The Chinese Endgame or the End
The Legacy of a Crook
(This article is not about Nixon or the cold war, but it helps to frame the current Chinese - U.S. relations by looking back at where it began - so please bear with me.)
Richard Nixon for all his faults will remain one of the most impactful Presidents in U.S. history. Despite his undemocratic tendencies and lawbreaking, in his time Nixon possibly did more to reshape U.S. politics than any President since Franklin Roosevelt. Nixon also created many of the conditions that precipitated the end of the cold war. The primary strategy of the U.S. throughout the cold war was isolate and contain the Soviet Union.1 This took many forms with some successes and many losses; no bigger than the Vietnam War which Nixon, reluctantly, ended nonetheless.2 The other significant foreign relations accomplishment was the detente with China.3
China had a very complicated relationship with the Soviet Union. Theoretically ideological allies. In fact geopolitically, China and the Soviet Union were rivals. The two communist nations even fought border wars during this era.4 Nixon and his National Security Advisor, Henry Kissinger, understood the rift and the potential to further isolate and contain the Soviet Union by pulling China away from the Soviet sphere. Their strategy worked at least in terms of further isolating the Soviet Union. China still under Mao Zedong started on the path towards normal relations with the first world. Of course these were the waning years of Mao and it took his eventual predecessor Deng Xiaoping to fully realize and capitalize on the detente. The ultimate impact of the detente in terms of ending the cold war is hard to evaluate, but in terms of re-enforcing the U.S.’s strategy that eventually did produce victory, it was a major accomplishment.5
The dragon awakes!
Under the leadership of Deng, China formed a two system society: communist politically, but capitalist economically.6 This allowed China to access American and European markets. With this system China boomed and boomed big. China’s growth from about 1980 to 2008 was historically unprecedented.7 With a massive workforce who provided very cheap labor and state controlled policy, China could and did become the manufacturer of the world; not unlike what the U.S. did in the later part of the 19th century. This phenomenal growth brought masses of people out of poverty and set China on a path to be a world power. This growth also led some people both within China and outside to be optimistic.8 With greater economic freedom, and the wealth it generated, China would liberalize politically.9 This dream however, was blown apart after Tiananmen Square, at least within China.10
Much of the West, though essentially ignored the incident.11 China was after all still part of the U.S. strategy against the Soviet Union, which at the time was teetering, but not yet fallen. China was also quickly becoming an economic enabler of the West, providing abundant and cheap goods. In fact this dream in the West, of a politically liberal China would persist for at least another two decades. Within China, however, economic freedom and growth was about as good as anyone could hope for under the Communist regime. And for most this was enough, after the crippling poverty for both body and mind under the Mao years, having enough to feed your family, educate your one child, have a little security in old age and maybe acquire a few indulgences made people relatively satisfied. So what they couldn’t speak their mind or hold corrupt officials accountable. Afterall was this really any different than at any other time in Chinese history? In any event the Communist regime created an implicit bargain: economic prosperity for submission to the regime. This was the new, but familiar mandate from heaven.
China grew so fast and so much in fact that many analysts were predicting when, not if, China would surpass the U.S. in everything from economics to military power, then as a global superpower. However, the U.S. generally did not view China as a significant threat. Sure, an argument could be made that China was taking jobs away, but this was a political slogan; reality was more nuanced. The U.S. tolerated China’s rise because of the growing economic interdependence, the potential of opening Chinese markets, and frankly because China was not viewed as a military threat. Deng espoused a philosophy of maintaining a low profile: to rise quietly so as not to make other more powerful nations fear China. This strategy worked well, until recently. Until Xi Jinping.12
While, even today some soothsayers are still hot on China’s rise and overtaking of the U.S. However, the old mantra that an economically rising China would inevitably lead to a liberalized China has soured; most analysts, even if they still think China will surpass the U.S. economically, believe China will not liberalize and therefore this creates the conditions for the next big threat to the U.S. A Thucydides trap in the making.13
We are now almost to the present moment. However, first we have to understand China’s current situation. So, let’s backup a bit to 2008. Why 2008? That is the year of the global financial crisis precipitated by the fall of Lehman Brothers. The financial crisis created an economic downturn unlike anything since the Great Depression.14 Many parts of the world are still recovering a decade later.15 China all of a sudden and all at once lost its biggest markets. The Chinese government was able to stabilize its own economy and prevent a severe downturn, but at the cost of ever mounting debt and some of its tactics started to draw the ire of the U.S. like currency manipulation.16 Ever since 2008, China's growth rate has been ticking down. Prior to 2008 China had year on year soaring double digit growth, now it is closer to a developed nation’s growth rate.17 The problem is that China is not a developed nation. Parts of the country, mostly along the coasts, are very developed and cosmopolitan; this is the China most people see and causes them to believe China’s future is so bright. But, the vast majority of people are still living in relative poverty.18 China’s economy is in a slow tailspin.
The Rise of Xi
This slow moving crisis precipitated the need for a new direction. The communist party felt they needed a strong leader, a dictator. Someone who did not have to rule by consensus and was not limited by a fixed terms in office. Enter Xi Jinping. One of Xi’s first priorities was consolidate power, this was necessary because he felt the direction China needed to go would create significant discontent and descent, which if left unchecked could end any changes Xi was after, if not him. Xi, achieved his aims through an anti-corruption purge.19 Corruption in China, like most nations, is nothing new and in many ways could be seen as a necessary way of life. The prescient and brilliant political scientist Samuel L. Huntington even argued in so many words that corruption can be beneficial to societies, especially developing one.20 Regardless, Xi’s aims were not to rid his country of corruption per se, but to use the anti-corruption agenda to rid himself of rivals; which wasn’t hard because nearly everyone in the Communist Party was actually guilty, including probably Xi. So, a little selective prosecution and Xi and his loyalists were firmly in control.21
Xi’s objectives for China are open to interpretation. Some can see Xi as guiding China towards becoming a true superpower.22 And maybe this is what Xi himself is after; certainly he wishes this can be achieved. However, as another brilliant and prescient political scientist, George Friedman has said, “Dictatorships are not imposed on healthy systems.”23 Instead Xi is probably a pragmatist and his aims are really about keeping China united while attempting to stabilize the economy before it crashes.
China’s history is essentially a series of cycles: unity, disruption, dis-unity. Unity is usually forged through force whether by a particularly cunning and effective warlord who gains enough strength and fortitude to unite China or by an outside force who conquers the country. However unity is achieved, the new Emperor establishes his mandate and rules. If reasonably successful the mantle passes from generation to generation of this new dynasty at least until some calamity disrupts the mandate and the country falls apart, waiting for the next unifier.24
Viewing through the lens of history, the Communists are the latest warlords who under Mao started the current cycle. Mao unified his country with an iron fist, but at the cost of extreme poverty. Some of his dictates were ideologically driven, but Mao was after a unified nation and the best way to achieve this is to literally make everyone equal. Xi may be faced with a similar choice.25
As the economy flags and prosperity wanes, people who are already living in relative poverty will be left with no hope of a better life for themselves and their families. Beyond lack of prospects, China’s one child policy leaves little security for an increasingly aging population; despite being a Communist country, China does not have a robust social safety net and without many children to support the parents in old age and little job prospects you can imagine discontent forming. Especially when many people are going hungry and yet the coastal capitalists of China are still displaying obscene wealth. The income inequality, which is massive in China already, will be front and center and growing. Agitation and discontent will occur. Crackdowns will follow. But, to placate the masses and keep the country from devolving into a civil war, Xi may have to crackdown not only on the proletariat, but everyone; Mao style. Prosperity sacrificed for unity. He may still not succeed. But this is getting a little ahead. Xi is not yet at this decision point.26
China’s Great Escape
After Xi consolidated power, he understood the above scenario was a possibility. But, he also likely saw a way out. China’s growth could continue, if the economy can break out of the so called middle income trap. This is a problem for developing nations. Essentially, a nation develops by industrializing, using low income workers to out compete other more developed nations in order to generate wealth. This wealth should in theory create and broaden a middle class, which becomes a consumer base on which to grow a robust internal economy generating capital. However, many developing nations never attain a broad middle class. In effect by the time workers start to gain a middle class income, they no longer can compete against other poorer nations and the competitive advantage diminishes. It’s a race to maintain the primary wealth driver, which is growing ever less competitive, and develop a robust middle class that can drive an internal consumption led economy.27
China is at this point. And it is increasingly looking like China will not break through. The problem is that Xi must now attempt to gain market share in advanced manufacturing and technology in order to support rising wages. This is in direct competition with developed nations, like the U.S.28
These initiatives can also be seen as a military threat to the U.S. Which exasperates China’s much more aggressive foreign policy under Xi. Specifically, China’s hostile takeover of the South China Sea by strong-arming other nations in regards to islands and then developing military capabilities on those islands. There is good strategic reason for China to claim these territories as it provides a maritime buffer for China which in the recent past was an invasion route and allows China to better project power to protect its vital sea lanes on which its export driven economy needs to survive.29
However, other countries are becoming weary or outright hostile to China because of its actions in the South China Sea; and the U.S. sees this as a direct military threat to its naval hegemony.30 However, sound Xi’s strategic motives are, the aggressiveness and timeline he is pursuing is likely going to cause the strategy to backfire. China is losing much of the good will it may have with neighboring countries.31 The U.S. is waking up to the potential threat of China and is no longer willing to ignore the downside of China’s rise against the upsides.32
The U.S. Response
President Trump’s election was not inevitable, his proclivity towards certain policy tools was not baked-in, but the general thrust of his stance towards China certainly was. Hillary or Trump, the U.S. was going to take an increasingly hostile stance towards China.33 In fact, Trump largely adopted President Obama’s stance on China.34 Trump simply pursued it with more vigor, greater flare, and was willing to escalate quickly. But, China as the next great mennence in the eyes of Americans has been increasingly accepted, especially since the U.S. started losing interest in the Middle East. And Xi has not helped his own cause. China’s increasing militarization of the South China Sea, its stated aims to surpass the U.S. in technology and advanced manufacturing fields, its myriad bad faith economic policies, outright intellectual property theft, its disregard for norms, and its growing military, in particular its navy has all happened too rapidly, too aggressively and too obviously aimed at countering U.S. hegemony.35
Perhaps Xi felt he had no choice. He must act now while he can and with the benefit of gaining domestic support for his hard-core policies and sable-rattling. But, the U.S. is now (mostly) awake to the mennence of China and from here on out China is going to face an increasingly difficult path to achieve its aims. What may still have been difficult to achieve with implicit U.S. acceptance; China’s will now face a U.S. who will actively stop its rise. This is almost ironic as China’s rise is in no small part due to the U.S.’s openness to Chinese goods, its protection of global sea lanes that China absolutely depends on (and which it cannot protect these trade lanes itself) and the U.S. maintaining relative stability in the Middle East at least as far as keeping the oil that China depends on flowing.36
That China wants to then challenge U.S. hegemony that fostered this rise in the first place illustrates the no-win position China is in. The problem for China is that should the U.S. decide not only to put pressure on China, but also relinquish its duties as the only world superpower, at least in terms of providing a public good that is free for all (i.e. securing sea lanes and protecting oil shipments out of the Middle East); China’s supply chains, that support its economy, would collapse. One simple example as outlined in geopolitical forecaster Peter Zeihan’s book, The Absent Superpower: should the U.S. decide not to concern itself with the Middle East, it is not hard to imagine a few wars starting.37 Most impactful would be between Iran and Saudi Arabia. This kind of war would stop oil shipments, most of which now go to East Asia including China. The U.S. has enough oil in North America to not need Middle Eastern oil. East Asian countries, including Japan and China could not source enough oil elsewhere. Part of China’s rationale for challenging the U.S. is to create a means to counter any attempt of a U.S. blockade against China. The reality is that the U.S. does not need to blockade China, it simply needs to do what China seems to want the U.S. to do anyways and go away. This is the paradox of China’s rise.
In the end China is like the proverbial frog in a kettle of water over a fire. Stay in and the frog boils to death, jump out and the frog burns to death. There may have been a middle, patient path to escape this fate, but perhaps not. In any case, Xi has overplayed his hand and the U.S. giant has awoken to stoke the fire, likely ending any possibility for a way out. What Trump is doing is likely only the beginning. What Trump see as the endgame maybe open to interpretation as well, but a diminished China that is of little threat to the U.S. is a start. The U.S. is decoupling its economy.38 Without a significant middle class, an aging population, mounting debt and the loss of its most important market, what is left for China is a stagnating and increasingly weary Europe.39 China's prospects are already likely dim. Should the U.S. also stop protecting the global oceans and keeping geopolitical realities locked away, China as we know it could well be over.
37:Zeihan,P (2017) The Absent Superpower: The Shale Revolution and a World Without America. Zeihan on Geopolitics
© 2019 W J Fitzgerald