Lies and Damned Lies

In “How to Make China More Honest,The Heritage Foundation‘s Derek Scissors contends that Chinese statistics are little more than politically-motiviated lies. He suggests that this means that the “Chinese miracle” could be part of the grand fib. More to the point, though, he says that the only way to keep China honest is to collect enough data about China to give lie to its own prevarications, and use that data to undermine China’s propaganda. The challenge, of course, is how to collect that data if China really doesn’t want you to do so.

What is Beijing Thinking?


English: Profile image of Hu Shuli

English: Profile image of Hu Shuli (Photo credit: Wikipedia)

China 3.0
Mark Leonard, et. al.
The European Council on Foreign Relations
November 2012

Those of us watching the goings-on in Chinese politics have been treated to the non-fiction equivalent of a byzantine soap opera over the past two years. The unexpectedly turbulent generational leadership transition has given us opportunity to speculate ad nauseum about who was going to get what seat, a debate doubly invigorated by the drama surrounding Bo Xilai‘s metoric rise and fall.

But the seats are filling, the slate of leaders is falling into place, and our attention turns from personalities to policies. What, exactly, are those leaders going to be doing for the next ten years?

President Xi Jinping and Premier Li Keqiang have begun to lay out their policy priorities, but there are few surprises or insights to be gleaned from public positions. Of far greater interest are the debates taking place within government and the nation’s intelligentsia over the path to take in the future. As James McGregor summarizes in his recent book No Ancient Wisdom, No Followers, for the first time in generations the path forward for China is unclear, there are contending schools of thought at the top of the Party organization, and China lives under the threat of indecision and paralysis in Beijing.

Which is why this slim volume, edited by Mark Leonard, c0-founder and director of the European Council on Foreign Relations, is such a valuable survey. Rather than focusing on the dramatics, Leonard’s line up of scholars and observers (including Caixing’s Hu Shuli and blogger Michael Anti) focus on how the debates around finding that way forward are playing out.

In the course of a dozen pithy essays we are treated to a glimpse of how the nation’s leaders are thinking about the future of domestic politics, the economy, foreign policy, and the search for models from which China can glean its own pathway to the future. Most of us will never get a chance to sit in the halls where these decisions are being made, but in China 3.0 Leonard and the ECFR have given us a chance to sit outside the door and listen at the keyhole, all while being treated to the perspectives of 17 of China’s own most astute observers.

Finding Innovation in Dark Corners

“Global Technology Sourcing in China’s Integrated Circuit Design Industry: A Conceptual Framework and Preliminary Findings”
Dieter Ernst and Barry Naughton
East-West Center
August 2012

For nearly a decade, Chinese policy-makers have been on a seemingly Quixotic quest to turn the nation’s low-cost manufacturers into innovation-driven firms. The question that has plagued that effort from the start is whether Beijing’s “indigenous innovation” drive isn’t just a form of techno-protectionism, and if not, whether and how policy might actually aid in the emergence of world-class innovative firms.

That question remains largely unanswered, but Dieter Ernst and Berry Naughton have gone looking for answers in China’s integrated circuit design business. What the paper reveals is an example of how innovation is taking place outside the purview of government industrial policy, calling into question the value of centrally-driven strategic emerging industries.

A growing body of evidence suggests that the ship of state capitalism will founder on the rocks of innovation. The emergence of the new and the novel from overlooked quarters offers a reminder of the agrarian entrepreneurialim that emerged in 1980s China when Deng Xiaoping simply lifted the heavy hand of central planning. Ernst and Naughton’s study seems to points the nation toward a more productive approach to industrial innovation, yet one that would sorely test the natural interventionist urge of Party aparatchiks.

China’s Self-Serving Illusion

A 21st Century Myth: Authoritarian Modernization in Russia and China
Lo Bobo and Lilia Shevtsova

Carnegie Moscow Center – Carnegie Endowment for International Peace
July 2012

In this short yet thought-provoking work, Carnegie researchers Lo Bobo and Lilia Shevtsova offer what is certain to become a controversial point-of-view, and then likely a growing meme: despite apparent success in the wake of the global financial crisis, the promise of state capitalism is a self-serving illusion.

On China in particular, the authors suggest that the “Beijing consensus” has created success under exceptional circumstances. Far from being an economic model that other countries can emulate, China’s authoritarian modernization is quite likely unsustainable in China itself.

Rather than succumb to gloom and doom, the pair point a way forward. China’s economic success is actually based on economic liberalization, bottom-up reform, and central government improvisation. My reading of Huang Yasheng‘s brilliant (albeit overlong) Capitalism with Chinese Characteristics suggests that Lo and Shevtsova’s argument has merit.

The book argues gently, but the subtext is clear: the recommendations made by the World Bank in their China 2030 report are probably too mild: more must be done to save the Chinese economy from stewing in the juices of economic stagnation, 7% growth notwithstanding.

The authors also make a pointed case to the west: we should not kid ourselves that the biggest threat to Western economic liberalism is authoritarian capitalism. Rather, it is our hesitation to address and repair the fundamental problems that have led to the current crisis.

An excellent read.

Henry Paulson, China, and the Atlantians


PaulsonHenry (Photo credit: Wikipedia)

“A New Framework for US-China Economic Relations
Henry M. Paulson, Jr.
The Atlantic Council
July 17, 2012

One part of former Treasury Secretary Henry M. Paulson Jr.‘s legacy that should have survived the ravages of the global financial crisis was the Strategic Economic Dialogue (SED,) a forum through which China and the United States could move their economic relationship forward.

The SED continues (most recently last April), but Mr. Paulson is apparently distressed by the crumbling public consensus behind the America’s commercial and financial relationship with China and how that is undermining progress. In his most recent paper, “A New Framework for US-China Economic Relations,” he calls upon the next president (presumably, for the Republican Paulson, Mitt Romney) to rebuild that public consensus, and to move the relationship forward on five “principles” or goals.

The goals are certainly admirable: unlock the promise of capital and cross-investment; assure financial markets that are transparent and have strong oversight; work to strengthen market confidence in both economies; free up bilateral trade, and help technology flow more efficiently and promote innovation. In the process, Paulson supplies a laundry list of things both China and the US must do to achieve those goals.

Unfortunately, the paper stops here. Leave aside that most, if not all of this, is nothing new. We have been handed a bucket of dreams and no direction on how to attain them. It is almost as if Paulson, a man for whom the past two decades have involved setting and gaining agreement on goals and delegating the details to underlings, has forgotten that there is more to success than simply setting objectives.

Worse, Paulson makes the common mistake of isolating the economic aspect of the Sino-US relationship from everything else. That may have been possible once: it is no longer. China’s behavior in the South China Sea cannot be isolated from America’s willingness to allow China to invest in US petroleum companies. Our willingness to sell China technology cannot be divorced from their failure to protect IPR or Beijing’s willingness to abet hacking. Taking anything less than a holistic approach to the relationship is naive at best, foolhardy at worst.

Unimaginative and impractical, the result is an effort that amounts to little more than Paulson trying to keep his name attached to China policy.

The paper also reflects badly on the Atlantic Council. Something that has been clear for nearly three decades is that the doyennes of the Atlantic Civilization remain ill-suited by preparation, prejudice, and worldview to navigate the west through the ascent of the East. That the Atlantic Council would be the organization through which Hank Paulson would publish this feel-good list of policy prescriptions is illustrative of that disconnect. Wiser heads – especially those who live and think in greater proximity to the vermillion gates of Zhongnanhai, – would undoubtedly offer a more realistic course of action.

Is China Facing an Unequal Future?

The End of ‘Growth with Equity’? Economic Growth and Income Inequality in East Asia”
Wang Feng
Honolulu East West Center

In a concise paper, Wang Feng makes an argument for government intervention in China to stem the growing economic inequality in the country.

For those who are uncomfortable with the idea of government intervention, Wang argues that the government (especially in China) can create the conditions for growing inequality. Wang’s implication is plain: the Chinese government has, knowingly or otherwise, fostered the circumstances that have allowed for unsustainable inequality to build. Government action is essential to address the root causes of that inequality.

Wang pulls no punches when it comes to naming culprits. Unless state-owned monopolies are broken up and the concentration of economic power in the hands of the state brought to an end, inequality will continue to grow and instability will result.

This paper is superb read that is refreshingly bereft of technical economic language, makes a clear case for an even more extreme course of reform than the World Bank’s China 2030 made five months ago.

How is Population Hurting Asia’s Progress?

“Population Aging and Economic Progress in Asia: A Bumpy Road Ahead?”
Andrew Mason and Sang Hyop Lee

East-West Center

Andrew Mason and Sang Hyop Lee explain that countries in both developed and developing Asia face a triple threat of an aging population, declining family support for aging family members, and the lack of government programs to support the aging, and tell us why and how that is going to put an end to Asia’s economic miracle. That is, unless the region’s leaders can figure out how to change policy and economic direction to address the issue.