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with Indonesia and its publicly repeated hope that full diplomatic relations with Singapore will follow. Apart from such political fence-mending, China may need to make more use in future of bilateral and regional economic links, and of any authority it may gain as a guarantor of and contributor to the Cambodian settlement, to avoid at least losing too much ground in the region. One corollary may be that it needs to be much more careful about the use of military force against Vietnam in the Spratlys (which leads to speculation as to what it might have in mind as a last fling before the Vietnamese withdrawal from Cambodia).
ECONOMIC DIPLOMACY
13. On the face of it China's assets in this sphere are not great. It is a member of the IMF/IBRD but still striving to get into GATT, and it cannot even dream of being admitted, like Japan, to the Economic Summit grouping. In most trading relationships it is a demandeur, for technology and investment, and its exports are vulner- able to protectionism. On the other hand it has avoided excessive foreign debt, kept adequate foreign exchange reserves and clamped down almost too sharply whenever the trade balance looked like going into serious deficit. Up to this point the picture is one of a country still engaging to only a limited extent in the world economy, and the statistics bear this out (although they sometimes mask the very important role of Hong Kong as a channel and a trade and invest- ment partner in its own right).
14. China has, however, found a different way of its own to exploit trade relationships for and combine them with diplomatic and strategic ends, at least in the immediate region. There is nothing structurally special about its economic relationships with major Western trade partners such as the US and Europe: indeed these have been unusually free so far of political linkages or sanctions (though political pressure within Western countries for linkage with: Tibet and other human rights issues could alter this). The cultivation of economic ties with countries with whom diplomatic relations are not yet ripe or technically possible has proved useful for China in cases like the Arab world, Israel, Indonesia and South Korea, but is also hardly a unique method (though China resorts to it more freely and cynically than most).
15. The technique which China has developed to a probably unpara- lleled degree is that of region-to-region trade. To some extent it is a natural out-growth of the idea of Special Economic Zones, which can attract trade and investment by offering conditions and incentives of a standard it would be impossible to extend over the country as a whole. Now, however, the original SEZs and new coastal zones can be seen as only part of a much larger scheme to use different areas of China for attracting different foreign partners.
it coexists with perhaps
16. This pattern must not be over-played: more enduring aspects of China's economic orientation, notably towards Japan and the "small dragons". But it has developed in a remarkably
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