China’s Paper Dragon

| James Lewis
James Lewis
Senior Vice President and Program Director, CSIS

“This idea may be formulated as follows. The situation is better now than it was ten years ago; therefore ten years from now it will be better still. I will attempt to show here why I disagree with this notion.”

         Andre Amalryk

In 1968, Andrei Amalrik wrote “Will the Soviet Union Survive Until 1984?” He was widely ridiculed by Soviet specialists, but he ultimately proved to be right.  Amalrik’s analysis of the Soviet Union is an imperfect fit for China – unlike the Soviets, China will almost certainly have a soft landing – but we do not want to underestimate the brittleness of Leninist regimes, and China, as the largest of the surviving Leninist states, exhibits signs of being surprisingly brittle.

China’s rulers face a dilemma.  With every generation of Chinese leaders, the revolutionary legitimacy of the Party, based on victory in 1949, becomes more distant and less compelling as the basis for undisputed rule.  Faced with the declining legitimacy of the revolutionary party as China’s sole ruler, the Chinese Communist Party (CCP) resorts to a variety of protective political measures, a point made by Edward Friedman of the University of Wisconsin, among others. These measures include appeals to nationalism (always powerful in China), tighter controls on information, and pervasive surveillance, to preserve its hold on power.  These measures can be counterproductive and even ridiculous, as when the Party arrests college students for being Marxists, since Marxism is an implied criticism of the regime.

Before assuming office, President Xi closely studied the reasons for the Soviet collapse.  The Chinese have identified these as the infiltration of “Western” values, loss of control of the media, and the policies of perestroika and Glasnost.  There will be no Chinese perestroika, and Xi is making strenuous efforts to avoid Gorbachev’s fate.  But what the Party needs to do for political reasons could harm continued economic growth, damage China’s still-nascent innovation system, and as we have seen in Hong Kong, produce a surprising degree of discontent.

Authoritarianism is costly.  One of Amalrik’s conclusions was that authoritarian states face a crippling burden to maintain the party apparatus and heavy surveillance needed for control. One Chinese estimate puts the annual cost of the party machinery at $300 billion – and this does not include military spending, or the cost of opportunities lost because of Party control.

China does not have a market economy and efforts to reinforce Party dominance have made it less so. The Party directs a significant proportion of investment, and the goal for this investment is continued Party rule, not profits.  This bears some resemblance to the Soviet Economic Planning agency Gosplan.  Gosplan was never able to compete with the West, and as the CCP increases its influence over firms and plays a greater told in directing investment, it makes China’s economy less efficient.

Central planning is still second best, even if it uses artificial intelligence tools and copycatting to guide investments.  Over the long term, markets outperform agencies.  Centrally-directed economies are less efficient, since government policy supplants market signals on where to invest.  Easy access to credit allows inefficient firms to survive, draining resources from productive activities.  China would do better if it let its companies off the leash, but the CCP is unwilling to take the risk.

Innovators challenge the status quo.  The debate about whether China could become an innovator is over, but Chinese innovation blossomed in a period of relative political openness. If openness and innovation are linked, what happens when openness shrinks?  Political tightening, accompanied by greater state economic direction, puts Chinese innovation at risk.

China has other disadvantages.  If China’s technology is so advanced, why are they so desperate to steal from others?  Despite claims of parity, which sober Chinese researchers question, China is still dependent on the West for advanced technology.  Since the 1990s, it has used a massive espionage campaign, accompanied by threats to deny market access, to build its technology base.  But Chinese policies like indigenous innovation and national supply chains run counter to global business trends that rely on multinational research and supply chains because they are more efficient.

The environment for China has become more difficult for business. As a developing economy seemingly friendly to the West, Chinese misbehavior was tolerated in exchange for market access.  The Chinese are having trouble coming to grips with the end of the time when they were rarely held accountable.  This dynamic – the natural rise of “antibodies” – is a brake on Chinese aspirations.  Beijing’s response to a less-friendly foreign environment has been public defiance and private anxiety.  This Administration’s erratic policies hides the growing distrust of China in many countries.

There are inherent contradictions between Xi’s nationalist and mercantilist policies and Chinese economic health.  China needs to be part of an interconnected world to acquire technology and sustain growth, but this brings unavoidable political risk.  In the 19th Century, Chinese reformers sought to absorb Western technology without also absorbing Western political ideas.  The CCP faces a similar problem, but it expects to avoid the fate of the Qing by using vastly increased social control and surveillance that is both oppressive and absurd, as in banning Winnie the Pooh as a political threat.  True great powers do not fear Winnie the Pooh.

Various bogeymen are presented to justify the CCP’s sole rule, such as resisting a hostile hegemon seeking to contain China.  While this fits with China’s preferred narrative of victimization and resistance, it is a Cold War relic.  Another argument is that without the Party, China would fragment, as in the 1930s (or even the Warring Kingdom period).  There are undoubtedly centripetal forces, but there is no popular support for dismantling China.

The trajectory of Chinese reform did not end in 1949.  The KMT and the CCP were in some ways twins, and while the KMT gave up its claims to sole party rule years ago, the CCP clings to it.  The Party rebuilt China after the Maoist debacle and China is now one of the most powerful countries in the world, perhaps ultimately the most powerful, but not under one-party rule.  At some point, the Chinese people will choose to continue on the path of reform that began in the 19th century – this may be what the Party fears most.

China’s troubles do not translate into some renaissance of American power.  Why does the U.S. fear Gosplan? One reason is that the Chinese government has not shut down since the 1970s, while American political leaders have shut the U.S. down repeatedly.  Another is that while the U.S. spent trillions of dollars in foreign adventures since 2003, China spent similar amounts on capital formation, especially infrastructure, research and education, the foundations of long-term power that the U.S. underfunds.  China suffers from the Party’s heavy-handedness, but the U.S. struggles with crippling disputes over public spending, race and the role of government.  Gosplan was not a viable competitor in the 1980s, but this is not the U.S of forty years ago.  If China’s problem is that it has too much government, the U.S.’ problem is that it has too little.

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The Author is James Lewis

James Lewis is a Senior Vice President and Program Director at the Center for Strategic and International Studies (CSIS).  Before joining CSIS, he worked at the Departments of State and Commerce.  He was the advisor for the 2010, 2013 and 2015 United Nations Group of Governmental Experts on Information Security and has led a long-running Track II dialogue on cybersecurity with the China Institute of Contemporary International Relations.

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