China conducts official diplomatic relations with almost all nations. As of March 2008 the number of countries that had diplomatic relations with Beijing had risen to 171, while 23 maintained diplomatic relations with Taiwan.

In recent years Chinese leaders have been regular travelers to all parts of the world, and China has sought a higher profile in the United Nations through its permanent seat on the United Nations Security Council and other multilateral organizations. China is a member of more than 130 intergovernmental international organizations and a signatory to more than 250 international multilateral treaties. China has deployed over 4,000 military personnel to 14 UN peacekeeping missions since 1990 and is the leading provider of peacekeeping forces among the permanent five.

China has become an important and active player in addressing critical regional and global security threats including North Korea, Iran, and Sudan. China has made proactive and leading efforts in solving the crisis in North Korea, hosting the six-party talks on North Korea’s nuclear weapons program. Despite its close ties with Sudan, China has played a constructive role in support of peacekeeping operations in southern Sudan and pledged 300 engineering troops in support of UN operations in Darfur. China has stated publicly that it shares the international community’s concern over Iran’s nuclear program and has voted in support of UN sanctions resolutions on Iran.

US-China relations are one of the most critical bilateral relationships at present. The direction that US-China relations take will define the strategic future of the world for years to come. US-China relations are China’s most important bilateral relationship. Given China’s priorities on a peaceful international environment, China seeks positive ties with the United States.

The United States encourages China to play an active role as a “responsible stakeholder” in the international community. The United States and China have been working closely with the international community on tackling transnational threats such as infectious disease, environmental degradation, drug trafficking, and terrorism, among others.

However, there remain areas of potential disagreement between the two countries. China has fundamental uncertainties and suspicions about US intentions that will need to be broached openly. Similarly, the United States will need to manage the uncertainty of China’s trajectory in the future, which is an inescapable component of the bilateral relationship. (China: The Balance Sheet, Chapter 5, C. Bergsten, B. Gill, N. Lardy, and D. Mitchell)

China has high-priority focus on its neighboring countries. The nation has established positive relationships with almost all its neighbors in recent years. Overall, China has emphasized nonmilitary aspects of its comprehensive national power in reaching out to its neighbors. China has made efforts to reduce tensions in Asia and has supported the development of multilateral vehicles to promote regional identity, such as the East Asia Summit, the Shanghai Cooperation Organization (with Central Asia and Russia), and the ASEAN+3 (Association of Southeast Asian Nations + China, Japan, Korea) forum. Yet all of these regional vehicles that China is promoting exclude the United States.

Also, China has a growing importance to the region economically as intraregional trade increases. Trade between China and ASEAN has grown by more than 20 percent each year since 2002. As Beijing promotes Chinese soft power in the region, we have observed a degree of strategic opportunism in China’s foreign relations with its neighboring countries.

China still refers to itself as the “world’s largest developing country.” Developing world relations have risen in relative importance in Chinese foreign policy over recent years—as they serve Beijing’s interests of ensuring access to resources and overseas markets, guaranteeing cross-border security, isolating Taiwan, and promoting a multipolar world. China has engaged with the developing world through provision of development assistance without conditions or lectures, trade, and diplomatic ties such as the South-South cooperation.

China’s presence in Africa has received much US and international attention in recent years. Trade flows between China and Africa reached USD55.5 billion in 2006, a fivefold increase over 2000. Beijing’s strategy of unconditional aid contrasts sharply with the Western approach of promoting good governance and sustainable economic reform. China’s close ties with “rogue regimes” such as Zimbabwe and Sudan highlight fundamental differences in Beijing’s “noninterference” principle and US attention to human rights, good governance, and democracy in the developing world.

China views the Taiwan issue as an internal matter, with the eventual return of Taiwan deemed essential to China’s self-identity and honor. Beijing’s official Taiwan policy requires that Taipei accept the “One China” principle and “peaceful reunification” under the “One Country, Two System” formula. China seeks a two-prong approach toward Taiwan, seeking closer economic, social, and cultural ties while continuing to modernize its military forces deployed opposite Taiwan.

Cross-Strait relations remain an area of potential disagreement between China and the United States. The United States maintains its commitment to Taiwan security under the Taiwan Relations Act. The United States does not support Taiwan independence and opposes unilateral steps by either side to change the status quo. China views US involvement with Taiwan as an encouragement to Taiwan’s independence forces and a fundamental obstacle to unification.

China’s armed forces are under the leadership of the Chinese Communist Party (CCP) and the Central Military Commission (CMC). The People’s Liberation Army comprised China’s main armed forces. After reducing its forces by 200,000 in 2005, the Chinese military has maintained its active-duty personnel at 2.3 million. Beijing revealed that its military budget for 2008 was USD59 billion, 1.7 percent of the gross domestic product (GDP) and a 17.6 percent increase on the previous year. China’s military budget, however, is open to significant debate due to the lack of transparency in China’s military system. In terms of prevailing exchange rate, the US Department of Defense (DoD) estimates China’s total military-related spending for the previous year could be between USD97 billion and USD139 billion.

China has justified its military modernization as the reasonable action of a major power seeking to update antiquated weapons systems and equipment and rationalize an outdated military structure. Beijing expresses commitment to a defensive posture to ensure the protection of national sovereignty and territorial integrity, which in practice has largely translated into preparation for a Taiwan scenario.

The Chinese military is in the process of transforming itself from a land-based power—centered on a vast ground force—to a smaller, mobile, high-tech military eventually capable of mounting limited operations beyond its coastal borders. China’s power-projection capability is limited but has grown substantially over recent years. China has acquired some advanced weapons systems from abroad. China became a major international arms exporter during the 1980s. Its controversial technology and arms transfers have gone to two main recipients—Pakistan and Iran. US sanctions have been imposed on Chinese state-owned enterprises for missile technology transfers to Pakistan and chemical weapons-related technology transfers to Iran.

China’s nuclear weapons program was initiated by the CCP in 1955 with Soviet assistance. China is one of the five “nuclear weapon states,” and internationally recognized as possessing nuclear weapons by the Nuclear Non-Proliferation Treaty (NPT). Due to the secret nature of nuclear information, it is difficult to determine the exact size and composition of China’s nuclear forces. Best estimates indicate that China currently has 100 to 200 nuclear warheads. In regard to China’s nuclear weapons policy, the country adheres to a “no first use” doctrine and “minimum deterrent” posture.

China was the first state to pledge “no first use” of nuclear weapons. It joined the International Atomic Energy Agency in 1984 and pledged to abstain from further atmospheric testing of nuclear weapons in 1986. In 1992 China acceded to the NPT and supported its indefinite and unconditional extension in 1995. In 1996 it signed the Comprehensive Test Ban Treaty (CTBT) and agreed to seek an international ban on the production of fissile nuclear weapons material. To date, China has not ratified the CTBT. In May 2004 with the support of the United States, China became a member of the Nuclear Suppliers Group.

China started its nuclear energy development twenty years ago, mostly out of energy safety and environmental concerns. China now has 11 reactors in operation with 9.07 gigawatts (GW) of total installed capacity. The government plans to expand the country’s installed capacity of nuclear generating units from 7 million kilowatts to 40 million kilowatts by 2020.

China’s space program is moving forward year by year. The nation has made important advances in space capabilities over the past decades. China sent humans into space in 2003 and 2005, and orbited a lunar explorer in October 2007 that is paving the way for additional moon exploration. China is now a world leader in annual space launches, yet remains notably less active than Russia or the United States. The Chinese government plans to complete a space station and a manned mission to the moon by 2020. It has also started deep space exploration focusing on Mars over the next five years during China’s Eleventh Five-Year Program for National Economic and Social Development (2006-2010) period.

Over the past five years, China has developed bilateral space cooperation with a host of countries. Currently, China collaborates with Russia, the European Union, Brazil, Canada, Nigeria, and others on space effort. China is also a member of the United Nations Committee on the Peaceful Use of Outer Space and a signatory to all UN treaties and conventions on space. However, China is not considered a key member of the international space community and is not a member of the International Space Station.

China and the United States have a limited history of both civilian and military collaboration in space. While the countries have been exploring possible cooperation in space, the potential for US-China space cooperation has become more controversial after China’s test of an antisatellite weapon in January 2007, which is expected to threaten the space assets of more than two dozen countries for years.

China has reformed and opened its economy since 1979. The government has attempted to combine central planning with market-oriented reforms. The economy has been growing reliant on foreign financing and imports. China’s economic reform is the key source of its rapid growth. China’s GDP reached USD3.249 trillion in 2007.

China is one of the largest producers and consumers of agricultural products. China is among the world’s largest producers of rice, corn, wheat, soybeans, vegetables, tea, and pork. Industry and construction account for about 46 percent of China’s GDP. Major industries include mining and ore processing, iron, steel, aluminum, coal, machinery, textile and apparel, armaments, petroleum, cement, chemicals, fertilizers, consumer products, automobiles and other transportation equipment, and telecommunications. In recent years, China has become a preferred destination for the relocation of global manufacturing facilities.

As outlined in China’s Eleventh Five-Year Program, the country’s economic reform agenda for 2006-2010, the Chinese leadership aims to build a “harmonious society” through more balanced wealth distribution and improved education, medical care, and social security. Looking ahead for the next five to ten years, China is likely to undertake further reforms necessary to sustain its rapid economic growth and become an ever more significant factor in the global economy. Yet China still faces critical challenges along the way—reforms of state-owned enterprises, capital allocation mechanisms, and macroeconomic policy instruments to moderate fluctuations. Due to the subprime mortgage crisis in the United States, China’s GDP growth in 2008 is forecasted to slowdown to 9.6 percent, compared with 11.6 percent in 2007.

In 2007 China’s exports reached USD1.221 trillion and imports reached USD917.4 billion. Export growth continues to be a major driver of China’s rapid economic growth. China has run a bilateral trade surplus with the United States since the late 1980s. These surpluses increased steadily in the 1990s, and China became the largest single source of the US global deficit in 2003.

China formally joined the World Trade Organization (WTO) in December 2001. As part of this trade liberalization agreement, China agreed to lower tariffs and abolish market impediments. The country has made significant progress implementing its WTO commitments, but serious concerns remain, particularly in the area of intellectual property rights protection.

China’s ratio of imports to GDP has grown from 5 percent in 1978 to 30 percent in 2006. By that measure, China is now twice as open to trade as the United States and three times as open as Japan. (China: The Balance Sheet, Chapter 4, C. Bergsten, B. Gill, N. Lardy, and D. Mitchell) China is now one of the most important markets for exports from the United States and other countries. With its increasing role as the final assembler in Asiawide production networks, China has become a significant player in the global market.

China’s investment climate has changed dramatically owing to its economic reform. China is now one of the leading recipients of foreign direct investment (FDI) in the world, receiving over USD80 billion in 2007 according to the Chinese Ministry of Commerce. Foreign-invested enterprises produce about half of China’s exports, and China continues to attract large investment flows. As of 2007 foreign exchange and gold reserves reached USD1.493 trillion, making China’s foreign exchange reserve the largest in the world.

With a growing foreign exchange reserve, the Chinese leadership is gradually implementing its “go-out” policy, which was officially launched in 2001. China’s outward FDI stock tripled from USD27 billion in 2000 to USD73 billion in 2006. China’s nonfinancial outward FDI mainly flew into two regions—Latin America and Asia—in 2006.

In September 2007 China’s major sovereign wealth fund—China Investment Corporation (CIC)—was established. With an initial capital of USD200 billion, CIC is one of the world’s largest sovereign wealth funds that aims to improve the rate of return on China’s foreign exchange reserve and soak up excess financial liquidity.

Economically the United States and China have grown unprecedentedly intertwined. The United States is the sixth-largest foreign investor in China, with a cumulative investment of USD57 billion through the end of 2007. Total two-way trade grew from USD33 billion in 1992 to over USD386 billion in 2007. The United States is China’s second-largest trading partner, and China is now the third-largest trading partner for the United States. In 2006 the US bilateral trade deficit with China exceeded USD230 billion, which is more than a quarter of its total imbalance.

The United States has engaged with China in the US-China Strategic Economic Dialogue (SED), a biannual event established by President Bush and President Hu Jintao. The SED gives direction and creates momentum for existing bilateral mechanisms and resolves concerns across the spectrum of economic issues.

Social unrest, including protests, demonstrations, picketing, and group petitioning, is rising in China in recent years. According to Chinese official sources, “public order disturbances” rose by 6.6 percent in 2005 to 87,000. Official corruption, environmental degradation, land confiscation, growing disparities of incomes, and lack of social security for laid-off workers are among major sources of unrest. Beijing has clearly become worried about the challenges posed by social unrest. While incidents of unrest are frequent and widespread, they remain largely spontaneous and unorganized. They do not seem to threaten the stability of the political regime for the near- to medium-term. (China: The Balance Sheet, Chapter 3, C. Bergsten, B. Gill, N. Lardy, and D. Mitchell)

In response to socioeconomic challenges, the party concedes the need for political reform to accompany economic reform. However, China’s political reform lags far behind its economic reform. Beijing’s political reform measures are purely instrumental ones that aim at keeping the party in control and maintaining its ruling status. Various measures on state, party, and grassroots reforms have been implemented in recent years.

In a white paper issued in November 2005, the party laid out its plan to build a “socialist democracy with Chinese characteristics.” Political reform has helped the party retain legitimacy and support in China. However, as the nation moves toward a more open political system, it is unlikely to follow a Western-style path, at least in the near term.

Accompanying China’s economic growth, corruption has increased dramatically in recent years. According to Transparency International’s Corruption Perceptions Index 2006, China scored a 3.3 on a scale of 1 to 10, with 10 being least corrupt—ranking 70th out of 163 countries surveyed, on par with Brazil, Egypt, and India. Experts estimate that the direct costs of corruption in 2003 could be as much as USD86 billion, or over 5 percent of China’s GDP, whereas the indirect costs of corruption are incalculable.

The central leadership has repeatedly attempted to clamp down on corruption including through high-profile investigations in the past years. There are more than 1,200 laws, regulations, and directives against corruption in China. Yet lack of implementation continues to stymie Beijing’s anticorruption efforts particularly in localities. Overall, China’s central leadership, with its open appeals to combat corruption and its ongoing efforts to promote rule of law, has been successful in casting itself as an opponent of corruption. Corruption does not presently pose an imminent threat to CCP’s ruling status.

The human rights situation in China presents a mixed picture. China’s economic growth and reform since 1978 has improved the lives of hundreds of millions of the Chinese people dramatically. An amendment was made in 2005 to the Constitution of the People’s Republic of China, stating that “the State respects and preserves human rights.” However, human rights campaigners both from within China and from the international community continue to criticize China for its record on human rights and religious freedom.

The 2007 US Department of State annual country report on human rights practices dropped China from a list of top ten human rights violators. But the report said China’s “overall human rights record remained poor” in 2007 and China “tightened media and Internet curbs and increased controls on religious freedom in Tibet and the Xinjiang region.” Amnesty International reports that “tens of thousands of people continued to be detained or imprisoned in violation of their fundamental human rights ” in 2006.

In March 2008 Tibetans staged anti-Chinese riots in Lhasa and several parts of China. Chinese police and troops clamped down on Tibetan areas. The week-long turmoil in Tibet reflected years of simmering resentment over Beijing’s interference. The Tibetan riots were a major blow to China’s central leadership, particularly with concerns over its international image in the run-up to the Beijing Olympics.

China’s energy consumption grew 80 percent from 1995 to 2005, and its share of world energy consumption increased from 9 percent to 12 percent. In 2002 China became the second-largest consumer of primary energy, after the United States. China is also the world’s second-largest consumer of oil, following the United States. According to the International Energy Agency, China accounted for almost one-third of incremental world oil consumption between 2004 and 2006. Growing energy demand in China has continued contributing to upward price pressure in the global markets.

China is the world’s largest producer and consumer of coal, which makes up the bulk of China’s energy consumption. While 94 percent of China’s overall energy supply came from domestic resources in 2005, it is projected to be near 80 percent in 2020.

The growing energy demand has caused China to become a net energy importer, especially for oil. China has been an oil net importer since 1993. A large portion of China’s oil supply comes from the Middle East. Net imports are expected to reach 3.5 million barrels per day by 2010. Beijing has sought to diversify the sources of its oil imports overseas as well as the types of sources of its energy supply.

Due to concerns over China’s energy security and environmental protection, the leadership has begun to make major efforts to address the rising energy demand. Beijing has called for greater energy conservation and development of renewable energy, as outlined in China’s Eleventh Five-Year Program. Yet the use of renewable and clean energy resources is still at the early stage of development. China calls for a shift of its current energy mix from a heavy reliance on coal toward a greater reliance on oil, natural gas, renewable energy, and nuclear power. At present, energy efficiency is still low in China. There is great potential for enhancing China’s energy utilization efficiency.

As the world’s two largest net energy importers, China and the United States share a profound interest on global energy issues, such as a stable Middle East, increased global investment in oil and natural gas production, and the advancement of economically viable alternative energy technologies.

About one-fifth of the world’s population speaks some form of Chinese as their native language, making Chinese the language with the largest number of native speakers. Mandarin is China’s official spoken language and its most common dialect.

As China emerges as a rising power, we have witnessed a booming appetite for learning Mandarin around the globe. The rise of China means future opportunities for a new generation of young people, businessmen, and others. Worldwide, approximately 40 million people are learning Mandarin. The figure is predicted to reach 100 million by 2010. Nearly 100,000 foreigners went to China to study Mandarin in 2006, doubling the number five years earlier. At US colleges, the number of students learning Mandarin jumped to 51,600 in 2006, a 51 percent increase from 2002. In 2006, 60,000 people took the Hanyu Shuiping Kaoshi, a national-level test of Chinese proficiency of nonnative speakers, twice higher than the 2005 figure.

Confucius institutes are set up around the world by the China National Office for Teaching Chinese as a Foreign Language (Han Ban) with aims to promote Chinese language and culture study worldwide. The first group of 25 Confucius institutes around the world was officially acknowledged in 2005, and the number has increased to 123 in 49 countries and regions. In 2006 a Confucius institute was founded in a foreign country every three days. The figures reflect the increasing demand for Chinese language as well as the growing influence of the Chinese culture.

Chinese soft power, an important source of which is culture, is growingly recognized as an essential component of the great power status. China’s soft-power resources in the cultural area are considerable worldwide.

China’s status as Asia’s traditional central power in history has created some unique advantages in expanding its cultural influence today. China still has many close cultural ties with other parts of the world, particularly within East Asia and Southeast Asia. Countries including Japan, Korea, Malaysia, Singapore, and Vietnam have been heavily influenced by the Chinese culture. China sees its culture fundamentally as a world culture. In addition to promoting Mandarin study worldwide, China has actively conducted cultural exchanges with many other countries, such as sponsoring Chinese cultural festivals in France and the United States.

The PRC hosted its first Olympic Games in August 2008. Approximately 10,500 athletes from 207 countries gathered in Beijing to participate. More than $42 billion was spent on the Games—making the Beijing Games the most expensive in history. Thirty-one stadiums, fifty-nine training centers, and numerous auxiliary buildings were constructed. The Chinese government temporarily halted production in Beijing’s most polluting industries, redirected local traffic, and even housed missiles that could allegedly shield the Olympic buildings from bad weather.

The 2008 Games were extremely controversial. Numerous protests against China’s human rights record occurred around the globe as the Olympic torch made its way to Beijing. Multiple athletes refused to participate given the poor air quality conditions. Severe visa crackdowns were enforced for members of the media traveling to Beijing. China was also accused of violating the minimum age requirements for athletes participating in the Games.

Yet the 2008 Beijing Games went off relatively smoothly. China used the Games to showcase the country, while demonstrating its ability to host a highly sophisticated international event. Many believe the Chinese people will benefit from the international scrutiny focused on the PRC’s human rights record and environmental policies. Still others fear Government retaliation against dissident groups who tried to use the Games to further political causes.