Once in a while it is worth pondering whether the conventional wisdom about China’s meteoric rise is right. Is China destined to move beyond its newly won position as the world’s number two economy to become number one? Will the United States be displaced from its primacy in global security? Is the rising power destined to clash with the current leading power? These are the themes of much recent commentary, including journalist Martin Jacques’ new book, When China Rules the World.
Thinking unconventionally necessarily involves speculating about things that are unknowable today. But doing so might prove a useful exercise before we reach conventional conclusions that are expensive, defeatist, or just plain wrong.
There are three big things going on in China that should be sources of concern – or perhaps relief – for those who fear China’s domination. These do not get much media attention and do not involve the usual reactions to human rights abuses, undemocratic methods, unrestrained police behavior and the like. Instead, it is about the relationships between rulers and the ruled; between the rulers and their internal competitors; and between state and market capitalism.
Discord Between the Rulers and the Ruled
Over the past year, foreign policy experts have witnessed what might be gently termed an intensifying conversation between Chinese interest groups and the central party leadership, which has overall responsibility for looking after China’s broader interests. Taking advantage of new media and increased freedom of expression within China, retired military officers, academics, policy experts and web users (called “netizens” in China), have questioned and challenged officers of the Chinese party and government to take tougher positions regarding the United States, Japan, international markets, and other matters.
In response, China’s spokesmen took increasingly tougher rhetorical positions under pressure from their critics inside China – but outside the formal political system. This happened on U.S. arms sales to Taiwan, President Barack Obama’s meeting with the Dalai Lama, proposed exercises by the aircraft carrier George Washington in the Yellow Sea, and surveillance missions in the South China Sea.
Yet, in the real conduct of foreign relations, China’s official actions have not yet gone beyond rhetoric to openly confronting the interests of the United States and others. Officials have displayed a prudent reserve in the quiet councils of government, while trying to show a tough public exterior to their critics inside China.
Is this sustainable? In the absence of a constructive narrative that will calm the patriotic appetites of the internal Chinese critics, it will probably prove futile. As party congresses come and go and public opinion increasingly guides leadership decisions, how long can Chinese officials who aspire for promotion gain approval for pursuing Chinese interests prudently, rather than robustly and aggressively? How long will they be willing and able to tone down popular rhetoric while delivering less than fulfilling compromises to a citizenry whose expectations have been fired up by China’s rapid modernization?
Discord Within China’s Ruling Communist Party Elite
Over the next two years, leading up to the Eighteenth Party Congress in late 2012, jockeying will intensify as more than 70 percent of China’s top jobs must be turned over to new leaders in accordance with recently introduced rules on retirement and tenure, according to Cheng Li of the Brookings Institution. This scale of turnover would strain any system, let alone one with such a huge denominator of population (1.3 billion) to the numerator of officials (around 60 million).
Adding to our worries is that China has not yet found a dependable set of criteria for selecting leaders in terms of background and performance before promotion. China is far from alone in this problem, but it is singular in its dependency on the wisdom of a few people to govern more than a billion, particularly leaders who lack institutional checks and balances on their judgments and performance.
There are, moreover, increasing signs and rumors that the designated successors to Hu Jintao and Wen Jiabao may not be up to their jobs. On a recent visit, senior personalities said plainly to foreigners that the next leader after President and Party General Secretary Hu Jintao is unknown, despite Vice President Xi Jinping’s status as the presumptive heir.
Similar rumors surround the willingness or ability of several vice premiers to manage the Chinese economy as premier. A frequent conversation topic is the need to find a strong and decisive economic leader, like former premier Zhu Rongji, accompanied by expressions of doubt that the current candidates will measure up.
The Conflict Between State and Market Capitalism
Another current theme of commentary about China extols the “Beijing consensus” of authoritarianism married to state capitalism that has prospered when others faltered. It is seen as somehow replacing “the Washington consensus” that joins democracy with free market capitalism – now seen as discredited by the global financial crisis.
There are many ways to attack this point of view. One is articulated by my Carnegie colleague Michael Pettis, who says that China’s formula for rapid growth has depended on repressing the income of ordinary Chinese in order to dispense subsidized capital to favored investors, including state-owned enterprises and well-connected entrepreneurs.
Pettis argues that this distorts international trade patterns and will inevitably lead to protectionism against Chinese exports, and will, one way or another, bring China’s favored trade status today to an uncomfortable end. GDP growth will fall well below recent levels, introducing social tensions the Communist Party is ill-equipped to address in its present form. And these tensions may be even harder to address if the conflicts between rulers and ruled and between rulers and their competitors unfold as suggested above.
A second way of looking at the “Beijing consensus” is simply to remind ourselves of the hyped rhetoric of the 1980s and early 1990s, when Japan was seen as becoming “Number One.” Cheap and abundant capital, borrowed by investors against impossibly high valuations of real estate and other assets, set Japan up for a fall. In this case, it was not a collapse of Japan’s export markets that delivered the blow, but a prolonged deflation that resisted domestic remedy.
China may have room yet to continue growing as the benefits of modernization spread westward within China, but its success will depend on significantly promoting domestic-led growth, which in turn will require returning the proceeds of investment to ordinary depositors, which will raise the cost of capital to enterprises who now depend on low-cost capital to be profitable. In other words, the China we see now will have to change the way it does business – with major implications for how its system works.
Now, one of these problems by itself might be a manageable challenge for foreigners, their governments, and the international system, but the three taken together pose real risks. If China’s elite begins to fight over power as the public clamors for tougher foreign policy positions, experience suggests that domestic Chinese concerns will trump foreign policy interests. Foreign considerations would receive short shrift. When absolute power is at stake, certainly in China and elsewhere, the niceties of foreign relations are quickly forgotten.
Probably more important, China’s so-far successful management of its state economy will ultimately be forced to accommodate the gravity of market economics. In appealing for supporters, the level headed bureaucrats that have substituted for market forces in China’s economic rise in recent years will be increasingly subjected to interest group politics not necessarily grounded in market economics. Distortions will necessarily occur and deny the Chinese the rate of growth to which they are now accustomed. Again, these issues will be exacerbated by discord among the rulers and ruled.
So, instead of Chinese momentum toward world rule, we should be thinking about an unruly China, with unsatisfied historical and economic appetites. It will confront its neighbors and the international system with new challenges at the same time its economy will be reducing the means needed to shape outcomes. Therefore, it is time not to plan for a long-term wasting conflict between a rising power and the status quo power it seeks to replace. Rather, we should nurture international cooperation to limit the damage caused by a thrashing dragon.
– Douglas H. Paal