor at National Defense University’s Army Command and Staff College and a doctoral student at National Taipei University’s Department of Business Administration. He can be reached at [email protected].

b 19

photo: SEF

SEF head Chiang Pin-kung meets with ARATS head Chen Yunlin on the first day of a visit to central Chinese provinces including Hunan, Anhui, and Jiangxi.


A Return to the Table

Resumption of negotiations needed to address critical cross-strait agreements Chin Ta-chih

expectations to become, if not a panacea for the is-land’s financial woes, then a harbinger of brighter days on the horizon as they promise a more fruitful economic and trade policy for both sides.

On May 12, 2011, Ma took part in a video confer-ence with members of the Center for Strategic and International Studies, a bipartisan, foreign-policy think tank based in Washington, D.C. The president spoke on the subject of providing strong and lasting stability across the Taiwan Strait. In order to bol-ster the national security of the Republic of China (ROC), he proposed the adoption of three strategies: the institutionalization of Taiwan’s rapprochement with China, boosting Taiwan’s contributions to in-ternational development, and aligning the issues of defense and diplomacy.

Institutionalizing rapprochement

The purpose of the first strategy, that of institution-alizing Taiwan’s rapprochement with China, is to solidify a process aimed at enhancing the predict-ability of cross-strait ties and the responsibility of those charged with administering them, thus not only reducing the possibility of potentially destabilizing misjudgments and misunderstandings but also to switch cost in the cross-strait area.

Since Ma took office in 2008, negotiations with the People’s Republic of China (PRC) restarted between the quasi-official SEF and ARATS after a long hiatus, under the stated principle of “putting Taiwan first, for the benefit of the people.” Those interactions yielded seven rounds of talks leading to 16 agreements being signed, including those on charter flights, nuclear safety, and Chinese tourists visiting Taiwan, as well as reaching a common desire to address cross-strait investment protection and strengthen industrial co-operation, leading to the development of a solid foun-dation for cross-strait trade and social exchanges.

This was accomplished by addressing the most ur-

gent, easy-to-solve issues first and leaving the more pressing yet politically thorny issues for later. The tactic was successful, resulting in several early success stories that helped build trust, improve the relation-ship, and pave the way for subsequent negotiations on furthering rapprochement and thus stability in the Taiwan Strait. The improved Sino-Taiwan ties have been unanimously endorsed by the international community and by much of the domestic public.

After the seventh round of talks in October, 2011, results of a survey conducted by the Mainland Affairs Council showed that 84.4 percent of respondents were supportive of the government plan to move toward an institutionalization of negotiations with China in order to deal with the many problems as-sociated with cross-strait exchanges. The poll also showed that 82.9 percent of respondents believe the government should continue to negotiate with China on the issue of investment protection.

The cross-strait investment protection agreement is one of four sub-agreements—the others covering trade in goods, trade in services, and dispute resolu-tion—on which negotiations began during the sixth round of talks. Despite this, the agreements remained unsigned until the recent eighth round of negotia-tions, and the only agreement reached was one in principle, to the effect that it is the common view of both SEF and ARATS that an investment protec-tion agreement should be negotiated, and that any agreement should refer to the basic framework of the general insuring agreement, should take the unique cross-strait relationship into consideration, and should address the practical concerns of investors.


“Taiwanese businessmen are con-cerned about the security of their investments in China.”

Taiwan-China Talks b 21

Some consensus was reached during the seventh round of talks, such as a definition of what constitutes an investor, involving investments in one side from an investor from the other and being made via a third country, as well as a clear definition of what invest-ments may be submitted to arbitration as a means of resolving business disputes. While there was an agreement in principle that the families of Taiwanese investors in China must be notified within 24 hours of their arrest by PRC authorities, the Chinese side negotiated exceptions for cases that Beijing declares to be related to national security or terrorism.

Taiwanese businessmen are concerned about the security of their investments in China, however, and negotiators representing the island’s position made great efforts to protect the rights and interests of such businessmen. There had been great pressure to hold the talks and sign the agreement. According to local media, the Taiwan side’s push to establish substantive arbitration mechanisms to handle disputes between Taiwanese and Chinese entities was a point of con-tention, possibly due to fears in Beijing that such an agreement would amount to tacit acknowledgment of Taiwan’s sovereignty.

Both customs cooperation and industrial coop-

eration are covered in the content of ECFA. On November 1, 2011, at the second round of economic cooperation meetings, both sides agreed to prioritize the issues of business clearances, anti-smuggling ef-forts, and tariff contact windows, as well as to nego-tiate a customs cooperation agreement—an agree-ment that is expected to be inked during the next round of talks.

Issues on the table

The issues on the table were the establishment of and adherence to the international norms regulat-ing customs programs, respecting the principle of transparency, and the adoption of risk-management schemes. The objectives are to improve the efficiency of cross-strait cargo clearance, combat smuggling and other illegal trade, and help companies move prod-ucts across the border. The agreement on this issue should greatly simplify cross-strait cargo clearance, reduce operating costs for industry, and stem the flow of illegal goods. The prospect of reduced oper-ating costs, in particular, is being touted as a means of enhancing Taiwan’s competitive advantage in the global market.

Foxconn recruits workers next to a plant in Zhengzhou. Taiwanese investors provide jobs and skills transfer, and contribute greatly to China’s economy.photo: Bert van Dijk

Taiwan needs a stable security environment, and its companies need an environment of free trade. Through these and similar negotiations, both sides can achieve these goals as well as consolidate nation-al sovereignty. The ECFA was aimed at eliminating cross-strait trade barriers. Currently, both sides have agreed on an early harvest list for trade in products and services, while agreements on investment pro-tection and customs cooperation were signed at the recently held eighth round of cross-strait talks held in early August. To maintain Taiwan’s freedom and security, the government must continue to push for dispute-settlement mechanisms that safeguard the interests of Taiwan’s investors, a goal that has been a long-term expectation among the Taiwanese business community. The customs cooperation agreement is also essential, as it will assist in reducing operating costs. The issues under negotiation in the follow-up to the ECFA deal on economic cooperation are closely related to the rights of Taiwanese people and the country’s future economic development.

It is heartening that negotiations on cross-strait agreements on investment protection and customs

cooperation resumed after having been cancelled, as they demonstrate a greater feasibility for both sides to eventually be able to deal with sovereignty issues. That is, the focus on pragmatic discussion to en-able smoother economic cooperation can help break through the political impasse and overcome long-standing obstacles to more substantive talks. Any consensus on economic and trade issues will be a win-win situation and an outcome that will leave each side looking for more opportunities for cooperation.

Through a process of institutionalizing the cross-strait rapprochement, the Sino-Taiwan relationship would improve greatly. Under the conditions of meet-ing the nation’s needs, garnering public support, and ensuring parliamentary supervision, the agreements signed and those yet on the table are based on public consensus and bilateral confidence. A way should be found for future talks to continue to build upon this precedent of cooperation and building confidence between Taiwan and China. To maintain stability in the Taiwan Strait, continued investment liberaliza-tion will reduce the risk of increased tension between the two sides. n


Foxconn builds a new iPhone factory in Zhengzhou. Taiwanese are among the biggest investors in China and are demanding investment protection.photo: Bert van Dijk

Energy policy has become a vital nation-al security issue facing growing East Asian economies, mirroring the experience in

Europe. In that context, the recent Russia-Ukraine disagreement over the pricing of natural gas is one example of how exposed Europe is to the destructive consequences of fluctuations in energy supply. As en-ergy security likewise becomes a greater concern in East Asia, the region’s economies are more in need of natural resources to fuel their economic growth, and access to supplies are generally less secure than they are for the United States and Europe. This is taking place at a time when East Asia serves as the dynamo

of the world economy. Not surprisingly, it is estimated that East Asia’s share of energy consumption will rise to one-third of global consumption by 2030, a dra-matic increase from its current consumption rate of one-quarter of the world total.

For China, a net importer of oil and natural gas, energy security is important for both external and internal reasons. Although foreign and domestic rela-tions often overlap, one can identify certain distinct traits: For the domestic constituency, a secure flow of energy at the right price point means continued employment and healthy economic growth. From the perspective of international relations, energy security

Serafettin Yilmaz is a doctoral student from Turkey studying Asia-Pacific Studies at National Chengchi University. He can be reached for comment at [email protected].

China-Iran Ties b 23


Power Couple

China’s energy policy toward Iran holds lessons for other Asian economiesSerafettin Yilmaz

A view of Shanghai across the river from the Bund as an advertising screen floats by. China’s energy consumption is among the world’s highest, and growing.

photo: Trey Ratcliff

boils down to overall national security: Unless energy resources and the routes by which these resources are transported are secure, China will remain weak and vulnerable to outside manipulation and intervention.

Middle East indispensable

A concise analysis of China-Iran energy relations is therefore important, although the issue has not yet received wide attention, as the Middle East occu-pies little space in China-related analysis. As is the case for other developing and developed countries in East Asia, however, the Middle East is an indis-pensable region for China. In this respect, relations with Iran are of even greater importance, not only because of the energy-related consequences but also the contentious nature of Iran’s nuclear program and the sanctions that have been placed on the regime. As a result, China’s continued crude purchases from Iran have political as well as economic implications.

As far as the nature of diplomacy is concerned,

China’s relations with the Middle East appear to be less complex than those of the United States and Europe. The nation’s policies are driven almost ex-clusively by economic interests: China does not seek to export its ideology, and it has avoided support-ing protest movements such as the recent Jasmine Revolution for fear of similar occurrences against the Beijing regime. China’s thirst for oil seems to be greater than any ideological concerns in its dealings with the region. Its relations with Iran, in this respect, are interest-driven, and calculated in cold blood. Although many factions within the Western media portray China-Iran ties as one authoritarian govern-ment supporting another, China is neither a close friend nor a foe of Middle East regimes like Iran’s.

This has been the case since 1956 when China es-tablished diplomatic ties with Egypt—its first ally in the Middle East. It is telling that the last country with which Beijing exchanged ambassadors (in 1990) was Saudi Arabia, one of the most repressive regimes in the region. Thus it seems that China’s Middle East


photo: Uday Phalgun

Coal remains one of the main sources of electricity, and pollution, in China today. As energy consumption increases, Beijing seeks energy partners like Iran.


policy took shape in line with its energy needs, and Iran is no exception. China obviously desires to make friends in the region regardless of governance type, yet this is a policy driven by calculation, not emotion.

Despite the apparent simplicity, China’s relation-ship with Iran is a triangular one that ties China, the United States, and Iran together, with energy lying at its heart. This is the case with both Iran and the United States, as well as China, although both US and Iranian foreign policy are guided by ideology to a far greater degree than that of China. In this tri-angular relationship, Beijing stands on a more pre-carious footing than either Washington or Tehran, for it has to balance its energy needs with conflicting Western norms. As a result, China strives to maintain a delicate balance between an assertive international energy policy and a rather cautious foreign policy.

Net energy importer

China became a net energy importer almost two decades ago: according to the International Energy Agency (IEA), China surpassed Japan as the world’s second-largest oil consumer in 2003 and in the en-suing years, China’s demand for oil grew 15 percent annually, to 6.37 million barrels per day, which is about one-third of daily US consumption. Currently, China depends on imports for over 50 percent of the oil it consumes.

The leading factor in China’s growing oil demand is the nation’s economic growth. According to the National Bureau of Statistics, in 1992-2012 the coun-try experienced a growth rate of around 10 percent. Another factor is motorization: Auto sales in China reached 17.9 million units in 2011, a 16-percent gain over the previous year. Car sales in the United States in the same period showed a 7.3-percent increase to 13.4 million units, a figure dwarfed by China’s ever-growing consumption. A third factor is the increase in the use of fuel oil rather than coal to generate elec-

tricity: According to IEA figures, China overtook the United States in 2009 as the world’s largest energy consumer and third-largest importer. The nation ac-

counted for 20.3 percent of global energy demand. Finally, rapid urbanization and the resultant increase in the use of electricity contribute to China’s energy consumption.

Consequently, in line with its increased participa-tion in global production and consumption, energy security has become a major consideration in China’s Middle East policy. A report by the Washington-

“The Middle East will only grow in importance for China because of its undeniable share of the world’s proven oil reserves.”

A gas flare creates a burning plume near Gachsaran in southwestern Iran.

photo: Adam Jones

based Brookings Institution reveals that the region’s share of China’s energy imports has grown consider-ably. In the years before 1994, the Middle East’s share of China’s oil imports was less than 40 percent. This proportion has risen to over 50 percent since then.

It seems that the Middle East will only grow in im-portance for China because of its undeniable share of the world’s proven oil reserves. Hence, any potential disruption in oil flow from the region will have huge consequences for China’s growth. This influence will only strengthen in the future given that, according to estimates, the Middle East’s share in China’s oil imports will rise to 70 percent by the year 2015. It is expected that the Chinese government will be forced to become more involved in the thorny issues in the Middle East as it becomes more dependent on energy resources from the region.

One early sign of this deeper involvement has been in play since late December when the United States began pressuring Iran over the nation’s nuclear de-velopment program. China, traditionally a distant spectator to the Middle East’s rocky international environment, has been more outspoken on the Iran-US nuclear crisis, and there is good reason to be so.

Oil imports and energy-sector investment define China-Iran bilateral relations. Over the past ten years, Iran, along with Saudi Arabia, has provided more than two-thirds of China’s oil imports from the Middle East. Moreover, unlike other smaller energy providers, China’s partnership with major oil pro-ducers such as Iran has remained stable and grown exponentially over the past decade. Consequently,

in the years between 1994 and 2002, Iran’s share of China’s total imports increased from a mere 1 percent to 15 percent. Currently, Iran is China’s third-largest supplier of crude oil.

On the investment side, Iran presents profitable op-portunities for Chinese companies. One example is the development of the Yadavaran oil field in Iran’s Khuzestan region. According to the China Daily, in 2004, the two nations signed a deal worth US$70 bil-lion. Under the agreement, Iran gave China’s state-owned Sinopec Group a 51 percent stake for devel-opment of the field, with China agreeing to buy 10 million metric tons of liquefied natural gas from Iran per annum for 25 years. The agreement was finalized in 2007 and, in spite of some delays, the project is underway.

In the face of tough Western sanctions, Iran has been seeking more Chinese investment, offering lu-crative deals that would have gone to others had it


photo: Jonathan Keelty

A Chinese farmer dries his rice and stops for a smoke under the canopy of a deserted petrol station.

“Iran has been seeking more Chinese investment, offering lu-crative deals that would have gone to others had it not been for the sanctions.”

not been for the sanctions. Hence, it is tempting and relatively easy for China to fill the space vacated by Western actors. Although China’s national oil com-panies are careful not to be perceived to be acting in violation of US-led sanctions, a 2010 report by the Center for Strategic and International Studies finds that China has thus far invested about US$40 billion in Iran’s oil and gas sector.

Few options for China

All this suggests that the Middle East will continue to be an indispensable region for China as it continues its economic development, with Iran as an impor-tant component. Given that most of the oil-produc-ing countries in the region are governed by regimes friendly to the United States, China has little option but to execute a multifaceted approach to resource diplomacy: it is impossible to maintain pure resource diplomacy in the current international environment. Policymakers in Beijing need to get their hands dirty in a tumultuous region and compete with the United States regardless of the fact that it enjoys a century’s worth of experience and expertise. Although China takes pains not to be seen as undermining US inter-ests in its dealings with the region, at some point it will be forced to take a clearer (though not necessarily tougher) and more unambiguous stance toward the region. The implications of China’s involvement in regional politics in the Middle East on international diplomacy and global energy business will be huge.

The Chinese experience could be instructive to other countries in the region, especially Taiwan. Although it is hardly possible for smaller nations to pursue multifaceted resource diplomacy, they could devise a strategy of soft-balancing to enable energy security while at the same time giving the impres-sion of heeding Washington’s concerns. Japan and South Korea already appear to be pursuing a policy reminiscent of such soft-balancing.

This strategy involves two levels: First is to make use of the loopholes in the sanctions regime so as not to be pushed entirely outside the regime. Second is to create alternative transaction techniques such as buying oil with national currencies or providing sovereign guarantees for oil tankers. The advantage of this strategy is that it could be carried out with little publicity. Thus smaller powers would not have to resort to a heated discourse often employed by such heavyweights as Russia and China.

Energy security is equally vital for each and every nation in East Asia, even though their strategies to enable this should differ based on their relative weight on the international stage. However, implicitly or explicitly, Asian countries need to remain engaged in the Middle East in a meaningful way because the pace of industrial development leaves little room to get bogged down in ideological considerations. n


According to Bloomberg News, oil tankers with the capacity to haul at least 20 million barrels of Iranian crude oil signaled for China this July.

photo: L.C. Nøttaasen

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