Understanding the opaque nature of China’s political system is another essential task. To this end, Thomas Remington unpacks a case study showing the Chinese media being used to signal that the veneer of unity on important issues doesn’t necessarily reflect political reality. The lesson is timely. Even though China has wedded itself to Russia in its invasion of Ukraine, the founder of a Beijing think tank recently published an oped in The New York Times that argued that China should distance itself from Putin and help negotiate an end to the war.

Taiwan looms large in China and in geopolitics, and we offer two decidedly different views involving the island. Chien-pin Li argues that Taiwan is on the defensive politically and economically in its attempt to maintain security in the face of China, even as economic ties continue to expand.

Savannah Lee offers a personal view of what it was like living and studying in Taiwan as an American student during the depths of the COVID-19 pandemic.

Joseph Bankoff returns us to China and the U.S. with a discussion of innovation. He argues that both countries face similar challenges and needs when it comes to promoting innovation.

Finally, Penny Prime, our managing editor, reviews Red Roulette by Desmond Shum, a Shanghai-born businessman who spent many years in Hong Kong and later Beijing, where he ingratiated himself with former Chinese Premier Wen Jiabao’s wife and children. His is a story of intrigue, corruption and the disappearance of Shum’s wife. A warning: you may want to set aside everything else and read the book after digesting the review.

The post Editor’s Note appeared first on China Research Center.

Given this likelihood, I ask whether rich democracies, in particular the United States, adequately prepared for a Chinese superpower – especially as its likelihood increased along with China’s economic and technological development. I take a neutral stance as to whether China’s rise should be seen as an opportunity for a more peaceful and prosperous global future or a threat to the global status quo, the Washington consensus, liberal democracy, or the United States in particular, or somewhere in between. I take this neutral stance because a lack of preparation for China’s rise should be concerning for Panda Huggers and Dragon Slayers alike. Dragon Slayers, hawks who want to work to contain, challenge, or even fight China, could find that the U.S. has not done enough to prepare for a – hopefully – preventable conflict with China, or to check its growing influence. Panda Huggers, doves who would prefer to engage China, might conclude that we have failed to develop expertise and put far too little emphasis on peaceful efforts to cooperate as well as compete economically with China.

There is no checklist to prepare for a rising superpower. Yet, this article will provide a survey of some of the efforts, made and unmade, to prepare for a China-dominant world. Specifically, it will consider military, economic, and educational readiness for a China Century.

Military

China’s rise and the modernization and professionalization of its military have proceeded apace since national defense was included as one of Deng Xiaoping’s Four Modernizations in 1977. While the U.S. military was considering its role as a world policeman in the 1990s and a counterinsurgency force in the 2000s, China was focused on projecting power where it mattered to the PRC, near its borders and surrounding seas, particularly toward Taiwan. In 1996 when the United States and China almost clashed over Taiwan, General John Shalikashvili, then chairman of the U.S. Joint Chiefs of Staff, dismissed the PRC’s ability to invade Taiwan, concluding that “China simply lacked the sealift resources, especially amphibious ships.”¹ China’s threat was dismissed as the “million man swim,” a term that is now frequently cited in articles explaining how much the realities of a Chinese invasion of Taiwan have changed since the 1990s.

The U.S. military’s focus, tactics, and doctrine in the decade after the 9/11 attacks were fundamentally mismatched to containing, dissuading, or confronting China. As China forged ahead with its aircraft carrier program, the U.S. Navy contemplated reducing its aircraft carrier groups. Military experts concerned with China argue for the need for weapons and strategies that can block China’s anti-access/area-denial capabilities (A2/AD). Since 2009, the Pentagon has been pushing just such priorities in the form of the Joint Concept for Access and Maneuver in the Global Commons. Yet, according to Michael Beckley, “[T]he U.S. defense establishment has been slow to adopt this [China] strategy and instead wastes resources on obsolete forces and nonvital missions.”²  While the U.S. has not created a unified strategic vision for how to prepare for China’s rise, it’s not for lack of trying. There have been several proposed Joint Concepts, Strategic Concepts, Expeditionary Warfighting Concepts, and other schemes. Implementation of such grand strategies is expensive, difficult, and time-consuming, and shifts in politics have complicated it further, as have wars in Iraq and Afghanistan.

Whether its preparation for dealing specifically with China has been as effective or efficient as it could be, the U.S. military enjoys such substantial advantages that it is hard to conclude that this is an area where rich democracies have failed to prepare. Three factors stand out. First, the United States spends almost four times as much on its military as China. Second, aside from Russia, every other major military spender is a close U.S. ally. Third, the Chinese military’s lack of war-fighting experience contrasts sharply with that of the United States, which has, for better or worse, been involved in numerous conventional and unconventional conflicts in recent decades. While we hope the question of whether the U.S. and its allies can handle China militarily will never need to be answered, it seems clear that it is the field in which preparations for China’s rise have been least insufficient.

Economics

For those, like this author, who believe it best not to consider China primarily as a military threat and that prophecies about coming conflicts are self-fulfilling, a lack of preparation and investment in non-military areas is more distressing. Headline figures on balance of trade have their place, but do not reflect complex realities such as the U.S. earning a much greater share of the profits than China for every iPhone assembled in the PRC. Direct efforts to “get tough on China” on trade have proved dismal failures; from Obama’s early attempts to Trump’s more recent ones, they have generally hurt the U.S. more than China. Far more problematic than today’s headlines about trade imbalances, therefore, is a reluctance to invest in the research, infrastructure, and education that would help make rich democracies economically competitive with a rising China in the coming decades.

Much of China’s economic success was the result of scrappy small and medium enterprises organized in industrial clusters. Foreign companies and consumers were some of the biggest beneficiaries of that economic success. Yet, the Chinese state has also invested heavily in making China internationally competitive. From 2000 to 2017, Chinese R&D spending increased 17 percent a year compared to 4.3 percent in the U.S. China eclipsed U.S. science spending in 2019.³ The Chinese state also invests in, supports, and protects Chinese companies. As the Wall Street Journal’s Chuin-Wei Yap wrote, “Huawei had access to as much as $75 billion in state support as it grew from a little-known vendor of phone switches to the world’s largest telecom-equipment company.”⁴ Rich democracies could have maintained an economically productive relationship with China while still preparing for its rise by spending on R&D. Yet until recently, they did not even attempt to keep up. As late as 2020, the U.S. Senate introduced a bill that offered a mere $1 billion for the development of 5G alternatives to Huawei.⁵

The United States also failed to invest in other areas that could help keep it competitive with China, especially in infrastructure and education. China opened approximately 24,000 miles of high-speed rail between 2008 and 2021 and now accounts for around two-thirds of the world’s total high-speed rail. Europe has less than 6,000 miles and the United States only 34. While U.S. bridges have begun collapsing, China has built around a quarter-of-a-million new bridges since 2010.⁶ China went from graduating half as many STEM (Science, Technology Engineering, and Math) Ph.Ds. as the United States in 2000 to 50 percent more in 2019.⁷ Taken together, it seems that China has surpassed the rich democratic world in almost every aspect of investment, that this trend was clear for decades, and that little was done to address it.

There are signs that the momentum is beginning to shift in the space of only a year or two. In December of 2021, the European Union announced its €300 billion Global Gateway scheme (designed to compete with the Belt and Road Initiative). In February of 2022, a dozen former U.S. national security officials from both parties called for the U.S. to pass the $250 billion dollar China competitiveness bill.⁸ It might appear that rich democracies may have finally woken up to the scale of resources necessary to keep up with China economically both at home and abroad, but there is still reason to be skeptical. The Global Gateway scheme was in part a repackaging of existing investment and aid, and neither the China competitiveness bill nor Biden’s $1 trillion infrastructure bill have yet to pass. Time will tell if these efforts succeed, but for now it appears that the momentum has at last begun to shift and that rich democracies are starting to assess the potential influence of China realistically, if a decade or two late.

Education

Nowhere is the gap between China and rich democracies as evident as in the sphere of education. In 2012, one of the founders of Blackstone private equity group set up the Schwarzman Scholars program to send top U.S. students to study at Beijing’s Tsinghua University, explaining that “China is no longer an elective course, it’s core curriculum.” Yet in most rich democracies, China is not even in the course catalogue. From kindergarten to graduate school, Europe and North America are failing to prepare their students to work and prosper in a century that will be Asia- and China-centric.

Graph 1: K-16 Language Learning in the U.S. 2014-5

Source:  The National K-16 Foreign Language Enrollment Survey Report

Language education is where preparation for a China-dominant world should begin and where it is most lacking. In 2015, Obama announced the launch of “1 Million Strong,” an initiative aimed at increasing U.S. learners of Chinese to one million by the year 2020. “If our countries are going to do more together around the world,” said Obama, “then speaking each other’s languages, truly understanding each other, is a good place to start.”⁹ Yet, Chinese language education has not seen the investment and interest that would allow for anything like this goal to be reached. The most recent comprehensive data from a 2017 National K-12 Foreign Language Enrollment Survey Report (Graph 1), shows that less than seven percent of high schools in the U.S. offered Chinese and that it came in as the fourth most-studied language, barely beating out Latin. In higher education the numbers are worse, with Chinese the seventh most-studied language (Graph 2).

Graph 2: Higher Education Enrollment in Modern Languages

Source:  The National K-16 Foreign Language Enrollment Survey Report

Nor are failures in Chinese language education limited to the United States. Two years after the first Mandarin immersion school attempted to open in Germany, difficulty with state regulation forced them to settle for Chinese three times a week, despite immersion schools already existing in French, English, Spanish, Italian, Turkish, and Russian. By contrast, China is learning English at a prodigious rate and hundreds of thousands of Chinese students flock to the U.S., UK, Canada, Australia, and other rich democracies for everything from high school diplomas to doctorates. While the number of U.S. students studying in China rose steeply in the early 2000s, in line with the Obama administration’s goals, the numbers then plateaued and began to decline in the mid 2010s. By 2019, more U.S. students studied in Ireland than in China (Graph 3).

Graph 3: U.S. Students Study Abroad Destinations 1999-2019

Source: Open Doors – Institute of International Education

Across a variety of departments, most universities do not have the expertise and faculty necessary to provide sufficient offerings related to China or Asia more generally. Beyond language, a trend away from area studies exacerbated a lack of expertise in China. One might expect political science, economics, business, history, and other departments to stock up on China experts as they did on Soviet specialists during the Cold War. But most seem satisfied with a single expert on East Asia (many of whom are actually Korea and/or Japan specialists). There appear to be fewer China-focused jobs in U.S. political science departments every year. In 2021, only a handful of U.S.-based China-focused jobs were advertised in political science, and these were primarily focused on security.

What makes this failure to invest in Chinese language education look even worse is the rejection of one of the few low-cost resources for education in Chinese, Confucius Institutes. CIs have been forced out of U.S. universities even though a bipartisan congressional commission determined that there is “no evidence that these [Confucius] institutes are a center for Chinese espionage efforts or any other illegal activity.”¹⁰ China spent more than $158 million on U.S. Confucius Institutes from 2006 to 2019, but after peaking at 103 in 2017, universities began to reject them and by the end of 2021, and only 31 remained. If China was really such a concern that the CIs had to go, then surely the lost investment in language training should be replaced, many times over, by funding from other sources.

Failing to build a robust Asia curriculum is inexcusable, even in tough budgetary times, because developing substantial infrastructure and profound expertise takes decades. From intelligence gathering to business, children well-versed in the languages and cultures of China and its neighbors are the best hope for rich democracies to compete with and relate to a rising China, but these are investments that will take decades to reap rewards. If rich democracies invest heavily in education programs related to Asia starting today, they will begin to see the results in a decade or two.

Yet, unlike the categories considered above, education seems to be an area in which rich democracies are not even slowing the pace at which they are falling behind. In part this is due to increasingly negative attitudes about China. While this may be understandable given increasingly negative rhetoric about China in the media as well as PRC policies such as the repression of Muslims, it seems to be self-defeating. If China is important enough to attract widespread suspicion, then it ought to be worth learning about. Students who hear ominous things about China could choose to study in Taiwan or Singapore or even Korea or Japan.

Conclusion

Considering the three areas – military, economics, and education – the U.S. and its rich democratic allies have largely, though not completely, failed to prepare for a world in which China is a, if not the, superpower. But preparations have been uneven and some of the areas demonstrate more foresight and investment than others. It is difficult to know whether the United States and its allies are prepared to deal with the rise of China militarily, but in line with generally substantial U.S. military spending and investment it seems clear that this is where preparations have been the most thorough, or perhaps the least neglected. Economically, both at home in the form of R&D support and abroad in terms of offering alternatives to China’s investment, there are clear signs of inadequate preparation and a shift in momentum. In the field of education, there are not even signs of concern as rich democracies fall further and further behind. In the next piece I will consider why, despite the relative predictability of China’s rise, rich democracies seem to have been caught so flat-footed.

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A similar episode occurred in China in 2021.  A writer named Li Guangman, formerly editor of a trade publication for an electric power company and columnist for a website that no longer exists, posted a long commentary called “Everyone Can Sense that a Profound Transformation is Underway!” to his WeChat account in late August.  Several media outlets immediately republished his essay, among them People’s Daily and Xinhua — two of the leading central-level news platforms in the country.

The tone and content of Li’s post echoed the militant rhetoric of the Cultural Revolution.  After a lengthy diatribe against a few pop culture celebrities who had been canceled over tax evasion and offenses against traditional cultural values, Li noted other recent regime moves including the suspension of the IPO by Alibaba’s digital finance spin-off Ant Group, the new emphasis on the theme of “common prosperity,” and the grand celebrations of the Party’s centenary.  All these actions, he claimed, signaled the coming of a “profound revolution” that would sweep away “capitalist cliques” and bring the “people” back to the forefront of society.  In dramatic Maoist fashion, he celebrated “the return of red, the return to heroes, the return of blood” (hongse huigui, yingxiong huigui, xiexing huigui).”   Like Mao and the Gang of Four, Li demanded thorough going cultural change. “We need to control all the cultural chaos and build a lively, healthy, masculine, strong, and people-oriented culture” (“women xuyao zhili yiqie wenhua luan xiang, jianshe xian huo, jiankang, yanggang, quianghan, yi renmin wei de wenhua”), Li said.^[3]

Four days later, the editor of the aggressively pro-regime, anti-Western publication, Global Times, Hu Xijin, published a rebuttal of Li’s post.^[4] Calling Li’s article misleading and inaccurate, Hu declared that China’s leaders had been following an orderly course of measures aimed at preserving the “reform and opening up” mixed economy model — which did not at all amount to a revolution.  Hu particularly objected to the rhetorical tone, which he said “would evoke some historic memories and trigger chaos in minds and panic among people.”^[5]  Rather than publishing it in Global Times, however, he posted it to his personal blog.  Then the censors ordered that the post was not to be shared on Weibo or WeChat.  Several hours later, the ban was lifted, and the post could be shared again. Reports from media sources indicate that the regulators issued oral instructions to media editors acknowledging that Li’s post had a wider impact than they had anticipated.  Rather than demanding that they rescind or refute it, however, they asked editors to balance it with less inflammatory content.^[6]  After that, the controversy subsided.  Li Guangman continued to post content, but less heated. The leadership made it clear that they would continue to intensify restrictions against Western influences and press the common prosperity theme, but not shutter all large private businesses or enact draconian redistributive policies.

Like the Nina Andreeva affair, the Li Guangman episode revealed two things about the current state of Chinese policymaking.  Most obvious is the ambiguity in policy about how much the state intends to balance market activity and private capital ownership with state control.  Second, at a deeper level, that ambiguity indicates divergence in the positions of key players in the policymaking process over basic economic policy choices.  There is a basic tension between Xi Jinping’s need for supreme leadership and the fact that the regime rests on a series of tacit understandings among powerful bureaucratic and business interests.  A good indication of this is the incoherence intrinsic to the “common prosperity” slogan.  There is a widespread expert consensus around concern over high inequality and the need to build a middle-class society, one where the middle-income strata are the dominant force in society. One recent commentary notes that China’s society is about 30 percent middle class and argues that China can improve economic and social stability by raising that proportion to two-thirds.^[7]  However, the leadership has consistently avoided acknowledging the extreme concentration of income at the upper end.  Instead, it has consistently asserted the need to raise low-end incomes through measures such as a higher minimum wage and more effective social assistance programs.  Despite the conspicuous assaults on a few visible tycoons and celebrities, even in the most recent phase, the leaders have been cautious about arguing for an effective progressive income tax system, an estate tax, or surtaxes on high incomes.  The regime is moving extremely cautiously in introducing a property tax, for instance, authorizing only small-scale local experiments.

An example of current mainstream thinking on the issue of inequality is an essay co-authored by the prominent economist and expert on inequality, Li Shi, dean of the Institute on Sharing and Development (gong xiang yu fazhan), at Zhejiang University and an associate at the institute, Yang Yixin.^[8]   The essay discusses Zhejiang Province’s pilot program to build “common prosperity.” While using the standard image of an “olive-shaped society” — the model of a social structure that is thickest in the middle and thinner at the two ends — the essay is anything but radical.  It does propose taxes on wealth, such as estates and real estate, but only in the course of time.  The authors do not argue for a progressive income tax.  They call for “high-quality development” that expands incomes in the middle, but their only concrete prescriptions promise more “digitalization” and the “sharing economy.”  They want to build middle class wealth by making sophisticated new financial products more widely available, assuming that more financial sophistication would spur economic growth.  They want to reduce the incomes at the top by encouraging more charitable donations (i.e. “tertiary distribution”) but do not propose using the tax code to create incentives for that purpose.  They call for extending social rights to migrant workers, but only gradually, and without hukoureform.  They call for the use of “collective consultation” (xie shang) rather than collective bargaining between organized labor and employers over wages.^[9]  Most of the calls for improved workers’ wages, in fact, have to do with incentive pay rather than base pay.  Are these as far as the writers can go?  Or are these progressive-minded economists so fearful of the Maoists that they think they must guard against any serious shifts in social or fiscal policy?  Substantively, the essay reveals policy experts’ reluctance to discuss the many forms of rent extraction that a state-dominated, cronyistic economy permits, the ways in which income rents support the Party’s political monopoly, and the forms of privilege that prevent real mobility of capital or labor across sectors and regions.  They bind the regime’s political elites with businesspeople, state and private, who generate the rents the Party uses to maintain its power.  Little wonder that serious reform-minded economists stop well short of analyzing the political economy of the regime.

At present, policymakers are working to deflect the “common prosperity” initiative into politically policy concepts.^[10]  A visible example is the idea of “tertiary distribution.”^[11]  In Chinese parlance, primary distribution is the result of the marketplace, where contributions to production determine the returns to labor and capital.  Secondary distribution occurs through redistributive mechanisms, specifically taxes, social insurance contributions and benefits, and social transfers.  Tertiary distribution — the channel that the current policy emphasizes as the way to achieve “common prosperity” — is voluntary donations of money and time to the nonprofit sector.  Experts are calling for a reform of the tax code to provide material incentives through tax deductions for such contributions.  However, given the current political climate, many wealthy individuals have found it expedient to make sizable and well-publicized donations to worthy causes.  Lacking in the current debate is a reconsideration of more basic economic and political institutions that have fostered cronyistic and corrupt exchanges of benefits between wealthy entrepreneurs and political officials.

Therefore, when we interpret Xi’s gestures against Westernized entertainment industry stars, the private tutoring industry, and —selectively — against big digital platform companies as a broad “crackdown on everything,”^[12] we overlook the fact that this is a highly selective and politically motivated campaign.  Because regionalism, cronyism, and corruption are so deeply interconnected, enabling tycoons to amass wealth and power by cultivating mutually beneficial ties with local officials, it makes political sense for Xi to single out Jack Ma’s Zhijiang-based business empire and the regional officials who were closely tied to him: the campaign strikes at all three problems at the same time.^[13]

The calls for “common prosperity” therefore reveal the limits on policy choices available to Xi.  These are grounded in the multiple compromises his regime must make to retain power, between the monopoly of an ideologically driven communist party and its dependence on an economy dominated by politically favored state and private companies that feed the regime with taxes, kickbacks and privileged ownership shares.  The leaders seek to respond to rising awareness of the extreme economic inequality in the country by taking measures to curb the excesses associated with particular firms and sectors, and by reaffirming Communist values.  At the same time, they dare not move too far toward policies that would seriously harm the interests of the richest strata of entrepreneurs and managers who have locked in their advantageous positions by cultivating the favor of politicians at the local and national levels.  Little wonder that new leftists are seizing on the opportunity to press for a radical turn away from the partial reform economy back toward Maoism, or that establishment party leaders and experts find it necessary to warn against any substantial steps toward a more far-reaching redistribution of wealth.  In a polity where ideology and power are intertwined, the deepening of contradictions between the avowed doctrines of the regime and the actual institutions and practices its power rests on results in a gulf no amount of central control can bridge.

^[1] Nina Andreeva, “Ne mogu postupit’sia princtsipami,” [I cannot violate my principles] [https://diletant.media/articles/34848945/]

^[2] Thomas F. Remington, “A Socialist Pluralism of Opinions: Glasnost and Policy-Making under Gorbachev”, The Russian Review 48: 3 (1989), pp. 271-304.

^[3] [http://www.xinhuanet.com/politics/2021-08/29/c_1127807097.htm]  The reference to masculine cultural imagery alludes to the frequent complaint that the prominence of androgynous styles of self-presentation (sometimes called “sissy-boy” styles [jingzhunan or simply jingnan, ie refined pig boys or refined boys] on the part of some male entertainment industry figures.  This fad became the target of heated cultural criticism in recent years for its violation of traditional gender role stereotypes.  Under the current crackdown, commercial ads and television programs may not use such images.

^[4] https://www.scmp.com/news/china/politics/article/3147548/viral-blogger-hailed-chinas-profound-revolution-state-may; https://www.wsj.com/articles/chinese-essayist-revives-worries-about-a-new-cultural-revolution-11630670154;

^[5] https://www.scmp.com/news/china/politics/article/3147548/viral-blogger-hailed-chinas-profound-revolution-state-may; https://www.wsj.com/articles/chinese-essayist-revives-worries-about-a-new-cultural-revolution-11630670154.

^[6] https://www.scmp.com/news/china/politics/article/3147548/viral-blogger-hailed-chinas-profound-revolution-state-may.

^[7] Zhang Jun, “Gong fu hui xiaochu shouru chabie, dan ke baozhang diceng timian shenghuo,”  [https://fddi.fudan.edu.cn/15/20/c18965a398624/page.htm#:~:text=8%E6%9C%8817%E6%97%A5%E5%8F%AC%E5%BC%80,%E7%9A%84%E6%A9%84%E6%A6%84%E5%9E%8B%E5%88%86%E9%85%8D%E7%BB%93%E6%9E%84%E3%80%82&text=%E5%85%B1%E5%90%8C%E5%AF%8C%E8%A3%95%E6%98%AF%E5%90%A6%E5%B0%B1%E6%98%AF%E6%B6%88%E9%99%A4%E6%94%B6%E5%85%A5%E5%B7%AE%E5%88%AB%EF%BC%9F]

^[8] Li Shi and Yang Yixin, “Jianshe shouru fenpei zhidu gaige shiyan qu zhu tui gongtong fuyu” [“Establish reform of the income distribution system by a pilot zone for common prosperity”][http://www.ce.cn/xwzx/gnsz/gdxw/202108/19/t20210819_36821588.shtml] August 19, 2021

^[9] On this distinction, see Thomas F. Remington and Cui Xiaowen, “The Impact of the 2008 Labor Contract Law on Labor Disputes in China,” Journal of East Asian Studies 15:2 (2015), p. 280.

^[10] For example, see the spate of articles in Caixin Global explaining that “common prosperity” does not mean “robbing the rich to give to the poor” and that it is an encouragement to more “tertiary distribution.”  For example, Cai Xuejiao, “’Robbing the Rich’ Is Not Part of China’s Plan for ‘Common Prosperity,’ Official Says,” Caixin Global, August 26, 2021; Wang Tao, “What Does ‘Common Prosperity’ Mean for China’s Policies and Economy?” Caixin Global, August 27, 2021.

^[11] Eg. Kevin Guo, “CX Daily: What’s Standing in the Way of ‘Common Prosperity’?” Caixin Global, September 10, 2021 [https://www.caixinglobal.com/2021-09-10/cx-daily-whats-standing-in-the-way-of-common-prosperity-101771292.html]; Caixin Global, “Editorial: Releasing the Potential of Tertiary Distribution,” Caixin Global, August 23, 2021 [https://advance-lexis-com.ezp-prod1.hul.harvard.edu/document/?pdmfid=1516831&crid=3b2d80b9-253e-4bf0-a656-90ef416dd531&pddocfullpath=%2Fshared%2Fdocument%2Fnews%2Furn%3AcontentItem%3A63F7-M2R1-DY28-G00P-00000-00&pdcontentcomponentid=468180&pdteaserkey=sr9&pditab=allpods&ecomp=nzvnk&earg=sr9&prid=3c59210a-fdc4-4d3a-95cb-a8fd4011aafc]

^[12] Lily Kuo, “Xi Jinping’s Crackdown on Everything Is Remaking Chinese Society,” Washington Post, September 10, 2021.

^[13] Lizzi C. Lee, “Xi Jinping’s Graft Busters Are Probing Jack Ma’s Home City, and a Rising Star of Xi’s Zhejiang Clan,” SupChina, August 31, 2021 [https://supchina.com/2021/08/31/xi-jinpings-graft-busters-are-probing-jack-mas-home-city-and-a-rising-star-of-xis-zhejiang-clan/]

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Taiwan is on the defensive economically and politically in its effort to maintain security from China despite their robust economic ties. China has been Taiwan’s biggest export market since 2004 and is Taiwan’s largest source of its trade surplus. However, Taiwan has grown politically more distant from the mainland in recent years. Since Taiwan’s democratization in the late 1980s, more and more of its citizens have formed their political identity independent from the historical connection with China. The trend has alarmed China. To prevent the island from drifting away, China has intensified its diplomatic and military pressure on Taiwan.

The cross-Strait dynamic is remarkably similar to the volatile relationship between Russia and Ukraine. In light of the Russian invasion of Ukraine, how far will China go in dealing with Taiwan? To thoroughly understand this issue, a historical review is in order.

Security Challenges

China has launched military operations in the Taiwan Strait on three separate occasions during last 70 years. During the first Taiwan Strait crisis (1954-55), the People’s Liberation Army unleashed heavy artillery attacks on the offshore islands of Jinmen (Kinmen/Quemoy) and Mazu (Matsu) to “liberate” Taiwan. In December 1954, the United States and Taiwan signed the mutual defense treaty, and in January 1955, President Eisenhower signed the Formosa Resolution, a joint measure passed by the U.S. House and Senate granting the president pre-authorization to use armed forces to protect Taiwan. In May 1955, the PLA backed down and the shelling ceased, ending the crisis.

In 1958, China resumed its bombardment of Jinmen and Mazu to block Taiwan from resupplying garrisons on the islands, triggering the second crisis. The United States responded by sending a large naval contingent to the Taiwan Strait. Tensions eased when China suspended its bombing campaign after high-level talks with the U.S. in Warsaw.

In 1995, in protest over the U.S. decision to grant visa for Taiwan president Lee Teng-hui to visit Cornell University (his alma mater in the United States), China deployed some 150,000 troops in areas bordering the Strait. There they conducted three consecutive military exercises, including missile tests, live-fire war games, and air exercises to issue warnings to both Taiwan and the United States. The United States responded with its own show of force by sending two aircraft carrier battle groups to international waters near Taiwan — the biggest display of American military force in Asia since the Vietnam War.

In each of these cases, China demonstrated its intention to use military force to reclaim Taiwan. Despite the role of the United States in defusing these tensions in the past, the Taiwan Strait remains a major source of regional instability.

Recently there has been much attention on Chinese “gray zone” activities in the Taiwan Strait that involve various forms of assertive and coercive actions to achieve strategic goals without provoking war or military conflicts. Besides increasing diplomatic and economic pressure on Taiwan, China has deployed naval forces to conduct “combat drills” off the coast and dispatched aircraft into Taiwan’s air defense identification zone, a marked area in which air traffic controllers request incoming flights to identify themselves. Consequently, the 2021 and 2022 Preventive Priorities Surveys conducted by the Council of Foreign Relations classified the Taiwan Strait as a Tier 1 (High Priority) risk area.

PLA aircraft began to enter Taiwan’s identification zone in June 2020, and operations became more frequent in September 2020. Twice that month, PLA fighters crossed the sensitive median line in the Taiwan Strait. Since then, no major median-line violations have been reported, and most PLA incursions were staged away from Taiwanese territory over the ocean in the southwest corner of Taiwan’s identification zone.

Initially, Taiwan’s air force scrambled to intercept the intruding PLA military aircraft. Chinese air operations began to exact a toll on the island’s military readiness as they intensified and increased in frequency and scale.  The impact on fuel costs, pilot fatigue, and wear and tear on Taiwanese aircraft had to be considered. In March 2021, Taiwan’s defense authority decided to stop intercepting every Chinese aircraft but continue to monitor and gather intelligence on PRC air activities. The recording and publishing of detailed tracking data of PLA operations by the Taiwan military indicates their technical ability to identify aircraft type using long-range electronic sensors.

According to data released by Taiwan’s Defense, 958 PLA aircraft entered Taiwan’s identification zone on 238 days in 2021. The largest single-day record — 56 incursions — happened on October 4, which included 40 fighters, 12 bombers, and four supporting aircraft. Two days previously, on October 2, China launched 39 sorties, with 36 fighters and three supporting planes.

In the beginning, operations happened during the day, particularly in early mornings. Later, they expanded to include nighttime incursions, suggesting an expansion in the effort. Formations also evolved.  Initially, Y-8 ASW (anti-submarine warfare) aircraft were dispatched with occasional fighter jets such as J-16s and J-10s and bombers such as H-6 and JH-7 series. More recently J-16s were most prominent, with Y-8 ASWs ranked second, followed by J-10s.  Other types of planes involved in the operations include Y-8 EW (electronic warfare), Y-8 reconnaissance, and KJ-500 airborne early warning and control aircraft.

Why has China been conducting these operations?  Some analysts suggest that spikes in PLA incursions are reflections of Beijing’s reactions to specific events or actions, such as a comment made by U.S. Secretary of State Antony Blinken to support Taiwan in the face of Chinese aggression in April 2021, and Taiwan’s application to join the TPP in September 2021.  Others (Layton 2021), however, point out that formations combining fighters, bombers, support aircraft, and electronic warfare aircraft require up to six months of extensive planning and training. It is plausible that some of these exercises were pre-planned but held until the right moment for signaling purposes.

It is reasonable to assume that the PLA has been carrying out these operations for multiple reasons (Ang U-Jin & Suorsa, October 2021).  First, as mentioned earlier, these operations intend to show Beijing’s displeasure at Washington’s diplomatic engagement with Taipei, and demonstrate to internal and external audiences the PLA’s resolve to protect Chinese security and sovereignty.  In responding to the U.S. statement urging China to stop its provocative military activities near Taiwan in early October 2021, China’s Foreign Ministry put the blame on the United States for undermining regional peace and stability by supporting Taiwan’s separatist forces with arms sales to Taiwan and warships regularly sailing through the Taiwan Strait. Thus, these aerial operations are indeed designed to respond to the alleged “Western provocations” or “Taiwanese independence” forces.

Second, China’s air operations may be designed to monitor sea and air traffic in the strategically important Bashi channel, to track foreign submarines, and to monitor foreign warship movements in and out of the South China Sea. The presence of maritime patrol aircraft, airborne early-warning and control aircraft, and intelligence-gathering and electronic warfare platforms in the formations reveal the complexity of the operations. The surveillance function becomes especially relevant because the United States and its allies have conducted large-scale naval exercises in the surrounding areas. In those situations, the operations are less about Taiwan and more about monitoring and challenging the U.S. military presence.

Finally, these operations represent a PLA effort to expand training and exercises farther from China’s coast and into the open sea. These flights could serve the purpose of long-range training and provide PLA pilots an opportunity to interact with foreign air forces. The paths of some sorties and the integration of diverse aircraft types into a single unit with strike capabilities demonstrate sophistication in coordination.

One may argue that these operations are multipurpose and may not be an imminent threat to Taiwan’s national security yet. But these near-daily air incursions surely are having their effects. There is no doubt that training and monitoring exercises are helping the PLA to become more capable and confident in maintaining patrol sorties near critical choke points. For Taiwan, however, there is a serious concern that routine incursions could shape the public perception of a “new normal” and affect the island’s overall vigilance.

Economic Challenges

Ironically, escalating cross-Strait tensions have done little to discourage the economic interactions between China and Taiwan. In 2021, the total volume of cross-Strait trade set a record, growing to $328 billion, double the amount in 2011, according to Chinese trade statistics.

Since the 1990s, Taiwan has attempted to minimize its economic dependence on China. President Lee Teng-hui’s Southbound Policy was aimed at expanding economic exchanges with countries “south” of Taiwan.  Some factories were relocated to Southeast Asia to expand economic ties with the region. President Chen Shui-bian, Lee’s successor, sought to negotiate bilateral free trade agreements with some of the countries in the Association of the Southeast Asian Nations.  Under President Ma Ying-jeou, Taiwan achieved some breakthroughs by successfully negotiating economic partnerships with New Zealand and Singapore.

In 2016, President Tsai Ing-wen proposed a “New Southbound Policy” to expand the diversification to South Asia, particularly to India. The goal was to form a “common consciousness of economic community” through cooperation in functional areas of Taiwan’s soft power, such as public health, education, science, and agriculture.

With these efforts, ASEAN states together have taken a bigger share in Taiwan’s imports and exports and Taiwan’s economic importance in ASEAN appears to have slightly increased. Nevertheless, Taiwan’s economy remains heavily dependent on China’s market.

Taiwan has attempted to expand its economic connections with others in the region through the mega-agreements such as the TPP and the Regional Comprehensive Economic Partnership.  The opportunity in the latter was limited because of China’s dominant role in the negotiations. Nevertheless, the TPP initially looked promising, partly because of the pivotal role of the United States in the negotiations, and partly because of its connection to the Asia Pacific Economic Cooperation forum, or APEC, of which Taiwan was already a member.

In 2016, Taiwan began preparing for the TPP accession process, examining and reviewing laws and regulations to identify potential gaps and discrepancies based on the proposed TPP standards. After the United States withdrew from the TPP in 2017, the remaining 11 countries decided to move forward with the creation of the CPTPP in 2018.  In February 2021, the United Kingdom formally applied to join the CPTPP, and Taiwan applied to join as a “Separate Customs Territory,” after China did in September 2021.

For the past several years, Taiwan has revised regulations in key areas such as environment, intellectual property, administrative transparency, service trade, and movement of professionals to comply with CPTPP regulations. Eight of 12 laws identified for revision have been modified and the remaining four are going through the amendment process.

Taiwan’s application, however, faces decisive opposition from China. After Taiwan announced its membership bid, Beijing was quick to strongly urge other CPTPP members to reject the island’s application. China’s economic influence will undoubtedly affect some members’ decision-making. The fact that final decision requires consensus by the CPTPP members further complicates the situation for Taiwan, as any member could exercise a veto.

While these challenges are unique to Taiwan, the complexity of cross-Strait relations is, in fact, a microcosm of the Indo-Pacific, where political leaders must constantly evaluate and balance the cross currents of competition and cooperation.  Stakes are high, and solutions are elusive.  One thing is clear though: any miscalculation in decisions could have significant implications for stability and prosperity in the region and the rest of the world.

References:

Ang U-Jin, A., & Suorsa, O. P. (2021, October 14). “Explaining the PLA’s Record-Setting Air Incursions Into Taiwan’s ADIZ: Multiple Reasons Likely Contributed to the Spike Inincursions and Sorties in Early October,” The Diplomat. https://thediplomat.com/2021/10/explaining-the-plas-record-setting-air-incursions-into-taiwans-adiz/

Layton, P. (2021, October 6). “Chinese Warplanes Overhead Taiwan (Or Maybe Not),” The Interpreter.
https://www.lowyinstitute.org/the-interpreter/chinese-warplanes-overhead-taiwan-or-maybe-not

Ministry of Foreign Affairs of the People’s Republic of China. (2021, October 4). Foreign “Ministry Spokesperson Hua Chunying’s Remarks on Taiwan-related Statement Issued by US State Department Spokesperson,” Spokesperson’s Remarkshttps://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2535_665405/202110/t20211004_9580325.html

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I recently returned to the United States after spending 2019-2021 in Taipei, where I earned my MBA as a part of the Fulbright program. I picked a strange time to be abroad. While the United States (as well as most places in the world) went through a shared pandemic experience, I can’t relate because of Taiwan’s successes keeping the island COVID-19 free until May of 2021 when I returned home. As peers regale tales of working from home, baking sourdough bread, childcare difficulties, adopting dogs, struggling through job changes or furloughs, begrudgingly moving back in with parents, and protesting, I sat unmasked in noodle shops, went to bars, coughed without hesitation, and had in-person meetings with my professors. When I tell people I didn’t have a pandemic experience because I was in Taipei, they shake their heads and ask what it was like. My short answer is that it was like being trapped on a perfect island, and that above all I was grateful (and felt slightly guilty) to be where I was, but also longed to support my American community. Of course, it wasn’t all sunshine and rainbows (Taipei is famous for torrential downpours). But, I was grateful for my unusual experiences for what they taught me about the world, and myself.

Taiwan’s successful handling of the pandemic became a worldwide news story, catapulting the small island and all its political troubles, particularly with the WHO, in front of millions. In 2002, SARS hit Taiwan ruthlessly. When first reports of COVID appeared, it was determined to prove that it had learned from its mistakes. Taiwan news never paints China in a positive light, so, as soon as reports of diseases were circulating from China, the Taiwan government needed no further excuse to immediately shut down all travel to or from China for legal residents of Taiwan, with no exceptions. One of my good friends from China had made the last-minute decision to stay at his family’s house a little longer after the Chinese New Year to celebrate his mother’s birthday. He paid dearly as he was unable to return to Taiwan for eight months despite his valid residence permit. I breathed a sigh of relief as I had hoped to go to China during the New Year of 2020, but then thought my procrastination to apply for a Chinese visa was good luck.

Starting in March 2020, Taiwan locked the borders to anyone without a valid residence permit and required everyone entering the country to complete a two-week quarantine. Cases rose slowly in Taiwan as the world began to shut down and citizens returned from overseas, but these cases never spread because of the strict quarantine. I anxiously watched COVID cases climb in the U.S. from the island, concerned for my family and friends back home. I felt guilty as I watched graduations being canceled and friends being fired. The Taiwan government began to require masks in specific locations but did not shut down since there was no local transmission of cases.

Against advice from the Fulbright Program, I decided to travel back to the United States in the summer of 2020 to support my family while my dad lay in the hospital on a ventilator. My brief stint in the United States was more of a culture shock than anything in Taipei. I was amazed how little people seemed to care about COVID.

Since I needed to return to school after being with my family, I experienced the Taiwan quarantine system firsthand. Upon my return, I was shuffled into various lines at the airport where I had my temperature checked. I added the government COVID center as a contact in my phone and proved to the authorities that they could reach me. Then I was thoroughly sprayed with disinfectant before taking a taxi lined in plastic back to my apartment for a two-week stint in my room.

During quarantine, the Taiwan government openly tracked my location with a special SIM card in my phone to ensure that I did not leave the GPS perimeter of my quarantine location. If you did, they called the police. They additionally called and texted you to check in. If you didn’t respond to a call or text in 15 minutes, or your phone shut off, the police came banging on your door within 30 minutes. I learned this the hard way after my phone charger broke in my wall one night. My phone died, and the police knocked on my door at 6am on a Sunday asking where I was and why my phone had stopped transmitting my location. On the verge of tears, I grabbed my broken charger and did my best to mime and describe my problem while promising that it wouldn’t happen again. They took my picture, confiscated my passport, and told me that if it happened again, I would be in big trouble.

Life in my 180-square-foot bedroom for two weeks broke me down mentally and gave me much sympathy for prison reform movements. I had grandiose plans of practicing vocabulary, looking for a job, and writing my thesis. Instead, I played video games, watched TikTok, and jumped rope at a rate that made my downstairs neighbors hate me. It was rough, but I was grateful that all I had to do was pay this small price for another year of freedom from the pandemic. The Taiwan system was rigid, foolproof, and intense. Put simply, we paid up front but then were free to live life normally.

People sometimes ask me if being a white person in Asia was like being an Asian person in the U.S. during COVID. The answer is an absolute no. In general, whiteness in Asia results in the red carpet being rolled out, resulting in good customer service, apologies for broken English, compliments, and Facebook friend requests. COVID shifted this dynamic as more strangers said rude things, but I’d be remiss to talk about negatives of my experience without acknowledging that the position of whiteness in Asia is fundamentally one of privilege, which is not true for Asians in the U.S. While I did get negative comments and got smacked once, my experiences were nothing compared to the experiences of people of color in the U.S., particularly Asians, or the experiences of southeast Asians in Taiwan.

I commonly got stares and listened to people talk about me because they thought that I didn’t understand them. Mostly these comments were innocent, such as kids speculating about my nationality or noting how strange my curly hair looked. During COVID I listened to speculation about whether I was one of the Americans who was infected. I got in the habit of wearing my mask even when it was not required to be culturally sensitive, and because I didn’t want to be “that” American who refused to wear a mask. “AmeriKarens” made just as many headlines internationally as they did in the U.S.

Once, a young boy (unmasked) stood behind me (masked) and asked his grandma (unmasked) where she thought I was from. She immediately told him to back away because I looked like a dirty sick foreigner, and I would give him a disease. I politely turned to her and explained that I was wearing the mask to be polite but wasn’t sick, could speak Chinese, had already been living in Taiwan for a long time, and was just as likely to have COVID as she was. She turned bright red and didn’t respond. Another older lady on the subway once started beating me with her umbrella, similarly citing dirty foreigners, but old women don’t hit that hard, so I simply grabbed the umbrella and told her that if she hit me again, I’d call the police. That got her attention and she scowled as she disappeared into another car. In restaurants, you often bump elbows as you share tables with strangers, but when hosts placed a Taiwanese group at my table, they would often point, stare, and ask to be placed elsewhere. I usually would smile and say “no problem,” as I didn’t want to make a scene. I thought about Asians worldwide who had similar experiences. Taxi drivers wouldn’t stop for me, and people gave me plenty of space while I waited in any line.

Despite the ignorant comments, plenty of Taiwanese people were enormously understanding and went out of their way to help me make the island feel like home. In Taiwan, trash, recycling, and compost trucks drive by your neighborhood playing pixelated classical music (think about being on hold with Comcast) at regular times for you to throw away your waste into the back of the moving truck, but the trucks are almost always late, so waiting with your neighbors is often the bedrock of your community’s networking. I attracted a lot of attention while I waited for the trucks, and once my neighbors realized that I could speak Mandarin, they often asked questions about life in the U.S. Some of these questions were deep, such as,“Do Americans really not want to wear masks?” or, “Is it true that you can get a vaccine almost everywhere in America right now, for free, and people aren’t doing it?” Most showed genuine concern by asking about my family. They asked about the health care system, why the government had never enforced masks, and about why some states had it figured out and some didn’t.

Around the Chinese New Year of 2021, my next-door neighbor realized I wasn’t going to be able to go home for the holidays and started offering me her dinner leftovers every night, along with an explanation of what everything was and how to make it. One night, I politely declined a meat dish because I’m vegan, and my neighbor politely understood and fed scraps to her corgi. She brought me decorations for my door to help me usher in good luck for the new year. The next week, she dropped off homemade vegan 粽子 (zong zi, steamed rice with fillings wrapped in bamboo leaves) and 湯圓 (tang yuan, mochi filled with sesame seed paste that goes in dessert soup), and then consistently made me plates of cut fruit, promising me that it was nothing and that she had bought too much fruit at the market anyway. At one point, I heard her daughter ask her in front of me to stop visiting the foreigners because we had diseases. I told her daughter in Chinese that I had already been here for a long time and wasn’t likely to have COVID, so her daughter immediately switched to speaking in Taiyu (the Taiwanese dialect) to drive her point home. My neighbor said nothing of the incident but continued her visits.

COVID forced me to lay down deeper roots in Taiwan than I otherwise would have. In the absence of seeing my family for holidays, I intentionally cultivated a community. It took hard nights, tears, grief, and guilt for the life I was living to lay the foundation for a deeper cultural experience. I’m indebted to my Taiwanese and international friends who noticed how hard things were and helped me form relationships and build a community. My thesis advisor, whom I consider more like my Taiwanese mom, invited me out with her family for a nice meal to exchange red envelopes for the holidays. She explained traditions such as leaving fish on the table for a wealthy year and rubbing shoulders with lots of other people for good luck, which is something that not many people wanted to do in January of 2021. She let me, a few other students and her sons choose from red envelopes of different values and explained that life isn’t fair. She laughed as I drew the envelope with one new Taiwan dollar, which is worth about three cents. She forced me to eat more food, saying that I was too skinny. She told me to work harder on my thesis, and when I was stressed, she promised that I would do well upon returning to America, whenever that was.

I additionally put down much deeper roots with the Taiwan immigrant community because of COVID. My best foreigner friends were from Canada, Honduras, Turkey, Belize, and Indonesia. Even though our countries had different problems and responses, we had a lot in common. We lived in the paradox of being grateful and feeling almost guilty for being some place so safe, but also dearly missing our loved ones. We would cry in the morning over family members and friends getting COVID and put on our shared mask of being a normal student in school. I’ll never forget one of my more passive, soft-spoken, mature international classmates standing up for me as a Taiwanese student told me to get over this whole COVID thing. After class, as foreigners, we commiserated about our frustrations as some family members denied the existence of COVID and how some family members contracted COVID from those who didn’t believe and would end up dying. We combatted each other’s homesickness by committing to a passionate effort to help each other celebrate cultural holidays, which amounted to a lesson in empathy, as well as international cultures. We all needed family, compassion, and, most importantly, a way to celebrate genuinely within our own cultural norms. I’ll never forget fasting on Ramadan and breaking the fast at hot pot, attempting to make latkes on my gas stove, or learning how to cook empanadas.

Toward the end of my time in Taiwan, American pilots (who were subject to a different quarantine system) finally carried COVID over and the country went into a lockdown. I was devastated for the Taiwanese community, selfishly upset about the isolation, but began to feel excited about returning home. I ended up having a virtual graduation ceremony, but lockdown in Taiwan was short and sweet, and cases eventually dropped to a manageable level. When it was my time to go, I sat at a 7-Eleven waiting for my Uber to the airport with my tears blotting the nose of my mask. I was beyond grateful that I called Taiwan home for the two years of COVID, and that the experience had caused me to grow in such an unforeseen way.

One of the last units we did in my Chinese class was on feng shui. I’ll never forget hearing the idiom命二運三風水 , which translates to “first, fate; second, luck; third, feng shui.” My Chinese teacher had the habit of throwing 20 new words and phrases at us between the time the bell rang and when we left the classroom. I forgot most of them, but it struck me just how lucky I was to have been in Taiwan from 2019 to 2021. It was surely fate that I didn’t get into any of the China fellowships I had been hoping for as an undergraduate senior in 2018, all of which would have been canceled, or that I decided against working at the job I had lined up that laid off all the new people when the pandemic hit. I consider myself lucky that I got to have such a strange COVID experience that forced me to be resilient and taught me so much about the world. Of course, I wish COVID had never happened, but I’m grateful that I was able to have such an unusual and poignant time away from the United States. I really did pick a strange time to go abroad.

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Putting aside the political noise (as much as possible), both China and the U.S. face similar threats and share similar needs for innovation.   Neither is seriously threatened from outside their borders.  The serious threats are found within each country, although aggravated by external forces.  In my view, the most serious threat to both is the failure to share equitably — each country — the very visible prosperity they now enjoy and their failure to create equitable opportunities for those left behind to improve.

While I believe the “war” analogy is not entirely accurate, I will use it to frame my observations on the various “fronts” on which this “war” is being fought and where battle is currently joined.  These fronts are talent, capital, government industrial policy, and intellectual property.

What started this “war?”  China and the United States got to where they are today largely by energizing their economies and organizing their workforces around manufacturing.  America got a head start in the Industrial Revolution when China remained closed.  When China opened under Deng Xiaoping, it became the largest market on the planet.  It has grown three times the rate of the U.S., doubling every seven years.  China has become key to the world’s supply chain and the source of most everything, as well as the world’s largest global trader.  China is now the largest trading partner for more than twice the number of countries than the United States.

In today’s world, however, neither China nor the U.S. can continue to depend on manufacturing as the engine for economic growth.  They must both rely on the growth of innovation-driven economies.   What is central now to economic growth and quality of life in both places is discovering new ways to create value in what we make, how we make it, what we can do with it, and how we consume or use it.  This “Creation of New Value” is my working definition of what innovation is.  It also is not limited to creating new things.  Old things and existing processes used in new ways or to provide new services can also be innovative.

THE CHALLENGE TODAY

Today both China and America are challenged to grow their innovation economies in ways that more broadly share the benefits to assure continued economic advancement, national security, global influence, and domestic political stability.

Both China and America enjoy on average a high quality of life. America still has the larger economy measured by GDP, but in 2014 China surpassed America when measured in Purchasing Power Parity (PPP).  This is a rough comparison of the “felt” prosperity or standard of living.  This is hardly surprising because in the past 35 years the Communist Party in China has raised 500 million people out of abject poverty. Today more than 300 million Chinese enjoy a real middle-class life.  That, however, leaves an economic gap for 900 million Chinese.

Today, in both America and China, the current divisions between the “haves” and the “have nots,” between the economic elites and the “left behinds” or “left outs” or those who “never had a chance,” threaten more than just national economic growth.  These increasing divisions create a loss of confidence in the existing political order and institutions for those who feel ignored.

It is this imperative for continued economic growth sparked by innovation that has led to a global competition for talent, ideas, resources, and rules of the marketplace. This competition has been amplified to “war status” by rising nationalism fed by both the American and Chinese governments.

TALENT

There is no innovation without innovators.

Measuring human capital just in numbers gives China the edge with a population of 1.4 billion. If you are super talented in China (one in a million) there are 1,400 others just like you.  China also has a rigorous, if very regimented, system of education.  The focus through high school is preparing for the gaokao, the national college entrance exam, the lone criterion for admission to Chinese universities.

Education in China is largely based on memorization and hard work with not much critical thinking or problem analysis. The Chinese system, however, produces some people with remarkable talents, commitment to hard work, and self-discipline.  Young Chinese with the talent (and middle-class resources) can also study abroad.  More than 700,000 Chinese are studying outside of China. Roughly half are studying in American universities and high schools under various exchange programs.

America’s advantage has been its appeal to moveable talent across the globe.  America has made up for its sheer lack of numbers by welcoming those seeking refuge and opportunity.  Risk-taking immigrants and those people seeking education in American universities have formed a base of talent and energy that has propelled American innovation for more than a century.  Foreign-born talent that came to America — and their children — have helped create many innovative products and services, and create and lead many innovation-based companies.

America’s great advantage in innovation is this diversity of talent from across the globe.  Where you have different cultures working on the same problem, there is an openness to look for and apply different solutions. This is not easily found in a homogenous population with the same education, perspectives, and culture.  This American innovation advantage from diversity requires cultivation and continued support of diversity of both students and faculty in American universities.

About one-third of all current graduate students at Georgia Tech are foreign born.  Chinese students represent one-third of that number. They are not displacing American-born students who might otherwise be here.  The fact is we don’t have enough American-born students capable of participating in the level of research we conduct at Georgia Tech.  Foreign-born faculty are also an important part of the innovation talent pool.  Maintaining this global talent pool and the exchange of published research is not only critical for the academic tradition and process, but it also feeds innovation.

There are also important cultural barriers to innovation in both countries.  In China, status counts for a lot of behaviors.  Obtaining and preserving status is important to the individual and to their family. This tends to make the Chinese culture generationally more risk-averse.  Since starting a new enterprise or project carries some risk of failure, there is often a fear that failure of a new project might also stain the person as a failure.  In contrast, in Silicon Valley if you haven’t failed a couple of times, you are probably not trying hard enough.  Therefore, the entrepreneurial bug is harder to cultivate in China, but they are working on it.

The American cultural barrier to innovation is the increasing populist hostility to immigration that threatens the diverse pool of talent needed for innovation.   America’s ability to compete successfully for global talent has always depended on America’s promise of both safety and opportunity.  The U.S. government’s current paralysis to address immigration reforms and its suspicion of foreign-born talent working in fields of technical innovation threaten the high-level basic research that is essential for American innovation.  It is from this high-level basic research that a broad variety of applied innovations in products and services are derived.

America used to have a lock on foreign talent trained here who would wish to stay here.  But we are losing some of our best. The U.S. has erred in failing to staple a green card to every Ph.D. we graduate.  Those who graduate now can often find opportunities in their home countries with lower costs of living, less hostility to the way they look, and increasing support for their research.

China is funding and creating, with financial and regulatory support, special urban innovation districts that focus on areas for innovation emphasized by the Chinese government.  These places look a lot like the American garage culture, staged startup growth spaces and featuring the essential start-up coffee or tea shop.

China is also seeking to repatriate talent it lost to America by offering both financial support and research facilities.  This program is neither surprising nor a crime.  Faculty, however, failing to be truthful in their disclosures of foreign support or in discussions with the FBI can be criminal.  There have been several highly publicized arrests of distinguished Chinese academic scholars.  Most have failed to result in convictions or even prosecution.  But the overall anti-Chinese publicity is having a chilling effect in important areas of innovation and impacts the needed pool of talent.

This is particularly a problem for public universities that are more susceptible to the political winds.  American research universities have for many years provided the required export controls and protections for restricted or classified research.  But the rise of American hostility to immigration is eroding America’s innovation advantage by ignoring that our diversity is our strength — not a weakness or a threat.

America’s other cultural barrier to innovation is the historical discrimination that wastes half our domestic potential by underfunding education, employment training, access to technology, and opportunities in general for children of color and children of all colors in distressed communities.  Both countries also suffer from gender discrimination that fails to provide women the full range of opportunities and support needed for success in technology.  With a population that is less than 25 percent of China’s, America should avoid wasting any potential pool of talent.

Another key issue in both countries is developing an innovation workforce. Both countries confront new generations of young talent that favor a better “work-life balance.”  There is dissatisfaction in China with the current “996” work philosophy (9 a.m. to 9 p.m. six days a week).  China social media has seen a new “lying flat” (tang ping) movement (that advocates lying down instead of working hard). This was quickly taken down by the Chinese government, but not before being joined by millions of young Chinese who share that view.

In both countries, those born since 1980 do not believe that hard work is its own reward.  While they are capable, motivated to succeed, and are fine with less space, money, and status, they do seek more “self-time,” ”life balance,” and mobility.  They can get good jobs, but most do not expect to live better than their parents.  In both countries, many of these talented and educated young people cannot afford to buy a condo/home and thus will become a generation of “renters without roots,” free to pursue their next opportunity, wherever it may be.

Mobility is a big deal.  Those with the skills needed for innovation will be able to move freely and globally from job to job and place to place.  The pandemic has accelerated fundamental changes in how (and where) business operates.  An MBA or a graduate degree in computer science or any advanced technology has become a “global passport.”  Those with these skills can move to work anywhere, for anyone, and from anywhere.  They can and will move from job to job — or the jobs may come to them wherever they are.  Their longer productive years will also involve several different and changing jobs as technologies evolve.  Thus, the young in both countries need to develop the skills to be adaptive, lifelong learners in a changing global society or risk becoming obsolete.

CAPITAL

For 20 years China has invested heavily in both the hard and soft infrastructure needed for innovation education and research.  During this same time, the United States has been losing ground in global Gross Domestic Expenditure on Research & Development (GERD) for Innovation.  In the 20 years from 1999 to 2019, the U.S. share of the global R&D investments dropped from 40 percent to 30 percent.  In contrast, China’s global share has grown from 15 percent to over 24 percent in just the last 10 years.

In 2014, I was invited to speak on the future of Innovation at the Chinese Economic Conference in Shenzhen, China.  This was the part of China first to “open up” under Deng Xiaoping’s initiative.  In 2000 Shenzhen was a fishing village across from Hong Kong.  By 2014, Shenzhen had grown to become a thriving metropolis of 15 million people and the biggest hub of innovation in China.

Shenzhen lacked a major Level 1 research university to spawn ideas, talent, and companies.  To meet this need they began to build campus “outposts” for other major research universities in China and globally.  Some American universities had operated a campus in China for years, mostly in Shanghai or Beijing.  NYU, Duke, Michigan, Berkeley, and Georgia Tech were among them.

Georgia Tech was the first American university to create a joint venture in China (China Tech) after Deng Xiaoping’s Atlanta visit in 1979.  Georgia Tech began in Shanghai and decided to move to Shenzhen in 2010 after the provincial government agreed to build Georgia Tech a new campus in Shenzhen in a joint venture with Tianjin University.¹

While China’s R&D is supported by large state investments, most R&D in the United States comes through private investment seeking a profit. According to the National Center for Science and Engineering Statistics:²

• In 2019, the United States is estimated to have spent over half-a-trillion dollars ($656 billion) on R&D. The majority of those investments — $486 billion (74 percent) — came from the private sector.
• Manufacturers account for roughly two-thirds of private-sector R&D spending in 2018. More than 20 percent of private R&D investments come from IT companies.³
• About 15 percent was done by small businesses (fewer than 500 employees).

The American government tends to make major industrial investments only when it feels a threat to the nation.  In the 20^th century, the Depression sparked the New Deal (CCC, TVA) and World War II, aviation, atomic energy, radar, and the GI Bill.  The Cold War and Sputnik led to major investments in technology universities, moonshot, and interstate highways.

The American government does fund high level basic research.  America, however, relies on private enterprise and entrepreneurship to create innovations and advances in applied technology and lets the market determine the winners and losers.  Thus, the search for innovation in America is driven as much (or more) for profit as for advancement of technology.

GOVERNMENT INDUSTRIAL POLICIES

China has a national innovation policy that spends serious money to quickly build labs and provide funding in exchange for them creating new patent applications.  As a result, the annual number of Chinese filed patent applications is now greater than all the rest of the world combined.  These are just applications — and many are just design patents — but it reflects the high level of Chinese activity and support.  Significantly, in 2019 China for the first time filed more international patent applications than the U.S. under the Patent Cooperation Treaty (PCT) that reserves the option to file for patents in other member countries.

The American quest to preserve profits has also led to disruptive innovation.  Kodak and Polaroid invented digital photography but did not want to give up profits from films.  Xerox’s Palo Alto Research Center invented the mouse and graphic user interface, but the company decided to stay with copying.  IBM thought it was selling computer hardware not programmable functionality.  Other innovative firms emerged to take advantage of these gaps to create important innovations, notably Microsoft, Apple, and Google.

China’s strength and its biggest problem is the government’s ownership of the major industries.  Because state-owned industries have easy access to government funding they have expanded to unprecedented scale.  They employ millions (as part of the migration from rural to urban).  They have also exported their capacity to build industrial plants and infrastructure across the globe. The problem is they tend to stifle growth of private and start-up firms which are often sources of disruptive innovation.

On the other hand, when China decides to build something, they can do so promptly and very efficiently.  Their expansion of expressways, high-speed rail, housing, and other infrastructure in 2011-2013 resulted in China pouring more concrete in those three years than the U.S. did in the entire 20^th century.

There are other similarities.  Both governments have discovered because of the global marketplace they must rely on foreign sources for critical parts of their supply chain for essentials such as energy, food, rare earths, and computer chips.  Both are now trying to create domestic sources of supply.  Both China and America are busy blaming the other for domestic political reasons.  The result is rising public antipathy on both sides that is pointless since neither China nor America are going away. But it is useful for domestic political purposes.

INTELLECTUAL PROPERTY

The different focus in America and China on profits and national priorities impacts governmental policies regarding intellectual property. The U.S. Constitution authorizes Congress to grant “exclusive licenses to authors and inventors, for limited periods of time, to promote the progress of science and the useful arts.”  It says nothing about profits or preserving competitive advantage, but that is how our system has evolved.

The American entertainment and pharma industries have been aggressive in seeking to protect their profits globally based on American intellectual property rights.   As a result of the combined economic muscle of the Western economies, a special set of rules (TRIPS) was adopted by the World Trade Organization to set minimum standards for the protection and enforcement of intellectual property rights, according to western views.  These minimum IP standards are enforced by threats to impose trade sanctions.  This was essentially the West using its market muscle to protect Western IP rights.

With all its new patents, China has created new Intellectual Property Courts to enforce rights.  Yet it continues to insist foreign joint ventures share any imported technologies with the Chinese partner having control.  Thus, China is using its market power to enforce its rules for those wishing to take advantage of its enormous market.  Example:  Alibaba Group Holding Ltd.’s Singles’ Day shopping festival in 2021 posted one-day record sales of 540.3 billion yuan ($84.5 billion), compared to U.S. single-day sales in 2021 of $10.7 billion for Cyber Monday and $8.9 billion on Black Friday.  Thus, we have a global competition for the real governance of innovation, with many American companies voluntarily choosing to accept the risks and rules in China in exchange for access to the vast Chinese market.

Most important to China is the protection of the Communist Party from any potential threat to its power to govern.  This includes limiting access to or any use of innovative technologies that might undermine the Party’s ability to control flows of information to and/or about its population.  Dramatic improvements in China’s infrastructure have been made in parallel with advances in its surveillance technologies.  The Chinese government has a zero-tolerance policy toward COVID-19.  Automated monitoring of all innovations in social media, banking, and travel are set to promptly remove or prevent any perceived threat. China is also moving to invest in and effectively control Chinese joint ventures and startups, and to rein in the digital tycoons.

THE FUTURE OF INNOVATION

I see the future of innovation in America and China as a mix of competition and collaboration.  There are problems now and in the future that will unavoidably be shared and working together will be essential.  There will remain distinct cultures but shared appetites for styles, services, and status shown by the consumption of goods and services created in both places.  China faces challenges in making the transition from low-cost manufacturing to an innovation and service economy while maintaining control.  America faces challenges in restoring trust in its government to function and creating new employment opportunities to sustain both continued growth and a shared belief in the future.

Both China and America will be dramatically impacted by the forces of future change and their global impacts.  Key among these: urbanization, changes in technology, global economics, demographics, rising populism, and importantly, climate. These will all impact the need for clean air, fresh water, new temperate zones in which to live and grow food, and the likely global migration of large populations from endangered zones.

Another shared challenge will be the needs of aging populations with longer lifespans.  This will be particularly acute in China where the “one-child” policy has created a smaller workforce to replace pairs of working parents.  It also creates the “1-2-4 problem” (one child to care for two aging parents and four grandparents).  Both China and America are below replacement of their native population.  So, both will require (and welcome) significant immigrant support workers. Both will also need to properly educate and “future-proof” their children to be able to thrive in a rapidly changing global environment.

There will be continued competition between America and China for global influence based on the strength and attractiveness of their domestic economies and how well they share the opportunities and benefits.  In this regard, “soft power” will have as much influence and importance globally as “hard power” from a strong military and economic sanctions, but both are essential.

The real competition between China and America will have less to do with their capacity to innovate and more to do with their capacity to govern ourselves.  Herein lies a key difference between China and America. China defines itself by its dominant Han ethnic culture.   China views those of Chinese descent as citizens of China wherever they are.  America is such a mix of cultures that no single ethnic group is a majority.  America’s current extreme political polarization, however, has created gridlock and a struggle to find a coherent national identity.

Autocracies and emperors have existed for thousands of years, and they exist in many places today.  Autocracies have the benefit of clear rule, and they work until they don’t.  America’s most important innovation is its popular democracy.  America’s real competition is within its borders.  The challenge is whether America can continue to seek “a more perfect union” that can more equitably share the promised opportunities for “life, liberty and the pursuit of happiness.”

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Book Review: Desmond Shum, Red Roulette (Scribner, 2021); 310 pp. hardback

Billed as a “tell-all” about the scandals of the Chinese Communist Party as it led China’s re-entry into the global system, this tale is a page-turner of policy shifts and intrigue, including the mysterious disappearance of the author’s wife.  Shum’s main takeaway is that the CCP only cares about its power and protecting the top cadres’ children, who will carry on and protect the current leaders in their retirement.  At the core of what Shum calls the “red aristocracy” are the original cadres who fought along with Mao Zedong, and the “princelings,” their offspring. China’s economic success, Shum argues, was achieved by connecting entrepreneurs to these political elites, an arrangement that served the interests of both.  In Shum’s view, that arrangement has run its course, as President Xi, one of the princelings, pushes Chinese socialist values while condemning western ones.

Shum was born in Shanghai in 1968 but moved with his family to Hong Kong, which was not easy to arrange, especially because Shum’s father did not come from a “good” background — people who supported the CCP once they won the civil war in 1949.  Shum’s grandfather had been a lawyer in Shanghai, which made him a capitalist and therefore a bad element.  His father ended up in a low position teaching Chinese at a Shanghai teachers’ training school and met his mother there.  But his mother had relatives in Hong Kong who helped her get to the British colony. But it took years of cajoling authorities to let his father join her in Hong Kong. 

Ironically, once China began to reform, Shum’s mother and father willingly moved back to Shanghai to make fortunes.  Shum’s father had a successful stint with TysonFoods in Hong Kong, and the company sent him to Shanghai to build its China market. Shum moved back to China as his company’s representative in Beijing in 1997.  He lived as an expat gaining business experience but without much success.

Shum’ business career took off when he met Whitney Duan (Duan Zong) in 2001. They became business partners, eventually married and later had a son.  The book opens with the fact that Whitney disappeared in 2017, and that Shum had not heard from her or received any news about her since.

Whitney, who was born in Shandong Province in 1966, started a company called Great Ocean.  As a Christian, she vowed never to get ahead by being corrupt.  However, she was adept at cultivating relationships with people at the highest levels of the Chinese leadership.  She became especially close to Auntie Zhang (Zhang Beili), who was the wife of Wen Jiabao.  Wen rose in the political ranks to become Premier from 2003 to 2012.

Through their tirelessly cultivated connections, Shum and Whitney were able to obtain valuable pieces of land and permission to build major projects, including the cargo area of the Beijing Airport and a large office-condo complex nearby.  Through their development company and access to other sure-bet investments, they were able to make hundreds of millions of dollars over the years.

Three aspects of Shum’s story are especially intriguing.

First, he provides a clear description of how connections, guanxi, work and offer rewards in China. In the Chinese context, guanxi — like networking in the West — does not mean corruption, but Shum argues that to do any business in China one must curry favor with the Communist Party.

Second, one can see how business changed as reforms advanced and the business environment evolved due to new regulations, infrastructure buildout, rising incomes, and interaction with global markets.

Third, Shum’s description of the changing environment matches nicely with a recent article explaining the man behind the big ideas of the top leadership in the CCP: Wang Huning (https://palladiummag.com/2021/10/11/the-triumph-and-terror-of-wang-huning/).

Shum describes the capitalist experiment as alive and well in the early 2000s, but he saw the backlash against liberalism picking up steam in the mid-2000s. In the early 2000s, state-owned enterprises were being listed on the New York Stock Exchange, private companies had some access to bank loans, the housing market had taken off, and the middle class was growing and spending. People like Wang Qishan, a reformer, had risen to power. Wang was vice premier in 2008 under Wen Jiabaon and a close friend of Whitney’s. 

By 2006, however, there were signs that capitalism was not going to work in China after all, which only accelerated with the global financial crisis in 2008. Changes that followed made it harder to do business, such as requiring private and joint venture firms to have Party committees, and regulations that gave state enterprises advantages over private firms. About that time civil society also began to feel increasing pressure to conform to Party demands.

Overall, Shum argues that despite the seemingly capitalist “experiment,” the leaders never intended to end the Communist system.  For example, listing state enterprises on stock exchanges was not a move to privatize them, but rather a way to strengthen these companies to compete globally with the private sector.  The shift to reassert Party control over the economy and society had begun.  The Party leadership ladder changed too — less moving up the local ranks (as these people were difficult to manage) and instead bringing in loyalists from other regions.

Shum suggests that he and his business friends did not want to overthrow the Party. They did want a more open system.  He and others willingly donated some of their vast wealth to support education and other social improvements. But Shum increasingly saw private companies and entrepreneurs being used by the Party, and that long-term, private investment was not a realistic option.  Get in, make money, and sell out as fast as you can — that became the goal.

China’s successful economic growth and the improvement of the state sector meant the Party did not need the private sector as it did before. Hence it was no longer essential to have lax Party control over business. Shum argues that repression and control are the foundations of the Party, and this has not changed with the modernization of China under reforms.  In 2012, Document No. 9 titled “Briefing on the Current Situation in the Ideological Realm” appeared. It warned of dangerous western values such as free speech.  The situation has continued to worsen since then.

Just before the publication of Red Roulette, Shum received a call from Whitney. As described in a segment of Australian 60 Minutes on September 26, 2021 (https://www.youtube.com/watch?v=bOtVMFPjNUA), she had been at least temporarily released from detention, where she had been cut off from all news of her family, China, and the world.  She asked Shum not to publish the book and said if he did, he and their son would be in serious danger.  She called a second time as well, but Shum chose to tell their story to help the world understand the challenges of the business environment in China and the political realities behind it. Not everyone deals with such extremes of corruption and power in China as described by Shum, especially if they are located outside of Beijing. But this story helps put into perspective some of the current policies in China today, such as the anti-corruption campaign and President Xi’s move toward reestablishing socialism as the Party’s most salient goal. The bottom line is that the Party, led by President Xi, is trying to ensure that it stays in power for the long haul.

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