Hands off My Chinese Tanas

My toddler son had allergies to wheat, corn, dairy and eggs which meant that he only ever ate home-made food. At playgroups, while the other toddlers sat down to cheesels and M&Ms and any other manner of highly-processed sugary sweets, he sat down to leftovers of corn beef and vegetables.

One day at playgroup a mother made comment on what he was missing out on, and on reading the ingredients of the sultana pack that her child was gulping informed me that there were no allergens in that brand. At around 18 months my always placid and well-behaved toddler had his first exposure to concentrated sugars in a small pack of sultanas. Not surprisingly, he loved them. 

We went to the supermarket on the way home to buy a multipack and I allowed him quite a few individual packs in the next few days. On the third day, my son was standing at the door of our pantry, banging it with his fist repeatedly, yelling “I want more ‘tanas! I want more ‘tanas!”

It was a powerful demonstration of how human bodies can quickly develop a craving for sugar. 

It was also an insight into human nature; nobody likes access curtailed to something to which we have previously had relatively free and unfettered access, even if that curtailment may be good for us.

I would suggest that the same analogy applies to the perks enjoyed by the Baby Boomer generation as exemplified by the fracas over franking credits at the last election, but I will leave that “OK Boomer” moment for others for the present.

This post is, after all, about the enmeshment of China in the global economy and the consequent interaction with Western business interests.

China entered the global trade system proper in 2001 with accession to the World Trade Organisation (WTO). In the lead up to it I worked in Government policy development on Biosecurity applying policy negotiated and administered under the WTO, so I was particularly interested in developments on this front. Moreover, as detailed in previous posts, I spent a month at a workshop in China and that was an eye-opener on how the Chinese Communist Party operates within its borders.

Not surprisingly there was much debate and discussion at the time about the pros and cons of China joining the WTO. The Tiananmen Square protest which was brutally supressed by the autocratic Chinese Communist Party occurred just a decade earlier, and human rights were very much a part of the public discourse. 

Business leaders were keen to suggest that leaving China isolated would not help on the humanitarian element, and in every discussion on the topic proponents assured that economic development of a nation typically goes hand in hand with increased civil freedoms.

Of course the potential to access a market of 1.3 Billion people – initially as a market of low-cost labour, and then as a consumer market – was tantalising to the business elites.

China joining the global trading system under the rules governed by the WTO provided some structure to their entry. Unsurprisingly, though, as is the case for all countries operating under the rules-based trading system, these changes created domestic and international political pressures to be managed by the Chinese Communist Party leaders.

The rapid enmeshment of China into the global economy, and the pressures that this was causing for their leadership, is made clear in “China in the WTO: Past, Present and Future“, a paper by China’s Permanent Mission to the WTO to mark the 10th Anniversary of it’s accession (accessed 2/12/2019). The report contains many graphs displaying impressive growth rates and in the text concerns held by domestic and international stakeholders are listed.

However, this quote from HU Jintao, who was Chinese “Paramount Leader” for virtually all of those 10 years, shows that the expectations of other WTO members, and especially the Western democracies, were well understood by China:

China’s accession to the WTO is a milestone in China’s reform and opening up, bringing us into a new era to further open up. To join the WTO was a major strategic decision based on our comprehensive analysis of the situation at home and abroad in order to push forward China’s reform and opening-up and socialist modernization drive

I count 3 uses of the phrase “open/ing up”!

My reading of the business media suggests that there has long been an understanding that Western businesses have felt that dealing in China and with Chinese businesses, often at least partly owned by the Chinese Communist Party, has been difficult and that China has been flexing its power to obtain significant advantage for its interests.

It has long been suspected – some might say an open secret – that the Chinese Communist Party has presided over a significant espionage effort aimed at foreign business interests and at foreign government institutions.

Occasionally when it wanted to exert pressure for a particular reason, or in response to being called out for example for human rights violations, the Chinese Communist Party would have a citizen of the country to which it wished to apply pressure arrested and imprisoned (like the Australian Rio Tinto employee Stern Hu who spent 9 years incarcerated in China) , or would use some other measure such as introducing a go-slow on shipments for a major export (such as Australian coal) or give directions to its citizens via the state-controlled press to boycott certain products .

The machinations of the WTO could not handle the breadth of issues that countries confronted when dealing with China, and were slow-moving on issues covered by the formal trade rules it administers.

Increasingly the question of whether China should continue to be considered a developing country, and enjoy certain special conditions under the WTO rules, when it had become the second largest in the global economy, and was displaying significant power which it leveraged upon other nations, was raised especially by the United States.

The carrot that existed 20 years ago remains, however, and so western businesses have been prepared to accept these disadvantages for some gains, and the foreign policy agenda of the Chinese Communist Party ensured that many developing and even developed economies were enticed to partner up with China on infrastructure projects through major programs such as One Belt One Road (OBOR). 

To many observers these projects appear not to be just about engendering good will and to further business linkages, but as a means to extract greater leverage over nations to progress the Chinese Communist Party’s agenda, especially those that are vulnerable and in need of capital for development. Even long-struggling Greece, the gateway to Europe, has become an eager partner and has accepted Chinese funds for 16 projects (accessed 1/12/2019).

Within countries, such as Australia, there are differing views on the desirability of joining these projects and consequent agendas, with some states including Victoria and Western Australia having joined up to gain financial advantage, while the Federal Government is more circumspect as shown in the conclusions of this briefing (accessed 1/12/2019).

China’s wielding of this economic statecraft strategy derives from several collocations. On the political front, since late 2012, President Xi has been promoting the ‘Chinese dream’   (中国梦), involving the ‘great revival of the Chinese nation’. Such revival requires a restored global position and identity for China. Earlier iterations of OBOR involved the catch-phrases ‘common development’ and ‘win-win cooperation’ to characterise the relations between China’s development and that of its neighbours. China also promoted a ‘China-ASEAN community of shared destiny’ (中国-东盟命运共同体). But these smaller initiatives have burgeoned into the Eurasia-wide OBOR, bringing into play the PRC’s massive capital reserves—both state and private—achieved through 40 years of rapid economic growth, and offering an outlet for the vast excess production capacities which exist today in China.

Regardless of the credence which one assigns to the various interpretations of the OBOR initiative, progress thus far makes it clear that as Australia becomes increasingly tied economically with China, there is a need to maintain a close watch on the progress of the OBOR initiative globally. It also suggests that Australia needs to adopt a more economically and strategically prudent attitude in determining how the Australia-China economic relationship is to further develop.

Note especially the concern that this agenda has taken a turn under current Chinese Paramount Leader Xi XinPing who also has concentrated power further by ensuring that he will remain in charge as long as he chooses in his promotion to “Core Leader” status in 2016.

It should be noted, however, that this must have always been understood by Western democracies to be a non-trivial risk under the autocratic system.

As economies became more and more dependent on integration with the Chinese economy, as a market for goods and suppliers of cheap imports of goods or components, Western politicians have became increasingly beholden to the vicissitudes of the Chinese economy and ultimately the Chinese Communist Party.

While China’s autocratic system frees their leadership from the concerns of securing the re-election of their party at frequent intervals – and can thus set in place genuinely long-term strategy – the Western democracies have become increasingly consumed by short-termism in the age of media saturation. 

These factors have been a significant advantage to China, and consequently it has become so intricately enmeshed within the global economy that it would hurt many Western economies significantly for this to be undone or at least reversed to any significant degree.

This is, however, most likely what the Trump administration has in mind, and I consider that it most likely will be made necessary by the reluctance of the Chinese Communist Party to either reform or cede the ground that it has made in this process.

What is more, I suspect that Donald Trump was speaking accurately when he said that he has been told in confidence by some Chinese that Chinese Communist Party had been surprised by just how far this process had been allowed to progress without it being checked. It is a testament to just how short-term our Western politicians have allowed their horizons to become.

In hindsight, what should have occurred as China entered the Global economy is that Western democracies, led by the US, should have ensured a regular series of gateways be instituted to assess China’s progress at “opening up” with the opportunity to cut back its involvement in the Global economy when milestones were not met.

This is essentially the system that is now being set up by the US in relation to assessing annually whether Hong Kong’s autonomous status is being genuinely met to earn the special conditions that the region enjoys and from which wider China gains significant benefits.

Below is a graph which shows the concept of how this might have been applied as China entered the Global economy (the blue line), with regular gateways which, under this example, led to its continual engagement with the Global economy being knocked back at each gateway when it did not achieve the milestones required of it to genuinely open up.

Conceptualised graph of two alternate processes for entry of the Chinese economy into the Global economy. The grey line depicts the relatively unchecked process that has occurred to this point. The stepped blue line is where there was a process of regular assessment of China’s progress at opening up, with negative consequences applied when it did not meet those milestones. The dotted red line is an indication of what is now in progress as the Trump administration seeks to ensure that the Chinese Communist party abides by the implicit and explicit guarantees on opening up in return for the opportunity to enter the global economy. MacroEdgo.com © Copyright Brett Edgerton 2019

The other (grey) line on the graph is a conceptualised representation of how China has been relatively unimpeded in its integration into the Global economy such that it is now heavily enmeshed.

The dotted arrow downwards from the latter line towards the former is essentially what is in progress right now as the US, initiated by President Trump, but with support on both sides of the aisle, begins the process of making China accountable to the implicit and explicit promises that it made on opening up in return for the opportunity that it was given to develop its economy.

The only question is just how far that arrow will extend downwards, and that will depend on a multitude of variables relating to domestic politics and geopolitics which are difficult if not impossible to predict with any certainty. It could remain above the stepped line, it could approximate it, or it could overshoot to below the stepped line.

To this point the Trump administration, led ably in this respect by Peter Navarro, Wilbur Ross and others who have done an excellent job at containing the powerful business interests from throwing a sugar high ‘tanas tantrum and mounting a campaign to maintain the status quo which in the short-term benefits the shareholders and executives of those businesses, but not so in the long term, and are a serious geopolitical risk to the West if left unchecked.

Australians just need to remember back to how the resources industry was largely responsible for the deposing of a sitting Prime Minister in Kevin Rudd ensuring that his successor watered down the resources rent tax – which was necessary and would have allowed Australia to establish a sovereign wealth fund which would have been very handy about now – and thus protected their outsized and lowly taxed profits.

To this point the resolve of the Trump administration has been clear and the business elites have understood this to be an issue of national security which should not be challenged. 

If China becomes more powerful and even more internationally influential, possibly even the hegemonic power, while it remains autocratic and ruthless towards dissenters within its own borders, then the Chinese Communist Party is unlikely to select for an authentic leader of the calibre of Franklin D Roosevelt who will espouse a humane leadership of the world.

That ruthlessness, which many feel is epitomised by its recent introduction of facial recognition coupled with artificial intelligence technology in its major cities linked to a social score indicating the quality of each person’s “citizenship”, according to the principles espoused by the Chinese Communist Party, will likely be encouraged and exported to other nations.

Whether that resolve exhibited by the Trump administration will be maintained with an administration change is unclear, and certainly there appears to be a commonly held view that the Chinese Communist Party is prepared to wait it out.

On the other hand, the degree to which China has been allowed to integrate into the Global economy, the power that has come as a consequence and the wealth that it has accumulated through trade, appears to have emboldened the Chinese Communist Party.

I personally have a theory that much of the resources purchases by China has been for stockpiling. While analysts concentrated on “ghost cities” as a reason for why the Chinese economy was unsustainable, I simply saw this as a win-win for the Chinese Communist Party where it provided jobs and income to its citizens in building these cities, while it was an effective and non-threatening stockpile of resources which could be recycled if necessary.

It occurs to me that we have been in cold war for the last 20 years, but unlike the cold war that began at the end of WWII with the building of an iron curtain, the early stages of this cold war involved the building of Trojan horse.

The business and political elites were becoming progressively addicted to the free flow of sugar highs provided by Chinese Communist Party. Now that flow is being curtailed. However, one should expect to see periodic tantrums from the elites who will never give up the perks of their own power lightly.

This will be the major geopolitical issue of this century, and Australia is vulnerable on many fronts. 

As the Hong Kong protests prove, there are very many Chinese people who want freedoms, civil liberties and a confidence in the rule of law that is enjoyed in democracies. 

When I was at that workshop in China 20 years ago, it was difficult to make an authentic connection with locals not just because of language but because of the oppression and omnipotence of the Communist Party. I did, however, manage to have one discussion about Tiananmen Square and the person revealed to me that they had a cousin who protested and disappeared in the crackdown. They were never heard of again.

I, immaturely and naively, as a 30 year old, assured this person that we, from developed countries, cared and it was our hope that if China was to join the WTO that it would ultimately lead to greater freedoms for Chinese people.

This was one of those all too frequent in life fleeting moments forming a connection with someone who I will never meet again for our encounter was very brief. But I think of that conversation whenever I discuss this topic. As I said in previous posts, all of us international participants were also actively monitored at this workshop so I have never before mentioned this conversation online because I feared that there might be repercussions. This is the same fear that autocrats rely on to oppress ideas and opinion.

While we need to be careful of people who will seek to conflate issues to progress alternate agendas around race and ethnicity, as my essay “Xenophobia Must be Challenged For an Effective Response to Climate Change Inclusive of Global Population Growth” shows, that delicate juxtaposition should not prevent the open and warranted expressions of concern at an increasing expression of power by an autocratic nation which shows little inclination to significantly open up and reduce oppression of its peoples.

Traditional Chinese culture has been such a wonderful gift to humanity, and Chinese people have been so incredibly productive and innovative, it is my sincerest hope that authentic “opening up” of China can be achieved. If we, the developed world, need to pay a price in terms of reduced economic output for a period to achieve that, then it is a price that we should be prepared to pay to achieve a more united humanity and to gain another Rooseveltian true friend.

After all, we should not have allowed our elites to gulp so many ‘tanas over the last 20 years in lieu of genuine assessment of authentic and durable “opening up”.

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© Copyright Brett Edgerton 2019

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