Interesting Times at the American Legion Augustus P. Gardner Post 18
Interesting Times at the American Legion Augustus P. Gardner Post 18
Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
16 January 2014, Fort McNair, Washington, DC
I’ve written a book called: “Interesting Times: China, America, and the Shifting Balance of Prestige.” “Prestige” is the aura of power, the aspect of it that makes others want to be seen in your company. The balance of prestige between the United States and China has clearly shifted and the balance of power is following. As Admiral Locklear put it the other day: the United States can no longer count on unchallenged military dominance of Asia’s seas and skies. That makes a real difference, but how much of one?
I’m not going to rehash my book, but I will speak briefly today about three things: (1) how far China has come and where it’s headed; (2) the prospects for deepening interdependence between China and the United States; and (3) the danger of conflict between the two countries.
First, a few words about Chinese progress. China has had a couple of bad centuries, but it’s back, and it’s on track soon to regain its millennial status as the largest economy in the world. Chinese think that’s the natural state of affairs. It is only the speed with which it has happened that they find remarkable. And it is remarkable.
When I first visited Beijing in 1972, GDP per capita in that city – in today’s money – was about $130. Last year, it was more than $14,000, with purchasing power equivalent to something better than $21,000. That’s a more than 100-fold increase in the wealth of the average Beijinger!
In 1972, Taiwan’s 16 million people had a GDP slightly larger than the China mainland’s 875 million. The Chinese economy is now expected to surpass ours in purchasing power terms by 2016, when we hold our next presidential election. China will almost certainly overtake us in nominal exchange rate terms before the 2021 centennial of the founding of the Chinese Communist Party. Not long ago, the Economist magazine predicted this will happen in 2018. Falling growth rates both here and in China may have altered that calculation but it’s still in the ballpark.
In 1972, China’s worldwide imports and exports came to a grand total of $6.3 billion, including US-China trade of about $95 million. Last year China’s trade in goods alone was $4.1 trillion, making it the world’s largest trading power . US-China trade in goods and services came to an estimated $558 billion last year.
In 1972, there were no Chinese tourists or students in the United States or anywhere else. A few hundred Americans visited China. This year almost 2 million Chinese tourists will visit and over 2 million Americans will go to China. There are over 235,000 Chinese studying here and about 30,000 Americans now study full or part-time in China each year.
There was no investment by either country in the other in 1972. Now there are American companies everywhere in China. Our states and localities are pushing for some sort of Open Door policy for Chinese investment in the United States. We need the money and the markets it can link us to. Last year, investment from China in the U.S. came to almost $14 billion — about three-fourths of it from the rapidly growing Chinese private sector. By yearend, Chinese companies were providing more than 70,000 jobs in the United States. This has become a very consequential relationship and it’s becoming more so.
Having just waxed uncharacteristically numerical, I want to assure you that, while there are many references to facts and figures, there are no dreary charts and graphs or statistical recitations in “Interesting Times.” The book does, however, explore how China transformed itself by inventing something I call “cadre capitalism” – otherwise known as “socialism with Chinese characteristics.” Ideological skittishness means that cadre capitalism is not much analyzed in China. Ideological preconceptions make it greatly misunderstood here and elsewhere abroad.
Cadre capitalism links local boosterism to economic entrepreneurship and then links both to the promotion of individuals to higher levels of the Party hierarchy. It creates self-interested, selfish partnerships between local officials and business people. They collude to advance local political, economic, and commercial interests over those of other such partnerships elsewhere. This drives so-called state-owned enterprises to ferocious competition with each other and everyone else.
Cadre capitalism makes doing business in China quick and easy for those who understand and participate in it and hard for those who don’t. It’s a unique artifact of Chinese culture. It can’t be exported as a model or borrowed abroad. Perhaps that’s just as well. If corruption results from an inability to separate personal interests from public or enterprise interests, then cadre capitalism promotes corruption as well as the energetic pursuit of profit. When bureaucrats buy and sell things, people buy and sell bureaucrats. It strikes me as a good thing that the Chinese private sector is expanding and that business there continues to become more like business here than the opposite.
In the first three decades of the post-1972 U.S.-China relationship, Americans saw China mostly as a source of cheap consumer goods. Some Chinese saw America as a source of ideas, know-how, and capital. Most saw it as an insatiable export market. But there’s a shift in views underway on both sides of the Pacific. In recent years, Chinese have come to see America as a place to buy and make things as well as a place to sell them. Year-on-year, Chinese investment in America is doubling. As China shifts toward growth led by domestic consumption rather than exports and its middle class continues its explosive growth, this trend can only accelerate.
Trade is the exchange of what one has for what one doesn’t. China doesn’t have a lot of things that America does. China’s GDP tripled between 2001 and 2011, but U.S. exports to China more than quintupled. China has quite consistently been one of our fastest growing export destinations. It is now our third-largest export market after neighboring Canada and Mexico. For the first dozen or so years of our trade relations, Chinese complained constantly about their bilateral trade deficit with us. More recently, it has been we who’ve had the trade deficit – a real whopper of a trade deficit with China — but it looks to me like we’ve hit bottom and bouncing back toward better balance.
Chinese investment in America to produce things for export to China is on the rise. The benefits of this are obvious. It’s not just a factor in pushing trade into better balance. For Americans, it means more jobs and higher incomes. For Chinese, it means greater security of supplies of everything from food to energy. More high tech manufactures and vacations in places where the shopping is good, the air is clear, the nature is unspoiled, and the gambling tables are open.
Last year’s acquisition of Smithfield Foods by Shuanghui exemplifies some of the benefits to both sides from Chinese investment here. On a per capita basis, the supply of grains and oilseeds is four times higher in America than in China. It is much cheaper to transform grain into meat by feeding animals here than it is to ship grain to China to feed animals there.
Shuanghui now has a source of relatively inexpensive pork products that it can market under a prestigious brand with a reputation for reliable quality and safety. It can use Smithfield’s know-how to raise the quality and safety standards of the pork it produces and sells in China even as it produces and exports more American pork. Smithfield’s employees can look forward to constantly expanding production and more jobs in their communities. China’s consumers, who have been justifiably wary of Chinese food products, will have a more secure and safer source of the main meat in their diet. Bilateral trade will increase.
Politicians at the state and local levels already understand why they should try to attract rather than obstruct Chinese investment. If the Smithfield deal works as it should, politicians at the federal level will have a visible example of why they should do the same.
China’s astonishing economic advance has led lots of foreigners to envy it. But most economists and – more important – China’s leaders believe that the model that produced this success is now obsolete. The country has entered a decade-long era of restructuring to enable it to cope with the many challenges its successes have created, including huge environmental damage, overdependence on export markets, overinvestment and under-consumption, abuses of monopoly power, over-regulation, burgeoning local debt, and inadequate financial support for China’s booming private sector. China is reforming its monetary system, capital markets, and taxes. Its ideas are bold, but implemented incrementally and cautiously. There’s a reason that Deng Xiaoping favored what he described as “feeling one’s way across a stony riverbed with one’s feet.” China has very little margin for error. It needs to tread carefully as it adopts new ways of doing things.
China’s leaders are haunted by their country’s horrifying history of famine, natural disaster, and violent subjugation by foreigners. China must feed, clothe, and house twenty percent of the world’s people on less than ten percent of its arable land, with only seven percent of its water. For four of the past ten centuries, foreign invaders ruled China. As recently as 1931- 1945, as many as thirty-five million Chinese died as Japanese tried to conquer their country. At least seventy million more died from internal rebellions and disorders over the century between the second Opium War and Deng Xiaoping’s repudiation of Mao’s totalitarian utopianism. Chinese value the domestic tranquility they have enjoyed since Deng turned China around.
There is not a country anywhere on the planet that would exchange its geopolitical circumstances for those of China. China shares land borders with fourteen countries, including some very tough customers, like Afghans, Indians, Koreans, Mongols, Pakistanis, Russians, and Vietnamese. The Japanese, Taiwanese, and U.S. navies are just off China’s coasts, where the Indian navy has also begun to make occasional appearances.
China’s multiple past wounds and present vulnerabilities are about as solid a guarantee as one could hope for that it will continue to be interested mainly in its own domestic tranquility and prosperity. Its human and natural history as well as its geography make its leaders tough but risk averse. They are cautious in their management of their country and its foreign affairs. Even if China had an ideology or political-economic system it could export (which it doesn’t), its leadership would still be very conscious that they can’t afford to make mistakes at home or abroad.
This is especially so, given that there is no longer a vacuum along China’s borders that must be filled by America, just balances to be sustained. Since 1945, Japan has achieved wealth, international respect, and an unsung but formidable self-defense capability. It has been followed on this path by the southern half of Korea, India, and most of the ASEAN nations. Countries like Singapore punch above their weight and, as Americans and Chinese have both learned, Vietnam is no pushover. North Korea is not a neighbor any country would choose to have.
If China’s behavior, combined with its rising strength, stimulates some of its neighbors to come together to limit its influence, this is a problem for China, not a reason for the United States to rush to oppose China. And regional coalitions to check any untoward Chinese ambitions do, in fact, appear to be emerging. One sees this in the steadily expanded cooperation between Japan, India, and Vietnam, for example. The task before us is not to build a military Great Wall on China’s East and South, but to facilitate the emergence of effective regional balances in Asia and to buttress these balances as appropriate. This task makes a robust American presence in the region desirable for some time to come.
But adjustment to new regional realities will not be advanced by U.S. policies that interpose our armed forces between China and its neighbors, that relieve smaller Asian nations of the responsibility to mount their own effective efforts at self-defense, or that discourage their establishment of mutually respectful relationships with China, India, Indonesia, Japan, south Korea, Pakistan, Russia, and other regional powers, like Australia. Nor will our interests be advanced by taking sides or otherwise exacerbating the longstanding territorial disputes that expanding naval capabilities on all sides have recently activated. Our objective should be the resolution of these disputes, not just their management. And they should be resolved as part of a graceful adjustment by China’s smaller neighbors to its renewed prosperity and military vigor and by China to their now well-established wealth, power, and independent sovereignty.
This brings me at last to “the Pivot” – the proposed rotation of American forces and shift of foreign policy attention to East Asia from points West. The first thing our government tells us is that the pivot is “not about China.” Of course it’s not about China, except when it is – or when there are no Chinese in the room to listen to us as we figure out how to turn our attention to the Indo-Pacific while simultaneously continuing our crusade against militant Islam.
We are having trouble convincing others in Asia that we’re really prepared to drop everything elsewhere to help them balance China’s rising wealth and power not just now but over the long haul. We’re also having trouble convincing the Chinese that we don’t intend to remain in position to assault them at will from their own near seas or to keep them from having much say in what happens in their neighborhood. Some might say that the “pivot” is based on American fear that China might become more like us. Does the world have room for another country that is strong at arms but a bit weak in the head, demands deference from its neighbors, and seems convinced that bombing distant foreigners is the surest path to peaceful coexistence with them?
Americans who are nostalgic about the Cold War and eager to reenact it look forward to China mirroring us to become a true “peer competitor.” Just think! A China that modeled itself on America would cure our enemy deprivation syndrome, return us to the welcome simplicities of some sort of bipolar struggle for global dominance, and justify an endlessly bloated defense budget. For the leprechauns of the military-industrial complex, such a China is the pot of gold at the end of the congressional rainbow. So we propose to swing our military away from West Asia (the Middle East) and rebalance it to East Asia.
China’s bankers, unlike its military, seem curiously relaxed about this possibility. Perhaps it’s because they own so much American debt they can’t help noticing that we have a budget problem we are addressing by mindless disinvestment – cutting everything equally so as to avoid having to make choices or set priorities. If the United States can’t make choices or set priorities at home, why worry about it doing so abroad? As long as there’s an Israel Lobby to set a large part of Washington’s foreign policy agenda for it, what’s the real chance that China – as opposed to angry Arabs, Persians, and other Muslims – will become Enemy Number One for Americans? And, if Asia deserves more attention because it’s becoming the world’s economic center of gravity, will a militaristic “Pivot” address that reality, or just waste money?
So the best bet in Beijing – like the worst fear of the military-industrial complex here – is that America’s “Pivot” will turn out to be just another blast of boastful babble from the Beltway bubble’s bureaucrats and their bloviating bosses. Of course, the People’s Liberation Army can’t be sure about that, so it will prepare for the worst. What this means is that China’s ability to fend us off will improve even if our ability to bludgeon it into submission doesn’t.
This is how wasteful arms races are born. (Consider the innovative Chinese answers to force projection with aircraft carrier battle groups and U.S. missile defense that we’ve seen in recent years.) This time around the arms race is with a country whose economy is about to be bigger than ours. Despite our unmatched military capabilities, the “Pivot” strikes most America-watchers in China as too clever by half – more self-licking ice-cream cone than military menace. I suspect they’re correct.
Most likely, the “Pivot” will turn out in the end to have been part pirouette, part bluff, and part fiscal fizzle. That’s too bad. It’s entirely appropriate for the United States to pay more attention to East Asia, including to shifting military balances. As some of Japan’s recent actions illustrate, these involve much more than the return of China to its pre-modern weight in regional affairs.
President Xi Jinping has proposed that the United States and China try to develop a new kind of great power relationship between us. He says we need this to better manage the inevitable frictions that attend shifting balances in relationships and to avoid conflict between a rising China and a firmly established United States. He and others also note, with Thucydides, that such conflicts more often than not arise because of actions by allies and commitments to them rather than as a result of deliberate decisions by great powers to go to war with each other. I believe he’s right. I also think that, with wise statecraft, such conflict is entirely avoidable. Wise statecraft lies in mutual respect for each others’ interests and sensitivities and in avoiding provocations to these interests and sensitivities. That’s do-able but it’s a far cry from what we are currently doing with China and our allies or what China is doing in interactions with its neighbors, some of whom are our allies. Both sides need to reexamine and rethink the way we conduct ourselves.
Forty-one years ago, Richard Nixon reopened relations with China and ultimately catalyzed its return to wealth and power. Perhaps a word from the master is in order. In dealing with the changes since 1972, the United States should be guided by the Doctrine Nixon articulated at Guam on July 25, 1969. This put forward three principles:
“First, the United States will keep all of its treaty commitments.
“Second, we shall provide a shield if a nuclear power threatens the freedom of a nation allied with us or of a nation whose survival we consider vital to our security.
“Third, in cases involving other types of aggression, we shall furnish military and economic assistance when requested in accordance with our treaty commitments. But we shall look to the nation directly threatened to assume the primary responsibility of providing the manpower for its defense.”
That was sound policy then and it is sound policy now.
In closing, I wish only to add that, if we try to divide Asia to suit our geopolitical convenience instead of accepting, accommodating, and buttressing its new balances of power, we will end by dividing Asia from ourselves. That would undercut both our prosperity and our global and regional influence. It would also necessitate even higher levels of defense spending and taxation than the essentially unaffordable ones we have now. Finally, for the United States to meet the economic challenge of a rising, competitive Asia, we need approaches that leverage Asian prosperity to the benefit of our own, not geostrategic posturing masquerading as trade and investment policy.
The world has changed and we must change to meet its new challenges. Among the most formidable of these is dealing with a reconfigured Asia in which China looms large. To do this, we must rethink how we do things. And, instead of worrying about how the Chinese are getting on, we need more than anything to get our own act back together.