Although the China challenge has been building since Deng Xiaoping introduced at least a modicum of free market capitalism in the 1980’s. His successors basically followed the same track until 2013 when Xi Jinping took the reins of power. Xi recognized that the pace of economic progress had to accelerate with technology – alarmingly so by countermanding and domestically adopting technology from more advanced economies. This is so because inherent in communism is the absence of innovation – technological development spawned by individual liberty and the incentive to create – thus the need to borrow or otherwise steal it from others. China has a ‘forced technology transfer’ policy. If a foreign tech company wants access to the Chinese market, it is compelled to release everything it knows, including training! In recent years (especially since President Trump has inaugurated push back) not a day goes by without in-depth media China analysis.
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Some background information can help in understanding how to strategically meet the China challenge. According to David P. Goldman, columnist for the Asia Times, the average Chinese consumes 17 times more today than 30 years ago. And, of course, the 1.38 billion consumers in China – mostly youthful needing and wanting all the conveniences and products westerners (especially Americans) have taken for granted for many decades. In a very short time, this formerly backward country has propelled itself into the second largest economy of the world. However, there is no freedom – over 600 million unwilling people have been coercively moved from a simple agrarian life to work in newly built industrial cities.
The Chinese authoritarian government was forged by the conquest of different nations, ethnicities, cultures and languages – now being kept together by force. To quote David Goldman, “China is not unified. It has a written system of several thousand characters that takes years of education to learn…well enough to read a school textbook or newspaper…this is how China is socialized. The Chinese speak different languages – Cantonese and Mandarin are as different as Finnish and French. China is inherently unstable because all that holds it together is an imperial culture and a tax collector in Beijing…a collection of very powerful, oppositely charged magnets held together by super glue.”
Since the communist take-over in 1949, China has been struggling to re-gain ‘face’ and reputation from an era of division, warlordism, starvation and degradation – primarily by showing that it can compete with the West. It believes the best way to do that is to challenge U.S. power – militarily and economically. Again, according to David Goldman, peaceful competition and occasional cooperation in matters of mutual concern should be our goal – they will never be our friends while the communists are still in power.
The communist regime knows it must control its burgeoning population – becoming aware of freedom and better standards of living in other parts of the world. The Chinese get this information via the internet (despite its access being strictly controlled by the state) and by witnessing life in (the former) Hong Kong and Taiwan. But, Chinese have no sense of freedom – they had an emperor for 3,000 years and when there was no emperor, there was civil war – they recognize that with the authoritarian system, inner strife is eliminated and they are not starving. So, for the foreseeable future, the totalitarian regime is accepted (now being imposed upon Hong Kong).
China is a manufacturing power because of its millions of employable people, providing cheap labor. That is an unchanging, dynamic reality. China also subsidizes capital investment in heavy industry – steel mills and chip fabrication plants, etc. are owned and managed by the state. When Japan did the same thing thirty years ago, the U.S. insisted that Japanese plants be built in the U.S. That is less likely to happen with China because of control issues, resulting in a continuation of heavy industry dilution in the U.S. This ultimately has national security implications. The China of Xi Jinping is an aggressive ruler in which there is ‘civil-military fusion’ meaning that civilian research is automatically shared with the Chinese military. Most American R&D goes to software, conceding manufacturing to China to the point wherein the U.S. has trouble building aircraft or some defense products without chips manufactured in China.
In the meantime, China is attempting to ‘sinofy’ other countries such as Turkey, offering cheap broadband, telecommunications and e-commerce – all subsidized by the Chinese government. Former NATO members have also been increasingly reliant upon China.
So, how does the West and particularly, the U.S. approach and deal with China? First, it’s a given that the buyer of goods (the West) has greater power than the manufacturer and seller of goods (China). The U.S. can disengage, keep up the pressure on China with the new tariff policies and find other competing markets and economies with whom to do business (such as Vietnam, Thailand, etc.) to slow technology transfers to China. Companies are already moving factories out of China to avoid a “trade war”—each month brings additional prominent names abandoning China for other less profitable alternatives (ultimately redounding to higher product costs for American consumers). It is hard to see these businesses returning to China. Market participants never like disruptive policies, but a reordering of global trade is now occurring and that is likely to change history.
Most important in confronting the China challenge – the U.S. can do what it always does best – innovate in a free market, harnessing ingenuity and science, employing capitalism’s greatest weapon – the creative destruction of the old and obsolete in favor of the new lower cost, improved technology and products. The U.S. government also has a role in partnership with the private sector because of the national security implications – advanced technology in NASA and the defense industry cannot be ignored.
Authoritarian, ‘command and control’ regimes like the former Soviet Union ultimately decline and there are significant weaknesses beginning to appear in China. According to Alexander Liao, a China expert with four decades of journalism experience in Asia, a number of negative phenomena are emerging – general economic slowdown, political turmoil (infighting among CCP officials), the ‘run movement’ (Chinese attempting to leave the country) and ‘lying flat’ (adopt a minimalist, nonpaticipatory lifestyle).
