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The SARS-COV-19 outbreak was first detected almost exactly three years ago in Wuhan. In large part because of PRC Government obfuscation and delay, the world was caught off-balance in ensuing months. We all know the toll in human lives and suffering that has followed.

For democratic-leaning, economically-advanced societies, the road back to a semblance of “normalcy” has been long and difficult but citizens in these countries are now embracing their return to “the new normal.” For less developed countries in the Global South, the journey has been even more arduous and painful due to constrained resources (though, interestingly, the genetic stock of African nations seems to have insulated many of their populations from the worst of Covid-19’s virulence). It is only in China — and perhaps also in North Korea but who knows what has been happening there — that the experience has been dramatically different. Xi Jinping’s “steadfast” policy of Zero Covid — and, subsequently, Dynamic Zero Covid — has resulted in coercive lockdowns of as much as 20% of the country’s population at a given time and in an ineffective vaccination program weakened by hostility to foreign-made mRNA vaccines and propaganda-induced vaccine-hesitancy among its elderly. Today, only 40% of the most vulnerable segment of Chinese seniors — those over 80 — have received two doses and a booster of the Chinese-made vaccine, a combination which has been shown to be no more effective than two doses (without booster) of the Moderna, Pfizer and comparable Western-developed vaccines.

The crippling effects of Xi’s Zero Covid and Dynamic Zero Covid policies on China’s economic performance, coupled with the unprecedented nation-wide protests against the lockdowns flaring up in late November prompted the PRC Government to suddenly drop the policies — and, in fact, any mention of these policies — in early December. As well documented in front-page reporting in today’s New York Times (After Scuttling ‘Zero Covid,’ Xi Offers No Plan), this about-face is potentially catastrophic in its suddeness: the PRC government has not readied any robust vaccination or even public education program to fill the vacuum left in the wake of Zero Covid, reliable data about infections is no longer available since government-mandated mass-testing has been dropped and people are being told to self-test at home, and Xi Jinping is nowhere to be seen, having snuck out the back door of the monument to his infallibility and PRC governmental superiority he built around his Zero Covid policy.

Xi’s Zero Covid policy has clearly boomeranged on him — and, more tragically, on the Chinese people:

But does the boomerang effect end there? Despite today’s excellent reporting by the Times and recent reporting by other news outlets, the scope of what is happening in China is only dimly understood outside of China. In large part, this is due to the fact that the scope is not well understood in China — except anecdotally and in felt individual experience — due to the heavy curtain of state-media censorship. The scope may be vast …

There are many reasons we should be attending closely to these developments. Humanity and empathy are high among those reasons. But perhaps the most important reason is that this could all come back and boomerang on us again, too. Unchecked spread among a vast, poorly-protected population can easily give rise to a new strain in China that could once again spread throughout the world.

What goes around, comes around. Wuhan Redux? If so, the finger of blame is to be pointed directly at Xi Jinping.

It has been a long journey to reach this moment …

  • In 1972, Nixon traveled to China
  • In 1973, the Philadelphia Orchestra became the first international orchestra to perform in China
  • In 1974, I began to study Mandarin at college
  • In 1976, Mao died (and the Cultural Revolution with him)
  • In 1978, Deng and the CCP began experimenting with economic reforms
  • In 1979, Carter normalized relations
  • In 1980, I traveled to the mainland for the first time
  • 1n 1982, at its 12th National Party Congress, China adopted economic reforms as its priority policy

Just this past week — forty years later at its 20th Party Congress — China under Xi has formally abandoned economic growth as its top priority for national development (along with the international partnerships on which that growth depended for trade, investment, access to capital markets and innovation) and prioritized instead “security” (with all the ideological baggage which that entails in Xi’s worldview).

Put simply, Xi has just crossed the Rubicon …

I wrote on Monday in Ideologues Meet Markets that I would share my considered view on the implications of the just concluded 20th National Party Congress after a few days of rumination and reflection. I am doing so now. Xi has just crossed the Rubicon. His move not only upends a forty-year trajectory of the most dynamic economic growth ever witnessed in the world, it threatens — more ominously — the foundations of the post-WWII international order and the unprecedented seventy-year run of (relative) peace the world has enjoyed at the global level.

An extremely well observed account of what this moment means is contained in the political economist Yuen Yuen Ang’s opinion piece in today’s New York Times. I reproduce below that piece in its entirety:

China’s Era of Reform Has Officially Ended

By Yuen Yuen Ang

Forty-four years ago, Deng Xiaoping kicked off the period of “reform and opening up” that transformed China from a poor, autarkic nation into an emerging global power.

President Xi Jinping officially ended that era last week. He emerged from the Chinese Communist Party’s congress in Beijing with unchallenged authority and plans for China that revolve around his obsession with control and security — even if that means harming the economy.

It’s a momentous change in outlook.

Deng Xiaoping’s strategy for China’s spectacular economic achievements had two main components. The first was a collective leadership arrangement within the Communist Party. Deng rejected Western-style democracy, but China’s tumultuous decades under Mao Zedong had taught him that one-man rule is dangerous. He and the party introduced partial checks and balances into politics at the highest level, including term limits. The second component was a single-minded pursuit of economic growth that, Deng famously declared, would be China’s “hard principle.” Officials throughout China dove headlong into promoting growth at all costs — bringing prosperity but also corruption, inequality and heavy industrial pollution.

Last week in Beijing, Mr. Xi dismantled those foundations. He ensured that he would remain paramount leader of China for a third term — if not for life — and packed the party’s leadership with loyalists while heavily prioritizing national security over the pursuit of economic growth.

In his speech to the party congress at the Great Hall of the People on Oct. 16, he mentioned “security” significantly more often than “economy,” a major break with precedent. He went further, declaring unambiguously, “National security is the bedrock of national rejuvenation, and social stability is a prerequisite for building a strong and prosperous China.”

In Chinese politics, small changes in wording can herald big shifts in ideology and policy. If there were any remaining doubts about Mr. Xi’s intentions, he dispelled them by vowing that China would stick to its zero-Covid policy, “without wavering.” His government’s approach to the pandemic, a public health policy in name, is in reality the most powerful security tool devised by the Communist Party, restricting access to the country and controlling who can go where, underpinned by tracking apps that citizens and visitors must have on their smartphones.

For observers long accustomed to Deng’s growth-first ethos, Mr. Xi’s policy choice is mind-boggling. The Covid controls are angering citizens, crippling China’s economy, decimating domestic consumption, disrupting manufacturing and logistics, and repelling foreign and local investors alike.

Why is the most powerful Chinese leader in decades so obsessed with security and domestic control that he would sacrifice the economy? The answer lies in an array of domestic and foreign challenges, some worsened by Mr. Xi’s own policy choices.

Politically, he probably fears the proverbial knife in the back after making enemies through a decade-long anti-corruption campaign in which thousands of officials — possibly including potential political rivals — were punished and is doubling down on repression out of his instinct for self-preservation.

On the economic front, he faces smoldering crises, including an economy that is slowing sharply, a property sector meltdown and record-breaking youth unemployment. These problems have been exacerbated by the Covid controls and by Mr. Xi’s “common prosperity” campaign — a strategy for narrowing inequality and addressing monopolistic behavior by big tech firms and other private companies, which was punctuated by an abrupt and sweeping regulatory crackdown last year that has alarmed investors. The market backlash was intense: Within months, more than a trillion dollars in value at many of China’s most innovative companies evaporated.

On foreign policy, Mr. Xi has projected an ambition to challenge American primacy. The Trump administration’s chaotic handling of the pandemic prompted Mr. Xi to boast that “the East is rising and the West is declining.” But his triumphalism was premature. China is far from an even match with the United States in economic, military or technological power. And while American democracy is in crisis, the United States remains strong, a true superpower and a free country able to criticize and renew itself. Mr. Xi criticizes the West for seeking to contain China, but his hubris and aggressive approach helped bring about this threat.

To be sure, Mr. Xi does not intend to completely abandon the capitalist success that rejuvenated China and brought global respect and influence. And to his credit, he has confronted serious problems that his predecessors swept under the rug, particularly corruption and economic inequality. His vision of a powerful China, respected on the global stage, is warranted given his country’s size and economic clout.

But addressing China’s myriad problems will require measured steps that Mr. Xi seems disinclined to take. Putting out fires in China’s economy must begin with relaxing Covid restrictions and importing more effective vaccines, something that his government has prevented. These won’t be miracle cures, but they are necessary first steps that will go a long way toward alleviating stress on China’s people and reassuring investors that his leadership team has not lost all sense.

Mr. Xi has plunged China into a vicious cycle: A hubristic and authoritarian leader, unaccountable to society and unchallenged even by his own advisers, makes poor policy choices, which add to his problems, exacerbating his fears of a revolt and leading to more repression.

The consequences of his decision to emphasize security over economic vibrancy will be global. China is the world’s second-largest economy and the biggest trading partner of dozens of countries. A prolonged economic slowdown in China will increase the risk of a global recession, with many countries sharing the pain. In the long run, there may be winners as China’s waning competitiveness hastens a shift in global supply chains to other emerging economies. But if China turns inward, it will lose. Chinese tech companies are already expanding overseas to compensate for a restrictive home environment.

China’s great capitalist revolution under Deng and his successors is now history. So is Mr. Xi’s first 10 years in office, when there was at least a minimal layer of checks on his power from moderate, non-loyalist officials. China under Mao and the former Soviet Union proved that absolute dictatorships fail miserably at making nations prosperous and strong. They bring only impoverishment and false security. Mr. Xi is likely to relearn those lessons in the coming years.

Yuen Yuen Ang (@yuenyuenang) is a political economist and the author of “Chinaʼs Gilded Age” and “How China Escaped the Poverty Trap.”

Two items from today’s Wall Street Journal highlight the increasingly belligerent turn in Xi’s foreign policy toward the United States.

China’s Wolf Warrior Diplomacy

The first is an excellent analysis of promotions (and putting out to pasture) during the 20th Party Congress through the lens of China’s Wolf Warrior diplomacy. Some key takeaways:

  • China’s acerbic foreign minister, Wang Yi, has replaced the relatively urbane Yang Jiechi as China Communist Party’s (CCP) top foreign affairs official. (It was Yang Jiechi together with John Kerry who awarded China Partnership of Greater Philadelphia our U.S.-China EcoPartnership award in 2014). Yang is retiring.
  • China’s envoy to the U.S., Qin Gang, who has earned a reputation for brusqueness since his appointment in 2021, is considered a leading contender for the position of foreign minister (to be decided this spring). His elevation to the CCP’s 205-member Central Committee makes him the first incumbent ambassador to be promoted directly to full membership.
  • As Chun Han Wong and Keith Zhai report, “Messrs. Qin and Wang are leading exponents of the muscular diplomacy that Mr. Xi demands, driven by the leader’s vision of an ascendant and uncompromising China that challenges the U.S. for global preeminence. The personnel shuffle suggests … that Beijing remains committed to an adversarial stance toward Washington, undeterred by rising tensions.

China’s Covid Coercion

The second, today’s main editorial, summarizes the confinements and coercive measures that U.S. diplomats were forced to endure in China despite the State Department’s stated policy that it would not allow authoritarian governments to use Covid as an excuse to mistreat or monitor diplomats. I rarely find myself in agreement with WSJ editorials but, in this instance, investigation is warranted because the Chinese government demonstrably leveraged its Covid measures to increase its control and technological surveillance over its population as a whole. It’s important to better understand how this intrusive and abusive treatment may also have been targeted to U.S. and other diplomats who are supposed, by internationally recognized law, to have special protections.

Kevin Rudd, global president of the Asia Society and former Prime Minister of Australia, knows China well. He wrote in yesterday’s Wall Street Journal that:”The 20th Congress, which gets under way Oct. 16th will be different (from other Congresses since the opening of the 1982 reform era). There’s only one appointment that matters now: Xi Jinping, China’s Chairman of Everything. The delegates will reappoint Mr. Xi to a third five-year term as general secretary by a vote of 2,296 to 0.”

I don’t disagree with the main point that Kevin Rudd is making here but there is also a more nuanced view that is important to bring to bear. Wednesday’s post set the table for this more nuanced view. That perspective involves understanding the seven appointments which will be announced on Sunday to the Standing Committee under Xi. The crux of the issue is whether those seven appointments represents a line-up of Xi loyalists — in which case Rudd’s take is spot on — or whether there are appointments enfranchising power-bases at odds with Xi’s direction and indicating that the Party wants some checks on Xi’s untrammeled authority.

Here’s my cheat-sheet to reading next week’s Standing Committee appointments in light of this question:

Chutes & Ladders: 20th CPP National Congress Edition

So what to watch for?

(Scenario 1) Signs that the CCP is totally bought into Xi being Chairman of Everything

Premier Li Keqiang (aged 67 and therefore normatively eligible for another term) is gone

— No one in their early 50s joins the Standing Committee (showing Xi doesn’t want heir apparent)

Chen Min’er, a Xi loyalist and champion of Xi’s war on poverty, is appointed

Ding Xuexiang, a Xi loyalist and Xi policy enforcer, is appointed

(Scenario 2) Signs that the CCP wants some checks on Xi’s untrammeled exercise of power

He Lifeng, an internationally-friendly protégé of retiring economic czar Liu He, is appointed

Hu Chunhua, who like Xi had a stellar early career but hasn’t been close with him since, is appointed

Li Hongzhong, party boss of Tianjin and not “a dyed-in-the-wool” Xi man, is appointed

Li Xi, party boss of independently minded Guangdong province, is appointed

Finally, keep an eye on Chen Quanguo, party boss of Xinjiang in charge of Uyghur “reeducation,” and Liu Jieyi, head of the Taiwan Affairs Office and the political dimension of the Taiwan reunification project. Whether their stars shine brightly or dim will also give an indication of the degree of CCP support for Xi’s hardline policies on these two fronts.

So that’s the scorecard I recommend you follow. We’ll circle back next week and tally up the score after the Standing Committee line-up has been brought out, in rank order, onto the main stage of the 20th National Party Congress.

So interesting how an existential threat — near-term: Russia/Ukraine; longer-term: China/Taiwan — helps focus the national mind.

The Biden Administration announced on Tuesday that, in rapid-fire sequence following the launch of the multi-lateral Indo-Pacific Economic Framework (IPEF) in Tokyo last week, the U.S. Government is making a decisive step, through Executive Action, in the direction of a bilateral U.S.-Taiwan Free Trade Agreement (FTA).

The economic logic in support of a U.S.-Taiwan FTA was evident 20 years ago. Here, dusted off, are two publications which make that point:

Now, finally, U.S. domestic political logic is swinging in line with the geoeconomic imperatives. If it comes to pass, it will have been worth the wait.

On February 4th, at the conclusion of their day-long summit in Beijing, Vladimir Putin and Xi Jinping declared that the friendship between Russia and China “has no limits.” That same day, the Beijing Winter Olympics officially began, ending a little more than two weeks later on February 20th. On February 24th, Russia’s full-scale invasion of Ukraine began.

There has been extensive analysis of the three major miscalculations Putin has made up to this point: (1) his overestimation of the readiness and effectiveness of his military machine; (2) his underestimation of the resilience and fighting spirit of the Ukrainian people; and (3) the speed and scale with which NATO and EU countries, along with many others, have come together to sanction Russia and to support Ukraine (in all ways short of direct military involvement on, or in the air above, Ukrainian territory). It is too early to tell whether a fourth major miscalculation may have to do with Putin’s misplaced faith in the degree of economic, financial and trade support which China would provide Russia to backfill against these sanctions).

But what about Xi Jinping? What is his calculus for advancing (his interpretation of) China’s interests through this crisis? And what miscalculations has he appeared to have made so far?

Xi’s first miscalculation was immediate and damaging. He is known to have had some discussion with Putin on Feb. 4th about the imminent “special operation” in Ukraine. It is not clear whether Putin lied to him or Xi simply failed to ask the right questions to take Putin’s measure. In either case, Xi Jinping is known to have been caught by surprise and ‘perturbed’ by the scale, duration and ruthlessness of Putin’s “special operation.” As described in my February 4th post “Four Seismic U.S.-China-Russia Shifts,” Putin’s move forced Xi, unexpectedly and very publicly, to choose between his new-found friendship without limits and adherence to China’s mantra-like stated policy of non-interference in the affairs of sovereign nations, as enunciated in 1954 in Zhou Enlai’s Five Principles of Peaceful Co-existence (and championed explicitly with regard to Ukraine’s territorial integrity following Russia’s annexation of Crimea in 2014)

Evidence of Xi’s miscalculation of Putin’s intentions in Ukraine became apparent in the initially hesitant and fence-sitting response by the PRC officials during the first two weeks of the crisis. On the one hand, Chinese officials refused to refer to the invasion publicly with any term other than Putin’s Orwellian “special operation” terminology; pivoted reliably to blaming the crisis on NATO rather than Russia aggression; blocked a series of actions from being taken against Russia in the U.N. Security Council; amplified Russian disinformation about the U.S. operating bio-military labs in Ukraine (a play out of the FSK, formerly KGB, playbook which suggests that Putin is contemplating the use of bio- or chemical weapons and is ready to throw sand in the world’s eyes by blaming the U.S. and/or NATO for their eventual use); and has even embedded Chinese journalists with Russian military units on the ground in Ukraine. On the other, China says its the friend of both Ukraine and Russia; talks about the need for the cessation of violence; offers publicly to mediate between the two sides while not actually taking any steps toward a mediation effort); and repeats the mantra of its Five Principles of Peaceful Coexistence as if Putin’s actions in Ukraine were taking place in some parallel universe.

There have been other related miscalculatiions. For instance, the PRC Government has been repeatedly caught off balance by the Biden Administration’s aggressive use of classified U.S. intelligence findings, with his Administration quickly de-classifying key reports and pushing the information out into the public sphere, both domestically and internationally. This began with President Biden’s sharing in real-time with the world the U.S. intelligence community’s pre-invasion assessments that Putin had made the decision to invade. This very public use of previously hush-hush intelligence findings marks a clear break from past White House precedent and has also been aimed at China in recent weeks: first, in divulging the fact that Xi Jinping had prior knowledge of the invasion from his Feb. 4th meeting with Putin and that Xi had, in fact, asked Putin to hold off on initiating that military operation until after the conclusion of the Beijing Winter Olympics; and, second, in disclosing publicly on the eve of Secretary of State Anthony Blinken’s March 14th meeting with China’s top diplomat Yang Jiechi the fact that Beijing had received requests from Moscow for military and economic assistance to aid its war effort. These and other revelations have punctured China’s contrived public posture and shown that, behind the peaceful resolution rhetoric and thin veil of neutrality in the conflict, the reality is that China is not sitting on the fence but has indeed been coming down on Russia’s side.

The initial confusion in China’s response and now the growing evidence of China’s support, up to a point, for Russia were probably to be expected : under-the-table support for Putin was inevitable given the top-down nature of Chinese government decision-making and the personal investment which Xi had made in Putin and Russia just weeks earlier. Just as powerfully through, China wants to keep some fig-leaf semblance of its Five Principles of Peaceful Coexistence policy because its repudiation would roil China’s international relations, among others, with its Belt & Road Initiative partner countries. Equally, it does not want to run afoul of the trip wire of U.S.-led financial and economic sanctions by aiding Russia overtly with military aid, financial relief or with trade in sanctioned commodities like microchips, especially following the stern warning delivered by Secretary Blinken earlier this week.

Over the last week, there are signs that the Beijing leadership is trying to “elevate” its initial indecision and aloofness into what it believes can be a long-term winning strategy for coming out ahead of the West when flames die out and the dust settles from the Ukraine conflagration. The Zhongnanhai thesis is that it is not worldwide supporters of post-WWII liberal democracy that are rallying to support Ukraine as much as it is a “civilizational” struggle between a Russian identity promulgated by Putin and a Western identity and set of values represented primarily by the U.S. and Europe. The thinking goes that, if China stands back from this clash, it can pick up the pieces and emerge stronger than either of the two depleted civilizational antagonists. This accords with Xi Jinping’s decade-long championing of the rejuvenation, and even superiority, of Han identity and the Chinese model. In Xi’s thinking, this policy of studious and disciplined aloofness — limited to cheering on Russia with “dog-whistle” encouragement and forms of back-channel support it can get away with while seizing opportunities to denigrate the West to his domestic audience and to countries in Central Asia, the Pacific, and Africa — has two clear advantages: (1) it avoids any risk for Xi in decisively backing ‘a loser’ in Putin, an outcome already sealed in his international pariah status and increasingly likely on the battlefield even if Kiev is taken and the war shifts to an insurgency; and (2) it gives Xi space to attend to the many immediate challenges facing him in the run-up to the critical Party Congress this fall where he is bidding for a third, controversial term as President. Those challenges include: a sharp fall-off in economic performance (brought on in part by excesses of his own Common Prosperity policy introduced over the past year; rapidly rising Covid case-counts and lock-downs in Shenzhen and Donguan in the south, in Shanghai and in Jilin to the northeast; and the recent hardening of attitudes toward China throughout much of the world as ably analyzed by Elizabeth Economy in The World According to China and in her Jan/Feb 2022 article in Foreign Affairs.

The jury is out but I submit that this policy of official aloofness may well prove to be Xi Jinping’s biggest and longest-lasting miscalculation with regard to Ukraine. Xi may think in ethno-nationalist terms, but much of the world’s response is underpinned by non-Western allies such as Japan, South Korea and Singapore who have benefitted from, and are committed to upholding, the post-WWII order based on national sovereignity and the rule of law. In fact, it is Taiwan which represents and symbolizes the fullest repudiation of Xi’s thesis. Absent some mis-adventure by North Korea (which is a disturbing possibility) or a premature move by Xi to extinguish the symbol Taiwan represents (which I consider very unlikely in the near-term), Xi’s official ‘aloofness’ and sub-rosa support for Putin will be remembered by the world in the wake of the Ukraine conflict. There are times when a person, or a nation, must choose sides. Not choosing sides in such situations is, in fact, a choice that is noticed and remembered. Pretending not to choose sides while actually backing the ‘wrong side’ is morally repugnant. There is not a middle way.

Founding of the PRC on October 1, 1949

Throughout WWII, the U.S., the Soviet Union and the Kuomintang (KMT) Party of China were formal allies. But in 1949, Mao Zedong’s Chinese Communist Party (CCP) forced the KMT to flee to Taiwan. On October 1st 1949, Mao formally announced the founding of the People’s Republic of China. The strategic triangle shifted as the U.S. lost a putative (and highly authoritarian) KMT ally in China and the Soviet Union gained a Communist comrade-in-arms with the CPP.


Sino-Soviet Split 1956-1964

The chumminess of this 1958 photo of Mao Zedong and Nikita Khrushchev belies the deep rifts — both ideological and geopolitical — which had been developing in the Sino-Soviet relationship since 1956. Despite efforts to patch over the differences, the divisions continued to grow until Mao announced the split in 1964 followed by a series of formal statements. Monolithic global Communism had ceased to exist.


Zhou Enlai Greets the Nixons after Air Force One Lands 2/21/1972

Fifty years ago today, Air Force One touched down in Beijing bringing President Nixon and the First Lady for their historic meeting with Mao Zedong. The Nixons’ visit to China lasted from February 21-28, 1972. It was then followed by years of rapprochement efforts — including the historic performance by the Philadelphia Orchestra in 1973 — and culminated in the establishment of formal diplomatic relations between the U.S. and China under President Carter in 1979. The Soviet Union was left out in the cold.


Xi & Putin seal partnership of “no limits” at 2022 Winter Olympics

Today — February 21, 2022 — Russia announced its formal recognition of two breakaway, largely Russian-speaking enclaves in eastern Ukraine. The post-WWII order of sovereignty, rule of law, and cooperation is being challenged. Two weeks earlier, Xi Jinping chose to support Putin’s Ukraine power-play, overturning decades of official “Five Principles of Peaceful Coexistence” policy. The U.S.-China-Russia ground has shifted yet again.


Looking back on these seventy-five years of U.S.-China-Soviet/Russia relations, I expect that I will always pause to reflect on February 21 as each year passes. February 21, 1972 was deeply promising. February 21, 2022 is deeply foreboding. In a professional sense, today’s date will likely be for me somewhat like what I feel personally as other calendar days each year remind me of my mother’s and father’s deaths (and of their lives). Artificial and arbitrary dates on a calendar which nonetheless carry deep and lasting human meaning and consequence.

President Biden’s first in-person appearance on the world stage included a tense but business-like meeting with Vladimir Putin, a NATO meeting in which NATO solidarity was vociferously reaffirmed and a meeting of G7 leaders in which the perceived threats of climate change and China both loomed large.

The final agreement announced at the conclusion of the G7 last Sunday featured two elements with direct bearing on China and, particularly, on China’s Belt & Road Initiative (BRI): a commitment to phase out coal-fired electricity generation and a revived commitment to provide $100 billion in green finance assistance to developing countries.  Both commitments were, however, long on symbolism and short on substance.

Today’s post looks at why the headlines for both announcements were printed in such large banner font, why the accompanying stories were so short in column-inch detail and why both stories serve to center on China at a meeting – involving the heads of state of the U.S., Canada, the U.K., Germany, France, Italy and Japan – where China is not represented.

The electricity generation commitment undertaken by the seven leaders was specifically that their governments would provide no new support for thermal coal power generation except in cases where carbon capture and sequestration (CCS) technology is deployed in tandem to neutralize the greenhouse gas (GHG) emissions produced by coal-firing.  This undertaking supports a previous G7 commitment to halve emissions by 2030 (against a 2010 baseline) on the way to achieving net-zero emissions by 2050.

The green finance commitment announced announced Sunday – to provide $100 billion annually to help developing countries decarbonize – was not in fact a new commitment but a reaffirmation of an earlier commitment which had lapsed during the Trump years. It was rolled out on Sunday with a new name – the Build Back Better World Initiative – but with no new funding attached.

Seen from a global perspective, both commitments are intended as a direct response to China and its Belt and Road Initiative.  China’s trajectory of domestic high-growth has resulted in it recently surpassing the GHG emissions of the entire developed world combined, according to a recent report by the Rhodium Group.  Compounding this unfavorable trend, China continues to support its Big Coal industry by encouraging exports of coal-fired power generation equipment to its less developed BRI partner countries.  The G7’s electricity generation commitment is therefore intended to draw a sharp contrast in climate change global leadership between the G7 group of democracies and the China’s competing, more authoritarian model.  Similarly, the green financing commitment is intended as an alternative pool of financing for developing countries to draw on separate from Chinese government lending and the BRI-focused Asian Infrastructure Investment Bank (AIIB).

So what accounts for the splashy headline but dearth of detail?  Two factors. The first is the very evident desire of the other six countries to welcome the U.S., post-Trump, “back into the club” by explicitly amplifying in the international arena President Biden’s domestic Build Back Better theme; and, more importantly, by presenting a show of implicit support for Biden’s “Summit of the Democracies” strategy for countering China. In short, the symbolism was more important than the actual substance for achieving this goal.

Hammering out the details of the power generation agreement and expanding on the scope of the green finance commitment eluded the G7 leaders at this meeting due to a lack of confidence, especially among the three leaders from Continental Europe, that detailed and expanded agreement will stick. There are three levels of doubt contributing to this lack of confidence.  In order of ascending importance, there is:

  • Uncertainty over how Biden and his National Security Council deputies Kurt Campbell and John Kerry are going to square heightened competition with China in the technology space with attempted renewal of cooperation with China in addressing climate change;
  • Doubt over the ability of the Administration to get its proposals through a closely-divided and highly-partisan Congress; and
  • Concern that the American public’s fling with climate science denial and Trumpian America First thinking might not be a one-time affair and could come to the fore again in the 2022 mid-term election and the 2024 Presidential election.

Given these doubts, any effort to provide substantive detail for the power generation agreement and to expand the green financing agreement would have been prone to failure and could have undercut the paramount goal of projecting renewed G7 solidarity and democratic unity.  Looked at from another angle, this result shows how much effort and hard work will be required to reestablish the global momentum toward 2050 climate goals following Trump’s decision to pull America out from the Paris Accord Conference of Parties (COP) process.

Crackdown or Startup w border

 Henry “Hank” Paulson — former Chairman of Goldman Sachs, former Secretary of the U.S. Treasury and creator of the U.S.-China Strategic & Economic Dialogue — was in Philadelphia last Wednesday.  He came to publicize his new book Dealing With China: An Insider Unmasks the New Economic Superpower.

The media frame for the talk and Q&A which he gave to the World Affairs Council of Greater Philadelphia was:  ‘Hank, you’re a real patriot. Why are you helping China?”

In response, Hank Paulson was very clear that his interest in promoting a better understanding of China is rooted in his desire to do what is best for America.

You can read the full article here but, for the purposes of this post, I’m going to focus on one small, but important, piece of the big contemporary China puzzle:  Is Xi’s ongoing crackdown (on corruption but also on foreign businesses, NGOs, press freedoms, social media, connectivity to the global knowledge-pool, etc) flashing green, yellow or red for China’s paramount challenge of rebooting its economy on a more sustainable basis?

China’s ‘old software version’ of infrastructure build-out, inbound investment and export of cheap stuff is clearly no longer operating smoothly on the new global hardware system.  China’s future – and Xi Jinping’s for that matter – depends on a smooth updating to a ‘new software version’ of consumer-led spending, outbound investment and innovation up the product value-chain.   Under any circumstances, that’s a tall-order to pull off in just a few years.  For those of us who believe that helping China matters to America’s future, the key question is whether the crackdown on political thought in China is – or is not — inimical to the desperately needed surge of commercial innovation needed to upgrade China’s economy to version 2.0.

It is perhaps not entirely a coincidence that, in the same week that Hank Paulson was wrestling with this question in Philadelphia, so were two other leading experts on the trajectory of China’s globalization elsewhere:  Shaun Rein and Tom Friedman in respective articles.  If Hank Paulson occupies the pivot point as a U.S. patriot committed to helping China, Shaun Rein is a self-acknowledged China booster and Tom Friedman a “color me dubious” observer of China’s steep road ahead to globalization.

Here’s what each of them has had to say over the past week on the ‘sword of Damocles’ question facing Xi and China:  crackdown or start-up?  (Click on the name below in order to source the original publication from which the following excerpts are taken):

Hank Paulson

Paulson

“Paulson believes the Communist Party has reached a simple accord with the Chinese people: prosperity in return for continued state control. The question, of course, is whether China can have it both ways – economic freedom without cultural freedom, a subject I raised with Paulson at the World Affairs Council.

‘In today’s information economy, I don’t know how economies can innovate and do the sorts of things they do to stay on top without having a free flow of ideas and information,” Paulson replied. “I’ve run a global company, and, boy, you need to be connected. You can’t have an Internet that’s not connected. You need to know what’s going on politically, regulatory systems, economically, in terms of ideas all over the world.’

He added: ‘But understand what’s going on right now. Xi Jinping . . . is focusing on the things that the people care about the most. So, corruption. He recognizes the party won’t survive unless he curbs corruption. So he’s focused on corruption, the environment, dirty air, and water.’

“So . . . managing China, just think what it’s like because they have to deal with the kinds of issues that afflict developed countries at the same time they have to deal with issues that developing countries are dealing with because a big part of the country is still poor. It would be like, . . . looking at Europe, Germany and Slovenia. They are both European, vastly different stages of development, they need different economic policies. So think about managing both of those in a single country under one party, and I mean that’s sort of the challenge.’”

 Shaun Rein

rein-circular

“China´s much needed anti-corruption drive has now put the country into a lock-down mode, and new projects have halted,” tells business analyst Shaun Rein at CNBC.  “The cut in the reserve ratio ratio (RRR) this weekend is one way for a kickstart, although nobody know what will really work.”

 China Herald:  “What does the Chinese market need to stimulate the economy and if this growth continues to disappoint then would you expect an additional benchmark rate cut in the next couple of quarters, something that many experts are now talking about?”

Rein:  “I think what we need to look at is not gross domestic product (GDP) growth but we need to take a look at unemployment and the second reason why I am more concerned about the economy is in the last month urban unemployment has been hovering around 5 percent – that’s really a problem. So the unemployment rate in areas of manufacturing are still fairly strong and you can easily stimulate that by forcing state owned enterprises to do heavy investment; train construction, airport construction and you can get jobs there but the issue is urban unemployment is weak and there aren’t a lot of easy remedies. The government is trying to switch from manufacturing oriented economy more towards one of technology and innovation as I outlined in my new book ‘The End of Copycat China’ but it is not easy to do that. You cannot get companies that are producing things all a sudden to become innovators, so there is definitely going to be some weakness, some problems in the economy over the next three-four months and frankly there are no easy answers on how they stimulate the economy.”

Tom Friedman

friedman-circular-thumbLarge-v3

“Americans … are asking of President Xi: “What’s up with you?” Xi’s anti-corruption campaign is clearly aimed at stifling the biggest threat to any one-party system: losing its legitimacy because of rampant corruption. But he also seems to be taking out potential political rivals as well. Xi has assumed more control over the military, economic and political levers of power in China than any leader since Mao. But to what end — to reform or to stay the same?

“Xi is “amassing power to maintain the Communist Party’s supremacy,” argued Willy Wo-Lap Lam, author of “Chinese Politics in the Era of Xi Jinping: Renaissance, Reform or Retrogression?” Xi “believes one reason behind the Soviet Union’s collapse is that the party lost control of the army and the economy.” But Xi seems to be more focused on how the Soviet Union collapsed than how America succeeded, and that is not good. His crackdown has not only been on corruption, which is freezing a lot of officials from making any big decisions, but on even the mildest forms of dissent. Foreign textbooks used by universities are being censored, and blogging and searching on China’s main Internet sites have never been more controlled. Don’t even think about using Google there or reading Western newspapers online.

“But, at the same time, Xi has begun a huge push for “innovation,” for transforming China’s economy from manufacturing and assembly to more knowledge-intensive work, so this one-child generation will be able to afford to take care of two retiring parents in a country with an inadequate social-safety net.

“Alas, crackdowns don’t tend to produce start-ups.

“As Antoine van Agtmael, the investor who coined the term “emerging markets,” said to me: China is making it harder to innovate in China precisely when rising labor costs in China and rising innovation in America are spurring more companies to build their next plant in the United States, not China. The combination of cheap energy in America and more flexible, open innovation — where universities and start-ups share brainpower with companies to spin off discoveries; where manufacturers use a new generation of robots and 3-D printers that allow more production to go local; and where new products integrate wirelessly connected sensors with new materials to become smarter, faster than ever — is making America, says van Agtmael, “the next great emerging market.”

“It’s a paradigm shift,” he added. “The last 25 years was all about who could make things cheapest, and the next 25 years will be about who can make things smartest.”

President Xi seems to be betting that China is big enough and smart enough to curb the Internet and political speech just enough to prevent dissent but not enough to choke off innovation. This is the biggest bet in the world today. And if he’s wrong (and color me dubious) we’re all going to feel it.”

President Xi Jinping’s anti-corruption drive — known for its signature vow to target both ‘tigers’ (top-level officials) and ‘flies’ (low-level functionaries) — shows no sign of abating.  It may even be gathering momentum with the early April announcement that former Politburo Standing Committee member (and security portfolio chief) Zhou Yongkang will be standing trial in Tianjin on charges of bribery, abusing power and disclosing state secrets,  This announcement followed a slow-motion public ensnarement of Zhou as, for almost two years, a tightening noose methodically drew in business associates from Zhou’s time with China National Petroleum Corporation, provincial associates from his time as Party Secretary in Sichuan Province, associates from the security establishment and close family members.

As a member of the PSC for five years from 2007-2012, Zhou Yongkang was one of the seven most powerful people in China.  Not since the 1976 arrest and subsequent trial of Jiang Qing and the Gang of Four at the end of the Cultural Revolution has such a high-level Chinese official been brought to public trial by the Chinese Communist Party.

The beginning of Zhou Yongkang’s fall is associated with Chongqing, a provincial-level ‘city’ (see Direct Controlled Municipalities) in China’s far west immediately adjoining Sichuan Province and erstwhile power-base for Bo Xilai, Zhou’s protégé.  Until the death of British citizen Neil Heywood followed by the failed attempt by Bo’s police chief to seek refuge in the U.S. Consulate in Chengdu (capital of Sichuan Province) followed by the conviction of Bo’s wife on charges of ordering Heywood’s poisoning, it had appeared likely that Zhou would be able to get Bo onto the Standing Committee, thereby protecting his ‘retirement flank’ after stepping down.  Bo’s candidacy faltered under the weight of these events just as Xi Jinping was consolidating power and his new Standing Committee taking final shape.

xijinping_tiger-flies_adolfo-arranz (modified)

Now that formal charges against Zhou Yongkang have been announced, attention is swinging to Tianjin, another of China’s four Direct Controlled Municipalities (直辖市) and venue for Zhou’s upcoming trial.  It is perhaps not surprising that, for months now, the mood in Tianjin —  Philadelphia’s Sister City (since original establishment of “Friendship Cities” link in 1980) — has turned decidedly grim.  As reported by my friend Tim Weckesser and his fine team of professionals at Sino-Consulting International (SCI):

(begin extract from SCI Report)

The city of Tianjin, our main base in China, recently became a focus in the news media as it fell under scrutiny by Beijing’s powerful anti-graft campaign. This happened not only because of the sudden downfall of Tianjin’s long time police chief, Wu Changshun, based on corruption charges, but also because Tianjin courts have been chosen for the trial Zhou Yongkang, the highest ranking official ever to be charged with corruption. China’s state prosecutors formally charged Zhou, the country’s former top security czar, with accepting large bribes over a long period of time. At the height of his power, Zhou controlled China’s police, spy agencies, court systems, and prosecution offices all across the country. And he wasn’t shy about using these powerful assets to crush dissent in the name of “preserving social stability.”

 And now, to add to Tianjin’s notoriety, the city’s former mayor, Dai Xianglong, is “cooperating” in an “investigation”. From 1995 to 2002, before becoming Tianjin’s mayor, Dai was already well-known as the governor of China’s central bank, the People’s Bank of China (PBoC). The investigation, so far, is focused on the vast wealth amassed by Dai’s relatives, not on Dai himself. But this may well be just a tactical move with Dai himself as the real target. This new investigation comes on the heels of the 15 year prison term meted out to Nanjing’s former mayor, Ji Jianye, for corruption. The court found Ji guilty of accepting 11.3m yuan ($1.9m) in bribes between 1999 and 2013, when he was dismissed.

 President Xi Jinping’s anti-corruption campaign aims at trying to clean up China’s graft-riddled government at every level, with examples being set at the top. And so far, we have to say it is successful. In our experience, government officials as well as executives in state-owned enterprises (SOEs) are all keeping their heads down. No big banquets, no gifts – given or received – and strictly limited international travel are basically the norm, at least for now. The question is – will this nationwide campaign eventually help China’s economic development? We hope so. Here is some very recent China market news taken from a variety of public sources.

(end extract from SCI Report)

These then are the dangerous riptides which have been tugging at our PHL-TEDA EcoPartnership‘s Chinese partner, TEDA, since the end of 2014.   Given the fathoms-deep nature of Chinese political and legal process, many of these currents have been swirling in hidden depths while the surface continued to appear placid.  The U.S. side of our PHL-TEDA EcoPartnership has unmistakably felt the power of these currents, though.

While Xi Jinping’s anti-corruption drive remains immensely popular with the general public, there is a growing concern among many close observers of Chinese politics inside and outside China that these hidden forces can as easily become uncontrollable and destructive as they can be purging and restorative.  At the heart of all this is the crucial difference between ‘rule of law’ (with due process, standards of proof, checks and balances, etc) versus ‘rule by law’ (political power plays being managed under a thin veneer of legal process).  As Liz Economy wrote in an earlier post on this blog (see “Time for Xi to Reform his Reforms” in Feb. 6, 2015 post):

“Certainly, (Xi’s) anti-corruption campaign has hit its target—hundreds of thousands of them to be exact—and shows little sign of slowing down. He has cast a wide net, leaving little doubt that no sector of society—party, military, business, or other—is completely safe. Still, Xi remains vulnerable to accusations that the campaign is at least partially politically motivated, given that almost half of the senior-most officials arrested are tied in some way to his political opponents, and none of his Fujian or Zhejiang associates have been detained. He might want to bring some transparency to the process: uncertainty and fear of running afoul of some regulation or another are driving many officials to avoid making decisions or taking action.”   

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