Summary of the presentation to the NSF on….
China from the Inside Looking Out
A Presentation on 27 July 2018 by
Thomas Fingar, PhD
Shorenstein APARC Fellow, Stanford University
“I believe China’s actions and attitudes are shaped more by fear and anxiety than by confidence or aggressive intent.” (Fingar, bottom line up front)
Dr. Thomas Fingar succinctly opened his stimulating talk to the National Security Forum with the above quote summarizing China’s view of themselves, the United States, and their place in the world. As a player on the global stage, China has only recently “re-arrived” and is now more concerned about staying in the game than about ‘winning.’ China’s reemergence as a global player over the last 50 years, has been supported and assisted by the U.S. policy referred to as ‘hedged engagement.’ Based on the simple principle, “Prepare for the worst, but seek opportunities for cooperation through engagement” still works today for both countries…but for how long?
Tom cautioned us that nobody should be complacent about China’s actions and its interaction with the United States. The China-U.S. dynamic it is exceptionally important globally, and past policies may or may not remain effective as this relationship evolves. That said, hand-wringing by the U.S. about China’s rise economically, militarily, and politically is unwarranted. We have successfully managed our engagement with China over the last several decades and can continue to do so in the future, if we proceed wisely.
So what drives China’s attitudes and actions? Short answer, ‘insecure leadership.’ China recognizes that it must make major changes to adjust to rapidly changing demographics, economic development, environmental challenges, and social expectations, but as of today it has no clear blueprint for how to proceed. The ruling party is extremely reluctant to allow intra-party discord on the topic to be heard and acted upon by the populace, lest their carefully orchestrated system break apart. This fear of moving forward and determination to maintain order leads to decision-making paralysis that is inherently unsustainable.
Complicating this situation, are the very high expectations from a large and growing segment of the population that has known only rapid economic growth and increasing prosperity, influence, and respect at home and abroad. Free of the victim-complex that shaped China’s past, this new generation is not interested in ‘what the party did for grandma,’ but rather demands to know what the party will do for them now and in the future.
“Why would a powerful country help a potential rival become stronger?”
(China’s vexing question to itself about what motivates U.S. policy)
China’s leadership knows it is racing the clock. It is painfully aware that the system it instituted in the late 1970s is running out of gas. Economic growth is slowing and eventually the public will figure this out. This growth was due in large part to the U.S. policy of reengagement, an approach China finds baffling and potentially dangerous. China’s leadership never really understood or accepted the idea that the U.S. fostered its relationship with China to increase mutual prosperity as well as to counterbalance the Soviet Union. Chinese continue to find U.S. actions too good to be true. Why would we allow them to close the gap economically? When are we going change course and pull the rug out from under them?
Furthering the paranoia cycle, China’s leadership also firmly believes that the United States is in decline and declining superpowers are known to be extremely dangerous. They know we are still militarily and economically superior. If provoked, we could crash the very same systems we helped them build…so why haven’t we?
“What is corrupt behavior? Give or take, everything that makes the system work.”
(China’s corruption challenge)
After the disastrous years of Mao’s experimentation, China switched to the Japan-path, or more accurately the Taiwan-path, of economic development. This was widely successful for the last 40 years, but rapid growth has its limits. Changing the system to sustain growth is a threat to those who have benefited. The old ruling elite was substantially destroyed by Mao, but a new elite has emerged, and China’s National People’s Congress is the richest parliament in the world, home to more billionaires than in any other government. They are determined to thwart reforms that threaten their wealth and privileged status.
Economic growth has also bolstered the legitimacy of Communist Party rule and fostered a renewed sense of patriotism and nationalism. With slowing growth, a new leadership mantle has been bestowed upon the less than charismatic, ‘Winnie-the-Pooh’ leader, Xi Jinping. Empowering Xi may make it easier for the Party to maintain stability. And it may, or may not, make it easier to counter the rampant corruption that underpinned China’s meteoric economic rise. This leaves Xi vulnerable to being a “scapegoat-in-waiting” if his policies fail to stem corruption, while simultaneously supporting the rise of the rich and powerful. Xi has the responsibility, but not the authority needed to make hard decisions and avoid stasis at the top.
“If you don’t do anything, you can’t screw up.”
(China’s struggle with cultivating an entrepreneurial culture)
Lax enforcement of financial, environmental, and other regulations leads to uncertainty about what is permitted and maybe encouraged today but may be illegal with high consequences tomorrow. This creates a culture of entrepreneurial paralysis that also fuels the desperate need to steal intellectual property from its competitors to keep pace. That said, China has had a great run, economically. No small feat for a country of 1.4 billion people. Slowing growth is inevitable, but it is also a big risk for the existing system.
“China is big…anything multiplied by 1.4 billion is a very big number.
Anything divided by 1.4 billion is de minimis.”
(China’s accomplishments and challenges are on a vast scale)
China is an aging society and on track to be the first country in history to become old before it becomes rich. Within 15 years, the over 60s group will exceed the population of the United States and the over 80s will exceed the population of France. With little social security and healthcare provided to most people by the State, the social consequences are staggering. After two generations of the One-Child policy, newlyweds in their mid-twenties will be expected to provide care for four parents and eight grandparents. The Party leadership is now resolved to improve healthcare for all by increasing the amount spent by approximately $60 billion. That sounds like a lot, and it is, but it equates to only $40 per person. Resources to implement a social safety net must come from slowing growth, making tradeoffs necessary and social discord likely.
Finally, China maintains a misguided fear about the U.S. military even while recognizing its dependence on U.S. global leadership. It needs the U.S. to be a strong proponent of political stability, a champion the international rule of law, and the educator of over 300,000 Chinese students annually. Chinese paranoia that the U.S. will mercurially decide to end the rise of its rival leads to a sense of desperation and self-defeating actions such as the theft of intellectual property. Backlash to this behavior has been universal among the business community in the U.S. and all other countries further reducing foreign investments in China, which in turn leads to increased repression at home and even less growth.
Concluding his talk, Tom graciously fielded a wide range of questions about China’s actions and U.S. reactions, and vice versa, beginning with insight about what China is really thinking and doing in the South China Sea. He explained that China’s construction and militarization of artificial islands and aggressive claims (about what, is not clear), stems from the communist mythology that all territory is sacrosanct. Giving up one drop of water or sand is a slippery slope that may lead to independence for Taiwan or Tibet. The U.S., in turn, is forced to respond to this militarily insignificant act of aggression on China’s neighbors with political and military displays that accomplish little except to serve as fodder for geopolitical punditry and media reporting. In total, China’s new islands constitute a land mass equivalent to 1/3 of the Stanford campus – militarily useless, but with political symbolism that engulfs several continents.
On the question of Taiwan, Tom reminded us that one of the biggest strategic threats to the U.S. in the last 40 years was conflict in the Taiwan Strait. U.S. policy masterfully diffused this threat by balancing relations with both China and Taiwan without overtly confronting the One China policy. China benefits from Taiwan’s rise. Taiwan businesses are the largest investor in China and are critical sources of technology and supply chain arrangements. Taiwan, in turn, benefits from cheaper labor on the Mainland. Both sides, and the United States, benefit from reduced tensions across the Strait. U.S. political support and arms sales give Taiwan confidence needed to engage with the Mainland. Ambiguity is key to the success of U.S. policy, which seeks to prevent Taiwan from thinking that we will support them in any contingency while at the same time preventing Beijing from judging that we will not support Taiwan.
On the topic of income inequality, Tom pointed out that China’s population, which was overwhelmingly rural 20 years ago, is urbanizing rapidly; 70% of Chinese are expected to live in cities in the coming decade. As a result of historical policies of restricted movement, over 250 million ‘illegal’ urban migrants and their families are now seeking jobs and a slice of the economic pie. Two classes of urban dwelling citizens now exist – those legally entitled to basic services and those who are not. Government actions to reduce this inequality are a zero-sum game. Providing services to newcomers comes at the cost of reduced services to ‘legal’ residents. This vexing problem is likely to worsen as economic growth slows, potentially fueling social unrest.
Regarding Xi’s One Belt One Road Initiative, Tom clearly stated that the U.S. should not be concerned, but China should be. China, like the U.S., Japan, and other countries that have reached a comparable stage of development, is seeking overseas markets for its excess production, particularly its oversupply of construction materials and labor. Building cross-continent infrastructure is a viable outlet and exporting this overcapacity often benefits geographically dispersed local communities. That said, China’s partners in Belt-Road are not always the most reliable at repaying loans, protecting Chinese citizens, and fighting corruption. In the end, the benefits of Belt/Road may, or may not, outweigh the economic costs to China and Xi, personally.
Culturally and politically, who exactly is the U.S. facing when it negotiates with China? Are they communists at home and capitalists abroad? Short answer, yes. China is a Communist party authoritarian state that claims to have a socialist system. It is certainly led by a Communist Party, but the economy is more capitalist than socialist. Sun Yat-sen, China’s first president, once characterized his country as a sheet of loose sand held together by strong government and families, China’s leadership fears that the stresses of modernization and slower growth could cause the system to unravel. The traditional pillar of stability was the family. Extended families could be counted on to preserve order by using filial piety to rein in rebellious youth or disadvantaged relatives. Two generations of the One Child policy has obliterated the extended family. Today there are essentially no siblings, cousins, aunts and uncles to anchor social and business interactions. Given the complexity of this situation, the U.S. is best served by focusing its engagement on addressing specific problems and opportunities rather than fretting over evolving political-cultural labels.
We could not conclude this session without getting Tom’s perspective on the Trump Administration’s use of tariffs and trade wars to advance U.S. objectives and change China’s behavior. Tom reiterated that China’s outrageous disregard for trade agreements and intellectual property deserves response, but in his words “the blunt instrument of tariffs is incredibly stupid.” A trade war will hurt China more than the U.S., but it is not clear this will result in policy changes that the U.S. claims to be seeking. In short, for the good of all concerned China and the U.S. need to continue to seek a mutually beneficial path that keeps the relationship open and constructive and far from the brink of economic, military, and social confrontation.
For further insights from Tom and other on this topic, I highly recommend his latest books available from the Stanford University Press:
Uneasy Partnerships: China’s Engagement with Japan, the Koreas, and Russia in the Era of Reform (2017), https://www.sup.org/books/title/?id=24729
The New Great Game: China and South and Central Asia in the Era of Reform (2016), https://www.sup.org/books/title/?id=24730
Thomas Fingar, PhD. is a Shorenstein APARC Fellow in the Freeman Spogli Institute for International Studies at Stanford University. He was the inaugural Oksenberg-Rohlen Distinguished Fellow from 2010 through 2015 and the Payne Distinguished Lecturer at Stanford in 2009. He returned to Stanford after a distinguished career in the intelligence community. He served as the Deputy Director of National Intelligence for Analysis and, concurrently, as Chairman of the National Intelligence Council. Previously he served as Assistant Secretary of State for the Department’s Bureau of Intelligence and Research, Director of the Office of Analysis for East Asia and the Pacific and Chief of the China Division. He is a graduate of Cornell University in Government and History (1968), and Stanford University (M.A., 1969 and Ph.D., 1977 both in political science). His most recent books are “Reducing Uncertainty: Intelligence Analysis and National Security” (Stanford University Press, 2011), “The New Great Game: China and South and Central Asia in the Era of Reform”, editor (Stanford, 2016), and “Uneasy Partnerships: China and Japan, the Koreas, and Russia in the Era of Reform” (Stanford, 2017).