Critical Issues Confronting China Summary: Living with a China Made Great Again

November 28, 2016
Chas Freeman

For decades since the end of the 1970s, when China began to unleash market reforms and open to the outside world, China looked up to the U.S. as a tutor for directions of future reforms. The U.S., accustomed to being admired as a role model, was happy to be the tutor. In recent years, however, China is no longer the humble student, and the U.S. is out of its comfort zone with China. China challenges many American axioms of thought that we are used to taking for granted. Ambassador Chas W. Freeman, Jr., Senior Fellow of the Watson Institute for International Studies at Brown University, former Assistant Secretary of Defense for International Security Affairs and former U. S. Ambassador to Saudi Arabia, explained these challenges and called for a re-imagination of this important bilateral relationship in light of new facts.

One of these facts is that liberal democracies have been out performed by autocracies in recent years. Democracies presume that people know what they want and should get it. The fact is that neither presidential candidate, Donald Trump or Hillary Clinton, was accommodating to China during their campaigns. The comfortable "tutor-student" relationship has drifted into competition, even distaste and rivalry. Furthermore, empathy and humility deficits in both China and the U.S. have made it difficult to get along.

 One of the presumptions that we take for granted is that laissez-faire economies produce better economic growth than industrial policies.  But it turns out that countries with industrial policies grow faster. We assume that freedom of speech and press is necessary for scientific advancement and technological innovation, but China proves otherwise; its censorship only applies to politically sensitive areas. We also assume that market economy and material prosperity will lead to political liberalization, but China's growing middle class seems to prefer social stability and personal security over political liberalization.

On foreign relations, Freeman refuted the prevailing American narrative for America's role in a changing international context. Our assumption of American primacy for the world order does not stand close scrutiny. We insist on freedom of navigation in the South China Sea, while two-thirds of the annual trade passing there is to and from China. The U.S. main claim to legitimacy is its establishment of a rule-based international order, but China now seems to respect the UN charter and other international laws more than the U.S. does. The U.S. "security alliances" in the post-Cold War era are no longer based on common fear or aspiration, but have become mechanisms for sustaining interoperability for ad hoc cooperation in contingencies. Countries in East Asia and the Pacific are neither “with us nor against us.” They are there really for themselves.

Freeman emphasized that size matters. China's industrial output is about one and half times of that of the U.S. China has begun to write more rules for markets of electronics, medical equipment and other manufactured products. China dominates the world's trade and commodities markets from metals to grains. China's exceptionally large market size makes more try-outs on technology frontiers affordable, such as in genomics research and cellphone markets where customer-feedback-focused innovations by manufacturers like Xiaomi are now common. This, combined with a massive and mostly well-educated labor force and a first-rate infrastructure, has resulted in unparalleled productivity growth in China.

Freeman anticipates that China's One-Belt and One-Road Project, supported by multiple newly established funds, will make much of Eurasia and Indo-Pacific Sinocentric. The Trans-Pacific Partnership (TPP), which includes the U.S. and its so-called "allies" in the Pacific but excludes China, would not have changed this general prospect, especially now that the TPP deal is dead. New China-initiated banks offer countries a real source of funding, as the Bretton Woods institutions no longer can. Rather than challenging the existing rules, these banks have collaborated with the World Bank and the Asian Development Bank in funding projects. China has also set up its own international bank clearing system, an alternative to the SWIFT system, so that financial transfers across borders do not have to be carried in dollars and cleared in New York under the jurisdiction of the Federal Reserve. This will weaken the effect of any U.S. economic sanctions on other countries.

Freeman described China's formidable financial prowess and technological capabilities. China's foreign direct investment abroad through mergers and acquisitions in the first nine months of this year alone reached $191 billion, excluding $40 billion rejected by the U.S. and some others on national security grounds. Chinese investment abroad is now twice of the investment by foreigners into China. Even the Chinese court system, once incompetent in the area of intellectual property rights, is becoming efficient. Some foreign companies are litigating each other in China. Massive flows of Chinese tourists still frequent department stores in London and Paris for luxury goods despite the anti-corruption campaign at home.

China's investment into R&D is now about 20 percent of the world's total, second only to the US. China turns out 30,000 PhDs in science and engineering each year and is beginning to take the lead in many cutting-edge research areas, including renewable energy, nuclear power, robotics, genomics, quantum computing, big data, deep sea as well as space explorations. These advanced researches will inevitably lead to upgrading of its military technology, stimulated by American surveillance and other operations near China.

Freeman concluded that we misconceive China as just a power in East Asia or the Pacific. It is also one in Central Asia, Europe, Africa, as well as in cyber and outer space. He called for the U.S. to re-imagine a different path to deal with China, taking into account the new reality that China has become a world magnet of trade and finance, and increasingly of talent as well. While intensifying its ties with Russia, the EU, the Arab world and Africa, China does not try to export its odious political system abroad. It focuses on sustaining its system while strengthening itself into a great world power.