The China Track 与中国接轨

Putin & Xi challenging the world order: Not.

The FT's Philip Stephens, in an essay published yesterday, claim that Xi & Putin are "contesting the established world order. " This is an increasingly common take on Russia and China's aggressive approach to their respective border disputes (Crimea, the South China Sea, Senkaku/Diaoyutai, etc.). But I think it's folly and the height of arrogance to portray the US's disagrements with Russia and China as one of a disagreement about the basic rules of the international system. 

The first point is to note that Russia and China are acting in highly assertive ways and using coercion to press pursue their territorial interests, but that Russia is being much more aggressive than China, openly challenging and sending troops across existing international borders. Russia's annexation of Crimea and its destabiliization of a sovereign Ukranian regime differ substantially from China's brusk behavior against Philippine and Vietnamese vessels or its placing an oil rig in waters claimed by Vietnam. China would not only have to clearly identify these waters as sovereign Chinese territory but patrol the waters as such and expel others to be in the same league as what Russia has done. Whether it's because they aren't strong enough or some other reason, they haven't. So we shouldn't treat China like they've already taken these steps. 

Second, we need a more realistic recognition of the international system and norms. Yes, there are rules and norms on security, economics, and human rights. States have the right to self-defense, but they shouldn't invade or militarily coerce others. There is a multilateral economic system that encourages free trade and the flow of capital. And states should treat their own populations humanely.

But the actual "rules of the road," now the Obama Administration's favorite phrase, are relatively ambiguous. What constitutes military aggression, unfair trade practices, and human rights violations aren't always so obvious. In addition, the United States itself doesn't consistently abide by these norms. The US uses its military power outside its own borders far more than any other country in the world, often unilaterally and without UN approval. It is not a signator to the Law of the Sea Convention and is found in violation of WTO rules as often as any other country. And the US engages in cyberwarfare and Internet surveillence certainly as much as China, if not more. And for anyone who thinks US intelligence agencies don't help US industry as a result of these activities, I've got some property in Florida and Erdos to sell you.

Third, I can't be sure about how Russia defends its actions, but in just about every case I'm aware of, China places its acts in the context of existing rules and norms. Sure, in many instances these are self-serving interpretations, but they are consistently framed in these contexts. China cites the Law of the Sea convention when it suits its interests and cites "historical" claims when it does not. China did not invent the idea of an Air Defense Identification Zone (ADIZ), but borrowed the idea from the US and others. China now uses the fair-trade rules, such as antidumping, in the same way US industry has done so for decades. 

In sum, we need to stop being so naive about what the real rules of the road are, especially for large powers. Russia and China may be challenging the US's dominant position, but the US is not a synonym for "world order." If you want to pick sides in these contests, just don't be fooled that you're picking between a fair, open, and peaceful system and a hierarchical, coercive, and brutish system. There are already many aspects of the latter in our current world order. Even as Russia's revival and China's rise are leading to a realignment of the balance of power, this shift is not undermining the basic structure of the international system but reinforcing it. 

All of the above does NOT mean I approve of what Russia and China are up to. Actually, quite the opposite. Just focusing on the PRC, I think China's coercion against its neighbors is deplorable. Many of its economic policies that are polluting its environment, sickening its people, and threatening the planet are shameful and should be changed. Its approach toward the Internet and willingness to put aside human rights conerns in favor of protecting the state go against what would be in the country's true interests. But most of these policies and appoaches are being taken within, not against, the current world order. And so if we want the Chinese to change, we should stop lecturing them about norms and instead actually reconsider and address weaknesses and ambiguities of the current system. The Chinese are no longer going to change their ways simply because the US or anyone else says what they're doing violates international norms. We need a new approach that is more realistic about how the world actually works and what kind of world we want.  

IU China Office Opens

After several years of planning, Indiana University's China office opened its doors on Friday, May 23rd. Although the cover photo for the office's website may exaggerate how clean Beijing's air is, the facility really is state of the art, and will be a very comfortable home for IU faculty, students, and alumni who need to do research and hold meetings in China. For more info on using the facility, visit IU's China Office website.

The opening is officially described in a press release issued by IU, so no need for me to go into much more detail here. But you can see from the "before" and "after" shots, that the space underwent a dramatic change in just a few short weeks. 

January 2014: We received the space essentially naked, with no floors, walls, or ceiling. Each tenant in required to install and uninstall all of this when moving in or out. This adds a lot to the cost of the space, but is a boon to the remodelling and interior design sectors. 

May 2014: Picture taken from the same physical location. A little different, no?

May 2014: RCCPB Center Coordinator Roy Hooper in the reception area. 

May 2014: The view from the reception area toward the conference room and other offices.

May 2014: President McRobbie speaks at the opening ceremony.

May 2014: 75-80 people attended the ceremony.

May 2014: President McRobbie and his Tsinghua counterparts renew our Memorandum of Understanding between the two schools.

The IU Office is located within the Tsinghua University Science (TUS) Park, a 5-minute walk from the East and South gates of Tsinghua University and a 10-minute walk from the #13 subway line. Click here for directions. You're welcome to visit any time!

 

9/11 vs. 3/1: The gulf between Americans and Chinese

China's Global Times ran a story on Sunday calling the knife attack that left at least 29 dead in the Kunming railway station, "China's 9-11." The story went on: 

Any explanation for the attack, like those in previous cases elsewhere in China, would be feeble at the bloody scene, where mothers, sons and daughters were slaughtered by strangers. Nothing justifies such a carnage against innocent civilians.

This was a random attack, with the sole purpose of causing the greatest casualties and impact within the shortest period of time.

It seems that the terrorists have had their way. Their killing spree has left 29 dead and over 130 injured, shrouding the southwestern city and the whole nation in terror.

Although Americans would certainly sympathize with the victims and their families, they would have a hard time seeing the Kunming attacks and 9/11 attacks as equivalents. The differences in perceptions shines a spotlight on the gulf in world views between the peoples of the two countries. 

Honoring the Kunming victims, China, 2014

For most Chinese (and 94% of Chinese are Han), as the above quote suggests, the attacks are acts of terrorism against innocents. Nothing could possibly justify these actions. By contrast, for Americans, the Kunming incident fits primarily into a broader story about China's suppression of ethnic minorities. The attackers appear to be Uyghurs, a Muslim ethnic group living mainly in China's Xinjiang region. Evan Osnos, writing in The New Yorker today, captured this sentiment in his post-mortem (literally), by not emphasizing the death toll and victims in Kunming, but the harsh conditions Uyghurs face in Xinjiang that could prompt them to take such drastic action.

(For those wanting more background, my colleague, Gardner Bovingdon, has written one of the most extraordinary books on this topic, The Uyghurs: Strangers in Their Own Land, 2010, Amazon. His book is distinctive not only for the depth of its insights, but also for the balance he brings to the analysis, not accepting any one side's propaganda at face value.)

Honoring the 9/11 victims, Toledo, Ohio, 2002

Such an interpretation leaves most Chinese dumbfounded. They can't see how there could be any reasonable justification for the attacks, which somehow might legitimate the deaths of the victims. And even if it makes sense to dig into the motives of the perpetrators, they would likely be surprised that the discussion turned in that direction within hours of the attack, as soon as Beijing identified the likely assailants. 

The equivalent turn would be those who in the immediate wake of 9/11 explained the attacks as a response to US policies and military actions in the Middle East. The most famous domestic voice came  in a brief commentary by Susan Sontag in, ironically, The New Yorker, in its September 24, 2001 issue. 

Where is the acknowledgment that this was not a "cowardly" attack on "civilization" or "liberty" or "humanity" or "the free world" but an attack on the world's self-proclaimed superpower, undertaken as a consequence of specific American alliances and actions? How many citizens are aware of the ongoing American bombing of Iraq?...

...A lot of thinking needs to be done, and perhaps is being done in Washington and elsewhere, about the ineptitude of American intelligence and counter-intelligence, about options available to American foreign policy, particularly in the Middle East, and about what constitutes a smart program of military defense. But the public is not being asked to bear much of the burden of reality. The unanimously applauded, self-congratulatory bromides of a Soviet Party Congress seemed contemptible. The unanimity of the sanctimonious, reality-concealing rhetoric spouted by American officials and media commentators in recent days seems, well, unworthy of a mature democracy.

She faced a storm of criticism for her remarks. But with a few substitutions, this could replicate  analyses of Chinese heavy-handed policies and hubris that have generated deep-seated resentment by Uyghurs. It's not surprising that Chinese would be just as pained by potential justifications of the Kunming attacks as Americans were caught off guard by Sontag's analysis. 

That I see parallels in the gulf between how Americans and Chinese see 9/11 and 3/1 does not mean that 9/11 and 3/1 are genuinely equivalent with each other. Simply in terms of scale, there is no comparison. Moreover, in Kunming the targets were in a common transporation hub in a southwestern city located in a province populated with a large number of other ethnic minorities. The 9/11 attacks were directed at the physical and symbolic hearts of American economic, political, and military power. The car bombing a few months ago in Tiananmen Square comes closer but still doesn't seem to me to carry the same symbolic weight of simultaneous attacks on the World Trade Center and the Pentagon (not to mention the potential final target of the plane that crashed in Pennsylvania). 

The crux of the comparison between 9/11 and 3/1, though, comes down to the legitimacy of analyzing the motives of the attackers. In the US, once the initial wounds of 9/11 healed, and particularly in the wake of the 2nd Iraq War ("war of choice"), there's been some consideration of how the US presence in the Middle East, as well as how the US has carried out the "war on terrorism" has generated anti-Americanism and been a recruiting tool for Al-Qaeda. But that navel-gazing has been limited. The US military has for the most part departed Iraq and is winding down in Afghanistan, but the American political establishment views such moves as tactical shifts in terms of what is best needed and effective in maintaining US global dominance. The American government has not waivered from the fundamental position that it could and should operate anywhere on the planet militarily to protect its interests. 

Although it would be wise for Beijing to consider how its policies in Xinjiang have generated antipathy, dissent, and violent responses, I don't know if now, just days after 3/1, is the right time for our attention. For the time being, Kunming seems the place deserving our focus. Even if one sympathizes with the desire for genuine Uyghur autonomy, aren't we all Kunmingers? No matter how unfair Beijing's policies are, let's agree that stabbing travelers standing in a train station on a Saturday night, or flying planes into high-rise offices where employees are diligently working on a quiet Tuesday morning can never be justified.

A China-Euro Solution for the Redskins

I'm a professional China specialist, but I'm a lifelong Redskins fan. My two identities have always remained separate. When I'm in the US, Sunday afternoons are for watching NFL football. When I'm in China I can't even see the games. And explaining American football to my Chinese friends -- from the uniforms to the thousands of rules -- shows how utterly strange the sport is to outsiders.

But there's now a way for my two lives to intersect. The NFL regular season ended yesterday, and my Redskins finished with 8 consecutive losses, to wind up with a 3-13 record, their worst performance since 1961. Over the past two decades the Redskins have had the 6th worst cumulative record in football. They're an utter embarrassment to those of us who came of football age in the 1980's, when the Skins won 3 Superbowl championships (in 1982, 1987, and 1991). With a pitiful record and a team name that understandably invites charges of racism, fans are sullen and at a loss as what to do. In fact, the NFL in its entirety seems increasingly problematic because of the long-term injuries players incur as a result of the sustained violence and the astronomical ticket prices (minimum $200) that put attending games out of most families' reach.

How might we fix both the Redskins and the NFL? China can help, with a little insight from our friends on the other side of the pond. No, I don't mean a rich Chinese entrepreneur who likes crepes should buy the Redskins, though that might widen the menu choices at games. And I don't mean the NFL should become more authoritarian and use an iron fist to outlaw poor play or secretly choose the Redskins as the season's winner. 

Instead, China's economic experiment in whether success is determined more by private ownership or competition can help point the way to a football renaissance. Although China's state-owned enterprises (SOEs) have wracked up more debt and losses than their private cousins, SOEs' performance improves remarkably when they face real competition. In monopoly sectors (such as utilities, steel, and natural resources), SOEs have grown lazy under layers of protection. In competitive sectors (such as telecoms and autos), SOEs have responded to the challenges posed by private and foreign firms, and have done much better. It's the competitive environment, not the genetic imprint of ownership that shapes corporate behavior. 

What is true for China and companies is true for the NFL and football teams.

Some fans, including yours truly, despise the current Redskins owner, Daniel Snyder. He makes splashy hires for coaches and players who don't pan out, and he regularly meddles, sending the teams' record down but the drama sending his income up. His 15-year ownership era has been an amazing success -- for him. He's made millions of dollars, and the franchise is worth hundreds of millions more than the day he bought it.

But as distasteful as his ownership has been, Snyder is acting rationally in his environment. The NFL is a legalized monopoly in which the owners have 100% control of their teams, they cannot be forced to sell their teams, no other NFL teams can form in their locality without league approval and a huge bribe (excuse me, payment), and their teams face no penalty for poor performance.

The solution to this problem is not to ban bad owners or have everyone copy the Green Bay Packers, who are owned by townspeople of Green Bay. Rather, what the NFL needs is more competition. I don't mean longer seasons or salary caps (though the latter is modestly helpful). Instead, the NFL needs to be open to admitting new teams into the league and kicking bad teams out of it.

For the specifics of the solution, my inspiration is not China, where professional sports are still a joke (Gilbert Arenas plays for the Shanghai Sharks, need I say more), but European soccer (original football). There are several tiers of professional soccer in each country, each with a substantial number of teams. At the season's end, the lowest performing teams of the top league (in the UK, that is Barclay's Premiere League) get "relegated" to the next league down, and the top performers of the lower league get to move up. The result is that every team has a huge incentive to perform as best they can throughout the season because the financial consequences for not doing so are devastating.

If the Redskins (or any sorry NFL team - hey, Houston Texans!) faced the possibility of being demoted to a junior league with less revenue-generating potential, that would be all that is needed for Mr. Snyder to make much wiser decisions. And his football players would also get the signal that mailing it in on any given Sunday might result in their salaries being chopped by 90% if the Redskins were demoted to a new "B League."

Of course, it's possible they would still perform badly and be relegated down, to the point where the franchise would entirely collapse. But I'm fine with that: is it really the American spirit to keep a horrible team (or company) on life support indefinitely just because, to paraphrase Jerry Seinfeld, we like their laundry? No. Let a new, better run team take their place.

To get from the current closed system to more open competition, Congress would first need to revoke the NFL's monopoly rights on teams, and with it, their guaranteed TV money. That would open the way for other investors to create teams who could then form a second-tier league. The most natural final part of the equation would be to integrate college football into the system. Universities would not only be able to feed players into the higher ranks, as occurs now in the draft, but they also would have the opportunity themselves to move up to higher tiers and play teams of similar caliber. What football fan wouldn't want to see the Alabama Crimson Tide take on the Houston Texans, or (heaven help us, please), the Dallas Cowboys? And not just as an exhibition or with pride at stake.

Moving toward a genuinely competitive system would be opposed by just about everyone who has power today: the NFL and its owners, Congress, the TV networks, college conferences, and big universities all make a killing under the current closed systems. And when economic arguments fail, they can all point the supposed immorality of destroying college students' "amateur" status. Oh, please!

But there would be two winners in a more competitive system. The first would be the fans, from those of NFL teams down to Division-III tiny football programs in the smallest of towns. We'd get to see much more competitive action, and teams that played extremely poorly would get knocked down a peg until they turned things around. The second winners would be the players. They would be in a better position to demand more from owners, both professional and collegiate, which would lead to better pay, treatment during the season, and support when their playing days are over. The NFL, NCAA, and others could be reconfigured and new regulations adopted federally and locally to ensure greater transparency and fairness, and perhaps more funds going toward improvements in community infrastructure and not just stadiums.

So I really don't care if Snyder sells or sticks around, or who is hired as the Skins' new head coach to replace Mike Shanahan. Until NFL teams are forced to operate in a more competitive environment, as many Chinese SOEs face in many segments of their economy, the NFL will be a monopoly that serves its owners and their minions. Us fans will continue to get the shaft. 

Levitt Condones US Influence-Peddling in China

Arthur Levitt, a former SEC Chairman, had a nice, consolling gift for American banks operating in China in the form of a Wall Street Journal op-ed on Christmas day. He catigated the current SEC leadership and other American regulators for going after JPMorganChase and other banks who hire the princelings of Chinese leaders in order to promote their businesses.

He justifies the practice in three ways. First, he says it is so commonplace in the US that it would be hypocritical to outlaw it in China. He writes: 

The accusation is scurrilous and hypocritical. If you walk the halls of any institution in the U.S.—Congress, federal courthouses, large corporations, the White House, American embassies and even the offices of the SEC—you are likely to run into friends and family members of powerful and wealthy people...

Whether this is right or wrong, unfair or fair, is not the point. It is hypocritical of financial regulators to criticize—even penalize—practices abroad that are commonplace in Washington, New York and other seats of political and economic power.

Were the SEC to be completely consistent in its approach, it would have to come down hard on the same practices here in the U.S. And the agency would have a field day. Members of Congress and the executive branch regularly hire the children of major donors. Regulators would find scores of examples of men and women, occupying internships and entry-level positions in U.S. corporations, who were hired on the say-so of someone much higher up in the organization.

His second justification is that such hirings are critical for business success. You're more likely to get high-quality personnel based on personal recommendations, and such individuals are invaluable "assets" because of their connections. 

His last criticism is that if we outlaw hiring based on personal ties, it would be impossible to know exactly where to draw the line. So don't, and allow any and all kinds of hirings. 

 Mr. Levitt's op-ed is galling for three reasons:

First, for the former head of the SEC to make these arguments runs against everything the US lectures China and other countries about with regards to their financial systems. And I use the word 'lecture' intentionally. US authorities have for decades lectured bankers and financial regulators in other countries that they need to root-out personal ties, conflict of interest, and corruption from their financial systems and have banks operate on a "commercial basis," that is, make loans and investments based on the commercial merits of the transactions and the credit worthiness of the borrowers. The US government, the EU, the IMF, and Western banks all pinned the Asian financial crisis on such personal ties, what has been termed "crony capitalism." And this perspective is what drove the IMF and others to attach extremely rigid conditions to their bailouts and forced extensive restructing of the financial systems across the region. And in case he forgot, the US just went through one of the deepest financial crises in 70 years, and we should recognize that some of the sources of the crisis lay in the cozy ties between our banks, investors, and regulators. 

Given such lecturing and our own recent experience, it's beyond ironic that the Mr. Levitt is now arguing that such behavior should not only be permitted, but it should be encouraged and respected. 

Second, I actually do not have a problem with hiring employees partly on lineage, nepotism, and connections. Financial markets are highly regulated everywhere, even more so in China, and getting through that maze of regulations takes people with knowledge of not only the written regulations but the people assigned to implement those regulations.

But it would be wrong to say, as Mr. Levitt does, that anything goes. Some hirings create a conflict of interest or the perception of conflict of interest. Whether opeating within the US or abroad, American banks should be required to avoid conflicts of interest whenever possible. Moreover, they should be required to disclose such conflicts of interest when they could potentially materially affect those who entrust their business to them. If JPMorganChase and others had not tried to hide these practices and been more open about them, perhaps the regulatory and public reaction would not have been so harsh. If these are acceptable -- and even honorable -- practices, then these banks should have no problem being more transparent about what they're doing. 

Third and finally, just because influence-peddling is common within the US does not mean we should just allow it everywhere else. And just because it is hard to know where to draw the line doesn't mean we shouldn't try. We need to make America's rules more stringent and enforce them better, not simply throw up our hands and stick our heads in the sand while his banker friends run amok. This applies to all the various areas of financial regulation, from hiring practices to grey markets to credit ratings to insider trading. The US financial system is far from perfect -- Dodd-Frank fixed some things but made others worse and left some problems unaddressed  -- and there are important areas of regulation at the international and trans-national levels that needs to be addressed. 

So there is no need to be puritanical, but let's be reasonable and encourage practices that are not geared to helping powerful banks and investors, but serve the broader economies and societies. What's good for JPMorganChase and Goldman Sachs may not be what's good for America -- or for China.

Biden's Bipolar Defense of a Free Press

Today in Beijing Vice President Biden issued a strong and candid defense of a free press. In his speech to US business executives he said, "innovation will thrive where people breathe freely, speak freely, are able to challenge orthodoxy, where newspapers can report the truth without fear of consequences." He went on, saying that "We have many disagreements, some profound disagreements on some of those issues right now - the treatment of U.S. journalists."

Of course, he is referring to the difficulty of reporters from the New York Times and Bloomberg getting accredited, as well as the daily hassles foreign reporters face in China. Their treatment truly is unreasonable and self-defeating, as reports on these problems generate further negative stories on China. More importantly, if journalists had greater access to all of China, official and unofficial, there would be more positive stories out of China. If China thinks it can force foreign media to simply report on China through their officially approved framework, then it is mistaken, and every day it is losing the battle for the minds and hearts of Western audiences. (I think their efforts at ideological control also have a corrosive effect on Chinese people's view of their own government as well.)

Seen in that light, I applaud the Vice President for sticking up for foreign correspondents, which was the centerpiece of an excellent post today by Elizabeth Economy of the Council on Foreign Relations.

At the same time, Biden's comments lose some of their power as a result of his own government's efforts to constrain the media. The White House itself has gone to great lengths to shape coverage of the President, including limiting press conferences and increasing the use of the White House's own staff photographer and keeping out press photographers from certain occasions. Even more important are the revelations from Edward Snowden that are emerging through the New York Times and Washington Post. The USG has put a great deal of pressure on these organizations and their reporters and has taken the position that everything being released and reported should not be. The British government has taken an even more hostile tact in dealing with the Guardian. Just as important, the activities of the NSA and the complicity, in part intentional, of Amerian hi-tech companies, is giving greater impetus to the end of the borderless Internet. Countries and companies are doing more to take as much control as possible of their telecommunications networks, and this inevitably will reduce the free flow of information. 

In short, the US government itself has taken steps, particulalry in the wake of 9/11, to exert control over the media and communications networks that has the effect of chilling investigative coverage and open discussion of issues that may expose the US government to embarrassment and uncover wrong-doing. (For a deeper discussion of the weaknesses of the American media, see the superb exchange from late October in the New York Times between Bill Keller and Glenn Greenwald.)

None of this is meant to reflect an equivalence of China's hard-fisted and explicit media crackdown and the more nuanced and less overt efforts at manipulation and ubiquitous surveillance by the US government. The Western press is still far freer than the Chinese media, even liberal elements such as Caixin Media and Sina Weibo. However, it wouldn't surprise me if in light of what the US does, Chinese would see Vice President Biden's comments as hypocritical and self-serving. They may conclude that the US likes a free press when it hightlights the deficiences of other governments, but as soon as it turns its gaze on "core US national interests," that commitment may be less firm. The Vice President would be on firmer ground vis-a-vis the Chinese if the First Amendment was better protected at home. And Americans would be better off as well.

Biden's approach reflects a broader "bipolar disorder" in how Americans typically engage China. (I'm, of course, only using this term metaphorically.) When we are discussing and debating issues domestically amongst each other, we recognize that there are lots of problems with existing policies and laws. This not only applies to the media, but, speaking from my admittedly liberal perspective, to the decline of privacy in general, our expensive health care system that leaves many without access, the growing gap between rich and poor, extensive corruption in Washington and state capitals, our decrepid physical infrastructure, the prevlance of guns that annually results in thousands of deaths and injuries, a weakly regulated financial system that favors big banks over small investors and consumers, a patent and copyright system that also favors large companies over consumers, continued racism, gridlock in Washington, and an education system that is generating declining abilities in math, science and other subjects. But when the Vice President and other officials go to China -- or meet them anywhere -- we tend to suppress and ignore these problems (or say they're irrelevant to the issue at hand), and tell the Chinese that the US stands for important principles such as the free market, a level playing field, human rights, and not using coercive force against peaceful countries, and therefore, China should yield on specific demands the US makes. 

Not only should we expect that China give more access to foreign correspondents, not to mention their own journalists, the US needs to be less "bipolar" and not pretend that the problems we have do not exist when we are talking and negotiating with others. Some may worry that doing so would feed the Chinese propaganda machine that the US is a terrible place and declining country. But I think doing so would have a more positive effect on America's image in China and make American negotiators more effective, not less. We would also gain greater control over contextualizing these problems and take that power away from China's propagandists. We should feel comfortable being open about our problems because the US has so many amazing strengths that we and the Chinese can admire, and we have a system that can be quite good at addressing these weaknesses. 

So I encourage Biden and other US officials to not only tell it like it is -- and should be -- in China, but to not ignore how it is in the US as well. We'll be a better country and have a more effective foreign policy by doing so.

The Sweet & Sour of Biden's China Visit

Vice President Biden is completing his visit to China as part of his broader trip through the region. Although China's announcement of a new Air Defense Identification Zone (ADIZ) has dominated the headlines and been a central part of the discussions everywhere he goes, he has addressed a great many issues during the past several days.

I'm particularly struck, though, by the sweet and sour mix of his meetings with Xi Jinping. They in a nutshell embody what may be enduring elements of the broader US-China official relationship.

On the sweet, positive side, there was genuine, sustained personal engagement and substantive back-and-forth. The briefing by a US official stressed how good their personal relationship is and how they talked broadly and strategically about many issues in ways that did not simply sound like negotiations. This is a huge improvement over the interactions during the 10 years of Hu Jintao's leadership. He never deviated from the the cue cards. 

Second, the Chinese and Americans aren't letting disagreements on some issues hold the entire relationship hostage. The ADIZ problem isn't stopping cooperation in other areas the way a crisis would've put everything else up in the air, at least temporarily, as in the past, e.g., the 1995-96 Taiwan Straits Crisis and the May 1999 embassy bombing. The two countries are collaborating bilaterally, regionally, and globally on a host of issues. For example, in the midst of these regional events, the Chinese are in Bali at the WTO ministerial, and they've been sufficiently cooperative for there to be a deal. The recalcitrant party is India, which is opposed to a deal for ideological reasons.

And third, the disagreement over the ADIZ is being contested through international rules and their different interpretations. China did not draw vague lines in the western Pacific and start shooting willy nilly. Instead, they studied assiduously about precedents regarding ADIZ's in other countries (22 other countries have ADIZs). They gave very precise geographic coordinates, developed a justification, and are seeking recognition of its existence by others as a basis for their sovereignty claims. Of course, the Chinese are trying to change the facts on the ground (and we should expect other ADIZs before too long), but the attention to international legal frameworks is significant and now commonplace in just about everything the Chinese do. 

 

 

On the other hand, the relationship has some sour, negative dynamics. Good personal atmospherics didn't stop Xi and Biden from articulating differing positions across a range of issues, from the ADIZ to cyber to human rights. The US and China have narrowed their differences on many issues over the years, but there may be hardwired limits to how much overlap there is in their interests. The two countries compete economically and for strategic influence, and they have different values regarding human rights. 

 

Also, although the two sides are able to compartmentalize and keep problems from bringing the entire relationship into doubt, one does wonder on what issues the US is willing to draw a line. The US is willing to bring cases to the WTO, stop individual Chinese investments it finds threatening, speak out on individual human rights violations, critique specific Chinese military actions, and engage in its own "rebalacing" effort. On the one hand, this represents a cautiously optimistic hedge strategy in which the US promotes cooperation wherever possible but simultaneously deals with areas of disagreement in a forthright manner. But I do wonder sometimes if this is tactically wise and strategically foolish. The bet from the US side is that extended engagement is socializing the Chinese to accept current international norms, but to use a football metaphor, it may be that the US is just gradually and imperceptably giving away field position as China advances downfield. China's bet may be that the US gradually declines and its willingness to defend allies and its own interests so far from the US mainland declines. (Take a look at the most recent polls on the growing isolationism of many Americans.)

 

Which brings us to the third point. The US has been focused on encouraging China to follow international rules and norms, expecting that compliance in and of itself will make China a status quo power. But the rules don't just promote cooperation; they are also used for competition. And China's greater attention to the international rules of the game is making it a better player at the game. They still do not have the reputational stripes of the US and Europeans, or even the Brazilians, but just because the game has moved from the streets to court houses, press rooms, legislatures, and negotiating tables house doesn't mean competition is going away. 

 

The cumulative result of all of this is a complex relationship characterized by simultaneous cooperation and competition, extensive interaction and communication yet sustained disagreements, and a greater use of legal and regulatory tools on both sides as part of this competition. Such a relationship is competitive, but the extent of interdependence and the location of engagement is quite different than that between the US and Soviets. Perhaps we are in for a long sweet and sour era of lukewarm peace. 

China's Japan Complex

Given Japan's treatment of China in the first half of the 20th century it's no surprise that many Chinese hold very negative feelings about the land of the rising sun. At the same time, Beijing does go over the top, using educational texts, movies, and other means to highlight this past. The goal is to essentialize this earlier behavior as eternal Japanese character traits that disqualify Japan from the right to have a military, to be a leader in Asia, and have a permanent seat on the UN Security Council. With Japan sidelined and the view of many in China that the US is not genuinely a part of the region ("Asia-Pacific" is a US myth to many Chinese), it would leave China as the only legitimate leader for the region.

But China's approach toward Japan is not winning it any friends, and I expect this is entirely frustrating to Chinese. In the Fall of 2010, a Chinese fishing vessel collided with the Japanese Coast Guard, and the fishing boat's captain was detained for several days. In addition to permitting public protests, China responded by temporarily shutting off exports of rare earths to Japan. These metals are vital to a variety of Japanese industries, and the goal was to teach Japan a lesson by showing how dependent it is on China's good will. But to China's surprise, the US and other countries interpreted China's scheme as an indictor that China only followed international rules when convenient and could dismiss them whenever necessary. The US, EU, and Japan later sued China in the WTO over its broader policy of export restraints for rare earths and won the case this past summer. The effect on the rare earths sector was minimal -- demand had already fallen dramatically -- but a broader point was made. 

It apparently fell on deaf ears because China is at it again. This time Beijing announced a new "air-defense identification zone" that intentionally includes the Diaoyu Islands/Senkakus, a large swath of Japan's own IDIZ, and even a small segment of South Korea's IDIZ. Chinese appear to believe that their strong negative views of Japan must be shared by others, and that no one would come to Japan's defense. Wrong again. The US immediately flew two B-52's over the airspace without prior notification to Beijing and in contradiction to Beijing's original pronouncements, the US faced no consequences. Other countries in the region have criticized China's effort as going too far and appear to welcome the US's display of disregard for China's assertion of new rights. 

China's approach toward Japan is self-defeating. Taking an aggressive tact toward the East China Sea and Diaoyu Islands/Senkakus will not win Beijing any friends; in fact, it will push others into the waiting arms of the United States and Japan. It may also have the effect of reducing tensions between South Korea and Japan. (It is not even clear to me this is popular domestically given that it raises the prospect of conflict, and average Chinese aren't really interested in going to war over a small group of uninhabited islets.) 

Despite previous history, and even the denial of that history by a tiny segment of the Japanese population, Chinese are going to need to figure out how to come to terms with this past and put it in the past, entirely. China's Japan complex could end up being a chain that keeps China from fulfilling the "China Dream" of becoming a well-off society and respected globally. 

From Nouns to Adjectives: The 3rd Plenum Communique

Since Party plenums are closed-door events with nothing emerging except what the leadership wants us to hear, we are still reduced to tea-leaf reading and old-school Zhongnanhai-ology. And although Xi Jinping has been praised for using more flowerly language and shows genuine emotion, the communique issued at the end of the 3rd Plenum of th 18th Party Congress is a bland document. This is the kind of thing you would introduce your students or family to if you wanted them to never be interested in Chinese politics and leave you alone. 

I drank some strong coffee, pulled out my highlighter, and opened my dictionary. What did I find? A document that potentially heralds substantial reforms, but leaves a lot, perhaps too much, to the imagination.  

Communiques from previous Party plenums that signaled major policy changes introduced new nouns to the ideological lexicon. The "commodity economy," "socialist market economy," etc. Perhaps the key word from yesterday's communique is "decisive," as in having "the market place the decisive role in resource allocation." That is not as big a change in direction as was ushered in at the 3rd Plenums of the 11th, 13th, or 14th Party Congresses. By focusing on an adjective and not a noun, the Party is now trying to clarify and sharpen the direction it wants China to go, not set a fundamental new course.

I say "perhaps the key word" because the summary provided by Xinhua at the end of the text did not focus on that point at all. It definitely is significant because it goes beyond previous statements of markets playing a "basic" role in allocating resources. But is it the most important thing in the document? No one can say for sure.

There were other significant elements.

On the positive side of the ledger:

1. It looks like we will see a lot of experiments and new national policies in a wide variety of areas, including general government administration, further price liberalization, central and local government finances and budgets, cadre assessment, property rights and land ownership, taxes, environmental protection, the judicial system, household registration, greater access to capital and industries for private and foreign industry, and ensuring competitive markets.

 2. There was a clear sense on the need to nationalize and unify policies, including reducing inter-regional barriers and standardizing government administration across the country. 

 3. The word innovation was used several times, including with regard to science and technology, but the adjective "indigenous" (自主) never appeared. This continues Li Keqiang's pattern of never saying "indigenous innovation," in contrast to Wen Jiabao and Hu Jintao, and portends a more liberal approach to sci-tech policy.

 4. There will be a creation of a national security council. It's unclear precisely what its job will be, but it could potentially operate like the US's NSC and help coordinate foreign and security policy across the ministries. This could help alleviate inconsistent signals and bickering we see between the PLA, Ministry of Foreign Affairs, MOFCOM, the PBOC, and other ministries.

 5. There was no mention of border disputes, the South China Sea, the island dispute with Japan, or cybersecurity. Any emphasis on a threatening external environment could be used to justify greater defense spending or a more aggressive international posture. We did not see that. 

On the negative or unclear side of the ledger:  

1. There could have been more details about specific kinds of reforms. Instead, there were lots of hints -- and hints are often critical -- but the more detail would have provided less wiggle room to opponents.

 2. There was a strong emphasis on the continued importance of the public, state-owned economy. Not only are SOEs important in "pillar" (支柱) sectors, but they are supposed to raise their overall competitiveness in the entire economy. That may be the politically safe thing to say, but it suggests genuine constraints on reforms in these sectors and walling off SOEs to standard rules regarding competition policy, market access, and financial markets. On the other hand, it is possible that this means SOEs will be pushed to be much more efficient, to hand over a much larger percentage of their earnings, to standardize their internal governance, and to compete more head-to-head with private and foreign companies. We just don't know, but the vagueness is not reassuring. 

 3. The creation of a Leading Small Group to Deepen Reform could be a way to get around the gridlock that exists in the standard policymaking process and the special interests within the Party, government, and SOEs that oppose change. This could help speed up adoption and make implementation go more smoothly. But its creation may also signal that there is significant opposition and making headway will be quite difficult.

4. Aside from emphasizing the need for judicial reform and genuflections toward democracy, human rights, and other standard elements of the constitution, there was very little new that would give one confidence the Party is willing to accept systematic constraints on its authority, either rules governing how it operates or ways it and the government can be held accountable. For those who think greater political space is needed for markets to work well and for state-society relations to be genuinely stable, this document does not openly provide a lot of hope. 

5. There was no mention of family planning policy despite signals it would be an important reform. Just the day before the state press ran stories to this effect. We will need to wait to see if the one-child policy is adapted further into an essentially two-child policy. 

NY Times Warped View of China and the Global Arms Market

The New York Times is running a story about the rise of China's global arms sales. They were prompted by China's large deal with Turkey, a NATO member. Yes, Chinese sales are up, to around $2.2B per year, and they're gradually moving up the value-added chain to sell more sophisticated stuff. It's a story that sounds similar to the civilian sector, where extensive state support puts China in a position to undercut the US and other advanced economies. And given that the most recent sales are to a NATO member, this could force a wedge into the alliance.

Yes, all true, but the Times has ignored what the real public interest is in Chinese arms sales, and in fact, with arms sales in general. The real problem is not about growing Chinese competition; the real worry we all need to pay attention to and get control of is how large the global arms business is in the first place. This $72B industry fuels wars and destruction, and is destabilizing.

The most alarming part of the story is not China's rising market share, but that the Chinese see that arms exports and selling more advanced products are, as one Chinese observer put it in the story, a "very normal phenomenon." The US has socialized China to see the arms business as something every great power should be involved in, not to mention that it can be quite lucrative. From a public-interest perspective, that is not the lesson we should be teaching China. And it will come back to haunt us, in additional conflicts and in conflictings lasting longer than they should.  

This socialization process has occurred across the spectrum, and includes "teaching" China about the global rules of international trade, protecting the environment, regulating financial markets, and many other areas. Although many areas of this "education" are positive and commendable, others are downright dangerous and against the public interest. This includes the global antidumping regime, weak regulation of financial markets, inadequate controls on pollution, and other areas. Weapons are not any ordinary product; their sales need to be controlled and made far more transparent than is now the case. For another area where the US trade policy has run amok, look at the Obama administration's advocacy for reducing countries' abilities to limit tobacco sales. 

By the way, as the Times reports, the US controls 39% of the global arms market, or $29B per year, still far higher than any other country. So don't cry me a river that they're suffering at the hands of the Chinese.

If this were a story about the domestic US weapons market (or cigarettes), you can be darn sure the Times wouldn't have fallen for this. They wouldn't ever write a sympathetic story -- and put it on the front page -- reporting that a major gun manufacturer such as Smith & Wesson is facing an unexpected challenge from a new up-and-coming handgun producer, and that such a trend is threatening to the incumbents. That kind of story would sound like something pushed by the National Rifle Association (NRA) or be reported in a bland way by Fox News, not the Times. 

The Times has unwittingly become an advocate for the US defense industry, the gun lobby, and the global arms market in general. We should all recognize this and be appalled.