Taiwan is both the most dangerous and most likely instance of Chinese
power projection (more on which below), but it is not the only one.
China has conceivable points of conflict in several places that would
not require its forces to cross large bodies of water, and where it
would not be facing opposition as potent as Taiwan's military.
Although less likely than conflict over Taiwan, an imbroglio in Korea
would be scarcely less dangerous if the Pyongyang regime were to
collapse and South Korean or American forces were to move into the
vacuum without Beijing's agreement. Far too little attention has been
focused on the odds of miscalculation in a confused situation of this
sort. The PLA does not have the American army's logistical capacity,
but even a half century ago it managed to project a force of hundreds
of thousands of men deep into Korea.

While the Chinese navy is weak, some of its neighbors' navies are
weaker still. Two of these neighbors, Vietnam and the Philippines,
have outstanding sovereignty disputes with China and have not fared
well in naval skirmishes in the past three decades. We also cannot
rule out the possibility of a land attack. The PLA did poorly in its
invasion of Vietnam over twenty years ago, but the Vietnamese army is
now less than half the size it was then, and the Vietnamese economic
base is far more inferior to China's than it was in 1978. Logistical
limitations would hamper, but not preclude, PRC action in Mongolia,
or in the Russian Far East, if that region were to fall out of
Moscow's effective control. Granted, conflict over these places is
improbable. The problem is that the same could have been said of most
wars before they happened.

Will China Become the World's Leading Economy?

Military potential grows out of economic capacity. China's economy,
like its military, is neither to be envied nor denigrated. In recent
years it has been the fastest growing major economy in the world.
Until strains became evident in the late 1990s, it was common to
project high growth rates straight into the future and to see China's
GNP surpassing America's early in the twenty-first century. But
China's economy faces daunting challenges. And even if it solves many
of its problems, the central government may not have sufficient
control over the fruits of growth to use them for military coercion.

Even if China achieved the highest GNP in the world, low per capita
wealth would persist, limiting disposable income thatcould be
reallocated to the military. In any case, the fantastic economic
surge of the last two decades has sputtered. Although China's economy
seems to be recovering, it has just completed three years of
deflation, and this despite dangerous levels of government deficit
spending on infrastructure projects. Such deficits, and the high
ratio of unrecoverable bank loans to GNP, risk exposing the economy
to the same dangers experienced in Southeast Asia and Korea in 1997.

Straight-line projections in the negative direction would, of course,
be as naive as the excessive expectations of the 1990s. One common
and rather condescending mistake made by some foreign analysts of
China is to offer a long list of problems and then forget to mention
that Chinese elites are smart enough to do something about them.
Under the economic leadership of Premier Zhu Rongji, the Chinese
Communist Party has tried to reform the financial sector, force the
military to abandon much of its commercial empire (including its
lucrative smuggling operations), and meet the stringent demands of
China's accession to the World Trade Organization (WTO).

Still, most of the methods available to spur growth involve
politically risky measures, such as reform of the financial sector
and state-owned enterprises, that threaten to leave tens of millions
of additional urban residents jobless. These would join the ranks of
the floating population of more than 100 million already in search of
work. Similar problems affect the military, as cutbacks in the
overall size of the PLA (needed for modernization and
professionalization) create yet more disgruntled citizens. To
maintain comfortable lifestyles, especially for officers, the
military became dependent on business activities and large-scale
smuggling of goods otherwise subject to high tariffs. If able
officers and soldiers are to stay in uniform, then, the military
units need to be subsidized at a high rate in order to implement
successfully the plan to get the PLA out of commercial activities and
back into the barracks.

All in all, there are no easy ways out for Beijing. Even if all
growth-spurring measures work and the Communist Party maintains
stability during the transition, the process of doing so will be
expensive--especially for a central government that takes in a far
smaller percentage of GNP than do Western governments. As China grows
through capitalist reforms, Beijing must scramble to find new ways to
tax private wealth. However inefficient they may have been, large
state-owned enterprises provided a large portion of government
revenues. The soft loans that officials forced government-owned banks
to give to these enterprises functioned as an indirect tax on
families, which, before Chinese membership of the WTO, had no
alternatives to the state banks. If the Party is successful in
demolishing both the monopoly of state-owned banks and the sturdy
safety net for state-owned enterprises, it will need to raise money
elsewhere for the government operating budget. That budget, in turn,
will be strained by increases in welfare spending needed to maintain
social stability--pensions for the unemployed and retired, and
compensations to the military for its lost sources of legal and
illegal revenue.

What is left over will be available to invest in education (critical
to creating sustained growth in high-tech areas) and in military
modernization. However, even if China's economy and high-tech sectors
were to grow rapidly, it is not clear that Beijing will be able to
channel resources effectively to create armed forces that could rival
those of the United States, even in the region. For one thing, it is
doubtful that the state will be able to channel young technical
talent into defense research and development. China's turn to Russia
and Israel for military technology is worrisome, but if it continues
it will say more about China's inability to close the technological
gap with the West than anything else.

Will China be Pacified by Globalization?

To pessimists steeped in realpolitik, a rich China will necessarily be
a threat, because economic power can be translated into military
power and power generates ambition. To optimists impressed with the
revolutionary implications of globalization, however, a more powerful
China will not be a threat because it will have too much to lose from
disrupting international trade and investment. The latter view is
more common in the West than the former, which seems to many to reek
of old thinking.

The notion that a web of commercial ties discourages war, however, is
itself quite old, if not exactly venerable. It was popularized by
Henry Thomas Buckle in the 1850s, by Norman Angell just a year before
World War I erupted, and again in the 1970s, when interdependence was
said to have reduced the utility of force. Most recently, at a White
House rally for permanent normal trade relations, Al Gore quoted his
father as saying, "When goods do not cross borders, armies will."

The argument this time around is that the proposition is finally true
because the nature of interdependence has changed in a crucial way. A
century ago it was characterized by vertical trade between imperial
centers and colonies, trade in final products between wealthier
nations, and portfolio investments. Today there is much more direct
investment and transnational production of goods, which fosters "a
growing interpenetration of economies, in the sense that one economy
owns part of another." With the PRC, Taiwan, Japan and the United
States all owning pieces of each other, how can they fight without
destroying their own property? As the Chinese elite make more and
more money from bilateral investments with Taiwan, simple greed will
prevent huffing and puffing from crossing the line to war. If
development thoroughly enmeshes the PRC in the globalized economy,
therefore, peace will follow.

There are at least two problems with this latest version of
interdependence theory. One is that both sides in a political dispute
have a stake in not overturning profitable economic integration. The
PRC might not want to kill the golden goose, but neither would Taiwan
or the United States. Why, then, should Beijing be any more anxious
to back down in a crisis than Taipei or Washington? Mutual dependence
makes a political conflict a game of chicken, in which each side
expects the other to bow to the stakes, and in which collision may
result rather than concession.

The second problem is that there is little reason to assume that
sober economic interest will necessarily override national honor in a
crisis. A tough stand by Beijing may be viewed from the inside as
essential for regime survival, even if it is not seen by detached
observers as being in China's "national interest." In an imbroglio
over Taiwan, which capitals will feel the strongest emotional
inhibitions against backing down? Beijing and Taipei both have a
greater material, moral and historical stake in the outcome than does
the United States.