CHINAMacroReporter

How to Meet the China Challenge

How the Biden administration characterizes the China – strategic competitor, rival, enemy, and the like – and how it develops strategies – containment, confrontation, competition, cooperation, or some combination of these - will have an impact, to a greater or lesser degree, on most every industry and every market.
by

|

CHINADebate

March 17, 2021
How to Meet the China Challenge
Council on Foreign Relations headquarters, circa 1930
How the Biden administration characterizes the China – strategic competitor, rival, enemy, and the like – and how it develops strategies – containment, confrontation, competition, cooperation, or some combination of these - will have an impact, to a greater or lesser degree, on most every industry and every market.
  • So, while the President and his team are working toward what is promised to be a comprehensive, all-of-government approach to China, it’s time to begin considering the broad nature of the possibilities that could emerge.
  • Here are some ideas to help you understand the Biden China policies as they evolve.

1 | The Briefing

The Council on Foreign Relations is celebrating its 100th anniversary.

  • Conspiracy theorists will tell you that for all that time U.S. foreign policy has been secretly directed from the CFR, not from Foggy Bottom or the White House.
  • A more credible view is that one of the CFR’s sources of influence is as a resource for policymakers.

One of its activities to support policymakers is the briefing.

  • A policymaker asks for a briefing on an issue or region, and the CFR invites its members with expertise on the subject to brief him or her on it.

On Tuesday, I joined a small group of CFR members, all distinguished China specialists, to brief a member of Congress on how the U.S. should think about China and how to approach U.S.-China relations.

  • This was an off-the-record meeting, so I can’t comment much on the discussion itself.

But I can tell you about one of the issues that the group felt was especially crucial.

  • That is, how should we characterize U.S. policy responses toward China?

This sounds like the kind of useless, arcane debate only pointy-head, academic-type, foreign affairs wonks would enjoy. But how you define something informs how you handle it.

  • If you are getting ready for a race, you will train differently for a marathon than for a ‘fun run.’
  • And so it is with foreign policy: How you characterize an issue suggests the strategy or strategies for dealing with it.

The classic example of this is George Kennan and his ‘Containment Doctrine.’

2 | Kennan & the 'Containment Doctrine'

At the beginning of the Cold War, the U.S. was still groping for a strategy for how to counter the threat from the Soviet Union,

  • Then in 1947 State Department Russian expert George Kennan, writing anonymously as ‘X,’ published ‘The Sources of Soviet Conduct’ in the CFR’s journal, Foreign Affairs. Here’s how he characterized the situation:

‘It is clear that the United States cannot expect in the foreseeable future to enjoy political intimacy with the Soviet regime.’

  • ‘It must continue to regard the Soviet Union as a rival, not a partner, in the political arena.’
  • ‘It must continue to expect that Soviet policies will reflect no abstract love of peace and stability, no real faith in the possibility of a permanent happy coexistence of the Socialist and capitalist worlds, but rather a cautious, persistent pressure toward the disruption and weakening of all rival influence and rival power.’
  • ‘Balanced against this are the facts that Russia, as opposed to the western world in general, is still by far the weaker party, that Soviet policy is highly flexible, and that Soviet society may well contain deficiencies which will eventually weaken its own total potential.’

It’s a little eerie how Mr. Kennan’s characterization of the USSR echoes the situation with China today.

  • You could almost substitute China for Russia or Soviet Union throughout his essay and be on the mark.

Here are a few examples using the excerpts above:

  • ‘It is clear that the United States cannot expect in the foreseeable future to enjoy political intimacy with the Soviet Chinese regime.’
  • The U.S. ‘must continue to regard the  Soviet Union China as a rival, not a partner, in the political arena.’
  • The U.S. ‘must continue to expect that  Soviet Chinese policies will reflect no abstract love of peace and stability, no real faith in the possibility of a permanent happy coexistence of the Socialist and capitalist worlds, but rather a cautious, persistent pressure toward the disruption and weakening of all rival influence and rival power.’
  • ‘Balanced against this are the facts that  Russia China, as opposed to the western world in general, is still by far the weaker party, that  Soviet   Chinese policy is highly flexible, and that  Soviet  Chinese society may well contain deficiencies which will eventually weaken its own total potential.’

Let me add one more:

  • ‘The Soviet Chinese concept of power, which permits no focal points of organization outside the Party itself, requires that the Party leadership Xi Jinping remain[s] in theory the sole repository of truth.’

Based on his analysis, Mr. Kennan concluded:

  • ‘In these circumstances it is clear that the main element of any United States policy toward the Soviet Union must be that of a long-term, patient but firm and vigilant containment of Russian expansive tendencies.’
  • ‘This would of itself warrant the United States entering with reasonable confidence upon a policy of firm containment, designed to confront the Russians with unalterable counterforce at every point where they show signs of encroaching upon the interest of a peaceful and stable world.’

This was Mr. Kennan’s 'Containment Doctrine,' which informed U.S. strategy throughout the Cold War.

  • Edward Luce of the Financial Times calls Mr. Kennan ‘the architect of a doctrine that won the cold war.’

3 | China Isn’t the Soviet Union

Unfortunately, this conclusion, even drawn from the same broad circumstances, does not apply to China: Containment alone won’t work.

  • China’s economy is not only massively larger than the Soviet Union’s was, its interconnections with the global economy are vastly greater.
  • Because of those interconnections and the economic interests, many nations are reluctant to oppose China on an issue.
  • And when they do challenge China, China punches back. Look at Australia.
  • Thus replicating the 'two blocs' of the Cold War is just about impossible

Instead, in our briefing of the Congressperson, we discussed four strategies the Biden administration might adopt:

  • Containment, confrontation, competition, or cooperation.
  • The general feeling was that Mr. Biden would adopt one or the other or a combination of these depending on the issue at hand.

4 | Approaches to U.S. Policy Toward China

Ian Bremmer of the Eurasia Group takes up this theme in his recent essay, ‘US must grasp China's different set of values’:

  • ‘Three distinct approaches have begun taking shape.’

‘The first approach is containment, championed by more hawkish elements within the White House and the national security establishment.’

  • ‘This group believes that a Cold War with China is unavoidable given just how many zero-sum issues there are between the two countries, including but not limited to: the South China Sea, Taiwan, Hong Kong, Uighurs and most crucially, technology.’
  • ‘Under this view, it is critical for the U.S. to meet China toe-to-toe in all aspects of great power competition.’

Just as George Kennan suggested of the Soviet Union:

  • ‘Underpinning this approach is the belief that it will not be aggressive actions from the U.S. or its allies that brings Beijing to its knees, but rather China's own policies of state-capitalism and authoritarianism, which they view as unsustainable over the long run given massive Chinese debt and continued risky investments into developing countries.’

Echoing 'cooperation': ‘The second option is one of interdependence, primarily being pushed by the economic policymakers in the Biden administration.’

  • ‘Rather than lumber into a Cold War, they want to constructively engage with the Chinese using existing multilateral architecture, reforming it to accommodate China where possible, and creating new institutions where necessary to get China to act more multilaterally.’

Also, sort of suggested in the CFR briefing as ‘cooperation,’  but clearly distinct from that, is ‘the wild-card option being spearheaded by Presidential Climate Envoy John Kerry and those in the administration who view climate change as the greatest single threat to the U.S., China included.’

  • ‘Rather than pursue a policy of either containment or interdependence, they want the U.S.-China relationship to be in service to the fight against global warming, a battle that needs to include China, the world's largest emitter.
  • ‘For supporters of this approach, the U.S.-China relationship will evolve along with the way the climate change threat evolves.’

In asking, ‘which approach will Biden choose?’ Dr. Bremmer agreed with the CFR briefing group.

  • ‘Knowing the consensus-building Biden, it will likely be some combination of all three.’ Or all four.

5 | The 100-Day Review

The Biden administration is in the midst of a 100-day review of China policy.

  • Whatever the outcome the one thing not to expect is an elegant Kennan-esque doctrine from which all U.S. strategies and policies follow.
  • Perhaps the U.S. and the world’s relationship with China is too different from that of the Soviet Union and too complex.
  • Or perhaps we just haven’t found the George Kennan of our age.

In any case, the outcome of the 100-day review will not be framed in any of the terms proposed in the CFR briefing.

  • Instead the review will discuss specific challenges and proposed policy responses.
  • But underlying each of these responses will be either containment, confrontation, competition, cooperation, or some mix of these.

Those who are able to discern which of these applies to a specific policy and how that impacts business and markets will be a step ahead of everyone else.

More

CHINAMacroReporter

February 16, 2021
'Is China experiencing an advance of the state sector?'
‘The value-added produced by state-owned enterprises has usually been in the range of 25-30% of China’s GDP. And what’s really striking about those numbers is that they just haven’t changed very much over the past 25 years. The share of China’s economic output being produced by SOEs today, under Xi Jinping, is not significantly different than it was under Hu Jintao, or even in the later years of Jiang Zemin.’
keep reading
February 16, 2021
‘China Blocked Jack Ma’s Ant IPO After Investigation Revealed Likely Beneficiaries’
‘Behind layers of opaque investment vehicles that own stakes in Ant Financial are a coterie of well-connected Chinese power players, including some with links to political families that represent a potential challenge to President Xi and his inner circle. Those individuals, along with Mr. Ma and the company’s top managers, stood to pocket billions of dollars from a listing that would have valued the company at more than $300 billion.’
keep reading
February 14, 2021
How to Keep U.S.-Chinese Confrontation From Ending in Calamity
'The two countries need to consider something akin to the procedures and mechanisms that the United States and the Soviet Union put in place to govern their relations after the Cuban missile crisis—but in this case, without first going through the near-death experience of a barely avoided war.'
keep reading
March 9, 2017
So many twists and turns to the China Housing markets story
[CHINADebate Presentation] One of the highlights in our recent 'In Pursuit of Patterns' series of client notes, showed that the land sales growth had tended to lead the price growth and a significant increase in land sales would lead, with a lag, to the subsequent correction in prices.—Almost everyone on the outside seems to have missed the biggest bull market in China housing in 2016, culminating in policy tightening cycle kicking in at the end of the year. But what's next?
keep reading
February 27, 2017
Is The U.S. Ceding Global Leadership To China?
'China isn't positioned to replace the U.S. as a global leader anytime soon.'—Hard on President Trump's 'American First' inaugural address, Xi Jinping gave a rousing paean to globalism at the World Economic Forum. And, immediately the hot question became: 'Is the U.S. ceding global leadership to China?' Yes and no, says Bill Overholt of the Harvard Asia Center. Yes, the U.S. is ceding global leadership. No, China won’t replace the U.S. What will replace the U.S. is ‘G-Zero’, a world with no single global leader. Not China, not the U.S. So, can his critics lay this outcome at President Trump’s feet?
keep reading
February 15, 2017
C-to-C Internet Commerce- From Taobao Shops to Taobao Villages
One is some of the local government-owned SOEs are the sources for overcapacity. The reason is because the local government also wants to ensure there's some degree of employment locally, and perhaps some source of taxation. The Chinese government is now going to need to start the so-called supply-side economics to try to consolidate overcapacity in a number of sectors. It's going to impinge on the interests of many of these local SOEs as well as the local governments who own them.
keep reading
February 15, 2017
How SOEs & Local Governments Create Overcapacity
One is some of the local government-owned SOEs are the sources for overcapacity. The reason is because the local government also wants to ensure there's some degree of employment locally, and perhaps some source of taxation. The Chinese government is now going to need to start the so-called supply-side economics to try to consolidate overcapacity in a number of sectors. It's going to impinge on the interests of many of these local SOEs as well as the local governments who own them.
keep reading
February 15, 2017
Why SOE Reform is So Tough
'...SOEs need to reform, because on one hand, many of them have achieved a lot for China. On the other hand, they've actually created quite a lot of harm, in particular in the areas of overcapacity but also in the areas of corruption we've talked about.'
keep reading
February 2, 2017
AmCham China Chairmen's View From China in D.C. 2017
[AmCham China & CHINADebate U.S.—China Trade/Business Series 2017] Terrific insights from leaders on the ground in China. While in D.C. the Chairmen joined us in a panel discussion and individual interviews about U.S. business in China, U.S.-China relations, trade, and much more. We present their views in a 13 part series. Sheryl WuDunn, business executive, lecturer, best-selling author, and winner of the Pulitzer Prize moderated.
keep reading
February 1, 2017
'Chinese Politics In The Xi Jinping Era'
[Malcolm Riddell Interviewed Cheng Li] 'If you ask any taxi driver in Beijing, Shanghai, or Guangzhou, he or she will tell you – with accuracy – which leader belongs to which faction. : 'China is a one–party state, but that does not necessarily mean Chinese leadership is a monolithic group with leaders who have the same ideas, same background, same world views, same politics. No, they're divided.'
keep reading
December 7, 2016
First 100 Days: Do Not Provoke China
The First 100 Days interview series features Pacific Council experts addressing the top foreign policy issues facing the incoming Trump administration.: Warns of the potential for new conflicts if Donald Trump follows through with his campaign promises regarding China.
keep reading
October 18, 2016
How Alibaba, Xiaomi, & Tencent are Changing the Rules of Business
[An Interview of Ed Tse, the author of 'China's Disruptors: Alibaba, Xiaomi, & Tencent... how innovative 'Disruptor' companies are restructuring China's economy.' ] The real force in Chinese economy is increasingly private companies, not SOEs. / Leading private Chinese companies are innovative and ambitious
keep reading
July 14, 2016
How 'Brexit' Will Impact China's Economy
David Dollar gives you fresh insights to better incorporate Brexit's impact into your analyses of China and global economies & markets, including: 1. Why, after the Brexit vote, did the Shanghai Stock Market fall only 1%? 2. How will Brexit affect the value of the RMB and China's currency policy? 3. How will Brexit impact trade with the EU, China’s largest trading partner? 4. Why, in the larger geopolitical perspective, could China be the big winner from Brexit?
keep reading
July 2, 2016
China housing: boom, bust, or bubble-or...?
100s of Cities Bubble Up & Down As Policy Makers Press the Levers China hasn’t collapsed. And, the bubble hasn’t burst because there may not be just one big real estate bubble. Instead, there are 100s of sizable cities, each moving in its own cycle, each responding to how its local policymakers stimulate & tighten-stimulate & tighten, and each having performance divergent from that of other cities. Watch here to see how city-level markets bubble up and bubble down...
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.