Who’s Afraid of China?

The most enduring feature of Donald Trump’s legacy was affecting a bipartisan pivot to a confrontational stance with China. I agree we should get tough on their companies, given their grossly unfair practices in allowing market access. But as far as fearing the rise of China … I just don’t get it.

I’m old enough to remember the rise of Japan. They were going to dominate industry and own everything. Didn’t happen. Japan rose in the world, found their place and settled in. They’re a large, powerful country, but the apocalyptic rhetoric proved wrong. I think China would be lucky to perform as well as Japan did. I think it’s more likely that speedbumps will knock them off course for a generation or two.

China is almost where the United States was at the end of the 19^th century. The U.S. emerged as a superpower after humiliating an old European power in the Spanish-American War. But this is when the hard climb began, and there would be speed bumps. China has only begun the hard part.

Effectively negotiating those speedbumps requires political pluralism. Since democracies have emerged around the world, we have yet to see an autocracy outperform them. We have seen some come and go, and we have seen some self-sustain around the global middle or lower-middle class. But not one has excelled over the long run. China may be the most effective meritocracy of those autocracies to date, but I still wouldn’t bet on them.

Political pluralism works like a pressure valve in appeasing the masses in tough times. If unaccountable autocrats make decisions outside the public interest, pressure can crack the system. We recently saw the Chinese people force the government to back down on pandemic restrictions, in a rare case of pluralism. What happens when the government can’t meet their demands? And there are harder problems than COVID-19 on the horizon.

China is heading toward a demographic cliff. There won’t be enough workers to support retirees. When Germany faced a similar demographic cliff, they took on 1 million Syrian immigrants. Could China do that? Are there 20 million people who want to move to China? I’m not sure. But if there were, can China absorb that kind of immigration? What happens to their economy if they don’t? What happens if workers have to take care of their own parents and grandparents?

China has a giant black box of debt. You’ve seen the empty cities and apartment towers. You don’t see the books of state-owned enterprises, banks under state influence, municipal governments themselves. How will China manage its first financial crisis? Will they inspire faith and confidence in the rest of the world?

The Belt and Road initiative was initially hailed around the world for being easy money for developing countries with no moral superiority, no strings attached. But that program is starting to crack as countries default. China will learn firsthand why rich countries don’t make money easy. How will they behave as creditors to a sovereign country in default? Will they try to muscle aside other creditors for priority, as many of their agreements stipulate? What will they behave before countries with political leaders hostile to their interests?

China has an unrivalled surveillance state and repression machine. The closest equivalent was probably the Soviet Union. How much does that cost? Adam Smith believed that societies that allowed slavery paid more in costs of repression than the benefits of free labor were worth. It’s unknowable, but there is a nonzero percentage of Chinese GDP dedicated to policing thought. Is that the kind of society that dethrones established leaders of the free world?

The national security establishment is concerned about a flashpoint in Taiwan, which of course is dangerous. But I can’t imagine China winning a hot war after not having fought in any since a handful of border skirmishes with Vietnam in the 1970s. Russia’s army of battle-hardened veterans is having their asses handed to them in Ukraine. How would China’s military, untested from top to bottom, fare against a heavyweight?

China’s GDP and army were both much larger than Britain’s in the 19^th century. Neither saved them from being humiliated in the Opium Wars, like Spaniards routing Incas. China has hostile neighbors in Japan and South Korea who, unlike Poland or Lithuania, aren’t bound to stay out unless all of NATO goes in. If China were to be distracted to its east, it’s hard to imagine India not taking advantage to its west.

This is still the most important measure among nations: where do people want to move? It’s not perfect, and there are anomalies (Saudi Arabia probably overrepresented among Arabs not wanting to leave their region/language), but China doesn’t even make the top 10.

Political pluralism is the secret sauce. I don’t believe we are witnessing some groundbreaking shift in humanity, a history-making form of government that will ultimately displace democracy. And if China is anything less than groundbreaking, then it loses. Taking a historic view, totalitarian China could still be a flash in the pan.

Worst* case: Chinese Communist Party collapses, China adopts messy, flawed democracy and becomes like Russia.

Base case: China is shaken by financial crisis but Communist Party survives and weakened state operates at the level of Japan or South Korea.

Best case: China easily survives financial crisis and maintains one-party rule but demography hobbles growth, country attempts to lead world with more difficult speedbumps ahead.

* Worst case may have best outcome in 100 years.

I’m old enough to remember when the Soviet Union was the main adversary. And I remember hearing in the 2000s something that you still hear today, that the Soviet Union was never a threat. It was always unsustainable.

That wasn’t so obvious to my parents’ generation. That’s why I’m boring you with this China rant. It’s easy to knock the Soviet Union in the 21^st century. But who was saying it in the 1960s? I’m on record now. China is a paper dragon. And someday people will say it was all so fucking obvious.