Investors and policy makers are waiting for the next Chinese Five Year Plan to be released in March 2011. Did you know that China has dozens of cities the size of Chicago?
James L. McGregor is a Chinese expert, an old China hand. He has lived in the land of Ch’in for twenty years and authored One Billion Customers: Lessons from the Front Lines of Doing Business in China (Simon & Schuster, 2005). He was also the bureau chief for the Wall Street Journal in China and Taiwan. His knowledge about conditions in the Red Giant appear below, followed by two articles from Foreign Policy. These two excellent articles provide strategic perspective on current and future relations with China.
The China Fix
By James McGregor Monday, Feb. 01, 2010
In my more than two decades in China, I have seldom seen the foreign business community more angry and disillusioned than it is today. Such sentiment goes beyond the Internet censorship and cyberspying that led to Google’s Jan. 12 threat to bail out of China, or the clash of values (freedom vs. control) implied by the Google case. It is about the perception that antiforeign attitudes and policies in China have been growing and hardening since the global economic crisis pushed the U.S. and Europe into a tailspin and launched China to its very uncomfortable stardom on the world stage.
Visiting CEOs’ banquet-table chatter is now dominated by swapping tales of arrogant and insolent Chinese bureaucrats and business partners. The litany includes purposefully inconsistent and nontransparent enforcement of regulations, rampant intellectual-property theft, state penetration of multinationals through union and Communist Party organizations, blatant market impediments through rigged product standards and testing, politicized courts and agencies that almost always favor local companies, creative and selective enforcement of WTO requirements … The list goes on.
The foreign business community in China has deep respect and affection for the Chinese people and their hard-earned success. But more than a few foreign business leaders are asking themselves if they have been bamboozled by the system. Multinationals have been solid citizens in China, handing over heaps of capital, technology, training, source code, best practices and proprietary products to joint-venture partners they were forced into bed with. They have funded schools, orphanages, disaster reconstruction, overseas scholarships and all manner of poverty-alleviation programs. But now that the China market matters more to them, it appears that China couldn’t care less. Increasingly difficult China-market access is the immediate worry. But many are looking ahead and losing sleep over expectations that their onetime partners are morphing into predators — and that their own technology and know-how will be coming back at them globally in the form of cut-price products from subsidized state-owned behemoths.
At the same time, I have also seldom seen the Chinese government and business community more unsettled and uncertain. Theirs is an arrogance borne of insecurity. The global financial chaos and China’s rocketing global status threw off the meticulous national development schedules carefully crafted by the risk-averse and surprise-allergic engineers who run the Party.
The pressures on Chinese President Hu Jintao and Premier Wen Jiabao are overwhelming. They are white-knuckling their way through their final two years in office, focusing on 8% or higher growth and crushing any dissent that could derail it. The Chinese people are generally pretty happy, but the Party leadership is terrified of their outsized expectations. People under age 40, the progeny of the one-child policy, didn’t live through Maoist poverty and upheaval. They are pampered, impatient and demanding. They consider exponential growth as a basic benchmark of life, and access to information to be a civil right. China’s rich are powerful opponents of further reform and opening. They made money the local way and are determined to block foreign competition so this can continue.
In their spare time, China’s leaders are reaching under the carpet to tackle the country’s endemic corruption, epidemic pollution, emaciated health care, shredded social services, entrenched industrial overcapacity and swiftly aging population, to name a few. They have little remaining bandwidth, and no experience or desire to be the visionary and magnanimous world leaders who can look beyond China’s own often desperate needs that the world wants them to be.
So both Chinese and non-Chinese have legitimate challenges and understandable phobias. Google is just a proxy in this intensifying dispute. It’s really about rebalancing the economic and political dynamic between China and the developed world, with the U.S. as the key negotiator for the West. It won’t be easy. China and the U.S. are past masters at blaming their domestic policy failings on outsiders. Finger-pointing politicians and chest-beating nationalists in the two nations will make rational discussion nearly impossible. Yet it is time for leaders on both sides of the Pacific to lift their heads above overwhelming domestic concerns and fix China’s deteriorating relationship with foreign business and the developed world before things get out of control. One thing’s certain: they won’t find the answers through Google.
Time to rethink U.S.-China trade relations
By James McGregor
Wednesday, May 19, 2010
The U.S. government and the business community need to rethink our China strategy and retool our trade bureaucracy to face the tangled web of emerging Chinese policies. Otherwise, American technology companies could be coerced to plant the seeds of their destruction in the fertile China market.
Talking to Main Street, China
In ignoring — or botching the message to — the Chinese public, the Obama administration is only making its policy choices more difficult.
BY YASHENG HUANG | NOVEMBER 8, 2010
Looking at the seemingly inscrutable actions of the men who rule Beijing, Washington often assumes many in the Chinese government to be anti-American, whereas the Chinese public is pro-American. The reality is almost exactly the opposite. Among the Chinese general public, there has always been a strong suspicion that the United States has a well-crafted, carefully thought-out, and coherent strategy to contain China. In the most extreme version of this conspiracy theory, everything is a part of the plot. Criticism of China’s record on human rights? A bid to undermine the government in Beijing. Pressure on the central bank to revalue the yuan? Obviously part of an attempt to inflict a “Japan malaise” on China. Even private actors such as Goldman Sachs and Google are sometimes portrayed in popular books and publications as America’s foot soldiers and loyal pawns in this grand strategy.
U.S. President Barack Obama’s current trip to Asia — to India, Indonesia, South Korea, and Japan, conspicuously skipping and encircling “one big red dot,” as one reporter recently put it — is likely to fan this conspiracy theory even further. One can blame China’s official propaganda organs and tight information controls for fostering these outlandish views of the United States. No doubt there is some truth to that, but the United States has consistently failed to communicate its intentions and its actions to the broader Chinese public, which, despite the infamous Great Firewall, is enjoying newfound media freedom thanks to the Internet.
The health of the relationship between China and the United States no longer depends simply on handshakes and backroom deals between officials in the White House and in Zhongnanhai. Just look at the recent midterm elections in the United States: 29 candidates, either directly or indirectly used political ads that bashed political opponents over their positions on China, according to the New York Times. When it comes to China policy, increasingly, Main Street matters. Chinese public opinion is also beginning to loom large in a range of issues critical to Sino-U.S. relations, such as the exchange rate, the role of domestic consumption in Chinese growth, and private-sector development. Yet the foreign-policy establishment in Washington has behaved as if Sino-U.S. relations were still the exclusive province of Nixon and Kissinger and of Mao and Zhou. The United States has not seriously tried to make its case and communicate its views directly to the Chinese public.
Of course, this isn’t easy in a country that heavily restricts press freedom. But technology is beginning to crack a few holes in Beijing’s system of media control. There are now more than 300 million Internet users in China, about the same size as the entire population of the United States. On top of that, China has 700 million mobile-phone subscribers — and both categories are expanding by tens of millions of people each year.
Yet for some inexplicable reason, U.S. administrations have always chosen the most censored, tightly controlled medium to communicate with the Chinese public. In 2009 Obama’s town-hall meeting in front of a live TV audience completely failed to resonate with most Chinese because the censors made sure that only the most banal questions were posed for discussion. (Sample: “Shanghai will hold the World Exposition next year. Will you bring your family to visit the Expo?”) Contrary to how it was interpreted in the Western media, the Chinese censors also limited those questions critical of the United States. They did not want to embarrass Obama.
The U.S. administration has also made its case in ways that can alienate the Chinese public. On human rights, the United States has always voiced strong criticisms of China on Tibet and on its treatment of dissidents. These criticisms typically backfire with ordinary Chinese because they are viewed as challenging Chinese cultural values and political norms. They also ignore issues that have far greater resonance in Chinese society at large, particularly in the area of property rights. When elderly widows are forcibly evicted from their homes or entrepreneurs suddenly lose the assets they have toiled for years to build, these are the “teachable moments” about why human rights and due process matter.
On the currency issue, for example, the United States consistently picks arguments that do not resonate with ordinary or even educated Chinese. The weakest of the arguments is that China has a responsibility to strive for balance in trade between the two countries. But exactly why should China bear any more responsibility for the imbalances than the United States, with its high consumption and low savings rate? The truth is that both countries are responsible — the United States through its macroeconomic excesses and China through its currency policies. To place all the onus on Beijing legitimately strikes many Chinese as extremely unfair.
There is another problem with this argument: It amounts to asking the Chinese to sacrifice jobs in the export sector to create the impression that the United States is doing something for its unemployed. This is hardly a winning argument on the streets of Chongqing and Guangzhou. The Chinese, the vastly poorer of the two countries, are being asked to reduce their living standards so that American politicians can feel good about doing something for their voters. The insult to injury goes even deeper than that — those Chinese who stand to lose most from a currency revaluation hail from the poorest, most vulnerable segment of the population: rural migrant laborers.
To be sure, the vast majority of serious economists are absolutely right that in the long run, a currency revaluation is in the interest of the Chinese. But this is politics, where the issue is not about the technocratic intricacies of who is right and who is wrong. The Obama administration has chosen to frame the discussion in ways that are offensive to Chinese while shunning arguments that have a better chance of resonating. For example, one could argue that a currency revaluation may aid China in its aspirations of becoming a producer not just of cheap and labor-intensive products, but also a center of innovation and technology. This argument would go down better in China both because it is based on a rationale that emphasizes serving and enhancing Chinese interests and because it fits with the technological ambitions of many Chinese.
For too long, the United States has not paid attention to an important force in the Chinese economy: the rise of indigenous entrepreneurs. This is in sharp contrast to the U.S. approach in India. During his India trip, Obama met with 25 Indian entrepreneurs, soliciting their views on job creation and business expansion. Chinese private entrepreneurs have never received similar treatment from a U.S. president. Soon after Google decided to terminate its search-engine business in China, Secretary of State Hillary Clinton said that the United States deplored restrictions on the Internet and called for web freedom in China. This was a laudable speech, but it may have had the unintended effect of conveying the sense that only foreign firms, such as Google, stand for Internet freedom, whereas Chinese Internet companies do not. The simple fact is that even before Google’s exit, the vast majority of Internet activities were provided by entrepreneurial Chinese companies, such as Baidu.com, Sina.com, and Sohu.com. Google’s exit simply provided more space for their growth. Many of these Internet companies are run by ambitious, U.S.-educated Chinese entrepreneurs. The Internet revolution in China — which has vastly expanded the free exchange of ideas and goods — is a cumulative result of the vision, successes, and technological savvy of both foreign and Chinese entrepreneurs. The administration should be careful, both in words and in deeds, not to pit the interests of Chinese and foreign businesses against each other.
In the next two years, both China and the United States will have some monumental political and policy issues to grapple with. China faces a leadership transition in 2012, and Obama will also be judged in 2012 on whether he has delivered growth and prosperity. China will figure prominently in how Obama tackles this challenge, and engagement is the only viable option. But to engage only with official Beijing is no longer enough. It is vital that American leaders learn to communicate more effectively with the Chinese people — lest the conspiracy theorists do the communicating for them.
China’s Grand Strategy
Posted By Daniel Blumenthal Thursday, April 29, 2010 – 2:28 PM
Robert Kaplan has written an excellent, thought-provoking piece in Foreign Affairs . He argues that China’s insatiable demand for energy and natural resources is driving its strategic policy, as it expands its military reach and influence both on continental as well as in maritime Asia. It is not that China has a master plan for world domination, rather, like all rising powers, (nineteenth-century America included) the logic of its growth requires it to play a greater international role.
To its west China is strengthening its grip on Xinjiang and Tibet. Soon it will complete two major pipelines extending from Central Asia to Xinjiang. In Tibet it is building roads and railroads to extract resources, pacify the restive population, and keep it out of Indian hands. China is marching southward as well, as it increases control over Burma, which may provide Beijing with a port and maritime access to the Bay of Bengal. And it is trying, as Kaplan says, to “divide and conquer” other ASEAN states, who, in response to American inattention, are beginning to team up in opposition to China’s influence. According to Kaplan, Beijing’s main objective on the Korean peninsula is to help North Korea develop into a more “modern authoritarian” state, so that it remains a buffer against U.S.-allied South Korea. Even so, Kaplan writes, China would not necessarily be opposed to a unified Korea that, for economic reasons, would be a part of “Greater China’s” sphere, and eventually lead to the removal of American troops from South Korea.
According to Kaplan, as China looks to the seas along its eastern seaboard, it feels contained. South Korea, Japan, Taiwan, the Philippines, Indonesia, and Australia are all, to varying degrees, U.S. allies unwilling to acquiesce in a Chinese breakout into the Pacific Ocean. China is trying to get out of this box by building up its submarine fleet and conventional cruise and ballistic missile force. In the end, according to Kaplan, Taiwan is the key to China’s naval breakout. Control of Taiwan would allow China to project power beyond the “first island” chain.
To its south, China strives for control of the South China Sea, both because it is a gateway to the Indian Ocean and because it is rich in natural resources. To that end, China has built a major naval base on Hainan Island in the South China Sea. Hainan Island could allow the Chinese navy unimpeded access to the seas’ major chokepoints.
While Kaplan’s assessment of China’s geostrategy sounds about right to me, it has also done its job in provoking some thoughts. I will offer three thoughts:
First, I do not agree that China can accomplish its continental consolidation through demographic efforts — populating Tibet, Xinjiang, the Russian Far East — or commercial relations alone. To do what Kaplan argues Beijing is trying — consolidate its land borders, extend its reach in Central Asia and Burma and Korea — China will also need to develop expeditionary land forces. Why? To respond to terrorist attacks, to prepare for a possible border war with India, and to advance its goals on the Korean peninsula in case of collapse and chaos in the North.
Second, Kaplan seems to endorse the “Garret plan” that is making its way around the Pentagon, a plan which, in the context of America’s regional political objectives, seems wrongheaded. The basic idea is to “do away with master bases” in Japan and South Korea and instead strengthen the U.S. presence in Oceania — on Guam and the Caroline, Northern Mariana, Solomon, and Marshal islands — while at the same time vastly expanding America’s naval presence in the Indian Ocean. This strategy would require Washington to upgrade defense relations with India-to use some of its outer islands-well as with Brunei, Malaysia, and Singapore. The U.S. navy would still cooperate with the Japanese maritime self-defense force as well. This plan, according to Kaplan, would be less provocative to China while at the same time still allow the United States to play something more than the role of offshore balancer.
There are a number of problems with this plan. It is not clear that some of the countries that we would need for the plan to work would cooperate, especially after we pulled out of Japan and South Korea. A withdrawal from the “master bases” would be seen as a waning U.S. commitment to its allies. And, while it is true that the “first island chain” is becoming less defensible, it is not too late to take prudent steps to reverse this dangerous trend. We have not yet hardened air bases in Japan, stepped up efforts at missile defense, or sought better options for countering China’s missile force (How about the deployment by Japan of cruise and ballistic missiles along the Ryukus to target Chinese launchers?).
Third, Kaplan’s emphasis on the importance of Taiwan for geostrategy, rather than for geopolitics, is debatable. Taiwan would provide China with modern ports and China could extend its maritime surveillance capabilities. But unless we develop adequate defenses, China’s missiles forces will render U.S. military activity in the first island chain too costly whether China possesses Taiwan or not.
While Mahanians [Alfred T. Mahan, 19th century naval theorist] in and out of China would argue that acquiring more territory would extend China’s maritime reach, analysts focused on China’s missile forces would disagree. With better precision guided capability and longer ranges, China missile force may, over time, give the People’s Liberation Army air superiority over the first island chain, as well as allow it to target any surface ship approaching China from the Western Pacific. We still could take steps (hardening bases, seeking new bases, deploying better missile defenses, investing in more submarines and stealthy long range fighter-aircraft and bombers) that would make operations in the first island chain less risky, but if current trends continue, China will not need Taiwan to project power into the Pacific.
From a geostrategic perspective, Taiwan would only be important if we decided to use it to counter China’s missile or submarine force. But we are not doing that now nor are we likely to in the future. Since we are decidedly not using Taiwan as our “unsinkable aircraft carrier,” China does not need to consider it a barrier to its current military planning. Taiwan’s geographic importance to China may be overstated.
That brings me back to broad U.S. objectives. Taiwan’s importance is the same as the importance of our Japanese, South Korean, and Philippine allies — more geopolitical than geostrategic. These countries have embraced the international system that the United States created and defended after World War II. They are democratic states with free market economies that all want to be part of what used to be called the “West,” the worldwide club of modern, advanced industrial democracies. Washington’s interests are better served when economically vibrant democracies are free from the control of other great powers – this better ensures that the international system remains hospitable to us.
In my opinion, for geopolitical as well as geostrategic reasons, the United States military should maintain a (more defendable) presence on the territory of as many U.S. Asian allies as welcome it, at least until all can be assured that China will be a responsible and democratic great power, uninterested in creating its own exclusive economic or military spheres. That means we need to work harder to help our allies build capabilities that help frustrate China’s military plans rather than pulling back and relying mostly on offshore bases.
China in Focus