China-US: Some Similarities

A bit long, but worth perusing …. use the red highlights to skip around …

An introduction

The US and China are two big countries and big countries with modern economies will necessarily have some similar problems. Middle class Chinese have concerns quite similar to those of middle class Americans.

We write all the time about differences between the US and China. Amid the anxiety and paranoia about ascendant China it might help to consider a few ways in which the US and China are similar. Just for some perspective. I’m not suggesting identical causation, only similarities in the way people experience the world. I ignore a lot of other similarities and all the differences in this short list. Some items might be interesting or fun or a bit of nourishment for you. No one should take this as an intimate analysis of those similarities that I do find. I am not making an argument here, just listing some elements of culture or economics that I find similar in China and the US.

Following below –

To start – physical size and location

Regional disparities

Decline of population and decline of population growth

Family structures

Isolated males

Families and children

Cities and infrastructure

Local government revenues and services

Inequality

People prosperity vs. place prosperity

Health care and education and employment

Free speech and human rights

The race card

Drugs and treatment

Environmental change

International relations

The shameful history

Trust and benevolence

Civility

Democracy

Civil religion

Innovation and business

Politics

Aspirational intent

What is the government for?

To start – physical size and location on the planet

The US and China are remarkably alike in area and location in their hemisphere.

The furthest northern part of the contiguous 48 states is Northwest Angle Inlet in Lake of the Woods, Minnesota at 49 degrees north. The furthest south is Ka Lae, Hawaii at 19 degrees north.

For China, the furthest north is in Heilongjiang on the Russian border – Mohe County, Heilongjiang at 53 degrees north. The furthest south is Hainan Island, essentially the Chinese version of Hawaii, at 18 degrees north.

In other words, the two countries are nearly equally situated north-south on the planet. At the extremes China is further north by about 275 miles and further south by about 69 miles. The area of the US including Alaska is about 9.8 million square kilometers. The area of China including Tibet and Xinjiang is about 9.6 million square kilometers. In other words, they have nearly the same area.

For both countries most of the population and most of the economic and cultural and intellectual capital is near the east coast, with some central outposts in Chicago and San Antonio and Chengdu and Chongqing. To the west are empty plains and mountains. When we write about the countries, we mostly write about the east coast, New York and Washington and Boston, and Shanghai and Beijing and Tianjin. Sometimes about Florida and Texas and Hong Kong and Shenzhen. And ok – maybe its not fair to pair Los Angeles and Seattle with Llasha and Urumqi. Whatever. Population is more bifurcated in the US – there is a west coast. But New York and Shanghai – pretty good comparison in terms of domestic and international importance.

There are about 2900 county-level divisions in China (like everything else in China, the definitions are fuza – complicated). There are about 3100 counties in the US. In both the US and China, counties are sub-provincial or sub-state jurisdictions.

There are cowboys in the west, with cowboy hats and horses and cattle. In Shenyang, in Liaoning, the corn grows more than ten feet high and they use John Deere equipment to harvest. There is snow in Dalian and the rest of the northeast and it looks as pretty as it does in New York or Chicago and on the mountains in Maine and Vermont. I have a photo from the second floor of a favorite Starbucks in Hangzhou, looking down on the side street with a FedEx delivery truck double parked next to the Fords and BMWs. Indistinguishable from a scene in any US city. The red hexagon stop sign said 停 ting Stop.

Regional disparities

In such large countries, one would expect to find large regional differences in economic structures, health care, education, food and customs. One could write volumes. The differences in dialects and customs and food preparation are well known, in the US and China. One source found 24 varieties of American English. American can generally understand each other, though.

There are probably hundreds of mutually unintelligible varieties of Chinese. Major divisions are shown below.

These dialects really can be mutually unintelligible.

Geographically and just for fun, a comparison – Joel Garreau’s The Nine Nations of North America and long time China researcher Patrick Chovanec’s The nine nations of China (Atlantic, 2009).

Garreau –

And Chovanec –

Source: Patrick Chovanec, The Nine Nations of China. Atlantic Magazine, November 2009, at
https://www.theatlantic.com/magazine/archive/2009/11/the-nine-nations-of-china/307769/

The nine nations of China were initially suggested by G. William Skinner in his 1977 Regional Urbanization in Nineteenth-Century China in The City in Late Imperial China. He suggested that the nations were somewhat autonomous. Not much trade crossed borders, and there is still some truth in that.

Some of the area descriptions do correspond well – the Foundry in the US is matched to the Rust Belt of dongbei, the northeast, in China. Garreau’s Empty Quarter would match to the Chinese Frontier. Again, this is just for fun. Let’s not get too exercised over the comparisons. As with Garreau’s description of North America, there is a grain of truth in the nine nations of China.

Decline of population and decline of population growth

On to some more useful comparisons. All of our lives China has been the world’s biggest country by population. That is no longer the case. India has now surpassed China. The population of China has begun to fall because of the one-child policy, a cultural preference for male babies, and abortion of first-born females. There are now about 35 million more men than women in China, most of them born since 1980. These are men who most likely will not find wives or be able to produce an heir. Chinese government sources project the total population to fall by 50% by the end of the century, meaning millions of fewer people each year. The working age population is currently falling by about 5 to 6 million per year. There is no real immigration.

The graph below is surprising. The forecast is to lose 700,000,000 people in about 80 years. Fertility right now is about 1.09 children born per female, far below replacement rate.

The similarity with the US is in the falling population of its long term residents. US population would be falling if not for immigration. It is estimated that about 80% of US population increase in the next thirty years will be due to immigration. The Congressional Budget Office projects US population increases from 336 million people in 2023 to 373 million people in 2053. Immigration will account for nearly all population growth beginning about 2042.

U.S. population is growing slowly, not falling as in China. But slowdown in population growth is becoming an issue in the US as well. New Census Bureau data released at the end of December shows that the population of the U.S. grew just 0.4 percent in 2022, which is better than in 2021 but worse than every other year of the past hundred years. For a population to stay the same size, the average woman needs to have about 2.1 kids and the US is nowhere near that now. While the U.S. fertility rate was 3.6 in 1960, it fell below replacement level in 1972 and remained there for about 35 years. Then it started to fall again and is currently around 1.6. US population growth depends on immigration, which in the last few years has been curtailed by government policy – America’s population could use a boom (Jeff Wise, Intelligencer, January 3, 2023).

Fewer births don’t just lead to a smaller population but to an older one, since the younger cohorts aren’t large enough to balance the older ones. Since 2000, the median age in the U.S. has grown by 3.4 years to 38.8. By 2034, the number of Americans over 65 will exceed that of children under 18. The median age in China now is 39. (In 1978, China’s median age was 21.5 years). China will keep on surpassing the US in median age for the foreseeable future. By 2100 the median age will be about 57.

Soon ever-fewer working-age Americans will be supporting a steadily growing population of retirees. This will soon be very evident in China as well. Circa 2010, I recall thinking that everyone walking around the downtown of cities in China looked young. (That was a reasonable conclusion. Older people were back in the village or at home cooking for the working parents. And you know the characterization – Chinese always look about age 26 until they get to be about 55, then they look 80). Walking around downtown Chicago, everyone seemed much older.

And there are other less tangible effects of an aging population, too. “A younger population makes us more vital, more innovative,” says William H. Frey, a senior fellow at the Brookings Institution. The Congressional Budget Office has population forecasts to 2053. Starting about now, the US and China will have a lot of old people who need more and better health care and social services.

Polls show that many Americans want more children than they are having. Also true in China. But the slow-growing incomes and a shortage of good child care options and the expense of raising children have led some people to decide that they cannot afford to have as many children as they would like. The decline in the birthrate, in other words, is partly a reflection of the failure of society – American and Chinese – to support families.

Failure to support families, particularly kids, is an American tragedy. No other developed country does as little for its future generations in terms of parental leave, sick time, health care, and day care.

China provides child care via cultural means for middle class parents. It is customary for grandparents, usually the mother’s parents, to move in with the kids to take care while the parents are at work. This usually involves all cooking and cleaning as well. Middle class parents who cannot avail themselves of a grandparent can hire an “auntie” to do caretaking and perhaps some cleaning. Aunties may be live-in or not. But there are the usual qualms about hiring someone to take care when no one is around to monitor. True in China, true in US.

An upside for both countries is that less immigration to the US and aging population in China will create opportunities for current lower-paid workers. And there are some advantages to slower population growth. A lower birthrate can expand the economic opportunities for women, especially because the U.S. has relatively flimsy child care programs. Historically, birthrates have declined as societies become more educated and wealthier. The NYT has more on the upside and downside of slow population growth. Anyone remember ZPG?

There are some similarities in the reasons for decline in fertility – more education for women, more women with modern and high paying jobs, better health care for pregnant women and newborns. Financially independent women have fewer babies in both countries. The demographic changes permit women to be far more selective in choosing a mate. In the US sixty-three per cent of men aged 18-29 are single; 34% of women in that age group are single. In China, about 55% of men are single; about 39% of women. It is a real problem for millions of men in the US, and in China particularly, where there are about 35 million men who will be unable to marry. A somewhat funny recognition of this serious problem is rendered in the No House, No Car song, popular in China in 2012 –https://www.youtube.com/watch?v=G_G4S8Kws8o

One counter factual – Since the elimination of the one-child policy there are confirmed second children born in China now, although far fewer than the government wants. According to the Hangzhou Municipal Health Commission birthrates for second children have declined every year in the city since 2017; but local media reports that in 2022, the number of second-born children was 19,200, accounting for 36% of all children born there.

Family structures

Decline of the nuclear family is now an old American story. Single person households now make up 27% of all American households. Gay couples may adopt kids in all fifty states.

There are similar trends in China, although without the gay adoption. In China now, 25% of all households consist of a single person. In East Asia’s New Family Portrait we see that a modern economy and feminist ideas have made women far more selective in choosing a mate, less inclined to have children, and find ways to make a life without a commitment to another person at all. Fertility rates in China (as in Japan, South Korea and Taiwan) are substantially below replacement. The Communist Party has censored feminist and LGBT groups and arrested some of their most prominent activists.

These trends resemble those in the West from the 1970s onwards, but with different causes. It is said that changes are driven by anxieties, social problems and social conflicts, not the triumph of the individual. Pressures to buy an apartment, marry, have a child, make money, and honor the ancestors are really too much for lots of modern middle class Chinese. In both the US and China home prices are unaffordable for many and debt constrains plans to marry or have children. In the US, debt may be student debt; in China it is almost certainly mortgage debt.

In China 8.3% of households in 2000 had just one person; by 2020, the ratio had increased to 25.4%. In the US there were 37.9 million one-person households, 29% of all U.S. households in 2022. Just 18% of US households are ‘nuclear families’ with a married couple and children, down from 40% since 1970s and the lowest since 1959. Chinese data shows about 60% nuclear families.

Isolated males

Isolated, lonely males are a social problem in both countries. Involuntary celibates – incels – in the US define themselves as unable to find a romantic or sexual partner despite their desire for one. Incels are often characterized by resentment, misogyny, misanthropy, self-pity and self-loathing, racism, a sense of entitlement to sex, and the endorsement of violence against women and sexually active people. Some mass murders are attributed to incels. Causes of involuntary celibacy are sometimes attributed to lack of income or wealth, physical unattractiveness, poor social skills and lack of opportunities. Incels and related movements have been defined as terrorist threats. A good discussion is at Single and Lonely: American Young Men in Crisis.

Involuntary celibates in China are a result of the one-child policy and cultural preferences for male children. The one-child policy began about 1978 and by now has produced about 35,000,000 excess males. These men generally live in small towns or rural areas, have only a peasant hukou, do not have attractive jobs or prospects. In popular parlance, they do not have the house, car, or significant bank account that would make them attractive to now more selective urban women. These men will most likely remain single. Inability to produce heirs is culturally shamed, although modernization mitigates pressure to some extent. There is no organized movement of isolated lonely males in China – as they are no organized movements of any kind – and CCP does not seem to consider them a terrorist theat. But young migrant workers are thought to be responsible for the great majority of urban crime, particularly violent crime. It is reported that migrants account for over 50% of all criminal cases in the major receiving cities for migrants, with some cities reporting such figures at up to 80%.

In China, for hundreds of years women were the product of an unfortunate pregnancy. Women only began to get credit for holding up half the sky under Mao, and even then, baby girls were aborted at astounding rates (Causes and Implications of the Recent Increase in the Reported Sex Ratio at Birth in China, Zheng Yi et.al., Population and Development Review, 19:2 June 1993).

Times are different now. And heterosexual women are more choosey now they are considered a prize. This partly serious video from 2012 No house, No car pointedly explains.

Online gaming and porn distract some young men. The sex ratio in China is particularly bad, a result of the one-child policy and strong preference for male offspring. The military will absorb some of the excess males; but the excess males going into the military will be less qualified than the average American high school graduate who joins. Below you can see the 35,000,000 extra males.

Source: China Statistical Yearbook

More on the sex-ratio imbalance is here. Some Chinese women, as picky as they are, have to finally resort to marrying barbarians – foreigners.

Families and Children

Young adults in both countries question the wisdom of becoming a parent. There just isn’t much help offered, though both governments are making attempts. From Why is Raising a Child in the United States So Hard? – The infrastructure and family plan that President Biden proposed and that’s now being negotiated in Congress is an attempt to shrink the gap through four key policies: a federal paid family and medical leave program, an extension of the child tax credit (in the form of a monthly payment) that debuted this year, subsidized day care, and universal pre-K.

It is hard in China too. China is not even on the following chart. The US seems on the chart only as a courtesy.

Source: https://www.nytimes.com/2021/10/06/upshot/child-care-biden.html

In both countries the extended family traditionally was available to take care of kids. That is still true to some extent in China, less so in the US. In both, far too many kids grow up with inadequate attention, health care, and education, thereby preparing them poorly to function in a modern economy.

Kid bullying

Bullying and cyberbullying are issues in both countries. We talk about the deleterious effects of cyber bullying on teens, particularly young teen girls. This is an issue in China as well – China ramps up fight against cyberbullying in wake of deaths.

I thought this online post below was a nice comment on the question about bullying in China.

How prevalent is bullying in Chinese schools? What are some typical examples?

Yexi Wang https://www.quora.com/profile/Yexi-Wang
Studied at Hangzhou No. 2 High School (Graduated 2021)

Bullying, how common is it in Chinese schools? In my entire six years of elementary, no. We were hyperactive, cute and sometimes annoying normal kids without the nature of bullying anyone.

Things started to change a bit. I went to an average (some times above) public school. My grade had 10 classes, each consists of about 35 students so the total number was about 330. Public middles schools in my city work like this: A middle school absorb fresh new elementary graduates from usually 2 to 4 different elementary schools. I can proudly say that kids from my elementary were very good natured and never had the reputation of being bullies.

But that doesn’t mean all the kids were nice. There was a girl, a rich girl with a bunch of allowance yet not really cared by her parents, I heard her parents divorced and I assume that is reason why she has a bitter temper towards people. She was sometimes secretly called “the non-virgin”, everyone is my grade knows it. She was somewhat beautiful, but I don’t want to see her ever again. Teens always use the word “social” to describe them. So I’m leaving an impression here.

I was confronted by her and her little vicious group in front of the girls’ restroom once. She and her “friends” directly said things like “OMG she is so fat like a pig” in my face but I ignored them. She was also pretty good at cyberbullying. She found me on a chatting app and dragged me into a group and she wrote “You better watch your mouth otherwise I will beat you until you have an abortion” “You can eat poop anywhere but you can’t shit with you fxxking mouth” blah blah blah. It actually freaked me out that night.

Things went better for me though, my mom told me not to be scared. She even told me how to defense myself in case things get out of control. I told my teachers later, and they say they will protect me as well. My friends supported me by walking me home everyday for about two weeks. I was relieved.

The reason why she was mad at me, to an extent, I should say I brought it on myself. I was joking with my friend saying “wow the girl next to her (the bully) really looked like her servant” (which is the truth since the bully buy things for her friends) and someone heard it. I knew I was dead wrong and I sincerely apologized several times, I knew I was too judgmental and it’s really not my business. But she wouldn’t take it. Well.

I was sure she was a bully because that’s what they often do to anyone who is against her wishes. I heard it from my friends. Anyway there was only this girl though, I don’t think there is anyone else like her.

Please be aware that I’m living in the central part of Hangzhou, the capital city of Zhejiang province, where is much much more developed than rural areas. Bullying seems to be much more serious in rural areas because the parents might not always be with their children. The victims weren’t protected, no one ever taught them how to defense themselves, the teachers didn’t care, the bullies’ never know that he or she was wrong. I once saw a video shoot in a village, a girl was kneeling before four peers and she got slapped over and over. Just imagine the shocking scene! She didn’t run away or fight back, she was just kneeling and crying begging for forgiveness while the four girls kicked and slapped her nonstop. Their parents probably left the village to work in the cities to make money and left their children alone. So sad.

Sorry if I digress, it just took me a while to recall these memories.
Thanks to the A2A.

Yexi Wang

Housing crises

Housing markets in the US and China are quite different, but with respect to housing crises they have some similarities.

Housing prices rise and fall in the US and buyers generally understand that. The US had its own severe crisis in 2007-2010. Chinese have never seen a housing crisis before, but they are going through one now that will not abate for some years.

The circumstances are quite different, as is the resolution, but in the end home buyers in both countries end up paying for overreach and illegal behavior by others. In both the US and China irresponsible lending is at base the cause of the crisis. In the US, lenders made NINJA loans – no income, no job or assets – and there were plenty of violations of local and state laws.

In China, individual apartment purchase loans were made two or three years before completion of the project, and buyers began paying at the signing of the mortgage, two or three years before completion. Money from the bank went to the developer. The funds to the developer were supposed to be segregated and used for completion, but they weren’t. Funds were used to buy land for the next project. It was a variation on a Ponzi scheme. Eventually the game stopped.

In both the US and China the government bailed out lenders – and in China, developers – and left individual buyers out in the cold.

Households and debt

In the US household debt got far out of balance before the 2008-10 financial crisis. The same thing can be said of Chinese residential property values now and in the last decade.

Chinese household balance sheets are in poor shape, and about 80% of Chinese household wealth is in real estate. “Household leverage ratio” means household debt from all sources as a per cent of national GDP. The IMF uses 65% as a red line warning about financial risks. From Caixin, referencing 2023 data – Charts of the Day: China’s Household, Overall Debt-to-GDP Ratios Rise to a Record – Caixin Global

The household leverage ratio stood at 63.5% at the end of June, the second straight quarterly increase, according to a report by the National Institution for Finance and Development (NIFD). Although that’s the highest in available data going back to the end of 1992, it was just 0.2 percentage points higher than at the end of the first quarter when it jumped 1.4 percentage points from the end of last year to 63.3% as the economy reopened after three years of Covid-19 controls.

The report attributed the sluggish growth to slumping property sales, with outstanding mortgage lending falling 0.1% on a year-on-year basis at the end of June, the report estimated based on data from the People’s Bank of China (PBOC)…

Even so, households were still borrowing. At the end of June, outstanding consumer loans rose 11.1% year-on-year and individual business loans jumped 19.5%, the report estimated.

At the same time, households cut back on spending and beefed up their savings in the second quarter as concerns about future income growth mounted, according to the NIFD report. Outstanding household savings surged by 10% to 133.1 trillion yuan ($19 trillion) in the first half and are projected to still rise at a relatively fast pace in the second half, the authors estimated…

In the following chart one can see the American household debt crisis coming to China about fifteen years later.

Source: https://twitter.com/greg_ip/status/1667940913631379458

The government has been telling people for a decade or more, “houses are for living in, not for speculating” – all the while encouraging people to buy, buy, buy. Sounds a lot like the US circa 2007. In summer 2023 prices are now falling in cities across China, 5% to 10% in most cases and reportedly up to 25% in some parts of Hangzhou, near where Alibaba has its offices. (That is a newly developed area with very expensive apartments and homes. It is also where the CCP Zhejiang Province School of Administration (Party School) is located). Corporate and household debt is at about 250% of GDP, a worrying figure. The US and EU, post 2008-2010 crisis, are now at about 150% of GDP.

Government debt

We worry off and on about US government debt. The total is now about $32 trillion. That is a lot of money, even by the standards of Everett Dirksen, the popular Illinois senator in the 1960s – “… a billion here, a billion there, and soon you’re talking about real money.” States and local governments are required by law to have balanced budgets, so state or local debt may be a problem but it does not affect the government in Washington.

Central government spending as a share of GDP in the US is about 25%; in China the share is about 32%, although the reported China numbers differ substantially across reporters, based on differences in definition. The US runs substantial deficits each year. China runs a small deficit each year. At a gross level of analysis, the US spends on defense and debt payments and social services, while China spends on defense (now rising quickly) and much less on social services and debt. The central government share in China does not include substantial provincial and local government debt, which are the source of most worry right now.

Oliver Wendell Holmes, Jr. told us that “taxes are the price we pay for civilization.” It appears that Americans are opting for less and less civilization and we are reaping the benefits of what we don’t pay for – terrible gun violence, terrible schools, fear on the streets, inadequate funding for schools, health care, and social services. With that, we still accrue annual government deficits. At one time our taxes provided good government support for innovation – the Covid vaccine and NASA and the internet and semiconductors and the intercontinental railroad. But we fear doing that sort of spending now. The economic partnership model that worked since Hamilton is broken.

China has very serious debt problems at the provincial and local levels and in households. The household debt crisis is due mostly to required payments to developers long before a unit is delivered, with buyers still on the hook for a mortgage on an apartment they cannot occupy. Millions of those apartments now cannot be delivered without central government rescue.

The household debt problems create problems for local governments too. In recent years a substantial share of local government revenues came from selling land use rights to developers. In some cities the real estate revenue share approached 50%. Now developers don’t want to, or more correctly, are legally unable to, buy more land.

The provincial and local government debt problems are essentially due to vast overspending on infrastructure and real estate. Most of the money for projects is borrowed using a form of public-private partnerships (local government financing vehicles, or LGFV) to get around limitations on local government borrowing. Many of the projects built this way have no possibility of ever repaying the loans taken out to build them – hence the debt problems. More than 80% of local government financing vehicles, or LGFVs, do not have enough operating cash to cover interest payments on their debt, according to estimates by UBS. In China the economic partnership model that worked since about 1990 is broken.

“Bad banks” were created during the financial crisis of 1999 to take over bad loans and see what could be salvaged, while getting the ”good banks” off the hook. The top four bad banks –

China Cinda Asset Management Co. Ltd., China Huarong Asset Management Co. Ltd., China Great Wall Asset Management Co. Ltd. and China Orient Asset Management Co. Ltd. — had total debt-to-equity ratios range from 400% to 1,200% at the end of June, 2023. There are provincial and municipal bank banks as well.

These banks will have a significant role in resolution of the current financial crises. While the bad banks may have debt that precludes raising more money from investors, the Chinese government will be available, as earnestly as they deny that potential right now. For evidence, I present the ability of Cinda to go public in 2013 while holding trillions of RMB in bad debt or bad projects. Going public was only possible because – in a little reported development – the Central Ministry of Finance began bailing out Cinda in 2010. After 2010 – The Ministry of Finance bailed out Huarong in 2021. More on the asset management companies (AMC) is available here.

There are some similarities in the Chinese resolution from 1999 to the actions by the US Federal Reserve in 2007-2010. Banks were flooded with liquidity if there seemed a chance of remaining afloat. Hundreds of banks were closed by the Federal Reserve and assets sold.

… governments and central banks, including the Federal Reserve, … provided then-unprecedented trillions of dollars in bailouts and stimulus, including expansive fiscal policy and monetary policy … and provide banks with enough funds to allow customers to make withdrawals….

The similarity makes sense. There are only so many ways for governments to bail out banks from their bad decision-making. In both China and the US, borrowers were left with little or nothing. Government regulation failed in both countries. Only in the US did the central bank chairman – Alan Greenspan – express surprise that the banking system failed to self-regulate.

The central government debt is about 80% of GDP, which is a nominal figure. But when provincial and local debt is added in, the picture gets darker, to about 250% of GDP. The US and EU are at about the same ratio.

The local fisc

It is no secret among policy analysts that most of the Republican leaning states are heavily dependent on the federal government for annual support. In recent years 7 of the 10 states most dependent on the federal government were Republican-voting, with the average red state receiving back $1.05 per dollar of taxes contributed. Texas and Florida are the notable exceptions. One wonders if Texas and Florida will seek federal help in dealing with climate change and rising sea levels.

China is in a similar spot.

Under the present tax-sharing system, provincial and municipal governments are responsible for most social spending, without the ability to raise sufficient revenues. Data from China’s National Bureau of Statistics show that land sales dropped by 53 percent (in terms of area). According to China’s latest budget report, declining land sales led to a 20.6 percent drop in revenue within the government fund budget. As in the US, municipal employees are being underpaid and jobs are going unfilled because of local budget problems. This is new in China, old in the US.

The following chart does not indicate which provinces are net recipients of money from the central government, but only a few provinces and the province-level cities like Beijing and Shanghai are net “profitable” in the eyes of the central government. Most provinces, like most red states in the US, are net recipients of tax money from the center.

In China disparities are most obvious when comparing the east coast provinces to the rest. From Caixin – China’s East-West economic gap refuses to narrow –

Despite a push for more balanced development, the economic gap between China’s better-off eastern coastal regions and its less-developed western inland regions remains wide, according to the National Development and Reform Commission (NDRC).

The western region, including 12 provinces and autonomous regions, accounted for 21.4% of the country’s gross domestic product (GDP) in 2022, up from 19.6% in 2012, NDRC Vice Chairman Zhao Chenxin reported to the Standing Committee of the National People’s Congress. The ratio of GDP per capita in the eastern regions to that in the western regions declined to 1.64 in 2022 from 1.87 in 2012.

Source: https://www.unescap.org/sites/default/files/Day%202%20Session%205_Yongzheng%20Liu_Intergovernmental%20Fiscal%20Transfers%20in%20China.pdf

Western China’s Gansu province had the lowest GDP per capita in 2022 at 45,000 yuan ($6,206), less than a quarter that of Beijing, which had the highest.

Both countries have concerns about debt payments as part of the general national budget. The US share of expenditures toward debt payments is about 8% and is expected to rise fairly rapidly. The Chinese share is about 4% but that does not include provincial and local government debt, which is not balanced each year, is expected to rise dramatically, and will require a central government cover one way or another. A more likely number is about 7% for all Chinese government debt payments.

Cities and infrastructure

Cities in the US are generally in poor physical condition. Subways go without needed funds, transportation connections are … pitiful, schools are starved, water is sometimes unsafe and healthcare, while absurdly expensive, is of spotty quality in poor areas, urban and rural. Meanwhile, many suburbs are basking in the taxes they derive from people whose employment is in or tied to the city. If there are municipal debt problems or high taxes, these are conceived as only city problems.

China has prioritized city construction and city development, as we see with the airports and subways and expressways and development zones. Almost nothing you see in China is more than forty years old – probably less than twenty. Central cities in China look new, and they are.

Critical to local government fiscal health is that cities encompass an entire labor shed, so the central city and its suburbs are one fiscal entity at the most fundamental level. The example I know best is the city of Hangzhou, which is about 16,000 square kilometers (about 6,200 square miles). In comparison with Chicago, it is as if Chicago encompassed all the area from Waukegan to Elgin to Aurora to Joliet to Gary. But fiscal health is about more than taxing and spending. It is also about investment, and that has been the flaw in Chinese local government fisc.

Cities in China are understood as the engines of economic growth. And from 2008, the central government stimulus money has gone to build, build, build anything and everything. Most of that money was leveraged three to five times on short term loans. Many of the projects had no hope of repaying the money used to build them. It was the Chinese version of NINJA loans, scaled way up.

But now the demands for debt repayment (mostly for infrastructure and real estate) are forcing cuts that look like American city cuts to budgets. From a New York Times article on Shangqiu in Henan Province – China’s Cities are Buried in Debt, but They Keep Shoveling It On –

Shangqiu is one of more than 20 towns and cities in China where bus services were shut down or put in peril because local governments had failed to provide the necessary operating funds. Wuhan and other cities cut health insurance. Still others slashed the pay of government workers. Many local governments in Hebei Province, which borders Beijing, failed to pay heating subsidies for natural gas during the winter, leaving residents to shiver during a record-setting cold wave.

But Shangqiu is not planning to spend the money on public services. On the contrary, the city plans to cut spending on education, health care, employment protection, transportation and many other public services, according to budget documents on its website.

Some Chinese cities are cutting medical benefits for seniors. As in the US, seniors are a potent force for influencing government policy. Protests, some violent, have taken place in 2023 as local governments began cutting their contribution to seniors’ personal insurance account for medicines and outpatient costs. More at China’s Cities are Cutting Health Insurance, and People are Angry and Making Sense of China’s Government Budget.

In the US, state and local governments are forced to balance their budgets each year. There certainly are units of government that get into financial trouble, usually – as in China – from excessive borrowing, but the US government takes a hands off approach, as does the central government in China. The US government, echoing state and suburban governments, fails to support cities starved of revenue by ancient and arbitrary municipal boundaries.

The Chinese government is making a bold show of denying that it has any responsibility for local government debt – “you borrowed it, you own it.” But that denies the central-local fiscal relations that required local governments to get into debt in the first place – local responsibility for nearly all social services with hamstrung ability to raise money, no ability to issue bonds, and local rulers bent on building as much as they could as fast as they could. The central government has already structured deals to provide relief for a couple of LGFV, and is leaning on the state-owned banks to make local debts disappear. The government will be able to kick some cans down the road for a few more years, but even the “bad banks” created to take over the bad debts of SOE are themselves requiring bailouts. A lot of cans will prove too big to kick. The need to service or cancel bad debts will hamper the central and local governments in the next decade. A good summary with maps is at Macropolo.

Deleveraging happened to Scandinavia and Japan in the 1990s, and in the US after 2007. It is coming to China at a time when spending on people rather than things is a looming crisis.

All debt – households, government and business – has reached about 282 per cent of annual GDP. The US figure is 257 per cent and the average for developed countries is 256 per cent.

Deleveraging is coming to households as well, as it did in the US. People are paying off mortgages if they can and not buying that second or third or tenth apartment. Everyone’s fiscal future is more in doubt now than any time in the last forty years and Chinese are not used to that.

Local government revenues and services

Local governments face budget cuts and reductions in services and inadequate spending on health care and pensions and schools. This has been true for decades in the US, as cities are starved by federal and state governments. Now, the budget cuts are coming to cities in China. As in the US, lack of money for government translates into lack of money for services, maintenance, salaries, schools. A good example is from this Bloomberg story about Hegang in Heiliangzhang – China’s $23 trillion local debt crisis threatens Xi’s economy. Hegang was a coal town – think of small towns in Pennsylvania. Read a bit from this story and see if any of it sounds familiar –

Hegang’s residents are now feeling the brunt of the fiscal clampdown. During a recent visit to the city, locals complained about a lack of indoor heating in freezing winter temperatures, and taxi drivers said they were being slapped with more traffic fines. Public school teachers worried about rumored job cuts, and street cleaners endured two-month delays to their salaries.

The line of empty storefronts is familiar in many American towns –

Above, a shot from Gary Indiana. It is a mistake to see American city decline as anything other than the result of policy.

A line of empty shops in Hegang in March. The heavily indebted city was forced to undergo unprecedented financial restructuring. Photographer: Qilai Shen/Bloomberg

Continuing the Hegang story –

Outside the city’s largest hospital, a middle-aged orderly wearing green scrubs and a mask said her employers unilaterally changed her work contract from a government-run medical facility to a third-party vendor, reducing benefits like paid overtime for working on holidays. Her monthly wage of 1,600 yuan ($228) had been delayed by more than 10 days every month since late last year.

“I’m upset about the situation,” said the woman, who asked not to be identified in order to talk freely about her work conditions, as she pushed a wheelchair loaded with flattened cardboard boxes to an outdoor recycling point. “Everything is so expensive. I can barely get three square meals a day.”

This is by no means an isolated situation. One can certainly fault local fiscal mismanagement. But just as in the US, the greater responsibility falls on the larger governments and technological change. In both countries there are certainly problems from changing sources of energy and business relocations. The end result is lack of demand for local retail and lack of money for local services. But for many cities in the US, the source of the problem is fiscal strangulation by suburbs, and lack of state and federal money. In China the source is vast overspending on infrastructure. It appears that neither capitalist US nor socialist China is doing a good job of taking care of people. In both countries though, we see a common pattern of socialism for the rich and capitalism for the poor. In major cities in China, health care and education quality can be very good, and schools are free up through high school. In some suburbs in the US, health care and education quality can be very good, and schools are free (via property taxes) up through high school. In rural areas in China, health care and education quality can be very poor. In poor areas of the US, urban and rural, health care and education quality can be very poor.

In both countries, governments will be forced to spend more on social services in the coming decade, against the will of oligarchs in both places.

At the same time, cities are being forced to cut salaries in the range of 15% to 30% to save money for services and debt service. I know this to be the case for the police department in Hangzhou. Lower salaries, greater responsibilities, and lower pension and health care quality are the way American cities deal with the same sorts of revenue strangulation.

Inequality

The Gini coefficient is a measure of inequality, usually measuring wealth or income inequality. The measure is between 0 and 1, with 0 meaning incomes or wealth are perfectly equally distributed, and 1 meaning that one person has all the income or wealth. A high Gini suggests that there is a wide gap between the wealthiest and the poorest. The US at about 0.40 is considered the most unequal of the western countries. The Gini is now much higher in China than in the US. The National Statistics Bureau uses a Gini of about 0.46; more trustworthy estimates are much higher, perhaps 0.52. Not news to anyone now, but a bit sobering to some purists that the greatest capitalist country is less unequal than the greatest socialist country. But both are far more unequal than any of their developed peers.

In China the top 1% wealthiest of the population own about 37% of the national household wealth. The next 100 million (7% of the population total) of the population own about 14%; the remaining 1.3 billion people, about 92% of the total population, own 3% of the national wealth. One can certainly quibble with these percentages, but the general direction is accurate. Above data from the Center for Strategic and International Studies, via the China National Statistics Bureau – CSIS, using data from the China National Statistics Bureau –

Another source – https://www.indexmundi.com/facts/china/income-distribution

China income shares by decile circa 2019

1^st quintile 6.7% lowest incomes

2^nd quintile 10.7%

3^rd quintile 15.2%

4^th quintile 22.0%

5^th quintile 45.3% highest incomes

Highest 10% 29.5%

Lowest 10% 2.8%

Estimates of US income shares by the Federal Reserve say the top 1% in the US holds about 31% of national wealth; the middle 49%, about 66%; and the bottom 50% held 2.4%.

Note on the chart below – CFPS is China Family Panel Studies, an annual survey of families and individuals conducted by Peking University. It is considered more reliable than the government data.

Inequality is more than just a statistic. High inequality undermines growth and we interpret that as low shares of consumption in GDP statistics. For at least a decade, perhaps two, China has had the lowest share of consumption in GDP anywhere in the developed world. But there are deeper problems. From How Inequality is Undermining China’s Prosperity – inequality leads to poor educational outcomes for kids, poor healthcare for parents and kids, and a substantial share of the population that is unable to qualify for high-skilled jobs of the future.

Primary sector jobs (farming, mining, fishing) have been in decline in China for twenty years. Secondary sector jobs (construction, manufacturing, assembly) peaked around 2012 and are in decline now. Current animosity toward China and Chinese products and within China the mistrust of real estate means this sector will not exhibit much, if any growth. What is left is the tertiary sector, which consists of retail, services and office jobs of all sorts. This is where there is growth. But this sector is far too small considering the enormous size of the population, and the majority of that population cannot afford to take advantage of most of the services offered (think law, marketing, advertising, accounting, medicine, teaching).

Taking a closer look at the data reveals even more about employment trends in cities. The service sector includes a wide variety of jobs, which are usually categorized as either skill intensive (e.g., the technology, finance, culture, education, and health) or labor intensive (e.g., retail, hospitality, and logistics).

While overall service sector employment has been increasing, when disaggregated between skill-intensive and labor-intensive jobs, the latter has been growing the fastest. In fact, labor-intensive services appear to be absorbing many workers who previously went into construction and manufacturing….

“Labor-intensive services” tend to be gig jobs or jobs requiring little training and therefore few long term prospects. There are more than 200 million of those jobs now. In that sense, the US and China have a similar problem with rural or urban labor that is insufficiently skilled for the jobs available. The sort of labor polarization that has taken place over the last forty years in the US – increasing wages for skilled jobs, stagnation for low skilled jobs – is happening in China now. The hukou is fundamentally responsible for the polarization, not unlike apartheid in South Africa or suburban boundaries and zoning in the US.

Hongbin Li, Prashant Loyalka, Scott Rozelle, and Binzhen Wu. Human Capital and China’s Future Growth. Journal of Economic Perspectives—Volume 31, Number 1—Winter 2017—Pages 25–48. Available at www.aeaweb.org/articles?id=10.1257/jep.31.1.25

The trend is particularly striking because overall employment has also not been growing significantly in recent years. The data portrayed in Figures 3 and 4 indicate that job opportunities in manufacturing and construction are declining, which Rozelle and his colleagues expect is due to a combination of offshoring, automation, and a slowdown in new construction.

China is, in fact, no longer a low-wage, low-cost manufacturing country. As the economy boomed in the mid-2000s, wages increased, curbing demand for workers in manufacturing. As a result, labor-intensive, low-end manufacturing (e.g., textiles and electronics) has been relocating to Bangladesh, Vietnam, and elsewhere. The construction industry, a reliable driver of employment for decades, has also slowed significantly in recent years. Official Chinese data indicates that employment in the manufacturing sector has been declining since 2013. Finally, increased automation may also be hurting job opportunities for workers in lower-skilled occupations.

Importantly, the quality and security of work available to those entering the labor-intensive service sector are not equivalent to those available in manufacturing. Many labor-intensive service jobs are not regulated by the state or officially reported, meaning they are part of the informal economy. NBS data from China’s government statistical system show that informal urban employment is growing and today accounts for almost 60 percent of all non-agricultural workers, up from 40 percent 15 years ago. It is clear that the labor-intensive service sector—which includes a broad variety of jobs ranging from nannies and drivers to food stall workers and roadside repairmen—is driving this trend. Also, most of those working in these positions are migrants from the countryside who lack an urban residency permit (hukou), which is necessary to access a variety of welfare services, including pension benefits, healthcare insurance, and unemployment insurance.

If one wants an explanation for China’s current and future economic difficulties, one can start with these statistics. Those 20 or 25 per cent of the youth population that is unemployed don’t have jobs because too much of the wealth is owned by government, SOEs and the top 1%. I know quite a few wealthy Chinese. They have lives similar to or better than lives of their economic peers in the US. They eat well, buy extravagantly, travel, spend money freely. But their spending doesn’t help most Chinese very much.

About 80% of employment is in the private sector (compared with about 85% in the US).

Private sector share of employment in China –

Source: https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.31.1.25

Hongbin Li, Prashant Loyalka, Scott Rozelle, and Binzhen Wu. Journal of Economic Perspectives. Volume 31, Number 1 Winter 2017, pp 25–48.

The private sector (as defined in China, probably to include SOE) is about the same size as the private sector in the US. Per the US Bureau of Labor Statistics (BLS) there were nearly 118 million private sector jobs in May 2020, representing 85 percent of U.S. employment. State government had 4.6 million jobs (3.3 percent) and local government had 14.1 million jobs (10.1 percent). The public sector employs 20.2 million people in the US, approximately 14.5 percent of the workforce.

Inequality in China is largely about the hukou, which restricts where people can live, work, go to school, and receive public services. The path to acquiring an urban hukou and accessing the benefits that come with it is arduous. Provinces and cities make up their own rules, and the central government and some provinces have been proposing to end or modify the hukou requirements for a decade or more, but little has changed. In some places, ability to buy an apartment may be sufficient to get the local urban hukou. Zhejiang Province is starting an experimental program to grant citizen hukous to Zhejiang peasants. In all of China there are about 900 million peasants now who have only a peasant hukou.

In any case, the consequences are that a large segment of the population lives in relatively precarious conditions. In 2014, only an estimated 16 percent of rural migrants working in cities were covered by pension benefits, only 18 percent had urban health insurance, and only 10 percent had unemployment insurance. This points to a different source of inequality that is not captured by income trends and is harder to quantify, even though it affects people’s lives in a very direct way.

People prosperity vs. place prosperity

In standard economic development terms, public policies can work to enhance businesses and real estate – tax breaks, hold interest rates low, subsidies to companies, free training, sales of land at low cost or preferential market access – or work to enhance the welfare of people – health care, social services, education, pensions and wages. Place prosperity is the usual form for public policies for a variety of reasons. Businesses and real estate are local and locked in. Their productivity and jobs are difficult to move. Fundamentally, governments Understand real estate in a way that they cannot understand businesses. They can easily tax and regulate the physical environment. Building things is ego-supporting for politicians of all stripes, in the US and in China. “Look what I did.” It is the edifice complex for politicians and architects.

Supporting people is difficult. It takes a long time – maybe a generation – it is not obvious in the way that new buildings are obvious, and its output is uncertain. People can move away after they have realized the benefits of good social policies. The end result, if done reasonably well, is a better balanced Gini coefficient and a large middle class that can support more jobs, more consumption, and greater stability.

But both the US and China will need to do much better on people-prosperity in the next few decades. There is plenty written on this topic. Just a couple of citations – Zhang Jun, Dean of the School of Economics, and Director of the Research Institute of Chinese Economy at Fudan University at Pekingnology – Low wages threaten China’s economic transition, government needs to subsidize families. Michael Pettis has been making this argument for more than a decade. A recent post – Can China’s Long-Term Growth Rate Exceed 2-3 Percent? China must invest less, consume more and the government desperately needs policies to allow that to happen. Pettis sees US debt as the mirror of rising Chinese debt. Sort of a “one hand washes the other” phenomenon.

Essentially, both countries need to bring down their respective Gini coefficients, which means making for greater wealth equality. This means greater taxes on high earnings, broader coverage and collection of taxes and less support for the oligarchs in both countries. The Chinese government will need to bail out cities as the US bailed out banks and finance.

Pettis makes the point clearly in his recent book with Matthew Klein Trade Wars Are Class Wars. The US and China share another similarity, in the complementarity of their macroeconomic models. Some mainstream writers want to posit China as the evil supplier of goods, and American consumers as willing fools in the transactions. The American trade deficit with China is not of our creation, it is said, it is due to those low paid factory workers in China. Pettis and Klein make the point convincingly that both the US and China privilege particular people at the expense of others – manufacturers and exporters in China, banks and finance in the US. In both countries, conditions for working class people are suppressed – wages, education, health care, social services – so others may be privileged. The argument is more than I can make here, but my point is that the US and China have shared a commitment to the upper level of the income distribution at the expense of others. One can see in this model a good part of the current distrust and discontent in middle and lower classes in America. The “Dream” is not working.

I keep waiting for Pettis to get the Nobel Prize he so clearly deserves.

From Klein at Overshoot – Our book argued that income concentration over the past few decades has undermined global growth and financial stability…. In our view, the main risk associated with egalitarian redistribution was the potential for growing geographic mismatches between who was doing the additional spending and who was doing the additional production, which had the potential to translate into unsustainable financial imbalances.

Klein’s use of egalitarian here is a global egalitarianism – middle class Americans giving up their jobs in favor of peasant Chinese. The mismatches are a result of policy choices, not some abstract macro theorizing about how the world works.

In other words, the trade imbalance is a symptom, not a cause, of economic difficulties – like the cost of raising a child, or the cost of health care or education. Its not the fault of China or CCP.

Corruption

Corruption is not unknown in American government and business. Based on my own experience in Chicago, for decades a leader in municipal corruption, local “street level” corruption seems much less of a factor now than I ever recall and it seems to have moved more into deals arranged in board rooms from deals on the street. Corruption exists, but payoffs for building permits and getting out of a speeding ticket are now rare. Even Illinois, also a long term leader in state corruption, seems now less corrupt than in memory.

Real corruption now is at the state legislature and federal scale, where large companies and wealthy donors and funds write legislation to their benefit and use promises of money and jobs to defeat legislation and regulation that would be of benefit to most of the population. Two examples of many – Why Are Corporate Healthcare Fraudsters Being Handed “Get Out of Jail Free” Cards? and Here’s how states can end corporate welfare. At the local level, I gave political donations to aldermen in wards where I was wanting to do real estate development deals. This was never considered corruption – it was just a donation to promote the good work the alderman was doing in the ward. No quid pro quo, ever. But one was buying a little bit of guanxi, Chicago style.

In other words, American corruption has come to look more like Chinese corruption – less on the street, more in the boardrooms and government offices. Key evidence comes from recent Supreme Court revelations. No need here to rehash the Clarence Thomas-Neil Gorsuch-John Roberts shady dealings. And I leave it to others to parse legal arguments of their …. forgetfulness about reporting, if not about ethics.

In China we see the stories of high level corruption all the time. Not a day goes by without reports in the Chinese press about a local, provincial, or national figure in a bank, SOE, or unit of government being detained for “violations of Party discipline” which is the euphemism for financial corruption, generally accompanied by violations of personal moral probity. The health care business is well known for its corruption, with drug and equipment suppliers regularly going through a “pay-to-play” scheme with hospital leaders.

The land thefts that deprived hundreds of thousands of farmers of their land in favor of commercial development, proceeds of which went partly to local officials, are now less. The hated chengguan, city street monitors, seem to murder and beat farmers less often now than a decade ago.

For purposes of comparison, I offer an insightful article by Ling Li, Performing Bribery in China – Guanxi-Practice: Corruption with a Human Face ((Journal of Contemporary China vol. 20, no. 68, 2010, page 1-20. Ling Li teaches Chinese politics and law at the University of Vienna). Li asks –

What is “the way” in which bribery is supposed to be conducted and what makes the so-called guanxi-practice special? She comments The enabling role of corrupt participants seldom attracts academic attention. Enabling in this context means that once the motivation of corruption has been established, corruption actors can also strategically plan their conduct to overcome the legal, moral and cognitive barriers, which are supposed to obstruct corruption. In order to investigate this enabling factor, one has to look into the interacting process of corrupt exchange at the micro-level.

Li defines corruption as the misuse of entrusted power in exchange for private benefits.

Corruption in business and government dealings in China is a cultural meme. Cultivation of rich and powerful people for corrupt purposes, like judges, is daily fare. Current news is about a central government crackdown on corruption in medical and pharmaceutical fields.

From Caixin –

The crackdown is targeting six areas, the National Health Commission (NHC) said in a statement Tuesday. They include rent-seeking by health administrators; bribery in service providers run by health administrators; illegal drug trading by pharmaceutical companies; kickbacks in medical institutions and the sale of drugs, medical devices and consumables; misuse of health insurance funds; and integrity breaches by medical personnel.

In an interview, Hu Gang, the author of Celadon, revealed that he had spent half a year to build trust with a high-court judge before he was given the first court commission. In colloquial Chinese language, this strategic trust-building process is exactly what guanxi-practice is about.

For the last irony, Li herself concludes with a sentence that could end any American Supreme Court story –

It is rather ironic that contrary to the views advanced by some western China scholars, who attempt to distinguish gifts from bribes, and guanxi-practice from corruption, guanxi-practitioners are striving to blur these boundaries. The very existence of equivocation, excuses and camouflage, so characteristic of guanxi-practice, demonstrates a shared sense of awareness of the illegality and impropriety of the conduct. Were it not for this awareness, such a heavy-loaded masquerade would be meaningless. In fact, the very term of “guanxi-practice” is a euphemism, used to conceal the confrontation with the “unsettling topic” of corruption.

Something about if it walks like a duck ….

If anything, a code of ethics would mean some existing relations might have to be curtailed to avoid the hint of impropriety. But we have to wonder – if corruption can be so easily identified in China, and it looks pretty much identical to guanxi practice in the US, what can we say about justice with American characteristics?

Homelessness

There are plenty of Chinese who are able to sleep amidst roadside landscaping or hovels located amidst far more prosperous surroundings. It might be hard to tell who is homeless and who is not; there were a number of people living in makeshift dwellings on the periphery of our school in Hangzhou. They weren’t technically homeless, but their homes were certainly contingent and about as secure as the tents we see in parks and on streets in the US.

The hukou still makes homelessness less of an issue in China than in the US. Theoretically almost everyone has a home to go back to in some village somewhere. Homelessness is likely to be of migrants who’ve lost a job, with its attendant blue-roof metal shed temporary worker housing or the mentally ill. Some homeless might be disabled or Chinese evicted from their long term housing by government redevelopment demolition of villages. This Radio Free Asia story Down and Out in China is a bit old, but likely still pertinent –

In the southern city of Guangzhou, a 2008 survey carried out by the Guangzhou Municipal Homeless Shelter Management Station and Zhongshan University interviewed 600 homeless people and ordinary citizens.

It found that the majority of homeless people were men between the ages of 20 and 60 who had suffered financial ruin or loss of employment, had a disability, or had been injured in industrial accidents.

Some were found to dislike work, while others went out begging to take care of dependents.

While 60 percent of those interviewed had been beggars for more than a year, 18 percent had been on the streets for more than a decade.

Governments at the county level are required to take active measures to rescue homeless people and beggars in a timely manner. A good part of that assistance is to provide payment for transport back to a person’s home village, where presumably family would (necessarily) look after them. The close relatives are to be educated in their obligation to provide support.

Characteristics of American homeless are here. American homeless usually have no family place to go. There are social services available for some.

Peasants

There are significant portions of the population in both countries who are informally shunned by middle class.

Nongmin is the Chinese term usually translated as peasant. It is the hukou designation for people who are not citizens, who are gongmin or shimin (city persons). Nongmin does not mean farmer in this usage. There are peasants who are not farmers. Peasants are generally thought of as poor, uneducated, believers in spirits and generally unable to take part in the great Chinese rejuvenation. While CCP gives the nod to peasants – the first State Council document in every year has to do with farm and agricultural policies – middle class Chinese ignore peasants at every turn. Researchers discuss the shunning at length – Muddled Modernities in Peasant China and The Law Cuts Both Ways: Rural Legal Activism and Citizenship Struggles in Neosocialist China.

In the US, poor people, particularly poor minorities, are shunned. In China the hukou restricts where nongmin can live, their employment, living conditions, health care, and education. In the US, that function is taken by suburban zoning restrictions and land values. In both the US and China, parents change their residence to be in a good school district and will not tolerate their kids going to school with peasants. Minorities in the US and peasants in China have often been disregarded in actual policy, even though the governments make promises and proposals for assistance in education, jobs, health care, and social services.

Urban and migrant (peasant) population and the social services deficit –

This figure illustrates an enormous problem for China. About 26% of the urban population does not have an urban hukou, and is therefore ineligible for local social services, including education, health care, pension and unemployment payments. This is essentially a defeat of the original intent of the hukou policy, which sought to keep city wages high and rural wages low through strict separation and keep peasants from clogging up city services, as was seen in the US. Now the peasants are there, and in numbers far too big to send back home to some rural county.

Gig jobs are made for peasants trying to live in cities in China; as they are for young Americans trying to make their way. Some conditions for bicycle or motorbike delivery drivers are the same – poor job conditions, unreasonable pay requirements, no benefits or future. Two articles, one on gig jobs in the US, the other on gig jobs in China – My Frantic Life as a Cab-dodging, Tip-chasing Food App Deliveryman and Feeding the Chinese City.

Health care

Doctors are generally honored in both countries and the medical system is deeply systemically flawed in both. Both have problems with quantity and quality of health care in poor and rural communities. It is difficult to get doctors and nurses to work in rural areas. Both countries have problems with insurance coverage that makes people avoid care, have to shop for care, and ration their own care. About three-quarters of Chinese do not have health care insurance through their employer, and must depend on a government bare-bones program, which covers little. The three hundred million migrants who have built China and stoked its factories over the last two decades do not receive any health care benefits through their employer. More by Winnie Yip from the Harvard T.H. Chan School of Public Health – Disparities in China’s Urban and Rural Healthcare.

China has a particular problem with expectations that honored doctors will fix whatever problem they attend to, or save lives regardless of the stage of illness. There are many cases of doctors and nurses being physically attacked by families dissatisfied with medical outcomes, with police posted on some surgical floors. It is not clear whether the attacks follow payment of hong bao, customary red envelope gifts to doctors in support of special care for a family member. Perhaps surgeons in the US make enough money so hong bao contributions are unnecessary. Nevertheless, attacks on health care workers in the US are on the rise. Not a story I expected to read – Attacks at US medical centers show why health care is one of the nation’s most violent fields.

There are issues of trust in the medical system in both the US and China, although for different reasons. In the US, particularly in rural or low-income areas, the government may not be trusted for political reasons – witness the refusal to accept medical advice on covid. In China, lack of trust might lie in doctors who use western medicine rather than traditional Chinese medicine and a historical lack of trust in a private system of care. A private system is based on a profit motive, and why would that work to the benefit of the patient.

It doesn’t seem necessary to discuss health insurance problems in the US, both expense and coverage and shopping for care. But China is similar to the US in some respects – coverage can be excellent depending upon one’s position and location. In Hangzhou, a modern sophisticated city, I was treated for a bad cough. Went to one of the local hospitals – a good one, paid 15 yuan (about $2.50) to see the doctor, followed the signs (in both Chinese and English) to the appropriate office, waited just a few minutes, went in and talked with the doc, who gave me a prescription. We talked for a while. His English was so good, I bet we could have discussed basketball scores. He prescribed a known American medicine, which worked fine. That was good enough, he said. I wasn’t sick enough for him to prescribe Chinese medicine.

I’ve written about doctors and hospitals for pregnancy – here and here. In the best hospital in Hangzhou – again, a modern sophisticated city – chaos is hardly the word to describe the crowds, the lines, the frantic pushing and shoving, the degrading lack of attention to patients. It is libertarian-style health care run amok.

My daughter went to a small clinic in Jingzhou, a small city in Hubei Province, treated for a cough and bad stomach pain. No waiting, communicated well and got some medicine, which worked fine. Not sure if we paid anything at all.

The US system is stupidly expensive and requires intimate negotiations among patients, providers and insurance companies. Much time is lost in negotiating the particularities of medical coverage codes and what part of normal treatment is covered and what is not. Whether one can receive treatment is a function of whether a particular hospital, or worse, a particular doctor in the same hospital, will accept your insurance coverage.

The Chinese system is not nearly so expensive, but can still require negotiating among hospitals as to which hospital will take a patient. I know of a case in which a hospital could not provide needed coverage, but refused to transfer the patient to a better hospital because the hospital would lose the money from the insurance program. This was treatment for my brother-in-law. Only some complicated guanxi enabled the transfer to take place. Hospitals regularly refuse to take patients from outside their city or province, since insurance programs are location-specific.

https://www.coresponsibility.com/chinese-healthcare-the-rural-reality/

There can be world class health care in cities in both the US and China. In both places, proximity to excellent facilities and doctors does not ensure care. Care is determined by access to insurance, which in the US is determined mostly by access to money and in China mostly by access to CCP or a state-owned business. Private businesses and government agencies provide health care insurance at widely varying levels of coverage. Both countries have serious problems providing adequate care in rural areas.

From an excellent report from ChinaPower at the Center for Strategic and International Studies – The level of health care available in Beijing, for instance, is comparable to some states in America – such as New Hampshire and California. Mississippi received the worst score within the United States. Health care in Mississippi is rated lower than that in ten Chinese provinces…. The costs carried by Chinese citizens vary considerably. Tibet, one of China’s poorest provinces, ranks in the bottom third globally in health care access and quality.

A 2014 study conducted in the urban and rural communities in Suzhou revealed that residents under the rural plan were only reimbursed for 57 percent of their medical fees – far less than the roughly 70 percent reimbursement rate granted under China’s urban health care plans.

Universal health insurance and care for seniors is provided by the government through Medicare in the US, and for low income people through Medicaid.

There are no similar programs in China. If care is not provided through a pension or retirement plan, then it doesn’t exist, other than a very bare-bones national plan for peasants.

In China the historical pattern has been that government provides little to no social services – not education, not health care, not care for elderly or the disabled. Families and clans and lineage groups were to provide. (This is the China that libertarians must dream about.) Times are now different, but it is still the case that city or county governments provide services for urban hukou holders, and villages provide services for villagers (usually little to nothing). That too is changing, but there are wide inequities in social service provision between those who are poor and not poor, and between city and rural residents.

In China the health care stupidities come in with poor coverage and grossly inadequate staffing. (I’ve written about the mob scenes of pregnant women surrounding doctors and the lunacy of standing in line for long times, maybe hours, just to get a number to get in line later to see a doctor. And no number, no doctor. This, at the best pregnant woman’s hospital in Hangzhou.) Those with adequate guanxi don’t need to stand in line, though. There are special times for special people.

In the US the health care stupidities come in with extreme costs and coverage decisions made by insurance companies rather than doctors. Inadequate staffing and poor pay are American stories as well.

Poor rural health care is a shared deficiency. Rural hospitals are closing in the US and there is an acute shortage of trained staff. Current GOP policies and financialization of medical care suggests that these shortages will get worse. In the mid-term, say the next ten years, both countries will need to spend a great deal more on health care and pensions and less on physical assets, infrastructure in China and the military in the US.

Education

In both countries there are excellent schools and poorly performing schools in the same political jurisdiction – Beijing, Hangzhou, Shanghai and New York, Chicago and Los Angeles have examples of both. Excellent schools can naturally lead to sophisticated and high-paying jobs. For students in poorly performing schools, the chances of joining a modern hi-tech economy seem poor.

Conditions in primary school education for poor and minority kids in China are like those for poor and minority kids in the US. Difference is mostly that these kids in China are rural, in US they are urban. But similar problems – poor teacher training, poor teacher quality, low pay, stupid requirements, sometimes language problems, sometimes parents that are absent or don’t really care, grandparents who don’t care or can’t help a kid with schoolwork, families that want the kid to help bring in money instead of going to school, poor support in the environment, high dropout rates, and a bunch of programs mostly non-governmental to help a few kids. And middle class Chinese and American parents do not want their kid going to school with some peasant or minority kid. So, parents move to get into a “good” school district. Funding for schools in China is at the county level, so rural counties that produce little GDP have a tough time. Not sure, but maybe no funds from central government at all. Not so different from American urban school districts starved by lack of funds from the surrounding suburbs that revel in their proximity to the urban core without having any of the responsibilities.

There are half a dozen universities in China now that qualify for high international school rankings. And universities have had – at least before the recent political threats to foreigners – substantial foreign student populations, mostly from Africa and the middle east.

Universities are in an unsettled state in both countries. In the US, we have censorship and states seeking to abolish tenure and academic freedom and students on the left and right seeking to punish others whose values are not theirs. Legislatures, Boards of Directors, some alumni and funders who want universities to run like businesses and faculty to act like employees don’t understand what damage comes with lack of freedom to express oneself. These are more cases of the GOP seeming to copy CCP.

Faculty in China are well accustomed to censorship and there are no such concepts as tenure or academic freedom. It is understood that everyone works for the state, and everyone is defacto an employee of CCP. Some faculty do understand the damage that comes with lack of freedom to express oneself. Research projects below the top few schools are defined and chosen by the state and offered to faculty, like an American grade school teacher offering paper topics to students in class.

Some students at leading universities – Tsinghua and Beida, for example – still hold out for freedoms of expression and equitable treatment for all. There are occasional protests by students, with signs and catcalls. These protests don’t match those in the US for anger or irrationality, but they are a source off concern to CCP, as they are in the US mostly for the GOP.

Health care and education and employment

Health problems plague kids in poor areas in China and the US, perhaps more in China. From the Chinareflections blog –

Scott Rozelle, education and health researcher in rural China, defines part of the problem not mentioned in glowing reviews of Chinese economic power. In decades of research across many Chinese provinces, he finds that iron deficiency anemia was present in 40% of students in fourth and fifth grade in at least four rural provinces; in Guizhou and other southern provinces, 50% of children suffered from at least one type of intestinal parasite; and nearsightedly was common in schoolchildren, but went unaddressed in many rural areas. Health care and education in rural areas is now significantly better than twenty years ago, but problems persist for much of the rural population. The health problems are definitely treatable; but they persist, nevertheless. Rozelle has found that 15% to 20% of rural kids do not do not complete middle high school. That is a fearful statistic for future growth. Many of those same kids are affected by poor quality or poisonous drinking water, or rice laden with heavy metals, or air that is even more poisonous. China has been a leader in flashy environmental projects – wind, solar, dam construction. Not so much in the unflashy, dirty job of cleaning air, water, land, or ensuring food quality. Spending on those items will make no contribution to exports or factory technology or even short term health. For local officials, what’s the point?

Employment and education

In the US the stress of poverty conditions – crowded conditions, poor nurturing, financial worries, or PTSD conditions from exposure to abuse, neglect or violence – can affect ability to learn. Ability to learn obviously affects ability to join a modern workforce. In Chicago, only about half a dozen high schools scored higher than 60% on a state-required college readiness exam. For low-income areas the story is similar across the US.

There are some similarities with conditions for Chinese low income rural students – poorly trained teachers, insufficient nutrition, difficult home life, lack of money for clothes, food, school supplies. The hukou restricts their ability to move to a better location. Rather than threats of violence in US schools, many rural schoolkids suffer from health conditions such as anemia, uncorrected vision, or intestinal worms, which can affect their ability to learn.

Scott Rozelle and others describe the conundrums of a falling labor force size, a relatively uneducated work force, poor rural education and health care – Human Capital and China’s Future Growth.

As of 2014, only about 36 per cent of the Chinese population had an urban hukou status. The percentage has probably increased a bit by 2023, but still less than 50%.

The dropout rate in rural areas is still a large problem. In Elevated school dropout rates in rural China Molly Bradley describes the social situation –

One such survey of rural provinces showed the dropout rate for primary school students in certain rural provinces was 4.4% and then increased to 22.7% for junior high students.²² Another survey of 17 junior high schools in 14 rural counties revealed in some areas the dropout rate was close to 40%.

And Rozelle – Despite significant increases in educational attainment since 1978, the overall education level of rural Chinese workers is still extremely low. When examining the stock of human capital in the labor force in 2015, only 11.3 percent of adult workers in the 25–64 age bracket from rural areas had attained at least high school education.…. Given the age structure of those that are not in the industrial or service sector yet, there really isn’t much scope for China to increase the quantity of labor into the nonfarm industrial/service economy through additional rural-to-urban migration.

The World Bank has called attention to these problems as well – According to the latest Census, the migrant population reached 376 million in late 2020 (26.6% of the nation’s population), up from 155 million in 2010. Despite being a part of China’s huge industrial labor force, without a local (urban) hukou, migrant workers in the cities are unable to use most basic public services such as public education for their children, forcing migrant parents to leave their kids in the village and producing tens of millions of “split families” and “left-behind children.”

Source: https://blogs.worldbank.org/peoplemove/chinas-hukou-reform-remains-major-challenge-domestic-migrants-cities

Over 70 percent of China’s children today are rural hukou holders. That often means one or both parents are working far from home and return home sporadically, maybe once a year at Spring Festival. Families are not broken in the same way they are in America, but the lack of parents no doubt has some similar effects – loneliness, lack of empathy and minimal personal goals. For rural Chinese children, like poor American urban children, schoolkids are less likely to acquire the cognitive skills needed to succeed in high-skilled jobs. This is a great problem for China’s future. Li Hongbin –

Professor Rozelle’s findings show that China’s broad development targets and aims to become a high-tech power, particularly in advanced manufacturing, may be harder to achieve than many imagine. Similarly, if a large portion of China’s population has stagnant real wages and continues to save for a rainy day, their ability to consume will be limited. This means that rather than a consumption-driven economy, China’s growth will continue to depend on state-driven investment, which will translate into expanding debt—a vicious cycle that will also weigh down growth.

It is important to note that a rural hukou does not mean a family is living in poverty. There can be wealthy peasants. But that is not the norm.

Despite significant increases in educational attainment since 1978, the overall education level of rural Chinese workers is still extremely low. When examining the stock of human capital in the labor force in 2015, only 11.3 percent of adult workers in the 25–64 age bracket from rural areas had attained at least high school education.

In contrast, 44.1 percent of individuals from urban areas had high school education …. The flow of rural students through high school (and college) is also low. School-age children from rural areas will ultimately comprise most of China’s future labor force …. However, less than 40 percent of children from poor rural areas were attending high school between 2007 and 2012 ….

There are still far more rural kids than urban kids in China. The government has started programs to improve rural education, but it is no easier than it is to improve American urban poor education. The figure below is very frightening for a modernizing China –

Hongbin Li, Prashant Loyalka, Scott Rozelle, and Binzhen Wu. Human Capital and China’s Future Growth. Journal of Economic Perspectives—Volume 31, Number 1—Winter 2017—Page 30. Available at https://www.aeaweb.org/articles?id=10.1257/jep.31.1.25

The conditions for “working poor” Americans are described here and here. In the US in 2021, about 27% of students living in poverty did not graduate high school. About 12% of the US population was living in poverty in 2021. From a 2018 Brookings study on American youth – About 15 percent of all young people, or 4.7 million, fall into the category of disconnected or opportunity youth, meaning they aren’t in school and don’t have a job. Half of this not-working/not-in-school group has a high school diploma, and nearly 20 percent has taken some college courses but did not earn a degree. About 25 percent did not finish high school. Young people disconnected from school and work have received a great deal of policy and program interest as of late, and deservedly so: they face a number of roadblocks on the path to adulthood and successful careers.

China is moving toward robotization of its manufacturing very quickly. Even large scale construction is moving toward hi-tech manufacture and installation, faster than in the US. In both countries it is not clear what jobs will be available for those without sufficient education to take advantage of the emerging economy. Its not clear whether the CCP attempts to “modernize” the Uighur population with “language and job training” will be more successful than “No Child Left Behind.” Both have had lots of hype and little result.

Free speech and human rights

No point in describing human rights violations in China. These are too well known to recount. No point in discussing lack of free speech, rights to free association or practice of religion. These rights are all guaranteed in the Chinese Constitution, articles 34-36, with more clarity than in Article 3 of the US Constitution. We learn the distinction between de jure and de facto.

In the US, we refer constantly to Article 3 of the Bill of Rights – Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

China has similar guarantees – freedoms of speech, of the press, of assembly, of association … and of demonstration (Articles 34, 35, and 36) –

Article 34 All citizens of the People’s Republic of China who have reached the age of 18 have the right to vote and stand for election, regardless of ethnic status, race, sex, occupation, family background, religious belief, education, property status or length of residence, except persons deprived of political rights according to law.

Article 35 Citizens of the People’s Republic of China enjoy freedom of speech, of the press, of assembly, of association, of procession and of demonstration.

Article 36 Citizens of the People’s Republic of China enjoy freedom of religious belief.

No State organ, public organization or individual may compel citizens to believe in, or not to believe in, any religion; nor may they discriminate against citizens who believe in, or do not believe in, any religion.

The US Department of State issues an annual report on the state of human rights in China. China now responds with its annual Report on Human Rights Violations in the US. Its worth a read. From the 2022 report –

The U.S. government has greatly relaxed gun control, resulting in high death toll from gun violence….

Midterm elections have become the most expensive ones in the United States, and American-style democracy has lost its popular support….

Racism is on the rise and ethnic minorities suffer widespread discrimination. Hate crimes based on racial bias in the United States increased dramatically between 2020 and 2022….

Life expectancy has plummeted, and deaths from drug abuse continue to climb….

Women have lost constitutional protections for abortion, and children’s living environment is worrying….

U.S. abuse of force and unilateral sanctions has created humanitarian disasters. Since the beginning of the 21st century, the United States has carried out military operations in 85 countries in the name of “anti-terrorism,” which directly claimed at least 929,000 civilian lives and displaced 38 million people….

American politicians, serving the interests of oligarchs, have gradually lost their subjective will and objective ability to respond to the basic demands of ordinary people and defend the basic rights of ordinary citizens, and failed to solve their own structural problems of human rights….

The US seems to do a very good job of protecting what are called first generation rights – civil rights. The US is less impressive on second generation rights, which China claims to honor – social, economic and cultural rights such as reasonable levels of education, healthcare, and housing, fair wages and an adequate standard of living.

Rights are in contention all the time, even if we agree on how to define them. But recently the GOP seems to have purchased a CCP handbook on threats to freedom of speech. There are the de Santis clownish actions on students recording and reporting on professors and threatening Disney and Senators threatening to sue universities unless they turn over (under what law?) private emails. By way of harassing university faculty the GOP congress seeks emails and other communications that disagree with GOP interpretations of Covid origins or vaccinations. Schools are monitored for their curricula in psychology and history, to make sure these teachings are correct per the GOP. “Correct” is the CCP term for instruction that meets with CCP approval. See Being Red in the Red States and More on Monkey See-Monkey Do.

We still maintain elements of free speech. But we are veering closer to restrictions on speech, from both the left and the right. One should not be surprised if a GOP-dominated Congress would try to imitate CCP in that regard.

DeSantis seeks to constrain free speech rights of the press by restrictions on New York Times v Sullivan, a major free speech decision for media.

Consider the picture/cartoon below –

Source: Chinareflections.com Xi, CCP, DJT, GOP – Part 1 – Government and Party

The Chinese artist in Shanghai who drew the Xi-Obama comparison was arrested. In May, 2023, authorities detained a comedian who told a joke about China’s military and fined the company he worked for $2 million—a sign of just how sensitive the state can be. What reaction to this pic might we expect with a GOP president and Congress?

The race card

No need to belabor issues of racism in the US. In the last few years relations with China and the pandemic have made anti-Asian racism even more prevalent. But Chinese themselves are most certainly not immune to racist attitudes. From predynastic times foreigners were considered barbarians. White people were akin to monkeys, with their body hair and smell. Minority groups like Uighurs and Tibetans are today considered inferior. Today, blacks are the subject of the most virulent racism. Examples are at China’s Ugly, Disturbing yet Open Secret and US basketball player Sonny Weems racially abused by fans in China.

CCP is willing to play the race card in international relations. Differences in culture, ethnic and racial identity are expropriated. Top diplomat Wang Yi has called on South Korea and Japan to unite against the western white people. From CCP mouthpiece Global Times – Wang noted that Europeans and Americans can’t distinguish between Chinese, Japanese and South Koreans. No matter how yellow our hair is dyed or how sharp we change our nose, we can’t become Westerners. We should know where our roots are, he told the main group of guests, stressing cooperation between the three countries can revitalize Asia and benefit the world.

In May 2023 was the inaugural China-Central Asia Summit, during which Xi Jinping hosted leaders from five Central Asian nations, including Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan. From the description at Sinocism – But the most egregious example of self-dealing praise in what was ostensibly a joint statement was the inclusion of a line saying that ‘the Central Asian countries [in attendance] highly valued the precious experience of the Chinese Communist Party in governing the country, and affirmed the importance of the Chinese-style modernization path for world development.”

The central Asian leaders were introduced to Xi as inferior potentates come to pay homage to the emperor. I witnessed the same vibe at the G-20 meetings in Hangzhou in 2016.

As the youtuber Winston “serpentza” Sterzel points out, CCP has been vigorous in pointing out racism in the west, to the point that some in the west are willing to ignore despicable acts by Chinese acting on behalf of CCP for fear of offending Chinese. Nice inverse racism.

Internally, we remember the US has separate indigenous nations within its borders. There are 574 recognized Native American nations. They retain a status separate from that of the rest of the US for many government functions, including civil and criminal law. Indian tribes are considered by federal law to be “domestic dependent nations.” The federal government has a trust responsibility to protect tribal lands, assets, resources, and treaty rights. Numerous federal statutes deal with Indian rights and governance, such as the Indian Civil Rights Act of 1968 (also known as the Indian Bill of Rights) and the Indian Self-Determination and Education Assistance Act of 1975.

The U.S. recognizes the right of these tribes to tribal sovereignty and self-government. Federally recognized tribes have the right to form their own governments and courts, enforce civil and criminal laws, establish membership and tax members, license and regulate activities, and decide their own fates. Limitations on tribal powers of self-government are the same as constitutional limits on state sovereignty. Tribes do not have the power to make war, engage in foreign relations, or coin money.

China has 55 recognized non-Han minority groups. Some dominate the population in the autonomous regions in China, some provinces (like Xinjiang or Tibet), some counties or other designated areas (like Kuandian Autonomous Manchu County in Dandong in Liaoning province). These areas are thought to be their own nations that have some theoretical autonomy from the central government. A primary source is the People’s Republic of China Regional Ethnic Autonomy Law. These autonomous governments have the right to make ethnic laws, execute specific ethnic related issues, enjoy relatively higher economic independence, have a separate ethnic related budget in Chinese State Council, enjoy independent cultural control to a certain degree, use the major ethnic minority language as official language, organize local police militia. But law making and execution power need permission from National People’s Congress and State Council respectively.

Much of the dialog within China regarding minorities has generally portrayed minorities as being further behind the Han in progress toward modernization and modernity. Minority groups are often portrayed as rustic, wild, and antiquated. As the government often portrays itself as a benefactor of the minorities, those less willing to assimilate (despite the offers of assistance) are portrayed as masculine, violent, and unreasonable. Minority attendees at national government or CCP meetings are required to dress in local traditional costumes, highlighting their difference from the Han. In Xinjiang, Uighurs are put in thought-reform … no, work-study … no, concentration … camps. We did have Indian schools and obviously some tribal reservations with abysmal living conditions. Life on the reservation for Oglala Lakota Sioux in South Dakota is a shameful example.

Drugs and treatment

There are illegal drug problems in China too. The early drug program The People’s War on Drugs was launched in 1990 with police raids, school assemblies, and television commercials, This was about as successful as the American programs – that is to say, not.

Drug control laws from 2008 and 2009 have been somewhat more effective, and the ability of the state to apprehend and detain offenders is much greater in China than in the US. A similarity between the two countries seems to lie in relapse of offenders.

Environmental change

Seems like the post-pandemic years have allowed us to focus on real climate change in the form of heat and drought and floods. We know about wildfires in the US and Canada, and decades of drought in the west, and dangerously low levels of the Colorado River and its man-made lakes. And then the rains came and wiped out crops and towns. Future political conflict over water access and control is inevitable.

So too in China now. The Yellow and Yangtze were at dangerously low levels last year, and the Three Gorges Dam lost about 30% of its power generating capacity in September of 2022 because of low water levels, forcing some factory shutdowns. This year, floods in Henan have wiped out most of the wheat harvest for a province that provide about 25% of all China’s wheat. Extreme heat in Shanghai and Beijing, as in Phoenix and Texas, and then very heavy flooding in Beijing. The Himalayan glaciers could lose up to 75% of their volume by the end of the century. The implications for all of the Asian continent, not just China, are severe. Of course the Yellow and Yangtze rivers are at risk. The glaciers also serve the Indus, Ganges, Brahmaputra, Mekong and Irrawaddy rivers in India and Vietnam and China now controls the flow on the Mekong via dams. The Mekong runs through Laos, Myanmar, Thailand, Cambodia and Vietnam. Political instability seems possible.

The Indus, Ganges, and Brahmaputra are at the bottom of the map below, all fed initially from the Himalayas in Tibet.

Source: https://e360.yale.edu/features/himalayas-glaciers-climate-change

International relations

Lucian Pye told us that China historically has not wanted to deal government to government in international relations – certainly not business to business. The preference was individual leader to individual leader.

Now in recent years CCP has found it useful to engage with international organizations, and seek to run them or dominate them if possible. China now seeks to chair UN commissions and related organizations long dominated or influenced by the US. Competition between the US and China is not simply trade related. Competition is in setting the rules for international trade and of course in issues of sovereignty and human rights.

A human rights example is in the Forum on Global Human Rights Governance in Beijing. From Sinocism – China hosted a forum for the 30th anniversary of the Vienna Declaration and Programme of Action. Xi wrote a letter to the forum, read aloud by propaganda head Li Shulei. A CCTV commentary on the forum gets right to the point: “global human rights governance is facing severe challenges. Some Western countries, under the banners of so-called “universal human rights” and “human rights above sovereignty”, are forcefully promoting Western democratic human rights concepts and systems around the world. They interfere in other countries’ domestic affairs under the guise of human rights, orchestrate “color revolutions”, which leads to frequent internal conflicts, long-term social unrest, and displacement of people in some countries, causing serious harm to human rights. Faced with various challenges such as increased discrimination, threats, inequality, political polarization, and division, the international community urgently needs to strengthen communication and cooperation, innovate common concepts of human rights governance, and continuously inject positive energy into the development of the world’s human rights cause”.

In both the US and China, engagement with international organizations is derided or viewed with alarm by some nationalists, in both cases as deflecting attention from more pressing domestic issues.

Another good international relations example is in the decade-long standoff between CCP and the PCAOB, the entity established by Congress to ensure that accounting firms accurately represent the standing of major corporations in periodic reporting. PCAOB is required to inspect the audit papers of all companies listed on US stock exchanges. Many of the listed Chinese companies refuse to submit audit papers, saying that the papers would disclose “state secrets.” Opaque state ownership can make Chinese companies difficult for Western institutions to regulate.

On global rules and regulations Angela Huyue Zhang points out that the Chinese government’s anti-monopoly machinery presents a major challenge to U.S. and European regulators (Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation (Oxford University Press, May 2021)).

Chinese rules may look similar to those already established in the west, but enforcement can be highly arbitrary. This is not a new problem. The Chinese government sometimes uses its muscular domestic antitrust regime to support its larger international interests and exert pressure on foreign firms and governments — a type of extraterritorial influence that the U.S. has long wielded, though often in different ways.

Spotty, non-existent, and … aahhh … creative enforcement of law is a CCP hallmark.

The US has also long used its international influence to shape global regulations. But the US has not used its regulatory clout to press US geopolitical interests, such as trade threats and cancellation of relations.

The shameful history

There are plenty of shameful and glorious events in China’s five thousand year history. But considering only the era of CCP there is plenty about which to be embarrassed – murders of a million landlords circa 1950-51, collectivization, the Great Famine (about 40,000,000 dead – the greatest case of mass murder in history), the Cultural Revolution, Tian’anmen, Xinjiang and thousands of other political disappearances and murders.

The US can provide its own list – slavery and Jim Crow and lynchings and “sundown towns” and the Chinese Exclusion Act and Japanese internment camps and bombing its way through substantial parts of Asia and disrupting politics all over the world and current xenophobia and interference in the politics of foreign countries in Africa and the Middle East and the Americas. To the extent one can find a saving grace in this, these topics are discussed in the US. The Chinese topics are censored.

There has been an apartheid in Chinese history, particularly in the Qing. The hukou still separates citizens (those with an urban hukou) and peasants (those with a farmer hukou). One’s chances to succeed in life are still a function of one’s hukou. The benefits of the Chinese development miracle have brought hundreds of millions out of poverty. But education, health care, pensions and opportunities are very different between urban and rural areas.

Trust and benevolence

We get conflicting stories about the level of social trust in China. Surveys – mostly conducted in business schools – suggest that Chinese trust each other and the government at greater levels than Americans do. But we see cheating and inconsiderate behavior on a daily basis. Chinese quite clearly trust Chinese products much less than the same product coming from outside – Japan, the US, or Europe. I’ve seen Chinese quite literate in English use smell to seek some indicator of quality in milk or juice, something I would never think to do in the US. I trust the expiration dates and the local store’s concern for its reputation. In Hangzhou we were not alone in purchasing milk from South Korea, at about $27 per gallon, rather than domestic milk. So how to parse this dilemma?

One answer has to do with the fear of saying anything negative to a stranger. Especially now, you never know when CCP is listening. Another is the perception of the “circle of trust” in China and the US. Chinese will trust family and colleagues more than we might in the US. People outside of that circle are not even considered. There is a fundamental libertarian view in China – your family is the first and second line of assistance in all matters.

When I asked Chinese college undergrads about government providing assistance to people poor or disabled or harmed in an accident, they generally demurred. “Why should we pay for that? Their families should provide.”

A fear in the US is emerging isolation and extreme individualism, everyone out for himself and no one thinking of community. That seems to be the Chinese attitude on the street as well.

Civility

We talk about decline of community in the US – that behavior is coarse, empathy limited, professions financialized, community spirit lagging, even more of a “look out for number 1” attitude. There is plenty written on this.

There is plenty written about the same set of worries in China. For more than a decade there have been news stories about Chinese in need of assistance – a fall from a bus, an obvious illness on the street, an accident – and Chinese walk by, paying no attention. My undergrads in Hangzhou saw no need for government to provide long-term assistance for someone physically or mentally disabled by being hit by a bus – “Their families should provide.” I’ve written elsewhere about the libertarian paradise that is China.

Chinese often see each other now as cold and heartless. There can be no sense of civil society. Prior to civil society are social capital and civility, and both appear lacking on the street in China. Lucian Pye made the case in 1999 with his article Civility, Social Capital, and Civil Society: Three Powerful Concepts for Explaining Asia.

A couple of citations. I quote John Osburg extensively here to make the case. His point is that cynicism as response to an uncaring economic and political system accompanies lack of civility on the ground in China now.

John Osburg, Morality and Cynicism in a “Grey” World (Chapter 3 in Irony, Cynicism and the Chinese State). Osburg, p 49 –

A recent survey found that fewer than one in five people in China believe that the majority of Chinese people are trustworthy and less than three in ten believe that strangers can be trusted ….

This begs the question: What, if anything, has filled this post-Mao ideological vacuum? Yan Yunxiang has argued that the Maoist state destroyed the kin-based moral fabric of rural Chinese society through its attacks on familial authority and collectivization campaigns (2003: 229–232). The state then retreated in the early 1980s, dismantling the belief system it had been promoting for decades, resulting in a moral and ideological vacuum which was, according to Yan, quickly filled by the “values of late capitalism” and “global consumerism” …. This transformation provided fertile ground for the growth of what Yan dubs “the uncivil individual,” who “feels fewer obligations and duties toward the community and other individuals and thus has lost much of his or her civility” …. Thus, for many, cynical market individualism is the “truth” that Maoism and other belief systems deny. In dealing with others, many claim that the only value that can be appealed to is self-interest or profit (liyi).

Nancy Ries argues that cynical discourse serves as a useful metaphor for navigating the post-socialist landscape: Through talk about cynicism (and through cynical talk), people actively deconstruct whatever legitimizing discourses or practices are presented on behalf of the reformulated political-economic order, and thus regularly inoculate themselves against any naïve belief in state or market ideology; at the same time, the notion of ubiquitous cynicism explains and justifies their own less than honest actions – actions such as misrepresenting their

income on tax declarations or as criminal as hijacking trucks or perpetuating scams. Finally, but perhaps most importantly, cynicism in its many guises is metaphoric shorthand – a way of encapsulating, depicting, and circulating a view of the present world.

Irony, Cynicism, and the Chinese State (Hans Steinmuller and Susanne Brandtstadter, eds, No. 132 in the Routledge Contemporary China series, book available at https://www.academia.edu/44870458/Irony_Cynicism_and_the_Chinese_State )

Osburg, p 58 – Some scholars have interpreted the political-criminal nexus in China primarily

as an example of the “privatization of the state.” I would suggest, however, that this only capture one dimension of the state-criminal alliance. More fundamentally these alliances are manifestations of the rise of informal networks as the primary modality of power in post-Mao China. The rise of grey social forces is not only enabled by the privatization of the state – the appropriation of state resources by non-state elites – but it also is facilitated by the official

penetration and cooptation of informal modes of power (such as the masculine solidarity of underworld gangs). These two trajectories (both away from the almost complete state monopoly on power in the Maoist years) have not led to an increasing separation between “state” and “society” but rather have generated networks, the nodes of which extend through multiple modes of power and forms of authority. They have also widened the gap between official, state rhetoric and operation of the party-state in practice. These elite networks provide protection and opportunities for the accumulation of wealth and status for both state and non-state elites, and they are also the networks through which the state-driven goals of economic development are achieved.

These studies comport with my own findings in China and those of many other observers with years of on the ground experience. Ci Jiwei has an insightful analysis of moral decay in Chinese society in Moral China in the Age of Reform (Cambridge University Press, 2014).

Haiyan Lee in The Stranger and the Chinese Moral Imagination (Stanford University Press, 2014) – Sociologists have characterized traditional China as a low-trust society to stress the centrality of kinship and territorial ties as structuring principles of social, political, and moral life ….

Sociologist Richard Madsen wrote Habits of the Heart – Individualism and Commitment in American Life (with Robert Bellah and others) an exploration of declining morality amid American individualism. He also wrote Morality and Power in a Chinese Village, China and the American Dream, and China’s Catholics: Tragedy and Hope in an Emerging Civil Society. His latest book The Chinese Pursuit of Happiness: Anxieties, Hopes and Moral Tensions in Everyday Life explores the same themes of loneliness in a modern Chinese culture as he found in Habits of the Heart in the US.

It was surprising to me to find similar ideas about death of community in the US and in China. Of course, not everywhere or all the time, but more often than one would like to see.

Democracy

The “without democracy China must perforce decline” argument has always struck me at akin to the arguments a couple of generations ago regarding whether humans are animals. Mortimer Adler framed the question as whether humans are different in kind or only in degree. Is western liberal capitalist democracy different in kind or only in degree from Chinese “whole process democracy” and “socialism with Chinese characteristics?”

No space to parse this here. But a few observations on democracy, writ large. Every country does democracy differently, and democracy is more than just voting.

China experimented with elections from the 1990s. Leaders in about 700,000 villages were elected, although with CCP vetting of candidates.

The village democracies that emerged in the 1990s and after were a problem for CCP and for lots of rural Chinese. Absent any form of checks and balances, village leaders could easily become corrupt and somewhat independent of upper level leaders (Ben Hillman, The End of Village Democracy in China, Journal of Democracy 34:3, July 2023). That form of democracy has been abandoned. Under Xi village elections have mostly disappeared as CCP exerts more direct control over local affairs.

CCP now claims to follow what it calls “whole-process democracy”. In 2021 CCP laid out the requirements for whole-process democracy in a white paper titled China: Democracy That Works . As laid out in that paper, there are many ways for people to express their voice. These include the people’s congresses, local elections of various sorts, the Chinese People’s Political Consultative Conference, and avenues for expression such as xinfang (visits and letters system), employee congresses, the informal watching of the Grid Community Management Teams and internet postings. The white paper claims that there is no fixed model of democracy and so therefore China can be considered a democratic country. In the old days of the 1980s, leaders in Beijing scrutinized the sarcastic sayings on t-shirts to gauge popular sentiments of young Chinese.

The paper fiercely criticizes American democracy, alluding to its attendant instability. It also criticizes other countries for claiming the sole right to define democracy, and using that status to impose themselves on other countries. Democracy, it claims, is not limited to a concept of “one person, one vote“. Clearly voting is considered an inferior way for the people to use voice in assisting policy formation.

Xi Jinping described four paired aspects of democracy – 1) “process democracy” and “achievement democracy” 2) “procedural democracy” and “substantive democracy”, 3) “direct democracy” and “indirect democracy” and 4) “people’s democracy” and the “will of the state”. This set of relationships results in “real and effective socialist democracy,” per Xi’s comments.

The “whole-process” is intended to distinguish the CCP approach to democracy from the defined procedural qualities of liberal democracy. In the whole-process view, the most important criterion is whether democracy can “solve the people’s real problems.” A system in which “the people are awakened only for voting” is not truly democratic.

Rather than relying on voting, this system uses other means for CCP to gauge people’s responses. From Bloomberg – Former Foreign Minister Qin Gang gave remarks at a conference organized by U.S. thinktanks the Carter Center and The George H.W. Bush Foundation for US-China Relations in which he stated, “Isn’t it obvious that both China’s people-center philosophy and President Lincoln’s ‘of the people, by the people, for the people’ are for the sake of the people? […] Shall we understand China’s socialist whole-process democracy as this: from the people, to the people, with the people, for the people?”

One might say the devil is in the details. We have learned that capitalism is not necessarily a friend of democracy, with its oversight and second guessing and procedural delays. Rawls made the point that equality and fairness are fundamentally incompatible with capitalism. Business in the US might agree with GOP and CCP that stability is more important than democracy. At this point in American history it is harder to see the rough and tumble of American style democracy as a feature of the system and not a deathly bug.

CCP apologist Robert Lawrence Kuhn describes whole process democracy here.

It is wrong to think that CCP does not pay attention to what people want. There is policy consultation and contention within CCP in many different institutes and Party organizations at every level. There is no direct feedback mechanism from internal CCP consultations to the people, though. And it is most certainly not government of the people or by the people. Daniel Bell has a very good comparative analysis in the Annual Review of Political Science –Comparing Political Values in China and the West: What Can be Learned and Why It Matters. He considers meritocracy, hierarchy and harmony as Chinese political values in comparison with those in the west. Hierarchy, meritocracy and harmony contrast pretty strongly with dominant political values in the West. But these values impact the way political power is organized and justified in China.

Curiously, many Chinese see their system as increasingly democratic. Democracy is not defined in terms of the election of leaders, civil rights, or the rule of law, but in terms of good governance.

Briefly – In the US, we seem to have a reflexive attachment to one-person, one vote as the only morally correct way to select leaders. And per Bell, … the idea that there should be meritocratic checks—say, examinations or requirements of political experience at lower levels of government—on the selection of political leaders who are supposed to exercise political judgment in a wide range of domains has come to be viewed as beyond the moral pale in Western societies.

You remember William F. Buckley’s quote – I’d rather entrust the government of the United States to the first 400 people listed in the Boston telephone directory than to the faculty of Harvard University. But the research and our own extensive experience shows that we are notoriously bad at selecting morally competent and independent thinking leaders.

Political meritocracy is the accepted way of choosing leaders in China. There is no question but that leaders have gone through serious vetting at lower levels before being moved up. CCP says it is willing to experiment with democratic voting, but only after decades of trials to make sure it “gets democracy right.” There is voting for leaders in university departments and purely pro forma voting within government departments for promotions. Xi was voted into his Party leadership positions – although, as is typical, with a somewhat lopsided vote in favor. Students typically vote for class leaders. There is no multi-party contestation over policy or programs.

We talk about democracy as a set of procedures and also as a way of thinking about human relations – a way of formally choosing leaders or direction and a way of informally ensuring voice. They are not necessarily connected. CCP does use the procedures at times, but only as a formality. There is voice, up to a point, but the people don’t get to make the final decisions.

A lot of people would argue that the people don’t get to make final decisions in the US, either. Yes, that is what representatives are for, but many would claim the representatives aren’t doing much real representing. That is the argument in Martin Wolf’s Crisis of Democratic Capitalism. Democracy and capitalism do fundamentally need each other, he argues, and they each work best in the company of the other, but either suffers when one gets too powerful. Currently, he says, our democracy is fundamentally weakened.

As to similarities – this is a big one. We currently have a crisis of democratic capitalism and a crisis of “whole-process democracy with socialism with Chinese characteristics.” Which system will do better at “solving the people’s real problems” is under contention.

Civil religion

Robert Bellah coined the term in 1967. American civil religion is a sociological theory that a nonsectarian quasi-religious faith exists within the United States with sacred symbols drawn from national history. Civil religion is portrayed it as a cohesive force, a common set of values that foster social and cultural integration. According to Bellah, Americans embrace a common civil religion with certain fundamental beliefs, values, holidays, and rituals in parallel to, or independent of, their chosen religion. Examples are the saying the Pledge of Allegiance, the Super Bowl, maybe even Harry Carey singing Take Me Out to the Ballgame. Thanksgiving is a peculiarly American secular holiday – not celebrating government, not celebrating religion.

There is a Chinese version as well. Most Chinese believe in an amalgam of Buddhism, Taoism, Confucianism and other traditional values and ideas that still resonate deeply if imprecisely. Holidays like Qingming (tomb sweeping day) or Dragon Boat Festival (quanwu jie) are celebrated nation-wide. In recent years CCP has tried to resuscitate some quasi-religious ideas as emblematic of ancient Chinese culture, a zhongwen shared by all zhongren. But the Chinese civil religion is not formally religious. It is a working assumption of ancient glories that exists within the culture, now actively promoted by CCP.

In China’s New Civil Religion Ian Johnson describes the ersatz Confucianism that CCP is trying to pawn off on the Chinese people, by way of fostering a unified spirit of belief in ancient cultural practice. Johnson – The plan stems from a widespread feeling that China’s relentless drive to get ahead economically has created a spiritual vacuum, and sometimes justifies breaking rules and trampling civility. Many people do not trust one another. The government’s blueprint for handling this moral crisis calls for endorsing certain traditional beliefs…. it calls the past a “rich source of morality.” The plan orders party officials to promote “ancient and worthy sages,” as well as to “deeply expound” traditional concepts such as “ren’ai” (benevolence), “zhengyi” (righteousness) and “jianyi zhengwei” (standing up bravely for the truth).

The Chinese civil religion is meant as a unifying force now that communism is no longer working, getting rich is not what it used to be, formal religion is out. The new Chinese civil religion works to the benefit of CCP rather than acting as a shared unifying dream of the people.

Confucian scholar Bart Dessein writes in Faith and Politics: New Confucianism as Civil Religion (Asian Studies II (XVIII), 1 (2014), pp. 39–64) – political theology is an instrument used by the ruling authorities to ensure the stability of the state through appealing to the population’s patriotic sentiments for a divine nation.

There is an age-old cultural understanding of China as the central country, not only central but primary and indispensable. Tianxia, everything under heaven, should pay homage to the single great ruler and his great empire. Tianxia is a set of civilizational principles – essentially, what is culturally Chinese is correct. People who are not Chinese may be considered barbarians, but Chinese are always willing to instruct the barbarians in culturally and morally correct Chinese behavior. The Chinese Dream of a rejuvenated Chinese nation is only possible under the divine leadership of CCP. If you believe in it, there isn’t a more compelling civil religion than that. There are songs and temples and mythic stories, more grandiose than chopping down a cherry tree and then not lying about it. CCP has spent money in the last couple of decades rebuilding temples destroyed in the Cultural Revolution, but that is done more for tourist promotion than spiritual promotion.

More on tianxia is available from Reading the China Dream, an analysis of speeches by Xi Jinping that make the case for a Chinese reformulation of the world order.

An American civil religion is based on shared beliefs that arise from below. Perhaps it is best expressed in the motto – E Pluribus Unum. The Chinese civil religion uses the same sort of basic origin ideas, but is promoted a bit like a brand.

For comparison purposes, think of tianxia under CCP as the shining city on a hill and China as the civilization blessed by god to lead the world. It’s a bit of manifest destiny for the world.

Innovation and business

There are many in the US who posit long term decline for China. Its failure to use democracy as a means of generating new ideas in business, science, government and social policy will result in lesser ability to change and innovate.

Even in the current economic troubles in 2023, I find this implausible, even if only based on nothing more than the history of the last forty years. Xi Jinping has certainly made plenty of own goals recently, and his arrogance and narcissism have put China in a hole that has been more than a decade in the digging, starting with the wild overinvestment circa 2008. But the history of CCP since its founding has shown it to be as flexible as it needs to be and resilient when other authoritarian regimes have failed. I wrote a long series about this a few year ago at Some notes on CCP internal resilience. CCP is designed to be adaptable, as hard as that may seem for some to believe.

Certainly, large scale modern economic and technological change result in family decline, family deterioration, lessened civility and social capital and connectedness in relationships. This is true in the US and in China. The US may have a history of adapting well to change, based on its notions of individualism and independence from others; but China has most certainly adapted well, based on its history of extended family and collegial connectedness, faster, wider and far deeper than ever considered in the US.

It is important to realize just how capitalist China is, and just how socialist the US is.

A widely cited study by the Australian National Policy Institute points to the many high tech industries in which China has a lead or a dominating lead in research over the US. These leading indicators are not simply the result of private ventures. CCP has development goals and financing and special relationships for companies it wants to favor. It is industrial policy writ large. The US has industrial policy too, although we don’t like to admit that. But we provide loans and subsidies and grants for individual businesses and for industries, just like China does. Remember the building of the intercontinental railroad? Or the development program promoted by Alexander Hamilton and then Henry Clay, known as the “American system”? Or the internet, created first for DARPA? Or GPS or the dancing robots at Boston Dynamics? Or other inventions coming out of Darpa?

Or federal support for development of semi-conductors in the 1990s? Or the current CHIPS Act?

Or, perhaps closer to home for GOP fans, federal support for milk prices and assistance to producers of corn and soybeans and rice and a hundred other products and programs and funding for rural roads and schools and hospitals?

There seem to be few areas of technological competence in which China has not matched or superceded the US. One small example Chinese robotic assisted surgery system challenges US’s da Vinci. The Chinese system is new to the market, but sells at about half the price of the da Vinci system and is likely to dominate the Chinese market in the near future. China is the world’s largest and fastest growing market for industrial robots. The government expects robotic production to help alleviate problems from a falling working age population. Batteries and electric vehicles are two more obvious industries of international dominance. And as Chinese drugmakers march into Africa they will influence international standards. Their manufacturing presence on the continent will give them sway in setting global standards, as has the US for decades in the past. Dan Wang’s piece in Foreign Affairs China’s Hidden Tech Revolution summarizes the China-US competition quite nicely.

Those looking for some historical comparisons should remember the Chinese people had the world’s leading economy and were the greatest innovators for a thousand years, under disinterested and authoritarian dynasties up to the Ming.

My contention now is that China actually has too many small businesses, small family businesses that are unable to respond as businesses to changes in interest rates or government policy. Whether a storefront commercial business, an online business or a small distributor or retailer, they can only respond as consumer entities, and their choices are mostly only to stay in business or go out. These business owners are employed, but they cannot reasonably invest in their business. No supply-side subsidies will help them.

This superabundance of small businesses distorts discussion of macro policy. This part of the economy – and it is not small – exists almost apart from the macro economy that responds to interest rate and rmb value changes. These are households without mortgages, perhaps without cars, without the burdens of paying for tuition or after school programs. It will be very hard to boost consumption in this part of the economy. It is akin to the gig economy in the US or to consumption patterns by many retired people. In countries without state unemployment benefits, healthcare & pensions, unlike the US, the risk to financial well-being is transferred from government to citizens – it is this risk factor that results in an immediate brake on non-essential consumer spending in the times of uncertainty.

At the macro level, the international policy debate always comes down to economics v morality. On one side, there is practicality, cost minimization, profit maximization, efficiency, advances in technology and innovation. Concisely, an econ 101 story. On the other are concerns about domination, freedom, human dignity, culture and sunk investments. All too often, businesses in China and the US and the west line up with CCP on these issues – profitieren – profit – uber alles, and Chinese profits in particular. On the other lies an amalgam of some religious leaders, some politicians left and right, social scientists of all stripes broadly construed, and the fundamental concerns of people everywhere who have to balance economics and morality in their lives on a daily basis. In times past it was possible to better balance these interests. Sometimes, moral issues won out over greater profits. In our age that is scarcely possible. At the highest levels in business and government, the greatest policy issues are nearly always dominated by money interests.

Democracy does not have a proven track record of working magic to preserve innovation. Japan is a good example of that. Japan was the China of the 1970s and 1980s, poised to buy up all the prime real estate in New York and Los Angeles and have the largest GDP in the world. But democracy – actually, an aging population, low birth rates, and legacy institutional barriers, and emerging competition from South Korea and Taiwan – failed to continue to deliver. Germany was a democracy in the 1930s. Britain is a democracy now – as are France and Italy and most of Europe.

This is the great ace in the hole for China now. Both US and China have enormous looming difficulties that will challenge the current system of governance. But China can direct funds faster and more directly to address both economic and social concerns. The potential waste from directed investment is mostly a “cost of doing business” problem. No question but that the waste is weighing hard on the economy now. The waste problem for the US is in addressing problems too slowly or having to spread money around too much in order to get votes. The waste problem for the US is that problems don’t get fixed at all or patched poorly.

I don’t think democracy in its current interpretation is necessarily a benefit to the US in this regard. What is a long term benefit to the US is freedom, in all its interpretations – to think, write, associate, invent and prosper without the threat of government interference. Immigrants don’t go to China. They come to the US, not to vote but for the hope of freedom and a better life.

Politics

I’ve written plenty – see Xi, CCP, DJT, GOP – about similarities between CCP and GOP. Affinities for censorship, punishment of academics, and a general support for the ideas Adam Serwer described in The Cruelty is the Point – keeping the peasants, inferiors and malcontents in their place. Recently the US and China have experienced similar arrogant dictatorial and narcissistic leadership. Both leaders have done significant damage to their countries domestically and internationally. A lot more has been written, but ‘nuff said here. For reference, Adam Tooze in Chartbook – Whither China, Part 1 – Regime Impasse? and Pete Buttigieg and Philip H. Gordon– Present at the Destruction of US Power and Influence.

Aspirational intent

Rabid nationalism is common to both US and China. Witness the chants at events – USA! USA! USA! and zhongguo! zhongguo! zhongguo! For fun – “I Love You China” sung by Venicia Sandria Rasmussen and Gianluca Schiarpelletti in Chinese with the Italian Philharmonic. Western members of the troupe trying to get the entirely western audience to sing along. Dunno how the Philharmonic found violin players that were not Chinese.

Of course the US and China think differently about the future and the role of government in bringing about the future. We can take the beginning of the US from the Revolution; the beginnings of “New China” from the victory of CCP in 1949. Both countries were created by intentional acts of war, but the intentions were different.

Both countries have a national dream. The American Dream is an individual one – that with hard work and some luck, one’s descendants will live a better life than if they had stayed back in the old country. The Chinese Dream has only evolved since Xi Jinping took power. But that dream is not one of individual achievement but a dream of international superiority. In the Chinese Dream the individual Chinese is not even an afterthought.

But now China also intends to lead the world via its “socialism with Chinese characteristics.” This is more than a toss-off political phrase. Xi uses it frequently. Socialism is a path and a culture, as Daniel Tobin noted in his 2020 Testimony before the U.S.-China Economic and Security Review Commission – How Xi Jinping’s ‘New Era’ Should Have Ended U.S. Debate on Beijing’s Ambitions

Sociologist Robert Bellah reminded us that “The American civil religion is not the worship of the American nation,” Bellah wrote, “but an understanding of the American experience in the light of ultimate and universal reality.”

The Chinese understanding of their cultural superiority is akin to the American civil religion. It is deeply felt, barely articulated, and as old as one can calculate. Per Durkheim, in The Civil Theology of Robert Bellah by Matthew Rose, the truth of a religion is not found where both believers and unbelievers often assume it to be—in its official dogmas—but in the practices that promote group solidarity and commemorate social bonds.

Rose on Bellah’s American civil religion – America’s public theology, he explained, was neither sectarian nor systematic. It was doctrinally vague, culturally pervasive, and legally invisible. It could not be found in the nation’s laws or in its Constitution. It had no official text or clergy, and its interpretation was left up to politicians, poets, and preachers. But it served the essential dual purpose of both legitimizing American institutions and providing grounds for their criticism.

This might as well explain Chineseness and its sense of place in the world.

We use phrases like “inalienable rights” and “life, liberty and the pursuit of happiness” and “… with liberty and justice for all” as markers for both domestic and international policy. In the often revised Chinese Constitution the bywords are Marxism-Leninism and Mao Zedong Thought, Deng Xiaoping Theory, the important thought of Three Represents, Scientific Outlook on Development, and now “Socialism with Chinese Characteristics for a New Era.”

Domestically the US always aimed to dominate “from sea to shining sea.” In China the Qing dynasty and now CCP aim to control territory to the far western, northern, and southern limits of settlement. There is not much good farmland beyond Chinese borders now to the north, west, or south. China does not really want the population in these areas – Tibetans, Uighurs, Mongols, other tribal groups – any more than the US wanted Native Americans – but it wants the resources they live over – minerals, gas, control of snow and glacial melt.

Both US and China take a superior nationalistic attitude to foreign aid and foreign policy generally. The US bases its attitude on its economic success, its elements of freedom and the presumption that the US represents “the shining city on a hill.” China bases its attitude on an anthropocosmic relation of the middle states to the north star, the ruler as the “Son of Heaven, ” and the duty to extend the ruler’s harmonious (cosmological) relations in his state to the neighboring territories, the so-called “tribute states.” The relation between Zhongguo and the bordering regions was interpreted as the relation between an older brother and a younger brother, in which China is the older brother and the non-Chinese territories are the younger brothers. As in a family, the older brother sets the moral example for the younger, and the younger brother follows this example.

This interpretation still pertains. Dessein –

In China, it is well expressed by Liu Qi, then member of the Politburo of the Chinese Communist Party and president of the organizational committee of the Beijing Olympic Games, done at the occasion of the launching of the Olympic Slogan “One People, One Dream” on 21 April 2006.

Liu Qi commented on the Olympic slogan as follows:

It is a slogan that conveys the lofty ideal of people in Beijing as well as in China to share the global community and civilization and to create a bright future hand in hand with people from the rest of the world. It expresses the firm belief of a great nation, with a long history of 5,000 years and on its way towards modernization, that is committed to peaceful development, a harmonious society and people’s happiness.

The faltering American Dream is replaced in America by nationalism and right wing craziness. In China a faltering Marxism-Leninism is replaced by the China Dream, an ersatz CCP Confucianism, and nationalism.

The US uses the Declaration of Independence and Bill of Rights as foundational bases for its international endeavors. “Life, liberty, and the pursuit of happiness” is not just for Americans, but it is the manifest destiny to bring to the world. Freedoms of speech, thought, religion, and association are considered human rights.

Tianxia, all under heaven, is not only for Chinese. The Son of Heaven, Tianzi, now Xi Jinping, will lead the world toward an international harmonious society. its now called the Chinese Dream, reformulated as a notion of “common prosperity.” Curiously enough, no mention of freedoms or rights.

It’s probably worth mentioning that the US came to being at a very opportune time in history. There was no limit to immigration, and few constraints on immigrants once they got here. There were no limits on owning land and few religious restrictions that could not be overcome. The industrial revolution demanded land, access to flowing water, and access to wood and coal – all easy. There were fewer historical or national or tribal constraints on human endeavor. The US grew up in the right place at the right time. It was the New World.

China has had some of the same experience. It opened up when containerization and global markets expanded. It had a huge low-cost workforce when companies wanted to go global and a government that was able to keep the population in line. It had a developmental story to tell that the world was willing to listen to.

For both the US and China, the early heady days of growth had to come to an end, and the systems had to change to accommodate. China is struggling through that now. The US is struggling to accommodate to another stage of development, one that China may or may not ever achieve.

What is the government for?

We might have to dig a little deep to find a similarity between US and China in answer to this question. I suppose at base we can say all government is meant to assist human flourishing, and that is a pretty meaningless observation. It gets more interesting when we ask, flourishing for whom? We have this idea that democracy is the worst form of government there is, except for all the others that have been tried (Churchill). That idea suggests a wide expanse of human flourishing and no specifics as to what democracy should look like.

CCP is a Marxist-Leninist authoritarian regime that in its own history and that of all the others attempted has persecuted and murdered millions while maintaining benefits for itself. The experience of the Great Famine is the most salient. Forty million peasants starved or were murdered while CCP members flourished.

CCP governance is by no means “of the people, by the people, for the people” except in a most abstract sense. Perhaps a good way to characterize CCP is that is an occupying force, seeking above all to preserve and benefit itself, and along the way it found it useful to let people express themselves a little. I wrote about this at Chinese People Under Occupation. To that end, China conducts extensive domestic and foreign affairs policy research. This work is conducted by a wide variety of institutes, university groups, departments and ministries, within government and within CCP. There is wide discussion and disagreement and evaluation. Such work is conducted within the US, of course, but it is not well coordinated and has to run through the phalanx of party and interest group politics in order to get a hearing. So, too, in China. In China there is a mission critical behind all the policy research – CCP survival. There is no greater good.

The Chinese expectation is that government is there to assist or help; in the US … well, I dunno. What is government for, in the US? Does the US government have a stated purpose? Or goal? Do Americans have expectations of the federal government?

In our age, one can question whether the US government is meant to assist all its citizens or only sufficiently placate some while letting the oligarchs, America’s version of CCP, reap enormous benefits. We remember Robert Frank’s What’s the Matter with Kansas? and Bryan Caplan’s

Myth of the Rational Voter and (from 2014) Members of Congress 14 times more wealthy than average American and Gilens and Page’s Testing Theories of American Politics – Elites, Interest Groups and Average Citizens. Voting as we do it doesn’t seem to live up to its promise of benefitting the entire populace.

Our system has been designed to make policy implementation difficult. Separation of powers, branches, independent levels of government, semi-independent role for states, and now party radicalism and oligarchic influence means that paralysis is the standard operating result.

De Tocqueville noted the American penchant for voluntary organization to solve problems. That has been a marvelous American trait, perhaps now disappearing along with civil society. For us, that is dangerous given our political makeup.

In China, there is little concept of voluntary organization for task fulfillment. Might run into government objection. There is no civil society, if by that we mean organizations of people with ideas or proposals counter to government policy. The purpose of politics, task of the government, is to fulfill the historic China destiny of world leadership. If you ask people on the street in Hangzhou, what is the purpose of government, there is a ready answer – “grow GDP.” What result, do you think, if you ask people on the street in Chicago … what is the purpose of the government?

Prolegomenon for all of foreign affairs for the next decade or two

I get accused of writing excessively long posts. Mea culpa. This one is long, but not my writing. I include in full four articles, all coming to me within the last couple of days. Together, they lay out a Chinese plan for the decades, a Sino-Russian plan for the decades, point to the shallowness of American hegemony, and lessons to be learned for America and allies going forward. Yeah, I know, long and a little boring. Altogether, an interesting take on the future most of us will not see. You don’t have to read them all at one sitting. Enjoy.

One –The Secret Speech of China Defense Minister General Chi Haotian from 2002 or 2003.

From Epoch Times, posted in 2005 and posted in 2019 at Jeff Nyquist’s blog at https://jrnyquist.blog/2019/09/11/the-secret-speech-of-general-chi-haotian/. Nyquist is the author of Origins of the Fourth World War, The New Tactics of Global War and The Fool and His Enemy.

This speech lays out a perspective for defeating America to become world hegemon. Old, over the top, but fundamentally still the preferred direction, I think. Edited for length, still a little long.

Pertinent quote – The fact is, our “development” refers to the great revitalization of the Chinese nation, which, of course, is not limited to the land we have now but also includes the whole world.

Two – What’s Really Going on Between Russia and China – Behind the Scenes, They Are Deepening Their Defense Partnership By Alexander Gabuev.

From Foreign Affairs at https://www.foreignaffairs.com/united-states/whats-really-going-between-russia-and-china

Alexander Gabuev is Director of the Carnegie Russia Eurasia Center.

Pertinent quote – The participation of the heads of some of the biggest Russian commodity producers indicates that Xi and Putin also discussed expanding the sale of Russian natural resources to China. Translating, this means Siberia. And Russia has access to the Arctic, which China covets.

Three – The Rise of China (and the Fall of the U.S.?) – Tectonic Eruptions in Eurasia Erode America’s Global Power by Alfred McCoy.

From TomDispatch at https://tomdispatch.com/the-rise-of-china-and-the-fall-of-the-u-s/

McCoy is the Harrington professor of history at the University of Wisconsin-Madison and the author of To Govern the Globe: World Orders and Catastrophic Change. I would challenge some facts and I think he is a little over the top here, but the perspective is interesting. TomDispatch has been publishing since 2001 as a “regular antidote” to the mainstream media.

Pertinent quote – In his 1997 book The Grand Chessboard, Brzezinski offered the first serious American study of geopolitics in more than half a century. In the process, he warned that the depth of U.S. global hegemony, even at this peak of unipolar power, was inherently “shallow.”

For the United States and, he added, every major power of the past 500 years, Eurasia, home to 75% of the world’s population and productivity, was always “the chief geopolitical prize.” To perpetuate its “preponderance on the Eurasian continent” and so preserve its global power, Washington would, he warned, have to counter three threats: “the expulsion of America from its offshore bases” along the Pacific littoral; ejection from its “perch on the western periphery” of the continent provided by NATO; and finally, the formation of “an assertive single entity” in the sprawling center of Eurasia.

Four – What the Bush-Obama China Memos Reveal – Newly declassified documents contain important lessons for U.S. China policy. By Michael J. Green, the CEO of the United States Studies Centre at the University of Sydney, and Paul Haenle, the director of Carnegie China.

From a recent Foreign Policy at https://foreignpolicy.com/2023/04/29/us-china-policy-bush-obama-biden-hand-off-transition-memo/?utm_source=Sailthru&utm_medium=email&utm_campaign=Editors%20Picks%20-%2004292023&utm_term=editors_picks.

Pertinent quote – What are the lessons from Hand-Off going forward? The most important lesson is one the Biden administration already has right: Invest in allies and partners to maintain that “balance of power that favors freedom” …. More responsible U.S. allies like Japan and Australia are signing on to deeper military and intelligence cooperation with the United States. But none of them have any clarity about Washington’s longer-term vision for the relationship with China. Xi’s constant attacks on the United States, democracy, and U.S. allies make it difficult to imagine a happy place in U.S.-China relations. But other than blunting Chinese aggression and coercion, what is this alignment between allies for? What kind of relationship or strategic equilibrium with China is the United States aiming to achieve?

Here goes –

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https://jrnyquist.blog/2019/09/11/the-secret-speech-of-general-chi-haotian/

The Secret Speech of General Chi Haotian September 11, 2019

In 2005, The Epoch Times acquired a secret speech given by Defense Minister Chi Haotian to high-level Communist Party Cadres sometime before his retirement in 2003. Details given in Chi’s speech coincide with previously unpublished defector testimony on Sino-Russian military plans.

The speech follows:

Comrades,

I’m very excited today, because the large-scale online survey sina.com that was done for us showed that our next generation is quite promising and our party’s cause will be carried on. In answering the question, “Will you shoot at women, children and prisoners of war,” more than 80 percent of the respondents answered in the affirmative, exceeding by far our expectations.

My speech today is a sequel to my speech last time, during which I started with a discussion of the issue of the three islands, [where I] mentioned that 20 years of the idyllic theme of “peace and development” had come to an end, and concluded that modernization under the saber is the only option for China’s next phase.

The central issue of this survey appears to be whether one should shoot at women, children and prisoners of war, but its real significance goes far beyond that. Ostensibly, our intention is mainly to figure out what the Chinese people’s attitude toward war is: If these future soldiers do not hesitate to kill even non-combatants, they’ll naturally be doubly ready and ruthless in killing combatants. Therefore, the responses to the survey questions may reflect the general attitude people have towards war.

Actually, however, this is not our genuine intention. The purpose of the CCP Central Committee in conducting this survey is to probe people’s minds. We wanted to know: If China’s global development will necessitate massive deaths in enemy countries, will our people endorse that scenario? Will they be for or against it?

The fact is, our “development” refers to the great revitalization of the Chinese nation, which, of course, is not limited to the land we have now but also includes the whole world.

In discussing this issue, let us start from the beginning.

As everybody knows, according to the views propagated by Western scholars, humanity as a whole originated from one single mother in Africa. Therefore, no race can claim racial superiority. However, according to the research conducted by most Chinese scholars, the Chinese are different from other races on earth. We did not originate in Africa. Instead, we originated independently in the land of China. But now, many experts engaged in research in varied fields including archeology, ethnic cultures, and regional cultures have reached consensus that the new discoveries such as the Hongshan Culture in the northeast, the Liangahn Cutlure in Zhejiang province, the Jinsha Ruins in Sichuan province, and the Yongzhou Shun Emperor Cultural Site in Hunan province are all compelling evidence of the exitence of China’s early civilizations, and they prove that China’s rice-growing agricultural history alone can be traced back as far as 8,000 to 10,000 years. This refutes the concept of “five thousand years of Chinese civilization.”

Therefore, we can assert that we are the product of cultural roots of more than a million years, and a single Chinese entity of two thousand years. This is the Chinese entity of two thousand years. This is the Chinese nation that calls itself, “descendants of Yan and Huang,” the Chinese nation that we are so proud of. Hitler’s Germany had once bragged that the German race was the most superior race on earth, but the fact is, our nation is far superior to the Germans.

We all know that on account of our national superiority, during the thriving and prosperous Tang Dynasty our civilization was at the peak of the world. We were the center of the world civilization, and no other civilization in the world was comparable to ours. Later on, because of our complacency, narrow-mindedness, and the self-enclosure of our own country, we were surpassed by Western civilization, and the center of the world shifted to the West.

In reviewing history, one may ask: Will the center of the world civilization shift back to China?

Comrade He Xin put it in his report to the Central Committee in 1988: If the fact is that the center of leadership of the world was located in Europe as of the 18th Century, and later shifted to the United States in the mid-20th century the center of leadership of the world will shift to the East of our planet. And, “the East” of course mainly refers to China.

Actually, Comrade Lui Huaquing made similar points in the 1980s. Based on an historical analysis, he pointed out that the center of world civilization is shifting. It shifted from the East to Western Europe and later to the United States; now it is shifting back to the East. Therefore, if we refer to the 19th century as the British century, and the 20th century as the American century, then the 21st century will be the Chinese century.

We must greet the arrival of the Chinese Century by raising high the banner of national revitalization. How should we fight for the realization of the Chinese Century? We must borrow the precious experiences in human history by taking advantage of the outstanding fruition of human civilization and drawing lessons from what happened to other ethnic groups.

Today I’d like to talk about the lessons of Germany and Japan.

As we all know, Nazi Germany also placed much emphasis on the education of the people, especially the younger generation. The Nazi Party and government organized and established various propaganda and educational institutions such as the “Guiding Bureau of National Propaganda,” “Department of National Education and Propaganda,” “Supervising Bureau of Worldview Study and Education,” and “Information Office,” all aimed at instilling into the people’s minds, from elementary schools to colleges, the idea that German people are superior, and convincing people that the historical mission of the Aryan people is to become the “lords of the earth” whose right it is to “rule over the world.” Back then the German people were much more united than we are today.

Nonetheless, Germany was defeated in utter shame, along with its ally, Japan. Why?

Specifically, the following are the fundamental causes for their defeat: First, they had too many enemies all at once, as they did not adhere to the principle of eliminating enemies one at a time; second, they were too impetuous, lacking the patience and perseverance required for great accomplishments; third, when the time came for them to be ruthless, they turned out to be too soft, therefore leaving troubles that resurfaced later on.

So, the fundamental reason for the defeats of Germany and Japan is that history did not arrange them to be the “lords of the earth,” for they are, after all, not the most superior race.

Ostensibly, in comparison, today’s China is alarmingly similar to Germany back then. Both of them regard themselves as the most superior races; both of them have a history of being exploited by foreign powers and are therefore vindictive; both of them have the tradition of worshipping their own authorities; both of them feel that they have seriously insufficient living space; both of them raise high the two banners of nationalism and socialism and label themselves as “national socialism”; both of them worship “one state, one party, one leader, and one doctrine.”

Our theory of the shifting center of civilization is of course more profound than Hitler’s theory of “the lords of the earth.” Our civilization is profound and broad, which has determined that we are so much wiser than they were.

Our Chinese people are wiser than the Germans because, fundamentally, our race is superior to theirs. As a result, we have a longer history, more people, and larger land area. On this basis our ancestors left us with the two most essential heritages, which are atheism and great unity. It was Confucius, the founder of our Chinese culture, who gave us these heritages.

This heritage determined that we have a stronger ability to survive than the West. That is why the Chinese race has been able to prosper for so long. We are destined “not to be buried by either heaven or earth” no matter how severe the natural, man-made, and national disasters. This is our advantage.

What makes us different from Germany is that we are complete atheists, while Germany was primarily a Catholic and Protestant country. Hitler was only half atheist. Although Hitler also believed that ordinary citizens had low intelligence, and that leaders should therefore make decisions, and although German people worshipped Hitler back then, Germany did not have the tradition of worshipping sages on a broad basis. Our Chinese society has always worshipped sages, and that is because we don’t worship any God. Once you worship a god, you can’t worship a person at the same time, unless you recognize the person as the god’s representative like they do in Middle Eastern countries. On the other hand, once you recognize a person as a sage, of course you will want him to be your leader…. This is the foundation of our democratic centralism.

The bottom line is, only China is a reliable force in resisting the Western parliament-based democratic system. Hitler’s dictatorship in Germany was perhaps but a momentary mistake in history.

Maybe you have now come to understand why we recently decided to further promulgate atheism. If we let theology from the West into China and empty us from the inside, if we let all Chinese people listen to God and follow God, who will obediently listen to us and follow us? If the common people don’t believe Comrade Hu Jintao is a qualified leader, question his authority, and want to monitor him, if the religious followers in our society question why we are leaving God in churches, can our Party continue to rule China?

The three lessons are: Firmly grasp the country’s living space; firmly grasp the Party’s control over the nation; and firmly grasp the general direction toward becoming the “lord of the earth.”

Next, I’d like to address these three issues.

The first issue is living space.

Anybody who has been to Western countries knows that their living space is much better than ours. They have forests alongside the highways, while we hardly have any trees by our streets. Their sky is often blue with white clouds, while our sky is covered by a layer of dark haze. Their tap water is clean enough for drinking, while even our ground water is so polluted that it can’t be drunk without filtering. They have few people in the streets, and two or three people can occupy a small residential building; in contrast, our streets are always crawling with people, and several people have to share one room.

Many years ago, there was a book titled Yellow Catastrophes. It said that, due to our following the American style of consumption, our limited resources would not long support the population and society would collapse, once our population reaches 1.3 billion. Now our population has already exceeded this limit, and we are now relying on imports to sustain our nation. It’s not that we haven’t paid attention to this issue. The Ministry of Land Resources is specialized in this issue.

But the term ‘living space’ (lebensraum) is too closely related to Nazi Germany. The reason we don’t want to discuss this too openly is to avoid the West’s association of us with Nazi Germany, which could in turn reinforce the view that China is a threat. Therefore, in our emphasis on He Xin’s new theory, “Human rights are just living rights,” we only talk about “living,” but not “space,” so as to avoid using the term “living space.” From the perspective of history, the reason that China is faced with the issue of living space is because Western countries established colonies ahead of Eastern countries. Western countries established colonies all around the world, therefore giving themselves an advantage on the issue of living space. To solve this problem, we must lead the Chinese people outside of China, so that they could develop outside of China.

The second issue is our focus on the leadership capacity of the ruling party. We’ve done better on this than their party. Although the Nazis spread their power to every aspect of the German national government, they did not stress their absolute leadership position like we have.

We have to focus on two points to fortify our leadership position and improve our leadership capacity.

The first is to promote the “Three Represents” theory, stressing that our Party is the pioneer of the Chinese race, in addition to being the pioneer of the proletariat. Many citizens say in private, “We never voted for you, the Communist Party, to represent us. How can you claim to be our representatives?”

There’s no need to worry about this issue. Comrade Mao Zedong said that if we could lead the Chinese people outside of China, resolving the lack of living space in China, the Chinese people will support us. At that time, we don’t’ have to worry about the labels of “totalitarianism” or “dictatorship.” Whether we can forever represent the Chinese people depends on whether we can succeed in leading the Chinese people out of China.

The second point, whether we can lead the Chinese people out of China, is the most important determinant of the CCP’s leadership position.

Why do I say this?

Everyone knows that without the leadership of our Party, China would not exist today. Therefore, our highest principle is to forever protect our Party’s leadership position.

The June 4 riot almost succeeded in bringing a peaceful transition; if it were not for the fact that a large number of veteran comrades were still alive and at a crucial moment they removed Zhao Ziyang and his followers, then we all would have been put in prison. After death we would have been too ashamed to report to Marx.

After the June 4 riot was suppressed, we have been thinking about how to prevent China from peaceful evolution and how to maintain the Communist Party’s leadership. We thought it over and over but did not come up with any good ideas. If we do not have good ideas, China will inevitably change peacefully, and we will all become criminals in history. After some deep pondering, we finally come to this conclusion: Only by turning our developed national strength into the force of a first striking outward – only by leading people to go out – can we win forever the Chinese people’s support and love for the Communist Party. Our party will then stand on invincible ground, and the Chinese people will have to depend on the Communist Party. They will forever follow the Communist Party with their hearts and minds, as was written in a couplet frequently seen in the countryside some years ago: “Listen to Chairman Mao, follow the Communist Party!” Therefore, the June 4 riot made us realize that we must combine economic development with preparation for war and leading the people to go out! Therefore, since then, our national defence policy has taken a 180 degree turn and we have since emphasized more and more “combining peace and war.” Our economic development is all about preparing for the needs of war! Publicly we still emphasize economic development as our center, but in reality, economic development has war as its center! In my view, there is another kind of bondage, and that is, the fate of our Party is tied up with that of the whole world. If we, the CCP, are finished, China will be finished, and the world will be finished.

Our Party’s historical mission is to lead the Chinese people to go out.

What is the third issue we should clinch firmly in order to accomplish our historical mission of national renaissance? It is to hold firmly onto the big “issue of America.”

Comrade He Xin put forward a very fundamental judgment that is very reasonable. He asserted in his report to the Party Central Committee: The renaissance of China is in fundamental conflict with the Western strategic interest, and therefore will inevitably be obstructed by the western countries doing everything they can. So, Only by breaking the blockade formed by the western countries headed by the United States can China grow and move toward the world!

Would the United States allow us to go out to gain new living space? First, if the United States is firm in blocking us, it is hard for us to do anything significant to Taiwan, Vietnam, India, or even Japan, [so] how much more living space can we get? Very trivial! Only countries like the United States, Canada and Australia have the vast land to serve our need for mass colonization.

Therefore, solving the “issue of America” is the key to solving all other issues. First, this makes it possible for us to have many people migrate there and even establish another China under the same leadership of the CCP. America was originally discovered by the ancestors of the yellow race, but Columbus gave credit to the white race. We the descendants of the Chinese nation are entitled to the possession of the land! It is said that the residents of the yellow race have a very low social status in the United States. We need to liberate them. Second, after solving the “issue of America,” the western countries of Europe would bow to us, not to mention Taiwan, Japan and other small countries. Therefore, solving the “issue of America” is the mission assigned to the CCP members by history.

In the long run, the relationship of China and the United States is one of a life-and-death struggle.

Of course, right now it is not the time to openly break up with them yet. Our reform and opening to the outside world still rely on their capital and technology, we still need America. Therefore, we must do everything we can to promote our relationship with America, learn from America in all aspects and use America as an example to reconstruct our country.

We also must never forget what Comrade Xiaoping emphasized: “Refrain from revealing ambitions and put others off the track.” Thus we will understand why we constantly talk loudly about the “Taiwan issue” but not the “American issue.” We all know the principle of “doing one thing under the cover of another.” If ordinary people can only see the small island of Taiwan in their eyes, then you as the elite of our country should be able to see the whole picture of our cause. Over these years, according to Comrade Xiaoping’s arrangement, a large piece of our territory in the North has been given up to Russia; do you really think our Party Committee is a fool?

Only by using special means to “clean up” America will we be able to lead the Chinese people there. This is the only choice left for us. This is not a matter of whether we are willing to do it or not. What kind of special means is there available for us to “clean up America”?

Conventional weapons such as fighters, canons, missiles and battleships won’t do; neither will highly destructive weapons such as nuclear weapons. We are not as foolish as to want to perish together with America by using nuclear weapons, despite the fact that we have been exclaiming that we will have the Taiwan issue resolved at whatever cost. Only by using non-destructive weapons that can kill many people will we be able to reserve America for ourselves. There has been rapid development of modern biological technology, and new bio-weapons have been invented one after another. Of course, we have not been idle, in the past years we have seized the opportunity to master weapons of this kind. We are capable of achieving our purpose of “cleaning up” America all of a sudden. When Comrade Xiaoping was still with us, the Party Central Committee had the perspicacity to make the right decision not to develop aircraft carrier groups and focus instead on developing lethal weapons that can eliminate mass populations of the enemy country.

From a humanitarian perspective, we should issue a warning to the American people and persuade them to leave America and leave the land they have lived in to the Chinese people. Or at least they should leave half of the United States to be China’s colony, because America was first discovered by the Chinese. But would this work? If this strategy does not work, then there is only one choice left to us. That is, use decisive means to “clean up” America and reserve America for our use in a moment. Our historical experience has proven that as long as we make it happen, nobody in the world can do anything about us. Furthermore, if the United States as the leader is gone, then other enemies have to surrender to us.

Biological weapons are unprecedented in their ruthlessness, but if the Americans do not die then the Chinese have to die. If the Chinese people are strapped to the present land, a total societal collapse is bound to take place. According to the computation of the author of Yellow Peril, more than half of the Chinese will die, and that figure would be more than 800 million people! Just after the liberation, our yellow land supported nearly 500 million people, while today the official figure of the population is more than 1.3 billion. This yellow land has reached the limit of its capacity. One day, who knows how soon it will come, the great collapse will occur any time and more than half the population will have to go.

In Chinese history, in the replacement of dynasties, the ruthless have always won and the benevolent have always failed. The most typical example involved Xiang Yu the King of Chu, who, after defeating Liu Bang, failed to continue to chase after him and eliminate his forces, and his leniency resulted in Xiang Yu’s death and Liu’s victory …. Therefore, we must emphasize the importance of adopting resolute measures. In the future, the two rivals, China and the United States, will eventually meet each other in a narrow road, and our leniency to the Americans will mean cruelty toward the Chinese people. Here some people may want to ask me: What about the several millions of our compatriots in the United States? They may ask: aren’t we against Chinese killing other Chinese?

These comrades are too pedantic; they are not pragmatic enough. If we had insisted on the principle that the Chinese should not kill other Chinese, would we have liberated China? As for the several million Chinese living in the United States, this is of course a big issue. Therefore, in recent years, we have been conducting research on genetic weapons, i.e., those weapons that do not kill yellow people. But producing a result with this kind of research is extremely difficult.

Therefore, we have to give up our expectations about genetic weapons. Of course, from another perspective, the majority of those Chinese living in the United States have become our burden, because they have been corrupted by the bourgeois liberal values for a long time and it would be difficult for them to accept our Party’s leadership. If they survived the war, we would have to launch campaigns in the future to deal with them, to reform them. Do you still remember that when we had just defeated the Koumintang (KMT) and liberated Mainland China, so many people from the bourgeois class and intellectuals welcomed us so very warmly, but later we had to launch campaigns such as the “suppression of the reactionaries” and “Anti-Rightist Movement” to clean them up and reform them? Some of them were in hiding for a long time and were not exposed until the Cultural Revolution. History has proved that any social turmoil is likely to involve many deaths.

Maybe we can put it this way: death is the engine that moves history forward.

It is indeed brutal to kill one or two hundred million Americans. But that is the only path that will secure a Chinese century in which the CCP leads the world. We, as revolutionary humanitarians, do not want deaths. But if history confronts us with a choice between deaths of Chinese and those of Americans, we’d have to pick the latter, as, for us, it is more important to safeguard the lives of the Chinese people and the life of our Party. That is because, after all, we are Chinese and members of the CCP. Since the day we joined the CCP, the Party, life has always been above all else! History will prove that we made the right choice.

Why didn’t we conduct the survey through administrative means instead of through the web? We did what we did for a good reason.

First of all, we did it to reduce artificial inference and to make sure that we got the true thoughts of the people. In addition, it is more confidential and won’t reveal the true purpose of our survey. But what is most important is the fact that most of the people who are able to respond to the questions online are from social groups that are relatively well-educated and intelligent. They are the hard-core and leading groups that play a decisive role among our people. If they support us, then the people as a whole will follow us. If they oppose us, they will play the dangerous role of inciting people and creating social disturbance.

Of course, a few people under western influence have objected to shooting at prisoners of war and women and children. Is everybody crazy? Some others said, “The Chinese love to label themselves as a peace-loving people, but actually they are the most ruthless people. The comments are resonant of killing and murdering, sending chills to my heart.”

The last problem I want to talk about is of firmly seizing the preparations for military battle.

Currently, we are at the crossroad of moving forward or backward. Some comrades saw problems flooding everywhere in our country – the corruption problem, the state-owned enterprise problem, the bank’s bad accounts problem, environmental problems, society security problems, education problems, the AIDS problem, various appeals problems, even the riots problem. These comrades vacillated in the determination to prepare for military battles. They thought: they should first grab the political reform problem, that is, our own political reform comes first. After resolving the domestic problems, we can then deal with the foreign military battle problem.

Now, it seems like we are in the same critical period as the “horses were drinking water” in the Yangtze River days in the revolutionary era, as long as we resolve the United States problem at one blow, our domestic problems will all be readily solved. Therefore, our military battle preparation appears to aim at Taiwan but in fact is aimed at the United States, and the preparation is far beyond the scope of attacking aircraft carriers or satellites.

Marxism pointed out that violence is the midwife for the birth of China’s century. As war approaches, I am full of hope for our next generation.

END

https://www.foreignaffairs.com/united-states/whats-really-going-between-russia-and-china

What’s Really Going on Between Russia and China – Behind the Scenes, They Are Deepening Their Defense Partnership

By Alexander Gabuev

April 12, 2023

“There are changes happening, the likes of which we haven’t seen for 100 years,” Chinese leader Xi Jinping said to Russian President Vladimir Putin last month at the end of a state visit to Russia. “Let’s drive those changes together.” To this, the Russian leader responded, “I agree.”

This seemingly improvised yet carefully choreographed scene captured the outcome of Xi’s trip to Russia and the trajectory on which he and Putin have set Sino-Russian relations. Xi’s visit last month was first and foremost a demonstration of public support for the embattled Russian leader. But the truly significant developments took place during closed-door, in-person discussions, at which Xi and Putin made a number of important decisions about the future of Chinese-Russian defense cooperation and likely came to terms on arms deals that they may or may not make public.

The war in Ukraine and ensuing Western sanctions on Russia are reducing the Kremlin’s options and pushing Russia’s economic and technological dependence on China to unprecedented levels. These changes give China a growing amount of leverage over Russia. At the same time, China’s fraying relationship with the United States makes Moscow an indispensable junior partner to Beijing in pushing back against the United States and its allies. China has no other friend that brings as much to the table. And as Xi prepares China for a period of prolonged confrontation with the most powerful country on the planet, he needs all the help he can get.

Senior figures in the Chinese Communist Party have openly discussed the need for a closer partnership with Russia because of what they perceive as an increasingly hostile U.S. policy aimed at containing China’s rise. Chinese Foreign Minister Qin Gang told Chinese state media after the trip that the partnership with Russia is very important at a time when some forces are advocating “hegemonism, unilateralism, and protectionism” and are driven by a “Cold War mentality”—all CCP code words for U.S. policy toward China. Putting this reason front and center is revealing, and it explains why Xi decided to go to see Putin in person, despite the unfavorable optics of visiting just after the International Criminal Court had issued an arrest warrant for the Russian leader. The message of Xi’s trip was clear: China sees many benefits in its relationship with Russia, it will continue to maintain those ties at the highest level, and it will not be deterred by Western critics.

To deflect growing U.S. and European criticism of China’s support of Russia, Beijing came up with an elaborate diplomatic scheme, presenting a position paper on the Ukrainian crisis on February 24, the one-year anniversary of the Russian invasion of Ukraine. The paper is a laundry list of talking points that Beijing has voiced throughout the war, including respect for the territorial integrity of states and opposition to unilateral sanctions. The proposal’s lack of specific details on crucial issues, such as borders and accountability for war crimes, is a feature, not a bug. Beijing is perfectly aware that neither Kyiv nor Moscow has much interest in talking at the moment, since both want to keep fighting to increase their leverage whenever they do sit down at the negotiating table. The Chinese proposal was little more than window dressing for Xi’s visit. The real action took place behind the scenes, in private negotiations between Putin and Xi.

More Than Meets The Eye

At the conclusion of the trip, the Kremlin published a list of 14 documents signed by both China and Russia, including two statements by Xi and Putin. At first glance, these were largely insignificant memorandums between ministries; no major new agreements were announced. Yet a closer look reveals a very different picture, one that Beijing and Moscow have reason to conceal from the outside world.

In a departure from its usual practice, the Kremlin did not publish the list of officials and senior business leaders present at the talks. Their names can be discerned only by going through footage and photos from the summit and by reading into comments made to the Kremlin press corps by Yuri Ushakov, Putin’s foreign policy aide. A close look reveals that more than half of Putin’s team participating in the first round of formal talks with Xi were officials directly involved in Russia’s weapons and space programs. That list includes former President Dmitry Medvedev, who is now Putin’s deputy in the presidential commission on the military-industrial complex; Sergei Shoigu, the defense minister; Dmitry Shugaev, who heads the federal service for military-technical cooperation; Yury Borisov, who runs the Russian space agency and who until 2020 had spent a decade in charge of the Russian weapons industry as deputy defense minister and deputy prime minister; and Dmitry Chernyshenko, a deputy prime minister who chairs a bilateral Chinese-Russian intergovernmental commission and is in charge of science and technology in the Russian cabinet. This group of officials was likely assembled to pursue one main goal: deepening defense cooperation with China.

Although China wields great influence in the Kremlin, it does not exert control.

Even though Beijing and Moscow have not made any new deals public, there is every reason to believe that Xi’s and Putin’s teams used the March meeting to come to terms on new defense agreements. After prior Xi-Putin summits, the leaders have privately signed documents related to arms deals and only later informed the world. In September 2014, for example, following Russia’s annexation of Crimea, the Kremlin sold its S-400 surface-to-air missile system to China, making Beijing the first overseas buyer of Russia’s most advanced air-defense equipment. The deal was not revealed until eight months later, however, in a Kommersant interview with Anatoly Isaykin, the CEO of Rosoboronexport, Russia’s main arms manufacturer.

After the U.S. Congress passed the Countering America’s Adversaries Through Sanctions Act in 2017, Moscow and Beijing stopped disclosing their military contracts altogether. This U.S. law led to the sanctioning of the Chinese army’s armaments department and its head, General Li Shangfu (who was appointed China’s defense minister in March). Nevertheless, on rare occasions, Putin boasts about new deals, such as in 2019, when he announced that Moscow was helping develop a Chinese missile early-warning system, and in 2021, when he revealed that Russia and China were jointly developing high-tech weapons.

Arms Linked

China has relied on Russian military hardware since the 1990s, and Moscow was its only source of modern foreign weapons following the arms embargo imposed by the EU and the United States after the 1989 Tiananmen Square massacre. Over time, as China’s own military industry progressed, its reliance on others decreased. Beijing can now produce modern weapons on its own and has a clear lead over Russia in many areas of modern military technology, including drones. But to boost its own research and development and production, Beijing still covets access to Russian technology to use in surface-to-air missiles, engines for fighter jets, and underwater warfare equipment such as submarines and submersible drones.

A decade ago, the Kremlin was reluctant to sell cutting-edge military technology to China. Moscow worried that the Chinese might reverse engineer the technology and figure out how to produce it themselves. Russia also had broader concerns about arming a powerful country that borders the sparsely populated and resource-rich Russian regions of Siberia and the Far East. But the deepening schism between Russia and the West following the 2014 annexation of Crimea changed that calculus. And after launching a full-scale war in Ukraine and prompting the complete breakdown of ties with the West, Moscow has little choice but to sell China its most advanced and precious technologies.

Even before the war, some Russian analysts of China’s defense industry had advocated entering into joint projects, sharing technology, and carving out a place in the Chinese military’s supply chain. Doing so, they argued, offered the best way for the Russian military industry to modernize—and without that progress, the rapid pace of China’s own R & D would soon render Russian technology obsolete. Today, such views have become conventional wisdom in Moscow. Russia has also started opening up its universities and science institutes to Chinese partners and integrating its research facilities with Chinese counterparts. Huawei, for example, has tripled its research staff in Russia in the wake of a Washington-led campaign to limit the Chinese tech giant’s global reach.

Junior Partner

Neither Beijing nor Moscow has any interest in disclosing the details of any of the private discussions held during the Xi-Putin summit. The same goes for details on how Russian companies could gain better access to the Chinese financial system—which was the reason why Elvira Nabiullina, chair of Russia’s central bank, was a significant participant at the bilateral talks. That access has become critical for the Kremlin, since Russia is rapidly becoming more dependent on China as its main export destination and as a major source of technological imports, and as the yuan is becoming Russia’s preferred currency for trade settlement, savings, and investments.

The participation of the heads of some of the biggest Russian commodity producers indicates that Xi and Putin also discussed expanding the sale of Russian natural resources to China. Right now, however, Beijing has no interest in drawing attention to such deals, in order to avoid criticism for providing cash for Putin’s war chest. In any case, Beijing can afford to bide its time, since China’s leverage in these quiet discussions is only growing: Beijing has many potential sellers, including its traditional partners in the Middle East and elsewhere, whereas Russia has few potential buyers.

Eventually, the Kremlin may want at least some of the deals reached in March to become public to demonstrate that it has found a way to compensate for the losses it suffered when Europe stopped importing Russian oil and reduced its imports of Russian gas. But China will decide when and how any new resource deals are signed and announced. Russia has no choice but to patiently wait and defer to the preferences of its more powerful neighbor.

Who’s The Boss?

The Chinese-Russian relationship has become highly asymmetrical, but it is not one-sided. Beijing still needs Moscow, and the Kremlin can provide certain unique assets in this era of strategic competition between China and the United States. Purchases of the most advanced Russian weapons and military technology, freer access to Russian scientific talent, and the rich endowment of Russia’s natural resources—which can be supplied across a secure land border—make Russia an indispensable partner for China. Russia also remains an anti-American great power with a permanent seat on the UN Security council—a convenient friend to have in a world where the United States enjoys closer ties with dozens of countries in Europe and the Indo-Pacific and where China has few, if any, real friends. China’s connections are more overtly transactional than the deeper alliances Washington maintains.

That means that although China wields great influence in the Kremlin, it does not exert control. A somewhat similar relationship exists between China and North Korea. Despite the enormous extent of Pyongyang’s dependence on Beijing and shared animosity toward the United States, China cannot fully control Kim Jong Un’s regime and needs to tread carefully to keep North Korea close. Russia is familiar with this kind of relationship since it maintains a parallel one with Belarus, in which Moscow is the senior partner that can pressure, cajole, and coerce Minsk—but cannot dictate Belarusian policy across the board.

Russia’s size and power may give the Kremlin a false sense of security as it locks itself into an asymmetrical relationship with Beijing. But the durability of this relationship, absent major unforeseeable disruptions, will depend on China’s ability to manage a weakening Russia. In the years to come, Putin’s regime will have to learn the skill that junior partners the world over depend on for survival: how to manage upward.

https://tomdispatch.com/the-rise-of-china-and-the-fall-of-the-u-s/

The Rise of China (and the Fall of the U.S.?) – Tectonic Eruptions in Eurasia Erode America’s Global Power

By Alfred McCoy

From the ashes of a world war that killed 80 million people and reduced great cities to smoking rubble, America rose like a Titan of Greek legend, unharmed and armed with extraordinary military and economic power, to govern the globe. During four years of combat against the Axis leaders in Berlin and Tokyo that raged across the planet, America’s wartime commanders — George Marshall in Washington, Dwight D. Eisenhower in Europe, and Chester Nimitz in the Pacific — knew that their main strategic objective was to gain control over the vast Eurasian landmass. Whether you’re talking about desert warfare in North Africa, the D-Day landing at Normandy, bloody battles on the Burma-India border, or the island-hopping campaign across the Pacific, the Allied strategy in World War II involved constricting the reach of the Axis powers globally and then wresting that very continent from their grasp.

That past, though seemingly distant, is still shaping the world we live in. Those legendary generals and admirals are, of course, long gone, but the geopolitics they practiced at such a cost still has profound implications. For just as Washington encircled Eurasia to win a great war and global hegemony, so Beijing is now involved in a far less militarized reprise of that reach for global power.

And to be blunt, these days, China’s gain is America’s loss. Every step Beijing takes to consolidate its control over Eurasia simultaneously weakens Washington’s presence on that strategic continent and so erodes its once formidable global power.

A Cold War Strategy

After four embattled years imbibing lessons about geopolitics with their morning coffee and bourbon nightcaps, America’s wartime generation of generals and admirals understood, intuitively, how to respond to the future alliance of the two great communist powers in Moscow and Beijing.

In 1948, following his move from the Pentagon to Foggy Bottom, Secretary of State George Marshall launched the $13 billion Marshall Plan to rebuild a war-torn Western Europe, laying the economic foundations for the formation of the NATO alliance just a year later. After a similar move from the wartime Allied headquarters in London to the White House in 1953, President Dwight D. Eisenhower helped complete a chain of military bastions along Eurasia’s Pacific littoral by signing a series of mutual-security pacts — with South Korea in 1953, Taiwan in 1954, and Japan in 1960. For the next 70 years, that island chain would serve as the strategic hinge on Washington’s global power, critical for both the defense of North America and dominance over Eurasia.

After fighting to conquer much of that vast continent during World War II, America’s postwar leaders certainly knew how to defend their gains. For more than 40 years, their unrelenting efforts to dominate Eurasia assured Washington of an upper hand and, in the end, victory over the Soviet Union in the Cold War. To constrain the communist powers inside that continent, the U.S. ringed its 6,000 miles with 800 military bases, thousands of jet fighters, and three massive naval armadas — the 6th Fleet in the Atlantic, the 7th Fleet in the Indian Ocean and the Pacific, and, somewhat later, the 5th Fleet in the Persian Gulf.

Thanks to diplomat George Kennan, that strategy gained the name “containment” and, with it, Washington could, in effect, sit back and wait while the Sino-Soviet bloc imploded through diplomatic blunder and military misadventure. After the Beijing-Moscow split of 1962 and China’s subsequent collapse into the chaos of Mao Zedong’s Cultural Revolution, the Soviet Union tried repeatedly, if unsuccessfully, to break out of its geopolitical isolation — in the Congo, Cuba, Laos, Egypt, Ethiopia, Angola, and Afghanistan. In the last and most disastrous of those interventions, which Soviet leader Mikhail Gorbachev came to term “the bleeding wound,” the Red Army deployed 110,000 soldiers for nine years of brutal Afghan combat, hemorrhaging money and manpower in ways that would contribute to the collapse of the Soviet Union in 1991.

In that heady moment of seeming victory as the sole superpower left on planet Earth, a younger generation of Washington foreign-policy leaders, trained not on battlefields but in think tanks, took little more than a decade to let that unprecedented global power start to slip away. Toward the close of the Cold War era in 1989, Francis Fukuyama, an academic working in the State Department’s policy planning unit, won instant fame among Washington insiders with his seductive phrase “the end of history.” He argued that America’s liberal world order would soon sweep up all of humanity on an endless tide of capitalist democracy. As he put it in a much-cited essay: “The triumph of the West, of the Western idea, is evident… in the total exhaustion of viable systemic alternatives to Western liberalism… seen also in the ineluctable spread of consumerist Western culture.”

The Invisible Power of Geopolitics

Amid such triumphalist rhetoric, Zbigniew Brzezinski, another academic sobered by more worldly experience, reflected on what he had learned about geopolitics during the Cold War as an adviser to two presidents, Jimmy Carter and Ronald Reagan. In his 1997 book The Grand Chessboard, Brzezinski offered the first serious American study of geopolitics in more than half a century. In the process, he warned that the depth of U.S. global hegemony, even at this peak of unipolar power, was inherently “shallow.”

Arguing for Eurasia’s continued post-Cold War centrality, Brzezinski drew heavily on the work of a long-forgotten British academic, Sir Halford Mackinder. In a 1904 essay that sparked the modern study of geopolitics, Mackinder observed that, for the past 500 years, European imperial powers had dominated Eurasia from the sea, but the construction of trans-continental railroads was shifting the locus of control to its vast interior “heartland.” In 1919, in the wake of World War I, he also argued that Eurasia, along with Africa, formed a massive “world island” and offered this bold geopolitical formula: “Who rules the Heartland commands the World Island; Who rules the World Island commands the World.” Clearly, Mackinder was about 100 years premature in his predictions.

But today, by combining Mackinder’s geopolitical theory with Brzezinski’s gloss on global politics, it’s possible to discern, in the confusion of this moment, some potential long-term trends. Imagine Mackinder-style geopolitics as a deep substrate that shapes more ephemeral political events, much the way the slow grinding of the planet’s tectonic plates becomes visible when volcanic eruptions break through the earth’s surface. Now, let’s try to imagine what all this means in terms of international geopolitics today.

China’s Geopolitical Gambit

In the decades since the Cold War’s close, China’s increasing control over Eurasia clearly represents a fundamental change in that continent’s geopolitics. Convinced that Beijing would play the global game by U.S. rules, Washington’s foreign policy establishment made a major strategic miscalculation in 2001 by admitting it to the World Trade Organization (WTO). “Across the ideological spectrum, we in the U.S. foreign policy community,” confessed two former members of the Obama administration, “shared the underlying belief that U.S. power and hegemony could readily mold China to the United States’ liking… All sides of the policy debate erred.” In little more than a decade after it joined the WTO, Beijing’s annual exports to the U.S. grew nearly five-fold and its foreign currency reserves soared from just $200 billion to an unprecedented $4 trillion by 2013.

In 2013, drawing on those vast cash reserves, China’s new president, Xi Jinping, launched a trillion-dollar infrastructure initiative to transform Eurasia into a unified market. As a steel grid of rails and petroleum pipelines began crisscrossing the continent, China ringed the tri-continental world island with a chain of 40 commercial ports — from Sri Lanka in the Indian Ocean, around Africa’s coast, to Europe from Piraeus, Greece, to Hamburg, Germany. In launching what soon became history’s largest development project, 10 times the size of the Marshall Plan, Xi is consolidating Beijing’s geopolitical dominance over Eurasia, while fulfilling Brzezinski’s fear of the rise of “an assertive single entity” in Central Asia.

Unlike the U.S., China hasn’t spent significant effort establishing military bases. While Washington still maintains some 750 of them in 80 nations, Beijing has just one military base in Djibouti on the east African coast, a signals intercept post on Myanmar’s Coco Islands in the Bay of Bengal, a compact installation in eastern Tajikistan, and half a dozen small outposts in the South China Sea.

Moreover, while Beijing was focused on building Eurasian infrastructure, Washington was fighting two disastrous wars in Afghanistan and Iraq in a strategically inept bid to dominate the Middle East and its oil reserves (just as the world was beginning to transition away from petroleum to renewable energy). In contrast, Beijing has concentrated on the slow, stealthy accretion of investments and influence across Eurasia from the South China Sea to the North Sea. By changing the continent’s underlying geopolitics through this commercial integration, it’s winning a level of control not seen in the last thousand years, while unleashing powerful forces for political change.

Tectonic Shifts Shake U.S. Power

After a decade of Beijing’s relentless economic expansion across Eurasia, the tectonic shifts in that continent’s geopolitical substrate have begun to manifest themselves in a series of diplomatic eruptions, each erasing another aspect of U.S. influence. Four of the more recent ones might seem, at first glance, unrelated but are all driven by the relentless force of geopolitical change.

First came the sudden, unexpected collapse of the U.S. position in Afghanistan, forcing Washington to end its 20-year occupation in August 2021 with a humiliating withdrawal. In a slow, stealthy geopolitical squeeze play, Beijing had signed massive development deals with all the surrounding Central Asian nations, leaving American troops isolated there. To provide critical air support for its infantry, U.S. jet fighters were often forced to fly 2,000 miles from their nearest base in the Persian Gulf — an unsustainable long-term situation and unsafe for troops on the ground. As the U.S.-trained Afghan Army collapsed and Taliban guerrillas drove into Kabul atop captured Humvees, the chaotic U.S. retreat in defeat became unavoidable.

Just six months later in February 2022, President Vladimir Putin massed an armada of armored vehicles loaded with 200,000 troops on Ukraine’s border. If Putin is to be believed, his “special military operation” was to be a bid to undermine NATO’s influence and weaken the Western alliance — one of Brzezinski’s conditions for the U.S. eviction from Eurasia.

But first Putin visited Beijing to court President Xi’s support, a seemingly tall order given China’s decades of lucrative trade with the United States, worth a mind-boggling $500 billion in 2021. Yet Putin scored a joint declaration that the two nations’ relations were “superior to political and military alliances of the Cold War era” and a denunciation of “the further expansion of NATO.”

As it happened, Putin did so at a perilous price. Instead of attacking Ukraine in frozen February when his tanks could have maneuvered off-road on their way to the Ukrainian capital Kyiv, he had to wait out Beijing’s Winter Olympics. So, Russian troops invaded instead in muddy March, leaving his armored vehicles stuck in a 40-mile traffic jam on a single highway where the Ukrainians readily destroyed more than 1,000 tanks. Facing diplomatic isolation and European trade embargos as his defeated invasion degenerated into a set of vengeful massacres, Moscow shifted much of its exports to China. That quickly raised bilateral trade by 30% to an all-time high, while reducing Russia to but another piece on Beijing’s geopolitical chessboard.

Then, just last month, Washington found itself diplomatically marginalized by an utterly unexpected resolution of the sectarian divide that had long defined the politics of the Middle East. After signing a $400-billion infrastructure deal with Iran and making Saudi Arabia its top oil supplier, Beijing was well positioned to broker a major diplomatic rapprochement between those bitter regional rivals, Shia Iran and Sunni Saudi Arabia. Within weeks, the foreign ministers of the two nations sealed the deal with a deeply symbolic voyage to Beijing — a bittersweet reminder of the days not long ago when Arab diplomats paid court in Washington.

Finally, the Biden administration was stunned this month when Europe’s preeminent leader, Emmanuel Macron of France, visited Beijing for a series of intimate tête-à-tête chats with China’s President Xi. At the close of that extraordinary journey, which won French companies billions in lucrative contracts, Macron announced “a global strategic partnership with China” and promised he would not “take our cue from the U.S. agenda” over Taiwan. A spokesman for the Élysée Palace quickly released a pro forma clarification that “the United States is our ally, with shared values.” Even so, Macron’s Beijing declaration reflected both his own long-term vision of the European Union as an independent strategic player and that bloc’s ever-closer economic ties to China

The Future of Geopolitical Power

Projecting such political trends a decade into the future, Taiwan’s fate would seem, at best, uncertain. Instead of the “shock and awe” of aerial bombardments, Washington’s default mode of diplomatic discourse in this century, Beijing prefers stealthy, sedulous geopolitical pressure. In building its island bases in the South China Sea, for example, it inched forward incrementally — first dredging, then building structures, next runways, and finally emplacing anti-aircraft missiles — in the process avoiding any confrontation over its functional capture of an entire sea.

Lest we forget, Beijing has built its formidable economic-political-military power in little more than a decade. If its strength continues to increase inside Eurasia’s geopolitical substrate at even a fraction of that head-spinning pace for another decade, it may be able to execute a deft geopolitical squeeze-play on Taiwan like the one that drove the U.S. out of Afghanistan. Whether from a customs embargo, incessant naval patrols, or some other form of pressure, Taiwan might just fall quietly into Beijing’s grasp.

Should such a geopolitical gambit prevail, the U.S. strategic frontier along the Pacific littoral would be broken, possibly pushing its Navy back to a “second island chain” from Japan to Guam — the last of Brzezinski’s criteria for the true waning of U.S. global power. In that event, Washington’s leaders could once again find themselves sitting on the proverbial diplomatic and economic sidelines, wondering how it all happened.

https://foreignpolicy.com/2023/04/29/us-china-policy-bush-obama-biden-hand-off-transition-memo/?utm_source=Sailthru&utm_medium=email&utm_campaign=Editors%20Picks%20-%2004292023&utm_term=editors_picks

What the Bush-Obama China Memos Reveal – Newly declassified documents contain important lessons for U.S. China policy.

April 29, 2023

By Michael J. Green, the CEO of the United States Studies Centre at the University of Sydney, and Paul Haenle, the director of Carnegie China.

As U.S.-China relations transition from an era of engagement to one of strategic competition, some in the Biden and former Trump administrations have claimed to be abandoning four decades of naive American assumptions about Beijing. Past U.S. policy, they say, was based on a futile view that engagement would lead to a democratic and cooperative China. This, however, is not only a misreading of past U.S. policies but also dangerous analytical ground upon which to build a new national security strategy.

The fact is that no administration since that of Richard Nixon has made U.S. security dependent on Chinese democratization. Every administration has combined engagement with strategies to counterbalance China through alliances, trade agreements, and U.S. military power. Throwing out all previous U.S. approaches to China would mean throwing out some of the most important tools the current administration relies on to compete with China. And the Biden administration will not get its China strategy right until it is clear about what has worked in the past.

Perhaps the most valuable peek inside what previous U.S. administrations really thought is the newly declassified set of transition memoranda prepared by the outgoing George W. Bush administration for the incoming Obama administration in late 2008 and early 2009. Recently declassified by former President Bush and edited by former National Security Advisor Stephen Hadley, the collected analysis of the world as seen by the Bush National Security Council is available to the public from the Brookings Institution Press in Hand-Off: The Foreign Policy George W. Bush Passed to Barack Obama. (Note: We both served in the National Security Council during the Bush administration and co-wrote one of the chapters in the book.)

The transition memoranda on China and Asia knock down the assertion that Bush had a naive set of assumptions about China. Even at a time when China was materially weaker than the United States or even Japan, the White House was actively preparing the toolkit that might be needed should China turn in a more aggressive direction. The administration had already seen this possibility with the crisis caused by a Chinese Air Force collision with an EP-3 U.S. surveillance aircraft within the first months of the new Bush team’s arrival. To be sure, there was less urgency to the China challenge than today. In the early 2000s, China still had a smaller economy and navy than Japan, whereas today, the Chinese economy and military power have eclipsed those of Japan and are challenging the United States. Nor were Chinese leaders Jiang Zemin or Hu Jintao anywhere near as aggressive as current leader Xi Jinping.

But the question of how China would use its growing power was still open to shaping, and not just because China had less material power at the time. Chinese leaders Jiang and Hu did not rebuff Bush’s entreaties on human rights, religious freedom, or trade the way Xi and his officials do today. When Washington urged the release of political dissidents at summits in the early 2000s, Beijing often complied. When Bush spoke to Jiang or Hu about religious freedom, they listened and engaged, even if they did not agree. When the United States called for improvements in enforcing intellectual property rights or transparency about the SARS epidemic, there were small but positive changes. And Bush pulled no punches: He told Jiang and Hu that the United States would pursue a comprehensive, constructive, and candid dialogue, accompanied by regular meetings with the Dalai Lama, engagement with Chinese political dissidents, and frequent public references to the priority the United States gave to its democratic allies and its commitments under the Taiwan Relations Act. Chinese leaders would have preferred the more accommodating “strategic partnership” they had pursued with the Clinton administration, but that was no longer on offer.

Instead, the strategic partnerships that mattered to Bush administration were the same ones that form the basis of the Biden administration’s approach to China today. Bush elevated Japan’s standing in U.S. diplomacy to a level it had not enjoyed since the Reagan presidency, with Bush counting Prime Minister Junichiro Koizumi among his closest international confidants and friends. The Quadrilateral Security Dialogue, or Quad, joining Australia, India, Japan, and the United States was launched in response to the 2004 Indian Ocean tsunami. And the Bush administration went through the painstaking bureaucratic work of clearing obstacles—mainly having to do with nuclear nonproliferation—to a new strategic partnership with India. All of these were part of what Bush’s Secretary of State Condoleezza Rice called “a balance of power that favors freedom.” While the engagement side of U.S. policy is in disrepute today, Bush-era investments in alliances and new strategic partnerships like India have paid off for the Biden administration as it faces a more menacing China.

Economic statecraft backed the geopolitics. Progress with Beijing on China’s predatory trade practices was modest, and the Bush administration and its allies knew that real progress would require the full leverage of the most powerful economies in the world. It was against this backdrop that the administration negotiated bilateral trade agreements with Australia, Singapore, and South Korea and began negotiations on what became the Trans-Pacific Partnership and discussions on the Transatlantic Trade and Investment Partnership. These agreements combined would have brought the weight of almost two-thirds of the world economy to the table in demanding reciprocal agreements from China. Significant actors within the Chinese economy were ready to use that pressure to move away from an economic model dominated by state-owned enterprise to create dynamism that would benefit Chinese consumers and the private sector at home and abroad based on rules shaped by the United States and its major allies.

That obviously did not happen. One reason was the global financial crisis in 2008 and 2009, which Beijing wrongly interpreted as proof that the West was declining and the East is rising, as China’s propagandists now put it. Perhaps more significant was the emergence of Xi, whose own penchant for autocratic rule, ideological struggle, and Chinese coercive dominance of the region signaled a shift that was not predicted even by China’s own leading experts, many of whom are now living in fear of his rule. The global financial crisis also broke the political formula in Washington that had allowed successful trade agreements to underpin U.S. grand strategy. President Donald Trump unilaterally withdrew from the TPP in 2017, and his successor, President Joe Biden, has made it clear he will never return.

The transition memos in Hand-Off did not predict any of these developments within China—nobody did—but the memos did lay out a strategic framework for minimizing risk and maximizing the opportunities for peace and stability in what we now call the Indo-Pacific. To say this was naive would be to argue for a strategy of strangling China at a time in its development when engagement still had some traction and when, more importantly, U.S. allies and the American public, both of whom mainly saw China as a partner, would not have supported containment and decoupling.

What are the lessons from Hand-Off going forward?

The most important lesson is one the Biden administration already has right: Invest in allies and partners to maintain that “balance of power that favors freedom.” Biden has elevated the Quad meetings to a regular summit, and he graciously credited Bush for starting the Quad when the leaders first assembled in 2022. The Biden administration has also launched one of the most ambitious security partnerships of the past few decades with the Australia-United Kingdom-United States agreement (AUKUS) to help Australia deploy and build nuclear-powered submarines. The pact also aims to develop advanced technological capabilities by pooling resources and integrating supply chains for defense-related science, industry, and supply chains.

Second, the administration needs to reconstruct some form of the economic statecraft that underpinned U.S. strategies toward China in the past. Far from helping China compete, agreements like TPP were designed to force Beijing to play by the rules or lose hundreds of billions of dollars in trade as tariffs and market barriers among the rule-abiding economies went down. Now, sadly, it is the United States that is outside the TPP and suffering from lost access, while Beijing aggressively lobbies the signatories to let the Chinese economy into the agreement. The Biden administration’s Indo-Pacific Economic Framework is something of a placeholder to show Washington cares, but it lacks market access or binding rules that would influence business behavior and get Beijing’s attention. Multilateral organizations like the World Trade Organization also matter in this context. The Bush administration probably could have done more within the WTO to address China’s cheating on its commitments, but the Trump and Biden administrations have gone too far in allowing the dispute resolution mechanism of the WTO to wither at a time when U.S. allies still see it as an important tool to hold China to account.

Third, the Biden administration has left the world wondering how this all ends with China. French President Emmanuel Macron’s craven comments on Taiwan after his visit to Beijing were short-sighted and very damaging to regional security. More responsible U.S. allies like Japan and Australia are signing on to deeper military and intelligence cooperation with the United States. But none of them have any clarity about Washington’s longer-term vision for the relationship with China. Xi’s constant attacks on the United States, democracy, and U.S. allies make it difficult to imagine a happy place in U.S.-China relations. But other than blunting Chinese aggression and coercion, what is this alignment between allies for? What kind of relationship or strategic equilibrium with China is the United States aiming to achieve? The Bush administration could answer that question to an extent that helped rally allies. Biden would do well to engage with U.S. allies on the proper answer in the current geopolitical environment.

Fourth, resources matter. Some blame the Global War on Terror for convincing the Bush administration it had to get along with China. The authors never heard those arguments in our time in the White House, nor is that alleged tradeoff even hinted at in the declassified memos in Hand-Off. The fundamentals of the Bush administration’s China strategy did not change because of 9/11. What did change was the availability of resources. Even after the Obama administration pledged to pivot to Asia in 2011, resources did not flow into military and diplomatic efforts the way they should have. Continuing struggles in the Middle East, federal budget sequestration, and now Russia’s war on Ukraine have all slowed the long anticipated rebalance of forces to deal with China. Biden and the U.S. Congress need to resource their strategy of competition, and finally make the pivot from the Bush administration’s war on terror real.

No comments from me on this. Obviously there are many other views. But I think all four give us a good sense of realism that moves us away from being the world’s policeman even as we necessarily focus more on moral values and moral freedoms at home. Who are we, and what do we want?

You’d do it if you loved CCP ….

The demographic decline is way old news. Some of us were writing about it ten years ago. But the implications are still fuzzy to me. Spoiler – key to the future is consumer spending. Consumer spending depends on there being (1) enough people with (2) enough disposable income. Therein lies the complex Chinese tale.

Michael Pettis has written for years about the implications of excessive debt in China. Good examples are China’s Overextended Real Estate Sector is a Systemic Problem and How China Trapped Itself. But now the demographic changes will start to affect the micro and macro economy. Pettis is one of the few who can write reasonably about this topic, but to my knowledge he hasn’t addressed it. Daniel Rosen has an excellent beginning in his Foreign Affairs article The Age of Slow Growth in China.

Yi Fuxian, a senior scientist at the University of Wisconsin-Madison has written on some of these topics. An example is https://www.project-syndicate.org/commentary/china-population-decline-will-mean-economic-geopolitical-decline-by-yi-fuxian-2023-02 and https://www.project-syndicate.org/commentary/china-population-aging-lowering-economic-growth-by-yi-fuxian-2023-04 A hat tip to the ChinaCharts guys for the citation.

I’ve long been waiting for some serious analysis of demographic change, requirements for pension and health care spending as people retire, and contributions to the social welfare funds. Smaller population means fewer babies (starting about ten years ago) so in ten years fewer people paying into the welfare funds. People aren’t dying faster, so the age bulge is woefully out of favor for China. The working age population is decreasing about 5 or 6 million per year right now, but I don’t know how many of those are retirees and how many are young people who aren’t there. The demographic impacts on government revenues and spending are of critical importance.

China had something of a baby boom post-famine, let us say from 1962 to 1978, when the one-child policy went into effect. Most of those kids had siblings, but the boomlet lasted less than twenty years. And few of them had more than one child. Now that boomlet cohort is aging, and they get older every year. They are starting to retire now. The US had a demographic dividend from the baby boom generation – those born, let us say, 1945 to 1965. The difference with China is that boomers generally had more than one child of their own, so the boom created at least one minor boomlet from, let us say, 1965 to 1990. The dividend in the US lasted much longer and did not result in a later collapse of births.

Let’s summarize – China’s “pig in the python” demographic model was a great dividend for Chinese GDP, but is now becoming a great burden, a result of the one-child policy. The current “two or three child” policy is a complete bust. Total fertility rates have been below replacement since about 1990, are unlikely to reverse, and foretell with some certainty the demographic conditions six or eight decades ahead. The severe population decline is baked in, regardless of how much stimulus Xi wants to give to the economy or to Chinese men.

So now what? There are a bunch of questions –

My contention is the world is saturated with Chinese goods. There just can’t be great future increases in demand for Chinese-made phones, clothes, cars, tvs or washing machines. Replacements, of course. Development in Africa will arrive too late to help. If anything, Xi has managed to create a wellspring of BALAP – buy as little as possible – from China. Or maybe BANC – buy absolutely nothing from China. Regardless of acronyms, Chinese exports are unlikely to grow much in the next decade.

The infrastructure age is over – has been for more at least fifteen years. Economists see the extraordinary waste in more rail lines, more airports, more expressways, more ports. The real demand has long been met. Current debt problems for local governments are a result of a CCP edifice complex and an attitude of “if you build it they will come.” That worked in baseball. Not so much for people to ride trains. The point is that government no longer gets growth from more construction. It only gets more debt and short-term jobs. It is pushing on a string. Related, demand for steel and concrete will remain steady or fall. OBOR projects helped support Chinese construction exports and jobs, but even that era is mostly over. CCP is learning it will have to reduce interest rates and extend maturities on lots of OBOR loans.

With steady or only slowing increasing exports, there will not be much new demand for farmers to move to cities to work in factories or do construction. Of course these industries will not disappear, and farmers who get tired, hurt or old will be replaced. But new demand for apartments will slow dramatically even with hukou changes.

Real estate and its related purchases – beds and washing machines and air conditioners – currently constitute about 25% of total GDP investment, which itself is still about 40% of total GDP, far too high a percentage for a developed economy. Given falling population demand for new apartments and the severe crackdown on the real estate industry, these percentages must fall, with nothing to replace it.

Related, sale of land for real estate development became a major source of revenue for local governments in the last fifteen years. In some cities – Hangzhou is reported to be one of those – real estate revenues account for more than 50% of total revenues. The problem is severe enough that a major restructuring of central-local finances is in order. But in the meantime, local governments are cutting staff and cutting wages even for long term employees.

Real estate in the form of one or two or five apartments constitutes about 80% of family wealth. Extra apartments are usually not finished inside and are left vacant – they produce no income. What impact on family finances when the +/-65 million empty apartments cannot be sold for a high profit … or maybe sold at any profit at all? (NB – 65 million is about the population of Germany).

Pension systems have long been a source of corruption and mismanagement. Systems are being rationalized, but the demographic pig is going to swamp systems nationally. There will be a lot less money coming in than going out. (Think big American companies that had generous pension schemes dating from the 1950s and then people began living longer and at the same time the companies began streamlining the workforce …) This will require a large central government fix, as already happened years ago in Liaoning Province.

The reason why GDP could grow so fast in China is that metaphorically, it took a farmer picking rice and overnight put him in a factory where he was immediately more productive. Some training was required, but not too much. Training now is much better, but a lot of those unskilled factory jobs are disappearing. Fewer workers means fewer workers per job. That could be ok if rural schools can step up to train replacements for the urban retirees. But I’m not so sure, even with increased attention to rural schools. The generations still on the farm didn’t want to/couldn’t make it in the factory. (See Scott Rozelle’s Invisible China). What impact on wage scales?

Of course, what prospects for American companies selling at retail in China but with fewer people to buy or manufacturing in China as wages continue to go up and international pressures fester.

Nothing said so far here about pollution, water availability and quality and energy generation. These are each enormous problems of their own. Nothing said here about promoting conflicts with neighbors, including Taiwan and Japan and Philippines and Vietnam and India.

Its pretty easy to point with alarm and ruminate over the impossibilities of the future. I used to worry about tea leaf harvesting on steep hillsides. That work is done by hand, tea leaf by tea leaf. You can’t run a big John Deere harvester through the tea bushes on the steep hillsides. As peasant incomes and opportunities increase in China, who is going to pick tea leaves in the enormous quantities needed? Then I discovered the hand-held trimmer, like a gigantic hair trimmer, that trims and blows leaves into a long plastic bag (one model of many https://www.alibaba.com/product-detail/139F-4-Stroke-Tea-Leaf-Harvesting_62043574397.html?spm=a2700.details.0.0.6e9239ddM3K92l , $330 for one). I can’t vouch for functionality, but perhaps I should just trust my engineering background and let the tea leaves fall where they may. Perhaps I should just trust in CCP to lead.

Yet unease remains. Years ago, a few economists – Barry Eichengreen for one – and demographers wrote about China getting stuck in the middle-income trap and getting old before it gets rich. The middle income trap reminds us that economic systems spawn tough organizational political supporters that don’t want to give up power. That now seems more likely, regardless of what Xi promises re: common prosperity and a “moderately prosperous society.

Yi Fuxian produced articles like Leaked Data Show China’s Population is Shrinking Fast from which the ChinaCharts guys derived a future disposable income figure. The concept in the figure below is to show a chart using data similar to that provided by BLS for the US, although China does not provide such data.

From ChinaCharts https://substack.com/profile/51042600-china-charts

Neither the derivation nor the assumptions are provided. One can see where they are going, but I’m not sure how they got there. What they are trying to show is that younger Chinese have far less lifetime purchasing potential than their parents.

Their conclusions –

– The feasibility of consumption-led growth in China is gone. The ship has sailed, and the window has closed for any potential reforms. China’s demographics, even adjusted by lifetime earnings, are stepping off the cliff literally this year (2023). It’s an inflection point.

– To compensate for the demographic cliff, China would have to achieve sustained wage growth of ~9% year-on-year to maintain consumer earning and spending power levels.

– Historical data from Bloomberg shows the most recent print for median wage growth at ~4.7% and falling.

Their Remaining Lifetime Earnings by Age Group figure above seems unnecessarily vague but the conclusion – that significant growth in consumption may not be possible – seems right. That fits with the demographic changes, accompanied by a middle income trap, the necessary decline in GDP growth, the end of infrastructure, the end of great export growth, the need to address debt overhangs, the need for government to spend more on education, health, pensions and welfare, and a world that is less awed by CCP propaganda about hurting the feelings of the Chinese people. If this is such a great civilization, how come everyone is so fragile? And how come they don’t want to make more Chinese to be a part of it?

Notes –

Bureau of Labor Statistics – Consumer expenditures vary by age –

https://www.bls.gov/opub/btn/volume-4/consumer-expenditures-vary-by-age.htm

Barry Eichengreen on the middle income trap and China –

https://www.nber.org/papers/w18673 and

https://eml.berkeley.edu/~webfac/eichengreen/e191_sp12/econ191_conclusion_4-23-12.pdf

Occupying the UN

– What a Community of Common Destiny will look like

Around 2005, our Chinese government students in Chicago were quite interested in our notions of NGOs. They had a tough time with NGOs like community organizations that received most or all of their funding from the local government, and then sometimes took positions directly opposed to local government proposals. In Chinese terms, WTF?

When they learned that community organizations were legal entities with an elected board of directors, they were flummoxed. Who voted? Who allowed them to vote? Who could be a candidate? How could an organization be legitimate without government sponsorship?

Back then, up to about 2015, foreign NGOs were operating in China. There were government-sponsored NGOs as well. Now, only government sponsored NGO remain. If there are foreign NGOs, they are required to have a government sponsor. Since then China has learned to create dozens of government-sponsored NGOs to push its interests while hoping that no one looks too deeply at funding sources or Party affiliation of NGO leaders.

This sort of bamboozle-ment is far more dangerous than any IP theft or business cheating or balloon brouhahas. I have argued elsewhere that one can view Chinese as a people occupied by CCP. Xi wishes to occupy international organizations as well. It is surprising the extent to which China has succeeded in that occupation. The Wall Street Journal has a good analysis from 2020 – How China is Taking Over International Organizations – One Vote at a Time.

Xi Jinping has repeatedly envisioned an international system with the U.N. “at its core.” What the U.N. says matters a lot to the Chinese government.

Now comes CCP in response to questions from the UN Committee on Economic, Social, and Cultural Rights (CESCR). The CCP response – and those of its favorite home-grown NGOs – will obfuscate, lie, and ignore the long list of human right violations, including disappearances, tortures, murders, and threats compiled each year by legitimate non-profits like the Network of Chinese Human Rights Defenders (CHRD). Such organizations are a nasty bump in the road to the world of common future.

From William Nee at The Diplomat – How China Tries to Bamboozle the United Nations –

Next week in Geneva, on February 15-16, the Chinese government will be testing the international community again – specifically the U.N. Committee on Economic, Social and Cultural Rights (CESCR) Beijing will seek to defend its compliance with the International Covenant on Economic, Social and Cultural Rights and its record in protecting these rights since the last review in 2014.

And while there certainly has been some progress in the past nine years, the Chinese party-state will seek to present a happy, alternative reality that denies many indisputable facts.

For the upcoming CESCR review, at least 23 GONGOs or other entities tied to the party-state submitted reports to the Committee as “civil society organizations” – compared with just four such submissions for the 2014 CESCR review. Like fake Luis Vuitton bags at a bootleg market, these fake NGOs flood the market and diminish the value of the real products. Committee members waste valuable time reading their reports, listening to their interventions, and trying to decipher which NGOs are real and which are fake.

Xi probably doesn’t need to worry too much about the UN Committee’s vote. One of the Committee members is Shen Yongxiang, who holds a position as vice president of the China Society for Human Rights Studies (CSHRS), a key government sponsored organization for external propaganda on human rights issues for the party-state.

This is the Chinese position paper from 2022 on questions posed by the UN Committee –

https://docstore.ohchr.org/SelfServices/FilesHandler.ashx?enc=4slQ6QSmlBEDzFEovLCuW%2BALqOml1btoJd4YxREVF2UN4vziaSAUkFDI34ZtyU3KXNNLaFLn0IOUatJ1Bw2ba5VIjvXw9WPUFRvijSEpx6h%2F%2F%2BVkB4mrg%2F%2BK1aOIso4e

Back around 2005 I thought the interest of our Chinese government students in NGOs was principally academic. Maybe. Maybe not. Perhaps they had a much more instrumental interest. I thought we taught them well. But then again – the concept of an NGO is that it is independent of government – a non-governmental organization. I guess we failed at teaching that. Civil society as we know it is not coming to China anytime soon.

N.B. I am reminded that the terms civil, and civil society, can be difficult to render in Chinese.

Richard Madsen tells us

In contemporary Chinese, for example, there are no fewer than four words that are used to translate the civil in civil society. Alternatively, Chinese intellectuals today call civil society shimin shehui, which literally means “city-people’s society”; or gongmin shehui, “citizens’ society”; or minjian shehui, “people-based society”; or wenming shehui, “civilized society.” These are all attempts to name phenomena and to articulate aspirations that have arisen in an urbanizing East Asia linked to a global market economy.

Richard Madsen. Confucian Conceptions of Civil Society. Chapter 1 in Confucian Political Ethics, edited by Daniel A. Bell (2007), p 3. Available at http://assets.press.princeton.edu/chapters/s8573.pdf

Perhaps we should lower our expectations for CCP performance in international organizations. After all, we wish to be civil.

Shuang Yin Win-Win

Another update at July 24, 2019 – Boris Johnson became Prime Minister today. From the South China Morning Post –

Boris Johnson, Britain’s prime minister-designate, said his government would be very “pro-China”, in an interview with a Hong Kong-based Chinese-language broadcaster shortly before he was chosen to succeed Theresa May on Tuesday…

Speaking to Phoenix TV, Johnson backed Chinese President Xi Jinping’s infrastructure-based Belt and Road Initiative and said his government would maintain an open market for Chinese investors in Britain.

Crash out is now scheduled for October 31 – Halloween in the US, when goblins arrive.

Update at June, 2019 – the March, 2019 crash-out has been delayed, but that does not apply to earnest Britain-China cooperation – Sino-UK dialogue yields dozens of outcomes.

The 10th China-UK Economic and Financial Dialogue has just concluded in London. China will help Britain in its soon-to-be developing country status by offering openings in financial and banking services, among many other programs to help British companies. From the short article –

Christopher Bovis, a professor of international business law at the University of Hull, said this round of dialogue signified the importance of the future of Sino-UK trade relations, with an emphasis on large infrastructure projects and financial services.

“Both economic sectors will benefit enormously from Chinese investment in the UK, and China is expected to reciprocate with more market access to its evolving economy,” he said.

Funny, I didn’t hear much support from Britain for Hong Kong protesters in the recent extradition law conflict.

——–

______

Shuang Yin Win-Win February, 2019

Now that a crash-out Brexit seems all but assured, where will Britain turn for trade deals? The kind of relationship that the British government wanted – like that of Canada or Norway with the EU – takes years to negotiate, under favorable circumstances. There has been discussion for more than ten years that the special relationship between the US and Britain – forged from the mid-19th century and cemented between President Roosevelt and Prime Minister Churchill in World War II – is no longer so compelling. The EU without Britain is still a huge and attractive market for US trade in both directions.

As of March 29, 2019 – in a bit more than a month – there will be hundreds of treaties and agreements to negotiate, suddenly, quickly, and in great detail. Some agreements will probably get done – ability of British truck drivers to deliver goods through the Chunnel into EU turf, and ability of airplanes to take off from Heathrow bound for destinations in Europe using parts and crew that, without certification by the EU, would be not allowed.

But where can Britain turn for trade deals, quickly, without years of complicated negotiations? What large trading partner is willing to set aside the details of complex agreements when mercantile interests, not to mention future geopolitical support, are at stake? What large trading partner can act quickly, based on personal leadership from a president or prime minister or general secretary?

In October, 2015, a few months before the Brexit vote, Xi Jinping visited the UK, and demonstrated his prescience –

“The UK has stated that it will be the Western country that is most open to China,” Xi told Reuters ahead of his first visit to the country as president.

“This is a visionary and strategic choice that fully meets Britain’s own long-term interest.”

UK Prime Minister David Cameron, speaking on CCTV, China’s state broadcaster, said the visit would mark a “golden era” in the two countries’ relationship.

Among items looted from the Summer Palace in 1860 – a blue and gold cloisonné “chimera”—a mythic animal with a lion’s body and dragon’s head. The Garden of Perfect Brightness – Visualizing Cultures, MIT Could the chimera’s lion’s head be compatible with the British Lion?

Source: Tracy Ducasse, creative commons license

Politically, China has always been willing to play a long game for economic access, political favor, and “special relationships.” But in 2015, I don’t think Mr. Xi was expecting such a quick return on the investment in his state visit.

Even in 2015, Britain said little about China’s incursions into the South China Sea. A bit unusual for the country that used to rule the waves, and administered Hong Kong, Malaya, Singapore, Fiji, the Solomon Islands, and many more. Britain has said little or nothing about Chinese cyberthreats or IP theft. Britain was one of the first countries to join the Chinese counterpart to the IMF, the Asian Infastructure Investment Bank.

In tourism, entertainment, and education, England has become a premier destination for Chinese. A 2015 story from CNN – London has become a favorite destination for young couples to take wedding photos and Chinese viewers are captivated in the millions by shows like “Sherlock Holmes” and “Downton Abbey” … Affluent Chinese parents are sending their children to British schools after some of the most notable names in British education have established campuses in China.

Since 2012, I have written quite a few recommendations for Chinese students to study for a master’s degree in England, at Nottingham, Sheffield, Birmingham, and Manchester. Only one for a student wishing to study in the US.

China in England to date

China has a one-third interest in England’s first nuclear power plant in three decades, has substantial investments in the Heathrow and Manchester airports, two premier league soccer clubs, and in London’s tallest building. The UK has been the top EU destination for foreign investment, and is China’s second largest trade partner in Europe. Huawei is a top supplier to British Telecom, with apparently few qualms on the British side. Huawei has told British lawmakers that it wants five years to correct identified problems that it denies having in any case. Ok. In May, 2016, London was granted the right to do RMB trade closings and Chinese government bonds can now be issued in London. The RMB is now included in the IMF basket of currencies used for calculation of special drawing rights, which can be freely traded for currencies of member countries. Some big Chinese banks, like China Construction Bank and the Bank of China, have adopted London as their European financial center, although that could easily change. The nuclear plant deal at Hinkley Point will give two state owned Chinese companies a one-third stake in ownership, with Chinese involvement expected in two future nuclear plants, including a Chinese-designed reactor.

China in England going forward

Better for China, and worse for negotiators in Britain, is that China will still want strong relations with the EU and will no longer see England as the easy backdoor to the rest of Europe. In particular, British based banks and investment firms will be representing only Britain, not the rest of Europe. With regard to the RMB clearinghouse function, Britain will provide access to a market of 65 million people rather than the EU 500 million people.

As the UK economy deteriorates, so will the value of Chinese investments in England, but so will the ability of Britain to strike hard bargains anywhere. British companies in China have been optimistic about the fallout from Brexit. But to the extent their concerns are with IP theft or cyberthreats, internet access, or unequal trade practices, they should not expect much support coming from London. Britain will become a less expensive country in which to invest, British goods will become cheaper in China, but British companies selling in China will find a tougher road. The British companies are not known for doing well in heavily competitive markets like China. Supporters of democracy and free speech in Hong Kong should not expect any more moral support from Britain.

Britain will need trade deals quickly, China will not, and in such a balance England should expect to give a little more on political support for Chinese foreign policies and trade policies, despite the early reticence of Mrs. May to Chinese deals. China will see a weak Britain, the former colonialist, opium supplier and burner of the Summer Palace (yuanmingyuan, Garden of Perfect Brightness) in 1860. There will be artifacts from the looting of the Summer Palace that China will want returned, but there will be more important concessions demanded. China will want Britain as a partner in establishing China as the global standard-setter in media relations, internet availability, business practices, finance, and foreign trade. China might be able to get a good part of that agenda.

win-win

For China, the timing is perfect. The US will need to consider carefully its special relationship with a Britain that has Huawei internet tools and supports Chinese trade and financial practices. With Europe worried about the nearer threat from the east, in Russia, China may be able to strike better deals in the remaining EU as well.

Even without a firm trade deal, China will be ready to help Britain as much as it is to China’s benefit. Britain, after all, will be another developing economy in need of assistance, and win-win is always the Chinese mantra in such deals. A win for China in England, perhaps a win for China in the EU, perhaps a win for China in the UN and other international forums. In 2019 – 70 years after the creation of “new China” – we may see a new Britain as well.

Money Talks in the Clash of Civilizations

What else would you expect?

You remember Samuel Huntington’s article in Foreign Affairs in 1993 –

The central axis of world politics in the future is likely to be, in Kishore Mahbubani’s phrase, the conflict between “the West and the Rest” and the responses of non-Western civilizations to Western power and values…. The third alternative is to attempt to “balance” the West by developing economic and military power and cooperating with other non-Western societies against the West, while preserving indigenous values and institutions; in short, to modernize but not to Westernize.

Take a look at the three maps below.

The first is Huntington’s civilization categories.

The second maps countries that signed letters to the United Nations Human Rights Council in opposition to and in support of China’s ethnic cleansing policies in Xinjiang.

The third maps countries with substantial debt to China, as a per cent of national GDP.

The First Map – Huntington’s Civilizations

The Clash of Civilizations according to Huntington (1996), as presented in his book.Formerly-archived Geography of War, course at Middlebury College.

The Second Map – Uighurs – Which Side are you on?

Many sources confirm that up to 1.5 million Uighurs in Xinjiang are in concentration camps, with the goal of erasing their native Muslim culture and transforming them into good Chinese citizens.

From SupChina – An extraordinary event in human rights diplomacy happened in the last week: Two unprecedented letters to the president of the UN Human Rights Council were signed by dozens of countries expressing either support for or condemnation of China’s treatment of Turkic Muslims in the Xinjiang region.

Photo credit: A visual representation of countries that signed letters to the UN Human Rights Council against and in defense of China’s ethnic policies in the Xinjiang region. Map made by Reddit user Hamena95

Twenty-two countries signed the letter of condemnation. They are in blue in the map above.

The Chinese government responded with a letter of its own. Reuters reports that 37 countries joined the Chinese response, commending China’s remarkable achievements in human rights. Such counter-terrorism and deradicalization measures as have been undertaken in Xinjiang are to be applauded. Those nations are in red in the map above.

What stands out is the US failure to condemn Chinese actions, although we understand that to be attributable to the views of our current dear leader. The US dropped out of the Human Rights council in 2018.

What also stands out is the failure of any of the Islamic world to condemn Chinese actions against Muslims in Xinjiang. A number of countries, notably Saudi Arabia, Egypt and Algeria signed on to the Chinese response to the original condemnation. And notice the support for China in Africa where China is doing infrastructure and resource deals, and Russia.

It is easy to see Huntington’s cultural clash in the current US-China conflict. Individualism v collectivism. World hegemon v rising competitor. Modernity and traditionalism. Its surprising how quickly the world alliances have formed. In the third map, we begin to see why.

The Third Map – Debt and Loyalty

The third map is from a new working paper on Chinese foreign lending by Sebastian Horn, Carmen Reinhart and Christoph Trebesch. They identified nearly 2000 foreign loans and 3000 grants to more than 150 countries totaling about $530 billion from 1949 to 2017. This is apart from purchases of foreign bonds.

As of 2018, the Chinese government holds more than five trillion dollars of debt of the rest of the world, equal to about six per cent of world GDP. As I have noted elsewhere, this lending is mostly to low-income developing countries (LIDC), oil exporters, and countries in the path of the OBOR projects.

From Ives Smith at Naked Capitalism – China: The Covert Credit Superpower –

The regions most indebted to China are Far East Asia and Central Asia, including highly exposed, small economies that are in geographic proximity to China such as Laos, Cambodia and the Kyrgyz Republic …. Next come Sub-Saharan Africa and Latin America, as well as some parts of the MENA (Middle East and North Africa) region. The debt flows to Eastern Europe are smaller, when measured as a share of debtor country GDP, but the amounts of credit to Europe have been growing substantially over the past five years.

Note the similarities in maps two and three.

Notably, no Islamic nation condemned China for its treatment of Muslims. Islamic northern Africa and much of the middle east and the –stans are recipients of substantial Chinese lending. Even India has failed to condemn China.

No middle eastern or southern Africa country joined in the condemnation. Several southern African countries have more than 25% of their GDP in debt owed to China.

Nearly all South American countries have more than 5% of GDP owed to China. None joined in signing of the letter.

Notably absent from the original UN letter were Italy, Greece, Turkey and all of eastern Europe, all recipients of large amounts of Chinese loans or expected beneficiaries of the OBOR.

Signatories to the UN condemnation letter were the “west” including Scandinavia and Japan and all the English speaking nations except the US.

Civilizations, repression, and debt

Samuel Huntington described about ten cultures in his 1994 book. The big three civilizations he described were the west, the Islamic world, and Sinic, mainly China. He described potential alliances of these with other civilizations – Russia with China, the Islamic world with China, based on similar thinking about the importance of history and desire to maintain distinction from the west. Huntington’s categories are broad, and not without critics.

Critics of the clash theory have pointed out that significant parts of the Islamic or Sinic world have modernized, particularly leadership and business interests. And any one nation, any one civilization, is far too complex to be accounted for in Huntington’s model. The populist uprisings in the US and Britain and Europe certainly point away from modernism.

Well, ok. The world is big and complicated. Capitalism is no friend to democracy. Huntington did not see a “winner” in the world civilizational struggle in his 1993 Foreign Affairs article.

But it sure looks as if money speaks much louder than human rights talk, and Huntington was clearly onto something, way back in 1993.

For those of you want a bit more data, below is a listing of countries in Africa that have –

Signed on to the BRI (Belt and Road Initiative)
Supported China on Xinjiang
Supported China in the 2016 South China Sea arbitration
Received more than $500 million in loans from China in the period 2000-2017

This is from Sinocism –

The clash is looking less like a clash than a fait accompli. And money is the root of … something.

Learning from China … and Hong Kongers

“Don’t trust China” is what the recent Hong Kong protesters told the G20 representatives in Osaka.

I think that is right. It has been a sea change for me. Fool me once. Maybe even a few times. Still, over the last 15 years, I have come to realize that we should listen to the Hong Kongers (who don’t wish to be called Chinese).

Why believe twenty-somethings marching in the streets? Let’s remind ourselves that lying and no respect for human dignity are part and parcel of the government face to the world. FBI director Christopher Wray’s declaration of China as a “whole of state” threat should be taken at face value. There is no company or researcher or even student studying abroad who cannot be tapped to assist CCP. (This of course casts false suspicion on honest Chinese everywhere. Resistance is of course possible, and the norm, but it can be dangerous).

We have preponderance of the evidence and beyond a reasonable doubt. On our most public piece of recent evidence – Huawei cannot be an innocent bystander, regardless of its own wishes. It has been implicated or charged in theft and cyberspying for years China hacked Norway’s Visma to steal client secrets: investigators | Reuters:; Huawei Sting Offers Rare Glimpse of U.S. Targeting Chinese Giant – Bloomberg:; Cisco, T-Mobile, Motorola, Nortel, et.al. The rap sheet over a decade or two is pretty impressive.

Don Clarke, cited at Huawei – taking a fall, hoping for a call– There’s a whole variety of pressures that the government can bring to bear on a company or individual, and they are not at all limited to criminal prosecution …. China is a Leninist state that does not recognize any limits to government power.

Mark Rosenblatt in Real Clear Policy citing two recent Chinese laws, the National Intelligence Law and the Anti-Spyware Law – Specifically, “any organization or citizen shall support, assist, and cooperate with the state intelligence work in accordance with the law, and keep the secrets of the national intelligence work known to the public. The State protects individuals and organizations that support, assist and cooperate with national intelligence work.”

Other evidence – politics in Australia and New Zealand are under direct attack, as are American tech companies; also, here – china cyber-cloudhopper. A mayoral election in Taiwan appears to have been determined by fake news on social media coming from inside the mainland. Academic researcher Anne Marie Brady is under personal attack in New Zealand, presumably for research not to Mr. Xi’s liking. See Intimidation knows no boundaries and the update. Wechat news for Chinese in the US is unabashedly Republican oriented, not only because of Democratic support for immigration and Chinese fears of university quotas. The news stories, coming from Wechat in China, support the buffoon who is easy to exploit.

Chinese espionage even rates its own wiki site now.

My own path from trust to mis- began in 2004. I taught CCP members going to school in Chicago for a year. They were sent by the government to learn about markets and government management. The students were midlevel bureaucrats, in about every discipline from police and propaganda bureau officials to stock market administrators. Over the years, many became my friends and colleagues. I stayed in their homes, they in mine, we vacationed and worked together.

In 2009, I went to China to teach. The world was still enamored of China, the shiny once-in-world-history transform learning to be a responsible leader in the community of nations.

Living closely in China, one sees more sides of the world-facing sculpture constructed to be the New China – like seeing the man behind the curtain in the Wizard of Oz. What’s behind the curtain is not so shiny and imposing. Nowadays, it can still be threatening.

The 2008 riots in Tibet and the 2009 unrest in Xinjiang were part of my seeing more clearly. Suppression of the Sanlu milk scandal in 2008, for fear of soiling the glory of the Olympic Games, was another eye-opener. Years later, my wife, who is Chinese, would never buy Chinese milk for our son.

There are, of course, innumerable other incidents of moral decay and lying, some reported in the Chinese media. For comparison, the US has no shortage of corruption, murder, mayhem, and cheating in business and government. But more of that malfeasance is available in the news, and sometimes lawsuits and media and whistleblowers can help restore human dignity. But see this, and this, and this, and this, and this, and – well, you get the idea.

By 2012, my view had changed. I had first hand exposure to police and hospitals and doctors and universities and media, urban and rural, wealthy and poor, citizen and peasant – and a lot of guanxi exercised on my behalf. I saw a university dean jailed not for a crime but for political retribution. I see now a university party leader heavily suspected of corruption, cheating faculty and no one will dare to complain. I see how judges and police and teachers deal with the moral quandaries. I learned a great deal about Chinese as moral individuals in an immoral system. I developed an idea – honor and respect individual Chinese; mistrust Chinese people; fear the Chinese government. That still seems right to me.

None of this is new; China Law Blog, now-retired China Accounting Blog, and major media have been documenting for years how malfeasance – basically, all forms of lying – has cost American business and threatens models of business and law in which good will and good faith are basic to ideas of civility, fair dealing, and due process.

The world is no longer so naïve about Chinese government intentions. In 2009 American intellectuals thought a modern Chinese economy would bring democratic change. Mr. Xi has disabused them of that notion. Don Clarke has written about the Uyghur concentration camps, entirely outside the purview of the Chinese legal system. This is what Hong Kongers see.

The notion of Chimerica, the international economic partnership, is clearly no more. Now, how does one deal with an ex when the breakup is a matter of lying? Trust is off the table – even Reagan told us that, in the 1987 SALT treaty – “trust but verify.” Now, the US negotiators want to insert such provisions into any trade agreement about IP theft. While an admirable goal, Chinese will never agree to such a limitation, could not enforce it, and in any case, sanctions are after the fact.

Now comes an open letter in the Washington Post to Trump from more than a hundred “scholarly, foreign policy, military and business” individuals advising return to the days of wishin’ an’ a hopin’ on China policy. Bill Bishop’s sound reply at Sinocism is here, at item number three. “Can’t we all just get along?” is so twentieth century.

Turn the other cheek in international economic and political matters is no prescription for achieving a final reward. The partnership breakup is a done deal. The only way forward for America is some limited decoupling, along with doubling down on the ideals of honesty and fairness and respect for human dignity that made Hong Kongers appeal to Americans at the G20. Going forward, we should all learn from Hong Kongers. We can’t go back to those innocent days of a decade ago. You also remember – denial is not just a river in Egypt.

Huawei – Taking a Fall, Hoping for a Call

Pardon the soccer reference. But to my mind, that is the Huawei move. But Huawei has the support of the fans, at least in China, and they are vocal.

Don Clarke, professor of law at George Washington University, has penned this response to the declaration of the Zhong Lun law firm in Beijing, in support of Huawei as an innocent private company caught in a nasty trade spat. According to the declaration, no company in China is ever required to comply with demands from the central government to install spyware or backdoors in any communication equipment. Clarke points out that this is misleading and inaccurate. Chinese law says nothing about what provincial and local governments might demand from a company, and in any case, law is not a constraint.

“There’s a whole variety of pressures that the government can bring to bear on a company or individual, and they are not at all limited to criminal prosecution Clarke says. “China is a Leninist state that does not recognize any limits to government power.”

From Clarke’s China Collection blog –

Last May, two attorneys from the Zhong Lun law firm submitted a declaration to the FCC in support of Huawei’s position that it could not be compelled by the Chinese authorities to install backdoors, eavesdropping facilities, or other spyware in telecommunications equipment it manufactured or sold. I finally had the time to look at the declaration in detail. I don’t find it convincing. I have written up a pretty full analysis (over 10 single-spaced pages) and posted it here on SSRN. Enjoy.

Incidentally, my colleague Jacques deLisle of the University of Pennsylvania Law School also submitted a statement of his views, which largely support Huawei’s position. (I hope I have not characterized his statement unfairly.) Needless to say, I don’t agree, but the paper here is an analysis of the arguments of the Zhong Lun submission, not Jacques’. Those who are interested can read Jacques’ statement for themselves.

Even we non-lawyers can read. I wrote about this previously in Lie Down with Dogs, Get Up with Fleas

Don Clarke’s analysis –

The Zhong Lun Declaration on the Obligations of Huawei and Other Chinese Companies Under Chinese Law (March 17, 2019)

Added March 22: Steve Dickinson at China Law Blog on the new foreign investment law, which has been touted as an improvement in business conditions and a response to forced technology transfer – https://www.chinalawblog.com/2019/03/chinas-new-foreign-investment-law-and-forced-technology-transfer-same-as-it-ever-was.html Steve’s conclusion –

Article 22 of China’s new Foreign Investment Law is not relevant to the issue of forced technology transfer. On that front absolutely nothing has changed and nobody should expect it to either.

Added May 25: Christopher Balding and Donald Clarke on Who Owns Huawei? Huawei claims to be employee-owned. But their shares are not ownership, but contract rights in a profit-sharing plan. To the extent ownership is vested in a trade union, Chinese law does not grant ownership rights to employees if the company or trade union go bust. It appears that ultimately Huawei could be state-owned, since all trade unions are part of the state.

Huawei responds

Don Clarke’s rebuttal. Huawei makes no case for employee-ownership and does not refute any facts in the Balding-Clarke paper.

A Note on the Middle Income Trap

In the last couple of years, a number of China political observers have commented on the dangers to China of the middle income trap. The fear is that the Chinese economy will fall into the trap. Since economic growth is the remaining claim to legitimacy for CCP, a substantial slowdown from real growth rates of 6 to 15 per cent per year, which obtained in the last forty years, will be disturbing to the harmony that keeps CCP in power.

In what follows I am not making direct claims for or against the middle income trap in China, only describing the concept.

What does the middle income trap mean?

Most models of national development posit a growth track that demands –

– increased savings, so savings can be used for investment;

– an abundant low wage population;

– transfer of low wage, low productivity workers into higher productivity jobs in factories;

– promotion of exports; and

– a progression to higher levels of productivity, eventually approaching the GDP per person levels of the most developed countries.

Only a few countries – notably, the Asian Tigers – Singapore, South Korea, Taiwan, Hong Kong – have made that transition. More countries have begun the transition and after a couple of decades, found themselves stuck – unable to significantly increase GDP per person. That list is longer – Mexico, Philippines, Malaysia, Indonesia, Turkey. The World Bank has identified 37 countries that are prisoners of the middle income trap. These countries have achieved middle-income country status, but seem unable to pass that barrier, or trap.

It is important to note that the middle income trap does not mean people are starving, or in poor health. It does not mean that economies are failing, only that GDP/person is failing to grow much. National economies are stuck, not declining. But notably, economic performance is the remaining claim to legitimacy for CCP, now that Marxism-Leninism is discredited (except for Mr. Xi) and nationalism is a dangerous ally. If nothing else, the middle income trap may be just reversion to the mean of GDP growth. But that alone is scary for a government whose claim to legitimacy is growth.

Reasons for the middle income trap include the need to transition institutional arrangements, from those that worked well when the country was emerging from poverty to those needed for higher quality growth – one can imagine changes in rules about finance, banking, savings, property ownership, transfers of ownership, control of bribery and corruption. With increasing sophistication of work come demands for increasing sophistication of education – workers in finance need different training than workers on factory assembly lines. Also, changes in cultural features – attitudes to education, health care, family connectedness. Acemoglu and Robinson in Why Nations Fail boil most of the necessary changes down to institutional change – rules, regulations, laws, customs built in to culture.

Is there evidence for the middle income trap in China? Here are some things that keep Chinese macroeconomists up at night.

Scott Rozelle, education and health researcher in rural China, defines part of the problem, not mentioned in glowing reviews of Chinese economic power. In decades of research across many Chinese provinces, he finds that iron deficiency anemia was present in 40% of students in fourth and fifth grade in at least four rural provinces; in Guizhou and other southern provinces, 50% of children suffered from at least one type of intestinal parasite; and nearsightedly was common in schoolchildren, but went unaddressed in many rural areas. Health care and education in rural areas is now significantly better than twenty years ago, but problems persist for much of the rural population. The health problems are definitely treatable; but they persist, nevertheless. Rozelle has found that 15% to 20% of rural kids do not do not complete middle high school. That is a fearful statistic for future growth. Many of those same kids are affected by poor quality or poisonous drinking water, or rice laden with heavy metals, or air that is even more poisonous. China has been a leader in flashy environmental projects – wind, solar, dam construction. Not so much in the unflashy, dirty job of cleaning air, water, land, or ensuring food quality. Spending on those items will make no contribution to exports or factory technology or even short term health. For local officials, what’s the point?

For those rural kids, China now has much less ability to build on exports to fuel internal growth. The rural school children who don’t go to high school are not going to swing investment deals in London, and other countries in Asia and Africa are now lower cost producers of commodity and low-end products. That part of the growth path is now less available in China for the 800,000,000 or so who are not middle class and living in Beijing or Shanghai or Hangzhou. How will they flourish?

That is one side of the problem. Another side is the ability of superior Chinese scientists and engineers to continue with indigenous innovation. In one sense, this is not a problem – what is not invented can be stolen, as in the past. But innovation is no longer an individual working in his garage, but coordinated lab work and bench work and computer work, and collaboration with people outside China is vital. The Great Firewall, in all its manifestations, inhibits that. On a project basis, that may not be much of a problem. In addition to theft, direct internet access to western journals and scientific reports in readily available within scientific and engineering schools and labs. The firewall, which is eminently adjustable locally, does not affect them. On another level, however, those same scientists and engineers can find themselves unable to participate in the events of the world in which they have an interest – conferences and symposia and simply news of family and friends outside China. Sometimes, these sophisticated workers find the daily restrictions and requirements – writing paeans to Xi Jinping Thought, as is a current requirement – to be just too stupid, and they leave. They don’t want their kids to write such paeans, either.

When we look at the macroeconomic picture of China is all its glory and warts, we come down to the Acemoglu and Robinson prescription – institutional change. The change required is not small. It is systemic, and at the heart of the Chinese model for the last forty years – financial repression and investment in infrastructure and real estate. Interest on savings in banks was held low, so loans to SOE and other factories and real estate developers could be held low as well. The hukou kept peasants out of cities, keeping social overhead capital for poor people – primary and secondary education, health care, low income housing, pensions – mostly out of government budgets. But changing the model means changing the relative shares of income in the economy – poor people and farmers and ordinary savers need to get a larger share of total income, and lots of vested interests in government and SOE and banks need to get a smaller share. The reluctance to share in China is no less than it is on Wall Street, hence the political conundrum. Social spending in China on education and health care and pensions needs to go up significantly, as China ages and education needs are greater and pensions, long a source of misspent and stolen funds and poor accounting, become a bigger factor in people’s lives.

Truthfully, when reform began in 1978, China did need every piece of infrastructure that it could build – trains, planes, airports, ports, expressways, housing, factories, offices. Now, what was needed is built, and far more. The return to GDP from more construction is less and less. That contributor to GDP growth is no more. But building more stuff is the only lever that officials have right now to goose short term GDP.

Finally, the world is no longer cooperating with China. For forty years, in the US and Europe, policy makers were willing to accept some job losses in return for low priced consumer goods. Now, in 2019, governments are less willing to trade jobs and technology for low priced shirts and televisions. That is one threat facing China. Another is the economic construct of a secular stagnation, a general slowdown in all the advanced economies attributable to ageing populations (which don’t buy as much), greater income disparities (since the wealthy don’t simply buy more food or shirts or televisions), greater savings in advanced economies (due to risks of recession or simple job loss), and even greater flexibility in wages and prices, which we normally think of as a good economic outcome (flexibility can increase savings and decrease spending because incomes can now fall as well as rise). In general, there is more savings than the world can profitably use, and investment levels remain anemic. This is certainly not good for China exports or profitable Chinese infrastructure investments overseas.

There is no guarantee that GDP/person will fail to grow in China. But the threat is there, as evidenced by the paper by Barry Eichengreen, Donghyun Park, Kwanho Shin in 2013 – Growth Slowdowns Redux: New Evidence on the Middle-Income Trap. Their conclusion – We also find that slowdowns are less likely in countries where the population has a relatively high level of secondary and tertiary education and where high-technology products account for a relatively large share of exports, consistent with our earlier emphasis of the importance of moving up the technology ladder in order to avoid the middle-income trap.

That is what CCP theoreticians and macroeconomists are thinking about.

Huawei – Lie down with dogs, get up with fleas

You know the meme – when you work with bad guys, you should expect to be labeled a bad guy. I mean no disrespect to the thousands of Chinese companies doing business across the world that manage to be profitable without intimate Chinese government relations. But in our globalized, internet era, it is impossible for a high tech company, particularly one as fundamentally important to internet networks, to not be tarnished with the specter of theft of intellectual property and CCP internet control and monitoring of Chinese businesspeople, students, even foreigners.

Probably no one outside a small group of analysts has the actual evidence of real dirt on Huawei. But that is the risk of being a national champion in China. If the government is promoting you, then there must be a government interest in promoting you, beyond just “go team.” This is simply Chinese practical reasoning.

But it seems that lying down with dogs is more than just a saying here. In his extraordinary Sinocism news blog, Bill Bishop continues the Huawei stories. From the February 9 edition, with no repetition in the stories (all should be clickable) –

1. Huawei’s bad start to the Year of the Pig

Trump likely to sign executive order banning Chinese telecom equipment next week – POLITICO:

President Donald Trump is expected to sign an executive order, banning Chinese telecom equipment from U.S. wireless networks before a major industry conference at the end of February, three sources told POLITICO.

The administration plans to release the directive, part of its broader effort to protect the U.S. from cyber threats, before MWC Barcelona, formerly known as Mobile World Congress, which takes place Feb. 25 to Feb. 28.

Mobile network operator’s body GSMA considers crisis meeting over Huawei | Reuters:

Mobile communications industry body GSMA has proposed its members discuss the possibility that Chinese network vendor Huawei [HWT.UL] is excluded from key markets, amid concerns such a development could set operators back by years…

GSMA Director General Mats Granryd has written to members proposing to put the debate around Huawei onto the agenda of its next board meeting, a spokesman for the federation told Reuters on Saturday.

The meeting will be held in late February on the sidelines of the Mobile World Congress, the industry’s biggest annual gathering, in Barcelona.

Trump envoy urges Europe to ‘link arms’ against China – POLITICO:

Describing China’s influence as “malign,” Gordon Sondland, the U.S. ambassador to the European Union, told POLITICO that his country and the EU should overcome their current trade tensions and join forces against the Chinese.

“We should … combine our mutual energies — we have a $40 trillion combined GDP, there is nothing on the planet that is more powerful than that — to meet China and check China in multiple respects: economically, from an intelligence standpoint, militarily,” he said in an interview.

“That’s where the EU and U.S. really should be linking arms,” Sondland continued, advocating for “a quick resolution that would move our trade relationship in the right direction so that we can both turn toward China, which is really the future problem in multiple respects.”

Huawei Deals for Tech Will Have Consequences, U.S. Warns EU – Bloomberg:

“There are no compelling reasons that I can see to do business with the Chinese, so long as they have the structure in place to reach in and manipulate or spy on their customers,” Ambassador Gordon Sondland, Trump’s envoy in Brussels, said Thursday in an interview. “Those who are charging ahead blindly and embracing the Chinese technology without regard to these concerns may find themselves in a disadvantage in dealing with us.”

Huawei representative rebukes US ambassador’s accusation, defends integrity and safety – China Daily:

“Recently, Huawei has been under constant attack by some countries and politicians. We are shocked, or sometimes feel amused, by those ungrounded and senseless allegations,” said Abraham Liu, Huawei’s vice-president for the European region and chief representative to the EU institutions.

“For example, yesterday, the US ambassador to the European Union, Mr (Gordon) Sondland, said (that) someone in Beijing (could) remotely run a certain car off the road on 5G network and kill the person that’s in it. This is an insult to people’s intelligence, let alone the technological experts across the world,” Liu said.

Chinese firm Huawei blocked from ‘sensitive state projects’ and 5G amid security concerns-The Sun:

New laws on foreign investment in the UK will block Chinese firm Huawei from sensitive state projects, The Sun can reveal… senior Cabinet ministers and Britain’s most senior civil servant Mark Sedwill fear Huawei’s involvement in such critical infrastructure could jeopardise national security.

They are planning reforms to allow the Government to ban Chinese firms like Huawei from future involvement in “strategically significant” UK tech projects.

Huawei Says U.K. Software Issues Will Take Years to Fix – WSJ $$:

The telecom giant also said in a letter to the U.K. Parliament that its board of directors has signed off on a companywide overhaul of its software engineering, budgeting $2 billion over five years for the effort..

German ministers meeting to discuss how to deal with Huawei in 5G auction: source | Reuters:

Chancellor Angela Merkel said on Tuesday that Germany needed guarantees that Huawei would not hand over data to the Chinese state before the telecoms equipment supplier can participate in building its 5G network.

German newspaper Handelsblatt said Wednesday’s meeting would focus on whether a security catalog, prepared by the Federal Network Agency and the cyber defense agency (BSI), along with certification rules and a no-spy agreement with China, would be enough to ensure future 5G mobile networks are safe.

Norway’s PST warns against Huawei – Newsinenglish.no:

Justice Minister Tor Mikkel Wara of the Progress Party, who joined Bjørnland at Monday’s PST briefing, later announced that measures would be introduced to reduce the vulnerability of the Norwegian network. The goal is to hinder Norway’s large mobile operators Telenor, Telia and Ice from choosing equipment suppliers that could threaten the nation’s and their users’ security. Huawei is the prime target.

China hacked Norway’s Visma to steal client secrets: investigators | Reuters:

Hackers working on behalf of Chinese intelligence breached the network of Norwegian software firm Visma to steal secrets from its clients, cyber security researchers said, in what a company executive described as a potentially catastrophic attack.

The attack was part of what Western countries said in December is a global hacking campaign by China’s Ministry of State Security to steal intellectual property and corporate secrets, according to investigators at cyber security firm Recorded Future.

China says it is not a threat to Norway, denies cyber espionage | Reuters:

“China poses no threat to Norway’s security. It’s very ridiculous for the intelligence service of a country to make security assessment and attack China with pure hypothetical language,” the Chinese Embassy in Oslo said in a statement on its website.

Huawei Threatens Lawsuit Against Czech Republic After Security Warning – The New York Times:

The warning, which carries the force of law, requires all companies in the Czech Republic that are deemed critical to the nation’s health to perform a risk analysis that takes security concerns into account.

China denies ‘ridiculous’ spying allegations by Lithuania | AFP:

Earlier in the week, two Lithuanian intelligence agencies condemned China for an “increasingly aggressive” spy campaign, which they said included “attempts to recruit Lithuanian citizens”.

Darius Jauniskis, head of Lithuania’s State Security Department, said his agency was analysing the potential “threat” posed by Huawei, whose technology is being used to build the EU and Nato state’s new 5G telecommunications infrastructure.

Huawei offers to build cyber security center in Poland | Reuters:

Italy denies it will ban Huawei, ZTE from its 5G plans | Reuters:

Thailand launches Huawei 5G test bed, even as U.S. urges allies to bar Chinese gear | Reuters:

University of California Berkeley bans new research projects with Huawei after US indicts Chinese telecoms giant | South China Morning Post

Stanford halts research ties with Huawei amid surveillance controversy – The Stanford Daily

Vermont phone carriers in dispute over concerns about Chinese firm Huawei – VTDigger

2. FBI raids Huawei’s San Diego offices

This is a damning story. One argument some defenders of Huawei have used is that the firm’s culture has changed since inception and while it committed an “original sin” of IP theft in its early years now that it is a global tech firm its behavior has changed. This story destroys that argument.

Huawei Sting Offers Rare Glimpse of U.S. Targeting Chinese Giant – Bloomberg:

Diamond glass could make your phone’s screen nearly unbreakable—and its inventor says the FBI enlisted him after Huawei tried to steal his secrets…

The first sign of trouble came two months later, in May, when Huawei missed the deadline to return the sample. Shurboff says his emails to Han requesting its immediate return were ignored. The following month, Han wrote that Huawei had been performing “standard” tests on the sample and included a photo showing a big scratch on its surface. Finally, a package from Huawei showed up at Gurnee on Aug. 2. ..

Shurboff says he knew there was no way the sample could have been damaged in shipping—all the pieces would still be there in the case. Instead, he believed that Huawei had tried to cut through the sample to gauge the thickness of its diamond film and to figure out how Akhan had engineered it. “My heart sank,” he says. “I thought, ‘Great, this multibillion-dollar company is coming after our technology. What are we going to do now?’”..

The FBI raided Huawei’s San Diego facility on the morning of Jan. 28. That evening, the two special agents and Assistant U.S. Attorney Kessler briefed Khan and Shurboff by phone. The agents described the scope of the search warrant in vague terms and instructed Khan and Shurboff to have no further contact with Huawei.

———-

It is an old truism that China tends to be tone deaf in dealing with foreigners, particularly on foreign policy issues. So we find no small sense of irony in the story from Reuters last week Huawei Offers to Build Cyber-security Center in Poland – “China’s Huawei has offered to build a cyber security center in Poland where last month authorities arrested a Chinese employee of the telecommunications firm along with a former Polish security official on spying charges.”

One of the stories circulating in the past couple of years is that Huawei might have stolen some technology early in its life, but those days are over now, all is in the past, now we are in a new era. Stories from the bad old days – In 2002, Cisco Systems Inc. accused (Huawei) company of stealing source code for its routers. Motorola said in a 2010 lawsuit that Huawei had successfully turned some of its Chinese-born employees into informants. And in 2012 the U.S. House Intelligence Committee labeled Huawei a national security threat and urged the government and American businesses not to buy its products. Huawei denied all the claims. The Cisco and Motorola lawsuits ended with settlements.

For anyone still unsure of the extent of Huawei espionage or theft, there is this Bloomberg story – Huawei Sting Offers Rare Glimpse of the US Targeting a Chinese Giant. This story is about a small American company creating a “diamond glass” computer screen that would be stronger than anything now on the market. The diamond glass story is about an IP theft from last August.

The detention of Meng Wanzhou, originally on charges of violating economic sanctions against Iran by using a shell company to get around restrictions, now seems less of a political stunt. From the Chinese foreign ministry – “For a long time, the U.S. has used state power to smear and attack certain Chinese companies in an attempt to stifle legitimate business operations … Behind that, there is strong political motivation and manipulation. We strongly urge the U.S. to stop unreasonable suppression of Chinese companies, including Huawei, and treat Chinese enterprises fairly and objectively.”

Un huh. One can only hope that Huawei is not treated as “fairly and objectively” as Trump treated ZTE.

China Reflections

Tag: Policies Foreign and Domestic