China in 2005: Hu's in Charge Author(s): Tony Saich Reviewed work(s): Source: Asian Survey, Vol. 46, No.

1 (January/February 2006), pp. 37-48 Published by: University of California Press Stable URL: http://www.jstor.org/stable/10.1525/as.2006.46.1.37 . Accessed: 21/11/2011 02:41
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CHINA IN 2005
Hus in Charge

Tony Saich

Abstract
Chinas new development strategy seeks to combine populist authoritarianism in the political realm with a shift in economic policy that focuses more on the sustainability and quality of economic growth rather than its speed. Rising social tensions have fed into tightening party control over state and society.

During 2005, the policy intent of the Hu Jintao-Wen Jiabao leadership has become clear. The main thrust is a form of populist authoritarianism with policy gestures to those who have not beneted so much from economic reform to date, combined with attempts to tighten control over state and society in the name of preserving social stability as the key foundation for continued economic growth. At the fourth plenum of the Chinese Communist Partys Central Committee (CCPCC) in September 2004, Hu made it clear that he was not interested in signicant political restructuring but rather an improvement in the quality of public administration. The fth plenum in October 2005 recognized the signicant shift in development strategy away from an obsessive focus on gross domestic product (GDP) growth toward focusing more on sustainability and social equity, under the catchphrases scientic development and building a harmonious society. These policy preferences of the new administration display three signicant discontinuities and one continuity with those of former party General Secretary Jiang Zemin. First, Hu is more orthodox in the political realm than Jiang. There is no doubt that the political atmosphere has tightened over the past year. Hu has reafrmed his credentials as a strong Leninist leader who has sought to clamp down on dissent and to limit the range of ideas expressed in
Tony Saich is Daewoo Professor of International Affairs at the Kennedy School of Government, Harvard University. Email: Anthony_saich@harvard.edu . Asian Survey, Vol. 46, Issue 1, pp. 3748, ISSN 0004-4687, electronic ISSN 1533-838X. 2006 by The Regents of the University of California. All rights reserved. Please direct all requests for permission to photocopy or reproduce article content through the University of California Presss Rights and Permissions website, at http://www.ucpress.edu/journals/rights.htm.

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the public sphere. Second, policy is more people-centered and populist. There has been a noticeable shift in the discussion of economic policy, with a greater emphasis on sustainability, the quality of growth, and how to deal with the signicant inequalities that exist. Third, Hu does not share Jiangs essentially pro-U.S. disposition in foreign affairs. Hu seems more suspicious of U.S. intentions and has tried to build alliances with other countries, including those not close to the U.S. The one continuity is the belief in the partys paramount position in the political and economic systems and that only the party can be trusted to carry out reforms. Absent external shocks, policy direction is liable to follow these lines until a new generation of leaders can consolidate their power in around 10 years time. The key question is whether simply trying to crack down on dissent, eradicating political alternatives, and placing primacy on maintaining social stability will be sufcient to deal with the challenges confronting the party over the medium term.

Political Trends: Restricting the Public Sphere

The nal formal act in leadership succession was completed at the March National Peoples Congress (NPC) session when Jiang Zemin handed over his last leadership post as head of the State Military Affairs Commission to Hu Jintao, already his successor as party general secretary and president. This was signicant because it marked the rst peaceful leadership transition in CCP history and ts with the partys claims that it is moving from being a revolutionary to a governing party. Since consolidating power, Hu has launched a major campaign for party members to force allegiance to the new regime and has either promoted or tolerated a very signicant tightening of the political atmosphere. In January, the party launched an 18-month major Campaign to Maintain the Advanced Nature of the Party to outline the norms to which individual party members were expected to conform. The campaign is intended to strengthen socialist ideology and the partys leading role. After the study period, party members will be judged on their performance to decide whether they can continue their work. However, beyond letting people know the new rules of the game, it is debatable how much impact such a campaign can have in the modern day and age. Most party members that foreigners come into contact with privately express a high degree of cynicism about the campaign: jokes so abounded that an ofcial directive was sent out requesting that party members only use the campaigns full name and not shortened forms that could be turned into puns. At worst, some party members were upset that the effort was diverting time and attention from pressing issues that needed serious policy attention. At least one enterprising group set up a website, where the appropriate self-criticisms

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for different-level ofcials could be downloaded for a fee. All busy ofcials had to do was put in their names and change some of the details to personalize the report! Perhaps responding to the view that the campaign had little to do with real problems, Vice President Zeng Qinghong linked the campaign to raising the quality of party organizations so they could serve the people better.1 The political atmosphere tightened over the course of the year. Hus drive to contain dissent and curb public political expression shocked many Chinese; the harsh nature of his unpublished speech to the fourth plenum in September 2004 contained rhetoric and language that has not been prevalent for many years. He attacked the spread by foreign and domestic groups of bourgeois liberalization and urged a crackdown on political problems. One report of the speech said Hu equated party members who advocated political reform with creating turmoil, although the context within which he said this is unclear. He also praised Cuba and North Korea for their control over ideology and the ow of information despite their temporary economic problems, claiming that they had always adhered to a sound political line. Leadership concern about society slipping out of control has played a role in this tightening and there is nervousness about the levels of inequality and social unrest in China. Last, but not least, the colored revolutions in Central Asia have disturbed the leadership, causing ofcials to worry about the role that an emerging civil society may play as a potential catalyst for change. They have also put foreign foundations under scrutiny: those funded by Washington are seen as being behind the fall of the pro-Beijing authoritarian regime in Kyrgyzstan and the upheavals in Uzbekistan. In 2005, such sentiments at the top were increasingly turned into action. Media reporting was tightened noticeably, with more topics put on the taboo list. Within the Propaganda Department, a number of notable public intellectuals were referred to in terms rarely used since the Cultural Revolution and were openly criticized as being counterrevolutionary. In fact, the term public intellectual itself came in for criticism. Another concept criticized was neo-liberalism, despite the fact that the policies of neo-liberalism underlie much of Chinas recent economic reform. The year saw signicant moves to control the Internet, foreign involvement with the Chinese media, and the operation of both domestic and international non-governmental organizations (NGOs). In June, all Chinese websites and bloggers were required to register their real names with authorities or risk being closed down by the end of the month. Commercial publishers and advertisers risked a $120,000 ne if they failed to comply. On September 25, the State Council Information Ofce and the Ministry of Information Industry
1. See Zeng Qinghong on the Correct Way of Waging the Campaign to Preserve the Advanced Nature of the CCP, Xinhua News Agency, May 25, 2005.

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issued joint rules on administering news information on the Internet. The rules drew together existing regulations but added that the Internet could be used neither to incite unlawful assembly nor to carry out activities on behalf of illegal civil organizations. This was prompted by the capacity of loose organizations of citizens to mobilize through cyberspace. Such potential had been brought home in the spring by the organization of anti-Japanese protests that had made extensive use of new communication technologies. One good piece of news was that under the new rules death tolls for natural disasters would no longer be a state secret. But the state secret designation does cover the numbers of war dead, plans for land use development, environmental quality reports, public health disasters caused by environmental pollution that have had a national impact, and reporting on illegal organizations. Controls also tightened on domestic and international media and a loophole was closed that had led to a fair degree of exposure of ofcial malfeasance. In the spring, the government banned the practice of reporters traveling to other areas to report on illegal or corrupt practices of local ofcials. This had become quite common and a number of local governments had complained about outside journalists coming in and reporting on issues that local journalists were prevented from covering. Not surprisingly, the practice of hiring thugs to threaten outside journalists continued. In late May, new regulations required Chinese journalists to obtain a license to show that they had undergone a week-long course on ideology; they were required to carry the license when reporting on ofcial events.2 The enthusiasm of international media companies was dashed by regulations that banned cooperation with Chinese organizations in regular and live programs and forbade local media stations from renting their channels to foreign companies. The colored revolutions set off heightened concern about the role that civil society organizations play; both Chinese and international NGOs came in for greater scrutiny in their work. It was reported that Hu Jintao mentioned at a Politburo meeting that to prevent similar political developments, state security and the police should raise their vigilance against underground organizations as well as NGOs.3 As a result, state security ofcials started interviewing staff of Chinese NGOs that received foreign funding, as well as some Chinese staff of international NGOs. Further, the Ministry of Foreign Affairs set up a new unit for the management of foreign NGOs that would review and oversee their work. Interestingly, the government began to pay special attention to environmental NGOs, one sector that had become particularly active in recent years but that receives substantial international funding.
2. Robert Marquand, China Cracks Down on Web and Expats, Christian Science Monitor, June 10, 2005, http://www.csmonitor.com/2005/0610/p)1s02-woap.html . 3. Willy Lam, Hus Recent Crackdown on Political Dissent, China Brief 5:13, June 7, 2005.

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The death of former General Secretary Zhao Ziyang in January brought some reform ideas back to the fore; the leadership clearly became concerned that his death might lead to the kind of unrest China experienced in 1989 after the death of another general secretary, Hu Yaobang. Thus, ofcials tightly monitored Zhaos health, set up a special group to deal with any consequences from his death, and delayed reporting his passing until they were sure that all was under control. In the end, they provided the bare minimum recognition of Zhaos service to Chinas causeafter lengthy negotiations with his family members. By contrast, in November 2005 Chinas leaders marked the 90th anniversary of Hu Yaobangs birth but Hu Jintao did not attend, nor did he make a major speech as had been rumored. Clearly, many of those that Hu Jintao needs to use in the next few years had connections to Hu Yaobang and this was seen as a way to reassure them. It may also have been an attempt to shore up disillusionment among more liberal party members with the recent policy trend. In place of any signicant reform, President Hu is offering cleaner and more efcient government administration. The party has been stressing that to maintain control it needs to complete its shift from a revolutionary to a governing party and that government capacity needs to be enhanced. Hu has promoted more feedback loops within the party and has carried on supporting the emergence of quasi-elections within it. However, it is hard to see whether inhouse mechanisms will work when they have not worked before in China or elsewhere. Premier Wen Jiabao did give a glimmer of hope to reformers in September when in advance of an EU-China summit, he mentioned that it might be possible to raise the level of direct elections from the village to the broader township. This did not feature in Chinas rst White Paper on political democracy. Albeit a hopeful gesture, the study offered nothing new and essentially conrmed that the CCP had no intention of releasing its grip on the political system.4

Social Issues: Recognizing Inequality and Confronting Unrest

Over the course of the year, increasing tensions within society and the growing inequality that is a direct product of economic reform became a source of much debate and concern. Chinas development strategy has leveraged increased inequality as a stimulant for economic activity and growth. There is a clear urban bias to development, as well as a coastal bias, and also a conscious exclusion of rural migrants who have sought work in the cities from integration into many urban services. The new leadership has been at pains to mitigate the
4. State Council Information Office, Building of Political Democracy in China, October 19, 2005, http://china.org.cn .

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effects of these policies and to try to bring benets to those groups and regions that have not been served so well by economic reform, a stance that was reected in the new ve-year program passed by the fth plenum. Inequality in the country has increased, with the Gini coefcient rising from 0.33 at the start of reforms to around 0.49 in 2005meaning that China has shifted from being one of the more egalitarian countries in Asia to becoming one of the least. Not surprisingly this has led to a concentration of wealth. In June, the National Statistics Bureau noted that the top 10% of the population enjoyed 45% of the countrys wealth, while the poorest 10% shared only 1.4%. The disposable income of the richest group was 11.8 times greater than that of the lowest 10%, up from 10.9 times a year before. The inequality goes beyond monetary income to include access to public goods and services. Given such trends, it is not surprising that real levels of poverty in China are well above the ofcial gures; the World Bank president claimed that there were 150 million people living in acute poverty. For a country that still describes itself as socialist, these trends are difcult to justify and could provide an easy rallying point for opposition. The Ministry of Labor and Social Security even stated that the growing income gap under current trends was likely to cause instability by 2010 if no effective solutions were found. Many articles appeared in the course of the year chastising the leadership for allowing such inequity; one report sponsored by the State Councils Development Research Center even asserted that health care reforms had failed the rural poor and blamed the government for ignoring its responsibility to provide this public good.5 The inequality may not present the kind of challenge that some in the leadership imagine, but it is signicant for both economic and political reasons. While a certain rise in inequality is inevitable, much of it has been the result of concrete policy choices. Rising inequality can be detrimental to long-term economic growth and the lack of access to adequate education and health will retard growth by denying effective opportunities to many of Chinas young. Last but not least, there is political risk associated with this strategy because the Chinese leadership still claims to be socialist and to represent all sections of the population. Given the social trends and tremendous scale of transition, it is not surprising that social unrest is on the rise. In fact, the governments approach encourages people to be unruly because the political system lacks effective channels for citizens to express genuine grievance. Given that the origins of most social unrest lie with the illegal actions of local governments or those with powerful
5. Subject Group of the Development Research Center of the State Council, Evaluation and Suggestions on Reform of the Chinese Medical Health System (Abstract and Key Points), July 29, 2005, http://www.sina.com.cn .

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connections, citizens are unlikely to receive redress through ofcial channels controlled by the local party bureaucracy. This drives citizens to extra-legal means such as demonstrations and strikes. At present the protests are not a threat to regime survival: the vast majority are not overtly political but derive from economic grievances that are a product of the reforms. Major causes are industrial restructuring, pressures on local governments to raise their own revenues that lead to illegal levies, manifest increases in inequality, and high-handed behavior of local ofcials. In the urban areas, most collective protests have been sparked by forced acquisition of homes for redevelopment, government failure to meet payments for salary or pensions, or layoffs. In the countryside, the main bones of contention have been the imposition of illegal fees, land seizures, and unpopular policies such as those for family planning. More recently there has been a rise in protests because of environmental concerns. Two events brought together the social and the political, both in wealthy Guangdong Province. In Taishi on the outskirts of Guangzhou, at the end of July 2005, 400 villagers petitioned to remove the village chief, who they believed had embezzled funds from land sales and factory rentals. This was perfectly within their rights and the villagers brought in outside legal experts and spread their message to both domestic and international media. By late September, pressure from local authoritiesincluding the hiring of thugs to intimidate those involvedforced the villagers to withdraw their complaint. A committee established to review the village chiefs work was replaced. This occurred despite the fact that at one point, the action of the villagers appeared to gain the party Centers support. The use of hired thugs revives an old tradition and has become increasingly common in resolving disputes in favor of powerholders. In early December, in Dongzhou near Hong Kong, unrest involved violence by agents of the state itself. The cause of the incident was expropriation of farmers land by local authorities to build a coal-red plant. This initial act, for which residents felt they received inadequate compensation, was compounded by the environmental concern that pollution from the plant will destroy the livelihood residents get from shing. Ofcial accounts claim that residents attacked the authorities and that the paramilitary forces were within their rights to open re. Ofcial counts have tried to keep the death toll to three while local accounts claimed that 20 or more people had been killed. In an important step, an unnamed local commander was detained as a result of the killings, presumably in the hope that this might appease further protest. The combination of state causation of the protest with state armed repression is important to note, as is the fact that some 50 Chinese intellectuals called for an independent investigation. This will worry central leaders, and they will want to make sure that this does not become a more common response.

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These levels of unrest have created concern among the leadership. In July, Minister of Public Security Zhou Yongkang remarked on the increase in protests with 87,000 nally recorded for 2005, an increase of 6.6% on 2004 but with mob violence rising by 13%. This increase in discontent was not restricted to protests. In the rst quarter of the year, the State Council Petitions Bureau in Beijing reported an increase of over 90% in the number of letters and visits compared to the same period last year. However, it is apparent that the senior leadership does not know how to respond effectively. They have recognized that, on the whole, the protests are not political and do not deserve a harsh response. For example, Minister Zhou, while calling for ofcial vigilance, noted that extreme measures should be avoided and that these were internal conicts among the people. Even more remarkably, in a July 4 interview with the South China Morning Post, Chen Xiwen, who oversees agricultural policy, criticized violent protest but saw the rural protests as a sign that farmers were recognizing how to protect their rights and interests. That said, there is no doubt that the leadership remains concerned about the possibility of unrest getting out of hand. This was made clear by a July 28 Peoples Daily commentary warning that no illegal attempts to disrupt social stability would be tolerated and that the protection of stability comes before all else. Also, the right of citizens to petition the central government directly has been curtailed. Combined with the message that conicts should be resolved through the existing system, this is discouraging and puts considerable power in the hands of local authorities who have been responsible for many of the disturbances in the rst place.

Economic Issues: Maintaining Growth, Improving Equity

Despite central policy to rein in economic growth, growth for the third quarter came in at around 9.4% and will exceed 9% for the year. Further, results of a national economic census released in mid-December revealed that the economy is about 20% larger than previously estimated. This is because previous reports underestimated the size of the largely private services sector. Importantly, this would suggest that consumption is playing a more signicant role in growth than previously thought, energy efciency is slightly higher, and the investment ratio to GDP is lower. The growth rate and Chinas high level of exports led to trade frictions with the EU and criticisms of the Chinese exchange regime, while concerns have arisen about the sustainability and quality of growth. The outline of the new ve-year program (not plan) that will be formally adopted at the March 2006 NPC meeting conrms the need to pay more attention to the negative effects of development. This entails help for those citizens

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whom the economic reforms have bypassed (migrants, the rural poor, and laid-off urban workers), grappling with problems of inequality, trying to improve environmental degradation, and reducing Chinas energy demand by setting a target of using 20% less energy for each percentage point of output growth. This sounds like a major policy shift from the 1990s, when the emphasis was on rapid growth and development of the coastal regions with the belief that this would pull other areas along and a trickle-down would kick in. However, rising inequality and social unrest have called this view into question and the new leadership is more determined than the previous one to tackle these problems. In practice, policy is not intended to return China to egalitarianism but to provide government with a more signicant role in moderating market excesses and slowing the growth of inequality. Showing concern for rural dwellers, State Council Document No. 1 of 2005, as in 2004, was dedicated to rural affairs. The 2005 document committed China to eliminating the agricultural tax over a ve-year period, speeding up the previously announced implementation. In the year, some 22 provinces had agreed to abolish the tax. This well-meant legislation also contains a potential pitfall because local governments depend on revenues from this tax for their expenditures. Document No. 1 requires the institution of a more centralized revenue distribution scheme and a shift in responsibility for public good provision from the village and township to the county.6 Without this, illegal revenue extraction from rural residents will only increase. The program outline makes no mention of the role of the private sector, which is a much more efcient user of resources than the state and has been a focus for development in recent years. Further, state-owned enterprise (SOE) privatization seemed to slow in 2005 as people objected to the asset stripping that has occurred. The enhanced role for the state was seen in certain measures introduced in April and May that strengthened the role of the State Asset Supervision and Administration Commission (SASAC).7 First, the contentious issue of management buyouts (MBOs) of SOEs was claried. New SASAC regulations temporarily prohibited MBOs at large SOEs, closed a number of loopholes, and claried under which conditions MBOs of smaller enterprises could be carried out. Secondly, SASAC launched a policy that would deal with how non-circulating shares of companies listed on the stock exchange could be turned into circulating shares. The most telegraphed event of the economic year was the revaluation of the Chinese currency. The U.S. had been pushing for a major revaluation, even up
6. M. Lu and C. Wiemer, Putting Farmers First: An End to Chinas Agricultural Tax, East Asian Institute Background Brief, no. 231, Singapore, 2005. 7. This draws on Barry Naughton, SASAC Rising, China Leadership Monitor, no. 14 (Spring 2005), Hoover Institution, http://www.chinaleadershipmonitor.org/20052/bn.html .

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to 20%, something that was never likely to happen nor was really desirable. Senator Charles Schumer pushed an amendment to the annual State Department spending bill that would impose 27.5% duties on all Chinese imports if China did not agree to revalue its currency. Instead, on July 21 China announced a one-off 2.1% cross-rate reset that brought the yuan exchange rate down from 8.28 to the dollar to 8.1, subsequently declining to 8.08. The peg to the dollar was broken, and the yuan was pegged to a basket of currencies with a daily uctuation band of plus or minus 0.3%. Despite this potential for daily revaluation, China immediately made it clear that this would not happen and that caution would remain the guiding factor. The minimal revaluation held off U.S. pressure for a while, but without further movement, pressure will return to try to engineer a 10% to 20% revaluation.

Regional and International Relations: Mixed Progress

Over the rst few months of the year it looked as though Chinas attempts to portray itself as an effective but peaceful rising power would founder on trade frictions with the U.S. and the EU, a deteriorating relationship with Japan, an aggressive attitude toward Taiwan, and stalemate over nuclear weapons in North Korea. By the end of the year, China had made progress in a number of areas and continued to carve out more international space for itself while making clear that it was willing to look beyond the U.S. to build its international relationships. Although relations with Japan remained fragile, cross-Taiwan Strait relations took a remarkable turn with a series of visits by Taiwan Kuomintang (Nationalist Party) ofcials to the Mainland. Questionable progress was made over North Korea. American ofcials have adopted the habit of saying that the relationship with China is in the best state ever. Supercially, this may be true, but it is clear that the relationship still has no solid underpinnings; deep divisions remained in the U.S. about whether the rise of China was a threat or opportunity. In addition to the currency dispute, the massive trade imbalance has been a source of friction. Some U.S. politicians have tried to shift the blame onto China for the large trade decit that derives from Americans proigate habits and incapacity to save money. The trade picture is complicated by the fact that many of Chinas exports are made up of intermediate and semi-nished products imported from other countries to be processed and shipped out again; thus, there is a signicant amount of double counting. Notwithstanding this, the issue has become a political problem for the U.S. and was reected in discussions of Chinese textile exports in 2005, an issue that also caused concern in the EU. The problem arose because of the abolition on January 1 of the global system of quotas, which caused a surge in sales of clothes to the U.S. in the rst seven

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months of the year. The U.S. sought to limit the increase to 7.5% as laid out in the World Trade Organization agreement safeguards but eventually agreed to a 10%17% growth rate through 2008. China had originally wanted the agreement to end in 2007. Relations with Japan continue to be the major diplomatic challenge for China, and the year witnessed further marked deterioration despite the continued economic importance of the relationship. The worst came on April 910 when anti-Japanese protests broke out in a number of major cities resulting in some violence and damage to Japanese property and stores that sold Japanese goods. This occurred against the background of the revision of certain junior high school textbooks in Japan that whitewashed World War Two atrocities, and also Chinese government opposition to Japans entry into the Security Council. Online petitions were organized and both the inaction of the police in preventing the demonstrations and the initial government response gave the impression that anti-Japanese actions enjoyed the Centers support. However, the possibility that public expression would degenerate made the government call a halt to the demonstrations and start discussions to improve the relationship with Tokyo. However, in late May a meeting between Vice Premier Wu Yi and Prime Minister Koizumi Junichiro was abruptly cancelled when Wu returned to Beijing. Koizumis decision in October to go ahead and visit the Yasukuni Shrine (albeit in a private capacity), which honors war criminals convicted in a 1948 tribunal as well as 2.5 million war dead, further soured the atmosphere. Chinese leaders feel constrained in how far they can move publicly by the rising nationalism of the countrys urban elites, who have seized on anti-Japanese sentiment as a good mobilizing issue. However, a functioning working relationship needs to be established to prevent long-term uncertainty in the East Asia region. Despite improving cross-strait relations, in March 2005 the NPC passed an Anti-Secession Law stating that any formal Taiwanese moves to legal independence or that would permanently preclude reunication would justify Chinas using non-peaceful means to thwart such efforts. While the law contained a number of positive proposals, international attention focused on the potential for Chinas aggression. Although the Beijing leadership was aware of the possible international reaction, it appears that the law had been set in motion at a time when cross-strait relations looked less positive, and it was probably not feasible to withdraw the measure subsequently. Taiwan and the U.S. responded with restraint, but the EU refused to lift its embargo on arms sales to China. This was convenient for the EU, which had come under strong U.S. pressure not to lift the embargo. On the positive side, cross-strait ights were again permitted for the Lunar New Year, this time allowing Mainland carriers to land on Taiwan. The latter allowed its security rms to invest in the Mainland and welcomed Chinese tourists to visit the island. The most dramatic development was

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the visit of two KMT delegations to China, the second led by then party head Lien Chan. A number of agreements were reached, but given that the KMT is an opposition party, it is hard to see what credibility they would carry. President Chen Shui-bian made it clear that any negotiations should be with the legitimate national authorities. Still, there was no doubt that by years-end, crossstrait relations were in a far better state than those between China and Japan. China gained major diplomatic credit for pulling together in September the fourth round of six-party talks geared at resolving North Koreas nuclear weapons issue. The U.S. has given Beijing considerable license to broker a deal with Pyongyang that would be acceptable to the other parties. On September 19, it looked as if this objective had been achieved, when North Korea pledged to abandon all nuclear weapons and existing nuclear programs and return as soon as possible to the Nuclear Non-Proliferation Treaty and International Atomic Energy Agency safeguards that it had abandoned three years before. The talks decided to respect North Koreas right to develop civilian nuclear power, something that the U.S. opposes, and there was agreement to discuss providing North Korea with a light-water reactor. China gained a dose of reality about dealing with North Korea the following day when the latter informed the other parties that it wanted the reactor before it would act on the other issues, a position rejected by the U.S. North Korea may well feel that the situation supports its attitudes and it may be right. None of the parties are likely to support force to resolve the issue, and neither China nor South Korea is likely to support strong economic sanctions that would cause instability in the North. By the years end, momentum had again been lost, and the U.S. had imposed sanctions on North Korean enterprises suspected of counterfeiting or money laundering, resulting in Pyongyangs declaring its boycott of future talks.

Conclusion
The new leaderships development strategy for China became clear in 2005. While focusing on the rural areas and those marginalized by reforms, top ofcials are trying to redene a role for the state that will provide security to vulnerable groups and will deal with the negative inuences of the market. However, they maintain the belief that this is best realized through strengthening party control over state and society. There is also the potential that revived state control without new thinking and approaches could lead to an inefcient allocation of resources and a reduction in the capacity for sustainable development. Last but not least, it remains to be seen whether China can develop the governing capacity to cope with rising domestic and international tensions.