HISTORY
According to archaeological studies initiated in the 1920s, human activity on Hong Kong dates back over five millennia. Excavated Neolithic artifacts suggest an influence from northern Chinese Stone Age cultures, including the Longshan. The territory was settled by Han Chinese during the seventh century, A.D., evidenced by the discovery of an ancient tomb at Lei Cheung Uk in Kowloon. The first major migration from northern China to Hong Kong occurred during the Song Dynasty (960-1279).
The British East India Company made the first successful sea venture to China in 1699, and Hong Kong's trade with British merchants developed rapidly soon after. Despite Chinese laws prohibiting opium since 1799, the British pursued and monopolized its trade until 1834. Concerned about the rapid increase of opium in China, the Qing Government sought to eradicate the drug trade. When Chinese officials seized and destroyed large quantities of opium, the British sent forces in 1840 to support demands for a commercial treaty or cession of an island for the safety of British nationals; this sparked the First Opium War. China lost the war; subsequently, Britain and other Western powers, including the United States, forcibly occupied "concessions" and gained special commercial privileges. Hong Kong was ceded to Britain in 1842 under the Treaty of Nanking.
Disputes over former treaties and the Chinese boarding of the British ship Arrow started the Second Opium War (also known as the Lorcha Arrow War), which lasted from 1856 to 1858. The Convention of Beijing, signed in 1860, formally ended the hostilities and granted the British a perpetual lease on the Kowloon Peninsula. The United Kingdom was concerned that Hong Kong could not be defended unless surrounding areas were also under British control; in 1898, it executed a 99-year lease of the New Territories, significantly expanding the size of the Hong Kong colony.
In the late 19th century and early 20th centuries, Hong Kong developed as a warehousing and distribution center for U.K. trade with southern China. After the end of World War II and the communist takeover in mainland China in 1949, hundreds of thousands of people emigrated from China to Hong Kong. This helped Hong Kong become an economic success and a manufacturing, commercial, and tourism center. High life expectancy, literacy, per capita income, and other socioeconomic measures attest to Hong Kong's achievements over the last four decades.
GOVERNMENT
The Hong Kong Special Administrative Region (SAR) is headed by Chief Executive Tung Chee Hwa. Mr. Tung assumed office on July 1, 1997 following his election by a 400-member Selection Committee comprised of prominent Hong Kong residents. In May 1998, Hong Kong voters elected 60 members of the SAR's first Legislative Council. The Basic Law, Hong Kong's "mini-Constitution," states that the first Legislative Council shall consist of 20 directly elected members, 30 members elected by functional (occupational) constituencies, and 10 elected by an electoral college. The May 1998 elections were seen as free, open and widely contested, despite discontent among mainly pro-democracy politicians over the Government's "rollback" of the franchise in some functional constituencies and limitation on the number of directly elected seats. The Civil Service maintains its quality and neutrality, operating without discernible direction from Beijing.
POLITICAL CONDITIONS
On July 1, 1997, China resumed the exercise of sovereignty over Hong Kong, ending more than 150 years of British colonial control. The government of Chief Executive Tung Chee Hwa was also installed on that date. Thus far, the transition to Chinese sovereignty has been smooth. Hong Kong remains a free, open society with an independent judiciary.
The Sino-British Joint Declaration, signed in December 1984 after 2 years of negotiations, provided the framework for this peaceful transfer of sovereignty. The agreement stipulated that Hong Kong would become a Special Administrative Region of the People's Republic of China on July 1, 1997 but would retain a high degree of autonomy in all matters except foreign and defense affairs. The Joint Declaration further stated that for 50 years after reversion Hong Kong would retain its political, economic, and judicial systems, and could continue participating in international agreements and organizations under the name, "Hong Kong, China."
The Basic Law, which established Hong Kong's post-reversion political and legal structure and serves as a mini-constitution for the Hong Kong Special Administrative Region, was promulgated by the Chinese National People's Congress in April 1990 after 5 years of deliberation.
ECONOMY
The ongoing region-wide Asian financial crisis, which began in 1997, has created uncertainty and instability in Hong Kong's economy. Hong Kong is in recession, with 1998 GDP expected to decline 4% and both stock market and property prices off 50%. Private consumption, after increasing by 6.7% in 1997, is expected to decline by 4.5% in 1998. Unemployment is up to 5% from 2.2% in 1997. In August 1998, the government intervened in the stock, futures, and currency markets to fend off "manipulators," terming the move a one-time divergence from its usual adherence to non-interventionist, market-oriented policies. The banking sector remains solid and the government is committed to the U.S./Hong Kong dollar link.
Hong Kong has little arable land and virtually no natural resources, including water for agriculture. Agriculturally, it is less than 20% self-sufficient, with shortages of rice and wheat. However, its magnificent harbor has facilitated rapid development of foreign trade. Hong Kong's principal trading partners include China, the United States, Japan, Taiwan, Germany, Singapore, and South Korea. With its modern communications, transportation, and banking facilities, as well as extensive expertise in trade and investment with China, Hong Kong has joined the front ranks of East Asia's newly industrialized economies. In 1997, Hong Kong's gross domestic product (GDP) was $172 billion.
After a period of very rapid growth between 1986-88, economic austerity and the Chinese Government's crackdown in Tiananmen Square in 1989 reduced Hong Kong's growth to 2.6% in 1989 and 3.4% in 1990. Growth rebounded to more than 5.1% in 1991 and to 6.1% in 1993 and continued to grow steadily until the first quarter of 1998, when Hong Kong experienced negative growth for the first time since 1984, with declines in construction, retail sales and tourism.
Hong Kong has enjoyed economic growth in the past because of its strong manufacturing sector, but in recent years the service sector has surpassed it in importance. The major components of Hong Kong's service trade are shipping, civil aviation, tourism, and various financial services.
FOREIGN RELATIONS
Hong Kong's foreign relations and defense are the responsibility of China.
China has granted Hong Kong considerable autonomy in economic and commercial relations. Hong Kong continues to be an active, independent member of the World Trade Organization (WTO) and the Asia-Pacific Economic Cooperation (APEC) forum.
PEOPLE
Life in sparsely populated Mongolia has become more urbanized. Nearly half of the people live in the capital, Ulaanbaatar, and in other provincial centers. Semi-nomadic life still predominates in the countryside, but settled agricultural communities are becoming more common.
Mongolia's birth rate is estimated at 2.7%. About three-fourths of the total population are under age 30, 38% of whom are under 14.
Ethnic Mongols account for about 85% of the population and consist of Khalkha and other groups, all distinguished primarily by dialects of the Mongol language. Mongol is an Altaic language--from the Altaic Mountains of Central Asia, a language family comprising the Turkic, Tungusic, and Mongolic subfamilies--and is related to Turkic (Uzbek, Turkish, and Kazakh), Korean, and, possibly, Japanese. The Khalkha make up 90% of the ethnic Mongol population. The remaining 10% include Durbet Mongols and others in the north and Dariganga Mongols in the east. Turkic speakers (Kazakhs, Turvins, and Khotans) constitute 7% of Mongolia's population, and the rest are Tungusic-speakers, Chinese, and Russians. Most Russians left the country following the withdrawal of economic aid and collapse of the Soviet Union in 1991.
Traditionally, Tibetan Buddhist Lamaism was the predominant religion. However, it was suppressed under the communist regime until 1990, with only one showcase monastery allowed to remain. Since 1990, as liberalization began, Buddhism has enjoyed a resurgence.
About 4 million Mongols live outside Mongolia; about 3.4 million live in China, mainly in the Inner Mongolia Autonomous Region; and some 500,000 live in Russia, primarily in Buryatia and Kalmykia.
HISTORY
In 1203 AD, a single Mongolian state was formed based on nomadic tribal groupings under the leadership of Genghis Khan. He and his immediate successors conquered nearly all of Asia and European Russia and sent armies as far as Central Europe and Southeast Asia. Genghis Khan's grandson Kublai Khan, who conquered China and established the Yuan dynasty (1279-1368 AD), gained fame in Europe through the writings of Marco Polo.
Although Mongol-led confederations sometimes exercised wide political power over their conquered territories, their strength declined rapidly after the Mongol dynasty in China was overthrown in 1368.
The Manchus, a tribal group which conquered China in 1644 and formed the Qing dynasty, were able to bring Mongolia under Manchu control in 1691 as Outer Mongolia when the Khalkha Mongol nobles swore an oath of allegiance to the Manchu emperor. The Mongol rulers of Outer Mongolia enjoyed considerable autonomy under the Manchus, and all Chinese claims to Outer Mongolia following the establishment of the republic have rested on this oath. In 1727, Russia and Manchu China concluded the Treaty of Khiakta, delimiting the border between China and Mongolia that exists in large part today.
Outer Mongolia was a Chinese province (1691-1911), an autonomous state under Russian protection (1912-19), and again a Chinese province (1919- 21). As Manchu authority in China waned, and as Russia and Japan confronted each other, Russia gave arms and diplomatic support to nationalists among the Mongol religious leaders and nobles. The Mongols accepted Russian aid and proclaimed their independence of Chinese rule in 1911, shortly after a successful Chinese revolt against the Manchus. By agreements signed in 1913 and 1915, the Russian Government forced the new Chinese Republican Government to accept Mongolian autonomy under continued Chinese control, presumably to discourage other foreign powers from approaching a newly independent Mongolian state that might seek support from as many foreign sources as possible.
The Russian revolution and civil war afforded Chinese warlords an opportunity to re-establish their rule in Outer Mongolia, and Chinese troops were dispatched there in 1919. Following Soviet military victories over White Russian forces in the early 1920s and the occupation of the Mongolian capital Urga in July 1921, Moscow again became the major outside influence on Mongolia. The Mongolian People's Republic was proclaimed on November 25, 1924.
Between 1925 and 1928, power under the communist regime was consolidated by the Mongolian Peoples Revolutionary Party (MPRP). The MPRP left gradually undermined rightist elements, seizing control of the party and the government. Several factors characterized the country during this period--the society was basically nomadic and illiterate; there was no industrial proletariat; the aristocracy and the religious establishment shared the country's wealth; there was widespread popular obedience to traditional authorities; the party lacked grassroots support; and the government had little organization or experience.
In an effort at swift socioeconomic reform, the leftist government applied extreme measures which attacked the two most dominant institutions in the country--the aristocracy and the religious establishment. Between 1932 and 1945, their excess zeal, intolerance, and inexperience led to anti-communist uprisings. In the late 1930's purges directed at the religious institution resulted in the desecration of hundreds of Buddhist institutions and imprisonment of more than 10,000 people.
During World War II, because of a growing Japanese threat over the Mongolian-Manchurian border, the Soviet Union reversed the course of Mongolian socialism in favor of a new policy of economic gradualism and buildup of the national defense. The Soviet-Mongolian army defeated Japanese forces that had invaded eastern Mongolia in the summer of 1939, and a truce was signed setting up a commission to define the Mongolian-Manchurian border in the autumn of that year.
Following the war, the Soviet Union reasserted its influence in Mongolia. Secure in its relations with Moscow, the Mongolian Government shifted to postwar development, focusing on civilian enterprise. International ties were expanded, and Mongolia established relations with North Korea and the new communist governments in Eastern Europe. It also increased its participation in communist-sponsored conferences and international organizations. Mongolia became a member of the United Nations in 1961.
In the early 1960s, Mongolia attempted to maintain a neutral position amidst increasingly contentious Sino-Soviet polemics; this orientation changed in the middle of the decade. Mongolia and the Soviet Union signed an agreement in 1966 that introduced large-scale Soviet ground forces as part of Moscow's general buildup along the Sino-Soviet frontier.
During the period of Sino-Soviet tensions, relations between Mongolia and China deteriorated. In 1983, Mongolia systematically began expelling some of the 7,000 ethnic Chinese in Mongolia to China. Many of them had lived in Mongolia since the 1950s, when they were sent there to assist in construction projects.
Chronology of Mongolian History 1921-Present
March 13, 1921: Provisional People's Government declares independence of Mongolia.
May 31, 1924: U.S.S.R. signs agreement with Peking government, referring to Outer Mongolia as an "integral part of the Republic of China," whose "sovereignty" therein the Soviet Union promises to respect.
May-September 16, 1939: Large-scale fighting takes place between Japanese and Soviet-Mongolian forces along Khalkhyn Gol on Mongolia-Manchuria border, ending in defeat of the Japanese expeditionary force. Truce negotiated between U.S.S.R. and Japan.
October 6, 1949: Newly established People's Republic of China accepts recognition accorded Mongolia and agrees to establish diplomatic relations.
October 1961: Mongolia becomes a member of the United Nations.
January 27, 1987: Diplomatic relations established with the United States.
December 1989: First popular reform demonstrations. Mongolian Democratic Association organized.
January 1990: Large-scale demonstrations demanding democracy held in sub-zero weather.
March 2, 1990: Soviets and Mongolians announce that all Soviet troops will be withdrawn from Mongolia by 1992.
May 1990: Constitution amended to provide for multi-party system and new elections.
July 29, 1990: First democratic elections held.
September 3, 1990: First democratically elected People's Great Hural takes office.
February 12, 1992: New constitution goes into effect.
April 8, 1992: New election law passed.
June 28, 1992: Election for the first unicameral legislature (State Great Hural).
June 6, 1993: First direct presidential election.
June 30, 1996: Election of first non-communist government.
GOVERNMENT
Until 1990, the Mongolian Government was modeled on the Soviet system; only the communist party--the MPRP--officially was permitted to function. After some instability during the first two decades of communist rule in Mongolia, there was no significant popular unrest until December 1989. Collectivization of animal husbandry, introduction of agriculture, and the extension of fixed abodes were all carried out without perceptible popular opposition.
The birth of perestroika in the former Soviet Union and the democracy movement in Eastern Europe were mirrored in Mongolia.
The dramatic shift toward reform started in early 1990 when the first organized opposition group, the Mongolian Democratic Union, appeared. In the face of extended street protests in sub-zero whether and popular demands for faster reform, the politburo of the MPRP resigned in March 1990. In May, the constitution was amended, deleting reference to the MPRP's role as the guiding force in the country, legalizing opposition parties, creating a standing legislative body, and establishing the office of president.
Mongolia's first multi-party elections for a People's Great Hural were held on July 29, 1990. The MPRP won 85% of the seats. The People's Great Hural first met on September 3 and elected a president (MPRP), vice president (SDP--Social Democrats), prime minister (MPRP), and 50 members to the Baga Hural (small Hural). The vice president was also chairman of the Baga Hural.
In November 1991, the People's Great Hural began discussion on a new constitution, which entered into force February 12. In addition to establishing Mongolia as an independent, sovereign republic and guaranteeing a number of rights and freedoms, the new constitution restructured the legislative branch of government, creating a unicameral legislature, the State Great Hural (SGH).
The 1992 constitution provided that the president would be elected by popular vote rather than by the legislature as before. In June 1993, incumbent Punsalmaagiyn Ochirbat won the first popular presidential election running as the candidate of the democratic opposition.
As the supreme government organ, the SGH is empowered to enact and amend laws, determine domestic and foreign policy, ratify international agreements, and declare a state of emergency. The SGH meets semi-annually. SGH members elect a chairman and vice chairman who serve 4-year terms. SGH members are popularly elected by district for 4-year terms. In the most recent parliamentary election on June 30, 1996, the opposition, running together under the banner of the Democratic Union won a landslide victory, taking 50 of 76 seats in the SGH. The first completely non-communist government was installed in July 1996, headed by Prime Minister M. Enkhsaihan.
The president is the head of state, commander in chief of the armed forces, and head of the national security council. He is popularly elected by a national majority for a 4-year term and limited to two terms. The constitution empowers the president to propose a prime minister, call for the government's dissolution, initiate legislation, veto all or parts of legislation (the SGH can override the veto with a two-thirds majority), and issue decrees, which become effective with the prime minister's signature. In the absence, incapacity, or resignation of the president, the SGH chairman exercises presidential power until inauguration of a newly elected president. In the most recent presidential election on May 18, 1997, the MPRP candidate, N. Bagabandi, was elected with 57% of the vote.
The government, headed by the prime minister, has a 4-year term. The prime minister is nominated by the president and confirmed by the SGH. The prime minister chooses a cabinet, subject to SGH approval. Dissolution of the government occurs upon the prime minister's resignation, simultaneous resignation of half the cabinet, or after an SGH vote for dissolution.
Local hurals are elected by the 18 aimags (provinces) plus the capital, Ulaanbaatar, and cities of Darhan and Erdenet. On the next-lower administrative level they are elected by provincial subdivisions and urban subdistricts in Ulaanbaatar and the municipalities, Darhan and Erdenet.
Political Parties
-- Bourgeois Party (Bourgeois)
-- Buddhist Democratic Party
-- Green Party (Greens)
-- Mongolian National Democratic Party (MNDP)
-- Mongolian Independence Party (Independence)
-- Mongolian People's Party (MPP)
-- Mongolian People's Revolutionary Party (MPRP)
-- Mongolian Worker's Party (MWP)
-- Social Democratic Party (SDP)
-- United Party of Farmers and Herdsmen (Herdsmen)
-- United Party of Private Property Owners (PPOP)
Legal System
The new constitution empowered a General Council of Courts (GCC) to select all judges and protect their rights. The Supreme Court is the highest judicial body. Justices are nominated by the GCC and confirmed by the SGH and president. The court is constitutionally empowered to examine all lower court decisions--excluding specialized court rulings--upon appeal and provide official interpretations on all laws except the constitution.
Specialized civil, criminal, and administrative courts exist at all levels and are not subject to Supreme Court supervision. Local authorities--district and city governors--ensure that these courts abide by presidential decrees and SGH decisions. At the apex of the judicial system is the Constitutional Court, which consists of nine members--including a chairman--appointed for 6-year terms, whose jurisdiction extends solely over the interpretation of the constitution.
ECONOMY
The rapid political changes of 1990-91 marked the beginning of Mongolia's efforts to develop a market economy, but these efforts have been complicated and disrupted by the dissolution and continuing deterioration of the economy of the former Soviet Union. Prior to 1991, 80% of Mongolia's trade was with the former Soviet Union and 15% was with other Council for Mutual Economic Assistance (CMEA) countries. Mongolia was heavily dependent upon the former Soviet Union for fuel, medicine, and spare parts for its factories and power plants.
The former U.S.S.R. also served as the primary market for Mongolian industry. In the 1980s, Mongolia's industrial sector became increasingly important. By 1989, it accounted for an estimated 34% of material products, compared to 18% from agriculture. However, minerals, animals, and animal-derived products still constitute a large proportion of the country's exports. Principal imports included machinery, petroleum, cloth, and building materials.
In the late 1980s, the government began to improve links with non-communist Asia and the West, and a tourism sector developed. As of January 1, 1991, Mongolia and the former Soviet Union agreed to conduct bilateral trade in hard currency at world prices.
Despite its external trade difficulties, Mongolia has continued to press ahead with reform. Privatization of small shops and enterprises is largely complete, and most prices have been freed. Privatization of large state enterprises has begun. Tax reforms also have begun, and the barter and official exchange rates were unified in early 1992.
Between 1990 and 1993, Mongolia suffered triple-digit inflation, rising unemployment, shortages of basic goods and food rationing. During that period, economic output contracted by one-third. As market reforms and private enterprise took hold, economic growth began again in 1994-95. Unfortunately, since this growth was fueled in part by over-allocation of bank credit, especially to the remaining state-owned enterprises, economic growth was accompanied by a severe weakening of the banking sector. GDP grew by about 6% in 1995, thanks largely to a boom in copper prices.
Economic growth stalled in 1996 due to unusually large and widespread forest and steppe fires. These caused damage estimated at more than $2 billion and scared away much of the crucial tourist trade at the height of the brief summer season. At the same time, world prices of two of Mongolia's major exports--cashmere and copper--fell. When the newly elected Democratic Union took office in July 1996, it faced a widening budget shortfall, worsening balance of payments problems, and a banking system in crisis. It undertook almost immediately an aggressive program of economic "shock treatment" designed to eliminate the last vestiges of the centrally planned economy, which included energy price liberalization, privatization of housing, and elimination of virtually all import tariffs. Mongolia joined the World Trade Organization in January 1997.
Prospects for development outside the traditional reliance on nomadic, livestock-based agriculture are constrained by Mongolia's land-locked location and lack of basic infrastructure. Mongolia's best hope for accelerated growth is to attract more foreign investment. New foreign investment in the first half of 1997 totaled $16.7 million, a figure that the Mongolian government seeks to increase dramatically.
Environment
As a result of rapid urbanization and industrial growth policies under the communist regime, Mongolia's deteriorating environment has become a major concern. The burning of soft coal coupled with thousands of factories in Ulaanbaatar has resulted in severely polluted air. Deforestation, overgrazed pastures, and efforts to increase grain and hay production by plowing up more virgin land has increased soil erosion from wind and rain. Most recently, with the rapid growth of newly privatized herds, overgrazing in selected areas is also a concern.
FOREIGN RELATIONS
In the wake of the international socialist economic system's collapse and the disintegration of the former Soviet Union, Mongolians began to pursue an independent and non-aligned foreign policy. The Prime Minister called for co-existence with all nations, and Mongolia follows a general policy of expanding relations with as many countries as possible.
Due to Mongolia's landlocked position between the new independent states (NIS) of the former Soviet Union and China, it was essential to continue and improve relations with these countries. At the same time, Mongolia is reaching out to advance its regional and global relations.
As part of its aim to establish a more balanced non-aligned foreign policy, Mongolia is seeking active supporters and friends beyond its neighbors and looking to take a more active role in the United Nations and other international organizations. While it is downgrading relations with most of its former East European allies, it is pursuing a more active role in Asian and Northeast Asian affairs. Mongolia is seeking to join APEC and has applied for membership in a number of technical regional organizations including the ASEAN Regional Forum (ARF).
High-level Mongolian officials and/or parliamentarians have made official visits to countries including China, Japan, South Korea, Australia, Nepal, the Philippines, Pakistan, and several Western European countries. Mongolia also has established diplomatic relations with a number of other nations, among them Oman, Brunei, and Israel.
Asia
Mongolian relations with China began to improve in the mid-1980s when consular agreements were reached and cross-border trade contacts expanded. In 1989, China and Mongolia exchanged visits of foreign ministers. In May 1990, a Mongolian head of state visited China for the first time in 28 years. The cornerstone of the Mongolian-Chinese relationship is a 1994 Treaty of Friendship and Cooperation which codifies mutual respect for the independence and territorial integrity of both sides. Today, relations between Mongolia and China are correct. The two foreign ministers exchanged visits in 1997, as did the leaders of the two countries' parliaments. Mongolia's Defense Minister also visited in Beijing in November 1997 for talks with his counterpart.
Mongolia is expanding relations with Japan and South Korea. Its Prime Minister visited Japan in March 1990. Japan has provided over $100 million in grants and loans since 1991 and coordinated international assistance to Mongolia. Diplomatic relations were established with South Korea in 1991, and during the Mongolian President's visit, seven agreements and treaties were signed, providing the legal basis for further expanding bilateral relations.
Russia
After the disintegration of the former Soviet Union, Mongolia developed relations with the new independent states. Links with Russia and other republics were essential to contribute to stabilization of the Mongolian economy. The primary difficulties in developing fruitful coordination occurred because the NIS were experiencing the same political and economic restructuring as Mongolia. Despite these difficulties, Mongolia and Russia successfully negotiated both a 1991 Joint Declaration of Cooperation and a bilateral trade agreement. This was followed by a 1993 Treaty of Friendship and Cooperation establishing a new basis of equality in the relationship.
Europe
Mongolia seeks closer relations with countries in Europe and hopes to receive most-favored-nation status from the European Union (EU). During 1991, Mongolia signed investment promotion and protection agreements with Germany and France and an economic cooperation agreement with the United Kingdom. Germany continued former East German cooperative programs and also provided loans and aid. The Prime Minister has traveled to Germany, France, Belgium, and EU headquarters in Brussels seeking economic cooperation.
U.S.-MONGOLIAN RELATIONS
The U.S. Government recognized Mongolia in January 1987 and established its first embassy in Ulaanbaatar in June 1988. It formally opened in September 1988. The first U.S. ambassador to Mongolia, Richard L. Williams, was not resident there; Joseph E. Lake, the first resident ambassador, arrived in July 1990. Secretary of State James A. Baker, III visited Mongolia in August 1990, and again in July 1991. Mongolia accredited its first ambassador to the United States in March 1989. Most recently, Prime Minister Enkhsaihan visited the United States in October 1996.
The United States has sought to assist Mongolia's movement toward democracy and market-oriented reform and to expand relations with Mongolia primarily in the cultural and economic fields. The United States granted Mongolia most-favored-nation status and has supported Mongolia's transition to political democracy and a market economy. In 1989 and 1990, a cultural accord, Peace Corps accord, consular convention, and Overseas Private Investment Corporation (OPIC) agreement were signed. A trade agreement was signed in January 1991 and a bilateral investment treaty in 1994.
USAID has provided almost $80 million over the past 5 years in technical assistance and training for Mongolia's democratic and economic reform program. Of that total, some $38 million has gone for emergency energy assistance, which has been instrumental in keeping Mongolia's power and heating system operable through the country's harsh winters. In FY 1998, the bulk of USAID energy funding is being used to support rural economic growth by providing a reliable, cost-effective source of electricity through purchase of U.S.-made diesel generators for a number of provincial capitals.
The U.S. is also directly supporting Mongolia's democratization by working with U.S. non-governmental organizations to provide training for parliamentary committee organization and constituent service and has recently launched a program to establish public affairs organizations and legislative relations offices in every ministry. U.S. assistance also provided technical assistance for the drafting of the 1992 constitution and for non-partisan voter education guides for the 1996 parliamentary election.
The U.S. provides support for the Mongolian government's economic reforms through a $2 million Economic Policy Support Project that includes a full-time American policy advisor in the Prime Minister's office. The advisor has worked closely with the Government of Mongolia to set the policy agenda of the current government and provides policy advice and expert technical assistance for the government's major reform initiatives.
The Peace Corps currently has 49 volunteers in Mongolia. They are engaged primarily in English teaching and teacher training activities. At the request of the Government of Mongolia, the Peace Corps has agreed to develop new programs in the areas of public health and the environment. Plans call for increasing the number of volunteers to between 60 and 80 within 2 years.
PEOPLE
Ethnic Groups
The largest ethnic group is the Han Chinese, who constitute about 91.9% of the total population. The remaining 8.1% are Zhuang (16 million), Manchu (10 million), Hui (9 million), Miao (8 million), Uygur (7 million), Yi (7 million), Mongolian (5 million), Tibetan (5 million), Buyi (3 million), Korean (2 million), and other ethnic minorities.
Language
There are seven major Chinese dialects and many subdialects. Mandarin (or Putonghua), the predominant dialect, is spoken by over 70% of the population. It is taught in all schools and is the medium of government. About two-thirds of the Han ethnic group are native speakers of Mandarin; the rest, concentrated in southwest and southeast China, speak one of the six other major Chinese dialects. Non-Chinese languages spoken widely by ethnic minorities include Mongolian, Tibetan, Uygur and other Turkic languages (in Xinjiang), and Korean (in the Northeast).
The Pinyin System of Romanization
On January 1, 1979, the Chinese Government officially adopted the pinyin system for spelling Chinese names and places in Roman letters. A system of Romanization invented by the Chinese, pinyin has long been widely used in China on street and commercial signs as well as in elementary Chinese textbooks as an aid in learning Chinese characters. Variations of pinyin are also used as the written forms of several minority languages.
Pinyin has now replaced other conventional spellings in China's English-language publications. The U.S. Government has also adopted the pinyin system for all names and places in China. For example, the capital of China is now spelled "Beijing" rather than "Peking."
Religion
Religion plays a significant part in the life of many Chinese. Buddhism is most widely practiced, with an estimated 100 million adherents. Traditional Taoism also is practiced. Official figures indicate there are 18 million Muslims, 4 million Catholics, and 10 million Protestants; unofficial estimates are much higher.
While the Chinese Constitution affirms religious toleration, the Chinese Government places restrictions on religious practice outside officially recognized organizations. Only two Christian organizations--a Catholic church without ties to Rome and the "Three-Self-Patriotic" Protestant church--are sanctioned by the Chinese Government. Unauthorized churches have sprung up in many parts of the country and unofficial religious practice is flourishing. In some regions authorities have tried to control activities of these unregistered churches. In other regions registered and unregistered groups are treated similarly by authorities and congregates worship in both types of churches.
China hosted a delegation of distinguished American religious leaders in February 1998. The religious leaders met with President Jiang Zemin, conveyed U.S. views on religious freedom, and traveled to numerous sites, including Tibet.
Population Policy
With a population of over 1.22 billion and an estimated growth rate of 0.93%, China is very concerned about its population growth and has attempted to implement a strict population control policy. The government's goal is one child per family, with exceptions in rural areas and for ethnic minorities. The government states that it opposes physical compulsion to submit to abortion or sterilization, but instances of coercion have reportedly continued as local officials strive to meet population targets. The government's goal is to stabilize the population early in the 21st century, although some current projections estimate a population of 1.6 billion by 2025.
HISTORY
Dynastic Period
China is the oldest continuous major world civilization, with records dating back about 3,500 years. Successive dynasties developed a system of bureaucratic control which gave the agrarian-based Chinese an advantage over neighboring nomadic and hill cultures. Chinese civilization was further strengthened by the development of a Confucian state ideology and a common written language that bridged the gaps among the country's many local languages and dialects. Whenever China was conquered by nomadic tribes, as it was by the Mongols in the 13th century, the conquerors sooner or later adopted the ways of the "higher" Chinese civilization and staffed the bureaucracy with Chinese.
The last dynasty was established in 1644, when the nomadic Manchus overthrew the native Ming dynasty and established the Qing (Ch'ing) dynasty with Beijing as its capital. At great expense in blood and treasure, the Manchus over the next half century gained control of many border areas, including Xinjiang, Yunnan, Tibet, Mongolia, and Taiwan. The success of the early Qing period was based on the combination of Manchu martial prowess and traditional Chinese bureaucratic skills.
During the 19th century, Qing control weakened, and prosperity diminished. China suffered massive social strife, economic stagnation, explosive population growth, and Western penetration and influence. The Taiping and Nian rebellions, along with a Russian-supported Muslim separatist movement in Xinjiang, drained Chinese resources and almost toppled the dynasty. Britain's desire to continue its illegal opium trade with China collided with imperial edicts prohibiting the addictive drug, and the First Opium War erupted in 1840. China lost the war; subsequently, Britain and other Western powers, including the United States, forcibly occupied "concessions" and gained special commercial privileges. Hong Kong was ceded to Britain in 1842 under the Treaty of Nanking, and in 1898, when the Opium Wars finally ended, Britain executed a 99-year lease of the New Territories, significantly expanding the size of the Hong Kong colony.
As time went on, the Western powers, wielding superior military technology, gained more economic and political privileges. Reformist Chinese officials argued for the adoption of Western technology to strengthen the dynasty and counter Western advances, but the Qing court played down both the Western threat and the benefits of Western technology.
Early 20th Century China
Frustrated by the Qing court's resistance to reform, young officials, military officers, and students--inspired by the revolutionary ideas of Sun Yat-sen--began to advocate the overthrow of the Qing dynasty and creation of a republic. A revolutionary military uprising on October 10, 1911, led to the abdication of the last Qing monarch. As part of a compromise to overthrow the dynasty without a civil war, the revolutionaries and reformers allowed high Qing officials to retain prominent positions in the new republic. One of these figures, General Yuan Shikai, was chosen as the republic's first president. Before his death in 1916, Yuan unsuccessfully attempted to name himself emperor. His death left the republican government all but shattered, ushering in the era of the "warlords" during which China was ruled and ravaged by shifting coalitions of competing provincial military leaders.
In the 1920s, Sun Yat-sen established a revolutionary base in south China and set out to unite the fragmented nation. With Soviet assistance, he organized the Kuomintang (KMT or "Chinese Nationalist People's Party"), and entered into an alliance with the fledgling Chinese Communist Party (CCP). After Sun's death in 1925, one of his proteges, Chiang Kai-shek, seized control of the KMT and succeeded in bringing most of south and central China under its rule. In 1927, Chiang turned on the CCP and executed many of its leaders. The remnants fled into the mountains of eastern China. In 1934, driven out of their mountain bases, the CCP's forces embarked on a "Long March" across China's most desolate terrain to the northwest, where they established a guerrilla base at Yan'an in Shaanxi Province.
During the "Long March," the Communists reorganized under a new leader, Mao Zedong (Mao Tse-tung). The bitter struggle between the KMT and the CCP continued openly or clandestinely through the 14-year long Japanese invasion (1931-45), even though the two parties nominally formed a united front to oppose the Japanese invaders in 1937. The war between the two parties resumed after the Japanese defeat in 1945. By 1949, the CCP occupied most of the country.
Chiang Kai-shek fled with the remnants of his KMT government and military forces to Taiwan, where he proclaimed Taipei to be China's "provisional capital" and vowed to reconquer the Chinese mainland. The KMT authorities on Taiwan still call themselves the "Republic of China."
The People's Republic of China
In Beijing, on October 1, 1949, Mao Zedong proclaimed the founding of the People's Republic of China. The new government assumed control of a people exhausted by two generations of war and social conflict, and an economy ravaged by high inflation and disrupted transportation links. A new political and economic order modeled on the Soviet example was quickly installed.
In the early 1950s, China undertook a massive economic and social reconstruction. The new leaders gained popular support by curbing inflation, restoring the economy, and rebuilding many war-damaged industrial plants. The CCP's authority reached into almost every phase of Chinese life. Party control was assured by large, politically loyal security and military forces; a government apparatus responsive to party direction; and ranks of party members in labor, women's, and other mass organizations.
The "Great Leap Forward" and the Sino-Soviet Split
In 1958, Mao broke with the Soviet model and announced a new economic program, the "Great Leap Forward," aimed at rapidly raising industrial and agricultural production. Giant cooperatives (communes) were formed, and "backyard factories" dotted the Chinese landscape. The results were disastrous. Normal market mechanisms were disrupted, agricultural production fell behind, and China's people exhausted themselves producing what turned out to be shoddy, unsalable goods. Within a year, starvation appeared even in fertile agricultural areas. From 1960 to 1961, the combination of poor planning during the Great Leap Forward and bad weather resulted in famine.
The already strained Sino-Soviet relationship deteriorated sharply in 1959, when the Soviets started to restrict the flow of scientific and technological information to China. The dispute escalated, and the Soviets withdrew all of their personnel from China in August 1960. In 1960, the Soviets and the Chinese began to have disputes openly in international forums.
The Cultural Revolution
In the early 1960s, State President Liu Shaoqi and his protege, Party General Secretary Deng Xiaoping, took over direction of the party and adopted pragmatic economic policies at odds with Mao's revolutionary vision. Dissatisfied with China's new direction and his own reduced authority, Party Chairman Mao launched a massive political attack on Liu, Deng, and other pragmatists in the spring of 1966. The new movement, the "Great Proletarian Cultural Revolution," was unprecedented in Communist history. For the first time, a section of the Chinese Communist leadership sought to rally popular opposition against another leadership group. China was set on a course of political and social anarchy which lasted the better part of a decade.
In the early stages of the Cultural Revolution, Mao and his "closest comrade in arms," National Defense Minister Lin Biao, charged Liu, Deng, and other top party leaders with dragging China back toward capitalism. Radical youth organizations, called Red Guards, attacked party and state organizations at all levels, seeking out leaders who would not bend to the radical wind. In reaction to this turmoil, some local People's Liberation Army (PLA) commanders and other officials maneuvered to outwardly back Mao and the radicals while actually taking steps to rein in local radical activity.
Gradually, Red Guard and other radical activity subsided, and the Chinese political situation stabilized along complex factional lines. The leadership conflict came to a head in September 1971, when Party Vice Chairman and Defense Minister Lin Biao reportedly tried to stage a coup against Mao; Lin Biao allegedly later died in a plane crash in Mongolia.
In the aftermath of the Lin Biao incident, many officials criticized and dismissed during 1966-69 were reinstated. Chief among these was Deng Xiaoping, who reemerged in 1973 and was confirmed in 1975 in the concurrent posts of Politburo Standing Committee member, PLA Chief of Staff, and Vice Premier.
The ideological struggle between more pragmatic, veteran party officials and the radicals re-emerged with a vengeance in late 1975. Mao's wife, Jiang Qing, and three close Cultural Revolution associates (later dubbed the "Gang of Four") launched a media campaign against Deng. In January of 1976, Premier Zhou Enlai, a popular political figure, died of cancer. On April 5, Beijing citizens staged a spontaneous demonstration in Tiananmen Square in Zhou's memory, with strong political overtones in support of Deng. The authorities forcibly suppressed the demonstration. Deng was blamed for the disorder and stripped of all official positions, although he retained his party membership.
The Post-Mao Era
Mao's death in September 1976 removed a towering figure from Chinese politics and set off a scramble for succession. Former Minister of Pubic Security Hua Guofeng was quickly confirmed as Party Chairman and Premier. A month after Mao's death, Hua, backed by the PLA, arrested Jiang Qing and other members of the "Gang of Four." After extensive deliberations, the Chinese Communist Party leadership reinstated Deng Xiaoping to all of his previous posts at the 11th Party Congress in August 1977. Deng then led the effort to place government control in the hands of veteran party officials opposed to the radical excesses of the previous two decades.
The new, pragmatic leadership emphasized economic development and renounced mass political movements. At the pivotal December 1978 Third Plenum (of the 11th Party Congress Central Committee), the leadership adopted economic reform policies aimed at expanding rural income and incentives, encouraging experiments in enterprise autonomy, reducing central planning, and establishing direct foreign investment in China. The plenum also decided to accelerate the pace of legal reform, culminating in the passage of several new legal codes by the National People's Congress in June 1979.
After 1979, the Chinese leadership moved toward more pragmatic positions in almost all fields. The party encouraged artists, writers, and journalists to adopt more critical approaches, although open attacks on party authority were not permitted. In late 1980, Mao's Cultural Revolution was officially proclaimed a catastrophe. Hua Guofeng, a protege of Mao, was replaced as Premier in 1980 by reformist Sichuan party chief Zhao Ziyang and as party General Secretary in 1981 by the even more reformist Communist Youth League chairman Hu Yaobang.
Reform policies brought great improvements in the standard of living, especially for urban workers and for farmers who took advantage of opportunities to diversify crops and establish village industries. Literature and the arts blossomed, and Chinese intellectuals established extensive links with scholars in other countries.
At the same time, however, political dissent as well as social problems such as inflation, urban migration, and prostitution emerged. Although students and intellectuals urged greater reforms, some party elders increasingly questioned the pace and the ultimate goals of the reform program. In December of 1986, student demonstrators, taking advantage of the loosening political atmosphere, staged protests against the slow pace of reform, confirming party elders' fear that the current reform program was leading to social instability. Hu Yaobang, a protege of Deng and a leading advocate of reform, was blamed for the protests and forced to resign as CCP General Secretary in January 1987. Premier Zhao Ziyang was made General Secretary and Li Peng, former Vice Premier and Minister of Electric Power and Water Conservancy, was made Premier.
1989 Student Movement and Tiananmen Square
After Zhao became the party General Secretary, the economic and political reforms he had championed came under increasing attack. His proposal in May 1988 to accelerate price reform led to widespread popular complaints about rampant inflation and gave opponents of rapid reform the opening to call for greater centralization of economic controls and stricter prohibitions against Western influence. This precipitated a political debate which grew more heated through the winter of 1988-89.
The death of Hu Yaobang on April 15, 1989, coupled with growing economic hardship caused by high inflation, provided the backdrop for a large scale protest movement by students, intellectuals, and other parts of a disaffected urban population. University students and other citizens in Beijing camped out at Tiananmen Square to mourn Hu's death and to protest against those who would slow reform. Their protests, which grew despite government efforts to contain them, called for an end to official corruption and for defense of freedoms guaranteed by the Chinese Constitution. Protests also spread through many other cities, including Shanghai and Guangzhou.
Martial law was declared on May 20, 1989. Late on July 3 and early on the morning of June 4, military units were brought into Beijing. They used armed force to clear demonstrators from the streets. There are no official estimates of deaths in Beijing, but most observers believe that casualties numbered in the hundreds.
After June 4, while foreign governments expressed horror at the brutal suppression of the demonstrators, the central government eliminated remaining sources of organized opposition, detained large numbers of protesters, and required political reeducation not only for students but also for large numbers of party cadre and government officials.
Following the resurgence of conservatives in the aftermath of June 4, economic reform slowed until given new impetus by Deng Xiaoping's dramatic visit to southern China in early 1992. Deng's renewed push for a market-oriented economy received official sanction at the 14th Party Congress later in the year as a number of younger, reform-minded leaders began their rise to top positions. Deng and his supporters argued that managing the economy in a way that increased living standards should be China's primary policy objective, even if "capitalist" measures were adopted. Subsequent to the visit, the Communist Party Politburo publicly issued an endorsement of Deng's policies of economic openness. Though not completely eschewing political reform, China has consistently placed overwhelming priority on the opening of its economy.
Third Generation of Leaders
Deng's health deteriorated in the years prior to his death in 1997. During that time, President Jiang Zemin and other members of his generation gradually assumed control of the day-to-day functions of government. This "third generation" leadership governs collectively with President Jiang at the center.
In March 1998, Jiang was re-elected President during the 9th National People's Congress. Premier Li Peng was constitutionally required to step down from that post. He was elected to the chairmanship of the National People's Congress. Zhu Rongji was selected to replace Li as Premier.
China is firmly committed to economic reform and opening to the outside world. The Chinese leadership has identified reform of state industries as a government priority. Government strategies for achieving that goal include large-scale privatization of unprofitable state-owned enterprises. The leadership has also downsized the government bureaucracy.
GOVERNMENT
Chinese Communist Party
The 58 million member CCP, authoritarian in structure and ideology, continues to dominate government and society. Nevertheless, China's population, geographical vastness, and social diversity frustrate attempts to rule by fiat from Beijing. Central leaders must increasingly build consensus for new policies among party members, local and regional leaders, influential non-party members, and the population at large.
In periods of relative liberalization, the influence of people and organizations outside the formal party structure has tended to increase, particularly in the economic realm. This phenomenon is apparent today in the rapidly developing coastal region. Nevertheless, in all important government, economic, and cultural institutions in China, party committees work to see that party and state policy guidance is followed and that non-party members do not create autonomous organizations that could challenge party rule. Party control is tightest in government offices and in urban economic, industrial, and cultural settings; it is considerably looser in the rural areas, where the majority of the people live.
Theoretically, the party's highest body is the Party Congress, which is supposed to meet at least once every 5 years. The primary organs of power in the Communist Party include:
-- The seven-member Politburo Standing Committee;
-- The Politburo, consisting of 22 full members (including the members of
the Politburo Standing Committee);
-- The Secretariat, the principal administrative mechanism of the CCP, headed
by the General Secretary;
-- The Military Commission;
-- The Discipline Inspection Commission, which is charged with rooting out
corruption and malfeasance among party cadres.
State Structure
The Chinese Government has always been subordinate to the Chinese Communist Party (CCP); its role is to implement party policies. The primary organs of state power are the National People's Congress (NPC), the President, and the State Council. Members of the State Council include Premier Zhu Rongji, a variable number of vice premiers (now four), five state councilors (protocol equal of vice premiers but with narrower portfolios), and 29 ministers and heads of State Council commissions.
Under the Chinese Constitution, the NPC is the highest organ of state power in China. It meets annually for about 2 weeks to review and approve major new policy directions, laws, the budget, and major personnel changes. These initiatives are presented to the NPC for consideration by the State Council after previous endorsement by the Communist Party's Central Committee. Although the NPC generally approves State Council policy and personnel recommendations, various NPC committees hold active debate in closed sessions, and changes may be made to accommodate alternate views.
When the NPC is not in session, its permanent organ, the Standing Committee, exercises state power.
POLITICAL CONDITIONS
Legal System
The government's efforts to promote rule of law are significant and ongoing. After the Cultural Revolution, China's leaders aimed to develop a legal system to restrain abuses of official authority and revolutionary excesses. In 1982, the National People's Congress adopted a new state constitution that emphasized the rule of law under which even party leaders are theoretically held accountable.
Since 1979, when the drive to establish a functioning legal system began, more than 300 laws and regulations, most of them in the economic area, have been promulgated. The use of mediation committees--informed groups of citizens who resolve about 90% of China's civil disputes and some minor criminal cases at no cost to the parties--is one innovative device. There are more than 800,000 such committees in both rural and urban areas.
Legal reform became a government priority in the 1990s. Legislation designed to modernize and professionalize the nation's lawyers, judges, and prisons was enacted. The 1994 Administrative Procedure Law allows citizens to sue officials for abuse of authority or malfeasance. In addition, the criminal law and the criminal procedures laws were amended to introduce significant reforms. The criminal law amendments abolished the crime of "counter-revolutionary" activity, while criminal procedures reforms encouraged establishment of a more transparent, adversarial trial process. The Chinese Constitution and laws provide for fundamental human rights, including due process, but theses are often ignored in practice.
Human Rights
China has acknowledged in principle the importance of protection of human rights and has taken steps to bring its human rights practices into conformity with international norms. Among these steps are signature in October 1997 of the International Covenant on Economic, Social, and Cultural Rights and signature in October 1998 of the International Covenant on Civil and Political Rights. China has also expanded dialogue with foreign governments. These positive steps not withstanding, serious problems remain. The government restricts freedom of assembly, expression, and the press and represses dissent.
ECONOMY
Economic Reforms
Since 1979, China has been engaged in an effort to reform its economy. The Chinese leadership has adopted a pragmatic perspective on many political and socioeconomic problems, and has sharply reduced the role of ideology in economic policy. Consumer welfare, economic productivity, and political stability are considered indivisible. The government has emphasized raising personal income and consumption and introducing new management systems to help increase productivity. The government has also focused on foreign trade as a major vehicle for economic growth.
In the 1980s, China tried to combine central planning with market-oriented reforms to increase productivity, living standards, and technological quality without exacerbating inflation, unemployment, and budget deficits. China pursued agricultural reforms, dismantling the commune system and introducing the household responsibility system that provided peasants greater decision-making in agricultural activities. The government also encouraged non-agricultural activities such as village enterprises in rural areas, and promoted more self-management for state-owned enterprises, increased competition in the marketplace, and facilitated direct contact between Chinese and foreign trading enterprises. China also relied more upon foreign financing and imports.
During the 1980s, these reforms led to average annual rates of growth of 10% in agricultural and industrial output. Rural per capita real income doubled. China became self-sufficient in grain production; rural industries accounted for 23% of agricultural output, helping absorb surplus labor in the countryside. The variety of light industrial and consumer goods increased. Reforms began in the fiscal, financial, banking, price setting, and labor systems.
However, by the late 1980s, the economy had become overheated with increasing rates of inflation. At the end of 1988, in reaction to a surge of inflation caused by accelerated price reforms, the leadership introduced an austerity program.
China's economy regained momentum in the early 1990s. Deng Xiaoping's Chinese New Year's visit to southern China in 1992 gave economic reforms new impetus. The 14th Party Congress later in the year backed up Deng's renewed push for market reforms, stating that China's key task in the 1990s was to create a "socialist market economy." Continuity in the political system but bolder reform in the economic system were announced as the hallmarks of the 10-year development plan for the 1990s.
During 1993, output and prices were accelerating, investment outside the state budget was soaring, and economic expansion was fueled by the introduction of more than 2,000 special economic zones (SEZs) and the influx of foreign capital that the SEZs facilitated. Fearing hyperinflation, Chinese authorities called in speculative loans, raised interest rates, and re-evaluated investment projects. The growth rate was thus tempered, and the inflation rate dropped from over 17% in 1995 to 8% in early 1996. By early 1997, the Chinese economy was growing at a rate of 9.5%, accompanied by low inflation.
Despite China's impressive economic development during the past two decades, reforming the state sector remains a major hurdle. Over half of China's state-owned enterprises are inefficient and reporting losses. During the 15th National Congress of the Chinese Communist Party that met in September 1997, President Jiang Zemin announced plans to sell, merge, or close the vast majority of SOEs in his call for increased "public ownership" (privatization in euphemistic terms). The 9th National People's Congress endorsed the plans at its March 1998 session.
Asian Financial Crisis
The regional crisis has affected China at the margin, mainly through decreased foreign direct investment and a sharp drop in the growth of its exports. However, China has huge reserves, a currency that is not freely convertible, and capital inflows that consist overwhelmingly of long-term investment. For these reasons it has remained largely insulated from the regional crisis and its commitment not to devalue has been a major stabilizing factor for the region. However, China faces slowing growth and rising unemployment based on internal problems, including a financial system burdened by huge amounts of bad loans, and massive layoffs stemming from aggressive efforts to reform state-owned-enterprises (SOEs).
Agriculture
Most of China's labor force is engaged in agriculture, even though only 10% of the land is suitable for cultivation. Virtually all arable land is used for food crops, and China is among the world's largest producers of rice, potatoes, sorghum, millet, barley, peanuts, tea, and pork. Major non-food crops, including cotton, other fibers, and oil seeds, furnish China with a large proportion of its foreign trade revenue. Agricultural exports, such as vegetables and fruits, fish and shellfish, grain and grain products, and meat and meat products, are exported to Hong Kong. Yields are high because of intensive cultivation, but China hopes to further increase agricultural production through improved plant stocks, fertilizers, and technology.
Industry
Major state industries are iron, steel, coal, machine building, light industrial products, armaments, and textiles. These industries completed a decade of reform (1979-89) with little substantial management change. The 1996 industrial census revealed that there were 7,342,000 industrial enterprises at the end of 1995; total employment in industrial enterprises was approximately 147 million. The automobile industry is expected to grow rapidly, as is electric power generation. Machinery and electronic products have become China's main exports.
Energy and Mineral Resources
The Chinese have high energy needs but limited capital. As in other sectors of the state-owned economy, the energy sector suffers from low utilization and inefficiencies in production, transport, conversion, and consumption. Other problems include declining real prices, rising taxes and production costs, spiraling losses, high debt burden, insufficient investment, low productivity, poor management structure, environmental pollution, and inadequate technological development. Demand for energy has risen steadily in response to the rapid expansion of the economy over the last 10 years. In order to keep pace with demand, China seeks to increase electric generating capacity to a target level of 290 gigawatts by 2000. An estimated 15,000 megawatts of generating capacity will be added each year, at an annual cost of about $15 billion. China has imported new power plants from the West to increase its generation capacity, and these units account for approximately 20% of total generating capacity.
Environment
A harmful by-product of China's rapid industrial development in the 1980s has been increased pollution. Although China has passed environmental legislation and has participated in some international anti-pollution conventions, pollution will be a serious problem in China for years to come.
China is an active participant in the UN Environment Program and a signatory to the Basel Convention governing the transport and disposal of hazardous waste. China also signed the Montreal Convention for the Protection of the Ozone Layer in 1991.
The head of China's National Environmental Protection Agency (NEPA) proclaimed in 1991 that environmental protection was one of China's basic national policies, at the same time cautioning that environmental protection must be coordinated with economic development. According to NEPA, $3.2 billion was spent on pollution prevention and environmental rehabilitation from 1981-85, $8.8 billion from 1986-1990, and about $15 billion for the eighth five-year plan (1991-95).
China has sought to contain its increasing industrial pollution largely through administrative procedures and efforts to increase public awareness. The heavily polluted Pearl River delta is one of the first major industrialized areas targeted for clean-up. Officials hope that new sewage treatment plants for cities in the delta area will enable the river to support an edible fish population by the year 2000. A small environmental protection industry has also emerged. However, in some areas of China, pollution has long been considered as one of the costs associated with economic development.
The question of environmental damage associated with the hydroelectric Three Gorges Dam project concerns NEPA officials. While conceding that erosion and silting of the Yangtze River threaten several endangered species, officials say the hydroelectric power generated by the project will enable the region to lower its dependence on coal, thus lessening air pollution.
In March 1998, NEPA was officially upgraded to a ministry-level agency, and renamed the State Environment Protection Agency, reflecting the growing importance the Chinese government places on environmental protection. The Chinese government recognizes the environmental situation in China is grim and that increasing water and air pollution, as well as deforestation and desertification, will threaten the base of China's economic development.
Science and Technology
Scientific and technological modernization has been a growing priority for Chinese leaders. They plan to rebuild the educational structure, continue sending students abroad, negotiate technological purchases and transfer arrangements with the U.S. and others, and develop ways to disseminate scientific and technological information. Areas of most critical interest include microelectronics, telecommunications, computers, automated manufacturing, and energy. China also has had a space program since the 1960s and has successfully launched 27 satellites.
At the end of 1996, China had 5,434 state-owned independent research and development institutions at and above the county level. There were another 3,400 research institutions affiliated with universities, 13,744 affiliated with medium and large industrial enterprises, and 726 affiliated with medium and large construction enterprises. A total of 2.8 million people were engaged in scientific and technological activities in these institutions.
The U.S. has continued to extend the Agreement on Cooperation in Science and Technology (originally signed in 1979). A five-year agreement to extend and amend the accord, including provisions for the protection of intellectual property rights, was signed in May 1991, and the Agreement was again extended for five years in April 1996. There are currently over 30 active protocols under the Agreement, leading to cooperation in areas such as marine conservation, high energy physics, renewable energy, and health. Japan has also continued to increase science and technology cooperation with China.
Trade and Investment
According to U.S. statistics, China's global trade totaled $324 billion in 1997 and $151 billion in the first half of 1998; the trade surplus stood at $40.0 billion. China's primary trading partners include Japan, Taiwan, the U.S., South Korea, Hong Kong, Germany, Singapore, Russia, and the Netherlands. According to U.S. statistics, China had a trade surplus with the U.S. of $49.7 billion in 1997 and $36.4 billion in 1998 (January-August).
China has experimented with decentralizing its foreign trading system and has sought to integrate itself into the world trading system. In November 1991, China joined the Asia Pacific Economic Cooperation (APEC) group, which promotes free trade and cooperation in economic, trade, investment, and technology issues.
China is now in its 12th year of negotiations for accession to the World Trade Organization (WTO)--formerly the General Agreement on Tariffs and Trade (GATT). China has significantly reduced import tariffs. In 1996, China introduced cuts to more than 4,000 tariff lines, reducing average tariffs from 35% to 23%; further tariff cuts that took effect October 1, 1997 decreased average tariffs to 17%.
To gain WTO entry, all prospective WTO members are required to comply with certain fundamental trading disciplines and offer substantially expanded market access to other members of the organization. Many major trading entities--among them the United States, the European Union, and Japan--have shared concerns with respect to China's accession. These concerns include obtaining satisfactory market access offers for both goods and services, full trading rights for all potential Chinese consumers and end-users, nondiscrimination between foreign and local commercial operations in China, the reduction of monopolistic state trading practices, and the elimination of arbitrary or non-scientific technical standards. The United States continues to work with China and other WTO members to achieve a commercially viable accession protocol.
To increase exports, China has pursued policies such as fostering the rapid development of foreign-invested factories which assemble imported components into consumer goods for export.
The U.S. is one of China's primary suppliers of power generating equipment, aircraft and parts, computers and industrial machinery, raw materials, and chemical and agricultural products. However, U.S. exporters continue to have concerns about fair market access due to China's restrictive trade policies.
Foreign Investment
Foreign investment stalled in late 1989 in the aftermath of Tiananmen. In response, the government introduced legislation and regulations designed to encourage foreigners to invest in high-priority sectors and regions.
In 1990, the government eliminated time restrictions on the establishment of joint ventures, provided some assurances against nationalization, and allowed foreign partners to become chairs of joint venture boards. In 1991, China granted more preferential tax treatment for wholly foreign-owned businesses and contractual ventures and for foreign companies which invest in selected economic zones or in projects encouraged by the state, such as energy, communications, and transportation. It also authorized some foreign banks to open branches in Shanghai and allowed foreign investors to purchase special "B" shares of stock in selected companies listed on the Shanghai and Shenzhen Securities Exchanges. These "B" shares are sold to foreigners but carry no ownership rights in a company. In 1997, China approved 21,046 foreign investment projects and received over $45 billion in foreign direct investment.
Opening to the outside remains central to China's development. Foreign-invested enterprises produce about 40% of China's exports, and China continues to attract large investment inflows. Foreign exchange reserves total about $145 billion.
FOREIGN RELATIONS
Since its establishment, the People's Republic has worked vigorously to win international support for its position that it is the sole legitimate government of all China, including Hong Kong, Macao, and Taiwan. In the early 1970s, Beijing was recognized diplomatically by most world powers. Beijing assumed the China seat in the United Nations in 1971 and became increasingly active in multilateral organizations. Japan established diplomatic relations with China in 1972, and the U.S. did so in 1979. The number of countries that have established diplomatic relations with Beijing has risen to 156, while 28 have diplomatic relations with Taiwan.
After the founding of the P.R.C., China's foreign policy initially focused on solidarity with the Soviet Union and other communist countries. In 1950, China sent the People's Liberation Army into North Korea as "volunteers" to help North Korea halt the UN offensive which was approaching the Yalu River. After the conclusion of the Korean conflict, China sought to balance its identification as a member of the Soviet bloc by establishing friendly relations with Pakistan and Third World countries, particularly in Southeast Asia.
In the 1960s, Beijing competed with Moscow for political influence among communist parties and in the developing world generally. Following the 1968 Soviet invasion of Czechoslovakia and clashes in 1969 on the Sino-Soviet border, Chinese competition with the Soviet Union increasingly reflected concern over China's own strategic position.
In late 1978, the Chinese also became concerned over Vietnam's efforts to establish open control over Laos and Cambodia. In response to the Soviet-backed Vietnamese invasion of Cambodia, China fought a brief border war with Vietnam (February-March 1979) with the stated purpose of "teaching Vietnam a lesson."
Chinese anxiety about Soviet strategic advances was heightened following the Soviet Union's December 1979 invasion of Afghanistan. Sharp differences between China and the Soviet Union persisted over Soviet support for Vietnam's continued occupation of Cambodia, the Soviet invasion of Afghanistan, and Soviet troops along the Sino-Soviet border and in Mongolia--the so-called "three obstacles" to improved Sino-Soviet relations.
In the 1970s and 1980s China sought to create a secure regional and global environment for itself and to foster good relations with countries that could aid its economic development. To this end, China looked to the West for assistance with its modernization drive and for help in countering Soviet expansionism--which it characterized as the greatest threat to its national security and to world peace.
China maintained its consistent opposition to "superpower hegemonism," focusing almost exclusively on the expansionist actions of the Soviet Union and Soviet proxies such as Vietnam and Cuba, but it also placed growing emphasis on a foreign policy independent of both the U.S. and the Soviet Union. While improving ties with the West, China continued to follow closely economic and other positions of the Third World nonaligned movement, although China was not a formal member.
In the immediate aftermath of Tiananmem crackdown in June 1989, many countries reduced their diplomatic contacts with China as well as their economic assistance programs. In response, China worked vigorously to expand its relations with foreign countries, and by late 1990, had reestablished normal relations with almost all nations. Following the collapse of the Soviet Union in late 1991, China also opened diplomatic relations with the republics of the former Soviet Union.
In recent years, Chinese leaders are regular travelers to all parts of the globe, and China has sought a higher profile in the UN and other multilateral organizations. Closer to home, China seeks to reduce tensions in Asia; it has contributed to stability on the Korean Peninsula, cultivated a more cooperative relationship with members of the Association of Southeast Asian Nations (Brunei, Burma, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam), and participated in the ASEAN Regional Forum. The Chinese improved ties with Russia. President Yeltsin and President Jiang announced a "strategic partnership" during Yeltsin's 1997 visit to Beijing.
China has a number of border and maritime disputes, including with Vietnam in the Gulf of Tonkin, with a number of countries in the South China Sea, as well as with Japan, Pakistan and India. Beijing has resolved many of these disputes, notably including a November 1997 agreement with Russia that resolved almost all outstanding border issues.
DEFENSE
Establishment of a professional military force equipped with modern weapons and doctrine was the last of the "Four Modernizations" announced by Zhou Enlai and supported by Deng Xiaoping. In keeping with Deng's mandate to reform, the People's Liberation Army (PLA), which includes the strategic nuclear forces, army, navy, and air force, has demobilized about 3 million men and women since 1978 and has introduced modern methods in such areas as recruitment and manpower, strategy, and education and training.
Following the June 1989 Tiananmen crackdown, ideological correctness was temporarily revived as the dominant theme in Chinese military affairs. Reform and modernization appear to have since resumed their position as the PLA's priority objectives, although the armed forces' political loyalty to the CCP remains a leading concern.
The Chinese military is trying to transform itself from a land-based power, centered on a vast ground force, to a smaller, mobile, high-tech military capable of mounting defensive operations beyond its coastal borders.
China's power-projection capability is limited. China has acquired some advanced weapons systems, including SU-27 aircrafts and Kilo-class diesel submarines from Russia. However, the mainstay of the air force continues to be the 1960s-vintage F-7, and naval forces still consist primarily of 1960s-era technology.
Nuclear Weapons and Arms Control Policy
Nuclear Weapons
In 1955, Mao Zedong's Chinese Communist Party decided to proceed with a nuclear weapons program; it was developed with Soviet assistance until 1960. After its first nuclear test in October 1964, Beijing deployed a modest but potent ballistic missile force, including land and sea-based intermediate-range and intercontinental ballistic missiles.
China became a major international arms exporter during the 1980s. Beijing joined the Middle East arms control talks, which began in July 1991 to establish global guidelines for conventional arms transfers, but announced in September 1992 that it would no longer participate because of the U.S. decision to sell F-16A/B aircraft to Taiwan.
China was the first state to pledge "no first use" of nuclear weapons. It joined the International Atomic Energy Agency (IAEA) in 1984 and pledged to abstain from further atmospheric testing of nuclear weapons in 1986. China acceded to the Nuclear Nonproliferation Treaty (NPT) in 1992 and supported its indefinite and unconditional extension in 1995. In 1996, it signed the Comprehensive Test Ban Treaty and agreed to seek an international ban on the production of fissile nuclear weapons material.
In 1996, China committed not to provide assistance to unsafeguarded nuclear facilities. China attended the May 1997 meeting of the NPT Exporters (Zangger) Committee as an observer and became a full member in October 1997. The Zangger Committee is a group which meets to list items that should be subject to IAEA inspections if exported by countries which have, as China has, signed the Non-Proliferation Treaty. In September 1997, China issued detailed nuclear export control regulations. China is implementing regulations establishing controls over nuclear-related dual-use items in 1998. China also has decided not to engage in new nuclear cooperation with Iran (even under safeguards), and will complete existing cooperation, which is not of proliferation concern, within a relatively short period.
Based on significant, tangible progress with China on nuclear nonproliferation, President Clinton in 1998 took steps to bring into force the 1985 U.S.-China Agreement on Peaceful Nuclear Cooperation. Implementation of this agreement, which establishes a mechanism that will enable the U.S. and China to continue discussing export controls and China's nuclear cooperation with other countries, will give the U.S. an effective basis for continuing to promote progress by China on nonproliferation.
Chemical Weapons
China is not a member of the Australia Group, an informal and voluntary arrangement made in 1985 to monitor developments in the proliferation of dual-use chemicals and to coordinate export controls on key dual-use chemicals and equipment with weapons applications. In April 1997, however, China ratified the Chemical Weapons Convention (CWC) and, in September 1997, promulgated a new chemical weapons export control directive.
Missiles
In March of 1992, China formally undertook to abide by the guidelines and parameters of the Missile Technology Control Regime (MTCR), the multinational effort to restrict the proliferation of missiles capable of delivering weapons of mass destruction. China reaffirmed this commitment in 1994.
U.S.-CHINA RELATIONS
From Liberation to the Shanghai Communique
As the PLA armies moved south to complete the Communist conquest of China in 1949, the American embassy followed the Nationalist government headed by Chiang Kai-shek, finally moving to Taipei later that year. U.S. consular officials remained in mainland China. The new P.R.C. Government was hostile to this official American presence, and all U.S. personnel were withdrawn from the mainland in early 1950. Any remaining hope of normalizing relations ended when U.S. and Chinese Communist forces fought on opposing sides in the Korean conflict.
Beginning in 1954 and continuing until 1970, the United States and China held 136 meetings at the ambassadorial level, first at Geneva and later at Warsaw. In the late 1960s, U.S. and Chinese political leaders decided that improved bilateral relations were in their common interest. In 1969, the United States initiated measures to relax trade restrictions and other impediments to bilateral contact. On July 15, 1971, President Nixon announced that his Assistant for National Security Affairs, Dr. Henry Kissinger, had made a secret trip to Beijing to initiate direct contact with the Chinese leadership and that he, the President, had been invited to visit China.
In February 1972, President Nixon traveled to Beijing, Hangzhou, and Shanghai. At the conclusion of his trip, the U.S. and Chinese Governments issued the "Shanghai Communique," a statement of their foreign policy views. (For the complete text of the Shanghai Communique, see the Department of State Bulletin, March 20, 1972).
In the Communique, both nations pledged to work toward the full normalization of diplomatic relations. The U.S. acknowledged the Chinese position that all Chinese on both sides of the Taiwan Strait maintain that there is only one China and that Taiwan is part of China. The statement enabled the U.S. and China to temporarily set aside the "crucial question obstructing the normalization of relations"--Taiwan--and to open trade and other contacts.
Liaison Office, 1973-78
In May 1973, in an effort to build toward the establishment of formal diplomatic relations, the U.S. and China established the United States Liaison Office (USLO) in Beijing and a counterpart Chinese office in Washington, DC. In the years between 1973 and 1978, such distinguished Americans as David Bruce, George Bush, Thomas Gates, and Leonard Woodcock served as chiefs of the USLO with the personal rank of Ambassador.
President Ford visited China in 1975 and reaffirmed the U.S. interest in normalizing relations with Beijing. Shortly after taking office in 1977, President Carter again reaffirmed the interest expressed in the Shanghai Communique. The United States and China announced on December 15, 1978, that the two governments would establish diplomatic relations on January 1, 1979.
Normalization
In the Joint Communique on the Establishment of Diplomatic Relations dated January 1, 1979, the United States transferred diplomatic recognition from Taipei to Beijing. The U.S. reiterated the Shanghai Communique's acknowledgment of the Chinese position that there is only one China and that Taiwan is a part of China; Beijing acknowledged that the American people would continue to carry on commercial, cultural, and other unofficial contacts with the people of Taiwan. The Taiwan Relations Act made the necessary changes in U.S. domestic law to permit such unofficial relations with Taiwan to flourish.
U.S.-China Relations Since Normalization
Vice Premier Deng Xiaoping's January 1979 visit to Washington, DC initiated a series of important, high-level exchanges, which continued until the spring of 1989. This resulted in many bilateral agreements--especially in the fields of scientific, technological, and cultural interchange and trade relations. Since early 1979, the United States and China have initiated hundreds of joint research projects and cooperative programs under the Agreement on Cooperation in Science and Technology, the largest bilateral program.
On March 1, 1979, the United States and China formally established embassies in Beijing and Washington, DC. During 1979, outstanding private claims were resolved, and a bilateral trade agreement was concluded. Vice President Walter Mondale reciprocated Vice Premier Deng's visit with an August 1979 trip to China. This visit led to agreements in September 1980 on maritime affairs, civil aviation links, and textile matters, as well as a bilateral consular convention.
As a consequence of high-level and working-level contacts initiated in 1980, our dialogue with China broadened to cover a wide range of issues, including global and regional strategic problems, politico-military questions, including arms control, UN and other multilateral organization affairs, and international narcotics matters.
The expanding relationship that followed normalization was threatened in 1981 by Chinese objections to the level of U.S. arms sales to Taiwan. Secretary of State Alexander Haig visited China in June 1981 in an effort to resolve Chinese questions about America's unofficial relations with Taiwan. Eight months of negotiations produced the U.S.-China joint communique of August 17, 1982. In this third communique, the U.S. stated its intention to reduce gradually the level of arms sales to Taiwan, and the Chinese described as a fundamental policy their effort to strive for a peaceful resolution to the Taiwan question. Meanwhile, Vice President Bush visited China in May 1982.
High-level exchanges continued to be a significant means for developing U.S.-China relations in the 1980s. President Reagan and Premier Zhao Ziyang made reciprocal visits in 1984. In July 1985, President Li Xiannian traveled to the United States, the first such visit by a Chinese head of state. Vice President Bush visited China in October 1985 and opened the U.S. Consulate General in Chengdu, the U.S.'s fourth consular post in China. Further exchanges of cabinet-level officials occurred from 1985-89, capped by President Bush's visit to Beijing in February 1989.
In the period before the June 3-4, 1989 crackdown, a large and growing number of cultural exchange activities undertaken at all levels gave the American and Chinese peoples broad exposure to each other's cultural, artistic, and educational achievements. Numerous Chinese professional and official delegations visited the United States each month. Many of these exchanges continued after Tiananmen.
Bilateral Relations After Tiananmen
Following the Chinese authorities' brutal suppression of demonstrators in June 1989, the U.S. and other governments enacted a number of measures to express their condemnation of Chinese action that violated the basic human rights of its citizens. The U.S. suspended high-level official exchanges with China and weapons exports from the U.S. to China. The U.S. also imposed a series of economic sanctions. In the summer of 1990, at the G-7 Houston summit, Western nations called for renewed political and economic reforms in China, particularly in the field of human rights.
The U.S.-China trade relationship was disrupted by Tiananmen, and U.S. investors' interest in China dropped dramatically. The U.S. Government also responded to the political repression by suspending certain trade and investment programs on June 5 and 20, 1989. Some sanctions were legislated; others were executive actions. Examples include:
-- The Trade and Development Agency (TDA) and Overseas Private Insurance Corporation (OPIC) -- New activities suspended since June 1989.
-- Development Bank Lending/IMF Credits -- The United States does not support development bank lending and will not support IMF credits to China except for projects which meet basic human needs.
-- Munitions List Exports -- Subject to certain exceptions, no licenses may be issued for the export of any defense article on the U.S. Munitions List. This restriction may be waived upon a Presidential national interest determination.
-- Arms Imports -- Import of defense articles from China was banned after the imposition of the ban on arms exports to China. The import ban was subsequently waived by the Administration and re-imposed on May 26, 1994. It covers all items on the Bureau of Alcohol, Tobacco, and Firearms' Munitions Import List.
In 1996, the P.R.C. conducted military exercises in waters close to Taiwan in an apparent effort at intimidation. The United States dispatched two aircraft carrier battle groups to the region. Subsequently, tensions in the Taiwan Strait diminished and relations between U.S. and China have improved, with increased high-level exchanges and progress on numerous bilateral issues, including human rights, nonproliferation and trade. Chinese President Jiang Zemin visited the United States in the fall of 1997, the first state visit to the U.S. by a Chinese president since 1985. In connection with that visit, the two sides reached agreement on implementation of their 1985 agreement on the Peaceful Uses of Nuclear Energy, as well as a number of other issues. President Clinton visited China in June 1998. He traveled extensively in China and direct interaction with the Chinese people included live speeches and a radio show, allowing the President to convey first hand to the Chinese people a sense of American ideals and values.
U.S.-Chinese Economic Relations
U.S. direct investment in China covers a wide range of manufacturing sectors, several large hotel projects, and a heavy concentration in offshore oil and gas development in the South China Sea. U.S. companies have entered agreements establishing more than 20,000 equity joint ventures, contractual joint ventures, and wholly foreign-owned enterprises in China. Over 100 U.S.-based multinationals have projects, some with multiple investments.
The 1997 trade deficit of $49.7 billion with China was the United States' second largest. Some of the factors that influence the U.S. deficit with China include:
-- The strength of the U.S. economy.
-- A shift of export industries to China from the newly industrialized economies (NIEs) in Asia. China has increasingly become the last link in a long chain of value-added production.
-- China's restrictive trade practices, which include a wide array of barriers to foreign goods and services, often aimed at protecting state-owned enterprises. These practices include: high tariffs, lack of transparency, requiring firms to obtain special permission to import goods, unevenness of application of laws and regulations, and leveraging technology from foreign firms in return for market access.
-- China's domestic output of labor-intensive goods exceeds China's demand, while U.S. demand for labor intensive goods exceeds domestic output.
The increasingly important U.S. economic and trade relations with China are an important element of the Administration's engagement policy toward China. In economics and trade, there are two main elements to the U.S. approach:
-- First, the United States seeks to fully integrate China into the global, market-based economic and trading system. China's participation in the global economy will nurture the process of economic reform and increase China's stake in the stability and prosperity of East Asia.
-- Second, the United States seeks to expand U.S. exporters' and investors' access to the Chinese market. As China grows and develops, its needs for imported goods and services will grow even more rapidly.
The United States and China maintain a very active dialogue on bilateral trade issues. In 1995, agreements were concluded on the protection of intellectual property rights (IPR), textiles, and satellite launches. As a result of the IPR agreement, more than 10 million illegal or unauthorized LDs, CDs, and other publications were seized, and 250 "major criminals" were arrested for their involvement in IPR-related activities in 1996. The United States is China's largest export market for textile and apparel products. A new 4-year U.S.-China Bilateral Agreement on Textile Trade was signed in February 1997. In addition, the two countries held their first Sustainable Development Forum in March 1997, which sought to expand cooperation in the environmental arena.
At the September 1997 Joint Economic Committee meeting in Beijing, the U.S. continued dialogue with the Chinese on macroeconomic issues. The Joint Commission on Commerce and Trade, hosted in Beijing in October 1997, discussed expansion of long-term economic and business ties between China and the United States. Agreements were made to set up seminars on project finance and export controls, to establish a series of exchanges on commercial law, and to further explore ways to assist small and medium-sized U.S. businesses export to China.
At the October 1997 summit, China agreed to purchase 50 Boeing aircraft valued at approximately $3 billion, participate in the Information Technology Agreement which cuts to zero tariffs on computers, semiconductors, and telecommunications, and allow U.S. financial news services providers to operate on acceptable terms in China.
Economic Relations With Hong Kong
Under the 1984 Sino-British Joint Declaration, Hong Kong became a Special Administrative Region (SAR) of the P.R.C. on July 1, 1997. Hong Kong has autonomy in its international trade and economic relations. The United States has substantial economic and social ties with Hong Kong, with an estimated $16 billion invested there. There are 1,100 U.S. firms and 50,000 American residents in Hong Kong. The United States was Hong Kong's second-largest market in 1997--the U.S. imported $10.2 billion. Hong Kong took $15.1 billion in U.S. exports in that year. (See separate Background Notes on Hong Kong for additional information.)
China's Normal Trade Status
There has been debate in the U.S. regarding the extension of China's normal trade status, which allows non-discriminatory tariff treatment for Chinese exports to the U.S. The reciprocal granting of normal trade treatment was the main pillar of the U.S.-China Trade Agreement signed in 1979, which marked the beginning of normal commercial relations between the two countries. As a non-market-economy country, China's normal trade status must be renewed annually by a U.S. presidential waiver stipulating that China meets the freedom of emigration requirements set forth in the Jackson-Vanik amendment to the Trade Act of 1974. China had received the waiver routinely prior to 1989, but after Tiananmen, although the presidential waiver continued, Congress began to exert strong pressure to oppose normal trade status renewal. In 1991 and 1992, Congress voted to place conditions on normal trade status renewal for China, but those conditions were vetoed by the Bush Administration, which stressed the importance of our relationship with China and the belief that normal trade status was not the correct tool to exert pressure on China and would only result in isolating it.
In 1994, President Clinton decided to delink the annual normal trade status process from China's human rights record. At the same time, the President decided to adopt a new human rights strategy, maintaining human rights concerns as an essential part of the U.S. engagement with China but in a broader context. The President also ordered several additional steps to support those seeking to foster the rule of law and a more open civil society in China.
Revoking or conditioning normal trade status and tariff treatment would remove a beneficial influence for creating a more open China. It would undermine American leadership in the region and the confidence of our Asian allies. It would damage our economy, harm Taiwan and especially Hong Kong, whose economies are closely intertwined with that of the P.R.C.; and it would damage our ability to work with China on vital regional security issues such as North Korea and global security concerns such as nonproliferation. Continuation of normal trade status for China will help further integrate it into the international system and promote the interests of the American people.
PEOPLE
Taiwan has a population of 21.5 million. More than 18 million, the "native" Taiwanese are descendants of Chinese who migrated from Fujian and Guangdong Provinces on the mainland, primarily in the 18th and 19th centuries. The "mainlanders," who arrived on Taiwan after 1945, came from all parts of mainland China. About 370,000 aborigines inhabit the mountainous central and eastern parts of the island and are believed to be of Malayo-Polynesian origin.
Education
A 9-year public educational system has been in effect since 1979. Six years of elementary school and three years of junior high are compulsory for all children. About 90.7% of junior high graduates continued their studies in either a senior high or vocational school. Reflecting a strong commitment to education, in FY 1997 15% of Taiwan's budget was allocated for education.
Taiwan has an extensive higher education system with over 100 institutions of higher learning. Each year over 100,000 students take the joint college entrance exam, about 61.9% of the candidates are admitted to a college or university. Opportunities for graduate education are expanding in Taiwan, but many students travel abroad for advanced education, including 13,000 who study in the United States annually.
Languages
A large majority of people on Taiwan speak Mandarin Chinese, which has been the medium of instruction in the schools for more than four decades. Native Taiwanese and many others also speak one of the Southern Fujianese dialects, Min-nan, also known as Taiwanese. Recently there has been a growing use of Taiwanese in the broadcast media. The Hakka who are concentrated in several counties throughout Taiwan have their own distinct dialect. As a result of the half century of Japanese rule, many people over age 60 can also speak Japanese. The method of Chinese romanization most commonly used in Taiwan is the Wade-Giles system.
Religions
According to Taiwan's Interior Ministry figures, there are approximately 11.2 million religious believers in Taiwan, with over 75% identifying themselves as Buddhists or Taoists. At the same time there is a strong belief in Chinese folk religion throughout the island. These are not mutually exclusive, and many people practice a combination of the three. Confucianism is also an honored school of thought and ethical code.
Christian churches have been active on Taiwan for many years, and today the island has more than 600,000 Christians, a majority of whom are Protestant.
Culture
Taiwan's culture is a blend of its distinctive Chinese heritage and Western influences. Fine arts, folk traditions, and popular culture embody traditional and modern, Asian and Western motifs.
One of Taiwan's greatest attractions is the Palace Museum, which houses over 650,000 pieces of Chinese bronze, jade, calligraphy, painting, and porcelain. This collection was moved from the mainland in 1949 when Chiang Kai-shek's Nationalist Party (KMT) fled to Taiwan. The collection is so extensive that only 1% is on display at any one time.
HISTORY
Taiwan's aboriginal peoples, who originated in Austronesia and southern China, have lived on Taiwan for 12,000 to 15,000 years. Significant migration to Taiwan from the Chinese mainland began as early as A.D. 500. Dutch traders first claimed the island in 1624 as a base for Dutch commerce with Japan and the China coast. Two years later, the Spanish established a settlement on the northwest coast of Taiwan which they occupied until 1642 when they were driven out by the Dutch. Dutch colonists administered the island and its predominantly aboriginal population until 1661. The first major influx of migrants from the Chinese mainland came during the Dutch period, sparked by the political and economic chaos on the China coast during the Manchu invasion and the end of the Ming Dynasty.
In 1664, a Chinese fleet led by the Ming loyalist Cheng Ch'eng-kung (Zheng Chenggong, known in the West as Koxinga) retreated from the mainland and occupied Taiwan. Cheng expelled the Dutch and established Taiwan as a base in his attempt to restore the Ming Dynasty. He died shortly thereafter, and in 1683 his successors submitted to Manchu (Qing Dynasty) control. From 1680 the Qing Dynasty ruled Taiwan as a prefecture and in 1875 divided the island into two prefectures, north and south. In 1887 the island was made into a separate Chinese province.
During the 18th and 19th centuries, migration from Fujian and Guangdong provinces steadily increased, and Chinese supplanted aborigines as the dominant population group. In 1895, a weakened Imperial China ceded Taiwan to Japan in the Treaty of Shimonoseki following the first Sino-Japanese war.
During its 50 years (1895-1945) of colonial rule, Japan expended considerable effort in developing Taiwan's economy. At the same time, Japanese rule led to the "Japanization" of the island including compulsory Japanese education and forcing residents of Taiwan to adopt Japanese names.
At the end of World War II in 1945, Taiwan reverted to Chinese rule. During the immediate postwar period, the Nationalist Chinese (KMT) administration on Taiwan was repressive and corrupt, leading to local discontent. Anti-mainlander violence flared on February 28, 1947, prompted by an incident in which a cigarette seller was injured and a passerby was shot to death by Nationalist authorities. The island-wide rioting was brutally put down by Nationalist Chinese troops, who killed thousands of people. Until recently, accounts of this episode in Taiwan history had been suppressed by the KMT. As a result of the February 28 Incident the native Taiwanese felt a deep-seated bitterness to the Mainlanders. In 1995 a monument was dedicated to the victims of the "2-28 Incident," and for the first time Taiwan's leader, President Lee Teng-hui, publicly apologized for the Nationalists' brutality.
From the 1930s onward a civil war was underway on the mainland between Chiang Kai-shek's KMT government and the Chinese Communist Party led by Mao Zedong. When the civil war ended in 1949, two million refugees, predominately from the Nationalist government, military, and business community, fled to Taiwan. In October 1949 the People's Republic of China (P.R.C.) was founded on the mainland by the victorious communists, several months before Chiang Kai-shek had established in December 1949 a "provisional" KMT capital in Taipei.
During the 1950s, the KMT authorities implemented a far-reaching and highly successful land reform program on Taiwan. They redistributed land among small farmers and compensated large landowners with commodities certificates and stock in state-owned industries. Although this left some large landowners impoverished, others turned their compensation into capital and started commercial and industrial enterprises. These entrepreneurs were to become Taiwan's first industrial capitalists. Together with refugee businessmen from the mainland, they managed Taiwan's transition from an agricultural to a commercial, industrial economy.
Taiwan has developed steadily into a major international trading power with more than $218 billion in two-way trade. Tremendous prosperity on the island was accompanied by economic and social stability. Chiang Kai-shek's successor, his son Chiang Ching-kuo, began to liberalize Taiwan's political system, a process that has continued since President Lee Teng-hui took office in 1988.
ADMINISTRATION
The authorities in Taipei exercise control over Taiwan, Kinmen, Matsu, and the Penghus (Pescadores), and several of the smaller islands. Taiwan's two major cities, Taipei and Kaohsiung, are centrally administered municipalities. The rest of Taiwan and the Penghu Islands are administered together as the Province of Taiwan. Kinmen, Matsu, and smaller nearby islands are administered by the Taiwan authorities as counties of Fujian Province.
From 1949 until 1991, the authorities on Taiwan claimed to be the sole legitimate government of all of China, including the mainland. In keeping with that claim, when the Nationalists moved to Taiwan in 1949, they re-established the full array of central political bodies, which had existed on the mainland. While much of this structure remains in place, the authorities on Taiwan in 1991 have abandoned their claim of governing mainland China, stating that they do not "dispute the fact that the P.R.C. controls mainland China."
The first National Assembly, elected on the mainland in 1947 to carry out the duties of choosing the President and amending the constitution, was re-established on Taiwan when the KMT moved. Because it was impossible to hold subsequent elections to represent constituencies on the mainland, representatives elected in 1947-48 held these seats "indefinitely." In June l990, however, the Council of Grand Justices mandated the retirement, effective December, 1991, of all remaining "indefinitely" elected members of the National Assembly and other bodies.
The second National Assembly, elected in 1991, was composed of 325 members. The majority was elected directly; 100 were chosen from party slates in proportion to the popular vote. This National Assembly amended the constitution in 1994, paving the way for the direct election of the President and Vice President that was held in March 1996. The third National Assembly, also elected in March 1996, comprises 334 members serving 4-year terms. The National Assembly's powers now are to amend the constitution, recall or impeach the President and the Vice President, and ratify certain senior-level presidential appointments.
The President is both leader of Taiwan and commander-in-chief of its armed forces. The President has authority over the five administrative branches (Yuan): Executive, Legislative, Control, Judicial, and Examination. The President appoints the Premier, the head of the Executive Yuan. The Executive Yuan comprises the Premier and the cabinet members who are responsible for policy and administration.
The main lawmaking body, the Legislative Yuan (LY), was originally elected in the late 1940s in parallel with the National Assembly. The first LY had 773 seats and was viewed as a "rubber stamp" institution. The second LY was elected in 1992. The third LY, elected in 1995, has 157 members serving three-year terms. The LY has greatly enhanced its standing in relation to the Executive Yuan and has established itself as an important player on the central level. This growing influence can be seen in the expected expansion of this institution predicted for the end of 1998. Along with increasing strength and size this body is beginning to reflect the recently liberalized political system. In the 1992 and 1995 elections, the main opposition party -- the Democratic Progressive Party (DPP) -- challenged the KMT dominance on control of the Legislature. In both elections the DPP won a significant share of the LY seats, and the KMT now holds only half the seats in the LY.
As the National Assembly took action in 1994 to allow for the popular election of the President, the LY in 1994 passed legislation to allow for the direct election of the governor of Taiwan Province and the mayors of Taipei and Kaohsiung Municipalities. These elections were held in December 1994, with the KMT winning the governor and Kaohsiung mayor posts, and the DPP winning the Taipei mayor's position. In a move to streamline the administration, the position of elected governor and many other elements of the Taiwan Provincial Government are being eliminated at the end of 1998. In November 1997 local elections, the DPP won 12 of the 23 county magistrate and city mayor contests to the KMT's 8, outpolling the KMT for the first time in a major election.
The Control Yuan (CY) monitors the efficiency of public service and investigates instances of corruption. The 29 Control Yuan members are appointed by the President and approved by the National Assembly; they serve 6-year terms. In recent years, the Control Yuan has become more activist, and it has conducted several major investigations and impeachments.
The Judicial Yuan (JY) administers Taiwan's court system. It includes a 16-member Council of Grand Justices (COGJ) that interprets the constitution. Grand Justices are appointed by the President, with the consent of the National Assembly, to nine-year terms.
The Examination Yuan (ExY) functions as a civil service commission and includes two ministries: the Ministry of Examination, which recruits officials through competitive examination, and the Ministry of Personnel, which manages the civil service. The President appoints the Examination Yuan's head.
POLITICAL CONDITIONS
Lee Teng-hui succeeded Chiang Ching-kuo as President when Chiang died on January 13, 1988. Lee was elected by the National Assembly to a 6-year term in 1990, marking the final time a President was elected by the National Assembly. In 1996 Lee Teng-hui was elected President and Lien Chan Vice-President in the first direct election by Taiwan's voters.
This change in the political process is the result of the liberalizing trend that began in the 1980s under President Chiang Ching-kuo. In 1987, he lifted the emergency decree, which had been in place since 1948 and which had granted virtually unlimited powers to the President for use in the anti-Communist campaign. This decree provided the basis for nearly four decades of martial law under which individuals and groups expressing dissenting views were dealt with harshly. Expressing views contrary to the authorities' claim to represent all of China or supporting independent legal status for Taiwan was treated as sedition.
Since ending martial law, Taiwan has taken dramatic steps to improve respect for human rights and create a democratic political system. Most restrictions on the press have ended, restrictions on personal freedoms have been relaxed, and the prohibition against organizing new political parties has been lifted.
Until 1986, Taiwan's political system was effectively controlled by one party, the KMT, the chairman of which has also been Taiwan's President. Many top political officials are members of the party's Central Standing Committee, which is the most influential organ within the party. The KMT claims 2.1 million members, about two-thirds of whom are of Taiwanese origin. The party's net assets are reputed to total more than NT $61.2 billion, and profits from KMT-operated businesses help fund party organizations and operations. As the ruling party, the KMT was able to fill appointed positions with its members and maintain political control of the island.
Since 1986 the KMT's hold on power has been challenged by the emergence of competing political parties. Before 1986, candidates opposing the KMT ran in elections as independents or "nonpartisans." Before the 1986 island-wide elections many "nonpartisans" grouped together to create Taiwan's first new political party, the Democratic Progressive Party (DPP). Despite the official ban on forming new political parties, Taiwan authorities did not prohibit the DPP from operating, and in the 1986 Island-wide elections DPP and independent candidates captured more than 20% of the vote.
The Civic Organizations Law passed in 1989 allowed for the formation of new political parties, thereby legalizing the DPP, and its support and influence increased. Currently it has approximately 90,000 members. In the 1992 Legislative Yuan elections, the DPP won 51 seats in the 161-seat body. While this was only half the number of KMT seats, it made the DPP's voice an important factor in legislative decisions. Winning the Taipei mayor's position in December, 1994, significantly enhanced the DPP's image. The DPP continued its strong showing in the 1995 LY race winning 45 of the 157 seats to the KMT's 81. The DPP for the first time succeeded in outpolling the KMT in the November 1997 local elections, gaining 12 of the 23 magistrate and mayoral seats as opposed to the KMT's 8 and winning 43% of the vote versus the KMT's 41%.
The DPP membership is made up largely of native Taiwanese. Its platform includes outspoken positions on some of the most sensitive issues in Taiwan politics. For example, the DPP maintains that Taiwan is an entity separate from mainland China, in contrast to the KMT position that Taiwan and the mainland, though currently divided, are both part of "one China." In sharp contrast to the tenets of both KMT and P.R.C. policy, a number of ranking DPP officials openly advocate independence for Taiwan. The recent downplaying of Taiwan independence by the DPP as a party, however, led to the formation by hard-line advocates of a new political party called the Taiwan Independence Party in December 1996.
The second major opposition party, the Chinese New Party (CNP), was formed in August 1993, by a group made up largely of second-generation mainlander KMT members who were unhappy both with corruption in the KMT and with what they saw as the "Taiwanization" of KMT ideology and leadership. The CNP emphasizes "clean government" and the original KMT focus on reunification with the mainland. CNP influence remains modest; it won 21 of the 164 LY seats in the 1995 elections. The CNP claimed 72,000 members in 1996.
Although some friction between mainlanders and native Taiwanese still exists, it has abated with time and the gradual melding of the two communities. In 1972, then Premier Chiang Ching-kuo began a concentrated effort to bring Taiwanese into more senior position in the central administration and the KMT. Since his accession to the Presidency in January 1988, Lee Teng-hui, who is native Taiwanese, has continued this process. Recent steps by the authorities to redress past wrongs such as setting up a memorial to the victims of the February 28 Incident have contributed to this process.
ECONOMY
Through nearly five decades of hard work and sound economic management, Taiwan has transformed itself from an underdeveloped, agricultural island to an economic power that is a leading producer of high-technology goods. Taiwan is now a creditor economy, holding one of the world's largest foreign exchange reserves of more than $80 billion in 1998. Despite the Asian financial crisis, the economy continues to expand at about 5% per year, with virtually full employment and low inflation. The population also enjoys an annual average income equal to U.S. $13,130 (1997).
In the 1960s, foreign investment in Taiwan helped introduce modern, labor-intensive technology to the island, and Taiwan became a major exporter of labor-intensive products. In the 1980s, focus shifted toward increasingly sophisticated, capital-intensive and technology-intensive products for export and toward developing the service sector. At the same time, the appreciation of the New Taiwan Dollar (NT$), rising labor costs, and increasing environmental consciousness in Taiwan caused many labor-intensive industries, such as shoe manufacturing, to move to the Chinese mainland and Southeast Asia.
Taiwan has transformed itself from a recipient of U.S. aid in the 1950s and early 1960s to an aid donor and major foreign investor, especially in Asia. Private Taiwan investment in the P.R.C. is estimated to total more than $30 billion, and Taiwan has invested a comparable amount in Southeast Asia.
Foreign Trade
Foreign trade has been the engine of Taiwan's rapid growth during the past 40 years. Taiwan's economy remains export-oriented, so it depends on an open world trade regime and remains vulnerable to downturns in the world economy. The total value of trade increased more than five-fold in the 1960s, nearly ten-fold in the 1970s, and doubled again in the 1980s. The 1990s has seen a more modest, slightly less than two-fold, growth. Export composition has changed from predominantly agricultural commodities to industrial goods (now 98%). The electronics sector is Taiwan's most important industrial export sector and is the largest recipient of U.S. investment. Taiwan is the world's largest supplier of computer monitors and is a leading PC manufacturer. Textile production, though of declining importance as Taiwan loses its competitive advantage in labor-intensive markets, is another major industrial export sector. Imports are dominated by raw materials and capital goods, which account for more than 86% of the total. Taiwan imports most of its energy needs.
The United States is Taiwan's largest trading partner, taking 24% of Taiwan's exports and supplying 20% of its imports. Taiwan is the U.S.'s seventh-largest trading partner and seventh-largest export market. In 1997, Taiwan's two-way trade with the U.S. amounted to U.S. $53.0 billion. Imports from the U.S. consist mostly of agricultural and industrial raw materials. Exports to the U.S. are mainly electronics and consumer goods.
The United States, Hong Kong (including indirect trade with the P.R.C.), and Japan account for 60% of Taiwan's exports, and the U.S. and Japan provide over half of Taiwan's imports. As Taiwan's per capita income level has risen, demand for imported, high-quality consumer goods has increased. This trend has driven imports to rise faster than exports and has cut into Taiwan's global trade surplus. Another important factor in the substantial increase in Taiwan's imports has been industrial upgrading, which has pushed up imports of capital goods, raw materials, parts, and components. Taiwan's l997 trade surplus with the United States was $12.2 billion, a significant amount, but a decline from a high of $17 billion in 1987.
The lack of formal diplomatic relations with all but 27 of its trading partners appears not to have seriously hindered Taiwan's rapidly expanding commerce, and Taiwan is currently the world's 14th-largest trading economy. Taiwan maintains trade offices in more than 58 countries with which it does not have official relations. Taiwan is a member of the Asian Development Bank, and it is engaged in negotiations to join the World Trade Organization (WTO) as a special customs territory. In 1991 Taiwan, under the name "Chinese Taipei," became a member of the Asia-Pacific Economic Cooperation (APEC) forum. These developments reflect Taiwan's economic importance and its desire to become further integrated into the global economy.
Agriculture
Taiwan's agricultural sector is extremely productive. Although only about one-quarter of its land area is arable, virtually all farmland is intensely cultivated, with some areas suitable for two and even three crops a year. However, increases in agricultural production have been much slower than industrial growth. Agriculture only comprises approximately 2.7% of Taiwan's GDP. Taiwan's main crops are rice, betel nuts, sugar cane, and corn.
Although self-sufficient in rice production, Taiwan imports large amounts of wheat, mostly from the United States. Meat production and consumption are rising sharply, reflecting a rising standard of living. Taiwan has exported large amounts of frozen pork, although this was affected by an outbreak of hoof and mouth disease in 1997. Other agricultural exports include fish, aquaculture and sea products, canned and frozen vegetables, and grain products. Imports of agriculture products are expected to increase due to the approaching WTO accession, which will open previously protected agricultural markets.
Economic Outlook
Taiwan now faces many of the same economic issues as other developed economies. With the prospect of continued relocation of labor-intensive industries to countries with cheaper work forces, Taiwan's future development will have to rely on further transformation to a high technology and service-oriented economy. In recent years, Taiwan has successfully diversified its trade markets, cutting its share of exports to the U.S. from 49% in 1984 to 24% in l997. Taiwan's dependence on the U.S. market should continue to decrease as its exports to Southeast Asia and the P.R.C. grow and its efforts to develop European markets produce results. Taiwan's bid to join the WTO and its desire to become an Asia-Pacific "regional operations center" are spurring further economic liberalization.
DEFENSE
Taiwan maintains a large military establishment, which will absorb about 2.86% of the GNP and accounted for 21.0% of the central budget in FY99. The military's foremost mission is the defense of Taiwan, a defense primarily against the P.R.C., which is seen as the predominant threat and which has not renounced the use of force against Taiwan. Taiwan's armed forces number approximately 430,000, and reserves reportedly total 3,870,000. Taiwan has implemented a force reduction program to scale down its military to a level of 400,000 by FY 2001. Conscription remains universal for qualified males reaching age 18.
Taiwan's armed forces are equipped with weapons obtained primarily from the United States. In recent years, however, Taiwan has also procured some weapons from other Western nations and has stressed military "self-reliance," which has resulted in the growth of indigenous military production in certain fields. Taiwan adheres to the principles of the Nuclear Nonproliferation Treaty and has stated that it does not intend to produce nuclear weapons.
FOREIGN RELATIONS
The People's Republic of China replaced Taiwan at the United Nations in 1971, and Taiwan's diplomatic position eroded, as many countries changed their official recognition from Taipei to Beijing. In mid-l998, Taiwan had formal diplomatic ties with 27 countries.
At the same time, Taiwan has cultivated informal ties with most countries to offset its diplomatic isolation and to expand its economic relations. A number of nations have set up unofficial organizations to carry out commercial and other relations with Taiwan. Between its official overseas missions and its unofficial representative and/or trade offices, Taiwan is represented in 149 countries. Recently, Taiwan has lobbied strongly for admission into international organizations such as the UN. The P.R.C. opposes Taiwan's membership in such organizations, most of which require statehood for membership, because Beijing considers Taiwan to be a province of China, not a separate sovereign state.