The China Track 与中国接轨

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.