Relations with China continued to improve under President Ronald Reagan (served 1981 – 1989).

 

Unlike his predecessors, Reagan is so staunchly anti-communism that he attacked communism as an evil to be eradicated within a finite period of time rather than a threat to be contained over generations.[1] During his campaign against Gerald Ford for the Republican presidential nomination in 1976, Reagan attacked the détente policy with the Soviet Union.

 

Despite his determination in combating communism, Reagan did not perceive China as an aggressively expanding communist state the way Soviet Union was in invading Afghanistan in December 1979 and in declaring martial law in Poland in December 1981. Most of all, China was not an ally of Soviet Union which Reagan called an “evil empire”. As a Governor of California (1967 – 1965), Reagan was therefore supportive of President Nixon’s strategic shift in the balance of power and the rapprochement with the PRC, maintaining that

 

“Russia is still the enemy number one. Russia is still the country that very shortly will have the power to deliver an ultimatum (to us). So the president, knowing the disaffection between China and Russia, visits China, butters up the warlords, and let them be, because they have nothing to fear from us. Russia, therefore, has to keep its 140 divisions on the Chinese border; hostility between the two is increased; and we buy a little time and elbow room in a plain, simple strategic move.”[2]

 

In fact, the US and China did more than just condemning Soviet’s occupation of Afghanistan under the Reagan administration. Throughout the 1980s, in addition to sharing intelligence, the CIA purchased arms from China for the mujahideen in their war against the Soviet Union. The Soviet-Afghan War (December 1979 – February 1989) thus marked the beginning of US-China military cooperation against the Soviet.[3]

 

After assuming presidency, Reagan was also sold the strategic importance of the US-Sino relations through exchanges with former presidents Nixon, Ford and Carter; his vice president George Bush, who was US’ chief liaison officer to the PRC in 1974 – 1976 before the establishment of diplomatic relations; and secretaries of state Kissinger, Haig and Shultz. Haig, for example, was keenly aware of how the addition of China to the anti-Soviet camp altered the strategic equilibrium and saw the de facto American ally as a breakthrough to be preserved as a top priority.

 

US' Third Communiqué with China and Reagan's Six Assuarances to Taiwan

 

Unlike Nixon and Carter, however, Reagan also had personal attachment with Taiwan and had long been Taiwan’s leading political champion. He was sent in 1971 by President Nixon to reassure Taiwan that the improvement of relations between US and China had not altered the basic American interest in Taiwan’s security. The trip left Reagan with warm personal feelings toward its leaders and a profound commitment to the relationship of the peoples of America and Taiwan. He was thus furious when Taiwan was expelled from the United Nations General Assembly shortly after his visit. He was also highly critical when the Carter administration severed formal diplomatic ties with Taipei and downgraded the American Embassy in Taiwan to an unofficial “American Institute”. Before becoming president, he had even publicly called for reestablishment of "official" relations with Taiwan, much to Beijing's distress. Ronald Reagan thus embodied the prevailing American ambivalence of a powerful commitment to the strategic relationship with Beijing against Soviet Union while retaining a strong residue of emotional support for Taiwan.[4]

 

Soon after Reagan became president, the issue of America’s continuing arms sales to Taiwan, as permitted by the Taiwan Relations Act, turned increasingly contentious for the Chinese. Earlier on, Mao chose not to press the issue because he needed the US to counterbalance the Soviet. Deng, on the other hand, chose to overlook that issue in his eagerness to complete the normalization process so that he could confront Vietnam with at least the appearance of American support. Hence, no definitive conclusions were reached on the issue of arms sale to Taiwan during the negotiations of the two joint communiqués under the Nixon and Carter administrations. It was only after the signing of the second communiqué that, the Congress, asserting that the Carter administration had given away too much, passed the Taiwan Relations Act insisting that continuing limited arms sales to Taiwan was a political necessity.

 

With the immediate security threat at the Chinese borders mitigated, the Chinese leaders raised the Taiwan arms issue again as soon as the Reagan administration took office, treating it as an unfinished aspect of normalization. Specifically, Deng wanted American arm sales to Taiwan to end and demanded that the US set a timetable or face the prospect of downgraded diplomatic ties.

 

After tough negotiations conducted by Alexander Haig, the US Secretary of State, an agreement was reached that permitted both sides to postpone a final resolution, while establishing a roadmap for the future. In August 1982, the US and China signed a communiqué in which the US government stated "that it does not seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in qualitative or in quantitative terms, the level of those supplied in recent years… and that it intends to reduce gradually its sales of arms to Taiwan, leading over a period of time to a final resolution”.[5]

 

In effect, the communiqué was a result which neither side completely got what it wanted: China had to continue to tolerate periodic American sales to Taiwan while the US is compelled to cap the quality of weapons and progressively reduce the quantity of what it sells.[6] That Deng acquiesced in so indefinite and partial an outcome demonstrates the importance he attached to maintaining close relations with the United States (as well as his confidence in Haig).[7] It could also be that Deng was testing to see how far fissures in the Reagan administration between conservative and moderate Republicans, as well as between the White House and State Department over the issue of China, could be exploited.[8]

 

Despite consenting to the joint communiqué, Reagan was worried about its possible effect on Taiwan.[9] The US willingness to reduce its arms sales to Taiwan was conditioned upon the continued commitment of China to the peaceful solution of Taiwan-PRC differences, which was a precept Reagan could not trust the Chinese would adhere to. To reassure Taiwan that the US would not abandon the island republic, Reagan sent James Lilley, then the head of the American Institute in Taiwan, America's nominally unofficial representative body in Taiwan, to call on ROC President Chiang Ching-kuo on July 14, 1982 to deliver what would come to be known as the Six Assurances stating that the US:

• had not agreed to set a date for ending arms sales to the Republic of China;

• had not agreed to hold prior consultations with the PRC regarding arms sales to the Republic of China;

• would not play a mediation role between the PRC and the Republic of China;

• would not revise the Taiwan Relations Act;

• had not altered its position regarding sovereignty over Taiwan; and

• would not exert pressure on the Republic of China to enter into negotiations with the PRC.

 

A declassified secret memo later also revealed that Reagan unilaterally formalized the condition of maintaining military balance between the Strait as the defining basis for deciding the levels of arms sales to Taiwan. The condition constituted a fundamental shift from the Nixon-Ford-Kissinger approach of gradual reduction.

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Officially, henceforth, US China policy is based upon the three communiqués (signed by Nixon in 1972, Carter in 1979, and Reagan in 1982), the Taiwan Relations Act, and the Six Assurances. US’ administration spokesmen invoke this China policy formula from time to time to explain the relations between the two countries. The Chinese, on the other hand, honours the three joint communiqués that they signed but refuse to recognize the validity of the Taiwan Relations Act established unilaterally by the US Congress in 1979.

 

Deng’s Reform and Opening Up in 1978

 

In an effort to bring the centrally-planned command economy from the brink of a total economic collapse, Deng embarked on his “Reform and Opening Up” programme in 1978 to move away from Chinese economic self-sufficiency and integrating it with the global economy.

 

In a centrally planned economy, goods and services are allocated by bureaucratic decision. The absence of a free market means that prices established by administrative fiat lose their relationship to costs. Eventually, prices turn into subsidies and are transformed into a method of gaining public support for the Communist Party. Above all, the centrally planned state, far from creating a classless society, ended up by enshrining class stratification. Where goods were allocated rather than bought, the real rewards were perquisites of office: special stores, hospitals, educational opportunities for cadres. Enormous discretion in the hands of officials inevitably led to corruption. Jobs, education, and most perquisites depended on some kind of personal relationship.

 

The watershed event that signalled the start of China on its path to economic reforms is the Third Plenum of the Eleventh Central Party Committee (中共十一届三中全会) in December 1978. By embarking on unprecedented market economics, decentralized decision making, and opening to the outside world, Deng hoped to unleashed the talents of the Chinese people, whose natural economic vitality and entrepreneurial spirit had long been constrained by war, ideological dogma, and irrational strictures on private investment. Leading the reforms were two of Deng’s progressive-minded protégés, Hu Yaobang, who was appointed the General Secretary of CCP, and Zhao Ziyang, the Premier.

 

Reforms began first in the agricultural sector in the rural areas where vested interests less entrenched. China was essentially still an agricultural country with about 70% of its population still residing in the rural area. Reforms in the agricultural sector, if successful, would bring immediate reliefs to the majority of the masses who were living in extreme poverty attributed to decades of economic mismanagement. In 1979, agricultural communes were replaced by household responsibility system, which, in effect, amounted to family farming by contract. It involved dividing land into plots which were then leased to individual household under contract. The state contracted to buy a portion of their produce at a state-determined price. The surplus of the produce could then be sold on a free market at unregulated market-determined prices, giving rise to a dual-price system in the agricultural sector. 

 

The agricultural reforms of contracting responsibility system had an immediate impact on output Total national grain output increased by 33.6% to 407.31 million tons between 1978 and 1984. The agricultural production structure was also evolving as farmers began to diversify their activities. As agricultural productivity and income rose in the rural areas, town and village enterprises (TVEs) producing light consumer products began to emerged from the production teams and brigades. Besides the rural collectives, rural private enterprises also began to grow quickly in number. With the successful implementation of the contract responsibility system and the resultant growth in productivity in the agricultural sector, a large number of farmers became redundant. Many started sideline self-employed businesses to supplement their agricultural income. The 1980s therefore saw the rise of rural industrialization led first by TVEs and then by private enterprises.

 

Soon, the contract responsibility system was then extended to the urban areas. For the state sector, the basic idea was to separate ownership of state-owned enterprises from their management. While ownership remained in the hands of the state, management of the SOEs would be left largely to managers whose functions and rewards were defined based on agreements. Within the boundaries stipulated in the contracts, the managers were given substantial latitudes to run the enterprises.

 

One of the key reform initiatives in the urban areas was the adoption of a dual-track pricing system which was first introduced in the rural agricultural sector. Administrative control had already started to ease progressively since 1981 over pricing of both consumer and capital goods. Control of pricing and sales of consumer goods, for example, were relaxed in 1981 and removed by 1983. By 1985, the restriction over market pricing of extra-plan output of capital goods was also removed, effectively resulting in the creation of the “dual-track price system” comprising of a state-set price for the amount of capital goods produced according to the state-plan and a market-determined price for the extra-plan output.

 

China also took major steps in opening its door to the world for external help to reform its antiquated economic system. Two key elements in Chinese strategy on the foreign sector were the relentless drive to attract foreign direct investment (FDI) through the Special Economic Zones (SEZs) and the fervent pursuit of export-led growth.

 

The results of Deng’s reforms and opening up of the Chinese economy were spectacular. As FDI flowed in and productivity rose in the collectives, private enterprises, foreign-invested enterprises and state-owned enterprises, gross domestic product (GDP) grew at an average rate of over 9 percent annually throughout the 1980s.

 

From Co-Existence to Peaceful Evolution

 

Chinese domestic policies under Hu Yaobang and Zhao Ziyang, guided by Deng, had been uncompromisingly pro-Western in general and pro-American in particular. Trade between the two nations soon began to grow. Arguing that “trade will change the Chinese political system”, Reagan began relaxing trade restrictions gradually and US strategy on China gravitated from simply co-existence to "peaceful evolution". In April 1984, Reagan visited China to highlight his desire to improve the diplomatic relationship with Chinese leadership. By 1985, at the urging of the US military-industrial complex, Reagan administration relaxed control of high-tech exports to China. US arms sales to China reached $5 billion, albeit all in obsolete systems.

 

Many US analysts considered this period the golden years of US-China relations.[10] The US, China, and Taiwan all emerged from the early 1980s with their core interests generally fulfilled. Despite its disappointment over US’ flexible interpretation of the communiqué, China was able to continue building up its economic and military power while playing an independent role in world affairs. The US, on the other hand, was able to pursue amicable relations with both sides of the Taiwan Strait and to cooperate with China on common anti-Soviet imperatives, such as intelligence sharing and support for the Afghan insurgency. Taiwan obtained a bargaining position from which to negotiate with Beijing.[11]

 

Under the relative calm, however, the global geopolitical landscape saw a series of significant shifts that would fundamentally impact on the relations between China and the US. The series of advances by Soviet Union and its proxies in the developing world, including Angola, Ethiopia, Afghanistan, and Indochina, were turning into costly stalemates or discredited failures as a result of coordinated efforts from the US, China, and almost all the industrial economies. Under Brezhnev, the Soviet‘s support for Marxist revolutionaries in the developing world looked devoid of a coordinated strategy.

 

Meanwhile, the American rearmament begun under Carter and accelerated under Reagan also gradually altered the balance of power and constrained the Soviet’s ability to intervene around its periphery. The American strategic buildup, especially Reagan’s Strategic Defense Initiative, posed not only a technological challenge but was also a severe financial strain on the stagnant and overburdened Soviet economy which was already bearing a defence burden that was three times that of the US as a percentage of GDP by the end of 1970s when its GDP was only about one-sixth the size of its American counterpart.[12] In the geopolitical struggle between the two superpowers, US had clearly gained the upper hand by the end of the decade.

 

For the Chinese, the weak Soviet response to the Chinese invasion of Vietnam marked the beginning of a gradual but accelerating Soviet decline. The Soviet’s weaknesses gave Chinese diplomacy a new flexibility to manoeuvre. To be sure, China had no interest in the global triumph of American values and Western liberal democracy that Reagan proclaimed as his ultimate goal. Confident that China had withstood the high point of the Soviet threat, Chinese leaders began to speak less of military containment and use the new flexibility to explore their scope for a new diplomacy with Moscow.

 

A 1985 CIA report, for example, reported that China was cultivating closer ties with the Soviet Union at a protocol level and frequency not seen since the Sino-Soviet split. Despite lingering suspicions of the Chinese, there were also attempts by Soviets to improve relations. In 1984, for example, Deputy Premier Arkhipov visited Beijing where he signed three agreements seeking nolotaeral economic, scientific and technical cooperation. In 1985, in his acceptance speech as the Soviet leader after the death of Konstantin Chernenko, Mikhail Gorbachev (served 1985 – 1961) declared Soviet’s desire for a serious improvement in relations with China. Vice Premier Li Peng, who attended the funeral of Chernenko and met Gorbachev, called Soviet Union a “socialist” country and also expressed China’s hope for an improvement in “political relations”. The same year, the two countries signed a landmark agreement on bilateral trade and economic cooperation after a week-long visit by the Chinese Vice Premier Yao Yilin to Moscow.[13]

 

In short, Sino-Soviet relations were on the mend by the second half of the 1980s. Now that the Soviet menace had begun to recede, both the US and China were edging away from the previous alignment in which they saw themselves as strategic partners facing a common existential threat. In the absence of new tensions, China and the US became in effect partners of convenience on selected issues on which their interests aligned.[14] As for the rest of Asia, the project of exporting Communist revolution by China, North Korea and North Vietnam had drawn to a close. Amid the new equilibrium created between the various centres of power, a new era of Asian economic reform and prosperity began to take root.

 

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[1] See Kissinger. (2011). Pg 514.

[2] See Nguyen Anh Tuan. (2008). “America Coming to Terms: The Vietnam Legacy: Years of Trials and Lessons of Experience.” Xlibris Corporation. Pg. 70. 

[3] See Nicholas G. Hahn III. (2007). “Reagan-Sino Legacy: Relations of the United States and China in the 1980s.” Journal of the Washington Institute of China Studies, Summer 2007, Vol. 2, No. 2, Pg. 100.

[4] See Kissinger. (2011). Pg 516.

[5] See Shirley A. Kan. (2006). "China/Taiwan: Evolution of the 'One China' Policy-Key Statements from Washington, Beijing and Taipei," Congressional Research Service Report for Congress, September 7, 2006, p. 41.

[6] See Edward Lanfranco. (2004).

[7] See Kissinger. (2011). Pg 519.

[8] See Edward Lanfranco. (2004). “Reagan’s legacy in Sino-U.S. relations.” United Press International. 11 June 2004.

[9] See Peter Schweizer. (2002). “Reagan’s War: The Epic Story of his Forty Year Struggle and Final Triumph Over Communism.” Doubleday Books. Pg. 67. See Lou Cannon. (2008). “President Reagan: The Role Of A Lifetime.” PublicAffairs. Pg 421.

[10] Ibid.

[11] See Kissinger (2011). Pg 524.

[12] See John Lewis Gaddis. (2005). “The Cold War: A New History.” Penguin. Pg 213–14, note 43. Pg 129.

[13] See Directorate of Intelligence, CIA. (1985). “China-USSR: Maneuvering in the Triangle” (December 20, 1985), RRPL, 007-R.

[14] See Kissinger. (2011). Pg 535.