I was inspired by my colleague Peter Spiegel’s foreign policy angle in Swamp Notes last week, so I am taking a page out of his book and considering the question of China as America’s biggest strategic challenge (that’s the official defence department stance), and how the new Biden administration should think about it. This is obviously a much bigger topic than can be covered in a Note, but I wanted to raise an idea that struck me during a recent Council on Foreign Relations conference call on the topic.
One of my favourite sources on China, Claremont McKenna College professor of government Minxin Pei, was on the call, and he made the point that Chinese foreign policy today is driven by three things: first, perceived US decline; second, perceived opportunity for China in becoming more active on the world stage; and finally, President Xi Jinping’s own ambition.
On the first point, I think Biden is taking the right approach by dialling back Donald Trump’s hateful rhetoric, but also letting China know that it will face “extreme competition” from the US in the future. The president’s assessment that Xi “doesn’t have a democratic — small d — bone in his body” would be echoed by Pei, who is studying the Chinese surveillance state. While Chinese use of technology in citizen surveillance began long before Xi, it has scaled up under his presidency and according to Pei, the Chinese ambition is ultimately to create a grid-management system of the entire country, in which every 300-500 households could be surveilled and controlled by party cadres and police.
This top-down approach might work in terms of political control. But what will it do to the economy? I’ve argued that while this kind of state control can be a benefit in terms of the building out of 5G mobile infrastructure and possibly in artificial intelligence applications (to the extent that they are data driven), it may also be a flawed strategy for driving innovation — that tends to come much more from smaller, decentralised companies, not from the big, sluggish state-owned enterprises that Xi has increasingly favoured.
What, then, to make of the Chinese welcoming Goldman Sachs and other big US financial institutions into the country to do more business? According to Pei, this is about “making decoupling more difficult. If the Chinese get Wall Street on their side, it might help them make a more insider case” that the US should remain financially intertwined with China, even as the Chinese are trying to decouple their own technology sector from the US. As I argue in my latest column, the Chinese want to become less beholden to both the US, and the dollar, as they roll out their own digital currency.
Will this strategy work? According to Pei, not if Xi is in charge. “Xi is ideological. He doesn’t believe in markets and he has an overly ambitious policy agenda.” What’s more, his fear of any competing party leaders has, according to Pei, led to the appointment of less capable underlings. (Remember the purge of more dynamic figures that began with the takedown of Chongqing major and former commerce secretary Bo Xilai?)
But of course, the equation isn’t only about China. It’s about whether the Biden administration can fix things at home, get allies including Germany on board with any new Chinese trade strategy and find the right stance towards the Middle Kingdom.
The FT recently did a piece on the new Biden China team, including the nominee for commerce secretary, Gina Raimondo (for those who know what we both look like, yes, we were separated at birth). On that note, I’d like to introduce my new Swamp Notes sparring partner, the behavioural economist Peter Atwater, one of my favourite sources, who has kindly agreed to fill in for Ed for a few weeks.
Peter A, what’s your take on the team, and their prospects of getting the balance right?
Edward Luce is on book leave and will return in mid-March.
Rana, your doppelgänger is likely to have her hands full. Gaining consensus among our European allies on a “good for everyone” China strategy is going to be tough amid simultaneous national economic crises arising from the pandemic. I am not optimistic about multilateralism. I see far too much “me here now” thinking among global policymakers.
At the same time, Xi has enormous advantages to President Biden on the global stage. The relative growth rate of the Chinese economy is high and unlike the case with many of his political peers, no one doubts Xi’s ability to deliver on his strategic commitments. Global investment is pivoting toward China at a time when it feels like Xi can call all the shots.
I am not sure we’re yet to the point of Xi/China invincibility, but my ears always perk up when everyone is telling the same story. It feels like both the potential for collective overconfidence in Xi — internally and externally — and the China growth story, are rising rapidly.
And here is where big American companies like Goldman Sachs and Apple may find themselves especially exposed. Simultaneously satisfying the conflicting demands of Chinese and American policymakers was already a contortionist’s act. With the Biden Administration now determined to reduce domestic economic inequality and “Build Back Better”, I am not sure global companies can gracefully satisfy their two very ambitious masters. If we see an economic growth/recovery hiccup, “and” could easily become “or”.
And now a word from our Swampians . . .
In response to ‘Biden’s not-so-subtle message to Bibi’:“Like Rana, I also believe you are not being too tough on Israel with your comments. Netanyahu’s approach and actions over a few years now can lead you to no other conclusion. Like some other rightwing leaders who consciously aligned themselves with the Trump administration they are now reaping the inevitable consequences. (Hi Boris!) Perhaps the only long-term beneficial consequence of ‘fracking’ is the reduced need to focus on the Middle East for US foreign policy as you have noted. But I would still think that the US is going to need some friends in the region. If it is not Israel and Saudi Arabia then who can fill this role? There is no obvious candidate.” — Lou Spanos, Victoria, Australia