As relations with the US deteriorate, China probably has little choice but to continue to strengthen its armed forces. But it should remember that its military advances to date have been underwritten by the wealth and technological capabilities created during the last four decades of reform and globalization. To stay in the game with a richer, more innovative, and more efficient adversary and its allies, China will have to reverse its anti-market economic policies and set its dynamic private sector free.
Today, Xi’s government is doing the opposite. Instead of liberalizing markets and lowering trade barriers, China has been cracking down on private entrepreneurs and driving away foreign investors. Over time, such policies will only widen the gap of economic output with the US and make China poorer and more insecure.
Minxin Pei, columnist at Bloomberg ($). He is also professor of government at Claremont McKenna College.
He wraps up the article thus:
Without “guardrails,” a weaker rival would face two unpalatable choices if an incident spirals out of control — either back down in humiliation (as Soviet leaders did in the Cuban Missile Crisis) or risk defeat. Meanwhile, arms control agreements can help a less wealthy power avoid wasting resources on unnecessary military hardware.
Chinese strategists appear not to appreciate these benefits. Instead of responding positively to US overtures, the Chinese military has suspended dialogue to protest US support for Taiwan. Even worse, China’s recent aggressive intercepts of unarmed US military aircraft near its airspace have elevated the risks of an accidental conflict.
The Cold War may be an imperfect analogy for today’s US-China rivalry. Unless China heeds its lessons, though, the end result may be the same.
His thesis might be more convincing were it not for the fact that:
Instead of liberalizing markets and lowering trade barriers, China has been cracking down on private entrepreneurs and driving away foreign investors
Is also true of the United States.
(as Soviet leaders did in the Cuban Missile Crisis)
This isn’t true either. The Soviets got exactly what they wanted — the removal of American missiles from Turkey. This is part of the myth of Camelot and the apotheosis of JFK. He was, in truth, a rather mediocre president.
Projecting your own viewpoint and sensibilities onto the “other” in this sort of analysis is deadly.
China and the Chinese Communist Party do not think in the Western mode, along Western lines.
Thus, the analysis offered here is defective, because it posits what the author sees as a Western viewpoint onto China, failing to grasp that China does not have that viewpoint.
I’m not going to pretend that I do; I know my limitations. I can only note when I see people doing this, and point out that they’re mostly full of it.
From the Western perspective, China had little to gain from intervening in the Korean War. Yet, they did; the analysis of “why” was never really done all that clearly and cogently at the time, but looking back, we can see a bunch of reasons that Mao did what he did. One key reason was to eliminate a bunch of former Nationalist soldiers whose loyalty was questionable, and to keep a potential rival of Mao’s, Lin Biao, busily engaged doing something other than “China” things…
You don’t understand China and the CCP? You’re not alone, but you have to possess the wisdom to acknowledge that you don’t, when you start making these analyses. I suspect that there’s a great deal of residual psychological leftovers from the long years of Chinese victimization that will, in hindsight, be seen as the actual “Why they did things we didn’t expect…”
I mean, a rational China and CCP wouldn’t have set up an economic situation the way they did… Instead of pushing all that investment in real estate as a means for people to provide for their own old age and give them investments, they should have done a national pension plan and all the sane stuff that a rational traditional market-based economy would have done. Chile, under Pinochet, for example…? Instead, they went for this truly Byzantine setup where people’s only outlet for real saving and investment were all these fake development schemes that built enough freakin’ housing and infrastructure for a population twice that of China’s… You look at the numbers, and it’s really, truly insane. And, all because the CCP looked at traditional market-based economies as some sort of magical black-box that you put work into and out came economic prosperity.
Which, to a degree, is true. But, and this is the important thing, you have to encompass the whole package, not just the fast profit and development deals you like. They opted for this strangely vicious state-sponsored half-feudal, half-fascist economic system where the inefficient state-run enterprises were all subsidized and supported by the “capitalist” entrepreneurial class, and then decided to do away with them… Which ain’t going to work out, in the end. Literally killed the golden geese laying the eggs, which is going to also be the tale when and if they reach out for Taiwan.
We do not understand in our guts what the hell motivates these people, and pretending otherwise is quite mad. I’d be hesitant to even negotiate with them, because I couldn’t look across the table and even begin to guess what they were thinking and why they were doing what they were doing.
Loaded language. It’s only unnecessary if that weaker power is happy with the current state of interplay. Stability becomes the only value. Such agreements work to keep the powerful on top, as do most international agreements. The time to impose such agreements is always “once you’re on top.”
In 1774, the British attempted to control the arms in America. Had they succeeded, we’d still be eating spotted dick. Thankfully, our ancestors “wasted their resources on unnecessary military hardware.”
Arguably, arms control led to the Japanese starting WWII the way they did. They felt “cheated” by the Washington Naval Treaty, and that played massively into the chip they had on their shoulders vs. “The West”.
I think the only people that really benefit from these things are the ones who cater the diplomatic events that gin them up and celebrate them. I’ve studied military history all my life, and I can’t think of a single occasion where any of these “arms control treaties” really, ya know… Controlled arms.
It’s almost like all they are is PR for the various politicians and diplomats. They also serve so as to reduce costs for all concerned, like with START. That enabled the former Soviets to save a bunch of money on maintaining and securing their ridiculous cache of nukes, and get the US to help pay for it in the name of “non-proliferation”. Given what the Russians have been giving away to the Iranians…? Not sure that anyone besides the Russians gained a damn thing from it all.
Aside from the entirely unjustified feelings of moral superiority and smug certainty about virtue, on behalf of the various US diplomats and politicians, that is. The military certainly wasn’t enthused…
I was recently surprised, by an article on Youtube, to learn that Chinese culture has a strong ‘revenge’ element. There have been some feuds lasting generations. If the leaders also have such an element in their make-up, then the world may end up like the Balkans, with each side having a selective memory of historical feuds.
They wouldn’t need innovation at all if they at least had a market for developing that which they steal.
The Professor fails to grasp that the central aim of the People’s Republic of China Communist Party is to destroy the West – that has always been the central aim of Communist Party regimes, but most high-ups in the Western academic establishment appear to be unable to understand this fact.
As for the economic reforms starting in 1978 (private farming and private industry – but all under the Communist Party) – this was not a long term admission of the superiority of capitalism, nothing of the kind. I was young in 1978 (even I was young once), but even I remember that the first three “modernisations” were openly stated as being for the purpose of the “fourth modernisation” the modernise the military – in order to help with the destruction of the West. I was utterly baffled as to why Western leaders were falling over themselves to court Chinese officials who made no secret of the fact that their long term aim was world domination and the destruction of the West. But then Western leaders, such as President Nixon and Prime Minister Heath (oh yes – I am so old I can remember them) even crawled before Mao – the largest scale mass murderer in human history.
To say that the Western establishment are a bunch of shits, is to be too polite.
Yes the People’s Republic of China has terrible problems – but given the condition of the dying West, it looks likely the PRC will be around to dance on our graves.
“widen the gap between China and the United States”
The People’s Republic of China has twice the industrial output of the United State – and this gap grows every day.
The Professor writes as if the opposite was the case – as if American industry was bigger than Chinese industry and as if American industrial growth was faster than Chinese industrial growth.
As for “GDP” – it includes the wild government spending of the American government (and other wild consumption) and the demented financial antics of Wall Street and other banking centres.
China has its share of this speculation as well – and would be much better off without the property speculators and Credit Bubble bankers, state Credit Bubble bankers in the case of China.
Why did America win World War II? – America won because its industry dwarfed that of Germany and Japan.
Why is America losing now? America is losing now because Chinese industry dwarfs American industry.
@Paul Marks,
Anytime you start to quote statistics about China, which came from China…?
You have to start asking “Are any of these true? Any at all?”
Chinese industrial output numbers are based on what the Chinese government at all levels tell us. We don’t really know, because we don’t have good access to any of the raw data.
Casual acquaintance of mine was a financial analyst for a big firm whose name I’m not gonna mention. He was fired, and he was pissed-off about it, because he’d dared tell the bigwigs at the company that the whole Chinese investment program they were part of pushing was based on demonstrable lies, ones he could prove were lies based on things like satellite imagery. It was fairly basic stuff; their Chinese partners were claiming that they had X tons of raw materials on hand, which they were using for collateral. Problem was, you go looking at the stockpiles, which you can clearly see via satellite, and there is no damn way that the size of the stockpiles there in the storage areas equaled what they were claiming were on hand for the collateral. The entire Chinese economy was riddled with that kind of low-level bad information, and there’s really no way of getting to ground truth. He’d found cases where things like those stockpiles were being shown off to investors and bankers as being owned by two different companies, as well as not being big enough to match what the collateral was for.
The upshot of the whole thing was that nothing they had invested in Chinese assets and materials was really certain. He’d gone out and done an informal audit, on his own, and found tens of millions of dollars in things that either didn’t exist, or which were apparently owned by someone else… That his company had put up money for. His take on the whole thing was that if they kept “investing in China” the way they were, they were eventually going to go belly-up when it turned out that all the collateral they thought they had wasn’t actually theirs.
Don’t even get started on the difficulties of getting your money back in those deals, through the Chinese court system. Such as it is…
My acquaintance’s take on it was that any Western company “investing” in China was going to get ass-raped one way or another; it was only a matter of time. He also projected that the real numbers in China are probably unknowable, and that even the Chinese can’t trust them. There’s too much riding on the lower-level governments that they can’t afford to tell the higher-ups the truth… So, they don’t. And, the higher-ups are making their reports to their superiors based on those lies, while adding some of their own. Very Soviet, in that regard. It’s highly probable that the men surrounding Xi don’t even know the extent of the state’s exposure to the real estate crisis, or what the hell the people are going to do when the house of cards collapses. Supposedly, they’ve overbuilt to a level that is equivalent to something like a third of the United States housing stock, in terms of square feet. Never mind the rest of the real estate crisis, that’s going to eventually turn into a huge deadweight on their economy.
I don’t know that I’d trust a damn thing the Chinese tell me in their stats or to my face. Sure, they may be the industrial powerhouse of the world… But, maybe not.
The whole thing is a mess, an artifact of bad information in the form of money in the economy. The CCP does not believe that money is really real, or that they can screw things up. The problem is that money is really information, a very efficient device for allocating resources. You start munging around with the signal the way they always do in a “planned economy”, and what happens? It blows the hell up, in fairly short order. Look at Japan, Inc. for examples: Remember how MITI was going to rule the world through their astute planning and control of the Japanese industrial economy? Yeah; those were the guys that wanted Honda to stay out of cars, and for Japanese manufacturers to specialize in supercomputers that were going to rule the world. Which never materialized… But, all that money got spent, in very wasteful and spendthrift ways. Just like a lot of the other crap in the Japanese economy that is just plain nuts, like all those little projects out in the countryside meant to keep all those depopulated villages alive… Crazy stuff, when you go digging. China is full of the same sort of chicanery, but even worse.
Good point Kirk – we do not know if Chinese are true, but we do know (from all WESTERN estimates) that Chinese industry dwarfs American industry.
Remember this is not 1912 – America is NOT a Free Market, Capitalist, country. As you know only too well – America is a f…… up mess, with endless Credit Bubble finance, government spending, and regulations.
China has four times the population of the United States – if China has twice the industrial strength of the United States, this means that America is doing rather well – considering what an utter mess America has become.
Most industry in China is privately owned (although, like Nazi Germany, the private owners must serve the cause of the state in relation to world domination), as China has four times the population but only twice the industrial output, then American workers are still producing twice as much per man.
Remarkable – when one considers what an utter mess dying America has become.
Even as she dies the United States of America is still remarkable.
I don’t think the US is exactly “a mess”. Most of what you see is the media projection, and the collapse of the elites. Out where it matters, a lot of what many outside the US think of as “America” is still there, working away.
Subtract the elites, get rid of the BS? “America” is still here, still doing fairly well. It’s the jackasses that think they run everything that are the problem.
One thing to watch is the continued implosion of China’s real estate sector and the gigantic amounts of debt. This is going to drag on Chinese economic growth for years.
@Paul Marks: for someone who rightly chastises central bank bubble activities, you should give more attention to the malininvestment and bubbles being fostered by the Chinese authorities for the past 30 years. And as Kirk has noted, Chinese economic data overstates the realities. The country cannot even measure its population accurately.
Johnathan Pearce.
The Chinese monetary and financial system, and their property market, is an utter mess.
So is the American one – so it is a wash, the monetary and financial systems of both are a sick joke. A debt bubble – both of them, America as well as China (and Britain as well).
As for Chinese industry – all Western estimates are that it is twice the size of American industry.