So China has not been shy over the past few months in expressing its territorial aspirations, going so far as to imprint them in new passports. Now on the one hand, this is a predictable reaction to the U.S. pivot from last year. On the other hand.... well, for a country that ostensibly thinks a lot about realpolitik, they sure haven't internalized the notion of cooperating under a security dilemma. Indeed, two recent stories suggest that Chinese behavior is disrupting long-held norms in the Pacific Rim.
In the South China Morning Post, Greg Torode reports that much of ASEAN is getting fed up with Beijing:
China is set to face mounting challenges from the grouping over the South China Sea as Cambodia's controversial year as Asean host and chair comes to an end. As difficult as it may have been, Cambodia's year may be as a good as it gets for Beijing - in the short term at least....
An announcement on Sunday from host Cambodia that Asean's leaders had formally agreed not to internationalise the issue "from now on" sparked a flood of questions. Asean-China talks would be the sole forum, spokesman Kao Kim Hourn added.
Given that leaders - including US President Barack Obama and allies from Japan, the US and Australia - were converging on Phnom Penh determined to raise the need to lower South China Sea frictions, it was a remarkable agreement, and a victory for Beijing's backroom lobbying.
But the consensus hailed by Cambodia lasted less than a day. The Philippine delegation, led by President Benigno Aquino, cried foul, warning there was no such deal and insisting on its rights to seek international redress if it felt that its national sovereignty was threatened.
In the rhetoric of Washington, its re-engagement across Asean is part of an effort to "shape" China's rise, forcing it to conform to international norms. With considerable discretion, it has buttressed efforts among Asean countries to co-ordinate and organise diplomatic responses to Chinese challenges.
While the Philippines stood up publicly this week, others were helping in the background, for example. ....
Just four years ago, China had successfully kept Asean nations officially quiet on the subject. The events of the last week have shown that, despite considerable efforts, the calculations are now much more complex.
If ASEAN is known for anything, it's for developing bland consensus statements. That's a key component of the ASEAN way. If that norm is breaking down, then China is having a serious impact on the behavior of member countries -- and not in a way that benefits Beijing's interests.
The other interesting story is Martin Fackler's story in the New York Times about Japan's naval activities in the Pacific Rim. Shorter Fackler: Japan is getting more active in the region. Now what's interesting about this isn't Japan's behavior; one would expect Tokyo to counter Beijing. No, what's interesting is how other countries in the region -- most of whom had a very bad experience with Japan during the Second World War -- are reacting. Which is to say, they're pretty cool with Japan exercising their naval muscle:
In a measure of the geopolitical changes roiling the region... concerns about any resurgent Japanese militarism appear to be fading in some countries embroiled in their own territorial disputes with China, like Vietnam and the Philippines, the scene of fierce fighting during the war.
Analysts there and elsewhere in the region said their countries welcomed, and sometimes invited, Japan’s help.
“We have already put aside our nightmares of World War II because of the threat posed by China,” said Rommel Banlaoi, a security expert at the Philippine Institute for Peace, Violence and Terrorism Research in Manila.
On a recent morning, 22 coast guard officials from a dozen Asian and African nations joined a training cruise around Tokyo Bay aboard a sleek, white Japanese Coast Guard cutter. The visitors snapped photos of the engine room, the electronics-studded bridge and the 20-millimeter cannon. Before the cutter left port, the foreign contingent and the Japanese crew stood at attention on deck facing each other, then bowed deeply.
“Japan is joining the United States and Australia in helping us face China,” said Mark Lim, an administrative officer from the Philippine Coast Guard who joined the cruise.
Japan is widely viewed as being the only nation in the region with a navy powerful enough to check China....
The Japanese Navy took a big step toward opening up in 2009 by holding a joint military drill with Australia — its first such exercise with a nation besides the United States. It has since joined a number of multinational naval drills in Southeast Asia, and in June held its first joint maneuver with India.
Hostility towards any Japanese great power behavior has been another longtime diplomatic staple of the Asia/Pacific. That norm also appears to be eroding fast.
Does this make any difference? Well, yes. As Fackler notes, Japan has the 6th largest defense budget in the world. India, Australia and South Korea aren't exactly defense midgets either. The more that Beijing pushes the rest of the Pacific Rim into the arms of the United States, the more Washington's job becomes one of policy coordinator rather than policy provider. In other words, China's policies are making the pivot cheaper. To repeat a point I made earlier this year:
In [Wang Jisi's essay about how the Chinese leadership views the U.S.], the United States is the chief architect of any misfortune or policy reversal that affects the Middle Kingdom. Wang notes the U.S. "pivot" without speculating why countries like South Korea, Vietnam, or even Myanmar might be so eager to welcome Washington with open arms. If Chinese policymakers truly believe that the U.S. is solely to blame for these turn of events, then they will likely continue to act in ways that alienate their neighbors in the Pacific Rim, thereby exacerbating the geopolitical straight-jacket that they disliked in the first place.
Am I missing anything?
The latest issue of The Washington Quarterly is just lousy with China essays -- it's like there's a theme or something. Andrew Scobell and Andrew Nathan tackle China's (apparently overstretched) military, and Guoyou Song and Wen Jin Yuan review China's response to the burgeoning Trans-Pacific Partnership.
James Reilly has an essay on China's use of unilateral economic sanctions that really caught my eye, however. The overwhelming bulk of economic sanctions that have been threatened and used during the past century have been from the United States. From a scholarly perspective this is somewhat disturbing, as general theories about economic statecraft become tough to distinguish from theories of U.S. foreign policy. If another great power starts being profligate with its economic statecraft, there's the promise of a lot of new data.
China has deplored the use of economic sanctions in the past, but as Reilly notes, "Over the past few years, Chinese experts have begun to clear some of the legal, moral, ideological, and practical hurdles to Beijing’s use of unilateral sanctions."
So... how effective are they? Well, at best, it's a mixed bag. Here's Reilly's key paragraph:
Ultimately, China uses sanctions for the same reasons other countries do: they are a relatively low-cost, low-risk way to signal dissatisfaction, increase the costs to those who take undesired actions, and satisfy domestic demands to respond to those actions. Sanctions can assuage domestic criticism while not undermining broader economic and diplomatic interests. For all these reasons, China has increasingly resorted to unilateral sanctions in recent years on issues like Taiwan, Tibet, human rights, and maritime disputes.
If you read the article, it's pretty clear that any concessions made by other countries have been pretty modest --more modest than Reilly seems willing to admit (compare Reilly's take on the 2010 Nobel Prize sanctions with, for example, Erik Voeten's).
But there are three caveats to this observation. First, if China views the sanctions as mostly symbolic and for domestic consumption, then it wouldn't be surprising that they're ineffective. Symbolic sanctions aren't supposed to work, they're supposed to be for show. Second, Reilly notes that China likes threatening sanctions more than using them, and sanctions threats are more likely to work as a form of pre-emptive coercion and deterrence than actually compelling the actor in this particular case.
Third, as with its economic statecraft more generally, China is just beginning to understand this foreign policy tool. Indeed, as Reilly observes, the problem with issuing empty threats is that "the credibility of Beijing’s bluffs risk eroding over time." It will be veeeery interesting to see how China's approach to economic statecraft evolves over time.
The Wall Street Journal has two great stories on the Federal Reserve's decision to go for QE3 -- a third round of quantitative easing. First, Jon Hilsenrath documents how Fed chairman Benjamin Bernanke built a consensus among the Federal Reserve governors:
For weeks, Mr. Bernanke made dozens of private calls on days, nights and weekends, trying to build broad support for an unusual bond-buying program he wanted approved during the Fed's September meeting, according to people familiar with the matter....
Fed officials described the Fed chairman's phone calls as low-pressure conversations. Mr. Bernanke sometimes dialed up colleagues while in his office on weekends, catching them off guard when their phones identified his private number as unknown. He gave updates on the latest staff forecasts, colleagues said. He asked their thoughts and what they could comfortably support, they said.
The calls helped Mr. Bernanke gauge how far he could push his committee. It also won him trust among some of his fiercest opponents, officials said. Nearly all of Mr. Bernanke's colleagues described him as a good listener.
"Even if you disagree with him on the programs, you know your voice has been heard," said [Dallas Fed President Richard] Fisher, one of his opponents. "There is no effort to bully."
So Bernanke did a lot of hand-holding, a lot of listening... to the key Fed decision-makers. What's equally important is who he didn't talk to -- namely, other central bank heads in the rest of the world.
I bring this up because some of these central bank officials are pretty pissed. QE3 has caused the yuan to hit its all-time high against the dollar, for example. Which leads us to the other interesting Wall Street Journal story. Aaron Back and In-Soo Nam document how South Korea and China have reacted to QE3:
Chinese and South Korean central-bank officials criticized the U.S. Federal Reserve's latest easing efforts and advocated reducing Asia's dependence on the U.S. dollar.
The comments Thursday, at a joint seminar in Beijing by the two central banks, are the clearest indication yet of a rising backlash in Asia against U.S. monetary policy, suggesting it could speed up the search for alternatives to the dollar as the main global currency.
"The rise in global liquidity could lead to rapid capital inflows into emerging markets including South Korea and China and push up global raw-material prices," said Bank of Korea Gov. Kim Choong-soo. "Therefore, Korea and China need to make concerted efforts to minimize the negative spillover effect arising from the monetary policies of advanced nations."
Chen Yulu, an academic adviser to the People's Bank of China, said Asia needs a "regional core currency" to reduce its dependence on the dollar. China's ultimate goal is for the yuan to be as important as the euro or the dollar, he said.
Whoa, this sounds pretty bad... until you get to the next paragraph:
But [Chen] acknowledged that will be a slow process, saying it would be possible for the yuan to be fully convertible by 2020, and that the overall yuan-internationalization process may last until 2040. China strictly controls its currency, though it has made small moves to broaden its use globally in recent years and has also allowed a little more flexibility in its movements (emphasis added).
Furthermore, it's worth noting that the international bitching and moaning about QE3 seems much less than the "currency war" rhetoric that QE2 triggered. Why? Based on my half-assed blog analysis I'd speculate that there are three reasons:
1) The global economy is in a more sluggish state in 2012 than in 2010, so it's hard to argue that expansionary monetary policy is inappropriate now.
2) The United States was not the only major economy to go the quantitative easing route in the past few months. Both the European Central Bank and the Bank of Japan have made similar -- if uncoordinated -- moves.
3) The central bank heads have learned frrom QE2 that the bitching and moaning won't accomplish anything. It didn't stop QE2 and it won't stop QE3.
Am I missing anything?
In today's paper the New York Times has two long stories on the two largest countries in the world: one on China and one on India. What's interesting is that both stories talk about the tensions between national and regional governments -- but their interpretation of the behavior of these local governments is very different.
Let's start with China, where Andrew Jacobs notes that political paralysis at the national level combined with the economic slowdown is causing regional governments to double down on their debt-driven growth:
Local governments, alarmed by a slowdown they fear could lead to mass unemployment and the kind of sluggish growth that can dent political careers, have decided to take matters into their own hands. In recent months, a number of cities have proposed extravagant infrastructure projects they hope will be financed in part by newly liberalized bank loan policies.
Tianjin claims $236 billion will be spent in the petrochemical, aerospace and other industries. Xi’an, home of the famed terra cotta warriors, plans to invest tens of billions of dollars on nine new subway lines. In Guizhou, one of China’s poorest provinces, officials said they hoped to funnel $472 billion into tourism-related development.
In Changsha, the provincial capital of Hunan, officials brag of 12.9 percent growth as they spend billions of dollars on a new subway system, a ring road, an intercity rail line and a pair of bridges to knit together its transportation system.
“We haven’t felt any impact from the crisis in Europe,” said Liu Maosong, chairman of the Hunan Economics Association and an adviser to the Changsha government. “Our guiding philosophy is ‘investment, investment, investment.’ ”
Even if many such projects turn out to be wishful thinking, economists have expressed alarm that municipalities are still chasing debt-financed growth. “It almost scares me to death,” said Mao Yushi, a prominent economist. “Local governments are using the people’s money for investment, but when they can’t repay the banks, the financial system will snap.”
And Liao Jinzhong, an economist at Hunan University, worries that much of the spending is misplaced. “What we really could use is a functioning sewage system,” he said, speaking from his sixth-floor apartment in a crumbling faculty building that has no elevator.
Mr. Liao said he gave frequent lectures at the local party school about the dangerous fixation on propping up growth figures at all costs. He said officials often congratulated him on his frank views.
“But then they admit they can’t change the way they do things,” he said. “Given that the whole system is oriented toward bolstering the careers of officialdom, I just don’t see things changing any time soon.”
Interesting... so because of the political incentives that exist within the Chinese Communist Party, provincial and urban leaders have an incentive to prime their pumps to seek advancement.
Now let's turn to India, where Jim Yardley notes that -- wait for it -- seeming paralysis at the national level and a sagging national economy are causing unaffiliated leaders at the regional and local level to muse about things like forming a third party and compete at the national level. Yardley notes that the likelihood of success is low. What's interesting, however, is the question of why these local leaders are so popular:
Regional bosses, once in decline, are becoming kingmakers again: the squat, sleepy-eyed Mulayam Singh Yadav, who oversees the powerful Samajwadi Party, is even publicly musing about himself as a future prime minister.
“The incentive for every single party from the opposition to the allies is to send a signal that the Congress can’t govern,” said Pratap Bhanu Mehta, president of the Center for Policy Research in New Delhi. “That’s the election plank.”....
“Indian politics will have to live with bargains and negotiations with regional parties,” Ashutosh Varshney, a political expert, said in an e-mail interview. “A third front may or may not emerge, but both national parties will have to negotiate and bargain. That also means that India will find it harder to make firm assertions of power on the international stage, à la China. Its power will grow, but more gradually.”....
In the meantime, India’s regional leaders will continue to press for advantage. Ms. Banerjee is planning a huge demonstration in New Delhi on Monday against the government’s new economic measures. Even as [Bengal Chief Minister Ms. Mamata] Banerjee is often criticized for being intemperate and unpredictable, her influence is undeniable: this week the American ambassador, Nancy Powell met with her privately, just as Secretary of State Hillary Rodham Clinton made a point of visiting her during a trip to India in May.
Other regional leaders are also increasingly powerful national figures. Nitish Kumar, the chief minister of the state of Bihar, has hinted that his regional party could join any coalition that granted his state special status. Naveen Patnaik, the chief minister of Orissa, has expressed support for a third-front coalition. Jayalalithaa, the chief minister of Tamil Nadu, has also spoken suggestively about a new political alliance.
Most of them have won political support by delivering economic growth and, to varying degrees, improved government. This is one reason that even as India’s politics is again fragmenting, some analysts believe that the country’s economic modernization can continue. In recent years, as policy logjams paralyzed the central government, many international and domestic business leaders shifted their focus to negotiating with individual state leaders.
So, if one buys both of these stories, there's an interesting contrast. Both countries appear to be dealing with feckless national leadership and a slowdown in their national economies. In China, regional leaders are pursuing reckless "growth now" policies that could harm the national economy in the long run. In India, it's the competent economic leadership at the regional level that's bailing out a dysfunctional national government (emphasis added).
The thing is, I don't know if I completely buy Yardley's story on India. I've read enough on China to know that Jacobs' assertion about bad regional policy seems to be pretty accurate (not to mention the out-and-out distortions in economic statistics coming from China's provinces) I wish he had pushed a little bit deeper to see exactly how these regional political bosses had delivered better economic growth. If they did it using variants of what China's leaders did -- short-term measures that accelerate growth now at the expense of growth later -- then what's interesting is that regardless of regime type, local leaders can make life hell for national economic policymakers. If, on the other hand, India's regional leaders have done a genuinely better job at governing, then it's a really interesting story.
What do you think? Psst... in this case, by "you," I mean India experts.
It appears that I owe Mitt Romney a partial apology. In yesterday's blog post I quoted from a video procured by Mother Jones' David Corn regarding Romney's perspective on the peace process between Israel and Palestine. The tape suggested that Romney had zero hope for peace. As Politico's Dylan Byers notes, however, the unedited version of the tape contained the following passage right after Romney had said that an ex-Secretary of State had told him that there was a prospect for a settlement between the Palestinians and the Israelis after the Palestinian elections. After Romney said he didn't "delve" into it, he then added the following:
But I always keep open: the idea of pushing on the Israelis to give something up to get the Palestinians to act is the worst idea in the world. We have done that time and time and time again. It does not work. So the only answer is show them strength. American strength, American resolve, and the Palestinians will some day reach the point where they want peace more than we’re trying to force peace on them. Then it’s worth having the discussion. So until then, it’s just wishful thinking (emphasis added).
OK, so it would appear that Romney does proffer a way of getting the two sides to talk. My deepest apologies to Governor Romney for only printing the part of the statement that Mother Jones initially released.
And yet... I have anothert question now. I fear that Romney's "more resolve" strategy -- a theme he's echoed since making these comments in May -- raises more questions than answers.
For exhibit A, let's go to the Financial Times' Najmeh Bozorgmehr, who interviewed Speaker of the Iranian Parliament (and possible future PM) Ali Larijani. Here's what he had to say to Bozorgmehr about Mitt Romney:
Military action against Iran would be “highly costly” for the US and threats issued by Mitt Romney as he tries to become the next American president are campaign rhetoric only and can be largely ignored, Ali Larijani, Speaker of the Iranian parliament, has told the FT.
Mr Romney has sought to portray himself as much tougher on Iran than President Barack Obama and more sympathetic to Israel’s concerns. But Mr Larijani is unimpressed, saying the Republican candidate has the “little bit of wisdom” needed to understand the consequences of waging war on the Islamic Republic.
So it would seem that Mr. Larijani doubts Romney's strength and resolve. This is a problem. Romney's Theory of Statecraft seems to be that all U.S. problems in the world can be soled with Extra-Strength Resolve and Strength. Now, even one accepts this premise, the failure of adversaries to believe Romney's promises means he's gonna have to display even more Extra-Strength Resolve and Strength to convince people that he is being strong... and resolute.
The thing is, though, even Romney's allies doubt his strength and resolve... at least, they doubt his strength and resolve with respect to his China policy:
Mitt Romney is hoping his tough talk on China policy will win him votes — but few of his big business donors or fellow Republicans support what he’s saying or believe he’d follow through if elected.
And if he did, many analysts say, he’d likely spark a disastrous and counter-productive trade war that would hurt both American consumers and the workers he says he’s trying to protect....
An actual Romney policy, many corporate executives believe, would have the same kind of focus on bringing cases before the World Trade Organization and negotiating behind closed doors — the same approach of Obama and George W. Bush.
“On his first day on the job, Romney is not going to put himself on the immediate defensive with the world’s second largest economy,” said one top financial industry executive who strongly supports Romney....
Romney hopes his tougher words will make Obama look weak. But the question remains whether Romney’s tough talk is just that: talk.
“It’s kind of a head scratcher,” said the senior financial services executive who supports Romney but questions his China policy. “Is this just rhetoric or is this really the view of the candidate?”
Now, to be fair, it's not just Romney supporters who don't believe Romney's resolve on China. A Bloomberg Global Poll of 847 "decision makers in finance, markets and economics" showed that 82% of respondents were skeptical that Romney would designate China as a currency manipulator, for example.
So we have a presidential candidate who thinks the way to get things done is to show resolve -- but neither his allies nor his adversaries believe Romney's own resolve. Which leads to the following question: is it possible that there is simply no amount of Extra-Strength Resolve and Strength that will allow Romney to bend the rest of the world to his will? And if that's the case, what's his fallback option?
Hey, remember when I said that China's debt holdings did not pose a serious threat to the United States? And remember when I banged my head against the desk because Very Serious People continue to insist otherwise?
I bring this up because, according to Bloomberg's Tony Capaccio and David Kruger, the Department of Defense has my back:
China's holdings of more than $1 trillion in U.S. debt and the prospect that it might “suddenly and significantly” withdraw funds don’t pose a national security threat, according to a first-ever Pentagon assessment.
“China has few attractive options for investing the bulk of its large foreign exchange holdings out of U.S. Treasury securities,” given their extent, according to the report dated July 20 and obtained by Bloomberg News
China is the second-largest holder of U.S. government debt after the Federal Reserve. Acting at the direction of Congress, the Defense Department studied the rationale behind the investments and whether “the aggressive option of a large sell- off” would give China leverage in a political or military crisis. China’s debt holdings have been cited as a sign of U.S. vulnerability by Republicans in this year’s election campaign....
“Attempting to use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States,” according to the report, which was sent to congressional committees by Defense Secretary Leon Panetta. “As the threat is not credible and the effect would be limited even if carried out, it does not offer China deterrence options” in a diplomatic, economic or military situation, the Pentagon found....
China decreased its Treasury holdings last year with little apparent impact in the market, Treasury data show. The world’s most populous country reduced its position in Treasuries in the first yearly decline since Bloomberg began tracking the data in 2001.
The holdings declined 0.7 percent, or by $8.2 billion, to $1.15 trillion last year. The decline was much steeper in the second half of the year when China’s stake plunged 12 percent, or by $163 billion, from an all-time high of $1.31 trillion in July 2011, the data show.
During that period, 10-year Treasuries rallied as the U.S. credit rating was reduced by Standard & Poor's to AA+ from AAA and the European sovereign debt crisis worsened, pushing the yield to 1.88 percent from 2.80 percent.
Foreign investors held 50.3 percent of the $10.52 trillion in outstanding Treasuries as of June, government data show. That’s down from April 2008, when they reached 55.7 percent of the $4.64 trillion in U.S. marketable debt....
The Pentagon said in its report that the Fed also is “fully capable of purchasing U.S. Treasuries dumped” by China and “reducing the economic impact.”
A Chinese move to “suddenly and significantly” reduce its Treasury holdings “would fundamentally change the international finance and business community’s perception of China as a reliable and respected economic and financial partner,” the Pentagon said.
This report isn't going to end the silly campaign rhetoric or the Niall Ferguson/Tom Friedman foreign policy community talking point, of course. But I thought it was worth posting here so I can link back to it the next time I need to bang my head against a desk.
If you're an American and want o worry about China, don't focus on the debt -- focus on the apparent disappearance of China's next leader.
I should be really pleased with Thomas Friedman's column today. Entitled "In MItt's World," Friedman pens a substantive column criticizing Romney's foreign policy rhetoric to date and wishing that Romney displayed the same analytic acumen about foreign policy that he displayed as CEO of Bain Capital.
So I should be happy, except that I passed out from banging my head against my desk after reading the first two paragraphs:
Mitt Romney has been criticized for not discussing foreign policy. Give him a break. He probably figures he’s already said all that he needs to say during the primaries: He has a big stick, and he is going to use it on Day 1. Or as he put it: “If I’m president of the United States ... on Day 1, I will declare China a currency manipulator, allowing me to put tariffs on products where they are stealing American jobs unfairly.”
That is really cool. Smack China on Day 1. I just wonder what happens on Day 2 when China, the biggest foreign buyer of U.S. debt securities, announces that it will not participate in the next Treasury auction, sending our interest rates soaring. That will make Day 3 really, really cool.
No. No, no, no, no, no, and no.
To elaborate a bit further:
First, it wouldn't be enough for China to stop buying Treasuries -- as Joe Weisenthal showed with some fun charts a few weeks ago, China has pared back its Treasury purchases intermittently over the past few years -- with zero appreciable effect on U.S. interest rates. (see non-panda-hugger Paul Krugman on this point as well). No, for China to have the effect that Friedman envisions, they would also have to actively dump most of their holdings of U.S. debt as well.
So what if they do? Well, second, while Romney's stated China policies border on the destructive, the "labeling" move is bone-headed rather than truly calamitous. China wouldn't dump its debt unless things got really bad between the two countries. Not even Stephen Roach thinks this would be the initial Chinese response -- and I think Roach is being way too gloomy about Sino-American relations under Romney.
The reason China won't respond with the nuclear option of dumping all its U.S. debt holdings is that -- to repeat a theme -- this move would hurt China way more than it would hurt the United States. The far more likely response by China would be to retaliate with trade measures. This would not be good, as China is now the third largest export market for the United States. Beijing can hurt a Romney administration by reducing its American imports far more adroitly than trying to trigger another financial crisis.
Now, for the record, I don't think Romney should label China as a currency manipulator on day one, and I think Friedman makes some trenchant observations on Romney's consequences-free foreign policy statements later in his column. But this Niall Ferguson-lite version of Sino-American relations is bad international relations theory and really bad economics -- and yet Very Serious People keep trotting it out.
I really, really wish this would disappear from public discourse. But it won't. So, most likely, my desk is gonna get dented a few more times before Election Day.
For the past decade, Stephen Roach has been the Eeyore of global economic analysis -- gloomy about the U.S. economy, gloomy about Chinese economic policy, and in yesterday's Financial Times, very, very gloomy about what would happen to the Sino-American relationship if Mitt Romney became president. Here's how he closes:
By the autumn of 2013 there was little doubt of the severity of renewed recession in the US. Trade sanctions on China had backfired. Beleaguered American workers paid the highest price of all, as the unemployment rate shot back up above 10 per cent. A horrific policy blunder had confirmed that there was no bilateral fix for the multilateral trade imbalance of a savings-starved U.S. economy.
In China, growth had slipped below the dreaded 6 percent threshold and the new leadership was rolling out yet another investment stimulus for a still unbalanced and unstable Chinese economy. As the global economy slipped back into recession, the Great Crisis of 2008-09 suddenly looked like child’s play. Globalisation itself hung in the balance.
History warns us never to say never. We need only look at the legacy of U.S. Senator Reed Smoot and Representative Willis Hawley, who sponsored the infamous Tariff Act of 1930 – America’s worst economic policy blunder. Bad dreams can – and have – become reality.
Like Roach, I think Romney's stated policies towards China have been a wee bit over the top. And it's certainly true that China hasn't reacted terribly well to Romney. The key word here is "stated," however. In Roach's analysis, this is how things escalate:
Feeling the heat from [plummeting] financial markets, Washington turned up the heat on China. Mr Romney called Congress back from its Independence Day holiday into a special session. By unanimous consent, Congress passed an amendment to [a 20 percent tariff on Chinese products] – upping the tariffs on China by another 10 percentage points.
Call me crazy, but if a brewing trade war triggers economic contraction, which then triggers rising financial discontent, I don't see any president responding by accelerating the trade war. I certainly don't see bipartisan support for such a trade war.
If the 2008 financial crisis failed to spark a renaissance in protectionism, then Mitt Romney ain't gonna be able to do it all on his own. Stephen Roach's yarn is entertaining but not persuasive.
Am I missing anything?
Jason Kempin/Getty Images
As China gears up for its 18th Party Congress and the trial of Bo Xilai's wife Gu Kailai on charges of murdering a British business partner, there have been accompanying press stories (even from the Chinese press) about the opaque nature of the Chinese regime. For example, consider this Edward Wong and Jonathan Ansfield New York Times front-pager about the relationship between China's civilian leadership and the People's Liberation Army:
During a holiday banquet for China's military leadership early this year, a powerful general lashed out in a drunken rage against what he believed was a backhanded move to keep him from being promoted to the military’s top ruling body.
The general, Zhang Qinsheng, vented his fury in front of President Hu Jintao, according to four people with knowledge of the event. At the banquet, he even shoved a commanding general making toasts; Mr. Hu walked out in disgust.
The general’s tirade was one of a series of events this year that have fueled concerns among Communist Party leaders over the level of control they exercise over military officials, who are growing more outspoken and desire greater influence over policy and politics.
With China’s once-a-decade leadership transition only months away, the party is pushing back with a highly visible campaign against disloyalty and corruption, even requiring all officers to report financial assets.
“Party authorities have come to realize that the military is encroaching on political affairs,” said one political scientist with high-level party ties. “Although the party controls the gun, the expression of viewpoints from within the military on political issues has aroused a high level of alarm.” He, like others who agreed to discuss internal party affairs, spoke on the condition of anonymity because of fear of reprisals.
Now if you read the whole article, it's really not clear at all just how much of a problem this is. We learn that Hu Jintao's relationship with the PLA is weak, even though he has engineered promotions of his favored generals (including, apparently, Zhang). We learn Ju's likely successor Xi Jinping allegedly has better ties to the military, but that Hu might keep control of the Central Military Commission for the next few years anyway. Oddly, we also learn that some PLA hardliners want to see China adopt a more liberal political model -- like Singapore.
In other words, we know a bit more about the machinations than we do in, say, North Korea. But we don't know much.
Western readers are now likely clucking to themselves and thinking, "Man, am I glad that we don't have to live in a regime with that much political uncertainty and caprice." To those readers: Let's take a tour of Europe and the United States now, shall we?
In Europe, there was a long WSJ front-pager about Italian prime minister Mario Monti and his efforts to push back against Angela Merkel's austerity policies. The impresssion that was given in the beginning of the article is that Mnti was successful... and then we get to this:
Mr. Monti didn't want Rome and Madrid to suffer the stigma of applying formally for aid or signing a list of policy demands written in Brussels, fearing this would undermine his public standing at home, as well that of his ally, Spain's premier Mariano Rajoy....
The evening before the [June EU Summit meeting], Mr. Monti hatched a plan to hijack the summit. Unless Ms. Merkel accepted his proposal on bond-market intervention by Europe's bailout fund, Mr. Monti would veto the growth pact -- stymieing Ms. Merkel in her parliament.
Italy had previously lobbied for the growth pact, so Mr. Monti's threatened veto -- announced just before Europe's leaders were due to sit down for dinner -- was a bombshell....
Mr. Monti's blockade lasted until 4 a.m., when leaders finally agreed to a text hashed out by their aides. It promised that Europe's bailout funds would be used "in a flexible and efficient matter" to stabilize the bond markets of vulnerable euro members.
It didn't go as far as Mr. Monti had originally wanted: Italy and Spain would still have to apply for any aid and sign a policy memorandum. But by planting the need to stabilize bond markets in the declaration, Italy had convinced Germany to recognize Italian reform efforts and pushed its approach for tackling the crisis into the spotlight.
An ebullient Mr. Monti spoke to reporters, claiming satisfaction for Italy and for Europe. A tired Ms. Merkel slunk off to her hotel.
German media and lawmakers were convinced their chancellor had buckled under Mr. Monti's pressure, granting Italy and Spain unconditional access to Germany's treasury. Her protestations later that morning that the fine print preserved the existing procedure for aid went largely unheard.
So did Monti get what he wanted? Beyond political optics, I don't think so, but the article makes it unclear. Actually, to be fair, the summit declaration itself makes it unclear as well, as the Financial Times' Peter Spiegel explains:
Last week’s signal from Spain’s prime minister that he may be prepared to request assistance from the eurozone’s €440bn rescue fund to drive down his country’s borrowing costs has shifted the debate back to where it was more than a month ago: What strings will be attached to such aid?
Eurozone leaders had hoped to put the question to bed during an all-night summit in late June, where Mario Monti, Italy’s prime minister, thought he had won agreement that new aid from the bailout fund to buy a struggling country’s bonds would come with few additional conditions.
Indeed, Herman Van Rompuy, who chaired the summit as president of the European Council, publicly declared there would “not be any more countries” subject to full monitoring if they sought bond-buying assistance from the fund, the European Financial Stability Facility.
The only conditions, Mr Van Rompuy said, would be living up to existing commitments under EU budget rules.
Even before the summit wrapped up, however, that conclusion came into dispute. Indeed, the summit’s final communiqué appears to contradict itself.
At one point, it asserts bond buying programmes would be executed “in a flexible and efficient manner” -- code words for light conditions sought by Mr Monti and his Spanish counterpart, Mariano Rajoy. But in another section it says such aid would only be granted under “existing guidelines” -- code words for the more onerous conditions that existed before the summit (emphasis added).
So I'm gonna say that the EU is not winning a lot of points in the transparency department right now.
Well, there's always the United States, right? Right? Oh, wait, what's this New York Times front-pager from Monday saying?
A rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington will force hundreds of billions in tax increases and budget cuts in January, undermining economic growth in the coming months.
Executives at companies making everything from electrical components and power systems to automotive parts say the fiscal stalemate is prompting them to pull back now, rather than wait for a possible resolution to the deadlock on Capitol Hill....
All told, the political gridlock in the United States, along with the continuing debt crisis in Europe, will shave about half a percentage point off growth in the second half of the year, estimates Vincent Reinhart, chief United States economist at Morgan Stanley.
More than 40 percent of companies surveyed by Morgan Stanley in July cited the fiscal cliff as a major reason for their spending restraint, Mr. Reinhart said. He expects that portion to rise when the poll is repeated this month.
“Economists generally overstate the effects of uncertainty on spending, but in this case it does seem to be significant,” he added. “It’s at the macro- and microeconomic levels.”....
In Washington, powerful business lobbies like the National Association of Manufacturers, the Business Roundtable, and more specialized groups like the National Electrical Manufacturers Association have grown more vocal about their frustration with the inaction of Congress, and the possible dangers ahead.
“It’s totally irresponsible and absolutely insane,” said Evan R. Gaddis, the president of the electrical manufacturers’ group. “The two parties are really dug in. Companies see the writing on the wall and business decisions are now being made on this.”
Sure, China is an opaque mess when it comes to governance. Sure, praising China's governance in an uncritical fashion should trigger critical blowback. Let's face it, however -- 2012 is not a year for democracies to be crowing about how their governing model is more transparent.
For the past few days I've been getting emails asking whether I'm gonna comment on one of the most offensive and brutally effective campaign ads I have ever seen:
It's brutal because... well, let's face it, that Romney tic was always the most cringe-worthy aspect of the campaign. Anything negative that Romney did, contrasted with that song, would be powerful.
It's ridiculously offensive, however, because it baldly asserts that doing business with Mexico, China or Switzerland is un-American. Other idiocies like the Olympic-uniform controversy feed into the public perception that having the other countries make stuff is an abomination of the first degree.
So, does it matter for policy? Well.... no.
Mario Cuomo once said "You campaign in poetry. You govern in prose." Now, Mario Cuomo was clearly the world's worst poetry connoisseur. Still, to update his observation for our current needs, we can say, "You campaign as a mercantilist; you govern as a free-trader." The reason that Romney has seemed so discombobulated by the Bain attacks is that he's been China-bashing since Day One ofhis campaign, so it's tough to then
flip-flop pivot to a free trade stance. As for Obama, Matthew Yglesias noted the following last week:
[A]ll indications are that Barack Obama also doesn't think Bain was doing anything wrong. As president he's made no moves to make it illegal for companies to shift production work abroad and has publicly associated himself with a wide range of American firms—from GE to Apple and beyond—who've done just that to varying extents. And we all remember what happened to Obama's promise to renegotiate NAFTA after taking office, right?
Or, David Brooks today:
Over the years of his presidency, Obama has not been a critic of globalization. There’s no real evidence that, when he’s off the campaign trail, he has any problem with outsourcing and offshoring. He has lavishly praised people like Steve Jobs who were prominent practitioners. He has hired people like Jeffrey Immelt, the chief executive of General Electric, whose company embodies the upsides of globalization. His economic advisers have generally touted the benefits of globalization even as they worked to help those who are hurt by its downsides.
But, politically, this aggressive tactic has worked.
Brooks' colleague Nate Silver might quibble a bit with the "politically working" point, but that's a small quibble. Americans loooooooove mercantilism, so this kind of rhetoric makes tactical sense during a campaign. As stomach-churning as I find this kind of ad, I must reluctantly agree with Yglesias and Brooks that it doesn't matter all that much for governing. Even this Washington Post story that talks about Obama's "rethinking" of free trade doesn't really deliver the goods on significant policy shifts. And it appears that even the Chinese government recognize campaign bluster for what it is.
So -- to repeat a theme -- I don't think the mercantilist campaign rhetoric will amount to much.
Still, as someone who thinks offshore outsourcing is an unobjectionable practice, this is going to be a nauseating campaign.
Here's a more complete transcript of my interview with Peterson Institute for International Economics founder C. Fred Bergsten that Foreign Policy excerpted earlier in the week. I edited and abridged the transcript to clean up some of grammar. Have at it -- Bergsten's discussion of his role in the Trans-Pacific Partnership should make for interesting reading!!
DANIEL W. DREZNER: I guess the first question I would ask is, what do you think the [Peterson Institute for International Economics'] greatest accomplishment has been?
C. FRED BERGSTEN: I think our greatest accomplishment has been to educate Americans on the benefits of globalization. And the first calculation that tried to quantify the effects, namely a trillion dollar a year -- higher -- national income, the potential for further gains of another half-trillion a year could go all the way to reducing barriers to global trade. Um, it's been a tough battle. It started in earnest I'd say in the NAFTA fight in Congress, and it continued during every one of the trade policies at the time. It's of course come up repeatedly in the capital flows context as well with all the monetary crises going back to the 80s with the debt crisis, and the 90s with Asia, Russia, Brazil, Mexico, etc. And now, with the crises of the high-income countries...but I think, putting it in the broadest terms, we have been the people trying to expand understanding of globalization -- its benefits and costs, which there certainly are -- but how [on] balance, it's a positive force, both for the U.S. economy and for U.S. foreign policy. In doing that, we have never tried to cover up or short-change the costs, particularly the adjustment the cost to workers and [immobile] factors of production, but it's mainly workers. We've quantified that, about 50 billion a year to offset against the one trillion a year of gains --20/1 cost ratio -- pretty overwhelming but that is significant cost. So that has to be dealt with, and the U.S. has not dealt with it very well. Trade adjustment is miniscule -- one billion a year. We need to invest more to deal with the downside; the cost of losing, in order to keep the benefits of globalization on a stable basis. And we've argued that throughout, and I think our balance carried the day. But the battle rages on, as you know, so much work yet to be done.
DWD: Of course, I know you're a Fletcher alum, and I'm speaking right now from the Fletcher school, so I have to ask this question: In what ways did your Fletcher experience prepare you for going to DC and then sort of creating the Institute for International Economics?
CFB: Well, it prepared me really well because I learned really most of my international economics there, from the top professors of the day, [like] Charles Kindleberger.
DWD: Kindleberger was there when you were? Oh, I didn't know that.
CFB: Charlie taught a couple of courses -- a course on Europe, Europe Economy, an economics course on development with Humphry called the Don and Charlie show -- that was one of the highlight performances on the campus. But their teaching gave me most of my roots in international economics, and always -- obviously in a global context -- but also in a real world context; a political economy context that was, of course, really useful then for going into the policy world, which I did, most immediately into government, and then with that of most of my 20 years of career then to creating the institute.
DWD: Do you think America's foreign policy establishment has become more or less economically literate since when you first started IIE?
CFB: I don't think there's been much change. They were not very literate then, and they're not very literate now. My first big job -- I had a couple of lesser jobs -- my first big job was becoming economic deputy to Kissinger when he was National Security Advisor under Nixon.
Your humble blogger is not naive in the ways of punditry. He is keenly aware that the only way to move up the punditry food chain is to bemoan the crumbling state of America's infrastructure while pining for better high-speed rail, better schools, and ORDER, dammit!!
In the interest of serving the greater good, your humble blogger has decided to do the crucial pundit fieldwork necessary to adopt this position. I am therefore taking the Acela "hi speed" train from Washington, DC, to New York City, and shall chronicle every moment of import along the way in this blog post. So buckle your seat bekts -- it's going to be a bumpy ride:
8:10 AM: Part of the pundit code is getting into a local taxi and getting colorful quotes from them. Alas, my cabbie was not the chatty type. Also, despire the morning rush-hour time, there wasn't a lot of sitting around time. Oh, and his cab was clean too. Clearly, Washington DC is receiving favored treatment in its infrastructure.
8:35 AM: I get to Union Station to find much of it being renovated. There are cranes and construction equipment everywhere! What is his, Shanghai?! Of course, in the Far East, they're just building new things, whereas here in the decaying United States, we're trying to preserve our crumbling monuments to modernity [Oh, that is Pulitzer GOLD, baby!!--ed.]
8:40 AM: I want to get coffee from Starbucks, but the Acela line has already started forming. I bypass the coffee to make sure I get a good seat. Anger at stupid American regulations... rising!!
9:00 AM: On the train, I hold my breath as I try to access Acela's wifi. Many an expeletive has been tweeted in anger at this unreliable system. In my case, however, it opens with no difficulty. There is a warning page informing me that, for myriad reasons, the wifi might cut in and out and it can't access certain pages. Still, Amtrak's web service has jumped up a notch since the last time I took the Acela... or, again, the NYC-DC corridor gets preferential treatment compared with the Boston trains. Note to self: hire eager-beaver grad student to unearth Amtrak perfidy.
9:10 AM: I can't access YouTube. That's it, this is the worst f***ing WiFi service I've ever encountered. There's no WAY this would happen in China!!!
9:20 AM: Well, the Acela reveals itself to be erratic, as it starts to slow down from its pathetically low "hi speed" -- oh, it's stopoing st the BWI station. Never mind.
9:33 AM: Sure, I could have opted for the quiet car, but I wanted to mix with "the people," get a sense of what they're talking about amongst themselves. So far, they're talking about... PowerPoint presentations. There's a column in here somewhere...
10:00 AM: So far, the train has been on time, the WiFi has worked, and even the non-quiet car has been pretty sedate. Friedman's Rage is not building. [Bye-bye Pulitzer!!--ed.] No, wait, the train ride is kinda bumpy. Very bumpy at times. Kind of like... like... the American body politic!! [Atta boy! You're back in the game!--ed.]
10:20 AM: The WiFi cut out for, like 10 minutes south of Wilmington. How sad and pathetic for America. Why, if this had happened in, say, Chongqing, at least one train bureaucrat would have been executed and one British hedge-fund manager would have been poisoned to set an example for other trains.
10:39 AM: The WiFi is becoming erratic again, causing additional mutterings from other passengers in my car. One of them says "This would never happen in Michael Bloomberg's America!!" #notreally.
11:35 AM: The train has arrived in Newark. I look around. God, I miss China.
11:45 AM: Your pundit's long morning nightmare has come to an end on a gorgeous day in Manhattan. I learned a lot about America on this trip, but even more importantly... I learned a lot about myself. [Stick that in your pipe and smoke it, Aaron Sorkin!!--ed.]
Opening up my Gmail account yesterday, I saw the following announcement across the top encased in a pink banner:
We believe state-sponsored attackers may be attempting to compromise your account or computer. Protect yourself now.
As FP's Josh Rogin and others have reported, this is part of Google's new policy of warning users specifically of "state-sponsored attackers." It should be noted that Google's advice is essentially the same as it has always been -- follow good email hygeine and be careful about opening up attachments.
So, this warning doesn't really change things on my end all that much. I do wonder, however, if this will be yet another signifier that wonks inside and outside the Beltway will use to measure their "influence". I can all to easily imagine the following exchange taking place this morning at a DC Caribou Coffee:
WONK 1: So did you get the Gmail warning? Isn't that pink header a little creepy?
WONK 2: What pink header? What are you talking about?
WONK 1: You know, the Gmail notification saying that you account might be the object of a state-sponsored attack.
WONK 2: No, I didn't get that.
WONK 1: Oh.
[Long, awkward pause]
WONK 1: I'm sure it's just an oversight by the Chinese/Iranian/Russian/American authorities!
WONK 2: I can't believe this. My Klout score is higher than yours!
WONK 1: This just shows how inept the security apparatus is in Beijing/Tehran/Moscow/Washington.
WONK 2: Just you wait. After my Washington Post op-ed runs tomorrow, I'll be getting that pink banner!
WONK 1 [pats WONK 2 on the back]: Atta boy.
Of course, us academics would never have this kind of conversation. Now, if you'll excuse me, I need to polish my cv.
Your humble blogger is headed to Shanghai this week for the "12th Dialogue on Sino-U.S. Relations, Regional Security and Global Governance," co-organized by the CSIS Pacific Forum, the Asia Foundation, and Fudan University's Center for American Studies.
This trip has been planned for several months. I raise that because the fact that I'm leaving the country as this story makes the top of The Drudge Report is just a coincidence:
It was a scene as creepy as a Hannibal Lecter movie.
One man was shot to death by Miami police, and another man is fighting for his life after he was attacked, and his face allegedly half eaten, by a naked man on the MacArthur Causeway off ramp Saturday, police said.
The horror began about 2 p.m. when a series of gunshots were heard on the ramp, which is along NE 13th Street, just south of The Miami Herald building.
According to police sources, a road ranger saw a naked man chewing on another man’s face and shouted on his loud speaker for him to back away.Meanwhile, a woman also saw the incident and flagged down a police officer who was in the area.
The officer, who has not been identified, approached and, seeing what was happening, also ordered the naked man to back away. When he continued the assault, the officer shot him, police sources said. The attacker failed to stop after being shot, forcing the officer to continue firing. Witnesses said they heard at least a half dozen shots.
You know, I'd feel a lot safer if they confirmed that the guy who got shot a lot multiple times is... how to put this... no longer animated.
That this happens just when the Bilderburg group is meeting in the States is, I'm sure, also... just a coincidence.
Concerned readers should stock up on duct tape, water, and plenty of copies of this. I'm sure everything will be fine, however,
if by the time I return.
In the meanwhile, I feel the blog has been a bit top-heavy on the 2012 campaign and China as of late. What other topics, dear readers would you like me to blog about?
Periodically, Reuters' Emily Flitter files a story on the Sino-American financial relationship that contains great reporting. Unfortunately, analysts and pundits often take that reporting and misinterpret what it means. The hardworking staff at this blog hereby dubs this phenomenon The Flitter Warning.
Her latest story, which got the Drudge link and was widely linked to, reveals that China no longer has to go through Wall Street to buy U.S. Treasuries:
China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury's first-ever direct relationship with a foreign government, according to documents viewed by Reuters.
The relationship means the People's Bank of China buys U.S. debt using a different method than any other central bank in the world....
China, which holds $1.17 trillion in U.S. Treasuries, still buys some Treasuries through primary dealers, but since June 2011, that route hasn't been necessary.
The documents viewed by Reuters show the U.S. Treasury Department has given the People's Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011.
China can now participate in auctions without placing bids through primary dealers. If it wants to sell, however, it still has to go through the market.
The change was not announced publicly or in any message to primary dealers.
Now, this sounds like China is getting some kind of sweetheart deal, or at a minimum preferential treatment in its dealings with the U.S. Treasury, which ruffles the feathers of the easily ruffled. The Blaze, for example, suggests: "Considering the fact that China is America’s greatest creditor, as well as the fact that they are becoming increasingly antagonistic in cyber security attacks, maybe – just maybe – granting the Communist country a direct computer link to the treasury auction system isn’t the wisest decision."
A closer look at Flitter's story, however, reveals a more nuanced picture. First, China isn't getting a direct discount by bypassing Wall Street. As Flitter notes, "Primary dealers are not allowed to charge customers money to bid on their behalf at Treasury auctions, so China isn't saving money by cutting out commission fees." On the other hand, China is likely saving some money by keeping Wall Street a little more in the dark about its buying intentions (and thereby preventing traders from driving up the price of securities China intends to purchase).
Second, and this is really important -- Flitter fails to explain an important strategic reason why the United States might agree to this arrangement. She proffers two possibilities. First, that because this financial relationship is so politically sensitive, both sides have an incentive to keep the depths of it under wraps. Second, U.S. Treasury officials want to make the Chinese purchasers of U.S. debt happy.
I'd suggest a third -- through this arrangement, U.S. officials now have better data on just how much debt China is purchasing. For years, Beijing has tried to conceal the extent of its U.S. debt purchases by going through intermediaries in London and elsewhere (see this Setser and Pandey paper for more on the details). Flitter notes in her story that "in 2009, when Treasury officials found China was using special deals with primary dealers to conceal its U.S. debt purchases, the Treasury changed a rule to outlaw those deals."
This arrangement seems like a win-win deal to me. China, by bypassing Wall Street, saves a bit on its debt purchases by not moving the market so much. The United States, by dealing with Beijing directly, gets more accurate information on just how much U.S. debt China is purchasing. Flitter's reportage, in other words, simply confirms the existence of mutual interdependence between China and the United States, not asymmetric dependence. Which sounds... awfully familiar.
So, let the Flitter Warning go forth -- interesting new facts, but not much to worry about here.
Your humble blogger has been banging on about how China's weaknesses are significant and its strengths have been badly overestimated. So you would think I'd be happy to read this Edward Wong front-pager for the New York Times:
After the economies of Western nations imploded in late 2008, Chinese leaders began boasting of their nation’s supremacy. Talk spread, not only in China but also across the West, of the advantages of the so-called China model — a vaguely defined combination of authoritarian politics and state-driven capitalism — that was to be the guiding light for this century.
But now, with the recent political upheavals, and a growing number of influential voices demanding a resurrection of freer economic policies, it appears that the sense of triumphalism was, at best, premature, and perhaps seriously misguided. Chinese leaders are grappling with a range of uncertainties, from the once-a-decade leadership transition this year that has been marred by a seismic political scandal, to a slowdown of growth in an economy in which deeply entrenched state-owned enterprises and their political patrons have hobbled market forces and private entrepreneurship.
“Many economic problems that we face are actually political problems in disguise, such as the nature of the economy, the nature of the ownership system in the country and groups of vested interests,” said Zhang Ming, a political scientist at Renmin University in Beijing. “The problems are so serious that they have to be solved now and can no longer be put off.”
Wong didn't even delve into the state of China's big banks, which Bloomberg's Jonathan Weil examines and concludes that they're facing a world of hurt, or China's civil-military conundrum, which I blogged about earlier in the week.
So China is doomed, right? The bubble is gonna pop big time, right?
Well... maybe. Whenever I get too bearish on Beijing, two things drag me back from the brink: 1) China's sheer size means it can muddle through and still increase its relative power; and 2) it's possible for China to experience a severe downturn and still recover quite nicely. As I pointed out a few years ago:
[I look] at China and see the parallels with America's rise to global economic greatness during the late 19th and early 20th centuries. From an outsider's vantage point, America looked like a machine that could take immigrants and raw materials and spit out manufactured goods at will. By 1890, the U.S. economy was the largest and most productive in the world. As any student of American history knows, however, these were hardly tranquil times for the United States. Immigration begat ethnic tensions in urban areas. The shift from an agrarian to an industrial economy led to fierce and occasionally violent battles between laborers, farmers, and owners of capital. With an immature financial sector, recession and depressions racked the American economy for decades.
It is not contradictory for China to amass a larger share of wealth and power while still suffering from severe domestic vulnerabilities.
China-watchers tend to be divided between the Bubblers and the Extrapolators. I'm still more sympathetic to the Bubblers, but if the "China is doomed" meme goes mainstream, I might have to defect.
Yesterday your humble blogger attended a Hoover Institution conference devoted to China's evolving military and its implicatons for U.S. foreign policy. I can't say who said what, but I can say that atendees included several high-ranking military folk, multiple former policy principals, top China people from the academic and think tank communities, and at least one former presidntial candidate.
Chatham House rules prevent me from revealing who said what, but what was interesting was the areas of consensus among most of the attendees. In order:
1) China has bigger worries than the United States. It is easy to look at China's military modernization and interpret it as a dagger placed against the throat of the U.S. and its allies. It's worth remembering, however, that China currently spends more money on internal security than defense. Their actual capabilities in the anti-access/anti-denial area are... let's say a bit exaggerated (though growing). Sure, Beijing wants to expand its sphere of influence -- its a rising great power -- but it sees its greatest threats as internal rather than external.
2) If you want to worry about something, worry about China's civil-military relations. The U.S. defense establishment is quite keen on ramped-up military-to-military connections. It's the People's Liberation Army (PLA) that is not keen on this at all. The civilian leadership has... let's say limited control over numerous aspects of the PLA. Plus, the Chinese military has a corruption problem that makes the Bo Xilai scandal look like minor kerfuffle. Relations with the United States are difficult because of clashing interests... but also clashing styles. The PLA is quite transparent about intentions, but opaque about their capabilities. The United States is the reverse -- transparent about capabilities but ambiguous about intentions. This is not a recipe for comity.
3) The Chen case didn't really affect the Strategic and Economic Dialogue. This is not to say that the S & ED solved anything, but it did appear to be a productive meeting -- which is, after all, the point of a dialogue.
4) You know what would be super? The United States ratifying the U.N. Convention on the Law of the Sea (UNCLOS). There was unanimous consent the United States could do far more damage to itself than China ever could. Exhibit A on this front was the continued failure of the U.S. Senate to ratify UNCLOS. This is, in theory, the treaty that can provide the framework for resolving disputes in the South China Sea and East China Sea. It's a treaty backed by every president and secretary of state in the post-Cold War era. It's a treaty that the U.S. Navy desperately wants to see ratified. But because it hasn't happened yet, the U.S. always finds itself wrong-footed on these issues in negotiations. Well, I'm sure that in the current political climate, the Senate will eventually get around to it. Oh, wait...
There's a lot that's happened over the past week with respect to Chen Guangcheng's status, and your humble blogger could write a 5,000 word essay on it if
someone wanted to pay me gobs and gobs of cash because I'm remodeling my home I had the time. I don't however, so I have one big thought on the matter.
Before I begin, given the rapid real-time developments in the Chen case, I'm operating on the assumption that China's last Foreign Ministry statement suggests the denouement: Chen and his family will be able to go to the United States to study, and he then may or may not be allowed back into the country.
My Big Thought: contrary to just about every headline I've seen in the past three days, I think Chen's case demonstrates the surprising resilience of the Sino-American relationship. Recall what I wrote earlier in the week:
The fact that both Beijing and Washington have kept their mouths shut on Chen is a pretty surprising but positive sign about the overall stability/resilience of Sino-American relations. Bear in mind that according to the latest reports, much of the leadership in Beijing takesan increasingly conspiratorial view of the United States. As for the mood in Washington, well, let's just call it unfriendly towards China. Both sides are in the middle of big leadership decisions, making the incentive to cater to nationalist domestic interests even stronger than normal. With the rest of the Pacific Rim trying to latch themselves onto the U.S. security umbrella, this could have been the perfect match to set off a G-2 powderkeg.
Despite all of these incentives for escalating the dispute, however, it hasn't happened. Kurt Campbell was dispatched to Beijing, talks are ongoing, and neither side appears to be interested in ramping up domestic audience costs. That escalation hasn't happened despite massive political incentives on both sides to let it happen suggests that, contrary to press fears about Chen blowing up the bilateral relationship, there are powerful pressures in Washington and Beijing to find a solution that saves as much face as humanly possible for both sides.
Now, in the three days since I wrote that post, Chen has been released, calling every Chinese dissident, U.S. congressman and international reporter with a phone/recording device/Twitter account and is loudly and frantically describing the intimidation he and his family have experienced. The man has asked to be flown out on Hillary Clinton's plane as she departs from the Strategic and Economic Dialogue. In other words, everything that has transpired in the past three days has given a black eye to both the Chinese and American governments' handling of this case.
Despite the near-overwhelming incentive to ramp up bilateral tensions, however, it really hasn't happened. China's Foreign Mnistry has issued a couple of garden-variety press statements demanding a U.S. apology that won't be forthcoming. There have been no leaks or anonymous criticisms of the United States otherwise, despite the fact that this entire case is a burr in China's saddle at veery awkward moment. None of the U.S. State Department statements or press leaks have been terribly critical of the Chinese side either. Indeed, as the Washington Post observes:
Neither Clinton nor her Chinese counterparts mentioned Chen in their formal remarks at the end of their two-day meeting, saying instead that U.S.-Sino differences on human rights issues must not disrupt the broader relationship between the two world powers.
State Councilor Dai Bingguo, China’s top foreign policy expert, said his country and the United States still have “fundamental differences” on human rights issues. “Human rights should not be a disturbance in state-to-state relations,” Dai said. “It should not be used to interfere in another country’s internal affairs.”
Clinton promised to “continue engaging with the Chinese government at the highest levels” on the “human rights and aspirations” of all people.
This is pretty extraordinary. Even more extraordinary is the possiblity that despite Chen's outspokenness, he actually could be able to leave the country with his family.
Now, as the Post shrewdly observes, "China’s Foreign Ministry said the self-taught lawyer would have to apply 'through normal channels ... like any other Chinese citizen' — which would mean returning home to the village where he has been confined and beaten, in order to obtain a passport." Still, if the rhetoric between the U.S. and China on this boils down to Clinton asking the Chinese government to "expeditiously process" Chen's visa application, then this is a really big dog that didn't bark.
What do you think?
Your humble blogger has spent the last 48 hours trying to follow up on his last Chen Guangcheng post. Unfortunately, a recurrent cycle emerged that has caused some serious delays:
STEP 1: Development in Chen case
STEP 2: Me cogitating on development
STEP 3: Brilliant insights that will transform the Sino-American relationship emerge from blog brain.
STEP 4: Start writing blog post
STEP 5: Check Twitter feed five minutes later
STEP 6: New development in Chen case that renders prior insights totally overtaken by events.
STEP 7: Trash draft of blog post... go back to Step 1.
Seriously, I think I get web 2.0 stuff pretty well, and I have never dealt with an ongoing policy issue that mutated faster than I could blog about it.
I think the latest developments have stabilized matters a bit, so I promise a follow-up blog post in the next hour. We apologize for the inconvenience.
Your humble blogger has been silent on the ongoing Chen Guangcheng case in China. To be fair, however, I was merely copying what the Chinese and U.S. governments were doing: furiously not commenting on the case as the next Strategic and Economic Dialogue between Washington and Beijing commences.
Since other people are starting to
say really stupid things comment on it, however, I'm required by the International Brotherhood of Foreign Policy Pundits to weigh on the matter. So, a few random thoughts:
1) My expectation on how this will play out: unless Wen Jiabao has a lot more authority than I think, this ends in a year or so when Chen leaves China. Chen wants to stay in China. Given that he was under some kind of extralegal confinement rather than house arrest, one could envision Wen using this as a way of expanding on the "crush Bo" campaign currently emanating from Beijing. In other words, Wen could use this to clamp down on abuses by out-of-control regional governors. But, to be honest, I doubt Wen has that much authority -- in which case this ends with Chen out of China in a way that embarrasses Beijing the least.
2) The fact that both Beijing and Washington have kept their mouths shut on Chen is a pretty surprising but positive sign about the overall stability/resilience of Sino-American relations. Bear in mind that according to the latest reports, much of the leadership in Beijing takes an increasingly conspiratorial view of the United States. As for the mood in Washington, well, let's just call it unfriendly towards China. Both sides are in the middle of big leadership decisions, making the incentive to cater to nationalist domestic interests even stronger than normal. With the rest of the Pacific Rim trying to latch themselves onto the U.S. security umbrella, this could have been the perfect match to set off a G-2 powderkeg.
Despite all of these incentives for escalating the dispute, however, it hasn't happened. Kurt Campbell was dispatched to Beijing, talks are ongoing, and neither side appears to be interested in ramping up domestic audience costs. That escalation hasn't happened despite massive political incentives on both sides to let it happen suggests that, contrary to press fears about Chen blowing up the bilateral relationship, there are powerful pressures in Washington and Beijing to find a solution that saves as much face as humanly possible for both sides.
3) Mitt Romney has been vocal about Chen's case, concluding: "Any serious U.S. policy toward China must confront the facts of the Chinese government’s denial of political liberties, its one-child policy, and other violations of human rights."
To which I say... good for him!! It's the job of the opposition party in the United States to bring up questions about China's human rights problem. It's the job of the opposition party because the moment the opposition takes power, all those structural pressures I alluded to previously kick in, and the human rights rhetoric from the campaign trail inevitably fades away. So Republicans who expect a President Romney to be all over the human rights issue will be sorely disappointed. That said, even someone like myself who is more realpolitik-friendly nevertheless would be sorely disappointed if human rights faded away completely (it's also worth noting that after the Obama administration's first year in office, they seemed to find their rhythm with respect to talking about human rights towards China).
Am I missing anything?
So it turned out that this was the week that both the Romney campaign and the Obama campaign decided that foreign policy was an important thing to talk about during election season. Speaking personally, this is great!! I seem to have moved up in the Rolodex of those covering the campaign. Expect lots of juicy quotes in the months to come, and readers are warmly encouraged to proffer useful metaphors that I can provide in soundbite fashion over the next six months.
Unfortunately for the Romney campaign, this was not a great week to ramp up attacks along this line. The reasons is that, all told, the Obama administration had a pretty good foreign policy week. Not all, or even most of this, was of its own doing, but consider the following:
1) Iran has signaled a genuine willingness to talk compromise on its nuclear program in order to avoid the EU oil embargo kicking in. That might just be rhetoric, but it's interesting to note that even senior Israeli officials are starting to talk down the Iranian threat. The less Iran becomes a thing, the
lower gas prices can fall better for the administration.
2) The United States has maybe, just maybe, eliminated a major thorn in bilateral relations with Japan by finally reaching agreement on moving U.S. troops from Okinawa. We'll see if this holds -- everyone assumed that a 2006 agreement had put this problem to rest before successive Japanese governments
shot themselves in the foot raised it again, but this is the thing on this list for which the administration deserves the most credit. As an added bonus, the administration actually got some nice words from John McCain on comity with the Senate.
3) For some reason China seems to be in a more productive mood in their dealings with the United States, and Mark Landsler and Steven Lee Myers have taken notice in the New York Times:
For years, China stymied efforts to pressure Iran. Now, in addition to throwing its weight behind the sanctions effort, officials say, Beijing is also playing a more active role in the recently revived nuclear talks between Iran and six world powers — the United States, China, Russia, Britain, France and Germany. While in past negotiations, Beijing has followed in lockstep the positions taken by Russia, this time Chinese diplomats are offering their own proposals.
“One of the key elements of making this work is unity among the major powers,” said a senior administration official, who spoke on condition of anonymity to discuss diplomatic exchanges. “The Chinese have been very good partners in this regard.”
There are also signs of new cooperation on Syria. Only weeks after Secretary of State Hillary Rodham Clinton called China’s veto of a United Nations Security Council resolution “despicable,” China is supporting Kofi Annan’s peace plan for the strife-torn country and is deploying monitors to help oversee it. Even on North Korea, which China has long sheltered from tougher international action, the Chinese government quickly signed on to a United Nations statement condemning the North’s recent attempt to launch a satellite.
And there is progress on the economic front: American officials said China recently loosened trading on its currency, the remninbi, which could help close a valuation gap with the dollar that has stoked trade tensions between China and the United States during an election year.
To some seasoned observers of China, these developments are less a harbinger of a new era of cooperation between Beijing and Washington than evidence that, at least for now, the interests of the two countries coincide in some important areas.
The administration will nevertheless be happy to pocket the policy dividends.
4) Staying in Northeast Asia, it turns out that the big bad North Korean ICBMs are little more than a pipe dream -- and western analysts are starting to say that Kim Jong Un is naked in the public square:
North Korea tried to flex its military might with an extravagant parade on April 15, just three days after it admitted that its missile test had been a failure, but analysts now say that the new intercontinental ballistic missiles on display in the meticulously choreographed parade were nothing more than props.
The analysts studied photos of the six missiles and came to their conclusion for three primary reasons: 1. The missiles did not fit the launchers that carried them. 2. The missiles appear to be made out of both liquid-fuel and solid-fuel components that are unable to fly together. 3. The casings on the missiles undulate which suggests the metal is not thick enough to hold up during flight.
"There is no doubt that these missiles were mock-ups," Markus Schiller and Robert Schmucker, of Germany's Schmucker Technologie , wrote in a paper recently posted on Armscontrolwonk.com. "It remains unknown if they were designed this way to confuse foreign analysts, or if the designers simply did some sloppy work."
If the U.S. government can claim progress on Iran, China, North Korea, and Japan in one week, that's a good foreign policy week. Of course, for a lot of these issues, the administration is the beneficieary of circumstances rather that pro-active policies. Still, the administration deserves some credit for some of these development.
It's just one week, though. And I fear the most memorable statement about American foreign policy is this rather unfortunate choice of words:
NOTE TO WHITE HOUSE/CAMPAIGN SPEECHWRITERS: In the future, avoid having Biden utter any of the following: "big stick", "hard power", "pounding the enemy", "won't take no for an answer", and "smooth-talking his adversaries".
Am I missing anything?
When we last left off with Bo Xilai, he and his family were in a spot of trouble for myriad crimes and misdemeanors in Chongqing, including the possible poisoning of a British national. According to this New York Times story by Jonathan Ansfield and Ian Johnson, however, that's just the beginning of Bo's crimes:
When Hu Jintao, China’s top leader, picked up the telephone last August to talk to a senior anticorruption official visiting Chongqing, special devices detected that he was being wiretapped — by local officials in that southwestern metropolis.
The discovery of that and other wiretapping led to an official investigation that helped topple Chongqing’s charismatic leader, Bo Xilai, in a political cataclysm that has yet to reach a conclusion.
Until now, the downfall of Mr. Bo has been cast largely as a tale of a populist who pursued his own agenda too aggressively for some top leaders in Beijing and was brought down by accusations that his wife had arranged the murder of Neil Heywood, a British consultant, after a business dispute. But the hidden wiretapping, previously alluded to only in internal Communist Party accounts of the scandal, appears to have provided another compelling reason for party leaders to turn on Mr. Bo.
This is both interesting and unsurprising. The leadership in Beijing has every incentive to tar and feather Bo to ensure that his residual popularity in Chongqing does not lead to a revival in his power. It's now gotten to the point where Bo's son had to issue a statement to the Harvard Crimson in an attempt to shed the image of being a spoiled princeling driving around in a red Ferrari. I don't doubt the wiretapping story, but let's face it, Beijing's ruling cliques are going to have an incentive to... let's say embellish Bo's perfidy.
And we here at Foreign Policy want to help!!
At this point, the accusations being hurled at Bo Xilai, his wife, and his son are flying so fast and furious that the hashtag #BoXilaicrimes is now rising on Twitter. Look at the list yourself -- here are my faves so far:
RT @_dpress Tore Jeremy Lin's meniscus
Let's face it, far more Americans associate the name "Bo" more with Barack Obama's dog than with Bo Xilai, the now-disgraced former Communist Party chief of Chongqing (my generation of Americans will, of course, forever associate Bo with this). That might be about to change, however, because Bo is at the center of the most serious post-Tiananmen political scandal in China.
To recap: Bo was pushing hard for an appointment to the nine-person Standing Committee of the Chinese Communist Party's (CCP) Politburo -- the most powerful decision-making body in China. He might very well have received it too, based on the combination of his "princeling" ties, his populist, Maoist-style campaigns and the flock of high party officials visiting Chongqing to see how he was doing it.
Two months ago, however, Bo's police chief Wang Lijun showed up at the U.S. consulate in Chengdu seeking asylum. He left the consulate, but the reverberations haven't stopped. First Bo disappeared from public view, then his "Jackie Kennedyesque" wife Gu Kailai was charged with the murder of British citizen Neil Haywood, and then Bo was formally put under investigation and stripped of all his party posts.
So, what the hell happened? Slowly, details are starting to trickle out about Bo's methods in Chongqing and exactly what led to his downfall. In order, I'd suggest reading the following:
3) On how U.S. officials handled Wang's request for asylum, check out the New York Times' Steven Lee Myers and Mark Landler's excellent reconstruction of events in Chengdu.
5) Finally, read John Garnault's excellent FP Long Read on whether a Bo-style scandal is about to break out in the People's Liberation Army.
OK, now you know everything I know. So what do I know about Bo? Not much, except for four things:
A) For the past decade there was a lot of talk about how China had managed to routinize the authoritarian selection process. The transfer of power from Jiang Zemin to Hu Jintao seemed seamless. Well, say what you will about what's happening now, but it ain't seamless.
B) I tend to agree with Minxin Pei (and disagree with Cheng Li) that Bo's arrest is not an example of the system working, but rather the system coming veeeerrrrry close to a catastrophic failure. The fact China's official apparatus has clammed up after Bo's arrest is a clear sign that there's still a lot of infighting going on. The notion that this will therefore lead to a real reform/anti-corruption trend strikes me as based on hope more than reality (though see this previous post of mine as a hedge).
C) Despite the official no-comments, the fact that Chinese officials are now leaking like a seive to Western reporters is interesting, and suggests the ways in which a purge in this decade will not resemble pre-Tiananmen purges. It's not that there will be more rumors and conspiracy theories now than thirty years ago -- it's that all this stuff will not be on the Internet -- which will force the CCP to respond more than it would like.
D) Based on how things played out, the U.S. State Department deserves a tip of the cap for how it handled Wang's sojourn to Chengdu. The fact that there were no press leaks until yesterday is good -- anything the U.S. government says publicly about this episode needlessly embarrasses and angers the Chinese government. That said, given the current attitudes in Beijing about the United States, even the Times story is going to raise some hackles. Indeed, given the current strife inside China, it would be easy to envision Beijing making life difficult for the United States elsewhere as a way of using nationalism to paper over elite divisions.
Am I missing anthing? Oh, I'm missing plenty, and I strongly urge China-watchers to proffer their comments!
Your humble blogger is spending the first half of this week at the International Studies Association's annual conference. This means that news stories that would ordinarily catch my eagle eye the day they come out take a little longer to
penetrate my alcohol-bleary cerebral cortex read. Still, if they're important enough, they require a blog response.
Yesterday the New York Times' Jane Perlez reported that Wang Jisi -- China's most prominent international affairs writer -- has offered a surprisingly stark view of how China's leadership views the United States:
The senior leadership of the Chinese government increasingly views the competition between the United States and China as a zero-sum game, with China the likely long-range winner if the American economy and domestic political system continue to stumble, according to an influential Chinese policy analyst.
China views the United States as a declining power, but at the same time believes that Washington is trying to fight back to undermine, and even disrupt, the economic and military growth that point to China’s becoming the world’s most powerful country, according to the analyst, Wang Jisi, the co-author of “Addressing U.S.-China Strategic Distrust, a monograph published this week by the Brookings Institution in Washington and the Institute for International and Strategic Studies at Peking University.
The United States is no longer seen as “that awesome, nor is it trustworthy, and its example to the world and admonitions to China should therefore be much discounted,” Mr. Wang writes of the general view of China’s leadership.
In contrast, China has mounting self-confidence in its own economic and military strides, particularly the closing power gap since the start of the Iraq war. In 2003, he argues, America’s gross domestic product was eight times as large as China’s, but today it is less than three times larger.
The candid writing by Mr. Wang is striking because of his influence and access, in Washington as well as in Beijing. Mr. Wang, who is dean of Peking University’s School of International Studies and a guest professor at the National Defense University of the People’s Liberation Army, has wide access to senior American policy makers, making him an unusual repository of information about the thinking in both countries. Mr. Wang said he did not seek approval from the Chinese government to write the study, nor did he consult the government about it. (emphasis added)
If Wang is telling the truth in that last bolded section, it's quite extraordinary. One of the common laments among U.S.-based international relations scholars is that there is no point in having a China-based scholar come to a conference on Sino-American relations, because the Chinese scholar inevitably clams up whenever the discussion turns to the thinking in Beijing. If Wang doesn't have to worry about that, it's a sign of his relative influence.
That said, what about his analysis? You can read it by clicking here. Wang doesn't pull many punches. Here's an assortment of quotes from it:
Chinese distrust of the United States has persisted ever since the founding of the People’s Republic of China (PRC) in 1949....China’s strategic distrust of the United States is deeply rooted, and in recent years it seems to have deepened.
Since 2008, several developments have reshaped China’s views of the international structure and global trends, and therefore of its attitude toward the United States. First, many Chinese officials believe that their nation has ascended to be a firstclass power in the world and should be treated as such.... Second, the United States is seen in China generally as a declining power over the long run...Third, from the perspective of China’s leaders, the shifting power balance between China and the United States is part of
an emerging new structure in today’s world.
Fourth, it is a popular notion among Chinese political elites, including some national leaders, that China’s development model provides an alternative to Western democracy and experiences for other developing countries to learn from, while many developing countries that have introduced Western values and political systems are experiencing disorder and chaos. The China Model, or Beijing Consensus, features an all-powerful political leadership that effectively manages social and economic affairs, in sharp contrast to some countries where “color revolutions” typically have led to national disunity and Western infringement on their sovereign rights....
It is widely believed in the Chinese leadership that the Americans orchestrated awarding
the Nobel Peace Prize to Liu Xiaobo in October 2010....
Chinese officials have paid special attention to the Obama administration’s statements of a new pivot of America’s strategic focus to Asia, made during the APEC meetings in Hawaii and the East Asia Summit in Indonesia in November 2011. In Beijing’s interpretation, many of Washington’s latest actions in Asia, including the decisions to deploy on rotation U.S. marines in Darwin, Australia, encourage Myanmar (Burma) to loosen domestic political control, and strengthen military ties with the Philippines, are largely directed at constraining China.
You should read the whole thing. I have three thoughts. First, I'm sure to many American readers, Wang's description of Chinese thinking about the U.S. verges on the conspiratorial and paranoid. According to Beijing, the United States does what it does only to constrain and weaken China. And, indeed, this does seem outladish, until one thinks about what is written about China in the United States -- by presidential candidates no less.
Second, if Wang's assessments really reflect the thinking in Beijing about the future of world politics, then Chinese diplomacy is about to face a world of hurt. In Wang's essay, the United States is the chief architect of any misfortune or policy reversal that affects the Middle Kingdom. Wang notes the U.S. "pivot" without speculating why countries like South Korea, Vietnam, or even Myanmar might be so eager to welcome Washington with open arms. If Chinese policymakers truly believe that the U.S. is solely to blame for these turn of events, then they will likely continue to act in ways that alienate their neighbors in the Pacific Rim, thereby exacerbating the geopolitical straight-jacket that they disliked in the first place.
Third, Wang notes that, in the short run, China has an incentive for the U.S. economy to recover. I'd add that the reverse is true. Relations with China would be difficult if Beijing suffered a growth slowdown. That would increase the domestic political pressure on the CCP at a time when they're already a bit stressed out. Furthermore, based on Wang's analysis, Chinese elites would likely blame the U.S. for any downturn.
Am I missing anything?
I think the world of the Financial Times' Jamil Anderlini. His China reportage is always fresh and interesting. But I confess that I approach his latest story with more than a touch of trepidation:
Mr Wen’s persistent mentions of the violent chaos unleashed by Mao Zedong were a clear rebuke to populist “princeling” politician Bo Xilai, who was purged a few hours later as party chief of Chongqing, one of China’s largest cities....
But for those reading between the pauses in the premier’s painfully deliberate oratory, the speech signalled more than the downfall of the maverick Mr Bo, who may still be charged with unspecified crimes.
According to people close to top-level internal party discussions, Mr Wen was tentatively laying the foundation for a move that would blow apart the established order in China and kick-start the political reform he has agitated for in recent years.
That move would be the rehabilitation and re-evaluation of the 1989 Tiananmen Square student protests and the massacre that followed on June 4, when party elders ordered the People’s Liberation Army to open fire on unarmed demonstrators.
To this day the party officially regards the democracy protests as a “counter-revolutionary riot” and the entire episode has been painstakingly scrubbed from the collective consciousness of the nation.
In calling for a re-evaluation of the cultural revolution, Mr Wen was in fact signalling his intention to do the same for Tiananmen in order to finally begin the healing.
Mr Wen has already suggested this on three separate occasions in top-level secret party meetings in recent years, according to people familiar with the matter, but each time has been blocked by his colleagues.
One of the most vehement opponents of this proposal was Bo Xilai....
As Mr Wen prepares to step down at the end of this year as part of a once-in-a-decade political transition, he may be gambling that the time has come to right historical wrongs as a way of launching political reform.
The potential reputational damage to powerful interest groups, particularly within the military, could still easily block such a spectacularly bold manoeuvre.
But in purging Mr Bo the Chinese leadership has cleared away a major impediment and sent a signal to others that spring could be in the air again in Beijing.
Now, a few notes of skepticism. First, we've heard this song-and-dance routine about Wen before. He's talked about political reform a lot, and every time he does it gets covered in the foreign press and squelched in the domestic Chinese press.
Second, while the CCP elite might be in agreement on not wanting to return to the chaos of the Cultural Revolution , it's quite a stretch to go from that consensus to an agreement to revisit 1989. I have every confidence that a large swatch of the CCP elite looks at Tiananmen as identical to the Cultural Revolution in terms of instability and chaos.
So this seems like yet another CCP episode of Lucy yanking away the democratic football from hopeful liberals... and yet.
Anderlini makes two persuasive points and omits an even more persuasive argument. He correctly observes that Wen is approaching lame duck status and that his primary political impediment has been removed. So maybe he is less constrained than in the past.
The omitted argument is a bit tangential, but bear with me. It relates to this Keith Bradsher story in the New York Times about China's relaxation of foreign capital strictures:
The Chinese government has begun making it much easier for foreign investors to put money into China's stock market and other financial investments, in a slight relaxing of more than a decade of tight capital controls.
The move, not publicly announced but disclosed by some private money managers, indicates that Chinese officials are eager to counter a rising flight of capital from the country, a worsening slump in real estate prices, a weak stock market and at least a temporary trade deficit caused by a steep bill for oil imports.
Those concerns have evidently started to offset fears of the potentially inflationary effects of big inflows of foreign cash (emphasis added).
Both the inward rush of capital and the capital flight by affluent Chinese are interesting. They could force the central government to start making credible commitments with respect to property rights. Only such commitments will ensure that the locally wealthy Chinese will not immediately have their capital move to the exit whenever possible. Oddly, Wen deciding to open up Tiananmen might be a way of signaling to investors that Beijing intends to be a bit kinder and gentler than it's been over the past decade.
The international diversification of China's wealthy elite has another effect. Via Erik Voeten, I see that John Freeman and Dennis Quinn have a new paper in the American Political Science Review that concludes, "financially integrated autocracies, especially those with high levels of inequality, are more likely to democratize than unequal financially closed autocracies." Why?
[M]odern portfolio theory recommends that asset holders engage in international diversification, even in a context in which governments have forsworn confiscatory tax policies or other policies unfavorable to holders of mobile assets. Exit through portfolio diversification is the rational investment strategy, not (only) a response to deleterious government policies. Therefore, autocratic elites who engage in portfolio diversification will hold diminished stakes in their home countries, creating an opening for democratization.
Freeman and Quinn might as well be talking about China right now. Soo.... maybe the "princelings" are less worried about democratization than they used to be.
To be honest, I still think the football is going to be yanked. But it's worth considering.
What do you think?
UPDATE: Mark Mackinnon has an excellent essay in the Toronto Globe & Mail explaining why reporters in China have so little to go on when they need to report on high-level politics or put down coup rumors.
I've been reading a raft of books recently arguing that authoritarian capitalism is a more sustainable model than us in the West appreciate. According to this meme, entities like sovereign wealth funds, state-owned enterprises, and national oil companies will be carving up ever-greater slices of the global economy.
Whenever I read these arguments, the question that gnaws at me is how these authoritarian capitalist institutions will operate in other authoritarian capitalist countries. See, this kind of argument presumes a harmony of interests that doesn't necessarily exist between authoritarian states. It also presumes a standard of competency and efficiency - or, at least, efficient corruption -- that makes these firms and institutions able to compete with private sector firms.
For see what I'm talking about, see this Washington Times story by Kelly Hearn on China's growing frustration with Venezuela:
China has poured billions of dollars into Venezuela’s oil sector to expand its claim over the country’s massive oil reserves.
But Beijing is getting relatively little for its investments, and Chinese officials are increasingly frustrated with Venezuelan President Hugo Chavez, according to energy analysts and former managers of the state oil company, Petroleum of Venezuela, or PDVSA as it’s known by its Spanish acronym....
In 2010, CNPC signed a deal to help Venezuela develop a major Orinoco oil field known as Junin 4, which includes the construction of a facility to convert heavy oil to a lighter crude that could be shipped to a refinery in Guangdong, China.
“Although the contract was signed in December 2010, not one barrel of oil has yet been produced, much less upgraded,” said Gustavo Coronel, a former PDVSA board member.
“So far, nothing much seems to be happening, except for the arrival of a large group of Chinese staff to the CNPC’s Caracas office,” he added, referring to the Venezuelan capital, Caracas.
“Apart from money, there seems to be little that China can offer Venezuela in the oil industry,” he said, adding that a “culture gap will make working with China very difficult for Venezuelan oil people, who were mostly trained in the U.S.”....
The Chinese also seem to be increasingly wary.
Internal PDVSA documents released by a Venezuelan congressman show that the Chinese balked at a $110 billion loan request by Mr. Chavez in 2010, after PDVSA officials failed to account fully for where the money would go.
Venezuela is not the only place that Chinese foreign direct investment in energy is running into bottlenecks and roadblocks. There was Myanmar last year:
fter five years of cozy cooperation with Burma’s ruling generals, China Power Investment Corp. got a shock in September when it sent a senior executive to Naypyidaw, this destitute Southeast Asian nation’s showcase capital, a Pharaonic sprawl of empty eight-lane highways and cavernous government buildings.
Armed with a slick PowerPoint presentation and promises of $20 billion in investment, Li Guanghua pitched “an excellent opportunity,” a mammoth, Chinese-funded hydropower project in Burma’s far north.
Then came the questions: What about the risk of earthquakes, ecological damage and all the people whose homes would be flooded? Is it true that most of the electricity would go to China?
Two weeks later, Burma, also known as Myanmar, scrapped the cornerstone of the project. President Thein Sein, a former general who took office in March, announced that he had to “respect the people’s will” and halt the $3.6 billion dam project at Myitsone, the biggest of seven planned by China Power Investment, or CPI.
As the world’s biggest consumer of energy, China has hunted far and wide in recent years for sources of power — and of profit — for state-owned corporate behemoths such as CPI. The result is a web of deals with often-repressive regimes, from oil-rich African autocracies such as Sudan and Angola to river-rich Burma.
But coziness with despots can also backfire.
Amid a dramatic, though still fitful, opening in Burma after decades of harsh repression, public anger has swamped China’s hydropower plan. The deluge threatens not only hundreds of millions of dollars already spent but also China’s intimate ties to what had been a reliably authoritarian partner, its only East Asian ally other than North Korea.
Beijing still has big interests in Burma, including a multibillion-dollar oil and natural gas pipeline that is under construction. But a partnership forged with scant heed to public opinion has been badly jolted by a barrage of no-longer-taboo questions.
These are just isolated cases -- I have no doubt that China has a boatload of successful FDI projects in energy. What's telling, however, is that regardless of whether the host regime is democratizing or reverting to autocracy, the political economy of these investments is far from problem-free.
One must sympathize with the Chinese firms here. China's domestic politicsal economy of investment aren't this messy. Oh, wait...
Your humble blogger has, on occasion, opined about the intersection of sports and politics. This topic is both tempting and treacherous. Tempting, because a lot more people pay attention to sports than world politics, and so it's a way for the pundit to A) show how "in touch" s/he is with the mass p;ublic; and B) use the sporting moment-du-jour as a metaphor to make a point that was already in the pundit's back pocket. This is why most of my writings on this topic have been either to debunk the notion that sports really affects world politics, or just as another excuse to mock the Very Serious Foreign Policy Community.
Which brings me to New York Knicks point guard Jeremy Lin. In a month Lin has gone from being demoted to the development league to leading the Knicks to a globally televised victory over the defending champion Dallas Mavericks. It's a great story: undrafted , devout Taiwanese-American Harvard graduate bucking the odds -- as well as numerous outdated stereotypes -- to seize his moment in the sun and turn what had been a lackluster Knicks
decade season into something exciting.
This is a narrative that one simply has to enjoy. Professional basketball is, at best, my third-favorite sport, but I tuned in yesterday to watch the Kincks-Mavericks game. Unfortunately, I've noticed that some ink has been spilled and some keyboards have been tapped about him -- and here we get to the treacherous part of this post. Some sportswriters have used the opportunity to wax grandiosely about the Deeper Meaning of Linsanity. Some politics commentators have tried to use Lin to make deeper arguments about the fabric of society and sports.
Let's be blunt -- most of these efforts result in utter crap. Unfortunately, too many sportswriters know too little about the rest of the world to even try to comment on the social or cultural significance of Lin. Numerous idiots have not helped the sportswriting profession by writing things that result in apologies from said idiots for stereotyping Lin and amusing Saturday Night Live skits. We're not seeing the second coming of Red Smith in most of this output. As for the politics writers, well, the lack of actual sports knowledge in some of these efforts makes one almost nostalgic for George F. Will's Sports Machine. Almost.
So I was all set to blog a request for everyone to leave Jeremy Lin and his family alone... but then Gady Epstein wrote something interesting about the whole phenomenon over at the Economist about China's reaction to Lin and why their own sports programs could never have produced someone like him:
Mr Lin is, put plainly, precisely everything that China’s state sport system cannot possibly produce. If Mr Lin were to have been born and raised in China, his height alone might have denied him entry into China’s sport machine, as Time’s Hannah Beech points out: “Firstly, at a mere 6’3”—relatively short by basketball standards—Lin might not have registered with Chinese basketball scouts, who in their quest for suitable kids to funnel into the state sports system are obsessed with height over any individual passion for hoops.” Even when Mr Lin was still a young boy, one look at his parents, each of unremarkable stature, would have made evaluators sceptical. Ms Beech’s other half happens to be Brook Larmer, the author of the fascinating book “Operation Yao Ming”, which details how Chinese authorities contrived to create China’s most successful basketball star, Mr Yao, the product of tall parents who were themselves Chinese national basketball team players. The machine excels at identifying, processing and churning out physical specimens—and it does so exceedingly well for individual sports, as it will again prove in London this year. But it happens to lack the nuance and creativity necessary for team sport.
What of Mr Lin’s faith? If by chance Mr Lin were to have gained entry into the sport system, he would not have emerged a Christian, at least not openly so. China has tens of millions of Christians, and officially tolerates Christianity; but the Communist Party bars religion from its membership and institutions, and religion has no place in its sports model. One does not see Chinese athletes thanking God for their gifts; their coach and Communist Party leaders, yes, but Jesus Christ the Saviour? No.
Then there is the fact that Mr Lin’s parents probably never would have allowed him anywhere near the Chinese sport system in the first place. This is because to put one’s child (and in China, usually an only child at that) in the sport system is to surrender that child’s upbringing and education to a bureaucracy that cares for little but whether he or she will win medals someday. If Mr Lin were ultimately to be injured or wash out as an athlete, he would have given up his only chance at an elite education, and been separated from his parents for lengthy stretches, for nothing. (One must add to this the problem of endemic corruption in Chinese sport that also scares away parents—Chinese football referee Lu Jun, once heralded as the “golden whistle” for his probity, was sentenced to jail last week as part of a massive match-fixing scandal). Most Chinese parents, understandably, prefer to see their children focus on schooling and exams.
In America, meanwhile, athletic excellence actually can open doors to an elite education, through scholarships and recruitment. Harvard does not provide athletic scholarships, but it does recruit players who also happen to be academic stars. There is no real equivalent in China.
So China almost certainly has other potential Jeremy Lins out there, but there is no path for them to follow. This also helps explain, as we have noted at length,why China fails at another sport it loves, football. Granted, Mr Lin’s own path to stardom is in itself unprecedented, but in America, the unprecedented is possible. Chinese basketball fans have taken note of this. Mr Lin’s story may be a great and inspiring proof of athleticism to the Chinese people, but it is also unavoidably a story of American soft power.
Epstein is overreaching juuuust a bit with that closing -- if Lin is an example of American soft power, then all the galactically stupid puns and stereotypes that the Lin story has propagated is a demerit to that soft power as well. Also, last I checked, the countries that dominate the top of the FIFA rankings are not exactly models of laissez-faire in sports.
Still, Epstein has probably done the best possible job of trying to relate Lin to Deeper Global Meanings. Let's hope the rest of the writing class reads him and gives up their own futile quest to do the same.
Mitt Romney's op-ed in today's Wall Street Journal is devoted to China policy. Let's take a read, shall we?
Barack Obama is moving in precisely the wrong direction [on responding to China's rise]. The shining accomplishment of the meetings in Washington this week with Xi Jinping—China's vice president and likely future leader—was empty pomp and ceremony.
President Obama came into office as a near supplicant to Beijing, almost begging it to continue buying American debt so as to finance his profligate spending here at home. His administration demurred from raising issues of human rights for fear it would compromise agreement on the global economic crisis or even "the global climate-change crisis." Such weakness has only encouraged Chinese assertiveness and made our allies question our staying power in East Asia.
Now, three years into his term, the president has belatedly responded with a much-ballyhooed "pivot" to Asia, a phrase that may prove to be as gimmicky and vacuous as his "reset" with Russia. The supposed pivot has been oversold and carries with it an unintended consequence: It has left our allies with the worrying impression that we left the region and might do so again.
The pivot is also vastly under-resourced. Despite his big talk about bolstering our military position in Asia, President Obama's actions will inevitably weaken it. He plans to cut back on naval shipbuilding, shrink our Air Force, and slash our ground forces. Because of his policies and failed leadership, our military is facing nearly $1 trillion in cuts over the next decade.
This is interesting because it's the first time I've seen a GOP candidate try to respond substantively to the "pivot". And, in my book, the criticism that Obama was too much of a supplicant to China in the first part of his term is actually a fair one. Unfortunately, things fall apart after that.
First, Asian allies were worried about the U.S. presence in the region because of the priority the Bush administration placed on the global war on terror, followed by the 2008 financial crisis. Obama had little or nothing to do with it.
Second, it's important and revealing that Romney only talked about the narrow, military part of the pivot. Left unmentioned were the diplomatic components (joining the East Asia Summit, interceding on the South China Sea, warming relations with Myanmar, tripartite between the U.S., Australia and India) as well as the economic components (ratifying the FTA with South Korea, signing the framework agreement for the Trans-Pacific Partnership). This is important, because any U.S. strategy in the Asia-Pacific region has to be a full-spectrum approach, while Romney seems peculiarly obsessed with shipbuilding.
Third, the primary message Obama has been sending to Xi has been saying that China "don't play by the rules." Which, coincidentally enough, is exactly the same thing Romney says in the op-ed.
In the economic arena, we must directly counter abusive Chinese practices in the areas of trade, intellectual property, and currency valuation. While I am prepared to work with Chinese leaders to ensure that our countries both benefit from trade, I will not continue an economic relationship that rewards China's cheating and penalizes American companies and workers.
Unless China changes its ways, on day one of my presidency I will designate it a currency manipulator and take appropriate counteraction. A trade war with China is the last thing I want, but I cannot tolerate our current trade surrender. (emphasis added)
The bolded section represents the only portion of the op-ed in which Romney even hints that he might cooperate with China. The rest of it is pretty silly. It's ludicrous for Romney to claim he doesn't want a trade war in the same breath that he promises "day one" action against China. No wonder conservatives are labeling Romney's China policy as "blaringly anti-trade."
To be blunt, this China policy reads like it was composed by the Hulk. Maybe this will work in the GOP primary, but Romney and his China advisors should know better.
Your humble blogger is slammed with day job duties this week, but for your reading pleasure, do check out this debate I moderated between the Financial Times' Gideon Rachman (author of Zero-Sum World) and the Brookings Institution's Robert Kagan (author of The World America Made) on the future of American power.
WARNING: I fear I might stink as a moderator, as I conclude:
I hereby declare myself to be a uniter rather than a divider when it comes to moderating exchanges, thereby guaranteeing that The Powers That Be at will never ask me to do anything like this ever again.
Still, check it out for yourself and come to your own conclusion.
Let's consider and contrast American foreign policy towards Russia and China over the past few years.
With Russia, the Obama administration announced a much-ballyhooed "reset" with the goal of improving bilateral relations. In an effort to advance that goal, the administration reworked missile defense system plans in eastern Europe, creating political headaches for governments in the region to make Moscow happy. The administration took great pains to endorse a Russian proposal on Iran's nuclear program. The administration signed a fresh new arms control treaty and then expended a decent amount of political capital to get NewSTART ratified. Washington conducted some serious behind-the-scenes diplomacy to get Russia into into the WTO. Most recently, the administration appointed a chief architect of the "reset" policy as ambassador to Russia.
With China, the Obama administration (after some idle G-2 talk) has been far more aggressive. The administration has "pivoted" it's foreign policy resources toward the Pacific Rim, with the not-so-subtle signal that China is the focus of this pivot. Washington has poked its nose into the South China Sea dispute, and recently announced a decision to station troops in Australia. It pushed forward a framework trade agreement that pointedly does not include China, while simultaneously calling on that country to let its currency appreciate. The State Department has reached out to one of China's longstanding allies in an effort to coax the nascent democratization in that country into something more long-lasting. This is simply part of a larger theme in which Washington is seemingly bear-hugging any significant country that is concerned about Beijing. The U.S. ambassador to China, when not becoming an online sensation among ordinary Chinese, is busy criticizing Beijing's human rights record.
So, to sum up: the Obama administration has made it something of a priority to improve relations with Russia, while at the same time investing serious amounts of diplomatic capital into various frameworks and initiatives that hedge against a rising China.
Now compare and contrast how Moscow and Beijing are thinking about Washington this week. In Beijing:
China and the United States should cooperate more closely to defuse international crises and ensure friction does not overwhelm shared interests, China's likely next president, Xi Jinping, said on Monday, setting an upbeat tone for his impending visit to Washington.
"No matter what changes affect the international situation, our commitment to developing the Sino-U.S. cooperative partnership should never waver in the face of passing developments," Vice President Xi told a meeting in Beijing.
"In dealing with major and sensitive issues that concern each side's core interests, we must certainly abide by a spirit of mutual respect and handle them prudently, and by no means can we let relations again suffer major interference and ructions."
Xi's mood-setting speech did not unveil new policies or give the precise date for his U.S. visit. But he stressed Beijing's desire for steady relations for his visit and his accession to running the world's second biggest economy after America's.
And now Moscow:
Russia's foreign minister, Sergey V. Lavrov, warned Wednesday that outside encouragement of antigovernment uprisings in the Middle East and North Africa could lead to “a very big war that will cause suffering not only to countries in the region, but also to states far beyond its boundaries.”
Mr. Lavrov’s annual news conference was largely devoted to a critique of Western policies in Iran and Syria, which he said could lead to a spiral of violence.
His remarks came on the heels of a report on state-controlled television that accused the American ambassador to Russia, Michael McFaul, who has been in Moscow for less than a week, of working to provoke a revolution here. Prime Minister Vladimir V. Putin, at an impromptu meeting with prominent editors, also unleashed an attack on the liberal radio station Ekho Moskvy, which he said was serving American interests.
Now, it's possible to find other news stories that suggest China might not be handling all aspects of the bilateral relationship with equal aplomb, and its possible that these Russian statements contain more bluster than bite. Still, stepping back, the larger narrative does seem to be that Russia has adopted an angrier and more belligerent posture toward American foreign policy in recent months, while China has responded with more aplomb.
Why? I don't know if there's an easy and accurate explanation. Some neoconservatives might proffer that authoritarians only respond positively to strength, and therefore Russia feels more emboldened than China. I seriously doubt that this is about bandwagoning. Similarly, it could be argued that Russia is more domestically insecure than China, what with the recent protests and all. Again, I seriously doubt this, as it's not like China hasn't experienced some domestic hiccups as well this year.
There are two more compelling explanations, but I honestly don't know if they work either. The first is that Russia and China have different diplomatic styles. Russian diplomats are far more comfortable with being blunt in their assessments of American intentions and actions, whereas Chinese diplomats are more comfortable laying low and not making as much of a public fuss. Furthermore, China has moved down the learning curve, recognizing that its 2009-10 policy of "pissing off as many countries as possible" didn't turn out so well. It's possible that the substance of both countries' approaches toward the United States are not that different -- they just go about it in ways that play very differently in the media.
The second, more realpolitik explanation is that China and Russia are looking into the future, and Beijing is far more sanguine than Moscow. Russia is suffering from institutional dysfunction and demographic decay. It's only great power assets are bountiful natural resources, a huge land mass, and nuclear weapons. China will encounter difficulties in the future, but does not have nearly the same kind of structural stresses as Russia. Beijing is therefore simply less anxious than Moscow about U.S. policy, because it has more hard and soft power resources.
To be honest, I'm not thrilled with either of these explanations. So, dear readers, I put it to you: why is Russia acting more bellicose toward an accommodating policy from the United States, whereas China is reacting calmly toward a more aggressive United States?
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.